EXHIBIT 10.5
 
EXHIBIT D
STOCK PURCHASE AND LOAN OPTION AGREEMENT
 
INVESTOR RIGHTS AND STOCKHOLDER AGREEMENT
 
 
This Investor Rights and Stockholder Agreement (together with the Exhibits
hereto, the “Agreement”), dated as of May 30, 2005, is entered into among MR3
Systems, Inc., a Delaware corporation (the “Company”), the persons listed on
Exhibit A-1 attached hereto (collectively, the “Management Shareholders”), and
MRD Holdings Inc., a corporation organized and existing under the laws of the
State of Delaware (the “Investor”).
 
RECITALS
 
The execution and delivery of this Agreement by the parties is a condition to
the Closing of the transactions contemplated by that certain Stock Purchase and
Loan Option Agreement of even date herewith (the “Purchase Agreement”).
 
The Investor and the Company desire that the transactions contemplated by the
Purchase Agreement be consummated and, in connection therewith, are entering
into this Agreement.
 
ACCORDINGLY, in consideration of the foregoing premises and the covenants,
agreements, representations and warranties of the parties contained herein, and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties, intending to be legally bound, hereby
agree as follows:
 
Section 1
Registration Rights
 
1.1  Certain Definitions. 
 
(a)  A used in this Agreement, the following terms will have the following
respective meanings:
 
“Affiliate” means, with respect to any Person, (i) a director or officer of such
Person, (ii) a spouse, parent, sibling or descendant of such Person (or a
spouse, parent, sibling or descendant of any director or officer of such
Person), and (iii) any other Person that, directly or indirectly, through one or
more intermediaries, controls, is controlled by, or is under common control
with, such Person.
 
“Commission” means the Securities and Exchange Commission or any other federal
agency at the time administering the Securities Act.
 
“Common Stock” means the Common Stock, $.01 par value, of the Company.
 
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.
 
“Holder” means (i) the Investor who executes this Agreement, and (ii) any
assignee under Section 1.10 who holds outstanding Registrable Securities.
 
“Initiating Holder” means a Holder holding Registrable Securities who requests
registration.
 
 
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EXHIBIT D
STOCK PURCHASE AND LOAN OPTION AGREEMENT
 
“Person” shall be construed broadly and shall include, without limitation, an
individual, a partnership, an investment fund, a limited liability company, a
corporation, an association, a joint stock company, a trust, a joint venture, an
unincorporated organization and a governmental entity or any department, agency
or political subdivision thereof.
 
The terms “register”, “registered” and “registration” will refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and the declaration or ordering of the
effectiveness of such registration statement.
 
“Registrable Securities” means (i) the Common Stock issuable or issued upon
conversion of the Series B Preferred Stock issued under the Securities Purchase
Agreement, (ii) any Common Stock of the Company issued as (or issuable upon the
conversion or exercise of any convertible promissory note, warrant, right, or
other security issued to Investor under the Purchase Agreement, (iii) any share
of Common Stock issued or issuable at any time upon exercise of the Warrant(s),
issued pursuant to the Purchase Agreement (the “Warrants”) or (iv) shares of
Common Stock issued in respect of shares referred to in the preceding
clause (i), and (v) upon any stock split, stock dividend, recapitalization, or
similar event; provided, however, that Registrable Securities will not include
any (w) Registrable Securities sold by a Holder in a transaction in which such
Holder’s rights under this Section 1 are not assigned, (x) shares of Common
Stock that are included in and sold pursuant to an effective registration
statement, (y) shares of Common Stock which have previously been sold to the
public, or (z) securities which would otherwise be Registrable Securities held
by a Holder who is then permitted to sell all of such securities within any
three-month period pursuant to Rule 144.
 
“Registration Expenses” means all expenses incurred in connection with a
registration under Section 1.2, 1.3 or 1.5, including, without limitation, all
registration, qualification and filing fees, printing expenses, escrow fees,
fees and disbursements of counsel for the Company, reasonable fees and expenses
of one special counsel to the Holder (not to exceed $25,000) including
Registrable Securities in such registration and blue sky fees and expenses, but
will not include Selling Expenses.
 
“Restricted Securities” means the securities of the Company required to bear or
bearing the legend set forth in Section 6.2.
 
“Rule 144” means Rule 144 or any successor rule as promulgated by the Commission
under the Securities Act.
 
“Securities” means the Securities issued and sold by the Company to the Investor
pursuant to the Purchase Agreement, including, without limitation, any shares of
Common Stock issued upon exercise of the Warrant (as defined in the Purchase
Agreement).
 
“Securities Act” means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
 
“Selling Expenses” will include, with respect to any firm commitment,
underwritten registration, all underwriting discounts and selling commissions
incurred in connection with the sale of Registrable Securities in such
registration.
 
 
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EXHIBIT D
STOCK PURCHASE AND LOAN OPTION AGREEMENT
 
(b)  The following additional capitalized terms, as used in this Agreement, have
the meanings given to them in the following sections or other locations of this
Agreement:
 
Term
Section or Other Location
Agreement
First Paragraph
Company
First Paragraph
Disposition Notice
5.1(a)
Management Shareholders
First Paragraph
Indemnified Party
1.8(c)
Indemnifying Party
1.8(c)
Other Shareholders
1.2(c)
Piggyback Registration Rights
1.3(a)(ii)
Prohibited Transfer
5.5
Purchase Agreement
Recitals
Investor
First Paragraph
Right of Co-Sale
5.2
Right of First Refusal
5.1
Target Shares
5.1
Transferring Management Shareholder
5.1
Underwriter
1.2(c)
   

1.2  Requested Registration.
 
(a)  Request for Registration. If the Company receives from an Initiating Holder
at any time not earlier than sixty (60) days from the date of this Agreement, a
written request that the Company effect a registration having aggregate proceeds
which (after deduction for underwriter’s discounts and expenses related to the
issuance) exceed $7,500,000, the Company will:
 
(i)  promptly give written notice of the proposed registration to Holder; and
 
(ii)  as soon as practicable, use its reasonable best efforts to effect such
registration as may be so requested and as would permit or facilitate the sale
and distribution of all or such portion of such Registrable Securities as are
specified in such request, together with all or such portion of the Registrable
Securities of any Holder joining in such request as are specified in a written
request delivered to the Company within twenty (20) days after receipt of such
written notice from the Company pursuant to clause (i) above; provided, however,
that the Company will not be obligated to effect more than two registrations
under this Section 1.2.
 
The registration statement filed pursuant to the request of the Initiating
Holder, may, subject to the provisions of Sections 1.2(c) and 1.3, include other
securities of the Company which are held by officers or directors of the Company
or which are held by persons who, by virtue of agreements with the Company, are
entitled to include their securities in any such registration. In addition, the
Company will have the right to include any of its securities in any such
registration.
 
(b)  Underwriting. The right of any Holder to registration pursuant to this
Section 1.2 will be conditioned upon such Holder’s participation in the related
underwriting and the inclusion of such Holder’s Registrable Securities in the
underwriting to the extent provided herein. A Holder may elect to include in
such underwriting all or a part of the Registrable Securities held by such
Holder.
 
 
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EXHIBIT D
STOCK PURCHASE AND LOAN OPTION AGREEMENT
 
(c)  Procedures and Cutback. If holders of securities of the Company (other than
Holder) who are entitled by contract with the Company to have securities
included in such a registration (such other shareholders being collectively
referred to as the “Other Shareholders”) request such inclusion, the Initiating
Holder will, on behalf of all Holders, offer to include the securities of such
Other Shareholders in the underwriting and may condition such offer on their
acceptance of the further applicable provisions of this Agreement. All Holders
proposing to distribute their securities through such underwriting will
(together with the Company and Other Shareholders proposing to distribute their
securities through such underwriting) enter into an underwriting agreement in
customary form with the representative of the underwriter or underwriters (the
“Underwriter”) selected for such underwriting by the Company, acting in its
reasonable discretion, and approved by the Initiating Holder. Notwithstanding
any other provision of this Section 1.2, if the Underwriter, in its sole
discretion, determines that marketing factors require a limitation on the number
of shares to be underwritten, the Underwriter may (subject to the allocation
priority set forth below) limit the number of Registrable Securities to be
included in the registration and underwriting. The Company will so advise all
such Other Shareholders requesting registration, and the number of shares of
securities that are entitled to be included in the registration and underwriting
will be allocated in the following order of priority: first, to the Initiating
Holder and any other Holders; second, to Other Shareholders as nearly as
practicable, to the respective amounts of securities which they had requested to
be included in such registration at the time of filing the registration
statement, and third, to the Company with respect to any securities which it
desires to sell for its own account. If any Holder or Other Shareholder
disapproves of the terms of any such underwriting, it may elect to withdraw
therefrom by written notice to the Company and the Underwriter. Any Registrable
Securities excluded or withdrawn from such underwriting will be withdrawn from
such registration.
 
1.3  Company Registration. 
 
(a)  If the Company determines at any time, and from time to time, to register
any of its securities for its own account or for the account of any other person
(other than a registration under Section 1.2 or 1.5, a registration relating
solely to employee benefit plans or a registration relating solely to a
transaction covered by Rule 145 promulgated under the Securities Act or a
registration on any registration form which does not permit secondary sales or
does not include substantially the same information as would be required to be
included in a registration statement covering the sale of Registrable
Securities), the Company will:
 
(i)  promptly give to Holder written notice thereof; and
 
(ii)  include in such registration (and any related qualification under blue sky
laws or other compliance), and in any underwriting involved therein, all of the
Registrable Securities specified in a written request or requests made by Holder
within twenty (20) days after receipt of the written notice from the Company
described in clause (i) above (“Piggyback Registration Rights”), except as set
forth in Section 1.3(b) below. Such written request may specify all or a part of
Holder’s Registrable Securities.
 
 
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EXHIBIT D
STOCK PURCHASE AND LOAN OPTION AGREEMENT
 
(b)  Underwriting. If the registration of which the Company gives notice is for
a registered public offering involving an underwriting, the Company will so
advise Holder as a part of the written notice given pursuant to Section
1.3(a)(i). In such event the right of Holder to registration pursuant to Section
1.3 will be conditioned upon Holder’s participation in such underwriting and the
inclusion of Holder’s Registrable Securities in the underwriting to the extent
provided herein. The Holder (together with the Company and the Other
Shareholders distributing their securities through such underwriting) shall
enter into an underwriting agreement in customary form with the Underwriter
selected for underwriting by the Company. Notwithstanding any other provision of
this Section 1.3, if the Underwriter in its sole discretion determines that
marketing factors require a limitation on the number of shares to be
underwritten, the Underwriter may (subject to the allocation priority set forth
below) limit the number of Registrable Securities to be included in the
registration and underwriting. The Company will so advise Holder and Other
Shareholders requesting registration, and the number of shares of securities
that are entitled to be included in the registration and underwriting will be
allocated in the following order or priority: first, to the Company with respect
to securities to be sold for its own account; second, to the Holder; and third
to Other Shareholders proposing to distribute their securities through such
underwriting (pro rata among them on the basis of the number of securities
requested to be included in such registration by such Other Shareholders);
provided, however, that in no event will the Registrable Securities requested to
be included by the Holder be reduced to a number that is less than 10% of the
total number of securities to be included in such registration and underwriting
by persons (including the Company) distributing shares through such
underwriting. If Holder or Other Shareholders disapprove of the terms of any
such underwriting, it may elect to withdraw therefrom by written notice to the
Company and the Underwriter. Any Registrable Securities or other securities
excluded or withdrawn from such underwriting will be withdrawn from such
registration.
 
1.4  Rights of Holder. From and after the date of this Agreement, the Company
shall not grant any other registration rights superior to, pari passu with, or
which conflict in any way with those granted to the Investor without the consent
of the Investor.
 
1.5  Registration on Form S-3.
 
(a)  After the Company has qualified as a registrant whose securities may be
sold pursuant to Form S-3 (or any similar successor form), it will forthwith
notify Holder that the Company so qualifies. After the Company has qualified for
the use of Form S-3, the Holder will have the right to request one registration
on Form S-3 during any nine-month period (such requests will be in writing and
will state the number of Registrable Securities to be disposed of and the
intended method of disposition of such Registrable Securities by Holder);
provided, however, that the Company will not be required to effect a
registration pursuant to this Section 1.5 (i) unless the Holder proposes to
dispose of Registrable Securities having an aggregate public offering price
(before deduction of underwriting discounts and sales commissions) of at least
$1,000,000 or (ii) within six months following the effective date of any
registration statement (other than a registration statement with respect to an
employee stock plan or a registration of securities in a Rule 145 transaction).
 
(b)  The Company will give notice to Holder of the receipt of a request for
registration pursuant to this Section 1.5 and will provide a reasonable
opportunity for Holder to participate in the registration. Subject to the
foregoing, the Company will use commercially reasonable efforts to effect
promptly the registration of all shares of Registrable Securities on Form S-3 to
the extent requested by Holder for purposes of disposition. The Company and
Other Shareholders will have the right to participate in such registration in
the manner provided in Section 1.2, except that in the event the Underwriter
determines that market factors require a limitation on the number of shares to
be underwritten, then shares will be excluded from such registration and
underwriting pursuant to the allocation method (and subject to any limitations)
described in Section 1.2(c). Any registration pursuant to this Section 1.5 will
not be counted as a registration pursuant to Section 1.2(a).
 
 
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EXHIBIT D
STOCK PURCHASE AND LOAN OPTION AGREEMENT
 
1.6  Expenses of Registration. All Registration Expenses incurred in connection
with any registration hereunder will be borne by the Company. All Selling
Expenses incurred in connection with any registration hereunder will be borne by
the holders of the securities to be registered and sold pro rata on the basis of
the number of their shares so registered and sold. The Company will not be
required to pay any Registration Expenses if, as a result of the withdrawal of a
request for registration the Initiating Holder (if such registration is
requested pursuant to Section 1.2(a) above), or the requesting Holder (if such
registration is requested pursuant to Section 1.5(a) above), the registration
statement does not become effective; provided, however, that if at the time of
such withdrawal, the Initiating Holder has learned of a material adverse change
in the condition, business, or prospects of the Company from that known to such
Holder at the time of its request and has withdrawn the request, in writing,
within ten (10) days following disclosure by the Company of such material
adverse change, then the Holder will not be required to pay any of such expense
and such registration will not be considered a registration for purposes of
Section 1.2(a) or 1.5(a). If the Company is not required to pay any Registration
Expenses as a result of such a withdrawal, then the Holder and Other
Shareholders requesting registration will bear such Registration Expenses pro
rata on the basis of the number of their shares so included in the registration
request, and such registration will not be considered a registration for
purposes of Section 1.2(a) or 1.5(a).
 
1.7  Additional Registration Procedures. In the case of each registration,
qualification or compliance effected by the Company pursuant to this Section 1,
the Company will keep Holder advised in writing as to the initiation of each
registration, qualification and compliance and as to the completion thereof. At
its expense the Company will:
 
(a)  Use its reasonable best efforts to register and qualify the securities
covered by such registration statement under such other securities or “blue sky”
laws of such jurisdictions as may be reasonably requested by the Holder;
provided, however, that the Company will not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions;
 
(b)  Keep such registration effective until the earliest to occur of the
following: (i) all Registrable Securities registered pursuant to Section 1.2,
1.3 or 1.5, as the case may be, have been sold; (ii) the Holder of the
Registrable Securities registered thereunder agrees to terminate the
registration; (iii) the registration rights of Holder terminates under Section
1.2, 1.3 or 1.5, as the case may be; (iv) ninety (90) days have elapsed since
the date the registration was declared or ordered effective or (v) the
Registrable Securities registered thereunder can be sold pursuant to Rule 144.
 
(c)  Furnish to the Holder such numbers of copies of a prospectus, including a
preliminary prospectus, in conformity with the requirements of the Securities
Act, and such other documents as they may reasonably request in order to
facilitate the disposition of the Registrable Securities owned by them;
 
 
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EXHIBIT D
STOCK PURCHASE AND LOAN OPTION AGREEMENT
 
(d)  Notify Holder at any time when a prospectus relating thereto is required to
be delivered under the Securities Act of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing;
 
(e)  Furnish, at the request of Holder, on the date that such Registrable
Securities are delivered to the Underwriters for sale in connection with a
registration pursuant to this Agreement, if such securities are being sold
through Underwriters, or, if such securities are not being sold through
Underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) a copy of an opinion, dated such date, of the
counsel representing the Company for the purposes of such registration, in form
and substance as is customarily given to underwriters in an underwritten public
offering, addressed to the Underwriters, if any, and (ii) a copy of a letter
dated such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering, addressed
to the Underwriters, if any;
 
(f)  Cause all such Registrable Securities registered hereunder to be listed on
each securities exchange on which similar securities issued by the Company are
then listed; and
 
(g)  Provide a transfer agent and registrar for all Registrable Securities
registered pursuant hereto and a CUSIP number for all such Registrable
Securities, in each case not later than the effective date of such registration.
 
1.8  Indemnification. 
 
(a)  To the extent permitted by law, the Company will indemnify Holder, each of
such Holder’s officers, directors, members and partners and each person
controlling such Holder within the meaning of Section 15 of the Securities Act,
with respect to which registration, qualification or compliance has been
effected pursuant to this Agreement, against all expenses, claims, losses,
damages and liabilities (or actions in respect thereof) to which they may become
subject under the Securities Act, the Exchange Act or other federal or state
securities laws, including, without limitation, any of the foregoing incurred in
settlement of any litigation, commenced or threatened, arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any registration statement or prospectus, or any amendment or
supplement thereto, incident to any such registration, or any such document,
offering circular or other document incident to such registration, qualification
or compliance, or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were made, not misleading,
or any violation by the Company of any rule or regulation promulgated under the
Securities Act, the Exchange Act or other federal or state securities laws
applicable to the Company and relating to action or inaction required of the
Company in connection with any such registration, qualification or compliance,
and will reimburse Holder and each officer, director, member, partner and person
controlling such Holder for any legal and any other expenses reasonably
incurred, within thirty (30) days after a request for reimbursement has been
 
 
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EXHIBIT D
STOCK PURCHASE AND LOAN OPTION AGREEMENT
 
received by the Company, in connection with investigating, defending or settling
any such claim, loss, damage, liability or action; provided, however, that the
Company will not be liable to Holder under this Section 1.8(a) in any such case
to the extent that any such claim, loss, damage, liability or expense arises out
of or is based on any untrue statement or omission or alleged untrue statement
or omission, made in reliance upon and in conformity with written information
furnished to the Company by Holder or its authorized agents specifically for
purposes of inclusion in such registration statement or prospectus; and
provided further, however, that the indemnity agreement contained in this
Section 1.8(a) will not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without the
consent of the Company, which consent will not be unreasonably withheld.
 
(b)  To the extent permitted by law, Holder will, if Registrable Securities held
by such Holder are included in the securities as to which a registration,
qualification or compliance is being effected pursuant to this Agreement,
indemnify the Company, each of its directors and officers and each Underwriter,
if any, of the Company’s securities covered by a registration statement or
prospectus relating to such registration, qualification or compliance, each
person who controls the Company or such other person within the meaning of
Section 15 of the Securities Act, against all claims, losses, damages and
liabilities (or actions in respect thereof) to which any of the foregoing
persons may become subject under the Securities Act, the Exchange Act or other
federal or state securities laws, including, without limitation, any of the
foregoing incurred in settlement of any litigation, commenced or threatened,
arising out of or based on any untrue statement of a material fact contained in
any such registration statement or prospectus, and any amendment or supplement
thereto, incident to any such registration, or any such document, offering
circular or other document incident to such qualification or compliance, or any
omission to state therein a material fact necessary to make the statements
therein not misleading, and will reimburse the Company, such directors,
officers, legal counsel, accountants, Underwriters or control persons for any
legal or any other expenses reasonably incurred, within thirty (30) days after a
request for reimbursement has been received by the indemnifying Holder, in
connection with investigating, defending or settling any such claim, loss,
damage, liability or action, in each case to the extent, but only to the extent,
that such untrue statement or omission is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by such Holder or
its authorized agent specifically for purposes of inclusion in such registration
statement, prospectus, offering circular or other document; provided, however,
that the indemnity agreement contained in this Section 1.8(b) will not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Holder from which
indemnification is sought pursuant to this Section 0 in respect of such loss,
claim, damage, liability or action, which consent will not be unreasonably
withheld; and provided further, however, that Holder’s liability for
indemnification hereunder will be limited to the amount of net proceeds, if any,
received by Holder from the sale of securities described in the first sentence
of this Section 1.8(b).
 
(c)  Each party entitled to indemnification under this Section 1.8 (the
“Indemnified Party”) will give notice to the party required to provide
indemnification (the “Indemnifying Party”) promptly after such Indemnified Party
has actual knowledge of any claim, loss, damages or liability (or action in
respect thereof) as to which indemnity may be sought and will permit the
Indemnifying Party to assume the defense of any such claim, loss, damages or
liability (or action in respect thereof); provided, however, that counsel for
the Indemnifying Party, who will conduct the defense of such claim, loss,
damages or liability (or action in respect thereof), will be subject to approval
by the
 
 
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EXHIBIT D
STOCK PURCHASE AND LOAN OPTION AGREEMENT
 
Indemnified Party (whose approval will not be unreasonably withheld), and the
Indemnified Party may participate in such defense at such party’s expense,
including any legal fees incurred; and provided further, however, that the
failure of any Indemnified Party to give notice as provided herein will not
relieve the Indemnifying Party of its obligations under this Agreement, except
to the extent, but only to the extent, that the Indemnifying Party’s ability to
defend against such claim or litigation is impaired as a result of such failure
to give notice. No Indemnifying Party, in the defense of any such claim, loss,
damages or liability (or action in respect thereof), will, except with the
consent of each Indemnified Party, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a release from
all liability in respect to such claim or litigation. Each Indemnified Party
will furnish such information regarding itself or the claim, loss, damages or
liability (or action in respect thereof) in question as an Indemnifying Party
may reasonably request in writing and as is reasonably required in connection
with defense of the same.
 
(d)  If the indemnification provided for in this Section 1.8 is held by a court
of competent jurisdiction to be unavailable to an Indemnified Party with respect
to any loss, liability, claim, damage, or expense referred to therein, then the
Indemnifying Party, in lieu of indemnifying such Indemnified Party hereunder,
will contribute to the amount paid or payable by such Indemnified Party as a
result of such loss, liability, claim, damage, or expense in such proportion as
is appropriate to reflect the relative fault of the Indemnifying Party on the
one hand and of the Indemnified Party on the other in connection with the
statements or omissions that resulted in such loss, liability, claim, damage, or
expense as well as any other relevant equitable considerations. The relative
fault of the Indemnifying Party and of the Indemnified Party will be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Indemnifying Party or by
the Indemnified Party and the parties’ relative intent, knowledge, access to
information, and opportunity to correct or prevent such statement or omission.
 
(e)  Notwithstanding the foregoing, to the extent that the provisions on
indemnification and contribution contained in the underwriting agreement entered
into in connection with an underwritten public offering are in conflict with the
foregoing provisions, the provisions in the underwriting agreement will control.
 
(f)  The obligations of the Company and Holder under this Section 1.7 will
survive the completion of any offering of Registrable Securities in a
registration statement under Sections 1.2, 1.3 and 1.5, and otherwise.
 
(g)  Information by Holder. The Holder holding securities included in any
registration will furnish to the Company such information regarding such Holder
as the Company may reasonably request in writing and as will be reasonably
required in connection with any registration, qualification or compliance
referred to in this Agreement.
 
1.9  Rule 144 Reporting. With a view to making available the benefits of certain
rules and regulations of the Commission which may permit the sale of the
Restricted Securities to the public without registration, the Company agrees to:
 
 
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EXHIBIT D
STOCK PURCHASE AND LOAN OPTION AGREEMENT
 
(a)  Make and keep public information available, as those terms are understood
and defined in Rule 144 under the Securities Act;
 
(b)  Use commercially reasonable efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act at any time after it has become subject to
such reporting requirements; and
 
(c)  So long as Investor owns any Restricted Securities, furnish to the Investor
forthwith upon request a written statement by the Company as to its compliance
with the reporting requirements of Rule 144 (at any time from and after ninety
(90) days following the effective date of the first registration statement filed
by the Company for an offering of its securities to the general public), and of
the Securities Act and the Exchange Act (at any time after it has become subject
to such reporting requirements), a copy of the most recent annual or quarterly
report of the Company, and such other reports and documents so filed as Investor
may reasonably request in availing itself of any rule or regulation of the
Commission allowing a Investor to sell any such securities without registration.
 
1.10  Transfer or Assignment of Registration Rights. The right to cause the
Company to register Registrable Securities granted to a Holder by the Company
under Sections 1.2, 1.3 and 1.5 may be transferred or assigned by such Holder to
(i) a transferee or assignee who after such transfer or assignment is the record
owner of at least 10% of the transferor’s shares of Common Stock (assuming such
transferee’s or assignee’s conversion, exercise or exchange into or for shares
of Common Stock of all securities which by their terms are directly or
indirectly convertible, exercisable or exchangeable into or for shares of Common
Stock), (ii) to any constituent partner or member of a Holder that is a private
investment company, and (iii) a subsidiary, parent, affiliate, member, retired
member or successor trustee of Holder, provided in each instance that in
transfers or assignments made pursuant to Section 1.10(i) herein, (x) the
Company is given written notice by such Holder not less than ten (10) business
days prior to the date of such transfer or assignment, stating the name and
address of such transferee or assignee and identifying the securities with
respect to which such registration rights are being transferred or assigned; and
(y) the transferee or assignee of such rights assumes in writing the obligations
of such Holder under this Agreement and provided further that, in the case of
transfers or assignments pursuant to clause (ii), that all such partners or
members have agreed with the Company in writing to act through a single
representative.
 
1.11  Limitations on Registration Obligations. The Company will not be obligated
to effect, or to take any action to effect, any registration, qualification or
compliance pursuant to Section 1.2, 1.3 or 1.5:
 
(a)  In any particular jurisdiction in which the Company would be required to
execute a general consent to service of process in effecting such registration,
qualification or compliance, unless the Company is already subject to service in
such jurisdiction and except as may be required by the Securities Act;
 
(b)  If the Company furnishes to Holder following a request for registration a
certificate signed by the President of the Company stating that, in the good
faith judgment of the Board it would be seriously detrimental to the Company and
its shareholders for such registration statement to be filed on or before the
time filing would be required and it is therefore essential to defer the filing
of such registration statement, the Company will have the right to defer such
filing for a period of not more than one hundred eighty (180) days after receipt
of the request of the Initiating Holder (it being understood that the Company
will not have any obligation to take any action to register Registrable
Securities for which the Company receives notice pursuant to Sections 1.2(a) or
1.5 during such one hundred eighty (180) day period); provided, however, that
the Company may not exercise this right more than once in any 12-month period;
 
 
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(c)  Except as set forth in Section 1.3, during the period starting with the
date sixty (60) days prior to the Company’s good faith estimate of the date of
filing of, and ending on a date one hundred eighty (180) days after the
effective date of, a Company-initiated registration (other than a registration
with respect to an employee benefit plan or a registration relating solely to a
transaction covered by Rule 145 promulgated under the Act);
 
(d)  Within one hundred eighty (180) days after the Company has effected a
registration (other than a registration with respect to an employee stock plan
or a registration of securities in a Rule 145 transaction); or
 
(e)  With respect to Holder at and following such time as all of such Holder’s
Registrable Securities may be sold within a three-month period pursuant to
Rule 144.
 
Section 2
Covenants
 
2.1  Affirmative Covenants.
 
(a)  From and after the Second Closing Date, the Company and the Management
Shareholders, as applicable, will take each of the following actions:
 
(i)  Upon the exercise of the Warrant, the Company shall promptly issue Common
Stock to the holder of the Warrant in accordance with the terms of the Warrant,
and shall promptly issue a new Warrant to the Holder in the same form as the
form of the Warrant being exercised.
 
(ii)  The Company shall promptly notify Investor of any contemplated change in,
or additions to, the positions held by the Management Shareholders and their
successors.
 
(iii)  On or before sixty (60) days before the end of each fiscal year, an
Annual Budget shall be submitted to the Board of Directors by the Management
Shareholders for approval by the Board of Directors.
 
(iv)  On or before sixty (60) days before the end of each fiscal year, a
business plan (“Business Plan”) for the Company shall be submitted by the
Management Shareholders to the Board of Directors for approval of the Board of
Directors. The Business Plan shall include a description of management’s
intentions with regard to anticipated significant business developments or
objectives of the Company, and shall include, but not be limited to, the
following information: (i) business strategy and targets; (ii) product and
service strategy and targets; (iii) pricing policy; (iv) personnel policy and
hiring plans; (v) investment strategy; (vi) financing requirements for working
capital, investment and expansion; (vii) revenue and profit targets; (viii) a
marketing plan; and (ix) technical development plan.
 
 
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EXHIBIT D
STOCK PURCHASE AND LOAN OPTION AGREEMENT
 
(b)  From and after the Initial Closing Date and until the Second Closing Date:
 
(i)  at any time any notice, report, inquiry, answer, response or other
communication or document relating to any aspect of the Company’s business is
received by the Company from any governmental or regulatory authority or agency
which relates to any adverse determination and/or investigational proceeding,
the Company shall promptly send a copy thereof to Investor. At the time the
Company receives notice of, or becomes aware that, any material suit, action,
proceeding or investigation has been filed, instituted or threatened against the
Company, the Company promptly shall notify Investor concerning all material
details thereof and will keep Investor reasonably informed with respect to the
matter.
 
(ii)  The Company shall disclose to Investor all written offers or proposals of
whatever kind which it receives from any person concerning the possible sale,
merger or other acquisition of the Company, or the businesses, or any portion or
assets of the Company, or any joint venture. Promptly after any officer or
director of the Company becomes aware of any such written offer or proposal made
to any of its shareholders, the Company shall advise Investor of the offer or
proposal.
 
(iii)  The Company shall, within ten (10) business days of its discovery of any
default under this Agreement or the Purchase Agreement, including any default
under any other agreement executed in connection with this Agreement or the
Purchase Agreement, or under any other loan or lease pursuant to which the
Company is obligated to any third party, furnish Investor with a copy of any
notification of default (in the case such notification is received with respect
to obligations owing to third parties) and a written explanation of the
circumstances involved.
 
(iv)  The Company and the Investor will jointly determine the best strategy for
protecting the Company’s intellectual property and complete the filing of the
necessary applications and documentation in the various jurisdictions approved
by both the Company and the Investor. In
 
2.2  Attendance at Board Meeting. For so long as Investor owns any of the
Securities, Investor will be entitled to notice of, have the right to attend,
and receive copies of all materials distributed to members of the Company’s
Board of Directors in connection with any and meetings of the Company’s Board of
Directors or any committee thereof.
 
2.3  Visitation Rights. Investor and its designated representatives, at their
expense, shall have the right to visit the Company’s facilities and premises and
to speak with, question and interview any employee, director, executive,
associate or affiliate of the Company, at such reasonable times as may be
requested by such Investor and their designated representatives, following oral
or written notification to the Company.
 
2.4  Negative Covenants.  From and after the Second Closing Date, the Company
will not take, and the Management Shareholders will cause the Company not to
take, any of the following actions without the prior written consent of the
Investor:
 
(a)  Purchase or otherwise acquire, redeem or retire any capital stock of the
Company;
 
 
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EXHIBIT D
STOCK PURCHASE AND LOAN OPTION AGREEMENT
 
(b)  Except as approved in the Budget, make or have outstanding any loans or
advances to, or investments in (through the acquisition of securities or stock
or otherwise), any other person, firm, corporation or other entity, except
advances in the ordinary course of business;
 
(c)  Except as approved in the Budget, purchase or otherwise acquire the stock,
shares or other securities, or the assets or business of any person or other
entity; sell all or substantially all of the Company’s assets; liquidate,
dissolve, merge, consolidate, reorganize, recapitalize, or otherwise alter its
legal status or commence any proceedings therefor, or sell, lease, transfer or
dispose of, in any way, any personal or real property of the Company having a
value in excess of $5,000, except for assets sold or leased in the ordinary and
normal course of the Company’s business; discount or sell accounts receivable,
or assign or transfer any substantial part of the intangible business rights
necessary for the continuance of the business of the Company as now conducted or
proposed to be conducted; enter into an agreement to sell or exchange or
otherwise facilitate a sale or exchange of the Company’s stock to a third party;
or organize or acquire any entity that is a subsidiary unless such subsidiary is
wholly owned by the Company;
 
(d)  Increase or decrease the number of its authorized shares, or vary or alter
the terms, par value or rights of shares of any class or type of stock; except
with respect to options, conversions or warrant exercises described in Schedule
3.4 to the Purchase Agreement, or issue or agree to issue any stock or other
securities of the Company, or issue any options, warrants or other rights to
acquire such stock or other equity securities of the Company or securities
convertible into stock or other equity securities of the Company; or create any
new class of stock of the Company; or adopt, implement or alter any stock option
plan for directors, employees or consultants;
 
(e)  Enter into any agreement that would restrict the Company’s right to perform
under the Purchase Agreement or any of the Transaction Documents;
 
(f)  Amend or change the Company’s Certificate of Incorporation or Bylaws,
including by way of merger, or violate or breach any of the provisions of the
Certificate of Incorporation or Bylaws of the Company;
 
(g)  Significantly change the nature of the Company’s business as conducted
before the Initial Closing, or engage in any type of business not reasonably
related to the business of the Company as presently conducted or contemplated to
be conducted;
 
(h)  Enter into any transaction with a related party;
 
(i)  Adopt a Budget not approved by the Investor Director(s) (as hereinafter
defined);
 
(j)  Make any capital expenditure not in Company’s Budget or make any single
item of capital expenditure exceeding $5,000 on any one occasion and/or capital
expenditure exceeding $10,000 in any one month;
 
(k)  Except as approved in the Budget, do any of the following:
 
(i)  create, assume, issue or incur indebtedness, excluding ordinary trade
payables, and debt greater than $25,000;
 
 
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EXHIBIT D
STOCK PURCHASE AND LOAN OPTION AGREEMENT
 
(ii)  create any financial obligations in excess of $25,000 in the aggregate in
any consecutive 12 month period which are not reported as liabilities or
obligations to pay to their full extent on the balance sheet of the financial
statements of the Company, whether such obligations be leases, lease-purchases,
non-recourse financing, or any other means or methods commonly referred to as
“off balance sheet financing”;
 
(iii)  extend, endorse, or guarantee, or become a surety, accommodation party,
or are responsible for, any indebtedness or other obligation of any other person
in excess of $25,000 in any single transaction, except for guarantees and
endorsements made in connection with the deposit of items for collection;
 
(iv)  incur, create, enter into, or assume a commitment to enter into or make
any payment under any lease, contract, arrangement or other commitment (oral or
written) if immediately therefor, the aggregate of all such payments to be made
in any consecutive 12 month period would exceed $100,000, unless the lease,
contract, arrangement or other commitment is terminable at will by the Company
upon not more than thirty (30) days’ advance notice; or
 
(v)  except for an obligation permitted pursuant to the Budget, incur, create,
enter into, or assume a commitment which restricts, conditions, prohibits or
otherwise adversely affects the Company’s ability to declare or pay dividends,
or make other distributions in cash, property or stock, with respect to its
capital stock.;
 
2.5  Termination of Negative Covenants. The Company’s obligations under
Section 2.4 will terminate upon the termination of Restrictions under Section
3.3 hereof.
 
Section 3
Board Representation and Voting
 
3.1  Board Representation.
 
(a)  At the Initial Closing, the two current members of the Company’s Board of
Directors, Dr. William C. Tao and Randall S. Reis, agree to appoint and elect
the nominee of the Investor (“Investor Director”) to fill the current vacancy on
the Company’s Board of Directors.
 
(b)  After the Second Closing, the Board of Directors shall amend the Company’s
Bylaws to increase the size of the Company’s Board of Directors to five (5)
directors. The Investor shall have the right to nominate and the sitting
directors agree to elect 2 more members of the Company’s Board of Directors
(also the “Investor Directors”). In the case of a vacancy in an Investor
Directorship, the Investor may elect a successor to hold office for the
unexpired term of the Investor Director whose place shall be vacant. Investor
Directors may be removed, with or without cause, only by the Investor.
 
(c)  If any Default or Event of Default, as defined in the Purchase Agreement,
occurs after the Second Closing, and is continuing, Investor and the Management
Shareholders shall cause the directors who are not Investor Directors to be
removed from the Company’s Board of Directors, and the Investor and the
Management Shareholders agree to elect the replacement directors (“Replacement
Directors”) nominated by Investor. When the Default or Event of Default is cured
to the Investor’s satisfaction, Investor and the Management Shareholders shall
cause the Replacement Directors to be removed and be replaced by directors
nominated by the shareholders of the Company.
 
 
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EXHIBIT D
STOCK PURCHASE AND LOAN OPTION AGREEMENT
 
(d)  Any vacancy in the office of a non-Investor Director shall be filled by the
remaining non-Investor Director then in office, or, if none, upon nomination by
the CEO of the Company, and such successor shall hold office for the unexpired
term of the non-Investor Director whose seat became vacant, or until his or her
earlier death, resignation or removal.
 
3.2  Extraordinary Transactions. The following matters involving the
determination of “fair market value” require the approval of the majority of the
Board of Directors, subject to validation from independent auditors as defined
below while the remaining matters listed will require the two-thirds approval of
the Board of Directors (should the two-thirds calculation result in a fractional
number of directors the required number of directors shall be the next higher
integer number of directors):
 
(a)  Sell for less than fair market value all or substantially all of the assets
of the Company, or any substantial portion of the intangible business rights
necessary for the continuance of the business of the Company as now conducted or
proposed to be conducted;
 
(b)  Liquidate, dissolve and/or wind up the Company on terms less than fair
market value;
 
(c)  Merge the Company (and/or a subsidiary of the Company) with or into any
other entity that is an Affiliate of the Investor on terms less than fair market
value;
 
(d)  Authorize or effect any consolidation, reorganization, recapitalization,
dividend, stock dividend, stock split, reverse stock split, tender offer,
repurchase or going private transaction or other change in the corporate
structure or capitalization of the Company;
 
(e)  Increase or decrease the number of directors of the Company;
 
(f)  Except as provided in Section 3.1(c), remove or replace either of the two
existing non-Investor Directors and Managing Shareholders, William C. Tao and
Randall S. Reis, with or without cause, from the Board of Directors of the
Company, and the Investor agrees to vote all of its voting stock in the Company
for the election of each such non-Investor Director at any meeting of the
stockholders of the Company called to elect Directors
 
3.3  Voting. With respect to any proposal concerning the election of a director,
the Investor and the Management Shareholders agree to vote all shares of the
Company’s capital stock at the time beneficially owned by them or over which
they have voting control at any regular or special meeting of stockholders of
the Company, or, in lieu of any such meeting, to give their written consent, (i)
to elect only a nominee, or nominees, for the Board of Directors who is, or are,
nominated or to be elected in accordance with this Section 3 and (ii) to effect
or enforce any rights with respect to removal of a director or directors set
forth in this Section 3. The voting agreements contained herein are coupled with
an interest and may not be revoked during the term of this Agreement except as
otherwise specifically set forth to the contrary herein. The provisions of this
Agreement shall be binding upon the successors in interest of the Investor and
the Management Shareholders to any of the shares at any time beneficially owned
by them or over which they have at any time had voting control. The Company
shall not
 
 
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EXHIBIT D
STOCK PURCHASE AND LOAN OPTION AGREEMENT
 
permit the transfer of any shares subject to this Agreement on its books or
issue a new certificate representing those shares unless and until the person to
whom those shares are to be transferred has executed a written agreement,
satisfactory in form and substance to the Company, pursuant to which the
transferee becomes a party to this Agreement and agrees to be bound by all
provisions of this Section 3 as if it were a Investor or Founder hereunder. The
Management Shareholders agree to execute a Voting Agreement in the form of
Exhibit D to effect the provisions of this Section 3. Each certificate
representing the Investor’s or any Founder’s Company capital stock shall be
endorsed by the Company with a legend as follows:
 
“THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A VOTING AGREEMENT
AND AN INVESTOR RIGHTS AND STOCKHOLDERS AGREEMENT BY AND AMONG THE REGISTERED
OWNER OF THIS CERTIFICATE AND THE COMPANY, COPIES OF WHICH ARE AVAILABLE FOR
INSPECTION AT THE OFFICES OF THE COMPANY, AND BY ACCEPTING ANY INTEREST IN THE
SHARES THE PARTY ACCEPTING THE INTEREST SHALL BE DEEMED TO AGREE TO AND SHALL
BECOME BOUND BY ALL THE PROVISIONS OF THE VOTING AGREEMENT AND THE INVESTOR
RIGHTS AND STOCKHOLDERS AGREEMENT.”
 
Section 4
Right of Participation as to Sales by the Company
 
4.1  The Right. Prior to any sale or issuance by the Company of any Equity
Securities (as defined in Section 4.6), it will give Investor the right to
purchase its pro rata share (or any part thereof) of all such Equity Securities
on the same terms as the Company is willing to sell such Equity Securities to
potential investors. Investor’s pro rata share of the Equity Securities will be
a fraction calculated by dividing (i) the number of shares of Common Stock
issued or issuable upon conversion of all outstanding Equity Securities held by
such Investor as of the date of issuance of the Equity Securities (determined
immediately prior thereto) by (ii) the total number of shares of Common Stock
issued or issuable upon conversion or exercise of all outstanding Equity
Securities as of such date. For purposes of this Section 4.1, the stock of the
Company will be arithmetically adjusted for subdivisions, combinations, stock
dividends, recapitalizations and the like.
 
4.2  Notice. Prior to any sale or issuance by the Company of any Equity
Securities, the Company will notify Investor, in writing, of the Company’s
intention to sell and issue such Equity Securities, setting forth the general
terms under which it proposes to make such sale. Investor will have twenty (20)
days after delivery of such notice to notify the Company in writing that
Investor elects to purchase all or a portion of the Equity Securities so offered
to Investor. If Investor elects to exercise its right of participation granted
under this Section 4, Company will use its commercially reasonable efforts to
effectuate the purchase of and sale of Equity Securities within twenty (20) days
of the date of such notice.
 
4.3  Failure to Notify. If, within twenty (20) days after the Company gives its
aforesaid notice to Investor, Investor does not notify the Company that it
desires to purchase all or a portion of the Equity Securities offered to such
Investor in such notice upon the terms and conditions set forth in such notice,
then the Company may, during a period of one hundred twenty (120) days following
the end of such twenty (20) day period, sell and issue such Equity Securities at
a price and upon terms and conditions no more favorable in any material respect
to such investors as those set forth in the notice to the Investor. In the event
that the Company has not sold such Equity Securities to such investors within
such one hundred twenty (120) day period, the Company will not thereafter issue
or sell such Equity Securities without first offering such securities to the
Investor in the manner provided above.
 
 
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EXHIBIT D
STOCK PURCHASE AND LOAN OPTION AGREEMENT
 
4.4  Payment. If Investor gives the Company notice that it desires to purchase
up to all of its portion of the Equity Securities offered by the Company, then
payment for such Equity Securities will be by check or wire transfer, against
delivery of the securities at the executive offices of the Company at the time
of the scheduled closing therefor.
 
4.5  Limitations.
 
(a)  The right of participation contained in this Section 4 will not apply to
the issuance by the Company on or after the date hereof of the following Equity
Securities:
 
(i)  shares of Common Stock, or options or warrants therefor, issued or granted
to officers, directors, employees and independent contractors of the Company
pursuant to the Company’s Stock Option Plan, approved by the Board and in effect
on the date hereof;
 
(ii)  shares of Common Stock issuable upon conversion of any Series A Preferred
Stock of the Company;
 
(iii)  shares of Common Stock or Series A Preferred Stock issued in connection
with any stock split, stock dividend, combination, recapitalization or other
similar pro rata transaction by the Company affecting its current shareholders
and that does not involve the acquisition by any third party of any securities
of the Company;
 
(iv)  securities issued or issuable pursuant to the exercise, conversion or
exchange of stock options, convertible notes, warrants and other Equity
Securities outstanding on the date hereof;
 
(v)  Equity Securities issued by the Company in connection with an acquisition
of the stock or other securities of another entity or in connection with the
acquisition of the assets of another entity by merger or otherwise approved by
the Board of Directors;
 
(vi)  Securities issued to vendors or customers or to other persons in similar
commercial situations with the Company if such issuance is approved by the Board
of Directors; or
 
(vii)  Securities issued in connection with corporate partnership transactions
on terms approved by the Board of Directors.
 
4.6  Equity Securities. For purposes of this Agreement, the term “Equity
Securities” means any securities having voting rights in the election of the
Board or any securities evidencing an ownership interest in the Company, or any
securities convertible into or exercisable or exchangeable for any shares of the
foregoing, or any agreement to issue any of the foregoing.
 
 
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4.7  Transfers. Subject to Section 5 and the other restrictions on the transfer
of Equity Securities set forth in this Agreement, the rights granted pursuant to
this Section 4 may be assigned by Investor or its transferee upon sale or
transfer (other than a sale to the public) of 10% or more of the transferor’s
shares or shares of Common Stock issuable upon conversion thereof (as adjusted
for subdivisions, combinations, stock dividends, recapitalizations and the
like.).
 
4.8  Termination. Except as otherwise provided herein, the right of
participation contained in this Section 4 will terminate upon shareholder
approval of any merger, reorganization or consolidation of the Company with any
other corporation in which more than 50% of the voting control of the Company is
transferred to a third party or third parties; provided, however, that, if such
merger, reorganization or consolidation is not consummated, such right of
participation will be deemed restored and reinstated to full force and effect.

Section 5
Sales by the Management Shareholders
 
5.1  Right of First Refusal. In the event a Management Shareholder holding
shares of Common Stock desires to accept a bona fide third-party offer for the
sale of any or all of the Common Stock (the shares subject to such offer being
the “Target Shares”) owned by such Management Shareholder, such Management
Shareholder (a “Transferring Management Shareholder”) will give Investor the
right to purchase its pro rata share (or any part thereof) of all such Target
Shares on the same terms offered to the Transferring Management Shareholder (the
“Right of First Refusal”). Investor’s pro rata share of such Target Shares will
be a fraction calculated by dividing (i) the number of shares of Common Stock
issued or issuable upon conversion of all outstanding Equity Securities held by
Investor as of such date by (ii) the total number of shares of Common Stock
issued and outstanding and shares of Common Stock issuable upon conversion or
exercise of all outstanding Equity Securities as of such date. “Equity
Securities” means any securities having voting rights in the election of the
Board or any securities evidencing an ownership interest in the Company, or any
securities convertible into or exercisable or exchangeable for any shares of the
foregoing, or any agreement to issue any of the foregoing.
 
(a)  Notice. Prior to any sale by a Transferring Management Shareholder of any
Target Shares, the Transferring Management Shareholder will give notice (a
“Disposition Notice”) to Investor of the Transferring Management Shareholder’s
intention to sell such Target Shares, setting forth the general terms,
including, without limitation, the number of Target Shares to be sold or
transferred and the consideration to be paid, under which it proposes to make
such transfer, including the identity of the offeror (the “Offeror”). 
 
(b)  Exercise of Right by the Investors. Investor will, for a period of twenty
(20) days from the date of the Disposition Notice, have the right to purchase
Investor’s pro rata share of the Target Shares, upon the terms and conditions
specified in the Disposition Notice. To the extent that Investor exercises such
right of participation in accordance with the terms and conditions set forth
herein, the number of Target Shares that the Management Shareholder may sell in
the transaction shall be correspondingly reduced.
 
(c)  Payment. If Investor gives the Transferring Management Shareholder valid
and timely notice that it desires to purchase up to all of its portion of the
Target Shares offered by the Transferring Management Shareholder, then payment
for such Target Shares will be by check delivered to the Transferring Management
Shareholder.
 
 
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EXHIBIT D
STOCK PURCHASE AND LOAN OPTION AGREEMENT
 
5.2  Right of Co-Sale. In the event that a Management Shareholder holding shares
of Common Stock desires to accept such a bona fide third-party offer for the
sale of any or all of the Target Shares owned by such Management Shareholder,
then Investor, in lieu of exercising its Right of First Refusal set forth in
Section 4, may elect to exercise its right of co-sale as set forth below (the
“Right of Co-Sale”) for a period of twenty (20) days from the date of the
Disposition Notice. To the extent Investor exercises such Right of Co-Sale in
accordance with the terms and conditions set forth below, the number of shares
of Common Stock the Transferring Management Shareholder may sell will be
correspondingly reduced. The Right of Co-Sale of Investor will be subject to the
following terms and conditions:
 
(a)  Investor may sell all or any part of that number of shares of Common Stock
of the Company equal to the product obtained by multiplying (i) the aggregate
number of shares of Common Stock covered by the Disposition Notice by (ii) a
fraction, the numerator of which is the sum of all shares of Common Stock held
by Investor plus that number of shares of Common Stock that are issuable upon
conversion or exercise of all outstanding Equity Securities then held by
Investor, and the denominator of which is the total number of shares of Common
Stock issued and outstanding plus the total number of shares of Common Stock
issuable upon conversion or exercise of all outstanding Equity Securities as of
such date.
 
(b)  Investor may effect its individual participation in the sale by delivering
to the Transferring Management Shareholder for transfer to the Offeror one or
more certificates, properly endorsed for transfer, which represent either one or
any combination of the following:
 
(i)  the number of shares of Common Stock that it elects to sell pursuant to
this Section 5.2; or
 
(ii)  that number of Equity Securities that it has elected to sell pursuant to
this Section 5.2; provided, however, that if the Offeror objects to the delivery
of Equity Securities in lieu of Common Stock, the Investor shall convert or
exercise such Equity Securities and deliver Common Stock as provided in
clause (i) above.
 
(c)  Payment of Proceeds. The certificates that Investor delivers to such
Transferring Management Shareholder will be transferred by the Transferring
Management Shareholder to the Offeror in consummation of the sale of the Target
Shares pursuant to the terms and conditions specified in the Disposition Notice
to the Investor, and such Transferring Management Shareholder will promptly
thereafter remit to each Investor that portion of the sale proceeds to which
such Investor is entitled by reason of its participation in such sale.
 
5.3  Failure to Notify. If, within twenty (20) days after the Transferring
Management Shareholder gives the Disposition Notice to Investor, Investor does
not notify the Transferring Management Shareholder that it desires to exercise
its Right of First Refusal or Right of Co-Sale, then the Transferring Management
Shareholder may, during a period of one hundred twenty (120) days following the
end of such twenty (20) day period, sell the Target Shares at a price and upon
terms and conditions no more favorable in any material respect to such Offeror
as set forth in the notice to the Investor. In the event that the Transferring
Management Shareholder has not sold such Target Shares
 
 
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EXHIBIT D
STOCK PURCHASE AND LOAN OPTION AGREEMENT
 
to the Offeror within such one hundred twenty (120) day period, the Transferring
Management Shareholder will not thereafter sell such Target Shares without first
offering to sell such securities to the Investor pursuant to this Section 5. An
Offeror that is not an affiliate of the Transferring Management Shareholder will
acquire the shares free and clear of subsequent rights of first refusal and
co-sale under this Section 5. An Offeror that is an affiliate of the
Transferring Management Shareholder will acquire the shares subject to the
rights of first refusal and co-sale under this Section 5. In the event the
Transferring Management Shareholder does not notify the Investor or consummate
the sale or disposition of the shares within the one hundred twenty (120) day
period, the Company’s and the Investor’s first refusal rights and participation
rights will continue to be applicable to any subsequent disposition of the
shares by Transferring Management Shareholder until such right lapses in
accordance with Section 5.6 herein.
 
5.4  Permitted Transactions. Notwithstanding the foregoing, the Rights of First
Refusal and Co-Sale will not apply to:
 
(a)  transactions by a Management Shareholder involving the sale or transfer of
in aggregate fewer than ten percent (10%) of such Management Shareholders shares
of Common Stock in a calendar year; or
 
(b)  any transfer to the ancestors, descendants, siblings or spouse of a
Transferring Management Shareholder or to trusts for the benefit of such persons
or to estate-planning vehicles for the Transferring Management Shareholder;
provided, however, that the transferee will furnish the Investor and the Company
with a written agreement to be bound by and comply with all provisions of this
Section 5. Such transferee will be treated as a “Transferring Management
Shareholder” for the purposes of this Section 5.
 
5.5  Prohibited Transfers. In the event a Transferring Management Shareholder
should sell any Equity Securities in contravention of the Right of Co-Sale (a
“Prohibited Transfer”), the Investor, in addition to such other remedies as may
be available at law, in equity or hereunder, will have the put option provided
below, and such Transferring Management Shareholder will be bound by the
applicable provisions of such option.
 
(a)  In the event of a Prohibited Transfer, Investor will have the right to sell
to such Transferring Management Shareholder the type and number of shares of
Equity Securities of the Company equal to the number of shares Investor would
have been entitled to transfer to the third-party transferee(s) under Section
5.2 had the Prohibited Transfer been effected pursuant to and in compliance with
the terms hereof. Such sale will be made on the following terms and conditions:
 
(i)  The price per share at which the shares are to be sold to such Transferring
Management Shareholder will be equal to the price per share paid by the
third-party transferee(s) to such Transferring Management Shareholder in the
Prohibited Transfer. Such Transferring Management Shareholder will also
reimburse Investor for any and all fees and expense, including legal fees and
expenses, incurred pursuant to the exercise or the attempted exercise of the
Investor’s rights under Section 5.
 
(ii)  Within ninety (90) days after the later of the dates on which the Investor
(A) received notice of the Prohibited Transfer or (B) otherwise became aware of
the Prohibited Transfer, Investor will, if exercising the option created hereby,
deliver to such Management Shareholder the certificate or certificates
representing shares to be sold, each certificate to be properly endorsed for
transfer.
 
 
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EXHIBIT D
STOCK PURCHASE AND LOAN OPTION AGREEMENT
 
(iii)  Such Transferring Management Shareholder will, upon receipt of the
certificate or certificates for the shares to be sold by Investor, pursuant to
this Section 5.5, pay the aggregate purchase price therefor and the amount of
reimbursable fees and expenses, as specified in Section 5.5(a)(i), in cash or by
other means acceptable to the Investor.
 
(iv)  Notwithstanding the foregoing, any attempt by a Transferring Management
Shareholder to transfer Equity Securities in violation of Section 5 will be void
and the Company agrees it will not effect such a transfer nor will it treat any
alleged transferee(s) as the holder of such shares without the written consent
of a majority in interest of Investors.
 
5.6  Termination. The Rights of First Refusal and Co-Sale contained in this
Section 5 will terminate upon shareholder approval of any merger, reorganization
or consolidation of the Company with any other corporation in which more than
50% of the voting control of the Company is transferred to a third party or
third parties; provided, however, that, if such merger, reorganization or
consolidation is not consummated, such Rights of First Refusal and Co-Sale will
be deemed restored and reinstated to full force and effect.
 
5.7  Legends. 
 
(a)  Each certificate representing Common Stock owned by a Management
Shareholder will be endorsed with the following legend:
 
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RIGHTS OF
FIRST REFUSAL AND CO-SALE PURSUANT TO AN INVESTOR RIGHTS AND STOCKHOLDER
AGREEMENT DATED _________________, 2005, BETWEEN THE REGISTERED HOLDER, OR SUCH
HOLDER’S PREDECESSOR IN INTEREST, THE ISSUER AND CERTAIN HOLDERS OF COMMON STOCK
AND/OR PREFERRED STOCK OF THE ISSUER, A COPY OF WHICH IS ON FILE AT THE
PRINCIPAL OFFICE OF THE ISSUER.
 
(b)  This legend will be removed upon termination of these Rights of First
Refusal and Co-Sale in accordance with the provisions of Section 5.6.
 
Section 6
Restrictions on Transferability; Additional Covenant of the Company
 
6.1  Restrictions. The Restricted Securities will not be transferred except upon
the conditions specified in this Agreement (including, without limitation, the
conditions specified in any legend stamped or otherwise imprinted on any
certificate representing such Restricted Securities). Each Holder of Restricted
Securities will cause any proposed transferee of Restricted Securities held by
that Holder to agree to take and hold those securities subject to the provisions
and upon the conditions specified in this Agreement.
 
 
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EXHIBIT D
STOCK PURCHASE AND LOAN OPTION AGREEMENT
 
6.2  Restrictive Legend. Each certificate representing Shares will (unless
otherwise permitted by this Agreement and applicable law or unless the
securities evidenced by such certificate will have been registered under the
Securities Act) be stamped or otherwise imprinted with a legend substantially in
the following form (in addition to any legend required under applicable state
securities laws):
 
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, (THE
“SECURITIES ACT”) OR ANY STATE SECURITIES LAWS. SUCH SHARES MAY NOT BE SOLD OR
OFFERED FOR SALE IN THE ABSENCE OF SUCH REGISTRATION OR AN OPINION OF COUNSEL
SATISFACTORY TO THE ISSUER AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT
REQUIRED UNDER THE SECURITIES ACT.
 
Upon request of a Holder of such a certificate, the Company will remove the
foregoing legend from the certificate or issue to such Holder a new certificate
therefor free of any transfer legend, if, with such request, the Company will
have received either the opinion referred to in Section 6.3(i) or the
“no-action” letter referred to in Section 6.3(ii) to the effect that any
transfer by such Holder of the securities evidenced by such certificate will not
violate the Securities Act and applicable state securities laws, unless any such
transfer legend may be removed pursuant to Rule 144(k), in which case no such
opinion or “no-action” letter will be required.
 
6.3  Notice of Proposed Transfers. The Holder of each certificate representing
Restricted Securities by acceptance thereof agrees to comply in all respects
with the provisions of this Section 6.3. Prior to any proposed transfer of any
Restricted Securities (other than under circumstances described in Sections 1.2,
1.3 and 1.5), the Holder thereof will give written notice to the Company of such
Holder’s intention to effect such transfer. Each such notice will describe the
manner and circumstances of the proposed transfer in sufficient detail, and will
be accompanied (except in transactions in compliance with Rule 144(k)
promulgated under the Securities Act or for a transfer to a holder’s spouse,
ancestors, descendants or a trust for any of their benefit, or in transactions
involving the distribution without consideration of Restricted Securities by a
Holder to any of its partners or retired partners or to the estate of any of its
partners or retired partners) by either: (i) a written opinion of legal counsel
to the Holder who will be reasonably satisfactory to the Company, addressed to
the Company and reasonably satisfactory in form and substance to the Company’s
counsel, to the effect that the proposed transfer of the Restricted Securities
may be effected without registration under the Securities Act or (ii) a
“no-action” letter from the Commission to the effect that the distribution of
such securities without registration will not result in a recommendation by the
staff of the Commission that action be taken with respect thereto, whereupon the
Holder of such Restricted Securities will be entitled to transfer such
Restricted Securities in accordance with the terms of the notice delivered by
such Holder to the Company. Each certificate evidencing the Restricted
Securities transferred as above provided will bear the restrictive legend set
forth in Section 6.2.
 
 
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EXHIBIT D
STOCK PURCHASE AND LOAN OPTION AGREEMENT
 
Section 7
Miscellaneous
 
7.1  Governing Law. This Agreement will be governed by and construed in
accordance with the laws of the State of California as such laws are applied to
agreements entered into and to be performed entirely within California by
California residents. The parties hereto agree to submit to the jurisdiction of
the federal and state courts of the State of California with respect to the
breach or interpretation of this Agreement or the enforcement of any and all
rights, duties, liabilities, obligations, powers, and other relations between
the parties arising under this Agreement.
 
7.2  Aggregation of Stock. All of the Shares held or acquired by affiliated
entities or persons will be aggregated together for the purpose of determining
the availability of any rights under this Agreement.
 
7.3  Successors and Assigns. Except as otherwise expressly provided herein, the
provisions hereof will inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
 
7.4  Notices, Etc. All notices and other communications required or permitted
hereunder will be in writing and will be mailed by first-class mail, postage
prepaid, or delivered either by hand or by nationally recognized overnight
delivery service addressed (a) if to Investor, as indicated on the signature
pages hereto, or at such other address as Investor will have furnished to the
Company in writing, (b) if to a Management Shareholder, as indicated on the
signature pages hereto, or at such other address as such Management Shareholder
shall have furnished to the Company in writing, or (c) if to the Company, at its
address set forth at the end of this agreement or at such other address as the
Company will have furnished to the Investor in writing. Each such notice or
other communication will for all purposes of this Agreement be treated as
effective or having been given when delivered if delivered by hand or by
overnight delivery service, or, if sent by mail, at the earlier of its receipt
or seventy-two hours after the same has been deposited in a regularly maintained
receptacle for the deposit of the United States mail, first-class postage
prepaid, addressed and mailed as aforesaid; provided, however, that United
States mail shall not be used to effectuate the delivery of any such notice to
addresses outside the United States.
 
7.5  Entire Agreement; Amendment and Waiver. This Agreement (including all
attached exhibits) and the other documents delivered pursuant hereto constitute
the full and entire understanding and agreement between the parties with regard
to the subjects hereof and thereof. This Agreement and any term hereof may be
amended, waived, discharged or terminated by a written instrument signed by the
Company and Investor. Any amendment so effected will be binding upon the Company
and all other persons having any rights hereunder. No delay or omission to
exercise any right, power or remedy accruing to a party upon any breach or
default of another party under this Agreement will impair any such right, power
or remedy, nor will it be construed to be a waiver of any such breach or
default, or any acquiescence therein, or of any similar breach or default
thereafter occurring; nor will any waiver of any single breach or default be
deemed a waiver of any other breach or default theretofore or thereafter
occurring.
 
7.6  Gender. The use of the neuter gender herein will be deemed to include the
masculine and the feminine gender, if the context so requires.
 
 
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EXHIBIT D
STOCK PURCHASE AND LOAN OPTION AGREEMENT
 
7.7  Validity; Enforceability. In case any provision of this Agreement is
declared invalid or unenforceable, the validity, legality and enforceability of
the remaining provisions will not in any way be affected or impaired thereby.
 
7.8  Counterparts. This Agreement may be executed in any number of counterparts,
each of which will be an original, but all of which together will constitute one
instrument.
 
IN WITNESS WHEREOF, the parties have executed this Investor Rights and
Stockholder Agreement as of the date first above written.
 
MR3 SYSTEMS, INC., a Delaware corporation
 
 
 
/s/ William C. Tao

--------------------------------------------------------------------------------

(Signature)
 
William C. Tao

--------------------------------------------------------------------------------

(Printed Name)
 
Chief Executive Officer

--------------------------------------------------------------------------------

(Title, if signing on behalf of entity)
MRD HOLDINGS INC., A Delaware corporation
 
 
 
/s/ Charles K. C. Chan

--------------------------------------------------------------------------------

(Signature)
 
Charles K. C. Chan

--------------------------------------------------------------------------------

(Printed Name)
 
Managing Director

--------------------------------------------------------------------------------

(Title, if signing on behalf of entity)

 
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EXHIBIT A-1
 
SCHEDULE OF MANAGEMENT SHAREHOLDERS

Name of Management Shareholder Number of Shares    

 

 
 

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EXHIBIT D
STOCK PURCHASE AND LOAN OPTION AGREEMENT

 
 
 

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MR3 Systems, Inc.

INVESTOR RIGHTS AND STOCKHOLDER AGREEMENT

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EXHIBIT D
STOCK PURCHASE AND LOAN OPTION AGREEMENT

 
Section 1
Registration Rights
1

 
Section 2
Covenants
11

 
Section 3
Board Representation and Voting
14

 
Section 4
Right of Participation as to Sales by the Company
16

 
Section 5
Sales by the Management Shareholders
18

 
Section 6
Restrictions on Transferability; Additional Covenant of the Company
21

 
Section 7
Miscellaneous
23

 
 
 
 

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