Document:

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
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        STOCK
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      “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
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        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
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        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
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        STOCK
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      (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
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      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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          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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      (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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          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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      (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
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      (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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          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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      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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      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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          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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          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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      (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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      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
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          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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      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
	 	 

      

      

       

      

      

      

      

      

      
        
           

        

        
           

          
            

          

        

        
           

          
          

        

      

      EXHIBIT
        D

      STOCK
        PURCHASE AND LOAN OPTION
        AGREEMENT

       

       

       

      

        
          

        

      

      MR3
        Systems, Inc.

      

      INVESTOR
        RIGHTS AND STOCKHOLDER AGREEMENT

      

      
        
          

        

      

      

      

      

       

      

       

      

      
        
           

        

        
           

          
            

          

        

        
           

          
          

        

      

      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

              	23EXHIBIT
        10.6

       

      EXHIBIT
        E

      STOCK
        PURCHASE AND LOAN OPTION AGREEMENT

       

      SECURITY
        AGREEMENT

       

      THIS
        SECURITY AGREEMENT (this “Agreement”),
        dated
        as of  May 30, 2005, by and between MR3 Systems, Inc., a Delaware
        corporation (“Borrower”),
        and
        MRD Holdings Inc. (“Lender”),
        pursuant to a Stock Purchase and Loan Option Agreement dated May 30, 2005,
        between Borrower and Lender (the “Purchase Agreement”).

       

      W
        I T N E S S E T H:

       

      WHEREAS,
        all capitalized terms not otherwise defined herein shall have the same meanings
        as defined in the Purchase Agreement.

       

      WHEREAS,
        pursuant to the Purchase Agreement, the Lender loaned to Borrower the principal
        amount of $4,500,000 pursuant to the Convertible Promissory Notes (the
“Notes”)
        described in the Purchase Agreement.

       

      WHEREAS,
        in order to induce the Lender to complete the transaction contemplated by
        the
        Purchase Agreement, Borrower has agreed to execute and deliver to Lender
        this
        Agreement for the benefit of Lender and to grant to it a first priority security
        interest in certain property of the Borrower to secure the prompt payment,
        performance and discharge in full of all of the obligations under this Agreement
        and the Notes. 

       

      NOW,
        THEREFORE, in consideration of the agreements herein contained and for other
        good and valuable consideration, the receipt and sufficiency of which is
        hereby
        acknowledged, the parties hereto hereby agree as follows:

       

      1.    Certain
        Definitions. As used in this Agreement, the following terms shall have the
        meanings set forth in this Section 1. Terms used but not otherwise defined
        in
        this Agreement that are defined in Article 9 of the UCC (such as “general
        intangibles” and “proceeds”) shall have the respective meanings given
        such terms in Article 9 of the UCC.

       

      (a)  “Collateral”
        means
        the collateral in which Lender is are granted a security interest by this
        Agreement and which shall include the following, whether presently owned
        or
        existing or hereafter acquired or coming into existence, and all additions
        and
        accessions thereto and all substitutions and replacements thereof, and all
        proceeds, products and accounts thereof, including, without limitation, all
        proceeds from the sale or transfer of the Collateral and of insurance covering
        the same and of any tort claims in connection therewith:

       

      (i)  All
        Goods
        of Borrower , including, without limitations, all machinery, equipment,
        computers, vehicles, trucks, appliances, furniture, special and general tools,
        fixtures, test and quality control devices and other equipment of every kind
        and
        nature and wherever situated, together with all documents of title and documents
        representing the same, all additions and accessions thereto, replacements
        therefor, all parts therefor, and all substitutes for any of the foregoing
        and
        all other items used and useful in connection with Borrower’s businesses and all
        improvements thereto (collectively, the “Equipment”);
        and

       

      (ii)  All
        Inventory of Borrower ; and

       

      
        
           

        

        
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        EXHIBIT
          E

        STOCK
          PURCHASE AND LOAN OPTION AGREEMENT

         

      

      (iii)  All
        of
        Borrower’s contract rights and general intangibles, including, without
        limitation, all partnership interests, stock or other securities, licenses,
        distribution and other agreements, computer software development rights,
        leases,
        franchises, customer lists, quality control procedures, grants and rights,
        goodwill, trademarks, service marks, trade styles, trade names, patents,
        patent
        applications, copyrights, deposit accounts, and income tax refunds
        (collectively, the “General
        Intangibles”);
        and

       

      (iv)  All
        Receivables of Borrower including all insurance proceeds, and rights to refunds
        or indemnification whatsoever owing, together with all instruments, all
        documents of title representing any of the foregoing, all rights in any
        merchandising, goods, equipment, motor vehicles and trucks which any of the
        same
        may represent, and all right, title, security and guaranties with respect
        to
        each Receivable, including any right of stoppage in transit; and

       

      (v)  All
        Intellectual Property of Borrower; and

       

      (vi)  All
        of
        Borrower’s documents, instruments and chattel paper, files, records, books of
        account, business papers, computer programs and the products and proceeds
        of all
        of the foregoing Collateral set forth in clauses (i)-(iv) above.

       

      (b)  “Company”
        shall
        mean, collectively, and all of the subsidiaries of Company, a list of which
        is
        contained in Schedule
        A,
        attached hereto.

       

      (c)  “Obligations”
        means
        all of Borrower’s obligations under this Agreement and all obligations of
        Borrower (and any successor or assign of Borrower ) under the Notes and the
        Purchase Agreement, in each case, whether now or hereafter existing, voluntary
        or involuntary, direct or indirect, absolute or contingent, liquidated or
        unliquidated, whether or not jointly owed with others, and whether or not
        from
        time to time decreased or extinguished and later decreased, created or incurred,
        and all or any portion of such obligations or liabilities that are paid,
        to the
        extent all or any part of such payment is avoided or recovered directly or
        indirectly from Borrower as a preference, fraudulent transfer or otherwise
        as
        such obligations may be amended, supplemented, converted, extended or modified
        from time to time.

       

      (d)  “UCC”
        means
        the Uniform Commercial Code, as currently in effect in the State of
        California.

       

      2.    Grant
        of
        Security Interest.
        As an
        inducement to complete the transaction contemplated by the Purchase Agreement,
        and to secure the complete and timely payment, performance and discharge
        in
        full, as the case may be, of all of the Obligations, Borrower hereby,
        unconditionally and irrevocably, pledges, grants and hypothecates to Lender,
        a
        continuing security interest in, a continuing lien upon, an unqualified right
        to
        possession and disposition of and a right of set-off against, in each case
        to
        the fullest extent permitted by law, all of Borrower’s right, title and interest
        of whatsoever kind and nature in and to the Collateral (the “Security
        Interest”).

       

      3.    Representations,
        Warranties, Covenants and Agreements of Borrower.
        Borrower represents and warrants to, and covenants and agrees with, Lender
        as
        follows: 

       

      
        
           

        

        
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        EXHIBIT
          E

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          PURCHASE AND LOAN OPTION AGREEMENT

         

      

      (a)  Borrower
        has the requisite power (corporate or otherwise) and authority to enter into
        this Agreement and otherwise to carry out its obligations thereunder. The
        execution, delivery and performance by Borrower of this Agreement and the
        filings contemplated therein have been duly authorized by all necessary action
        on the part of Borrower and no further action is required by it. This Agreement
        constitutes a legal, valid and binding obligation of Borrower enforceable
        in
        accordance with its terms, except as enforceability may be limited by
        bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
        the
        enforcement of creditor’s rights generally.

       

      (b)  Borrower
        represents and warrants that it has no place of business or offices where
        its
        respective books of account and records are kept (other than temporarily
        at the
        offices of its attorneys or accountants) or places where Collateral is stored
        or
        located, except as set forth on Schedule
        A
        attached
        hereto;

       

      (c)  Borrower
        is the sole owner of the Collateral, free and clear of any liens, security
        interests, encumbrances, rights or claims, and is fully authorized to grant
        the
        Security Interest in and to pledge the Collateral, except as set forth on
        Schedule
        C.
        There
        is not on file in any governmental or regulatory authority, agency or recording
        office an effective financing statement, security agreement, license or transfer
        or any notice of any of the foregoing (other than those that have been filed
        in
        favor of Lender pursuant to this Agreement) covering or affecting any of
        the
        Collateral, except as set forth on Schedule
        C.
        So long
        as this Agreement shall be in effect, Borrower shall not execute and shall
        not
        knowingly permit to be on file in any such office or agency any such financing
        statement or other document or instrument (except to the extent filed or
        recorded in favor of Lender pursuant to the terms of this Agreement), except
        as
        set forth on Schedule
        C.

       

      (d)  No
        part
        of the Collateral has been judged invalid or unenforceable. No written claim
        has
        been received that any Collateral or Borrower’s use of Collateral violates the
        rights of any third party. There has been no adverse decision to Borrower’s
        claim of ownership rights in or exclusive rights to use the Collateral in
        any
        jurisdiction or Borrower’s right to keep and maintain such Collateral in full
        force and effect, and there is no proceeding involving said rights pending
        or,
        to the best knowledge of Borrower, threatened before any court, judicial
        body,
        administrative or regulatory agency, arbitrator or other governmental authority.
        

       

      (e)  Borrower
        shall at all times maintain their books of account and records relating to
        the
        Collateral at Borrower’s principal place of business and the Collateral at the
        locations set forth on Schedule
        A
        attached
        hereto and may not relocate such books of account and records or tangible
        Collateral unless it delivers to Lender least thirty (30) days prior to such
        relocation (i) written notice of such relocation and the new location thereof
        (which must be within the United States) and (ii) evidence that appropriate
        financing statements and other necessary documents have been filed and recorded
        and other steps have been taken to perfect the Security Interest to create
        in
        favor of Lender valid, perfected and continuing first priority liens in the
        Collateral. 

       

      (f)  This
        Agreement creates in favor of Lender a valid security interest in the Collateral
        securing the payment and performance of the Obligations and, upon making
        the
        filings described in the immediately following sentence, a perfected first
        priority security interest in such Collateral. Except for the filing of
        financing statements on Form-1 under the UCC with the jurisdictions indicated
        on
Schedule
        B,
        attached hereto, no authorization or approval of or filing with or notice
        to any
        governmental authority or regulatory body is required either (i) for the
        grant
        by Borrower of, or the effectiveness of, the Security Interest granted hereby
        or
        for the execution, delivery and performance of this Agreement by Borrower
        or
        (ii) for the perfection of or exercise by Lender of his rights and remedies
        hereunder. 

       

      
        
           

        

        
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        EXHIBIT
          E

        STOCK
          PURCHASE AND LOAN OPTION AGREEMENT

         

      

      (g)  On
        the
        date of execution of this Agreement, Borrower will deliver to Lender one
        or more
        executed UCC financing statements with respect to the Security Interest for
        filing with the jurisdictions indicated on Schedule
        B,
        attached hereto and in such other jurisdictions as may be requested by
        Lender.

       

      (h)  Except
        as
        set forth on Schedule C,
        the
        execution, delivery and performance of this Agreement does not conflict with
        or
        cause a breach or default, or an event that with or without the passage of
        time
        or notice, shall constitute a breach or default, under any agreement to which
        Borrower is a party or by which Borrower is bound. Except as set forth on
        Schedule C,
        no
        consent (including, without limitation, from stock holders or creditors of
        Borrower) is required for Borrower to enter into and perform its obligations
        hereunder.

       

      (i)  Borrower
        shall at all times maintain the liens and Security Interest provided for
        hereunder as valid and perfected first priority liens and security interests
        in
        the Collateral in favor of Lender until this Agreement and the Security Interest
        hereunder shall terminate pursuant to Section 11. Borrower hereby
        agrees to
        defend the same against any and all persons. Borrower shall safeguard and
        protect all Collateral for the account of Lender. At the request of Lender,
        Borrower will sign and deliver to Lender at any time or from time to time
        one or
        more financing statements pursuant to the UCC (or any other applicable statute)
        in form reasonably satisfactory to Lender and will pay the cost of filing
        the
        same in all public offices wherever filing is, or is deemed by Lender to
        be,
        necessary or desirable to effect the rights and obligations provided for
        herein.
        Without limiting the generality of the foregoing, Borrower shall pay all
        fees,
        taxes and other amounts necessary to maintain the Collateral and the Security
        Interest hereunder, and Borrower shall obtain and furnish to Lender from
        time to
        time, upon demand, such releases and/or subordinations of claims and liens
        which
        may be required to maintain the priority of the Security Interest hereunder.
        

       

      (j)  Borrower
        will not transfer, pledge, hypothecate, encumber, license, sell or otherwise
        dispose of any of the Collateral without the prior written consent of
        Lender.

       

      (k)  Borrower
        shall keep and preserve its Equipment, Inventory and other tangible Collateral
        in good condition, repair and order and shall not operate or locate any such
        Collateral (or cause to be operated or located) in any area excluded from
        insurance coverage.

       

      (l)  Borrower
        shall, within ten (10) days of obtaining knowledge thereof, advise Lender
        promptly, in sufficient detail, of any substantial change in the Collateral,
        and
        of the occurrence of any event which would have a material adverse effect
        on the
        value of the Collateral or on Lender’s security interest therein.

       

      
        
           

        

        
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        EXHIBIT
          E

        STOCK
          PURCHASE AND LOAN OPTION AGREEMENT

         

      

      (m)  Borrower
        shall promptly execute and deliver to Lender such further deeds, mortgages,
        assignments, security agreements, financing statements or other instruments,
        documents, certificates and assurances and take such further action as Lender
        may from time to time request and may in its sole discretion deem necessary
        to
        perfect, protect or enforce its security interest in the
        Collateral.

       

      (n)  Borrower
        shall permit Lender and its representatives and agents to inspect the Collateral
        at any time, and to make copies of records pertaining to the Collateral as
        may
        be requested by Lender from time to time.

       

      (o)  Borrower
        will take all steps reasonably necessary to diligently pursue and seek to
        preserve, enforce and collect any rights, claims, causes of action and accounts
        receivable in respect of the Collateral.

       

      (p)  Borrower
        shall promptly notify Lender in sufficient detail upon becoming aware of
        any
        attachment, garnishment, execution or other legal process levied against
        any
        Collateral and of any other information received by Borrower that may materially
        affect the value of the Collateral, the Security Interest or the rights and
        remedies of Lender hereunder.

       

      (r)  All
        information heretofore, herein or hereafter supplied to Lender by or on behalf
        of Borrower with respect to the Collateral is accurate and complete in all
        material respects as of the date furnished.

       

      (s)  Schedule
        A
        attached
        hereto contains a list of all of the subsidiaries of Borrower.

       

      4.    Defaults.
        The
        following events shall be “Events
        of Default”:

       

      (a)  The
        occurrence of an Event of Default (as defined in the Notes);

       

      (b)  Any
        representation or warranty of Borrower in the Purchase Agreement, or in the
        Notes, shall prove to have been incorrect in any material respect when made;
        and

       

      (c)  The
        failure by Borrower to observe or perform any of its obligations hereunder
        or in
        the Notes or the Purchase Agreement for ten (10) days after receipt by Borrower
        of notice of such failure from Lender. 

       

      5.    Duty
        To
        Hold In Trust.
        Upon
        the occurrence of any Event of Default and at any time thereafter, Borrower
        shall, upon receipt by it of any revenue, income or other sums subject to
        the
        Security Interest, whether payable pursuant to the Notes or otherwise, or
        of any
        check, draft, note, trade acceptance or other instrument evidencing an
        obligation to pay any such sum, hold the same in trust for Lender and shall
        forthwith endorse and transfer any such sums or instruments, or both, to
        Lender
        for application to the satisfaction of the Obligations.

       

      6.    Rights
        and
        Remedies Upon Default.
        Upon
        occurrence of any Event of Default and at any time thereafter, Lender shall
        have
        the right to exercise all of the remedies conferred hereunder and under the
        Notes and Purchase Agreement , and Lender shall have all the rights and remedies
        of Lender under the UCC and/or any other applicable law (including the Uniform
        Commercial Code of any jurisdiction in which any Collateral is then located).
        Without limitation, Lender shall have the following rights and
        powers:

       

      
        
           

        

        
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        EXHIBIT
          E

        STOCK
          PURCHASE AND LOAN OPTION AGREEMENT

         

      

      (a)  Lender
        shall have the right to take possession of the Collateral and, for that purpose,
        enter, with the aid and assistance of any person, any premises where the
        Collateral, or any part thereof, is or may be placed and remove the same,
        and
        Borrower shall assemble the Collateral and make it available to such Lender
        at
        places which such Lender shall reasonably select, whether at Borrower’s premises
        or elsewhere, and make available to such Lender, without rent, all of Borrower’s
        respective premises and facilities for the purpose of such Lender taking
        possession of, removing or putting the Collateral in saleable or disposable
        form.

       

      (b)  
        Lender
        shall have the right to operate the business of Borrower using the Collateral
        and shall have the right to assign, sell, lease or otherwise dispose of and
        deliver all or any part of the Collateral, at public or private sale or
        otherwise, either with or without special conditions or stipulations, for
        cash
        or on credit or for future delivery, in such parcel or parcels and at such
        time
        or times and at such place or places, and upon such terms and conditions
        as such
        Lender may deem commercially reasonable, all without (except as shall be
        required by applicable statute and cannot be waived) advertisement or demand
        upon or notice to Borrower or right of redemption of Borrower, which are
        hereby
        expressly waived. Upon each such sale, lease, assignment or other transfer
        of
        Collateral, Lender may, unless prohibited by applicable law which cannot
        be
        waived, purchase all or any part of the Collateral being sold, free from
        and
        discharged of all trusts, claims, right of redemption and equities of Borrower,
        which are hereby waived and released.

       

      7.    Applications
        of
        Proceeds.
        The
        proceeds of any such sale, lease or other disposition of the Collateral
        hereunder shall be applied first, to the expenses of retaking, holding, storing,
        processing and preparing for sale, selling, and the like (including, without
        limitation, any taxes, fees and other costs incurred in connection therewith)
        of
        the Collateral, to the reasonable attorneys’ fees and expenses incurred by
        Lender in enforcing its rights hereunder and in connection with collecting,
        storing and disposing of the Collateral, and then to satisfaction of the
        Obligations and to the payment of any other amounts required by applicable
        law,
        after which Lender shall pay to Borrower any surplus proceeds. If, upon the
        sale, license or other disposition of the Collateral, the proceeds thereof
        are
        insufficient to pay all amounts to which Lender is legally entitled, Borrower
        will be liable for the deficiency, together with interest thereon, at the
        rate
        of fifteen percent (15%) per annum (the “Default
        Rate”),
        and
        the reasonable fees of any attorneys employed by Lender to collect such
        deficiency. To the extent permitted by applicable law, Borrower waives all
        claims, damages and demands against Lender arising out of the repossession,
        removal, retention or sale of the Collateral, unless due to the gross negligence
        or willful misconduct of a Lender.

       

      8.    Costs
        and
        Expenses.
        Borrower agrees to pay all out-of-pocket fees, costs and expenses incurred
        in
        connection with any filing required hereunder, including without limitation,
        any
        financing statements, continuation statements, partial releases and/or
        termination statements related thereto or any expenses of any searches
        reasonably required by Lender. Borrower shall also pay all other claims and
        charges which in the reasonable opinion of Lender might prejudice, imperil
        or
        otherwise affect the Collateral or the Security Interest therein. Borrower
        will
        also, upon demand, pay to Lender the amount of any and all reasonable expenses,
        including the reasonable fees and expenses of its counsel and of any experts
        and
        agents, which Lender may incur in connection with (i) the enforcement
        of
        this Agreement, (ii) the custody or preservation of, or the sale of, collection
        from, or other realization upon, any of the Collateral, or (iii) the exercise
        or
        enforcement of any of the rights of Lender under the Notes. Until so paid,
        any
        fees payable hereunder shall be added to the principal amount of the Notes
        and
        shall bear interest at the Default Rate.

       

      
        
           

        

        
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        EXHIBIT
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          PURCHASE AND LOAN OPTION AGREEMENT

         

      

      9.    Responsibility
        for
        Collateral.
        Borrower assumes all liabilities and responsibility in connection with all
        Collateral, and the obligations of Borrower hereunder or under the Notes
        shall
        in no way be affected or diminished by reason of the loss, destruction, damage
        or theft of any of the Collateral or its unavailability for any reason.

       

      10.    Security
        Interest Absolute.
        All
        rights of Lender and all Obligations of Borrower hereunder, shall be absolute
        and unconditional, irrespective of: (a) any lack of validity or
        enforceability of this Agreement, the Purchase Agreement and/or the Notes,
        or
        any agreement entered into in connection with the foregoing, or any portion
        hereof or thereof; (b) any change in the time, manner or place of payment
        or
        performance of, or in any other term of, all or any of the Obligations, this
        Agreement, the Purchase Agreement or any other amendment or waiver of or
        any
        consent to any departure from the Notes, this Agreement, or any other agreement
        entered into in connection with the foregoing; (c) any exchange, release
        or
        nonperfection of any of the Collateral, or any release or amendment or waiver
        of
        or consent to departure from any other collateral for, or any guaranty, or
        any
        other security, for all or any of the Obligations; (d) any action by Lender
        to
        obtain, adjust, settle and cancel in its sole discretion any insurance claims
        or
        matters made or arising in connection with the Collateral; or (e) any other
        circumstance which might otherwise constitute any legal or equitable defense
        available to Borrower, or a discharge of all or any part of the Security
        Interest granted hereby. Until the Obligations shall have been paid and
        performed in full, the rights of Lender shall continue even if the Obligations
        are barred for any reason, including, without limitation, the running of
        the
        statute of limitations or bankruptcy. Borrower expressly waives presentment,
        protest, notice of protest, demand, notice of nonpayment and demand for
        performance. In the event that at any time any transfer of any Collateral
        or any
        payment received by Lender hereunder shall be deemed by final order of a
        court
        of competent jurisdiction to have been a voidable preference or fraudulent
        conveyance under the bankruptcy or insolvency laws of the United States,
        or
        shall be deemed to be otherwise due to any party other than Lender, then,
        in any
        such event, Borrower’s obligations hereunder shall survive cancellation of this
        Agreement, and shall not be discharged or satisfied by any prior payment
        thereof
        and/or cancellation of this Agreement, but shall remain a valid and binding
        obligation enforceable in accordance with the terms and provisions hereof.
        Borrower waives all right to require Lender to proceed against any other
        person
        or to apply any Collateral which Lender may hold at any time, or to marshal
        assets, or to pursue any other remedy. Borrower waives any defense arising
        by
        reason of the application of the statute of limitations to any obligation
        secured hereby.

       

      11.    Term
        of
        Agreement.
        This
        Agreement and the Security Interest shall terminate on the date on which
        all
        payments under the Notes have been made in full and all other Obligations
        have
        been paid or discharged. Upon such termination, Lender, at the request and
        at
        the expense of Borrower, will join in executing any termination statement
        with
        respect to any financing statement executed and filed pursuant to this
        Agreement. 

       

      
        
           

        

        
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        EXHIBIT
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          PURCHASE AND LOAN OPTION AGREEMENT

         

      

      12.    Power
        of
        Attorney; Further Assurances.
        

       

      (a)  Borrower
        authorizes Lender, and does hereby make, constitute and appoint it, and its
        respective officers, agents, successors or assigns with full power of
        substitution, as Borrower’s true and lawful attorney-in-fact, with power, in its
        own name or in the name of Borrower, to, after the occurrence and during
        the
        continuance of an Event of Default, (i) endorse any notes, checks, drafts,
        money
        orders, or other instruments of payment (including payments payable under
        or in
        respect of any policy of insurance) in respect of the Collateral that may
        come
        into possession of Lender; (ii) to sign and endorse any UCC financing statement
        or any invoice, freight or express bill, bill of lading, storage or warehouse
        receipts, drafts against debtors, assignments, verifications and notices
        in
        connection with accounts, and other documents relating to the Collateral;
        (iii)
        to pay or discharge taxes, liens, security interests or other encumbrances
        at
        any time levied or placed on or threatened against the Collateral; (iv) to
        demand, collect, receipt for, compromise, settle and sue for monies due in
        respect of the Collateral; and (v) generally, to do, at the option of Lender,
        and at Borrower’s expense, at any time, or from time to time, all acts and
        things which Lender deems necessary to protect, preserve and realize upon
        the
        Collateral and the Security Interest granted therein in order to effect the
        intent of this Agreement and the Notes, all as fully and effectually as Borrower
        might or could do; and Borrower hereby ratifies all that said attorney shall
        lawfully do or cause to be done by virtue hereof. This power of attorney
        is
        coupled with an interest and shall be irrevocable for the term of this Agreement
        and thereafter as long as any of the Obligations shall be
        outstanding.

       

      (b)  On
        a
        continuing basis, Borrower will make, execute, acknowledge, deliver, file
        and
        record, as the case may be, in the proper filing and recording places in
        any
        jurisdiction, including, without limitation, the jurisdictions indicated
        on
Schedule
        B,
        attached hereto, all such instruments, and take all such action as may
        reasonably be deemed necessary or advisable, or as reasonably requested by
        Lender, to perfect the Security Interest granted hereunder and otherwise
        to
        carry out the intent and purposes of this Agreement, or for assuring and
        confirming to Lender the grant or perfection of a security interest in all
        the
        Collateral.

       

      (c)  Borrower
        each hereby irrevocably appoints Lender as its attorney-in-fact, with full
        authority in their place and stead and in their name, from time to time in
        a
        Lender’s discretion, to take any action and to execute any instrument which
        Lender may deem necessary or advisable to accomplish the purposes of this
        Agreement, including the filing, in its sole discretion, of one or more
        financing or continuation statements and amendments thereto, relative to
        any of
        the Collateral without the signature of Borrower where permitted by
        law.

       

      13.    Notices.
        All
        notices, requests, demands and other communications hereunder shall be in
        writing, with copies to all the other parties hereto, and shall be deemed
        to
        have been duly given when (i) if delivered by hand, upon receipt, (ii) if
        sent
        by facsimile, upon receipt of proof of sending thereof, (iii) if sent by
        nationally recognized overnight delivery service (receipt requested), the
        next
        business day or (iv) if mailed by first-class registered or certified mail,
        return receipt requested, postage prepaid, four days after posting in the
        U.S.
        mails, in each case if delivered to the following addresses:

       

      
        
           

        

        
          -8-

          
            

          

        

        
           

        

      

      
        EXHIBIT
          E

        STOCK
          PURCHASE AND LOAN OPTION
          AGREEMENT

      

       

      
        	
                If
                  to Borrower:

              	
                MR3
                  Systems, Inc., a Delaware corporation

              

        	 	435
                Brannan Street Suite 200

        	 	San
                Francisco, CA 94107

        	 	Attention:
                William C. Tao, Ph.D., CEO

        	 	Facsimile:
                (415) 947-1095

      

       

      
        	
                If
                  to the Lender:

              	
                MRD
                  Holdings Inc., a Delaware corporation

              

        	 	The
                Naaman’s Building Suite 206

        	 	305
                Silverside Rd., DE 19810

        	 	Wilmington,
                Delaware USA 

        	 	Attention:
                Charles K. C. Chan

        	 	Facsimile:
                (____)___________________

         

        14.    Other
          Security.
          To the
          extent that the Obligations are now or hereafter secured by property other
          than
          the Collateral or by the guarantee, endorsement or property of any other
          person,
          firm, corporation or other entity, then Lender shall have the right, in
          its sole
          discretion, to pursue, relinquish, subordinate, modify or take any other
          action
          with respect thereto, without in any way modifying or affecting any of
          such
          Lender’s rights and remedies hereunder.

         

        15.    Miscellaneous.
          

      

       

      (a)  No
        course
        of dealing between the parties, nor any failure to exercise, nor any delay
        in
        exercising, on the part of Lender, any right, power or privilege hereunder
        or
        under the Notes shall operate as a waiver thereof; nor shall any single or
        partial exercise of any right, power or privilege hereunder or thereunder
        preclude any other or further exercise thereof or the exercise of any other
        right, power or privilege.

       

      (b)  All
        of
        the rights and remedies of Lender with respect to the Collateral, whether
        established hereby or by the Notes or by any other agreements, instruments
        or
        documents or by law shall be cumulative and may be exercised singly or
        concurrently.

       

      (c)  This
        Agreement constitutes the entire agreement of the parties with respect to
        the
        subject matter hereof and is intended to supersede all prior negotiations,
        understandings and agreements with respect thereto. Except as specifically
        set
        forth in this Agreement, no provision of this Agreement may be modified or
        amended except by a written agreement specifically referring to this Agreement
        and signed by the parties hereto.

       

      (d)  In
        the
        event that any provision of this Agreement is held to be invalid, prohibited
        or
        unenforceable in any jurisdiction for any reason, unless such provision is
        narrowed by judicial construction, this Agreement shall, as to such
        jurisdiction, be construed as if such invalid, prohibited or unenforceable
        provision had been more narrowly drawn so as not to be invalid, prohibited
        or
        unenforceable. If, notwithstanding the foregoing, any provision of this
        Agreement is held to be invalid, prohibited or unenforceable in any
        jurisdiction, such provision, as to such jurisdiction, shall be ineffective
        to
        the extent of such invalidity, prohibition or unenforceability without
        invalidating the remaining portion of such provision or the other provisions
        of
        this Agreement and without affecting the validity or enforceability of such
        provision or the other provisions of this Agreement in any other
        jurisdiction.

       

      
        
           

        

        
          -9-

          
            

          

        

        
           

        

      

      
        EXHIBIT
          E

        STOCK
          PURCHASE AND LOAN OPTION AGREEMENT

         

      

      (e)  No
        waiver
        of any breach or default or any right under this Agreement shall be considered
        valid unless in writing and signed by the party giving such waiver, and no
        such
        waiver shall be deemed a waiver of any subsequent breach or default or right,
        whether of the same or similar nature or otherwise.

       

      (f)  This
        Agreement shall be binding upon and inure to the benefit of each party hereto
        and its successors and assigns.

       

      (g)  Each
        party shall take such further action and execute and deliver such further
        documents as may be necessary or appropriate in order to carry out the
        provisions and purposes of this Agreement.

       

      (h)  This
        Agreement shall be construed in accordance with the laws of the State of
        California, except to the extent the validity, perfection or enforcement
        of a
        security interest hereunder in respect of any particular Collateral which
        are
        governed by a jurisdiction other than the State of California in which case
        such
        law shall govern. Each of the parties hereto irrevocably submit to the exclusive
        jurisdiction of any California State or United States Federal court sitting
        in
        the County of San Francisco over any action or proceeding arising out of
        or
        relating to this Agreement, and the parties hereto hereby irrevocably agree
        that
        all claims in respect of such action or proceeding may be heard and determined
        in such California State or Federal court. The parties hereto agree that
        a final
        judgment in any such action or proceeding shall be conclusive and may be
        enforced in other jurisdictions by suit on the judgment or in any other manner
        provided by law. The parties hereto further waive any objection to venue
        in the
        State of California and any objection to an action or proceeding in the State
        of
        California on the basis of forum non conveniens. The parties further agree
        that
        the successful or prevailing party in any proceeding shall be entitled to
        recover reasonable attorneys’ fee and other costs incurred in such proceeding.

       

      (i)  This
        Agreement may be executed in any number of counterparts, each of which when
        so
        executed shall be deemed to be an original and, all of which taken together
        shall constitute one and the same Agreement. In the event that any signature
        is
        delivered by facsimile transmission, such signature shall create a valid
        binding
        obligation of the party executing (or on whose behalf such signature is
        executed) the same with the same force and effect as if such facsimile signature
        were the original thereof.

       

       

      (Signature
        page follows.)

      
        
           

        

        
          -10-

          
            

          

        

        
           

          
            EXHIBIT
              E

            STOCK
              PURCHASE AND LOAN OPTION AGREEMENT

          

        

      

       

      IN
        WITNESS WHEREOF, the parties hereto have caused this Security Agreement to
        be
        duly executed on the day and year first above written.

       

      MR3
        Systems, Inc., a Delaware corporation

       

       

      By:
         /s/
        William C. Tao

        
          

        

      

      Print:
        William C. Tao, Ph.D.

      Its:
        Chief Executive Officer

       

       

      MRD
        Holdings Inc., a Delaware corporation

       

       

      By:
         /s/
        Charles
        K. C.
        Chan

        
          

        

      

      Print:
        Charles K. C. Chan

      Its:
        Managing Director

       

      

      

       

      

       

      

       

      
        
           

        

        
          -11-

          
            

          

        

        
           

          
          

        

      

      EXHIBIT
        E

      STOCK
        PURCHASE AND LOAN OPTION AGREEMENT

      
 

      SCHEDULE
        A

      

      

      Principal
        Place of Business of Borrower:

      

      

      

      

      Locations
        Where Collateral is Located or Stored:

      

      

      

      

      List
        of subsidiaries of Borrower:

      

      

      

      
        
           

        

        
           

          
            

          

        

        
           

          
            EXHIBIT
              E

            STOCK
              PURCHASE AND LOAN OPTION AGREEMENT

          

        

      

       

      SCHEDULE
        B

      

      Jurisdictions:

       

      

       

      
        
           

        

        
           

          
            

          

        

        
           

          
            EXHIBIT
              E

            STOCK
              PURCHASE AND LOAN OPTION AGREEMENT

          

        

      

       

      SCHEDULE
        C

       

      None.

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