Document:

Exhibit 10.2 Letter Agreement

    
      

    

    
      

    

    Exhibit
      10.2 Letter Agreement

     

      [CHEMBIO
        LETTERHEAD]

      

      

      March
        28,
        2006

      

      Mr.
        Robert Hoyt

      Crestview
        Capital Master, LLC

       

      Re: Securities
        Purchase Agreement dated as of January 26, 2005 among Chembio Diagnostics,
        Inc.
        (“Chembio”), Crestview Capital Master, LLC (“Crestview”), and other purchasers
        (the “Agreement”)

      

      Dear
        Bob:

       

      The
        purpose of this letter is to confirm our understandings regarding the purchase
        by Crestview of additional securities of Chembio pursuant to the Agreement.
        Capitalized terms in this letter that are not otherwise defined herein have
        the
        same meanings given to such terms in the Agreement. A First Closing was held
        in
        2005 in which Crestview purchased $3,000,000 of Preferred Stock and Warrants.
        Pursuant to Section 2.1(b) of the Agreement, Crestview is obligated to purchase
        an additional $1,000,000 of Preferred Stock and Warrants in a Second Closing
        upon notice from Chembio that Chembio, as of any fiscal quarter of 2005:
        (1)
        achieved at least $5,000,000 in aggregate contract revenues; and (2) has
        annualized growth profits of at least $2,250,000. This will confirm that
        Chembio
        and Crestview have agreed that these conditions have been satisfied and that
        Crestview is aware of the rationale used by Chembio in the calculations as
        set
        forth in Exhibit A.

       

      The
        shares of Common Stock underlying the Preferred Stock and the Warrants to
        be
        issued to you in connection with this transaction are entitled to registration
        rights pursuant to a Registration Rights Agreement entered into in connection
        with the Agreement. In connection with this Second Closing, and in order
        to
        avoid a costly and detrimental expense at this time, we ask that you waive
        all
        registration rights relating to the securities purchased in this Second Closing.
        We plan to complete a new round of financing within the next few months,
        and we
        will include (piggyback) the resale of the Common Stock underlying the Preferred
        Stock and Warrants purchased by you in the Second Closing in our next
        registration statement. 

       

      In
        connection with this Second Closing, you also confirm that Crestview has
        had the
        opportunity to: (i) discuss Chembio’s business, management and financial affairs
        with management of Chembio; (2) ask questions of, and receive answers from,
        management of Chembio regarding the terms and conditions of this investment;
        and
        (3) review all reports filed by Chembio with the SEC since January
        2005.

       

      We
        also
        appreciate your agreement to close this transaction on March 29, 2006. Upon
        receipt of a signed copy of this letter from Crestview and a wire payment
        to us
        in the amount of $1,000,000 (wire instructions are attached in Schedule A),
        we
        will cause to be registered in the name of Crestview and delivered to Crestview:
        (1) a stock certificate representing 20 shares of Preferred Stock, and (2)
        a
        warrant certificate in the form set forth in the Agreement, representing
        a
        warrant to purchase 1,557,377 shares of Common Stock at an exercise price
        of
        $.61 per share for a period of five years. 

       

      Should
        you have any questions regarding this matter, please contact us. We appreciate
        your cooperation in promptly completing this transaction.

       

      

      Very
        Truly Yours,

      

      CHEMBIO
        DIAGNOSTICS, INC.

      

      By:__________________________

      Richard
        J. Larkin, Chief Financial Officer

      

      

      AGREED
        AND ACKNOWLEDGED:

      

      CRESTVIEW
        CAPITAL MASTER, LLC

      

      By:_______________________________

      Robert
        Hoyt, Authorized Signatory

      

      Dated
        as
        of March 28, 2006Exhibit 10.3 Form of Option (Incentive)

    
      

    

    
      

    

    Exhibit
      10.2 Form of Option (Incentive)

     

      CHEMBIO
        DIAGNOSTIC SYSTEMS, INC.

      STOCK
        OPTION AGREEMENT

      (Incentive
        Option)

      

      THIS
        STOCK OPTION AGREEMENT (the “Agreement”) is made and entered into as of the ___
        day of __________ 1999 by and between Chembio Diagnostic Systems, Inc., a
        Delaware corporation (the “Company”), and _______________ (the
“Optionee”).

       

      

      WITNESSETH:

      

      WHEREAS,
        the Optionee has received an incentive stock option to purchase shares of
        the
        Company’s Common Stock pursuant to the Company’s 1999 Stock Option Plan (the
“Plan”) in order to provide the Optionee with an opportunity for investment in
        the Company and additional incentive to pursue the success of the Company,
        and
        this option is to be for the number of shares, at the price per share and
        on the
        terms set forth in this Agreement; 

       

      

      WHEREAS,
        the Company intends that the stock option granted pursuant to this Agreement
        qualify as an incentive stock option pursuant to Section 422 of the Internal
        Revenue Code of 1986, as amended (the “Code”); and 

      

      WHEREAS,
        the Optionee desires to receive an option on the terms and conditions set
        forth
        in this Agreement.

      

      NOW,
        THEREFORE, the parties agree as follows:

      

      1. Grant
        Of Option.
        The
        Company hereby grants to the Optionee, as a matter of separate agreement
        and not
        in lieu of salary or any other compensation for services, the right and option
        (the “Option”) to purchase all or any part of an aggregate of __________ shares
        of the authorized and unissued $.001 par value common stock of the Company
        (the
“Option Shares”) pursuant to the terms and conditions set forth in this
        Agreement.

      

      2. Option
        Price.
        At any
        time when shares are to be purchased pursuant to the Option, the purchase
        price
        for each Option Share shall be $_________ (the “Option Price”).

      

      3. Exercise
        Period.

      

      (a) No
        portion of the Option may be exercised on or before the third anniversary
        of the
        date of this Agreement (the “Trigger Date”). After the Trigger Date, the Option
        shall be exercisable only as follows: (i) 25 percent of the Option shall
        become
        and remain exercisable at such time that the Fair Market Value, as determined
        in
        accordance with the Plan, of all outstanding shares of Common Stock of the
        Company (the “Stock Valuation”) first equals or exceeds $5 million; (ii) an
        additional 35 percent of the Option shall become and remain exercisable at
        such
        time that the Stock Valuation first equals or exceeds $10 million; and (iii)
        the
        remaining 40 percent of the Option shall become and remain exercisable at
        such
        time that the Stock Valuation first equals or exceeds $12.5
        million.

      

      (b) The
        period for exercise of the Option shall terminate at 5:00 p.m., Denver, Colorado
        time on __________, 200__, unless terminated earlier as provided in this
        Agreement, which date is the seventh anniversary of the date of this
        Agreement.

      

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      4. Exercise
        Of Option.

      

      (a) The
        Option may be exercised in whole or in part by delivering to the Treasurer
        of
        the Company (i) a Notice And Agreement Of Exercise Of Option, substantially
        in
        the form attached hereto as Exhibit A, specifying the number of Option Shares
        with respect to which the Option is exercised, and (ii) full payment of the
        Option Price for such shares. Payment in cash shall be made by certified
        check
        or cleared funds. The Option may not be exercised in part unless the purchase
        price for the Option Shares purchased is at least $1,000 or unless the entire
        remaining portion of the Option is being exercised.

      

      (b) Promptly
        upon receipt of the Notice And Agreement Of Exercise Of Option together with
        the
        full payment of the Option Price, the Company shall deliver to the Optionee
        a
        properly executed certificate or certificates representing the Option Shares
        being purchased.

      

      (c) During
        the lifetime of the Optionee, the Option shall be exercisable only by the
        Optionee; provided, however, that in the event of the legal disability of
        an
        Optionee, the guardian or personal representative of the Optionee may exercise
        the Option if such guardian or personal representative obtains a ruling from
        the
        Internal Revenue Service or an opinion of counsel to the effect that neither
        the
        grant nor the exercise of such power is violative of Section 422(b)(5), or
        its
        successor provision, of the Internal Revenue Code of 1986, as amended (the
        “Code”). Any opinion of counsel must be acceptable to the Option Committee both
        with respect to the counsel rendering the opinion and with respect to the
        form
        of opinion.

      

      (d) If
        for
        any reason other than the termination of Optionee’s employment by the Company
        for cause or other than the termination of Optionee’s employment by Optionee’s
        resignation or other voluntary act, the Optionee ceases to be employed by
        the
        Company, any Option held by the Optionee at the time the Optionee’s employment
        ceases may be exercised within three months after the date his employment
        ceases, but only to the extent that (i) the Option was exercisable according
        to
        its terms on the date of termination of the Optionee’s employment, and (ii) the
        period for exercise of the Option, as defined in Section 3 of this Agreement,
        has not terminated as of the date of exercise. Upon termination of the period
        ending three months after cessation of the Optionee’s employment for any reason
        other than for cause and other than by Optionee’s voluntary act, any unexercised
        portion of an Option shall expire. If the Optionee ceases to be employed
        by the
        Company because of termination by the Optionee by resignation or other voluntary
        act, any Option held by the Optionee at the time the Optionee’s employment
        ceases shall terminate immediately upon the cessation of employment and all
        rights to purchase shares pursuant to the Option shall terminate immediately.
        If
        the Optionee’s employment by the Company is terminated by the Company for cause,
        any Option held by the Optionee at the time Optionee’s employment is terminated
        shall expire upon delivery to the Optionee of notice of termination, which
        may
        be oral or in writing, and all rights to purchase shares pursuant to the
        Option
        shall terminate immediately. As used in this Section 4(d), termination “for
        cause” means a discharge on account of dishonesty, disloyalty or insubordination
        on the part of the Optionee as determined by the Board Of Directors of the
        Corporation or a Committee of the Board Of Directors.

      

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      5. Withholding
        Taxes.
        The
        Company may take such steps as it deems necessary or appropriate for the
        withholding of any taxes which the Company is required by any law or regulation
        or any governmental authority, whether federal, state or local, domestic
        or
        foreign, to withhold in connection with the Option including, but not limited
        to, the withholding of all or any portion of any payment owed by the Company
        to
        the Optionee or the withholding of issuance of Option Shares to be issued
        upon
        the exercise of the Option.

      

      6. Securities
        Laws Requirements.
        The
        issuance of the Option has not been registered under the 1933 Act, in reliance
        upon an exemption from registration. In addition, no Option Shares shall
        be
        issued unless and until, in the opinion of the Company, there has been full
        compliance with any applicable registration requirements of the 1933 Act,
        any
        applicable listing requirements of any securities exchange on which stock
        of the
        same class has been listed, and any other requirements of law or any regulatory
        bodies having jurisdiction over such issuance and delivery. Optionee hereby
        acknowledges, represents, warrants and agrees as follows, and, pursuant to
        the
        terms of the Notice And Agreement Of Exercise Of Option (Exhibit A) that
        shall
        be delivered to the Company upon each exercise of the Option, Optionee shall
        acknowledge, represent, warrant and agree as follows:

      

      (a) Optionee
        is acquiring the Option and the Option Shares for investment purposes only
        and
        the Option and the Option Shares that Optionee is acquiring will be held
        by
        Optionee without sale, transfer or other disposition for an indefinite period
        unless the transfer of those securities is subsequently registered under
        the
        federal securities laws or unless exemptions from registration are
        available;

      

      (b) Optionee’s
        overall commitment to investments that are not readily marketable is not
        disproportionate to Optionee’s net worth and Optionee’s investment in the Option
        and the Option Shares will not cause such overall commitments to become
        excessive;

      

      (c) Optionee’s
        financial condition is such that Optionee is under no present or contemplated
        future need to dispose of any portion of the Option or the Option Shares
        to
        satisfy any existing or contemplated undertaking, need or indebtedness;

      

      (d) Optionee
        has sufficient knowledge and experience in business and financial matters
        to
        evaluate, and Optionee has evaluated, the merits and risks of an investment
        in
        the Option and the Option Shares;

      

      (e) The
        address set forth in this Agreement is Optionee’s true and correct residence,
        and Optionee has no present intention of becoming a resident of any other
        state
        or jurisdiction;

      

      (f) Optionee
        confirms that all documents, records and books pertaining to an investment
        in
        the Option and the Option Shares have been made available or delivered to
        Optionee and Optionee has had the opportunity to discuss the acquisition
        of the
        Option and the Option Shares with the Company. Optionee also confirms that
        Optionee has obtained or been given access to all information concerning
        the
        Company that Optionee has reasonably requested;

      

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      (g) Optionee
        has had the opportunity to ask questions of, and receive the answers from,
        the
        Company concerning the terms of the investment in the Option and the Option
        Shares and to receive additional information necessary to verify the accuracy
        of
        the information delivered to Optionee, to the extent that the Company possesses
        such information or can acquire it without unreasonable effort or
        expense;

      

      (h) Optionee
        understands that the Option has not been, and the Option Shares issuable
        upon
        exercise of the Options will not be, registered under the 1933 Act or any
        state
        securities laws in reliance on an exemption for private offerings, and no
        federal or state agency has made any finding or determination as to the fairness
        of this investment or any recommendation or endorsement of the issuance of
        the
        Option or the Option Shares;

      

      (i) The
        Option and the Option Shares that Optionee is acquiring will be solely for
        Optionee’s own account, for investment, and are not being purchased with a view
        to or for the resale, distribution, subdivision or fractionalization thereof.
        Optionee has no agreement or arrangement for any such resale, distribution,
        subdivision or fractionalization thereof; and

       

      (j) Optionee
        acknowledges and is aware of the following:

      

      (i) The
        Company has a history of losses. The Option and the Option Shares constitute
        a
        speculative investment and involve a high degree of risk of loss by Optionee
        of
        Optionee’s total investment in the Option and the Option Shares.

      

      (ii) There
        are
        substantial restrictions on the transferability of the Option and the Option
        Shares. The Option is not transferable except as provided in Section 7 below.
        The Option Shares cannot be transferred, pledged, hypothecated, sold or
        otherwise disposed of unless they are registered under the 1933 Act or an
        exemption from such registration is available and established to the
        satisfaction of the Company; investors in the Company have no rights to require
        that the Option Shares be registered; there is no right of presentment of
        the
        Option Shares and there is no obligation by the Company to repurchase any
        of the
        Option Shares; and, accordingly, Optionee may have to hold the Option Shares
        indefinitely and it may not be possible for Optionee to liquidate Optionee’s
        investment in the Company;

      

      (iii) Each
        certificate issued representing the Option Shares shall be imprinted with
        a
        legend that sets forth a description of the restrictions on transferability
        of
        those securities, which legend will read substantially as follows:

      

      “THE
        SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED OR QUALIFIED
        UNDER FEDERAL OR STATE SECURITIES LAWS. THESE SECURITIES MAY NOT BE OFFERED
        FOR
        SALE, SOLD, PLEDGED, OR OTHERWISE DISPOSED OF UNLESS SO REGISTERED OR QUALIFIED
        OR UNLESS AN EXEMPTION EXISTS, THE AVAILABILITY OF WHICH IS TO BE ESTABLISHED
        BY
        AN OPINION OF COUNSEL (WHICH OPINION AND COUNSEL SHALL BOTH BE REASONABLY
        SATISFACTORY TO THE COMPANY).”

      

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      The
        restrictions described above, or notice thereof may be placed on the
        certificates representing the Option Shares purchased pursuant to the Option,
        and the Company may refuse to issue the certificates or to transfer the shares
        on its books unless it is satisfied that no violation of such restrictions
        will
        occur.

      

      7. Transferability
        Of Option.
        The
        Option shall not be transferable except by will or the laws of descent and
        distribu-tion, and any attempt to do so shall void the Option.

      

      8. Adjustment
        By Stock Split, Stock Dividend, Etc.
        If at
        any time the Company increases or decreases the number of its outstanding
        shares
        of common stock, or changes in any way the rights and privileges of such
        shares,
        by means of the payment of a stock dividend or the making of any other
        distribution on such shares payable in its common stock, or through a stock
        split or subdivision of shares, or a consolidation or combination of shares,
        or
        through a reclassification or recapitalization involving its common stock,
        the
        numbers, rights and privileges of the shares of common stock included in
        the
        Option shall be in-creased, decreased or changed in like manner as if such
        shares had been issued and outstanding, fully paid and nonassessable at the
        time
        of such occurrence.

      

      9. Business
        Combinations; Merger Or Consolidation.

      

      (a) Change
        Of Control; Exercise Of Options.
        All
        Options that previously have not become exercisable pursuant to this Agreement
        shall become exercisable immediately upon the effectuation or other consummation
        of a Change In Control (as defined below). At the time of the occurrence
        of any
        of the events described in the previous sentence, the Company shall give
        written
        notice to the Optionee of the occurrence of such event. After receipt of
        this
        notice, the Option shall become exercisable immediately, except that this
        acceleration would not occur with respect to all or a portion of the Option
        for
        which the acceleration would result in a violation of Section 16 of the Plan,
        and the Optionee may exercise any exercisable Options as to the shares covered
        thereby at any time prior to the later to occur of (A) 30 days after the
        receipt
        of that notice, and (B) the consummation of the action described in the
        foregoing clauses (i), (ii), or (iii) of this Subparagraph 9(a). Notice pursuant
        to this Subparagraph 9(a) shall be given pursuant to the provi-sions of
        Paragraph 13 of this Agreement. 

      

      (b) Definitions.
        For
        purposes of this Paragraph 9, a “Change In Control” shall mean any
        of
        the following events:

      

      (i) An
        acquisition (other than directly from the Company) of any voting securities
        of
        the Company (the “Voting Securities”) by any “Person” (as the term person is
        used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act
        of
        1934, as amended (the “1934 Act”)) immediately after which such Person has
“Beneficial Ownership” (within the meaning of Rule 13d-3 promulgated under the
        1934 Act) of thirty percent or more of the combined voting power of the
        Company’s then outstanding Voting Securities; provided,
        however,
        that in
        determining whether a Change in Control has occurred, Voting Securities which
        are acquired in a “Non-Control Acquisition” (as hereinafter defined) shall not
        constitute an acquisition which would cause a Change in Control. A “Non-Control
        Acquisition” shall mean an acquisition by (1) an employee benefit plan (or
        a trust forming a part thereof) maintained by (x) the Company or
        (y) any corporation or other Person of which a majority of its voting power
        or its equity securities or equity interest is owned directly or indirectly
        by
        the Company (a “Subsidiary”), (2) the Company or any Subsidiary, or
        (3) any Person in connection with a “Non-Control Transaction.”

      

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      (ii) The
        individuals who, as of the date hereof, are members of the Board (the “Incumbent
        Board”), cease for any reason to constitute at least two-thirds of the Board;
provided,
        however,
        that if
        the election, or nomination for election by the Company’s stockholders, of any
        new director was approved by a vote of at least two-thirds of the then Incumbent
        Board or two-thirds of the Voting Securities, such new director shall, for
        purposes of this Agreement, be considered as a member of the Incumbent Board;
        provided,
        further,
        however,
        that no
        individual shall be considered a member of the Incumbent Board if such
        individual initially assumed office as a result of either an actual or
        threatened “Election Contest” (as described in Rule 14a-11 promulgated under the
        1934 Act) or other actual or threatened solicitation of proxies or consents
        by
        or on behalf of a Person other than the Board (a “Proxy Contest”) including by
        reason of any agreement intended to avoid or settle any Election Contest
        or
        Proxy Contest; or

      

      (iii) Approval
        by stockholders of the Company of:

      

      (1) A
        merger,
        consolidation or reorganization involving the Company, unless 

      

      (A) the
        stockholders of the Company, immediately before such merger, consolidation
        or
        reorganization, own, directly or indirectly, immediately following such merger,
        consolidation or reorganization, at least sixty percent of the combined voting
        power of the outstanding Voting Securities of the corporation resulting from
        such merger or consolidation or reorganization (the “Surviving Corporation”) in
        substantially the same proportion as their ownership of the Voting Securities
        immediately before such merger, consolidation or reorganization,
        and

      

      (B) the
        individuals who were members of the Incumbent Board immediately prior to
        the
        execution of the agreement providing for such merger, consolidation or
        reorganization constitute at least two-thirds of the members of the board
        of
        directors of the Surviving Corporation or a corporation beneficially owning,
        directly or indirectly, a majority of the Voting Securities of the Surviving
        Corporation, and

      

      (C) no
        Person
        (other than the Company, any Subsidiary, any employee benefit plan (or any
        trust
        forming a part thereof) maintained by the Company, the Surviving Corporation
        or
        any Subsidiary, or any Person who, immediately prior to such merger,
        consolidation or reorganization had Beneficial Ownership of thirty percent
        or
        more of the then outstanding Voting Securities) owns, directly or indirectly,
        thirty percent or more of the combined voting power of the Surviving
        Corporation’s then outstanding voting securities, and

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      (D) a
        transaction described in clauses (A) through (C) shall herein be referred
        to as
        a “Non-Control Transaction”;

      

      (2) A
        complete liquidation or dissolution of the Company; or 

      

      (3) An
        agreement for the sale or other disposition of all or substantially all of
        the
        assets of the Company to any Person (other than a transfer to a
        Subsidiary).

      

      Notwithstanding
        the foregoing, a Change in Control shall not be deemed to occur solely because
        any Person (the “Subject Person”) acquired Beneficial Ownership of more than the
        permitted amount of the outstanding Voting Securities as a result of the
        acquisition of Voting Securities by the Company which, by reducing the number
        of
        Voting Securities outstanding, increases the proportional number of shares
        Beneficially Owned by the Subject Person, provided that if a Change in Control
        would occur (but for the operation of this sentence) as a result of the
        acquisition of Voting Securities by the Company, and after such share
        acquisition by the Company, the Subject Person becomes the Beneficial Owner
        of
        any additional Voting Securities which increases the percentage of the then
        outstanding Voting Securities Beneficially Owned by the Subject Person, then
        a
        Change in Control shall occur.

      

      (iv) Notwithstanding
        anything contained in this Agreement to the contrary, if the Optionee’s
        employment is terminated prior to a Change in Control and the Optionee
        reasonably demonstrates that such termination (i) was at the request of a
        third party who has indicated an intention or taken steps reasonably calculated
        to effect a Change in Control and who effectuates a Change in Control (a
“Third
        Party”) or (ii) otherwise occurred in connection with, or in anticipation
        of, a Change in Control which actually occurs, then for all purposes of this
        Agreement, the date of a Change in Control with respect to the Optionee shall
        mean the date immediately prior to the date of such termination of the
        Optionee’s employment.

      

      10. Common
        Stock To Be Received Upon Exercise.
        Optionee understands that the Company is under no obligation to register
        the
        issuance of the Option Shares, the resale (by directors and officers) of
        the
        Option Shares, or the Option Shares, under the Securities Act of 1933, as
        amended (the “1933 Act”), and that in the absence of any such registration, the
        Option Shares cannot be sold unless they are sold pursuant to an exemption
        from
        registration under the 1933 Act. The Company is under no obligation to comply,
        or to assist the Optionee in complying, with any exemption from such
        registration requirement, including supplying the Optionee with any information
        necessary to permit routine sales of the Stock under Rule 144 of the Securities
        and Exchange Commission. Optionee also understands that with respect to Rule
        144, routine sales of securities made in reliance upon such Rule can be made
        only in limited amounts in accordance with the terms and conditions of the
        Rule,
        and that in cases in which the Rule is inapplicable, compliance with either
        Regulation A or another disclosure exemption under the 1933 Act will be
        required. Thus, the Option Shares will have to be held indefinitely in the
        absence of registration under the 1933 Act or an exemption from registration.
        

      

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      Furthermore,
        the Optionee fully understands that issuance of the Option Shares may not
        be
        registered under the 1933 Act and that if their issuance is not registered,
        they
        will be issued in reliance upon an exemption which is available only if Optionee
        acquires such shares for investment and not with a view to distribution.
        Optionee is familiar with the phrase “acquired for investment and not with a
        view to distribution” as it relates to the 1933 Act and the special meaning
        given to such term in various releases of the Securities And Exchange
        Commission.

      

      11. Privilege
        Of Ownership.
        Optionee shall not have any of the rights of a stockholder with respect to
        the
        shares covered by the Option except to the extent that one or more certificates
        for such shares shall be delivered to him upon exercise of the
        Option.

      

      12. Relationship
        To Employment Or Position.
        Nothing
        contained in this Agreement (i) shall confer upon the Optionee any right
        with
        respect to continuance of Optionee’s employment by, or position or affiliation
        with, or relationship to, the Company, or (ii) shall interfere in any way
        with
        the right of the Company at any time to terminate the Optionee’s employment by,
        position or affiliation with, or relationship to, the Company.

      

      13. Notices.
        All
        notices, requests, demands, directions and other communications (“Notices”)
        concerning this Agreement shall be in writing and shall be mailed or delivered
        personally or sent by telecopier or facsimile to the applicable party at
        the
        address of such party set forth below in this Section 13. When mailed, each
        such
        Notice shall be sent by first class, certified mail, return receipt requested,
        enclosed in a postage prepaid wrapper, and shall be effective on the fifth
        business day after it has been deposited in the mail. When delivered
        personal-ly, each such Notice shall be effective when delivered to the address
        for the respective party set forth in this Section 13, provided that it is
        delivered on a business day and further provided that it is delivered prior
        to
        5:00 p.m., local time of the party to whom the notice is being delivered,
        on
        that business day; otherwise, each such Notice shall be effective on the
        first
        business day occurring after the Notice is delivered. When sent by telecopier
        or
        facsimile, each such Notice shall be effective on the day on which it is
        sent
        provided that it is sent on a business day and further provided that it is
        sent
        prior to 5:00 p.m., local time of the party to whom the Notice is being sent,
        on
        that business day; otherwise, each such Notice shall be effective on the
        first
        business day occurring after the Notice is sent. Each such Notice shall be
        addressed to the party to be notified as shown below:

      

      (a) if
        to the
        Company: Chembio
        Diagnostic Systems, Inc.

      Attn:
        Treasurer or President

      3361
        Horseblock Road

      Medford,
        New York 11763

      Facsimile
        No. (516) 924-6033

      

      (b) if
        to the
        Optionee:         ________________________

      ________________________

      ________________________

      Facsimile
        No.:____________

      

      Either
        party may change its respective address for purposes of this Section 13 by
        giving the other party Notice of the new address in the manner set forth
        above.

      

      14. General
        Provisions.
        This
        instrument (a) contains the entire agreement between the parties, (b) may
        not be
        amended nor may any rights hereunder be waived except by an instrument in
        writing signed by the party sought to be charged with such amendment or waiver,
        (c) shall be construed in accordance with, and governed by the laws of the
        State
        of New York, except where conflicts of law rules require the application
        of
        Colorado law, and (d) shall be binding upon and shall inure to the benefit
        of
        the parties and their respective personal representatives and assigns, except
        as
        above set forth. All pronouns contained herein and any variations thereof
        shall
        be deemed to refer to the masculine, feminine or neuter, singular or plural
        as
        the identity of the parties hereto may require.

      

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      IN
        WITNESS WHEREOF, the parties have executed this Agreement on the dates set
        forth
        below.

      

      CHEMBIO
        DIAGNOSTIC SYSTEMS, INC.

      

      

      

      Date:____________________    By:___________________________

      

      ______________________________

      Printed
        Name And Title

      

      

      OPTIONEE

      

      

      

      Date:____________________    ______________________________

      [Name]
        

      

      Address:_______________________

      _______________________

      _______________________

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      EXHIBIT
        A

      (To
        Chembio Diagnostic Systems, Inc

      Stock
        Option Agreement)

       

      CHEMBIO
        DIAGNOSTIC SYSTEMS, INC.

      NOTICE
        AND AGREEMENT OF EXERCISE OF OPTION

      

      I
        hereby
        exercise my Chembio Diagnostic Systems, Inc. Stock Option dated as of __________
        ___, 1998 as to ________ shares of the $.001 par value common stock (the
“Option
        Shares”) of Chembio Diagnostic Systems, Inc. (the “Company”) at a purchase price
        of $_______ per share. The total exercise price for these Option Shares is
        $________. Enclosed is payment in the form of ___________________.-

      

      Enclosed
        are the documents and payment specified in Paragraph 4 of my Option
        Agreement.

      

      I
        understand that no Option Shares will be issued unless and until, in the
        opinion
        of the Company, there has been full compli-ance with any applicable registration
        requirements of the Securi-ties Act of 1933, as amended, any applicable listing
        requirements of any securities exchange on which stock of the same class
        is then
        listed, and any other requirements of law or any regulatory bodies having
        jurisdiction over such issuance and delivery. I hereby acknowledge, represent,
        warrant and agree, to and with the Company as follows:

      

      
        	 	
                a.

              	
                The
                  Option Shares I am purchasing are being acquired for my own account
                  for
                  investment purposes only and with no view to their resale or other
                  distribution of any kind, and no other person (except, if I am
                  married, my
                  spouse) will own any interest therein. (Note: This provision to
                  be
                  included only if issuance of Option Shares is not registered at
                  the time
                  of exercise.)

              

      

      

      
        	 	
                b.

              	
                I
                  will not sell or dispose of my Option Shares in violation of the
                  Securities Act of 1933, as amended, or any other applicable federal
                  or
                  state securities laws.

              

      

      

      
        	 	
                c.

              	
                I
                  will report all sales of Option Shares to the Company in writing
                  on a form
                  prescribed by the Company.

              

      

      

      
        	 	
                d.

              	
                I
                  agree that the Company may, without liability for its good faith
                  actions,
                  place legend restrictions upon my Option Shares and issue “stop transfer”
                  instructions requiring compliance with applicable securities laws
                  and the
                  terms of my Option.

              

      

      

      
        	 	
                e.

              	
                [For
                  officers only.] If and so long as I am subject to reporting requirements
                  under Section 16(a) of the Securities Exchange Act of 1934, as
                  amended
                  (the “1934 Act”), I recognize that any sale by me or my immediate family
                  of the Company’s $.001 par value common stock may create liability for me
                  under Section 16(b) of the 1934 Act (“Section 16(b)”). Therefore, I have
                  consulted with my counsel regarding the application of Section
                  16(b) to
                  this exercise of my Option.

              

      

      

      
        	 	
                f.

              	
                [For
                  officers only.] I will consult with my counsel regarding the application
                  of Section 16(b) before I can make any sale of the Company’s $.001 par
                  value common stock, including the Option Shares, and I will furnish
                  the
                  Company with a copy of each Form 4 filed by me and will timely
                  file all
                  reports that I may be required to file under the federal securities
                  laws.

              

      

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      The
        number of Option Shares specified above are to be issued in the name or names
        set forth below in the left-hand column.

      

                                      

      (Print
        Your Name)    Signature

      

      

                                              

      (Optionee
        - Print Name of Spouse  Address

      if
        you
        wish joint registration)   

                                              

                      City,
        State and Zip Code

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