Document:

Exhibit 10.2 Securities Purchase Agreement dated October 5, 2006

    
      
        

      

      
        

      

      Exhibit
        10.2 Security Purchase Agreement dated October 5, 2006

      
        
          

            

            SECURITIES
              PURCHASE AGREEMENT

             

            This
              Securities Purchase Agreement (this “Agreement”)
              is
              dated as of October 5, 2006, by and among Chembio Diagnostics, Inc.,
              a Nevada
              corporation (the “Company”),
              and
              the purchasers identified on the signature pages hereto (each, including
              its
              successors and assigns, a “Purchaser”
and
              collectively the “Purchasers”).

             

            WHEREAS,
              subject to the terms and conditions set forth in this Agreement and
              pursuant to
              Section 4(2) of the Securities Act of 1933, as amended (the “Securities
              Act”)
              and
              Rule 506 promulgated thereunder, the Company desires to issue and sell
              to each
              Purchaser, and each Purchaser, severally and not jointly, desires to
              purchase
              from the Company, securities of the Company as more fully described
              in this
              Agreement.

             

            NOW,
              THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
              Agreement,
              and for other good and valuable consideration the receipt and adequacy
              of which
              are hereby acknowledged, the Company and each Purchaser agree as
              follows:

             

             

            ARTICLE
              I

            DEFINITIONS

             

            1.1 Definitions.
              In
              addition to the terms defined elsewhere in this Agreement: (a) capitalized
              terms
              that are not otherwise defined herein have the meanings given to such
              terms in
              the Certificate of Designation (as defined herein), and (b) the following
              terms
              have the meanings indicated in this Section 1.1:

             

            “Action”
shall
              have the meaning ascribed to such term in Section 3.1(j).

             

            “Actual
              Minimum”
means,
              as of any date, the maximum aggregate number of shares of Common Stock
              then
              issued or potentially issuable in the future pursuant to the Transaction
              Documents, including any Underlying Shares issuable upon exercise or
              conversion
              in full of all Warrants and shares of Preferred Stock, ignoring any
              conversion
              or exercise limits set forth therein, and assuming that any previously
              unconverted shares of Preferred Stock are held until the third anniversary
              of
              the Closing Date and all dividends are paid in shares of Common Stock
              until such
              third anniversary.

             

            “Affiliate”
means
              any Person that, directly or indirectly through one or more intermediaries,
              controls or is controlled by or is under common control with a Person,
              as such
              terms are used in and construed under Rule 144 under the Securities
              Act. With
              respect to a Purchaser, any investment fund or managed account that
              is managed
              on a discretionary basis by the same investment manager as such Purchaser
              will
              be deemed to be an Affiliate of such Purchaser.

             

            “Certificate
              of Designations”
means
              the amended and restated Certificate of Designations for the Preferred
              Stock to
              be filed prior to the Closing by the Company with the Secretary of
              State of
              Nevada, in the form of Exhibit
              A
              attached
              hereto.

             

            “Closing”
means
              the closing of the purchase and sale of the Securities pursuant to
              Section
              2.1.

             

            “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 Purchasers’ obligations to pay the Subscription Amount and (ii) the
              Company’s obligations to deliver the Securities have been satisfied or
              waived.

             

            “Commission”
means
              the Securities and Exchange Commission.

             

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

             

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

             

            “Company
              Counsel”
means
              Patton Boggs LLP.

             

            “Conversion
              Price”
shall
              have the meaning ascribed to such term in the Certificate of
              Designation
              and
              which shall initially be $0.80, subject to adjustment therein.

             

            “Disclosure
              Schedules”
shall
              have the meaning ascribed to such term in Section 3.1.

             

            “Effective
              Date”
means
              the date that the initial Registration Statement filed by the Company
              pursuant
              to the Registration Rights Agreement is first declared effective by
              the
              Commission.

             

            “Escrow
              Agent”
shall
              mean Signature Bank, a New York State chartered bank and having an
              office at 261
              Madison Avenue, New York, New York 10016.

             

            “Escrow
              Deposit Agreement”
shall
              mean the Escrow Deposit Agreement, dated October __, 2006, by and among
              the
              Company, Midtown and the Escrow Agent pursuant to which the Purchasers
              shall
              deposit Subscription Amounts with the Escrow Agent to be held by the
              Escrow
              Agent in a non-interest bearing account to be applied to the transactions
              contemplated hereunder, substantially in the Form of Exhibit
              E
              attached
              hereto.

             

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

             

            “Exempt
              Issuance”
means
              the issuance of (a) shares of Common Stock or options to employees,
              officers,
              consultants, or directors of the Company 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 Company or a majority of the members of a
              committee of
              non-employee directors established for such purpose, (b) securities
              upon the
              exercise of or conversion of any Securities issued hereunder, convertible
              securities, options or warrants issued and outstanding on the date
              of 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 Company’s Board of Directors to be
              strategically advantageous to the business of the Company and in which
              the
              Company receives benefits in addition to the investment of funds, but
              shall not
              include a transaction in which the Company is issuing securities primarily
              for
              the purpose of raising capital or to an entity whose primary business
              is
              investing in securities, (d) shares issued as dividend payments on
              the Series A,
              Series B Preferred Stock and Preferred Stock and (e) for purposes of
              Sections
              4.13 and 4.14 only, up to an amount of Preferred Stock and warrants
              equal to the
              difference between $6,000,000 and the aggregate Subscription Amounts
              hereunder,
              on substantially the same terms and conditions hereunder, which investors
              shall
              execute definitive agreements for the purchase of such securities on
              or before
              the earlier of the Filing Date and the date that the initial Registration
              Statement is filed pursuant to the Registration Rights Agreement.

             

            “FWS”
means
              Feldman Weinstein & Smith LLP with offices located at 420 Lexington Avenue,
              Suite 2620, New York, New York 10170-0002.

             

            “GAAP”
shall
              have the meaning ascribed to such term in Section 3.1(h).

             

            “Intellectual
              Property Rights”
shall
              have the meaning ascribed to such term in Section 3.1(o).

             

            “Legend
              Removal Date”
shall
              have the meaning ascribed to such term in Section 4.1(c). 

             

            “Liens”
means
              a
              lien, charge, security interest, encumbrance, right of first refusal,
              preemptive
              right or other restriction.

             

            “Material
              Adverse Effect”
shall
              have the meaning assigned to such term in Section 3.1(b).

             

            “Material
              Permits”
shall
              have the meaning ascribed to such term in Section 3.1(m).

             

            “Maximum
              Rate”
shall
              have the meaning ascribed to such term in Section 5.17.

             

            “Midtown”
shall
              mean Midtown Partners & Co., LLC, a Florida limited liability
              company.

             

            “Participation
              Maximum”
shall
              have the meaning ascribed to such term in Section 4.13. 

             

            “Person”
means
              an individual or corporation, partnership, trust, incorporated or unincorporated
              association, joint venture, limited liability company, joint stock
              company,
              government (or an agency or subdivision thereof) or other entity of
              any
              kind.

             

            “Preferred
              Stock”
means
              the up to 205 shares of the Company’s 7% Series C Convertible Preferred Stock
              issued hereunder having the rights, preferences and privileges set
              forth in the
              Certificate of Designations, in the form of Exhibit
              A
              attached
              hereto.

             

            “Pre-Notice”
shall
              have the meaning ascribed to such term in Section 4.13. 

             

            “Proceeding”
means
              an action, claim, suit, investigation or proceeding (including, without
              limitation, an investigation or partial proceeding, such as a deposition),
              whether commenced or threatened.

             

            “Purchaser
              Party”
shall
              have the meaning ascribed to such term in Section 4.11.

             

            “Registration
              Rights Agreement”
means
              the Registration Rights Agreement, dated the date hereof, among the
              Company and
              the Purchasers, in the form of Exhibit
              B
              attached
              hereto.

             

            “Registration
              Statement”
means
              a
              registration statement meeting the requirements set forth in the Registration
              Rights Agreement and covering the resale of the Underlying Shares by
              each
              Purchaser as provided for in the Registration Rights Agreement.

             

            “Required
              Approvals”
shall
              have the meaning ascribed to such term in Section 3.1(e).

             

            “Rule
              144”
means
              Rule 144 promulgated by the Commission pursuant to the Securities Act,
              as such
              Rule may be amended from time to time, or any similar rule or regulation
              hereafter adopted by the Commission having substantially the same effect
              as such
              Rule.

             

            “SEC
              Reports”
shall
              have the meaning ascribed to such term in Section 3.1(h).

             

            “Securities”
means
              the Preferred Stock, the Warrants and the Underlying Shares.

             

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

             

            “Short
              Sales”
means
              all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange
              Act (but shall not be deemed to include the location and/or reservation
              of
              borrowable shares of Common Stock).

            

            “Stated
              Value”
means
              $50,000 per share of Preferred Stock.

             

            “Subscription
              Amount”
shall
              mean, as to each Purchaser, the aggregate amount to be paid for the
              Preferred
              Stock purchased hereunder as specified below such Purchaser’s name on the
              signature page of this Agreement and next to the heading “Subscription Amount”,
              in United States Dollars and in immediately available funds.

            

            “Subsequent
              Financing”
shall
              have the meaning ascribed to such term in Section 4.13.

             

            “Subsequent
              Financing Notice”
shall
              have the meaning ascribed to such term in Section 4.13. 

             

            “Subsidiary”
means
              any subsidiary of the Company as set forth on Schedule
              3.1(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 Nasdaq SmallCap Market, the
              American
              Stock Exchange, the New York Stock Exchange, the Nasdaq National Market
              or the
              OTC Bulletin Board.

             

            “Transaction
              Documents”
means
              this Agreement, the Escrow Agreement, the Certificate of Designation,
              the
              Warrants, the Registration Rights Agreement and any other documents
              or
              agreements executed in connection with the transactions contemplated
              hereunder.

             

            “Underlying
              Shares”
means
              the shares of Common Stock issued and issuable upon conversion of the
              Preferred
              Stock, upon exercise of the Warrants and issued and issuable in lieu
              of the cash
              payment of dividends on the Preferred Stock in accordance with the
              terms of the
              Certificate of Designation.

             

            “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 Company.

             

            “Warrants”
means
              collectively the Series C-1 Common Stock purchase warrants, in the
              form of
Exhibit C
              delivered to the Purchasers at the Closing in accordance with Section
              2.2(a)
              hereof, which Warrants shall be exercisable immediately and have a
              term of
              exercise equal to five years.

             

            “Warrant
              Shares”
means
              the shares of Common Stock issuable upon exercise of the Warrants.

             

            

             

             

            ARTICLE
              II

            PURCHASE
              AND SALE

             

            2.1 Closing.
              On the
              Closing Date, upon the terms and subject to the conditions set forth
              herein,
              substantially concurrent with the execution and delivery of this Agreement
              by
              the parties hereto, the Company agrees to sell, and each Purchaser
              agrees to
              purchase in the aggregate, severally and not jointly, up to $6,000,000
              of shares
              of Preferred Stock with an aggregate Stated Value equal to such Purchaser’s
              Subscription Amount and Warrants as determined by pursuant to Section
              2.2(a).
              The aggregate number of shares of Preferred Stock sold hereunder shall
              be up to
              205. Each Purchaser shall deliver to the Escrow Agent via wire transfer
              or a
              certified check of immediately available funds equal to their Subscription
              Amount and the Company shall deliver to each Purchaser their respective
              shares
              of Preferred Stock and Warrants as determined pursuant to Section 2.2(a)
              and the
              other items set forth in Section 2.2 issuable at the Closing. Upon
              satisfaction
              of the conditions set forth in Sections 2.2 and 2.3, the Closing shall
              occur at
              the offices of FWS, or such other location as the parties shall mutually
              agree.

             

            
              	 	
                      2.2

                    	
                      Deliveries.

                    

            

             

            a) On
              the
              Closing Date, the Company shall deliver or cause to be delivered to
              each
              Purchaser the following:

             

            
              	 	
                      (i)

                    	
                      this
                        Agreement duly executed by the
                        Company;

                    

            

             

            (ii) a
              legal
              opinion of Company Counsel, in the form of Exhibit
              D
              attached
              hereto;

             

            (iii) a
              certificate evidencing a number of shares of Preferred Stock equal
              to such
              Purchaser’s Subscription Amount divided by the Stated Value, registered in the
              name of such Purchaser;

             

            (iv) a
              Warrant
              registered in the name of such Purchaser to purchase up to a number
              of shares of
              Common Stock equal to 25% of such Purchaser’s Subscription Amount divided by
              $0.80, with an exercise price equal to $1.00, subject to adjustment
              therein;

             

            (v) the
              Escrow Deposit Agreement duly executed by the Company and Midtown;
              and

             

            (vi) the
              Registration Rights Agreement duly executed by the Company.

             

            b) On
              the
              Closing Date, each Purchaser shall deliver or cause to be delivered
              to the
              Company the following:

             

            
              	 	
                      (i)

                    	
                      this
                        Agreement duly executed by such
                        Purchaser;

                    

            

             

            (ii) such
              Purchaser’s Subscription Amount as to the Closing by wire transfer to the Escrow
              Agent; 

             

            (iii) if
              such
              Purchaser is an individual, an investor questionnaire provided to such
              Purchaser
              by the Midtown, and

             

            (iv) the
              Registration Rights Agreement duly executed by such Purchaser.

             

            
              	 	
                      2.3

                    	
                      Closing
                        Conditions.

                    

            

             

            (a) The
              obligations of the Company hereunder in connection with the Closing
              are subject
              to the following conditions being met; provided that the Company, in
              its sole
              discretion, may waive any and all such conditions:

             

            (i) the
              accuracy in all material respects when made and on the Closing Date
              of the
              representations and warranties of the Purchasers contained herein;

             

            (ii) all
              obligations, covenants and agreements of the Purchasers required to
              be performed
              at or prior to the Closing Date shall have been performed; and

             

            (iii) the
              delivery by the Purchasers of the items set forth in Section 2.2(b)
              of this
              Agreement.

             

            (b) The
              respective obligations of the Purchasers hereunder in connection with
              the
              Closing are subject to the following conditions being met; provided
              that each
              Purchaser, in its sole discretion, may waive any and all such
              conditions:

             

            (i) the
              accuracy in all material respects when made and on the Closing Date
              of the
              representations and warranties of the Company contained herein;

             

            (ii) all
              obligations, covenants and agreements of the Company required to be
              performed at
              or prior to the Closing Date shall have been performed;

             

            (iii) the
              delivery by the Company of the items set forth in Section 2.2(a) of
              this
              Agreement;

             

            (iv) there
              shall have been no Material Adverse Effect with respect to the Company
              since the
              date hereof; and

             

            (v) from
              the
              date hereof to the Closing Date, trading in the Common Stock shall
              not have been
              suspended by the Commission or the Company’s principal Trading Market (except
              for any suspension of trading of limited duration agreed to by the
              Company,
              which suspension shall be terminated prior to the Closing), and, at
              any time
              prior to the Closing Date, trading in securities generally as reported
              by
              Bloomberg L.P. shall not have been suspended or limited, or minimum
              prices shall
              not have been established on securities whose trades are reported by
              such
              service, or on any Trading Market, nor shall a banking moratorium have
              been
              declared either by the United States or New York State authorities
              nor shall
              there have occurred any material outbreak or escalation of hostilities
              or other
              national or international calamity of such magnitude in its effect
              on, or any
              material adverse change in, any financial market which, in each case,
              in the
              reasonable judgment of each Purchaser, makes it impracticable or inadvisable
              to
              purchase the Preferred Stock at the Closing.

             

             

            ARTICLE
              III

            REPRESENTATIONS
              AND WARRANTIES

             

            3.1Representations
              and Warranties of the Company.
              Except
              as set forth under the corresponding section of the disclosure schedules
              delivered to the Purchasers concurrently herewith (the “Disclosure
              Schedules”)
              which
              Disclosure Schedules shall be deemed a part hereof, the Company hereby
              makes the
              representations and warranties set forth below to each Purchaser.

             

            (a) Subsidiaries.
              All of
              the direct and indirect subsidiaries of the Company are set forth on
              Schedule
              3.1(a).
              Except
              as set forth on Schedule
              3.1(g)
              attached
              hereto, the Company owns, directly or indirectly, all of the capital
              stock or
              other equity interests of each Subsidiary free and clear of any Liens,
              and all
              the issued and outstanding shares of capital stock of each Subsidiary
              are
              validly issued and are fully paid, non-assessable and free of preemptive
              and
              similar rights to subscribe for or purchase securities. If the Company
              has no
              subsidiaries, then references in the Transaction Documents to the Subsidiaries
              will be disregarded.

             

            (b) Organization
              and Qualification.
              The
              Company and each of the Subsidiaries is an entity duly incorporated
              or otherwise
              organized, validly existing and in good standing under the laws of
              the
              jurisdiction of its incorporation or organization (as applicable),
              with the
              requisite power and authority to own and use its properties and assets
              and to
              carry on its business as currently conducted. Neither the Company nor
              any
              Subsidiary is in violation or default of any of the provisions of its
              respective
              certificate or articles of incorporation, bylaws or other organizational
              or
              charter documents. Each of the Company and the Subsidiaries is duly
              qualified to
              conduct business and is in good standing as a foreign corporation or
              other
              entity in each jurisdiction in which the nature of the business conducted
              or
              property owned by it makes such qualification necessary, except where
              the
              failure to be so qualified or in good standing, as the case may be,
              could not
              have or reasonably be expected to result in (i) a material adverse
              effect on the
              legality, validity or enforceability of any Transaction Document, (ii)
              a
              material adverse effect on the results of operations, assets, business,
              prospects or financial condition of the Company and the Subsidiaries,
              taken as a
              whole, or (iii) a material adverse effect on the Company’s ability to perform in
              any material respect on a timely basis its obligations under any Transaction
              Document (any of (i), (ii) or (iii), a “Material
              Adverse Effect”)
              and no
              Proceeding has been instituted in any such jurisdiction revoking, limiting
              or
              curtailing or seeking to revoke, limit or curtail such power and authority
              or
              qualification.

             

            (c) Authorization;
              Enforcement.
              The
              Company has the requisite corporate power and authority to enter into
              and to
              consummate the transactions contemplated by each of the Transaction
              Documents
              and otherwise to carry out its obligations hereunder and thereunder.
              The
              execution and delivery of each of the Transaction Documents by the
              Company and
              the consummation by it of the transactions contemplated hereby and
              thereby have
              been duly authorized by all necessary action on the part of the Company
              and no
              further action is required by the Company, its board of director or
              its
              stockholders in connection therewith other than in connection with
              the Required
              Approvals. Each Transaction Document has been (or upon delivery will
              have been)
              duly executed by the Company and, when delivered in accordance with
              the terms
              hereof and thereof, will constitute the valid and binding obligation
              of the
              Company enforceable against the Company in accordance with its terms
              except (i)
              as limited by applicable bankruptcy, insolvency, reorganization, moratorium
              and
              other laws of general application affecting enforcement of creditors’ rights
              generally, (ii) as limited by laws relating to the availability of
              specific
              performance, injunctive relief or other equitable remedies and (iii)
              insofar as
              indemnification and contribution provisions may be limited by applicable
              law.

             

            (d) No
              Conflicts.
              The
              execution, delivery and performance of the Transaction Documents by
              the Company
              and the consummation by the Company of the other transactions contemplated
              hereby and thereby do not and will not: (i) conflict with or violate
              any
              provision of the Company’s or any Subsidiary’s certificate or articles of
              incorporation, bylaws or other organizational or charter documents,
              or (ii)
              conflict with, or constitute a default (or an event that with notice
              or lapse of
              time or both would become a default) under, result in the creation
              of any Lien
              upon any of the properties or assets of the Company or any Subsidiary,
              or give
              to others any rights of termination, amendment, acceleration or cancellation
              (with or without notice, lapse of time or both) of, any agreement,
              credit
              facility, debt or other instrument (evidencing a Company or Subsidiary
              debt or
              otherwise) or other understanding to which the Company or any Subsidiary
              is a
              party or by which any property or asset of the Company or any Subsidiary
              is
              bound or affected, or (iii) subject to the Required Approvals, conflict
              with or
              result in a violation of any law, rule, regulation, order, judgment,
              injunction,
              decree or other restriction of any court or governmental authority
              to which the
              Company or a Subsidiary is subject (including federal and state securities
              laws
              and regulations), or by which any property or asset of the Company
              or a
              Subsidiary is bound or affected; except in the case of each of clauses
              (ii) and
              (iii), such as could not have or reasonably be expected to result in
              a Material
              Adverse Effect.

             

            (e) Filings,
              Consents and Approvals.
              Except
              as set forth on Schedule
              3.1(e),
              the
              Company is not required to obtain any consent, waiver, authorization
              or order
              of, give any notice to, or make any filing or registration with, any
              court or
              other federal, state, local or other governmental authority or other
              Person in
              connection with the execution, delivery and performance by the Company
              of the
              Transaction Documents, other than (i) filings required pursuant to
              Section 4.6,
              (ii) the filing with the Commission of the Registration Statement,
              (iii) the
              notice and/or application(s) to each applicable Trading Market for
              the issuance
              and sale of the Preferred Stock and Warrants and the listing of the
              Underlying
              Shares for trading thereon in the time and manner required thereby,
              and (iv) the
              filing of Form D with the Commission and such filings as are required
              to be made
              under applicable state securities laws (collectively, the “Required
              Approvals”).

             

            (f) Issuance
              of the Securities.
              The
              Securities are duly authorized and, when issued and paid for in accordance
              with
              the applicable Transaction Documents, will be duly and validly issued,
              fully
              paid and nonassessable, free and clear of all Liens imposed by the
              Company other
              than restrictions on transfer provided for in the Transaction Documents.
              The
              Underlying Shares, when issued in accordance with the terms of the
              Transaction
              Documents, will be validly issued, fully paid and nonassessable, free
              and clear
              of all Liens imposed by the Company. The Company has reserved from
              its duly
              authorized capital stock a number of shares of Common Stock for issuance
              of the
              Underlying Shares at least equal to the Actual Minimum on the date
              hereof.

             

            (g) Capitalization.
              The
              capitalization of the Company is as set forth on Schedule
              3.1(g).
              The
              Company has not issued any capital stock since its most
              recently filed periodic report under the Exchange Act,
              other
              than pursuant to the exercise of employee stock options under the Company’s
              stock option plans, the issuance of shares of Common Stock to employees
              pursuant
              to the Company’s employee stock purchase plan and pursuant to the conversion or
              exercise of outstanding Common Stock Equivalents. Except as set forth
              in the SEC
              Reports, no Person has any right of first refusal, preemptive right,
              right of
              participation, or any similar right to participate in the transactions
              contemplated by the Transaction Documents. Except as set forth in Schedule
              3.1(g)
              and
              except as a result of the purchase and sale of the Securities, there
              are no
              outstanding options, warrants, script rights to subscribe to, calls
              or
              commitments of any character whatsoever relating to, or securities,
              rights or
              obligations convertible into or exercisable or or exchangeable for,
              or giving
              any Person any right to subscribe for or acquire, any shares of Common
              Stock, or
              contracts, commitments, understandings or arrangements by which the
              Company or
              any Subsidiary is or may become bound to issue additional shares of
              Common Stock
              or Common Stock Equivalents. The issuance and sale of the Securities
              will not
              obligate the Company to issue shares of Common Stock or other securities
              to any
              Person (other than the Purchasers) and will not result in a right of
              any holder
              of Company securities to adjust the exercise, conversion, exchange
              or reset
              price under such securities. All of the outstanding shares of capital
              stock of
              the Company are validly issued, fully paid and nonassessable, have
              been issued
              in compliance with all federal and state securities laws, and none
              of such
              outstanding shares was issued in violation of any preemptive rights
              or similar
              rights to subscribe for or purchase securities. No further approval
              or
              authorization of any stockholder, the Board of Directors of the Company
              or
              others is required for the issuance and sale of the Securities. There
              are no
              stockholders agreements, voting agreements or other similar agreements
              with
              respect to the Company’s capital stock to which the Company is a party or, to
              the knowledge of the Company, between or among any of the Company’s
              stockholders.

             

            (h) SEC
              Reports; Financial Statements.
              The
              Company has filed all reports, schedules, forms, statements and other
              documents
              required to be filed by it under the Securities Act and the Exchange
              Act,
              including pursuant to Section 13(a) or 15(d) thereof, for the two years
              preceding the date hereof (or such shorter period as the Company was
              required by
              law to file such material) (the foregoing materials, including the
              Company’s
              Registration Statement on Form SB-2 filed in 2004 and the exhibits
              thereto and
              documents incorporated by reference therein, being collectively referred
              to
              herein as the “SEC
              Reports”)
              on a
              timely basis or has received a valid extension of such time of filing
              and has
              filed any such SEC Reports prior to the expiration of any such extension.
              As of
              their respective dates, the SEC Reports complied in all material respects
              with
              the requirements of the Securities Act and the Exchange Act and the
              rules and
              regulations of the Commission promulgated thereunder, and none of the
              SEC
              Reports, when filed, contained any untrue statement of a material fact
              or
              omitted to state a material fact required to be stated therein or necessary
              in
              order to make the statements therein, in light of the circumstances
              under which
              they were made, not misleading. The financial statements of the Company
              included
              in the SEC Reports comply in all material respects with applicable
              accounting
              requirements and the rules and regulations of the Commission with respect
              thereto as in effect at the time of filing. Such financial statements
              have been
              prepared in accordance with United States generally accepted accounting
              principles applied on a consistent basis during the periods involved
              (“GAAP”),
              except as may be otherwise specified in such financial statements or
              the notes
              thereto and except that unaudited financial statements may not contain
              all
              footnotes required by GAAP, and fairly present in all material respects
              the
              financial position of the Company and its consolidated subsidiaries
              as of and
              for the dates thereof and the results of operations and cash flows
              for the
              periods then ended, subject, in the case of unaudited statements, to
              normal,
              immaterial, year-end audit adjustments. 

             

            (i) Material
              Changes.
              Since
              the date of the latest audited financial statements included within
              the SEC
              Reports, except as specifically disclosed in the SEC Reports or as
              set forth on
              Schedule 3.1(i), (i) there has been no event, occurrence or development
              that has
              had or that could reasonably be expected to result in a Material Adverse
              Effect,
              (ii) the Company has not incurred any liabilities (contingent or otherwise)
              other than (A) trade payables and accrued expenses incurred in the
              ordinary
              course of business consistent with past practice and (B) liabilities
              not
              required to be reflected in the Company’s financial statements pursuant to GAAP
              or required to be disclosed in filings made with the Commission, (iii)
              the
              Company has not altered its method of accounting, (iv) the Company
              has not
              declared or made any dividend or distribution of cash or other property
              to its
              stockholders or purchased, redeemed or made any agreements to purchase
              or redeem
              any shares of its capital stock and (v) except as set forth in the
              SEC Reports,
              the Company has not issued any equity securities to any officer, director
              or
              Affiliate, except pursuant to existing Company stock option plans.
              The Company
              does not have pending before the Commission any request for confidential
              treatment of information. Except for the issuance of the Securities
              contemplated
              by this Agreement or as set forth on Schedule
              3.1(i),
              no
              event, liability or development has occurred or exists with respect
              to the
              Company or its Subsidiaries or their respective business, properties,
              operations
              or financial condition, that would be required to be disclosed by the
              Company
              under applicable securities laws at the time this representation is
              made that
              has not been publicly disclosed at least 1 Trading Day prior to the
              date that
              this representation is made.

             

            (j) Litigation.
              Except
              as set forth in the SEC Reports, there is no action, suit, inquiry,
              notice of
              violation, proceeding or investigation pending or, to the knowledge
              of the
              Company, threatened against or affecting the Company, any Subsidiary
              or any of
              their respective properties before or by any court, arbitrator, governmental
              or
              administrative agency or regulatory authority (federal, state, county,
              local or
              foreign) (collectively, an “Action”)
              which
              (i) adversely affects or challenges the legality, validity or enforceability
              of
              any of the Transaction Documents or the Securities or (ii) could, if
              there were
              an unfavorable decision, have or reasonably be expected to result in
              a Material
              Adverse Effect. Neither the Company nor any Subsidiary, nor any director
              or
              officer thereof, is or has been the subject of any Action involving
              a claim of
              violation of or liability under federal or state securities laws or
              a claim of
              breach of fiduciary duty. There has not been, and to the knowledge
              of the
              Company, there is not pending or contemplated, any investigation by
              the
              Commission involving the Company or any current or former director
              or officer of
              the Company. The Commission has not issued any stop order or other
              order
              suspending the effectiveness of any registration statement filed by
              the Company
              or any Subsidiary under the Exchange Act or the Securities Act.

             

            (k) Labor
              Relations.
              No
              material labor dispute exists or, to the knowledge of the Company,
              is imminent
              with respect to any of the employees of the Company which could reasonably
              be
              expected to result in a Material Adverse Effect.

             

            (l) Compliance.
              Neither
              the Company nor any Subsidiary (i) is in default under or in violation
              of (and
              no event has occurred that has not been waived that, with notice or
              lapse of
              time or both, would result in a default by the Company or any Subsidiary
              under),
              nor has the Company or any Subsidiary received notice of a claim that
              it is in
              default under or that it is in violation of, any indenture, loan or
              credit
              agreement or any other agreement or instrument to which it is a party
              or by
              which it or any of its properties is bound (whether or not such default
              or
              violation has been waived), (ii) is in violation of any order of any
              court,
              arbitrator or governmental body, or (iii) is or has been in violation
              of any
              statute, rule or regulation of any governmental authority, including
              without
              limitation all foreign, federal, state and local laws applicable to
              its business
              except in each case as could not have a Material Adverse Effect. 

             

            (m) Regulatory
              Permits.
              The
              Company and the Subsidiaries possess all certificates, authorizations
              and
              permits issued by the appropriate federal, state, local or foreign
              regulatory
              authorities necessary to conduct their respective businesses as described
              in the
              SEC Reports, except where the failure to possess such permits could
              not have or
              reasonably be expected to result in a Material Adverse Effect (“Material
              Permits”),
              and
              neither the Company nor any Subsidiary has received any notice of proceedings
              relating to the revocation or modification of any Material Permit.

             

            (n) Title
              to Assets.
              Except
              as set forth on Schedule 3.1(n), the Company and the Subsidiaries have
              good and
              marketable title in fee simple to all real property owned by them that
              is
              material to the business of the Company and the Subsidiaries and good
              and
              marketable title in all personal property owned by them that is material
              to the
              business of the Company and the Subsidiaries, in each case free and
              clear of all
              Liens, except for Liens as do not materially affect the value of such
              property
              and do not materially interfere with the use made and proposed to be
              made of
              such property by the Company and the Subsidiaries and Liens for the
              payment of
              federal, state or other taxes, the payment of which is neither delinquent
              nor
              subject to penalties. Any real property and facilities held under lease
              by the
              Company and the Subsidiaries are held by them under valid, subsisting
              and
              enforceable leases of which the Company and the Subsidiaries are in
              compliance.

             

            (o) Patents
              and Trademarks.
              Except
              as set forth in the SEC Reports, the Company and the Subsidiaries have,
              or have
              rights to use, all patents, patent applications, trademarks, trademark
              applications, service marks, trade names, copyrights, licenses and
              other similar
              rights that are necessary for use in connection with their respective
              businesses
              as described in the SEC Reports and which the failure to so have could
              have a
              Material Adverse Effect (collectively, the “Intellectual
              Property Rights”).
              Except as set forth in the SEC Reports, neither the Company nor any
              Subsidiary
              has received a written notice that the Intellectual Property Rights
              used by the
              Company or any Subsidiary violates or infringes upon the rights of
              any Person.
              To the knowledge of the Company, all such Intellectual Property Rights
              are
              enforceable and there is no existing infringement by another Person
              of any of
              the Intellectual Property Rights of others.

             

            (p) Insurance.
              The
              Company and the Subsidiaries are insured by insurers of recognized
              financial
              responsibility against such losses and risks and in such amounts as
              are prudent
              and customary in the businesses in which the Company and the Subsidiaries
              are
              engaged, including, but not limited to, directors and officers insurance
              coverage in an amount as set forth on Schedule
              3.1(p).
              To the
              best of Company’s knowledge, such insurance contracts and policies are accurate
              and complete. Neither the Company nor any Subsidiary has any reason
              to believe
              that it will not be able to renew its existing insurance coverage as
              and when
              such coverage expires or to obtain similar coverage from similar insurers
              as may
              be necessary to continue its business without a significant increase
              in
              cost.

             

            (q) Transactions
              With Affiliates and Employees.
              Except
              as set forth in the SEC Reports, none of the officers or directors
              of the
              Company and, to the knowledge of the Company, none of the employees
              of the
              Company is presently a party to any transaction with the Company or
              any
              Subsidiary (other than for services as employees, officers and directors),
              including any contract, agreement or other arrangement providing for
              the
              furnishing of services to or by, providing for rental of real or personal
              property to or from, or otherwise requiring payments to or from any
              officer,
              director or such employee or, to the knowledge of the Company, any
              entity in
              which any officer, director, or any such employee has a substantial
              interest or
              is an officer, director, trustee or partner, in each case in excess
              of $60,000
              other than (i) for payment of salary or consulting fees for services
              rendered,
              (ii) reimbursement for expenses incurred on behalf of the Company and
              (iii) for
              other employee benefits, including stock option agreements under any
              stock
              option plan of the Company.

             

            (r) Sarbanes-Oxley;
              Internal Accounting Controls.
              The
              Company is in material compliance with all provisions of the Sarbanes-Oxley
              Act
              of 2002 which are applicable to it as of the Closing Date.

             

            (s) Certain
              Fees.
              Other
              than the fees payable to Midtown or as contemplated as set forth on
Schedule
              3.1(s),
              no
              brokerage or finder’s fees or commissions are or will be payable by the Company
              to any broker, financial advisor or consultant, finder, placement agent,
              investment banker, bank or other Person with respect to the transactions
              contemplated by this Agreement. The Purchasers shall have no obligation
              with
              respect to any fees or with respect to any claims made by or on behalf
              of other
              Persons for fees of a type contemplated in this Section that may be
              due in
              connection with the transactions contemplated by this Agreement.

             

            (t) Private
              Placement.
              Assuming the accuracy of the Purchasers representations and warranties
              set forth
              in Section 3.2, no registration under the Securities Act is required
              for the
              offer and sale of the Securities by the Company to the Purchasers as
              contemplated hereby. The issuance and sale of the Securities hereunder
              does not
              contravene the rules and regulations of the Trading Market.

             

            (u) Investment
              Company.
              The
              Company is not, and is not an Affiliate of, and immediately after receipt
              of
              payment for the shares of Preferred Stock, will not be or be an Affiliate
              of, an
“investment company” within the meaning of the Investment Company Act of 1940,
              as amended. The Company shall conduct its business in a manner so that
              it will
              not become subject to the Investment Company Act.

             

            (v) Registration
              Rights.
              Except
              as set forth in the SEC Reports and on Schedule
              3.1(v),
              other
              than each of the Purchasers, no Person has any right to cause the Company
              to
              effect the registration under the Securities Act of any securities
              of the
              Company.

             

            (w)Listing
              and Maintenance Requirements.
              The
              Company’s Common Stock is registered pursuant to Section 12(g) of the Exchange
              Act, and the Company has taken no action designed to, or which to its
              knowledge
              is likely to have the effect of, terminating the registration of the
              Common
              Stock under the Exchange Act nor has the Company received any notification
              that
              the Commission is contemplating terminating such registration. The
              Company has
              not, in the 12 months preceding the date hereof, received notice from
              any
              Trading Market on which the Common Stock is or has been listed or quoted
              to the
              effect that the Company is not in compliance with the listing or maintenance
              requirements of such Trading Market. The Company is, and has no reason
              to
              believe that it will not in the foreseeable future continue to be,
              in compliance
              with all such listing and maintenance requirements.

             

            (x)Application
              of Takeover Protections.
              The
              Company and its Board of Directors have taken all necessary action,
              if any, in
              order to render inapplicable any control share acquisition, business
              combination, poison pill (including any distribution under a rights
              agreement)
              or other similar anti-takeover provision under the Company’s Certificate of
              Incorporation (or similar charter documents) or the laws of its state
              of
              incorporation that is or could become applicable to the Purchasers
              as a result
              of the Purchasers and the Company fulfilling their obligations or exercising
              their rights under the Transaction Documents, including without limitation
              the
              Company’s issuance of the Securities and the Purchasers’ ownership of the
              Securities.

             

            (y)Disclosure.
              The
              Company confirms that neither it nor any other Person acting on its
              behalf has
              provided any of the Purchasers or their agents or counsel with any
              information
              that constitutes or might constitute material, nonpublic information,
              other than
              the information that will be disclosed in the Current Report on Form
              8-K to be
              filed on or before October 5, 2006 pursuant to Section 4.6. The Company
              understands and confirms that the Purchasers will rely on the foregoing
              representations and covenants in effecting transactions in securities
              of the
              Company. All disclosure provided to the Purchasers regarding the Company,
              its
              business and the transactions contemplated hereby, including the Disclosure
              Schedules to this Agreement, furnished by or on behalf of the Company
              with
              respect to the representations and warranties made herein are true
              and correct
              with respect to such representations and warranties and do not contain
              any
              untrue statement of a material fact or omit to state any material fact
              necessary
              in order to make the statements made therein, in light of the circumstances
              under which they were made, not misleading. The Company acknowledges
              and agrees
              that no Purchaser makes or has made any representations or warranties
              with
              respect to the transactions contemplated hereby other than those specifically
              set forth in Section 3.2 hereof.

             

            (z)No
              Integrated Offering.
              Assuming
              the accuracy of the Purchasers’ representations and warranties set forth in
              Section 3.2 and except as set forth on Schedule
              3.1(z),
              neither
              the Company, nor any of its Affiliates, nor any Person acting on its
              or their
              behalf has, directly or indirectly, made any offers or sales of any
              security or
              solicited any offers to buy any security, under circumstances that
              would cause
              this offering of the Securities to be integrated with prior offerings
              by the
              Company for purposes of the Securities Act or any applicable shareholder
              approval provisions, including, without limitation, under the rules
              and
              regulations of any Trading Market on which any of the securities of
              the Company
              are listed or designated. 

             

            (aa)Solvency.
              The
              Company does not intend to incur debts beyond its ability to pay such
              debts as
              they mature (taking into account the timing and amounts of cash to
              be payable on
              or in respect of its debt). The Company has no knowledge of any facts
              or
              circumstances which lead it to believe that it will file for reorganization
              or
              liquidation under the bankruptcy or reorganization laws of any jurisdiction
              within one year from the Closing Date. The SEC Reports set forth as
              of the dates
              thereof all outstanding secured and unsecured Indebtedness of the Company
              or any
              Subsidiary, or for which the Company or any Subsidiary has commitments.
              For the
              purposes of this Agreement, “Indebtedness”
shall
              mean (a) any liabilities for borrowed money or amounts owed in excess
              of $50,000
              (other than trade accounts payable incurred in the ordinary course
              of business),
              (b) all guaranties, endorsements and other contingent obligations in
              respect of
              Indebtedness of others, whether or not the same are or should be reflected
              in
              the Company’s balance sheet (or the notes thereto), except guaranties by
              endorsement of negotiable instruments for deposit or collection or
              similar
              transactions in the ordinary course of business; and (c) the present
              value of
              any lease payments
              in excess of $50,000 due under leases required to be capitalized in
              accordance
              with GAAP. Except
              as
              set forth on Schedule
              3.1(aa),
              neither
              the Company nor any Subsidiary is in default with respect to any
              Indebtedness.

             

            (bb)Intentionally
              Omitted.

             

            (cc)Tax
              Status.
              Except
              for matters that would not, individually or in the aggregate, have
              or reasonably
              be expected to result in a Material Adverse Effect, the Company and
              each
              Subsidiary has filed all necessary federal, state and foreign income
              and
              franchise tax returns and has paid or accrued all taxes shown as due
              thereon,
              and the Company has no knowledge of a tax deficiency which has been
              asserted or
              threatened against the Company or any Subsidiary.

             

            (dd)No
              General Solicitation.
              Neither
              the Company nor any person acting on behalf of the Company has offered
              or sold
              any of the Securities by any form of general solicitation or general
              advertising. The Company has offered the Securities for sale only to
              the
              Purchasers and certain other “accredited investors” within the meaning of Rule
              501 under the Securities Act.

             

            (ee)Foreign
              Corrupt Practices.
              Neither
              the Company, nor to the knowledge of the Company, any agent or other
              person
              acting on behalf of the Company, has (i) directly or indirectly, used
              any funds
              for unlawful contributions, gifts, entertainment or other unlawful
              expenses
              related to foreign or domestic political activity, (ii) made any unlawful
              payment to foreign or domestic government officials or employees or
              to any
              foreign or domestic political parties or campaigns from corporate funds,
              (iii)
              failed to disclose fully any contribution made by the Company (or made
              by any
              person acting on its behalf of which the Company is aware) which is
              in violation
              of law, or (iv) violated in any material respect any provision of the
              Foreign
              Corrupt Practices Act of 1977, as amended

             

            (ff)Accountants.
              The
              Company’s accountants are set forth on Schedule
              3.1(ff)
              of the
              Disclosure Schedule. To the Company’s knowledge, such accountants, who the
              Company expects will express their opinion with respect to the financial
              statements to be included in the Company’s Annual Report on Form 10-KSB for the
              year ending December 31, 2004 are a registered public accounting firm
              as
              required by the Securities Act.

             

            (gg)Seniority.
              Except
              as set forth on Schedule
              3.1(gg),
              as of
              the Closing Date, no indebtedness or other equity of the Company is
              senior to
              the Preferred Stock in right of payment, whether with respect to interest
              or
              upon liquidation or dissolution, or otherwise, other than indebtedness
              secured
              by purchase money security interests (which is senior only as to underlying
              assets covered thereby) and capital lease obligations (which is senior
              only as
              to the property covered thereby).

             

            (hh)No
              Disagreements with Accountants and Lawyers.
              There
              are no disagreements of any kind presently existing, or reasonably
              anticipated
              by the Company to arise, between the accountants and lawyers formerly
              or
              presently employed by the Company and, except as set forth on Schedule
              3.1(hh),
              the
              Company is current with respect to any fees owed to its accountants
              and
              lawyers.

             

            (ii)Acknowledgment
              Regarding Purchasers’ Purchase of Securities.
              The
              Company acknowledges and agrees that each of the Purchasers is acting
              solely in
              the capacity of an arm’s length purchaser with respect to the Transaction
              Documents and the transactions contemplated hereby. The Company further
              acknowledges that no Purchaser is acting as a financial advisor or
              fiduciary of
              the Company (or in any similar capacity) with respect to this Agreement
              and the
              transactions contemplated hereby and any advice given by any Purchaser
              or any of
              their respective representatives or agents in connection with this
              Agreement and
              the transactions contemplated hereby is merely incidental to the Purchasers’
purchase of the Securities. The Company further represents to each
              Purchaser
              that the Company’s decision to enter into this Agreement has been based solely
              on the independent evaluation of the transactions contemplated hereby
              by the
              Company and its representatives.

             

            (jj)Acknowledgement
              Regarding Purchasers’ Trading Activity.
              Anything in this Agreement or elsewhere herein to the contrary notwithstanding
              (except for Section 4.16 hereof), it is understood and agreed by the
              Company (i)
              that none of the Purchasers have been asked to agree, nor has any Purchaser
              agreed, to desist from purchasing or selling, long and/or short, securities
              of
              the Company, or “derivative” securities based on securities issued by the
              Company or to hold the Securities for any specified term; (ii) that
              past or
              future open market or other transactions by any Purchaser, including
              Short
              Sales, and specifically including, without limitation, Short Sales
              or
“derivative” transactions, before or after the closing of this or future private
              placement transactions, may negatively impact the market price of the
              Company’s
              publicly-traded securities; (iii) that any Purchaser, and counter parties
              in
“derivative” transactions to which any such Purchaser is a party, directly or
              indirectly, presently may have a “short” position in the Common Stock, and (iv)
              that each Purchaser shall not be deemed to have any affiliation with
              or control
              over any arm’s length counter-party in any “derivative”
transaction.

             

            (kk)Regulation
              M Compliance. 
              The Company has not, and to its knowledge no one acting on its behalf
              has, (i)
              taken, directly or indirectly, any action designed to cause or to result
              in the
              stabilization or manipulation of the price of any security of the Company
              to
              facilitate the sale or resale of any of the Securities, (ii) sold,
              bid for,
              purchased, or paid any compensation for soliciting purchases of, any
              of the
              securities of the Company, or (iii) paid or agreed to pay to any Person
              any
              compensation for soliciting another to purchase any other securities
              of the
              Company, other than, in the case of clauses (ii) and (iii), compensation
              paid to
              the Company’s placement agent in connection with the placement of the
              Securities.

             

            3.2 Representations
              and Warranties of the Purchasers

             

            .
              Each
              Purchaser hereby, for itself and for no other Purchaser, represents
              and warrants
              as of the date hereof and as of the Closing Date to the Company as
              follows:

             

            (a) Organization;
              Authority.
              If such
              Purchaser is an entity, such Purchaser is an entity duly organized,
              validly
              existing and in good standing under the laws of the jurisdiction of
              its
              organization with full right, corporate or partnership power and authority
              to
              enter into and to consummate the transactions contemplated by the Transaction
              Documents and otherwise to carry out its obligations hereunder and
              thereunder.
              The execution, delivery and performance by such Purchaser of the transactions
              contemplated by this Agreement have been duly authorized by all necessary
              corporate or similar action on the part of such Purchaser. Each Transaction
              Document to which it is a party has been duly executed by such Purchaser,
              and
              when delivered by such Purchaser in accordance with the terms hereof,
              will
              constitute the valid and legally binding obligation of such Purchaser,
              enforceable against it in accordance with its terms, except (i) as
              limited by
              general equitable principles and applicable bankruptcy, insolvency,
              reorganization, moratorium and other laws of general application affecting
              enforcement of creditors’ rights generally, (ii) as limited by laws relating to
              the availability of specific performance, injunctive relief or other
              equitable
              remedies and (iii) insofar as indemnification and contribution provisions
              may be
              limited by applicable law.

             

            (b) Own
              Account.
              Such
              Purchaser understands that the Securities are “restricted securities” and have
              not been registered under the Securities Act or any applicable state
              securities
              law and is acquiring the Securities as principal for its own account
              and not
              with a view to or for distributing or reselling such Securities or
              any part
              thereof in violation of the Securities Act or any applicable state
              securities
              law, has no present intention of distributing any of such Securities
              in
              violation of the Securities Act or any applicable state securities
              law and has
              no direct or indirect arrangement or understandings with any other
              persons to
              distribute or regarding the distribution of such Securities (this representation
              and warranty not limiting such Purchaser’s right to sell the Securities pursuant
              to the Registration Statement or otherwise in compliance with applicable
              federal
              and state securities laws) in violation of the Securities Act or any
              applicable
              state securities law. If such Purchaser is not an individual, such
              Purchaser is
              acquiring the Securities hereunder in the ordinary course of its business.
              Each
              Purchaser who is an individual must also fill out an individual investor
              questionnaire provided by Midtown and deliver such questionnaire at
              the
              Closing.

             

            (c) Purchaser
              Status.
              At the
              time such Purchaser was offered the Securities, it was, and at the
              date hereof
              it is, and on each date on which it exercises any Warrants, it will
              be either:
              (i) an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3),
              (a)(7) or (a)(8) under the Securities Act or (ii) a “qualified institutional
              buyer” as defined in Rule 144A(a) under the Securities Act. Such Purchaser
              is
              not required to be registered as a broker-dealer under Section 15 of
              the
              Exchange Act.

             

            (d) Experience
              of Such Purchaser.
              Such
              Purchaser, either alone or together with its representatives, has such
              knowledge, sophistication and experience in business and financial
              matters so as
              to be capable of evaluating the merits and risks of the prospective
              investment
              in the Securities, and has so evaluated the merits and risks of such
              investment.
              Such Purchaser is able to bear the economic risk of an investment in
              the
              Securities and, at the present time, is able to afford a complete loss
              of such
              investment.

             

            (e) General
              Solicitation.
              Such
              Purchaser is not purchasing the Securities as a result of any advertisement,
              article, notice or other communication regarding the Securities published
              in any
              newspaper, magazine or similar media or broadcast over television or
              radio or
              presented at any seminar or any other general solicitation or general
              advertisement

             

            (f) Short
              Sales and Confidentiality Prior To The Date Hereof.
              Other
              than the transaction contemplated hereunder, such Purchaser has not
              directly or
              indirectly, nor has any Person acting on behalf of or pursuant to any
              understanding with such Purchaser, executed any disposition, including
              Short
              Sales, in the securities of the Company during the period commencing
              from
              the time
              that such Purchaser first received a term sheet (written or oral) from
              the
              Company or any other Person setting forth the material terms of the
              transactions
              contemplated hereunder until the date hereof (“Discussion
              Time”).
              Notwithstanding the foregoing, in the case of a Purchaser that is a
              multi-managed investment vehicle whereby separate portfolio managers
              manage
              separate portions of such Purchaser's assets and the portfolio managers
              have no
              direct knowledge of the investment decisions made by the portfolio
              managers
              managing other portions of such Purchaser's assets, the representation
              set forth
              above shall only apply with respect to the portion of assets managed
              by the
              portfolio manager that made the investment decision to purchase the
              Securities
              covered by this Agreement. Other than to other Persons party to this
              Agreement,
              such Purchaser has maintained the confidentiality of all disclosures
              made to it
              in connection with this transaction (including the existence and terms
              of this
              transaction).

             

            (g) Company
              Information.
              Each
              Purchaser has had an opportunity to discuss the Company’s business, management
              and financial affairs with management of the Company. The undersigned
              has also
              had the opportunity to ask questions of, and receive answers from,
              management of
              the Company regarding the terms and conditions of this investment.
              Each
              Purchaser has consulted its own legal and tax counsel regarding the
              terms and
              conditions of this investment.

             

            The
              Company acknowledges and agrees that each Purchaser does not make or
              has not
              made any representations or warranties with respect to the transactions
              contemplated hereby other than those specifically set forth in this
              Section
              3.2.

             

             

            ARTICLE
              IV

            OTHER
              AGREEMENTS OF THE PARTIES

             

            4.1 Transfer
              Restrictions.

             

            (a) The
              Securities may only be disposed of in compliance with state and federal
              securities laws. In connection with any transfer of Securities other
              than
              pursuant to an effective registration statement or Rule 144, to the
              Company or
              to an Affiliate of a Purchaser or in connection with a pledge as contemplated
              in
              Section 4.1(b), the Company may require the transferor thereof to provide
              to the
              Company an opinion of counsel selected by the transferor and reasonably
              acceptable to the Company, the form and substance of which opinion
              shall be
              reasonably satisfactory to the Company, to the effect that such transfer
              does
              not require registration of such transferred Securities under the Securities
              Act. As a condition of transfer, any such transferee shall agree in
              writing to
              be bound by the terms of this Agreement and shall have the rights of
              a Purchaser
              under this Agreement and the Registration Rights Agreement.

             

            (b) The
              Purchasers agree to the imprinting, so long as is required by this
              Section
              4.1(b), of a legend on any of the Securities in the following form:
              

             

            [NEITHER]
              THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
              [EXERCISABLE] [CONVERTIBLE]] HAVE BEEN REGISTERED WITH THE SECURITIES
              AND
              EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE
              UPON
              AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
              AMENDED (THE
“SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
              TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
              PURSUANT TO
              AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
              REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
              APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF
              COUNSEL TO
              THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
              ACCEPTABLE TO THE COMPANY. THESE SECURITIES AND THE SECURITIES ISSUABLE
              UPON
              EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA
              FIDE
              MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

             

            The
              Company acknowledges and agrees that a Purchaser may from time to time
              pledge
              pursuant to a bona fide margin agreement with a registered broker-dealer
              or
              grant a security interest in some or all of the Securities to a financial
              institution that is an “accredited investor” as defined in Rule 501(a) under the
              Securities Act and who agrees to be bound by the provisions of this
              Agreement
              and the Registration Rights Agreement and, if required under the terms
              of such
              arrangement, such Purchaser may transfer pledged or secured Securities
              to the
              pledgees or secured parties. Such a pledge or transfer would not be
              subject to
              approval of the Company and no legal opinion of legal counsel of the
              pledgee,
              secured party or pledgor shall be required in connection therewith.
              Further, no
              notice shall be required of such pledge. At the appropriate Purchaser’s expense,
              the Company will execute and deliver such reasonable documentation
              as a pledgee
              or secured party of Securities may reasonably request in connection
              with a
              pledge or transfer of the Securities, including, if the Securities
              are subject
              to registration pursuant to the Registration Rights Agreement, the
              preparation
              and filing of any required prospectus supplement under Rule 424(b)(3)
              under the
              Securities Act or other applicable provision of the Securities Act
              to
              appropriately amend the list of Selling Stockholders thereunder.

             

            (c) Certificates
              evidencing the Underlying Shares shall not contain any legend (including
              the
              legend set forth in Section 4.1(b) hereof): (i) while a registration
              statement
              (including the Registration Statement) covering the resale of such
              security is
              effective under the Securities Act, or (ii) following any sale of such
              Underlying Shares pursuant to Rule 144, or (iii) if such Underlying
              Shares are
              eligible for sale under Rule 144(k), or (iv) if such legend is not
              required
              under applicable requirements of the Securities Act (including judicial
              interpretations and pronouncements issued by the staff of the Commission).
              The
              Company shall cause its counsel to issue a legal opinion to the Company’s
              transfer agent promptly after the Effective Date if required by the
              Company’s
              transfer agent to effect the removal of the legend hereunder. If all
              or any
              shares of Preferred Stock or any portion of a Warrant is converted
              or exercised
              (as applicable) at a time when there is an effective registration statement
              to
              cover the resale of the Underlying Shares, or if such Underlying Shares
              may be
              sold under Rule 144(k) or if such legend is not otherwise required
              under
              applicable requirements of the Securities Act (including judicial
              interpretations thereof) then such Underlying Shares shall be issued
              free of all
              legends. The Company agrees that following the Effective Date or at
              such time as
              such legend is no longer required under this Section 4.1(c), it will,
              no later
              than three Trading Days following the delivery by a Purchaser to the
              Company or
              the Company’s transfer agent of a certificate representing Underlying Shares, as
              applicable, issued with a restrictive legend (such third Trading Day,
              the
“Legend
              Removal Date”),
              deliver or cause to be delivered to such Purchaser a certificate representing
              such shares that is free from all restrictive and other legends. The
              Company may
              not make any notation on its records or give instructions to any transfer
              agent
              of the Company that enlarge the restrictions on transfer set forth
              in this
              Section. Certificates for Underlying Shares subject to legend removal
              hereunder
              shall be transmitted by the transfer agent of the Company to the Purchasers
              by
              crediting the account of the Purchaser’s prime broker with the Depository Trust
              Company System, if the Company’s transfer agent is a participant in such system.
              The Company agrees to cause its transfer agent to be a participant
              in such
              system (or engage a new transfer agent which is a participant in the
              system)
              within 60 calendar days of the Closing Date.

            

            (d) In
              addition to such Purchaser’s other available remedies, the Company shall pay to
              a Purchaser, in cash, as partial liquidated damages and not as a penalty,
              for
              each $1,000 of Underlying Shares (based on the VWAP of the Common Stock
              on the
              date such Securities are submitted to the Company’s transfer agent) delivered
              for removal of the restrictive legend and subject to Section 4.1(c),
              $10 per
              Trading Day (increasing to $20 per Trading Day 5 Trading Days after
              such damages
              have begun to accrue) for each Trading Day after the Legend Removal
              Date until
              such certificate is delivered without a legend. Nothing herein shall
              limit such
              Purchaser’s right to pursue actual damages for the Company’s failure to deliver
              certificates representing any Securities as required by the Transaction
              Documents, and such Purchaser shall have the right to pursue all remedies
              available to it at law or in equity including, without limitation,
              a decree of
              specific performance and/or injunctive relief.

            

            (e) 
              Each
              Purchaser, severally and not jointly with the other Purchasers, agrees
              that the
              removal of the restrictive legend from certificates representing Securities
              as
              set forth in this Section 4.1 is predicated upon the Company’s reliance that the
              Purchaser will sell any Securities pursuant to either the registration
              requirements of the Securities Act, including any applicable prospectus
              delivery
              requirements, or an exemption therefrom, and that if Securities are
              sold
              pursuant to a Registration Statement, they will be sold in compliance
              with the
              plan of distribution set forth therein.

            

            4.2Acknowledgment
              of Dilution.
              The
              Company acknowledges that the issuance of the Securities may result
              in dilution
              of the outstanding shares of Common Stock, which dilution may be substantial
              under certain market conditions. The Company further acknowledges that
              its
              obligations under the Transaction Documents, including without limitation
              its
              obligation to issue the Underlying Shares pursuant to the Transaction
              Documents,
              are unconditional and absolute and not subject to any right of set
              off,
              counterclaim, delay or reduction, regardless of the effect of any such
              dilution
              or any claim the Company may have against any Purchaser and regardless
              of the
              dilutive effect that such issuance may have on the ownership of the
              other
              stockholders of the Company.

             

            4.3Furnishing
              of Information.
              As long
              as any Purchaser owns Securities, the Company covenants to timely file
              (or
              obtain extensions in respect thereof and file within the applicable
              grace
              period) all reports required to be filed by the Company after the date
              hereof
              pursuant to the Exchange Act. As long as any Purchaser owns Securities
              that are
              not eligible to be sold under Rule 144(k), if the Company is not required
              to
              file reports pursuant to the Exchange Act, it will prepare and furnish
              to the
              Purchasers and make publicly available in accordance with Rule 144(c)
              such
              information as is required for the Purchasers to sell the Securities
              under Rule
              144. The Company further covenants that it will take such further action
              as any
              holder of Securities may reasonably request, all to the extent required
              from
              time to time to enable such Person to sell such Securities without
              registration
              under the Securities Act within the limitation of the exemptions provided
              by
              Rule 144.

             

            4.4Integration.
              The
              Company shall not sell, offer for sale or solicit offers to buy or
              otherwise
              negotiate in respect of any security (as defined in Section 2 of the
              Securities
              Act) that would be integrated with the offer or sale of the Securities
              in a
              manner that would require the registration under the Securities Act
              of the sale
              of the Securities to the Purchasers or that would be integrated with
              the offer
              or sale of the Securities for purposes of the rules and regulations
              of any
              Trading Market.

             

            4.5Conversion
              and Exercise Procedures.
              The
              form of Notice of Exercise included in the Warrants and the Notice
              of Conversion
              included in the Certificate of Designation set forth the totality of
              the
              procedures required of the Purchasers in order to exercise the Warrants
              or
              convert the Preferred Stock. No additional legal opinion or other information
              or
              instructions shall be required of the Purchasers to exercise their
              Warrants or
              convert their Preferred Stock. The Company shall honor exercises of
              the Warrants
              and conversions of the Preferred Stock and shall deliver Underlying
              Shares in
              accordance with the terms, conditions and time periods set forth in
              the
              Transaction Documents.

             

            4.6Securities
              Laws Disclosure;
              Publicity.
              The
              Company shall, by 5:00 p.m. New York City time on October 5, 2006,
              issue a
              Current Report on Form 8-K, disclosing the material terms of the transactions
              contemplated hereby and including the Transaction Documents as exhibits
              thereto
              and also disclosing any other material non-public information of which
              the
              Company has informed the Purchasers. The Company and each Purchaser
              shall
              consult with each other in issuing any other press releases with respect
              to the
              transactions contemplated hereby, and neither the Company nor any Purchaser
              shall issue any such press release or otherwise make any such public
              statement
              without the prior consent of the Company, with respect to any press
              release of
              any Purchaser, or without the prior consent of each Purchaser, with
              respect to
              any press release of the Company, which consent shall not unreasonably
              be
              withheld or delayed, except if such disclosure is required by law,
              in which case
              the disclosing party shall promptly provide the other party with prior
              notice of
              such public statement or communication. Notwithstanding the foregoing,
              the
              Company shall not publicly disclose the name of any Purchaser, or include
              the
              name of any Purchaser in any filing with the Commission or any regulatory
              agency
              or Trading Market, without the prior written consent of such Purchaser,
              except
              (i) as required by federal securities law in connection with (A) any
              registration statement contemplated by the Registration Rights Agreement
              and (B)
              the filing of final Transaction Documents (including signature pages
              thereto)
              with the Commission and (ii) to the extent such disclosure is required
              by law or
              Trading Market regulations, in which case the Company shall provide
              the
              Purchasers with prior notice of such disclosure permitted under this
              subclause
              (ii).

             

            4.7 Shareholder
              Rights Plan.
              No
              claim will be made or enforced by the Company or, to the knowledge
              of the
              Company, any other Person that any Purchaser is an “Acquiring Person” under any
              shareholder rights plan or similar plan or arrangement in effect or
              hereafter
              adopted by the Company, or that any Purchaser could be deemed to trigger
              the
              provisions of any such plan or arrangement, by virtue of receiving
              Securities
              under the Transaction Documents or under any other agreement between
              the Company
              and the Purchasers. The Company shall conduct its business in a manner
              so that
              it will not become subject to the Investment Company Act.

             

            4.8
               Non-Public
              Information.
              The
              Company covenants and agrees that from and after the date hereof, neither
              it nor
              any other Person acting on its behalf will provide any Purchaser or
              its agents
              or counsel with any information that the Company believes constitutes
              material
              non-public information, unless prior thereto such Purchaser shall have
              executed
              a written agreement regarding the confidentiality and use of such information.
              The Company understands and confirms that each Purchaser shall be relying
              on the
              foregoing representations in effecting transactions in securities of
              the
              Company.

             

            4.9 Use
              of
              Proceeds.
              Except
              as set forth on Schedule
              4.9
              attached
              hereto, the Company shall use the net proceeds from the sale of the
              Securities
              hereunder for general corporate purposes including growth and capital
              initiatives such as FDA clinical trials, marketing, travel, investor
              relations,
              public relations and capital expenditures for additional manufacturing
              equipment
              and, except as set forth on Schedule
              4.9
              attached
              hereto, not for the satisfaction of any portion of the Company’s debt (other
              than payment of trade payables in the ordinary course of the Company’s business
              and prior practices), to redeem Common Stock or Common Stock Equivalents
              or to
              settle any outstanding litigation.

             

            4.10 Reimbursement.
              If any
              Purchaser becomes involved in any capacity in any Proceeding by or
              against any
              Person who is a stockholder of the Company (except as a result of sales,
              pledges, margin sales and similar transactions by such Purchaser to
              or with any
              current stockholder), solely as a result of such Purchaser’s acquisition of the
              Securities under this Agreement, the Company will reimburse such Purchaser
              for
              its reasonable legal and other expenses (including the cost of any
              investigation
              preparation and travel in connection therewith) incurred in connection
              therewith, as such expenses are incurred. The reimbursement obligations
              of the
              Company under this paragraph shall be in addition to any liability
              which the
              Company may otherwise have, shall extend upon the same terms and conditions
              to
              any Affiliates of the Purchasers who are actually named in such action,
              proceeding or investigation, and partners, directors, agents, employees
              and
              controlling persons (if any), as the case may be, of the Purchasers
              and any such
              Affiliate, and shall be binding upon and inure to the benefit of any
              successors,
              assigns, heirs and personal representatives of the Company, the Purchasers
              and
              any such Affiliate and any such Person. The Company also agrees that
              neither the
              Purchasers nor any such Affiliates, partners, directors, agents, employees
              or
              controlling persons shall have any liability to the Company or any
              Person
              asserting claims on behalf of or in right of the Company solely as
              a result of
              acquiring the Securities under this Agreement.

             

            4.11 Indemnification
              of Purchasers.
              Subject
              to the provisions of this Section 4.11, the Company will indemnify
              and hold each
              Purchaser and its directors, officers, shareholders, members, partners,
              employees and agents (and any other Persons with a functionally equivalent
              role
              of a Person holding such titles notwithstanding a lack of such title
              or any
              other title), each Person who controls such Purchaser (within the meaning
              of
              Section 15 of the Securities Act and Section 20 of the Exchange Act),
              and the
              directors, officers, shareholders, agents, members, partners or employees
              (and
              any other Persons with a functionally equivalent role of a Person holding
              such
              titles notwithstanding a lack of such title or any other title) of
              such
              controlling person (each, a “Purchaser
              Party”)
              harmless from any and all losses, liabilities, obligations, claims,
              contingencies, damages, costs and expenses, including all judgments,
              amounts
              paid in settlements, court costs and reasonable attorneys’ fees and costs of
              investigation that any such Purchaser Party may suffer or incur as
              a result of
              or relating to (a) any breach of any of the representations, warranties,
              covenants or agreements made by the Company in this Agreement or in
              the other
              Transaction Documents or (b) any action instituted against a Purchaser,
              or any
              of them or their respective Affiliates, by any stockholder of the Company
              who is
              not an Affiliate of such Purchaser, with respect to any of the transactions
              contemplated by the Transaction Documents (unless such action is based
              upon a
              breach of such Purchaser’s representations, warranties or covenants under the
              Transaction Documents or any agreements or understandings such Purchaser
              may
              have with any such stockholder or any violations by the Purchaser of
              state or
              federal securities laws or any conduct by such Purchaser which constitutes
              fraud, gross negligence, willful misconduct or malfeasance). If any
              action shall
              be brought against any Purchaser Party in respect of which indemnity
              may be
              sought pursuant to this Agreement, such Purchaser Party shall promptly
              notify
              the Company in writing, and the Company shall have the right to assume
              the
              defense thereof with counsel of its own choosing. Any Purchaser Party
              shall have
              the right to employ separate counsel in any such action and participate
              in the
              defense thereof, but the fees and expenses of such counsel shall be
              at the
              expense of such Purchaser Party except to the extent that (i) the employment
              thereof has been specifically authorized by the Company in writing,
              (ii) the
              Company has failed after a reasonable period of time to assume such
              defense and
              to employ counsel or (iii) in such action there is, in the reasonable
              opinion of
              such separate counsel, a material conflict on any material issue between
              the
              position of the Company and the position of such Purchaser Party. The
              Company
              will not be liable to any Purchaser Party under this Agreement (i)
              for any
              settlement by a Purchaser Party effected without the Company’s prior written
              consent, which shall not be unreasonably withheld or delayed; or (ii)
              to the
              extent, but only to the extent that a loss, claim, damage or liability
              is
              attributable to any Purchaser Party’s breach of any of the representations,
              warranties, covenants or agreements made by the Purchasers in this
              Agreement or
              in the other Transaction Documents.

             

            4.12 Reservation
              and Listing of Securities.

             

            (a) The
              Company shall maintain a reserve from its duly authorized shares of
              Common Stock
              for issuance pursuant to the Transaction Documents in such amount as
              may be
              required to fulfill its obligations in full under the Transaction Documents.
              

             

            (b) If,
              on
              any date, the number of authorized but unissued (and otherwise unreserved)
              shares of Common Stock is less than 130% of (i) the Actual Minimum on such
              date, minus (ii) the number of shares of Common Stock previously issued
              pursuant
              to the Transaction Documents, then the Board of Directors of the Company
              shall
              use commercially reasonable efforts to amend the Company’s certificate or
              articles of incorporation to increase the number of authorized but
              unissued
              shares of Common Stock to at least the Actual Minimum at such time
              (minus the
              number of shares of Common Stock previously issued pursuant to the
              Transaction
              Documents), as soon as possible and in any event not later than the
              75th
              day
              after such date; provided that the Company will not be required at
              any time to
              authorize a number of shares of Common Stock greater than the maximum
              remaining
              number of shares of Common Stock that could possibly be issued after
              such time
              pursuant to the Transaction Documents.

             

            (c) The
              Company shall, if applicable: (i) in the time and manner required by
              the Trading
              Market, prepare and file with such Trading Market an additional shares
              listing
              application covering a number of shares of Common Stock at least equal
              to the
              Actual Minimum on the date of such application, (ii) take all steps
              necessary to
              cause such shares of Common Stock to be approved for listing on the
              Trading
              Market as soon as possible thereafter, (iii) provide to the Purchasers
              evidence
              of such listing, and (iv) maintain the listing of such Common Stock
              on any date
              at least equal to the Actual Minimum on such date on such Trading Market
              or
              another Trading Market. 

             

            4.13 Participation
              in Future Financing.
              

             

            (a) From
              the
              date hereof until the one year anniversary of the Closing Date, upon
              any
              financing by the Company or any of its Subsidiaries of Common Stock
              or Common
              Stock Equivalents (a “Subsequent
              Financing”),
              subject to the first rights of the Company’s Secured Debentures, dated June 29,
              2006, and the holders of Preferred Stock purchased prior to the date
              hereof, to
              the extent such holders may have such rights, each Purchaser shall
              have the
              right, subject to Section 4.13(e), to participate in up to 100% of
              the
              Subsequent Financing (the “Participation
              Maximum”).

             

            (b) At
              least
              7 Trading Days prior to the closing of the Subsequent Financing, the
              Company
              shall deliver to each Purchaser a written notice of its intention to
              effect a
              Subsequent Financing (“Pre-Notice”),
              which
              Pre-Notice shall ask such Purchaser if it wants to review the details
              of such
              financing (such additional notice, a “Subsequent
              Financing Notice”).
              Upon
              the request of a Purchaser, and only upon a request by such Purchaser,
              for a
              Subsequent Financing Notice, the Company shall promptly, but no later
              than 1
              Trading Day after such request, deliver a Subsequent Financing Notice
              to such
              Purchaser. The Subsequent Financing Notice shall describe in reasonable
              detail
              the proposed terms of such Subsequent Financing, the amount of proceeds
              intended
              to be raised thereunder, the Person with whom such Subsequent Financing
              is
              proposed to be effected, and attached to which shall be a term sheet
              or similar
              document relating thereto. 

            

            (c) Any
              Purchaser desiring to participate in such Subsequent Financing must
              provide
              written notice to the Company by not later than 5:30 p.m. (New York
              City time)
              on the 7th
              Trading
              Day after such Purchaser has received the Pre-Notice that the Purchaser
              is
              willing to participate in the Subsequent Financing, the amount of the
              Purchaser’s participation, and that the Purchaser has such funds ready, willing,
              and available for investment on the terms set forth in the Subsequent
              Financing
              Notice. If the Company receives no notice from a Purchaser as of such
              7th
              Trading
              Day, such Purchaser shall be deemed to have notified the Company that
              it does
              not elect to participate. 

            

            (d) If
              by
              5:30 p.m. (New York City time) on the 7th
              Trading
              Day after all of the requesting Purchasers have received the Pre-Notice,
              notifications by the Purchasers of their willingness to participate
              in the
              Subsequent Financing (or to cause their designees to participate) is,
              in the
              aggregate, less than the total amount of the Subsequent Financing,
              then the
              Company may effect the remaining portion of such Subsequent Financing
              on the
              terms and to the Persons set forth in the Subsequent Financing Notice.
              

            

            (e) If
              by
              5:30 p.m. (New York City time) on the 7th
              Trading
              Day after all of the Purchasers have received the Pre-Notice, the Company
              receives responses to a Subsequent Financing Notice from Purchasers
              seeking to
              purchase more than the aggregate amount of the Participation Maximum,
              each such
              Purchaser shall have the right to purchase the greater of (a) their
              Pro Rata
              Portion (as defined below) of the Participation Maximum and (b) the
              difference
              between the Participation Maximum and the aggregate amount of participation
              by
              all other Purchasers. “Pro
              Rata Portion”
is
              the
              ratio of (x) the Subscription Amount of Securities purchased on the
              Closing Date
              by a Purchaser participating under this Section 4.13 and (y) the sum
              of the
              aggregate Subscription Amounts of Securities purchased on the Closing
              Date by
              all Purchasers participating under this Section 4.13.

            

            (f) The
              Company must provide the Purchasers with a second Subsequent Financing
              Notice,
              and the Purchasers will again have the right of participation set forth
              above in
              this Section 4.13, if the Subsequent Financing subject to the initial
              Subsequent
              Financing Notice is not consummated for any reason on the terms set
              forth in
              such Subsequent Financing Notice within 60 Trading Days after the date
              of the
              initial Subsequent Financing Notice.

            

            (g) Notwithstanding
              the foregoing, this Section 4.13 shall not apply in respect of an Exempt
              Issuance or (ii) an underwritten public offering of Common Stock. 

            

            4.14 Subsequent
              Equity Sales.
              

            

            (a) From
              the
              date hereof until 90 days after the Effective Date, neither the Company
              nor any
              Subsidiary shall issue shares of Common Stock or Common Stock Equivalents;
              provided, however, the 90 day period set forth in this Section 4.14
              shall be
              extended for the number of Trading Days during such period in which
              (i) trading
              in the Common Stock is suspended by any Trading Market, or (ii) following
              the
              Effective Date, the Registration Statement is not effective or the
              prospectus
              included in the Registration Statement may not be used by the Purchasers
              for the
              resale of the Underlying Shares. 

            

            (b) From
              the
              date hereof until such time as no Purchaser holds any of the Securities,
              the
              Company shall be prohibited from effecting or entering into an agreement
              to
              effect any Subsequent Financing involving a “Variable
              Rate Transaction”
or
              an
“MFN
              Transaction”
(each
              as defined below). The term “Variable
              Rate Transaction”
shall
              mean a transaction in which the Company issues or sells (i) any debt
              or equity
              securities that are convertible into, exchangeable or exercisable for,
              or
              include the right to receive additional shares of Common Stock either
              (A) at a
              conversion, exercise or exchange rate or other price that is based
              upon and/or
              varies with the trading prices of or quotations for the shares of Common
              Stock
              at any time after the initial issuance of such debt or equity securities,
              or (B)
              with a conversion, exercise or exchange price that is subject to being
              reset at
              some future date after the initial issuance of such debt or equity
              security or
              upon the occurrence of specified or contingent events directly or indirectly
              related to the business of the Company or the market for the Common
              Stock or
              (ii) enters into any agreement, including, but not limited to, an equity
              line of
              credit, whereby the Company may sell securities at a future determined
              price.
              The term “MFN
              Transaction”
shall
              mean a transaction in which the Company issues or sells any securities
              in a
              capital raising transaction or series of related transactions which
              grants to an
              investor the right to receive additional shares based upon future transactions
              of the Company on terms more favorable than those granted to such investor
              in
              such offering. 

            

            (c) Notwithstanding
              the foregoing, this Section 4.14 shall not apply in respect of an Exempt
              Issuance, except that no Variable Rate Transaction or MFN Transaction
              shall be
              an Exempt Issuance.

            

            4.15 Equal
              Treatment of Purchasers.
              No
              consideration shall be offered or paid to any Person to amend or consent
              to a
              waiver or modification of any provision of any of the Transaction Documents
              unless the same consideration is also offered to all of the parties
              to the
              Transaction Documents. For clarification purposes, this provision constitutes
              a
              separate right granted to each Purchaser by the Company and negotiated
              separately by each Purchaser, and is intended to treat for the Company
              the
              Purchasers as a class and shall not in any way be construed as the
              Purchasers
              acting in concert or as a group with respect to the purchase, disposition
              or
              voting of Securities or otherwise.

             

            4.16 Short
              Sales and Confidentiality After The Date Hereof.
              Each
              Purchaser severally and not jointly with the other Purchasers covenants
              that
              neither it nor any Affiliate acting on its behalf or pursuant to any
              understanding with it will execute any Short Sales during the period
              commencing
              at the Discussion Time and ending at the time that the transactions
              contemplated
              by this Agreement are first publicly announced as described in Section
              4.6. Each
              Purchaser, severally and not jointly with the other Purchasers, covenants
              that
              until such time as the transactions contemplated by this Agreement
              are publicly
              disclosed by the Company as described in Section 4.6, such Purchaser
              will
              maintain the confidentiality of all disclosures made to it in connection
              with
              this transaction (including the existence and terms of this transaction).
              Each
              Purchaser understands and acknowledges, severally and not jointly with
              any other
              Purchaser, that the Commission currently takes the position that coverage
              of
              short sales of shares of the Common Stock “against the box” prior to the
              Effective Date of the Registration Statement with the Securities is
              a violation
              of Section 5 of the Securities Act, as set forth in Item 65, Section
              A, of the
              Manual of Publicly Available Telephone Interpretations, dated July
              1997,
              compiled by the Office of Chief Counsel, Division of Corporation Finance.
              Notwithstanding
              the foregoing, no Purchaser makes any representation, warranty or covenant
              hereby that it will not engage in Short Sales in the securities of
              the Company
              after the time that the transactions contemplated by this Agreement
              are first
              publicly announced as described in Section 4.6. Notwithstanding
              the foregoing, in the case of a Purchaser that is a multi-managed investment
              vehicle whereby separate portfolio managers manage separate portions
              of such
              Purchaser's assets and the portfolio managers have no direct knowledge
              of the
              investment decisions made by the portfolio managers managing other
              portions of
              such Purchaser's assets, the covenant set forth above shall only apply
              with
              respect to the portion of assets managed by the portfolio manager that
              made the
              investment decision to purchase the Securities covered by this
              Agreement.

             

            4.17 Most
              Favored Nation Provision.
              From
              the date hereof until the earlier of (a) such time when the Preferred
              Stock is
              no longer outstanding or (b) the 18 month anniversary of the Closing
              Date, any
              time the Company effects a Subsequent Financing, each Purchaser may
              elect, in
              its sole discretion, to exchange all or some of any of its Preferred
              Stock then
              held by it for any securities (including all components if in a unit
              with other
              securities) issued in a Subsequent Financing (such exchange to be made
              at the
              same time as, and pursuant to, the closing of such Subsequent Financing)
              based
              on the outstanding Stated Value of the Preferred Stock plus accrued
              but unpaid
              dividends and other fees owed and the effective price at which such
              securities
              were sold in such Subsequent Placement. The Company covenants and agrees
              to
              provide each Purchaser with at least five (5) days written notice of
              the terms
              of such Subsequent Financing.

             

            4.18 Form
              D; Blue Sky Filings.
              The
              Company agrees to timely file a Form D with respect to the Securities
              as
              required under Regulation D and to provide a copy thereof, promptly
              upon request
              of any Purchaser. The Company shall take such action as the Company
              shall
              reasonably determine is necessary in order to obtain an exemption for,
              or to
              qualify the Securities for, sale to the Purchasers at the Closing under
              applicable securities or “Blue Sky” laws of the states of the United States, and
              shall provide evidence of such actions promptly upon request of any
              Purchaser.

             

            4.18 Capital
              Change.
              Until
              the one year anniversary of the Effective Date, the Company shall not
              undertake
              a reverse or forward stock split or reclassification of the Common
              Stock without
              the prior written consent of the Purchasers holding a majority in interest
              of
              the shares of Preferred Stock.

             

             

            ARTICLE
              V

            MISCELLANEOUS

             

            5.1Termination.
              This
              Agreement may be terminated by any Purchaser, by written notice to
              the other
              parties, if the Closing has not been consummated on or before October
              13, 2006;
              provided that such date may be extended by the mutual, written consent
              of the
              Company and Midtown but in no event beyond October 31, 2006; provided
              that no
              such termination will affect the right of any party to sue for any
              breach by the
              other party (or parties).

             

            5.2Fees
              and Expenses.
              At the
              Closing, the Company has agreed to reimburse Midtown the non-accountable
              sum of
              $10,000 for its legal fees and expenses. The Company shall deliver,
              prior to the
              Closing, a completed and executed copy of the Closing Statement, attached
              hereto
              as Annex
              A.
              Except
              as expressly set forth in the Transaction Documents to the contrary,
              each party
              shall pay the fees and expenses of its advisers, counsel, accountants
              and other
              experts, if any, and all other expenses incurred by such party incident
              to the
              negotiation, preparation, execution, delivery and performance of this
              Agreement.
              The Company shall pay all transfer agent fees, stamp taxes and other
              taxes and
              duties levied in connection with the delivery of any Securities.

             

            5.3Entire
              Agreement.
              The
              Transaction Documents, together with the exhibits and schedules thereto,
              contain
              the entire understanding of the parties with respect to the subject
              matter
              hereof and supersede all prior agreements and understandings, oral
              or written,
              with respect to such matters, which the parties acknowledge have been
              merged
              into such documents, exhibits and schedules.

             

            5.4 Notices.
              Any and
              all notices or other communications or deliveries required or permitted
              to be
              provided hereunder shall be in writing and shall be deemed given and
              effective
              on the earliest of (a) the date of transmission, if such notice or
              communication
              is delivered via facsimile at the facsimile number set forth on the
              signature
              pages attached hereto prior to 5:30 p.m. (New York City time) on a
              Trading Day,
              (b) the next Trading Day after the date of transmission, if such notice
              or
              communication is delivered via facsimile at the facsimile number set
              forth on
              the signature pages attached hereto on a day that is not a Trading
              Day or later
              than 5:30 p.m. (New York City time) on any Trading Day, (c) the second
              Trading
              Day following the date of mailing, if sent by U.S. nationally recognized
              overnight courier service, or (d) upon actual receipt by the party
              to whom such
              notice is required to be given. The address for such notices and communications
              shall be as set forth on the signature pages attached hereto.

             

            5.5 Amendments;
              Waivers.
              No
              provision of this Agreement may be waived, modified, supplemented or
              amended
              except in a written instrument signed, in the case of an amendment,
              by the
              Company and Purchasers then holding at least 51% of the Securities
              then
              outstanding or, in the case of a waiver, by the party against whom
              enforcement
              of any such waiver is sought. No waiver of any default with respect
              to any
              provision, condition or requirement of this Agreement shall be deemed
              to be a
              continuing waiver in the future or a waiver of any subsequent default
              or a
              waiver of any other provision, condition or requirement hereof, nor
              shall any
              delay or omission of any party to exercise any right hereunder in any
              manner
              impair the exercise of any such right.

             

            5.6 Headings
              The
              headings herein are for convenience only, do not constitute a part
              of this
              Agreement and shall not be deemed to limit or affect any of the provisions
              hereof. The language used in this Agreement will be deemed to be the
              language
              chosen by the parties to express their mutual intent, and no rules
              of strict
              construction will be applied against any party.

             

            5.7 Successors
              and Assigns

             

            .
              This
              Agreement shall be binding upon and inure to the benefit of the parties
              and
              their successors and permitted assigns. The Company may not assign
              this
              Agreement or any rights or obligations hereunder without the prior
              written
              consent of each Purchaser. Any Purchaser may assign any or all of its
              rights
              under this Agreement to any Person to whom such Purchaser assigns or
              transfers
              any Securities, provided such transferee agrees in writing to be bound,
              with
              respect to the transferred Securities, by the provisions hereof that
              apply to
              the “Purchasers”.

             

            5.8 No
              Third-Party Beneficiaries.
              This
              Agreement is intended for the benefit of the parties hereto and their
              respective
              successors and permitted assigns and is not for the benefit of, nor
              may any
              provision hereof be enforced by, any other Person, except as otherwise
              set forth
              in Section 4.11.

             

            5.9 Governing
              Law.
              All
              questions concerning the construction, validity, enforcement and interpretation
              of the Transaction Documents 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 this Agreement and any other Transaction
              Documents
              (whether brought against a party hereto or its respective affiliates,
              directors,
              officers, shareholders, employees or agents) shall be commenced exclusively
              in
              the state and federal courts sitting in the City of New York. Each
              party hereby
              irrevocably submits to the exclusive jurisdiction of the state and
              federal
              courts sitting in the City of New York, borough of Manhattan 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,
              that
              such suit, action or proceeding is 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 Agreement 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. The parties hereby waive all rights to a trial by
              jury. If
              either party shall commence an action or proceeding to enforce any
              provisions of
              the Transaction Documents, 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.

             

            5.10 Survival.
              The
              representations and warranties contained herein shall survive the Closing
              and
              the delivery, exercise and/or conversion of the Securities, as applicable
              for
              the applicable statue of limitations.

             

            5.11 Execution.
              This
              Agreement may be executed in two or more counterparts, all of which
              when taken
              together shall be considered one and the same agreement and shall become
              effective when counterparts have been signed by each party and delivered
              to the
              other party, it being understood that both parties need not sign the
              same
              counterpart. In the event that any signature is delivered by facsimile
              transmission or by e-mail delivery of a “.pdf” format data file, such signature
              shall create a valid and binding obligation of the party executing
              (or on whose
              behalf such signature is executed) with the same force and effect as
              if such
              facsimile or “.pdf” signature page were an original thereof.

             

            5.12 Severability.
              If any
              term, provision, covenant or restriction of this Agreement is held
              by a court of
              competent jurisdiction to be invalid, illegal, void or unenforceable,
              the
              remainder of the terms, provisions, covenants and restrictions set
              forth herein
              shall remain in full force and effect and shall in no way be affected,
              impaired
              or invalidated, and the parties hereto shall use their commercially
              reasonable
              efforts to find and employ an alternative means to achieve the same or
              substantially the same result as that contemplated by such term, provision,
              covenant or restriction. It is hereby stipulated and declared to be
              the
              intention of the parties that they would have executed the remaining
              terms,
              provisions, covenants and restrictions without including any of such
              that may be
              hereafter declared invalid, illegal, void or unenforceable.

             

            5.13 Rescission
              and Withdrawal Right.
              Notwithstanding anything to the contrary contained in (and without
              limiting any
              similar provisions of) any of the other Transaction Documents, whenever
              any
              Purchaser exercises a right, election, demand or option under a Transaction
              Document and the Company does not timely perform its related obligations
              within
              the periods therein provided, then such Purchaser may rescind or withdraw,
              in
              its sole discretion from time to time upon written notice to the Company,
              any
              relevant notice, demand or election in whole or in part without prejudice
              to its
              future actions and rights; provided,
              however,
              in the
              case of a rescission of a conversion of the Preferred Stock or exercise
              of a
              Warrant, the Purchaser shall be required to return any shares of Common
              Stock
              subject to any such rescinded conversion or exercise notice.

             

            5.14 Replacement
              of Securities.
              If any
              certificate or instrument evidencing any Securities is mutilated, lost,
              stolen
              or destroyed, the Company shall issue or cause to be issued in exchange
              and
              substitution for and upon cancellation thereof, or in lieu of and substitution
              therefor, a new certificate or instrument, but only upon receipt of
              evidence
              reasonably satisfactory to the Company of such loss, theft or destruction
              and
              customary and reasonable indemnity, if requested. The applicants for
              a new
              certificate or instrument under such circumstances shall also pay any
              reasonable
              third-party costs associated with the issuance of such replacement
              Securities.

             

            5.15 Remedies.
              In
              addition to being entitled to exercise all rights provided herein or
              granted by
              law, including recovery of damages, each of the Purchasers and the
              Company will
              be entitled to specific performance under the Transaction Documents.
              The parties
              agree that monetary damages may not be adequate compensation for any
              loss
              incurred by reason of any breach of obligations described in the foregoing
              sentence and hereby agrees to waive in any action for specific performance
              of
              any such obligation the defense that a remedy at law would be
              adequate.

             

            5.16 Payment
              Set Aside.
              To the
              extent that the Company makes a payment or payments to any Purchaser
              pursuant to
              any Transaction Document or a Purchaser enforces or exercises its rights
              thereunder, and such payment or payments or the proceeds of such enforcement
              or
              exercise or any part thereof are subsequently invalidated, declared
              to be
              fraudulent or preferential, set aside, recovered from, disgorged by
              or are
              required to be refunded, repaid or otherwise restored to the Company,
              a trustee,
              receiver or any other person under any law (including, without limitation,
              any
              bankruptcy law, state or federal law, common law or equitable cause
              of action),
              then to the extent of any such restoration the obligation or part thereof
              originally intended to be satisfied shall be revived and continued
              in full force
              and effect as if such payment had not been made or such enforcement
              or setoff
              had not occurred.

             

            5.17Usury.
              To the
              extent it may lawfully do so, the Company hereby agrees not to insist
              upon or
              plead or in any manner whatsoever claim, and will resist any and all
              efforts to
              be compelled to take the benefit or advantage of, usury laws wherever
              enacted,
              now or at any time hereafter in force, in connection with any claim,
              action or
              proceeding that may be brought by any Purchaser in order to enforce
              any right or
              remedy under any Transaction Document. Notwithstanding any provision
              to the
              contrary contained in any Transaction Document, it is expressly agreed
              and
              provided that the total liability of the Company under the Transaction
              Documents
              for payments in the nature of interest shall not exceed the maximum
              lawful rate
              authorized under applicable law (the “Maximum
              Rate”),
              and,
              without limiting the foregoing, in no event shall any rate of interest
              or
              default interest, or both of them, when aggregated with any other sums
              in the
              nature of interest that the Company may be obligated to pay under the
              Transaction Documents exceed such Maximum Rate. It is agreed that if
              the maximum
              contract rate of interest allowed by law and applicable to the Transaction
              Documents is increased or decreased by statute or any official governmental
              action subsequent to the date hereof, the new maximum contract rate
              of interest
              allowed by law will be the Maximum Rate applicable to the Transaction
              Documents
              from the effective date forward, unless such application is precluded
              by
              applicable law. If under any circumstances whatsoever, interest in
              excess of the
              Maximum Rate is paid by the Company to any Purchaser with respect to
              indebtedness evidenced by the Transaction Documents, such excess shall
              be
              applied by such Purchaser to the unpaid principal balance of any such
              indebtedness or be refunded to the Company, the manner of handling
              such excess
              to be at such Purchaser’s election.

             

            5.18 Independent
              Nature of Purchasers’ Obligations and Rights.
              The
              obligations of each Purchaser under any Transaction Document are several
              and not
              joint with the obligations of any other Purchaser, and no Purchaser
              shall be
              responsible in any way for the performance of the obligations of any
              other
              Purchaser under any Transaction Document. Nothing contained herein
              or in any
              Transaction Document, and no action taken by any Purchaser pursuant
              thereto,
              shall be deemed to constitute the Purchasers as a partnership, an association,
              a
              joint venture or any other kind of entity, or create a presumption
              that the
              Purchasers are in any way acting in concert or as a group with respect
              to such
              obligations or the transactions contemplated by the Transaction Documents.
              Each
              Purchaser shall be entitled to independently protect and enforce its
              rights,
              including without limitation, the rights arising out of this Agreement
              or out of
              the other Transaction Documents, and it shall not be necessary for
              any other
              Purchaser to be joined as an additional party in any proceeding for
              such
              purpose. Each Purchaser has been represented by its own separate legal
              counsel
              in their review and negotiation of the Transaction Documents. For reasons
              of
              administrative convenience only, Purchasers and their respective counsel
              have
              chosen to communicate with the Company through FWS. The Company has
              elected to
              provide all Purchasers with the same terms and Transaction Documents
              for the
              convenience of the Company and not because it was required or requested
              to do so
              by the Purchasers.

             

            5.19 Liquidated
              Damages.
              The
              Company’s obligations to pay any partial liquidated damages or other amounts
              owing under the Transaction Documents is a continuing obligation of
              the Company
              and shall not terminate until all unpaid partial liquidated damages
              and other
              amounts have been paid notwithstanding the fact that the instrument
              or security
              pursuant to which such partial liquidated damages or other amounts
              are due and
              payable shall have been canceled.

             

            5.20 Construction.
              The
              parties agree that each of them and/or their respective counsel has
              reviewed and
              had an opportunity to revise the Transaction Documents and, therefore,
              the
              normal rule of construction to the effect that any ambiguities are
              to be
              resolved against the drafting party shall not be employed in the interpretation
              of the Transaction Documents or any amendments hereto.

             

            

             

            [SIGNATURE
              PAGE FOLLOWS]

            
              
                
                

              

              
                
                

                
                  

                

              

              
                
                

              

            

            IN
              WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
              Agreement to be duly executed by their respective authorized signatories
              as of
              the date first indicated above.

             

            

            
              	
                      CHEMBIO
                        DIAGNOSTICS, INC.

                    	
                      Address
                        for Notice:

                    
	
                      By:__________________________________________

                      Name:

                      Title:

                    	 
	
                      With
                        a copy to (which shall not constitute notice):

                       

                       

                    	 

            

            

            

            

            

            [REMAINDER
              OF PAGE INTENTIONALLY LEFT BLANK

            SIGNATURE
              PAGE FOR PURCHASER FOLLOWS]

             

            
              
                
                

              

              
                
                

                
                  

                

              

              
                
                

              

            

            [PURCHASER
              SIGNATURE PAGES TO CEMI SECURITIES PURCHASE AGREEMENT]

            

            IN
              WITNESS WHEREOF, the undersigned have caused this Securities Purchase
              Agreement
              to be duly executed by their respective authorized signatories as of
              the date
              first indicated above.

             

            Name
              of
              Purchaser: __________________________

            Signature
              of Authorized Signatory of Purchaser:
              __________________________

            Name
              of
              Authorized Signatory: _________________________

            Title
              of
              Authorized Signatory: __________________________

            Email
              Address of Purchaser:________________________________

            Address
              for Notice of Purchaser:

            

            

            

            

            Address
              for Delivery of Securities for Purchaser (if not same as above):

            

            

            

            

            

            Subscription
              Amount:

            Shares
              of
              Preferred Stock:

            Warrant
              Shares:

            EIN
              Number: [PROVIDE
              THIS UNDER SEPARATE COVER]

            

            [SIGNATURE
              PAGES CONTINUE]

             

            
              
                
                

              

              
                
                

                
                  

                

              

              
                
                

              

            

            Annex
              A 

            

            CLOSING
              STATEMENT

            

            Pursuant
              to the attached Securities Purchase Agreement, dated as of the date
              hereto, the
              purchasers shall purchase up to $6,000,000 of Preferred Stock and Warrants
              from
              Chembio Diagnostics, Inc., a Nevada corporation (the “Company”).
              All
              funds will be wired into a trust account maintained by the Escrow Agent,
              counsel
              to the Company. All funds will be disbursed in accordance with this
              Closing
              Statement. 

            

            Disbursement
              Date: October
              __, 2006

             

            

            
              	
                      I.
                        PURCHASE
                        PRICE

                    	 
	
                      Gross
                        Proceeds to be Received in Trust

                    	
                      $

                    
	 	 
	
                      II. DISBURSEMENTS

                    	 
	 	
                      $

                    
	
                       

                    	
                      $

                    
	 	
                      $

                    
	 	
                      $

                    
	 	
                      $

                    
	 	 
	
                      Total
                        Amount Disbursed:

                    	
                      $

                    
	 	 
	 	 
	 	 
	
                      WIRE
                        INSTRUCTIONS:

                       

                    	 
	
                      To:
                        _____________________________________

                       

                       

                       

                       

                    	 
	
                      To:
                        _____________________________________Exhibit 10.3 Letter of Amendment

    
      
        

      

      
        

      

      Exhibit
        10.3 Letter of Amendment

      
        
          

            

            CHEMBIO
              DIAGNOSTICS, INC. 

            

            

            

            October
              5, 2006

            

            Crestview
              Capital Master, LLC

            95
              Revere
              Drive, Suite A

            Northbrook,
              IL 60062

            

            Inverness
              Medical Innovations, Inc. 

            51
              Sawyer
              Road

            Waltham,
              MA 02453

            

            Dear
              Gentlemen and Ladies:

             
              

            On
              September 29, 2006, each of you and Chembio Diagnostics, Inc. (the
              "Company") entered into a Securities Purchase Agreement, Registration
              Rights Agreement and a Common Stock Purchase Warrant with your purchase of
              the Company's Series C Convertible Preferred Stock (the "Preferred Stock")
              and Warrants to purchase the Company's Common Stock.  The Company
              filed a Certificate of Designation with the Nevada Secretary of State
              regarding
              the Preferred Stock on that date.  

            

            As
              contemplated in the Securities Purchase Agreement, the Company has
              made
              arrangements to sell additional shares of the Preferred Stock and Warrants
              to
              other investors with an aggregate Subscription Amount not in excess of the
              $10,000,000 maximum set forth therein (which amount includes your investments
              and conversions by certain holders of the Secured Debentures).   As
              you are aware, in order to attract additional investors, the Company
              agreed to
              lower the conversion price of the Preferred Stock from $.85 to $.80
              and to issue
              Warrants to purchase 62,500 shares of Common Stock to Midtown Partners
              as part
              of its fee for soliciting investors with an aggregate Subscription
              Amount of
              $1,000,000.  The purpose of this letter agreement is to confirm our
              understandings and agreements regarding the conversion price and other
              matters
              relating to your investment, as follows:

             

            1. The
              conversion price of the Preferred Stock issued to you will be changed to
              $.80.

             

            2. The
              Company will file an Amended and Restated Certificate of Designation
              with the
              Nevada Secretary of State reflecting the new conversion price of
              $.80.

             

            3. The
              Warrant exercise price of $1.00 per share will not be changed as a
              result of the
              change in the conversion price of the Preferred Stock or the issuance
              of the
              Warrants to Midtown Partners. 

             

            4. The
              total
              number of Warrants issued to each of you will be increased to
              625,000.

            

            5. The
              62,500 shares underlying the Warrants issued to Midtown Partners will
              be
              included in the registration statement to be filed by the Company as
              provided in
              the Registration Rights Agreement.

            

            6. The deadline
              for the Company's filing of a Report on Form 8-K on October 5, 2006 as
              provided in Section 4.6 of the Securities Purchase Agreement is
              changed from 8:30 am to 5:00 pm.

            

            This
              letter constitutes an amendment to the Securities Purchase Agreement,
              the
              Registration Rights Agreement, and the Common Stock Purchase Warrant.
              Except as
              otherwise specifically modified herein, the terms and conditions of
              the
              Securities Purchase Agreement, the Registration Rights Agreement, and
              the Common
              Stock Purchase Warrant are unaffected and remain in full force and
              effect.

            

            If
              you
              agree to the terms of this letter, please so indicate by signing in
              the space
              designated below. We very much appreciate your investment in the
              Company.

            

            Very
              truly yours,

             

            Lawrence
              A. Siebert

            CEO

            

            Agreed
              to:

            

            CRESTVIEW
              CAPITAL MASTER, LLC    Date:    

            

            By:       

            Name:      

            Title:      

            

            

            INVERNESS
              MEDICAL INNOVATIONS, INC.    Date:    

            

            By:       

            Name:      

            Title:

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