Document:

EXHIBIT
      10.1

     

    STOCK
      PURCHASE AND LOAN OPTION AGREEMENT

     

    This
      Stock Purchase and Loan Option Agreement (this “Agreement”)
      is
      entered into as of May 30, 2005 by and among MRD Holdings Inc., (the
“Investor”),
      a
      corporation organized and existing under the laws of the State of Delaware,
      with
      its corporate address at The Naaman’s Building Suite 206, 305 Silverside Rd., DE
      19810 Wilmington, Delaware, USA, and MR3 Systems, Inc., (the “Company”), a
      corporation organized and existing under the laws of the State of Delaware,
      with
      its corporate address at 435 Brannan Street Suite 200, San Francisco, California
      94107. 

     

    RECITALS

     

    A. The
      Company desires to issue and sell to Investor, and Investor desires to purchase
      at the Initial Closing (as defined below), on the terms and conditions set
      forth
      herein, 400,000 shares of Series B Convertible Preferred Stock of the Company,
      par value $0.01 per share, for a total purchase price of $1,000,000. The
      purchase price being paid by Investor shall be $2.50 per share, or an aggregate
      of $1,000,000 (“Purchase
      Price”).
      Each
      share of Preferred Shares shall be convertible into Common shares of the Company
      at the rate of twenty-five (25) Common shares for each share of Preferred
      Shares.

     

    B. Subject
      to the terms and conditions set forth in this Agreement, the Company desires
      to
      grant to Investor a ninety day (90) day option to purchase from the Company,
      the
      following securities: (a) Convertible Promissory Notes in the aggregate
      principal amount of $4,500,000 (the “Notes”)
      and/or
      (b) 2,534,090 shares of Series B Convertible Preferred Stock. The Convertible
      Promissory Notes shall be in the form of Exhibit
      A
      hereto.
      The shares of Series B Convertible Preferred Stock issued to Investor
      pursuant to this Agreement are hereinafter referred to as the “Preferred
      Shares.”
      The
      Company also desires to issue to Investor the Warrant(s) in the form of
Exhibit
      B
      hereto
      (the “Warrant”).
      The
      Preferred Shares, the Notes, the Warrant, and the Common Stock issuable on
      exercise of the Warrants are referred to herein as the “Securities”).

     

    AGREEMENT

     

    In
      consideration of the mutual covenants and agreements set forth herein, and
      for
      good and valuable consideration, the receipt and sufficiency of which are hereby
      acknowledged, the parties hereto agree as follows:

     

    1.  DEFINITIONS.

     

    For
      the
      purpose of this Agreement capitalized terms not otherwise defined herein have
      the meanings set forth in Exhibit
      F.

     

    2.  PURCHASE
      AND SALE OF COMPANY SECURITIES - LOAN OPTION.

     

    2.1  Purchase
      Price.
      Subject
      to the terms and conditions contained herein, and in reliance upon the
      representations, warranties and agreements contained herein, the Company shall
      issue and sell to Investor, and Investor shall purchase, the Preferred Shares
      at
      the Initial Closing (as defined in Section
      2.2).
      The
      purchase price being paid by Investor shall be $2.50 per share, or an aggregate
      of $1,000,000 (“Purchase
      Price”).

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    2.2  Closing;
      Delivery.
      The
      purchase and sale of the Preferred Shares shall take place at the offices of
      the
      Company at ten o’clock a.m. on May 30, 2005, or at such other time and place as
      the Company and Investor mutually agree upon, orally or in writing (which time
      and place are designated as the “Initial
      Closing”).
      In
      the event there is more than one closing, the term “Closing”
      and
“Closing
      Date”
      shall
      apply to each such closing unless otherwise specified herein. At each Closing,
      the Company shall deliver to Investor certified copies of minutes of meetings
      of
      directors approving the issuance, allotment and registration of the Preferred
      Shares together with a certificate representing the Preferred Stock being
      purchased thereby against payment of the purchase price by wire transfer to
      a
      bank account designated by the Company.

     

    2.3  Option.
      Investor shall have the right, but not the obligation, any time within ninety
      (90) days of the Initial Closing (the “Option
      Period”),
      to
      purchase from the Company in any combination, (a) Notes in the maximum aggregate
      principal amount of $4,500,000, and/or (b) 2,534,090 shares of Series B
      Preferred Stock, par value of $.01 per share, with a purchase price of $2.50
      per
      share. Should the Investor elect to convert the Notes into Series B Preferred
      Stock, then the number of shares of Preferred Shares, when converted into Common
      Stock and when combined with the Preferred Shares purchased at the Initial
      Closing, shall constitute, upon issuance, 51% of the issued and outstanding
      voting and capital stock of the Company. At the second closing (“Second
      Closing”),
      the
      Company shall also issue to Investor the Warrant. The Warrant shall represent
      Holder’s continuing right to purchase that number of shares of Common Stock of
      the Company representing fifty-one percent (51%) of the total number of shares
      of capital stock of the Company as of the Second Closing Date, calculated on
      a
      fully-diluted as converted-to-common basis (“Fully
      Diluted Basis”).

     

    2.4  Second
      Closing.
      Should
      the Investor exercise the option granted to the Investor under Section
      2.3
      above,
      the Company agrees to execute and deliver to the Investor, at the Second Closing
      the Notes and/or the Preferred Shares. The Company and the Investor also agree
      as follows:

     

    2.4.1  The
      proceeds from the Notes and/or Preferred Shares, as applicable, are to be
      allocated and used as follows as determined by the Board of Directors of the
      Company:

     

    (a)  Three
      Million Dollars (US$3,000,000) for the working capital of the Company,
      and

     

    (b)  One
      Million Five Hundred Thousand Dollars (US$1,500,000) to pay down existing
      liabilities of the Company (other than any liability to any Affiliate of the
      Company) as determined by the Board of Directors of the Company after the Second
      Closing.

     

    2.4.2  As
      security for the Loan, the Company will grant to the Investor a first priority
      lien on all the assets of the Company, pursuant to the Security Agreement
      attached hereto as Exhibit
      E.
      The
      Security Agreement shall secure all amounts owing under the Notes, together
      with
      the performance of all obligations of the Company to the Investor under this
      Agreement.

     

     

    
      
         

      

      
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    2.5  Jurisdictions,
      Technology Transfer, Protection and Access To Trade Secrets
      As
      further consideration for the Investor’s agreement to acquire the Securities,
      concurrent with the Second Closing, the Company agrees to transfer to Investor
      exclusive rights to the Company Technology, for utilization and development
      in
      the countries of Greater China (including Hong Kong, Macau and Taiwan) India,
      Pakistan, Middle East, Switzerland, Austria, and the Philippines (collectively
      referred as “Areas
      of Jurisdiction”).
      The
      terms of the Technology Transfer are outlined in a Strategic Partnership
      Agreement between the Investor and the Company in the form of Exhibit G hereto.
      Investor and the Company agree that any utilization or deployment of the Company
      Technology shall be fully supported by the Company Technology teams. These
      exclusive technology transfers and utilization will be jointly implemented
      by
      the Investor and the Company during the Option Period, and after the Second
      Closing, based on the following basic understanding and parameters:

     

    2.5.1  The
      Company will publish its original intellectual property in Europe. Thereafter,
      the Investor will register the IP in any country in Europe selected by the
      Investor within the Option Period with the understanding that the IP registered
      in the name of the Company will remain in Escrow for the safekeeping by the
      Company during the Option Period.

     

    Upon
      the
      receipt by the Company of the proceeds from the Notes and/or Preferred Shares,
      as applicable, the physical possession of the Company Technology shall be
      delivered to the Investor who will license the Company Technology to the Company
      for projects in the US with a fully paid license fee of US$1.00. The Company
      Technology shall be owned jointly by the Company and the Investor, as
      co-developers. Investor shall have the option to assign its interest in the
      Company Technology to its Affiliates.

     

    2.5.2  The
      consequence of applying the Company Technology in the market are: (i) Investor
      will be paying the Company for the work in the Areas of Jurisdiction as a
      contractor, and may elect through approval of the Board of Directors, to pay
      the
      Company a fair and reasonable royalty from the profits realized in areas of
      Jurisdiction as part of the promotional campaign of the Company in the US.
      (ii)
      Any new intellectual property (“New
      IP”)
      developed from the work in the Areas of Jurisdiction will be published and
      registered in any country selected by Investor in Europe and shall be solely
      owned by Investor or its designate. In the event that the Company desires to
      employ any of the techniques developed in the Areas of Jurisdiction it must
      obtain a license from the Investor or its designate on terms, including
      royalties, acceptable to Investor or its designate.

     

    2.5.3  Operational
      protocol and other formula developed or discovered in the course of technology
      application that results in its optimization will be treated and guarded as
      trade secrets. Such formula and protocols that result in the optimization of
      basic Company Technology, and those obtained during the course of the
      application in actual operation will be recorded in writing in the form of
      journals containing the steps and chemicals used and operational parameters
      (i.e. temperature, resident times, ORP, etc.) starting from the chemical bench
      to the pilot stage and such other vital data and formula that contributed to
      the
      optimization of technology use. These journals will be kept confidential in
      Escrow and shall serve to recreate any process in the event the operators and
      other important key personnel who have the sole knowledge of the said formula
      become physically and mentally incapacitated. Such will address the problem
      of
      delay, stoppage or intermittent stoppage of operations. A compartmentalized
      protocol will be set according to the need of a particular project.

     

    
      
         

      

      
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    Investor
      shall have complete and unconditional access to the said Escrow containing
      the
      journals and the trade secrets in the event of temporary or permanent incapacity
      of key officers of the Company who have the full and unrestricted knowledge
      of
      the protocols, formula and other trade secrets of the company to avert the
      delay, disruption or stoppage of company operation or any of its impending
      or
      pending projects.

     

    2.6  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.

     

    3.  REPRESENTATIONS
      AND WARRANTIES OF THE COMPANY.

     

    The
      Company hereby represents and warrants to Investor that:

     

    3.1  Organization
      and Qualification.
      The
      Company is a corporation duly organized and validly existing in good standing
      under the laws of the State of Delaware, and has the requisite corporate power
      and authorization to own its properties and to carry on its businesses as now
      being conducted or as is proposed to be conducted. The Company is duly qualified
      as a foreign corporation to do business and is in good standing in every
      jurisdiction in which its ownership of property or the nature of the business
      conducted by it or proposed to be conducted by it makes such qualification
      necessary, except to the extent that the failure to be so qualified or be in
      good standing would not have a Material Adverse Effect.

     

    3.2  Subsidiaries.
      The
      subsidiaries of the Company are set forth on Schedule
      3.2
      (the
“Subsidiaries”).
      Each
      of such Subsidiaries is duly organized and validly existing in good standing
      under the laws of the jurisdiction in which it is formed, and has the requisite
      corporate power and authorization to own its properties and to carry on its
      businesses as now being conducted or as is proposed to be conducted. Each of
      the
      Subsidiaries is duly qualified to do business and is in good standing in every
      jurisdiction in which its ownership of property or the nature of the business
      conducted by it or proposed to be conducted by it makes such qualification
      necessary, except to the extent that the failure to be so qualified or be in
      good standing would not have a Material Adverse Effect.

     

    3.3  Authorization;
      Enforcement; Validity.
      The
      Company has the requisite corporate power and authority to enter into and
      perform its obligations under this Agreement and to issue the Securities in
      accordance with the terms hereof. The execution and delivery of the Agreement
      and each of the other agreements entered into by the parties hereto in
      connection with the transactions contemplated by this Agreement, including,
      without limitation, the Certificate of Designation for the Series B Preferred
      Stock, the Investor Rights Agreement, the

     

    
      
         

      

      
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     Notes,
      the Security Agreement (as hereinafter defined), and the Warrant (collectively,
      the “Transaction
      Documents”)
      by the
      Company and the consummation by it of the transactions contemplated hereby
      and
      thereby, including, without limitation, the issuance of the Preferred Shares,
      the Notes and the Warrants, and the reservation for issuance of the conversion
      shares issuable upon conversion of the Preferred Shares, the Notes and/or the
      Warrant Shares issuable upon exercise of the Warrants (individually and
      collectively, the “Conversion
      Shares”)
      have
      been duly authorized by the Company’s Board of Directors and no further consent
      or authorization is required by the Company, its Board of Directors or from
      the
      staff, the creditors, the stockholders or the warrant-holders of the Company.
      This Agreement and Transaction Documents have been duly executed and delivered
      by the Company, and constitute the valid and binding obligations of the Company
      enforceable against the Company in accordance with their terms, except as such
      enforceability may be limited by applicable bankruptcy, insolvency,
      reorganization, moratorium, liquidation or similar laws relating to, or
      affecting generally, the enforcement of creditors’ rights and remedies. No
      consent, approval, order or authorization of, or registration, qualification,
      designation, declaration or filing with, any federal, state, local or provincial
      governmental authority on the part of the Company is required in connection
      with
      the consummation of the transactions contemplated by this Agreement, except
      such
      filings as have been made prior to the Closing, or such post-closing filings
      as
      may be required under Rule 506 of Regulation D and applicable state securities
      laws, which will be timely filed within the applicable periods therefore. All
      such filings are listed on Schedule
      3.3.

     

    3.4  Capitalization.
      As of
      the date hereof, the authorized capital stock of the Company consists of (i)
      250,000,000 shares of Common Stock, 70,242,963 of which are issued and
      outstanding immediately prior to the Initial Closing, and (ii) 5,000,000 shares
      of Preferred Stock, of which as of the date hereof, 232,714 shares of Series
      A
      Preferred Stock are issued and outstanding. There is disclosed on Schedule
      3.4
      the
      number of shares of Common Stock (x) issued and outstanding, (y) reserved for
      issuance pursuant to the Company’s stock option and purchase plans and (z)
      issuable and reserved for issuance pursuant to securities (other than the
      Preferred Shares, the Notes and the Warrants) exercisable or exchangeable for,
      or convertible into, shares of Common Stock. All of such outstanding or issuable
      shares have been, or upon issuance will be, validly issued and are fully paid
      and nonassessable. Except as disclosed in Schedule
      3.4:

     

    3.4.1  No
      shares
      of the Company’s capital stock are subject to preemptive rights or any other
      similar rights or any liens or encumbrances granted or created by the Company;
      

     

    3.4.2  There
      are
      no outstanding debt securities issued by the Company; 

     

    3.4.3  There
      are
      no outstanding options, warrants, scrip, rights to subscribe to, calls or
      commitments of any character whatsoever relating to, or securities or rights
      convertible into, any shares of capital stock of the Company, or contracts,
      commitments, understandings or arrangements by which the Company is or may
      become bound to issue additional shares of capital stock of the Company or
      options, warrants, scrip, rights to subscribe to, calls or commitments of any
      character whatsoever relating to, or securities or rights convertible into,
      any
      shares of capital stock of the Company. 

     

    
      
         

      

      
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    3.4.4  There
      are
      no agreements or arrangements under which the Company is obligated to register
      the sale of any of their securities under the Securities Act (except this
      Agreement). 

     

    3.4.5  There
      are
      no outstanding securities or instruments of the Company, which contain any
      redemption or similar provisions, and there are no contracts, commitments,
      understandings or arrangements by which the Company is or may become bound
      to
      redeem a security of the Company. 

     

    3.4.6  There
      are
      no securities or instruments containing anti-dilution or similar provisions
      and
      no such anti-dilution or similar provisions will be triggered by the issuance
      of
      the option granted pursuant to Section
      2.3
      of this
      Agreement or the issuance of the Securities as described in this
      Agreement.

     

    3.4.7  The
      Company does not have any stock appreciation rights or “phantom stock” plans or
      agreements or any similar plan or agreement. 

     

    3.4.8  The
      Company does not currently own or control, directly or indirectly, any interest
      in any other corporation, association, or other business entity. The Company
      is
      not a participant in any joint venture, partnership or similar
      arrangement.

     

    3.5  Issuance
      of Stock.
      The
      Preferred Shares which are being issued to Investor hereunder, when issued,
      sold
      and delivered in accordance with the terms hereof for the consideration
      expressed herein, will be validly issued, fully paid and nonassessable and
      free
      from all taxes, liens and charges with respect to the issue thereof, and free
      of
      restrictions on transfer other than restrictions on transfer under the
      Transaction Documents with Investor being entitled to all rights accorded to
      a
      holder of Preferred Stock. Upon conversion or exercise of the Preferred Shares,
      the Notes or the Warrants, as the case may be, the Conversion Shares will be
      validly issued, fully paid and nonassessable and free from all taxes, liens,
      charges and preemptive rights, with the holders thereof entitled to all rights
      accorded to a holder of Preferred Stock or Common Stock, as applicable. The
      number of shares of Common Stock and Preferred Shares that have been duly
      authorized and reserved for issuance upon conversion of the Preferred Shares
      and
      Notes, as applicable, and upon exercise of the Warrants is set forth on
Schedule
      3.5.
      The
      issuance by the Company of the Securities is exempt from registration under
      the
      Securities Act and will be issued in compliance with all applicable federal
      and
      state securities laws.

     

    3.6  No
      Conflicts.
      Except
      as disclosed in Schedule
      3.6,
      the
      execution, delivery and performance of the Transaction Documents by the Company
      and the consummation by the Company of the transactions contemplated hereby
      (including, without limitation, the reservation for issuance and issuance of
      the
      Conversion Shares) will not (i) result in a violation of the Company’s
      Certificate of Incorporation or the Bylaws; (ii) conflict with, or constitute
      a
      default (or an event which with notice or lapse of time or both would become
      a
      default) under, or give to others any rights of termination, amendment,
      acceleration or cancellation of, any material agreement, indenture or instrument
      to which the Company is a party; (iii) result in a violation of any law, rule,
      regulation, order, judgment or decree (including federal and state securities
      laws and regulations and the rules and regulations of the Principal Market)
      applicable to the Company or by which any property or asset of the Company
      is
      bound or affected. Except as disclosed in Schedule
      3.6,
      the
      Company is not in violation of any term of its Certificate of 

     

    
      
         

      

      
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    Incorporation
      or Bylaws or its organizational charter or bylaws. Except as disclosed in
Schedule
      3.6,
      the
      Company is not in violation of any term of or in default under any contract,
      agreement, mortgage, indebtedness, indenture, instrument, judgment, decree
      or
      order or any statute, rule or regulation applicable to the Company. The business
      of the Company is not being conducted, and shall not be conducted, in violation
      of any law, ordinance or regulation of any governmental entity, except where
      such violation would not have a Material Adverse Effect. Except as specifically
      contemplated by this Agreement, the Company is not required to obtain any
      consent, authorization or order of, or make any filing or registration with,
      any
      court or governmental agency or any regulatory or self-regulatory agency in
      order for it to execute, deliver or perform any of its obligations under or
      contemplated by the Transaction Documents in accordance with the terms hereof
      or
      thereof. Except as disclosed in Schedule
      3.6,
      all
      consents, authorizations, orders, filings and registrations which the Company
      is
      required to obtain as described in the preceding sentence have been obtained
      or
      effected on or prior to the date hereof. The Company is unaware of any facts
      or
      circumstances that might give rise to any of the foregoing. The Company is
      not
      in violation of the listing requirements of the Principal Market and has no
      actual knowledge of any facts or any reason to believe that facts exist that
      would reasonably lead to delisting or suspension of the Common Stock by the
      Principal Market in the foreseeable future.

     

    3.7  SEC
      Documents; Financial Statements.
      Since
      December 31, 2004, except as set forth on Schedule
      3.7,
      the
      Company has timely filed all reports, schedules, forms, statements and other
      documents required to be filed by it with the SEC pursuant to the reporting
      requirements of the Exchange Act (all of the foregoing filed prior to the date
      hereof (including all exhibits included therein and financial statements and
      schedules thereto and documents incorporated by reference therein) being
      hereinafter referred to as the “SEC
      Documents”).
      A
      complete and accurate list of the SEC Documents that have been filed by the
      Company on EDGAR is set forth on Schedule
      3.7.
      As of
      their respective dates, the SEC Documents complied in all material respects
      with
      the requirements of the Exchange Act and the rules and regulations of the SEC
      promulgated thereunder applicable to the SEC Documents. None of the SEC
      Documents, at the time they were filed with the SEC, contained any untrue
      statement of a material fact or omitted to state a material fact required to
      be
      stated therein or necessary in order to make the statements therein, in light
      of
      the circumstances under which they were made, not misleading. As of their
      respective dates, the financial statements of the Company included in the SEC
      Documents complied as to form in all material respects with applicable
      accounting requirements and the published rules and regulations of the SEC
      with
      respect thereto. Such financial statements have been prepared in accordance
      with
      generally accepted accounting principles, consistently applied, during the
      periods involved (except (i) as may be otherwise indicated in such financial
      statements or the notes thereto, or (ii) in the case of unaudited interim
      statements, to the extent they may exclude footnotes or may be condensed or
      summary statements) and fairly present in all material respects the financial
      position of the Company as of the dates thereof and the results of its
      operations and cash flows for the periods then ended (subject, in the case
      of
      unaudited statements, to normal year-end audit adjustments). Neither the Company
      nor any of its officers, directors, employees or agents have provided Investor
      with any material, nonpublic information.

     

    3.8  Absence
      of Certain Changes.
      Except
      as disclosed in Schedule
      3.8,
      since
      December 31, 2003, there has been no material adverse change and no material
      adverse development in the business, properties, assets, operations, results
      of
      operations, financial conditions or prospects of the Company. The Company has
      not taken any steps, and does not currently expect to take any steps, to seek
      protection pursuant to any bankruptcy law nor does the Company have any
      knowledge or reason to believe that its creditors intend to initiate involuntary
      bankruptcy proceedings or any actual knowledge of any fact which would
      reasonably lead a creditor to do so. Except as disclosed in Schedule
      3.8,
      since
      December 31, 2004, the Company has not declared or paid any dividends, sold
      any
      assets, individually or in the aggregate, in excess of $100,000 outside of
      the
      ordinary course of business or had capital expenditures, individually or in
      the
      aggregate, in excess of $100,000.

     

    
      
         

      

      
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    3.9  Absence
      of Litigation.
      There
      is no action, suit, proceeding, inquiry or investigation before or by any court,
      public board, government agency, self-regulatory organization or body pending
      or, to the knowledge of the Company, threatened against or affecting the Company
      or any of the Company’s officers or directors in their capacities as such,
      except as expressly set forth in Schedule
      3.9.
      Except
      as set forth in Schedule
      3.9,
      to the
      knowledge of the Company none of the directors or officers of the Company have
      been involved in securities related litigation during the past five years.
      There
      is no action, suit, proceeding or investigation pending or, to the Company’s
      knowledge, currently threatened against the Company that questions the validity
      of the Transaction Documents or the right of the Company to enter into them,
      or
      to consummate the transactions contemplated hereby or thereby, or that might
      result, either individually or in the aggregate, in any material adverse changes
      in the assets, condition or affairs of the Company, financially or otherwise,
      or
      any change in the current equity ownership of the Company, nor is the Company
      aware that there is any basis for the foregoing. The Company is not a party
      or
      subject to the provisions of any order, writ, injunction, judgment or decree
      of
      any court or government agency or instrumentality. There is no action, suit,
      proceeding or investigation by the Company currently pending or which the
      Company intends to initiate. The foregoing includes, without limitation,
      actions, suits, proceedings or investigations pending or threatened in writing
      (or any basis therefore known to the Company) involving the prior employment
      of
      any of the Company’s employees, their use in connection with the Company’s
      business, or any information or techniques allegedly proprietary to any of
      their
      former employers, or their obligations under any agreements with prior
      employers.

     

    3.10  No
      Undisclosed Events, Liabilities, Developments or Circumstances.
      Except
      for the issuance of the Securities contemplated by this Agreement and as set
      forth on Schedule
      3.10,
      no
      event, liability, development or circumstance has occurred or exists, or is
      contemplated to occur, with respect to the Company or its business, properties,
      prospects, operations or financial condition, that would be required to be
      disclosed by the Company under applicable securities laws on a Form 8-K filed
      with the SEC or on a registration statement on Form S-1 filed with the SEC
      relating to an issuance and sale by the Company of its Common Stock, and which
      has not been publicly disclosed.

     

    3.11  No
      General Solicitation.
      Neither
      the Company, nor any of its affiliates, nor any person acting on its or their
      behalf, has engaged in any form of general solicitation or general advertising
      (within the meaning of Regulation D under the Securities Act) in connection
      with
      the offer or sale of the Securities.

     

    3.12  Employee
      Relations.
      The
      Company is not a party to a collective bargaining agreement, and the Company
      believes that its relations with its employees are good. No executive officer
      (as defined in Rule 501(f) of the Securities Act) has notified the Company
      that
      he intends to leave the Company or otherwise terminate his employment with
      the
      Company. No executive officer, to the knowledge of the Company, is, or is now
      expected to be, in violation of any material term of any employment contract,
      confidentiality, disclosure or proprietary information agreement,
      non-competition agreement, or any other contract or agreement or any restrictive
      covenant, and the continued employment of each such executive officer does
      not
      subject the Company to any liability with respect to any of the foregoing
      matters.

     

    
      
         

      

      
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    3.13  Intellectual
      Property Rights.
      The
      Company owns or possesses total and absolute rights and /or licenses to use
      all
      trademarks, trade names, service marks, service mark registrations, service
      names, patents, patent rights, copyrights, inventions, licenses, approvals,
      governmental authorizations, trade secrets and other intellectual property
      rights necessary to conduct its businesses as now conducted or as proposed
      to be
      conducted in the future. Except as set forth on Schedule
      3.13,
      none of
      the Company’s trademarks, trade names, service marks, service mark
      registrations, service names, patents, patent rights, copyrights, inventions,
      licenses, approvals, governmental authorizations, trade secrets or other
      intellectual property rights have expired or terminated, or are expected to
      expire or terminate within ten years from the date of this Agreement. The
      Company does not have any knowledge of any infringement by the Company of
      trademarks, trade names, service marks, service mark registrations, service
      names, patents, patent rights, copyrights, inventions, licenses, trade secrets
      or other intellectual property rights of others, or of any development of
      similar or identical trade secrets or technical information by others and,
      except as set forth on Schedule
      3.13,
      there
      is no claim, action or proceeding being made or brought against, or to the
      Company’s knowledge, being threatened against, the Company, regarding its
      trademarks, trade names, service marks, service mark registrations, service
      names, patents, patent rights, copyrights, inventions, licenses, trade secrets,
      or infringement of other intellectual property rights; and the Company is
      unaware of any facts or circumstances which might give rise to any of the
      foregoing. The Company has taken security measures to protect the secrecy,
      confidentiality and value of all of its intellectual properties consistent
      with
      industry practices used by comparable companies. Schedule
      3.13
      contains
      a complete list of all patents and trademarks for which the Company has sought
      intellectual property protection with the Patent and Trademark Office. There
      are
      no outstanding options, licenses, or agreements of any kind relating to the
      foregoing, nor is the Company bound by or a party to any options, licenses
      or
      agreements of any kind with respect to the patents, trademarks, service marks,
      trade names, copyrights, trade secrets, licenses, information, proprietary
      rights and processes of any other person or entity. The Company has not received
      any communications alleging that the Company has violated or, by conducting
      its
      business, would violate any of the patents, trademarks, service marks, trade
      names, copyrights, trade secrets or other proprietary rights or processes of
      any
      other person or entity. The Company is not aware that any of its employees
      is
      obligated under any contract (including licenses, covenants or commitments
      of
      any nature) or other agreement, or subject to any judgment, decree or order
      of
      any court or administrative agency, that would interfere with the use of such
      employee’s best efforts to promote the interest of the Company or that would
      conflict with the Company’s business. Neither the execution or delivery of this
      Agreement, nor the carrying on of the Company’s business by the employees of the
      Company, nor the conduct of the Company’s business as proposed, will, to the
      Company’s knowledge, conflict with or result in a breach of the terms,
      conditions, or provisions of, or constitute a default under, any contract,
      covenant or instrument under which any such employee is now obligated. The
      Company does not believe it is or will be necessary to use any inventions of
      any
      of its employees (or persons it currently intends to hire) made prior to their
      employment by the Company.

     

    
      
         

      

      
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    3.14  Environmental
      Laws.
      The
      Company (i) is in compliance with any and all applicable foreign, federal,
      state
      and local laws and regulations relating to the protection of human health and
      safety, the environment or hazardous or toxic substances or wastes, pollutants
      or contaminants (“Environmental
      Laws”),
      (ii)
      has received all permits, licenses or other approvals required of it under
      applicable Environmental Laws to conduct its businesses and (iii) is in
      compliance with all terms and conditions of any such permit, license or
      approval. The Company is not in violation of any applicable statute, law or
      regulation relating to the environment or occupational health and safety, and
      to
      its knowledge, no material expenditures are or will be required in order to
      comply with any such existing statute, law or regulation. Except as set forth
      on
Schedule
      3.14,
      no
      Hazardous Materials (as defined below) are used or have been used, stored,
      or
      disposed of by the Company or, to the Company’s knowledge, by any other person
      or entity on any property owned, leased or used by the Company. For the purposes
      of the preceding sentence, “Hazardous
      Materials”
      shall
      mean (a) materials which are listed or otherwise defined as “hazardous”
      or
“toxic”
      under
      any applicable local, state, federal and/or foreign laws and regulations that
      govern the existence and/or remedy of contamination on property, the protection
      of the environment from contamination, the control of hazardous wastes, or
      other
      activities involving hazardous substances, including building materials or
      (b)
      any petroleum products or nuclear materials.

     

    3.15  Title.
      The
      Company has good title to all property owned by it which is material to the
      business of the Company free and clear of all liens, encumbrances and defects
      except such as are described in Schedule
      3.15
      or such
      as do not materially affect the value of such property and do not interfere
      with
      the use made and proposed to be made of such property by the Company. Any real
      property and facilities held under lease by the Company are held by them under
      valid, subsisting and enforceable leases with such exceptions as are not
      material and do not interfere with the use made and proposed to be made of
      such
      property and facilities by the Company.

     

    3.16  Insurance.
      The
      Company is insured by insurers of recognized financial responsibility against
      such losses and risks and in such amounts as management of the Company
      reasonably believes to be prudent and customary in the businesses in which
      the
      Company is engaged. The Company has not been refused any insurance coverage
      sought or applied for and, except as set forth in Schedule
      3.16,
      the
      Company has no reason to believe that it will not be able to renew its existing
      insurance coverage as and when such coverage expires or to obtain similar
      coverage from similar insurers as may be necessary to continue its business
      at a
      cost that would not have a Material Adverse Effect.

     

    3.17  Regulatory
      Permits.
      The
      Company possesses all certificates, authorizations and permits issued by the
      appropriate federal, state or foreign regulatory authorities necessary to
      conduct its businesses, and the Company has not received any notice of
      proceedings relating to the revocation or modification of any such certificate,
      authorization or permit. The Company is not in default in any material respect
      under any of such permits, licenses or other similar authority.

     

    
      
         

      

      
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    3.18  Internal
      Accounting Controls.
      The
      Company maintains a system of internal accounting controls sufficient to provide
      reasonable assurance that (i) transactions are executed in accordance with
      management’s general or specific authorizations, (ii) transactions are recorded
      as necessary to permit preparation of financial statements in conformity with
      generally accepted accounting principles and to maintain asset accountability,
      (iii) access to assets is permitted only in accordance with management’s general
      or specific authorization and (iv) the recorded accountability for assets is
      compared with the existing assets at reasonable intervals and appropriate action
      is taken with respect to any differences.

     

    3.19  Tax
      Status.
      Except
      as set forth in Schedule
      3.19,
      the
      Company (i) has made or filed all federal and state income and all other tax
      returns, reports and declarations required by any jurisdiction to which it
      is
      subject (unless and only to the extent that the Company has set aside on its
      books provisions reasonably adequate for the payment of all unpaid and
      unreported taxes), (ii) has paid all taxes and other governmental assessments
      and charges shown or determined to be due on such returns, reports and
      declarations, except those being contested in good faith and for which the
      Company has made appropriate reserves for on its books, and (iii) has set aside
      on its books provisions reasonably adequate for the payment of all taxes for
      periods subsequent to the periods to which such returns, reports or declarations
      (referred to in clause (i) above) apply. There are no unpaid taxes in any
      material amount claimed to be due by the taxing authority of any jurisdiction,
      and the officers of the Company know of no basis for any such
      claim.

     

    3.20  Agreements. 

     

    3.20.1  Except
      as
      set forth on Schedule
      3.20,
      and
      other than the grant of stock options disclosed on Schedule
      3.4,
      none of
      the officers, directors, or employees of the Company is presently a party to
      any
      transaction with the Company (other than for services as employees, officers
      and
      directors), including any contract, agreement or other arrangement providing
      for
      the furnishing of services to or by, providing for rental of real or personal
      property to or from, or otherwise requiring payments to or from any such
      officer, director or employee or, to the knowledge of the Company, any
      corporation, partnership, trust or other entity in which any such officer,
      director, or employee has a substantial interest or is an officer, director,
      trustee or partner, and there are no agreements, understandings or proposed
      transactions between the Company and any of its officers, directors, affiliates,
      or any affiliate thereof.

     

    3.20.2  Except
      as
      set forth in Schedule
      3.20,
      there
      are no agreements, understandings, instruments, contracts, proposed
      transactions, judgments, orders, writs or decrees to which the Company is a
      party or by which it is bound which may involve (i) obligations (contingent
      or
      otherwise) of, or payments to the Company in excess of $25,000, or (ii) the
      license of any patent, copyright, trade secret or other proprietary right to
      or
      from the Company or (iii) provisions restricting or affecting the development,
      manufacture or distribution of the Company’s products or services.

     

    3.20.3  Except
      as
      set forth in Schedule
      3.20,
      the
      Company has not (i) declared or paid any dividends, or authorized or made any
      distribution upon or with respect to any class or series of its capital stock,
      (ii) incurred any indebtedness for money borrowed or any other liabilities
      individually in excess of $25,000 or, in the case of indebtedness and/or
      liabilities individually less than $25,000, in excess of $100,000 in the
      aggregate, (iii) made any loans or advances to any person, other than ordinary
      advances for travel expenses, or (iv) sold, exchanged or otherwise disposed
      of
      any of its assets or rights, other than in the ordinary course of business.
      For
      the purposes of Sections
      3.20.2
      above
      and this Section
      3.20.3,
      all
      indebtedness, liabilities, agreements, understandings, instruments, contracts
      and proposed transactions involving the same person or entity (including persons
      or entities the Company has reason to believe are affiliated therewith) shall
      be
      aggregated for the purpose of meeting the individual minimum dollar amounts
      of
      such subsections.

     

    
      
         

      

      
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    3.20.4  The
      Company is not a party to and is not bound by any contract, agreement or
      instrument, or subject to any restriction under its Certificate of Incorporation
      or Bylaws, which materially adversely affects its business as now conducted
      or
      as proposed to be conducted in the MR3 CFDD 03-20-05 report, its properties
      or
      its financial condition.

     

    3.20.5  Except
      as
      set forth in the Schedule
      3.20,
      the
      Company is not a party to and has not entered into any agreements in the past
      three (3) months (i) with any representative of any corporation or corporations
      regarding the consolidation or merger of the Company with or into any such
      corporation or corporations, (ii) with any corporation, partnership, association
      or other business entity or any individual regarding the sale, conveyance or
      disposition of all or substantially all of the assets of the Company, or a
      transaction or series of related transactions in which more than fifty percent
      (50%) of the voting power of the Company is disposed of, or (iii) regarding
      any
      other form of acquisition, liquidation, dissolution or winding up of the
      Company.

     

    3.21  Disclosure.
      The
      Company has provided Investor with all the information reasonably available
      to
      it which Investor has requested for deciding whether to purchase the Securities
      and all information which the Company believes is reasonably necessary to enable
      such Investor to make such decision. All documents in relation to the Company
      supplied or to be supplied to Investor are genuine or copies of genuine
      documents. Neither this Agreement nor any other statements or certificates
      made
      or delivered in connection herewith contains any untrue statement of a material
      fact or omits to state a material fact necessary to make the statements herein
      or therein not misleading. To the Company’s knowledge, there are no facts that,
      individually or in the aggregate, would have a Material Adverse Effect that
      have
      not been set forth in this Agreement (including the exhibits and schedules
      attached hereto).

     

    3.22  Labor
      Agreements and Actions.
      The
      Company is not bound by or subject to (and none of its assets or properties
      is
      bound by or subject to) any written or oral, express or implied, contract,
      commitment or arrangement with any labor union, and no labor union has requested
      or, to the knowledge of the Company, has sought to represent any of the
      employees, representatives or agents of the Company. There is no strike or
      other
      labor dispute involving the Company pending, or to the knowledge of the Company
      threatened, which could have a material adverse effect on the assets,
      properties, financial condition, operating results, or business of the Company,
      nor is the Company aware of any labor organization activity involving its
      employees. Except as set forth in Schedule
      3.22,
      the
      employment of each officer and employee of the Company is terminable at the
      will
      of the Company. The Company has complied in all material respects with all
      applicable state and federal equal employment opportunity laws and with other
      laws related to employment. 

     

    
      
         

      

      
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    3.23  Obligations
      to Related Parties.
      Except
      as set forth in Schedule
      3.23,
      there
      are no obligations of the Company to officers, directors, stockholders, or
      employees of the Company or its affiliates other than (i) for payment of salary
      for services rendered, (ii) reimbursement for reasonable expenses incurred
      on
      behalf of the Company and (iii) for other standard employee benefits made
      generally available to all employees (including stock option agreements
      outstanding under any stock option plan approved by the Board of Directors
      of
      the Company). Except as set forth in the Schedule
      3.23,
      none of
      the officers, members of the Board of Directors or stockholders of the Company,
      or any members of their families or their affiliates, are indebted to the
      Company or have any direct or indirect ownership interest in any firm or
      corporation with which the Company is affiliated or with which the Company
      has a
      business relationship, or any firm or corporation which competes with the
      Company, except that officers, directors and/or stockholders of the Company
      may
      own stock in publicly traded companies which may compete with the Company.
      Except as set forth in Schedule
      3.23,
      no
      officer, director or stockholder, or any member of their families or their
      affiliates, is, directly or indirectly, interested in any contract with the
      Company (other than such contracts as relate to any such person’s ownership of
      capital stock or other securities of the Company). The Company is not liable
      to
      make any payment to any officers, directors, stockholders or employee or former
      officers, directors, stockholders or employee by way of damages (whether for
      breach of contract or otherwise) or compensation for loss of office or
      employment or for redundancy, pension, provident fund, superannuation or
      retirement benefit funds, schemes or arrangements, protective awards, wrongful
      dismissal or unfair dismissal or for failure to comply with any order for the
      reinstatement or re-engagement of any officers, directors or employee or for
      any
      other liability accruing from the termination of any contract of service or
      for
      services. The Company is not a guarantor or indemnitor of any indebtedness
      of
      any other person, firm or corporation.

     

    3.24  Changes.
      Since
      December 31, 2004, and except as provided in Schedule
      3.24,
      there
      has not been:

     

    3.24.1  any
      change in the assets, liabilities, financial condition or operating results
      of
      the Company from that reflected in the financial statements dated December
      31,
      2004, except changes in the ordinary course of business that have not been,
      in
      the aggregate, materially adverse;

     

    3.24.2  any
      damage, destruction or loss, whether or not covered by insurance, materially
      and
      adversely affecting the business, properties, prospects, or financial condition
      of the Company;

     

    3.24.3  any
      waiver or compromise by the Company of a valuable right or of a material debt
      owed to it;

     

    3.24.4  any
      satisfaction or discharge of any lien, claim, or encumbrance or payment of
      any
      obligation by the Company, except in the ordinary course of business and that
      is
      not material to the business, properties, prospects or financial condition
      of
      the Company;

     

    
      
         

      

      
        -13-

        
          

        

      

      
         

      

    

    3.24.5  any
      material change to a material contract or agreement by which the Company or
      any
      of its assets is bound or subject;

     

    3.24.6  any
      material change in any compensation arrangement or agreement with any employee,
      officer, director or stockholder;

     

    3.24.7  any
      sale,
      assignment or transfer of any patents, trademarks, copyrights, trade secrets
      or
      other intangible assets;

     

    3.24.8  any
      resignation or termination of employment of any officer or key employee of
      the
      Company; and the Company is not aware of any impending resignation or
      termination of employment of any such officer or key employee;

     

    3.24.9  any
      mortgage, pledge, transfer of a security interest in, or lien, created by the
      Company, with respect to any of its material properties or assets, except liens
      for taxes not yet due or payable;

     

    3.24.10  any
      loans
      or guarantees made by the Company to or for the benefit of its employees,
      officers or directors, or any members of their immediate families, other than
      travel advances and other advances made in the ordinary course of its
      business;

     

    3.24.11  any
      declaration, setting aside or payment or other distribution in respect to any
      of
      the Company’s capital stock, or any direct or indirect redemption, purchase, or
      other acquisition of any of such stock by the Company;

     

    3.24.12  to
      the
      Company’s knowledge, any other event or condition of any character that might
      materially and adversely affect the business, properties, prospects or financial
      condition of the Company; or

     

    3.24.13  any
      arrangement or commitment by the Company to do any of the things described
      in
      this Section
      3.24.

     

    3.25  Rights
      Agreement; Employee Benefit Plan.
      The
      Company has not adopted a stockholder rights plan or similar arrangement
      relating to accumulations of beneficial ownership of Common Stock or a change
      in
      control of the Company. Except as set forth in Schedule
      3.25,
      the
      Company does not have any Employee Benefit Plan as defined in the Employee
      Retirement Income Securities Act of 1974.

     

    3.26  Confidential
      Information and Invention Assignment Agreements.
      Each
      employee, consultant and officer of the Company has executed an agreement with
      the Company regarding confidentiality and proprietary information substantially
      in the form or forms delivered to the counsel for Investor. The Company is
      not
      aware that any of its employees or consultants is in violation thereof, and
      the
      Company will use its best efforts to prevent any such violation.

     

    
      
         

      

      
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    3.27  Corporate
      Documents.
      The
      Certificate of Incorporation and Bylaws of the Company are in the form provided
      to counsel for Investor and except as set forth in Schedule
      3.27,
      no
      amendments are contemplated. The copy of the minute books of the Company
      provided to Investor’s counsel contains minutes of all meetings of directors and
      stockholders and all actions by written consent without a meeting by the
      directors and stockholders since the date of incorporation and reflects all
      actions by the directors (and any committee of directors) and stockholders
      with
      respect to all transactions referred to in such minutes accurately in all
      material respects.

     

    3.28  Real
      Property Holding Corporation.
      The
      Company is not a “United States real property holding corporation” within the
      meaning of the Code and any regulation promulgated thereunder.

     

    3.29  Foreign
      Corrupt Practices.
      Neither
      the Company, nor any director, officer, agent, employee or other person acting
      on behalf of the Company has, in the course of its actions for, or on behalf
      of,
      the Company, used any corporate funds for any unlawful contribution, gift,
      entertainment or other unlawful expenses relating to political activity; made
      any direct or indirect unlawful payment to any foreign or domestic government
      official or employee from corporate funds; violated or is in violation of any
      provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or
      made
      any unlawful bribe, rebate, payoff, influence payment, kickback or other
      unlawful payment to any foreign or domestic government official or
      employee.

     

    3.30  No
      Undisclosed Liabilities.
      The
      Company has no liabilities or obligations of any nature, whether accrued,
      absolute, contingent, unliquidated or otherwise, except those disclosed or
      described in the SEC Documents, including the financial statements and notes
      thereto included in the SEC Documents, and those liabilities and obligations
      incurred in the ordinary course of business since the last day covered by the
      financial statements included in the most recently filed SEC Document listed
      on
Schedule
      3.7. 

     

    3.31  Investment
      Company Act Status.
      The
      Company is not an “investment company” or a company “controlled” by an
“investment company” as those terms are defined in the Investment Company Act of
      1940, as amended. 

     

    3.32  No
      Integrated Offering.
      Except
      as set forth on Schedule
      3.32,
      neither
      the Company, nor any of its affiliates, nor any person acting on its or their
      behalf has, directly or indirectly, made any offers or sales of any security
      or
      solicited any offers to buy any security, under circumstances that would require
      registration of any of the Securities under the Securities Act or cause this
      offering of the Securities to be integrated with prior offerings by the Company
      for purposes of the Securities Act or any applicable stockholder approval
      provisions, including, without limitation, under the rules and regulations
      of
      the Principal Market or any exchange or automated quotation system on which
      any
      of the securities of the Company are listed or designated, nor will the Company
      take any action or steps that would require registration of any of the
      Securities under the Securities Act or cause the offering of the Securities
      to
      be integrated with other offerings.

     

    
      
         

      

      
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    3.33  Certain
      Officers.
      Randall
      S. Reis is the current Chairman, Chief Financial Officer and Secretary of the
      Company. William C. Tao, Ph.D. is the current Chief Executive Officer of the
      Company.

     

    3.34  Significant
      Stockholders.
      Set
      forth on Schedule
      3.34
      is a
      list of stockholders each of whom is the record owner of 100,000 or more shares
      of the Company’s Common Stock. There are no other record owners of 100,000 or
      more shares of the Company’s Common Stock.

     

    3.35  Key
      Employees.
      Each of
      the Company’s directors and officers and any Key Employee (as defined below) are
      currently serving the Company in the capacity disclosed in the SEC Documents.
      No
      Key Employee is, or is now expected to be, in violation of any material term
      of
      any employment contract, confidentiality, disclosure or proprietary information
      agreement, non-competition agreement, or any other contract or agreement or
      any
      restrictive covenant, and the continued employment of each Key Employee does
      not
      subject the Company to any material liability with respect to any of the
      foregoing matters. No Key Employee has, to the knowledge of the Company, any
      intention to terminate or limit his employment with, or services to, the
      Company, nor is any such Key Employee subject to any constraints which would
      cause such employee to be unable to devote his full time and attention to such
      employment or services. For purposes of this Agreement, “Key
      Employee”
      means
      the persons listed in Schedule
      3.35
      and any
      individual who assumes or performs any of the duties of a Key
      Employee.

     

    3.36  Listing.
      The
      Common Stock is currently listed for trading on the Over-the-Counter Bulletin
      Board (the “OTCBB”).
      The
      Company is not in violation of the listing requirements of the OTCBB, does
      not
      reasonably anticipate that the Common Stock will be delisted by the OTCBB for
      the foreseeable future, and, except as set forth in Schedule
      3.36,
      had not
      received during 2003, 2004, or 2005 any notice regarding the possible delisting
      of the Common Shares from the OTCBB. The Company shall secure the listing of
      the
      Stock on the OTCBB and on each other national securities exchange, automated
      quotation system or over-the-counter market upon which shares of Common Stock
      are then listed (subject to official notice of issuance).

     

    3.37  Anti-Takeover
      Provisions.
      The
      Company and its board of directors have taken all necessary action, if any,
      in
      order to render inapplicable any control share acquisition, business
      combination, poison pill (including any distribution under a rights agreement)
      or other similar anti-takeover provision under its Certificate of Incorporation
      or Bylaws or applicable law which is or could become applicable to Investor
      as a
      result of the transactions contemplated by this Agreement and the other
      Transaction Documents (the “Transactions”),
      including, without limitation, the Company’s issuance of the Securities or any
      other securities pursuant to the terms of this Agreement and any and all
      Investor ownership of the Securities or any such other securities.

     

    3.38  Acknowledgement
      Regarding Investor’s Purchase of the Securities.
      The
      Company acknowledges and agrees that Investor is acting solely in the capacity
      of an arm’s length purchaser with respect to this Agreement and the other
      Transaction Documents and the Transactions, and that Investor is not (i) an
      officer or director of the Company, (ii) an “affiliate” of the Company (as
      defined in Rule 144 under the Securities Act (including any successor rule,
      “Rule
      144”)
      or
      (iii) to the actual knowledge of the Company (without any inquiry of Investor),
      except as set forth on Schedule
      3.38,
      a
“beneficial owner” of more than 5% of the Common Stock (as defined for purposes
      of Rule 13d-3 of the Exchange Act). The Company further acknowledges that
      Investor is not acting as a financial advisor or fiduciary of the Company (or
      in
      any similar capacity) with respect to this Agreement or the other Transaction
      Documents and the Transactions, and any advice given by Investor or any of
      its
      representatives or agents in connection with this Agreement or the other
      Transaction Documents and the Transactions is merely incidental to Investor’s
      purchase of the Securities. The Company further represents to Investor that
      the
      Company’s decision to enter into this Agreement and the other Transaction
      Documents has been based solely on the independent evaluation by the Company
      and
      its representatives. 

     

    
      
         

      

      
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    3.39  Legal
      Compliance.
      The
      Company shall conduct its business in compliance with all laws, ordinances
      or
      regulations of governmental entities applicable to such businesses, except
      where
      the failure to do so would not have a Material Adverse Effect.

     

    3.40  Variable
      Securities.
      Except
      as contemplated in this Agreement, so long as Investor (or any of its respective
      affiliates) beneficially owns any Common Stock, the Company shall not, without
      first obtaining the written approval of Investor (which approval may be given
      or
      withheld by Investor in its sole discretion), issue or sell any rights, warrants
      or options to subscribe for or purchase Common Stock, or any other securities
      directly or indirectly convertible into or exchangeable or exercisable for
      Common Stock, at an effective conversion, exchange or exercise price that varies
      or may vary with the market price of the Common Stock, including by way of
      one
      or more reset(s) to any fixed price.

     

    3.41  Representations
      and Warranties Effective as of Each Closing Date.
      The
      representations and warranties of the Company set forth in this Section
      3
      will be
      true, correct and complete on the Initial Closing and on each Closing Date
      as if
      made as of that date.

     

    4.  INVESTOR
      REPRESENTATIONS AND WARRANTIES.

     

    Investor
      represents and warrants to the Company that:

     

    4.1  Investment
      Purpose.
      Investor (i) is acquiring the Securities for Investor’s own account and not with
      a view towards, or for resale in connection with, the public sale or
      distribution thereof, except pursuant to sales registered or exempted under
      the
      Securities Act.

     

    4.2  Accredited
      Investor Status.
      Investor is an “accredited investor” as that term is defined in Rule 501(a) of
      Regulation D.

     

    4.3  Reliance
      on Exemptions.
      Investor understands that the Securities are being offered and sold to Investor
      in reliance on specific exemptions from the registration requirements of the
      United States federal and state securities laws and that the Company is relying
      in part upon the truth and accuracy of, and Investor’s compliance with, the
      representations, warranties, agreements, acknowledgments and understandings
      of
      Investor set forth herein in order to determine the availability of such
      exemptions and the eligibility of Investor to acquire the
      Securities.

     

    
      
         

      

      
        -17-

        
          

        

      

      
         

      

    

    4.4  Information.
      Investor and Investor’s advisors, if any, have been furnished with all materials
      relating to the business, finances and operations of the Company, including,
      without limitation, the information required to be delivered to Investor under
      Rule 502(b)(2) of Regulation D as promulgated under the Securities Act, and
      any
      other materials relating to the offer and sale of the Securities that have
      been
      requested by Investor. Investor and Investor’s advisors, if any, have been
      afforded the opportunity to ask questions of the Company. Investor understands
      that Investor’s investment in the Securities involves a high degree of risk.
      Investor has sought such accounting, legal and tax advice as Investor has
      considered necessary to make an informed investment decision with respect to
      Investor’s acquisition of the Securities.

     

    4.5  No
      Governmental Review.
      Investor understands that no United States federal or state agency or any other
      government or governmental agency has passed on or made any recommendation
      or
      endorsement of the Securities or the fairness or suitability of the investment
      in the Securities nor have such authorities passed upon or endorsed the merits
      of the offering of the Securities.

     

    4.6  Transfer
      or Resale.
      Investor understands that, except as provided in the Transaction Documents:
      (i)
      the Securities have not been and are not being registered under the Securities
      Act or any state securities laws, and may not be offered for sale, sold,
      assigned or transferred unless (A) subsequently registered thereunder, (B)
      Investor delivers to the Company an opinion of counsel, in a generally
      acceptable form, to the effect that the Securities to be sold, assigned or
      transferred may be sold, assigned or transferred pursuant to an exemption from
      such registration, or (C) Investor provides the Company with reasonable
      assurance that the Securities can be sold, assigned or transferred pursuant
      to
      Rule 144 promulgated under the Securities Act, as amended, (or a successor
      rule
      thereto) (“Rule
      144”);
      (ii)
      any sale of the Securities made in reliance on Rule 144 may be made only in
      accordance with the terms of Rule 144 and further, if Rule 144 is not
      applicable, any resale of the Securities under circumstances in which the seller
      (or the person through whom the sale is made) may be deemed to be an underwriter
      (as that term is defined in the Securities Act) may require compliance with
      some
      other exemption under the Securities Act or the rules and regulations of the
      SEC
      thereunder; and except as provided in this Agreement (iii) neither the Company
      nor any other person is under any obligation to register the Securities under
      the Securities Act or any state securities laws.

     

    4.7  Legends.
      Investor understands that the certificates or other instruments representing
      the
      Securities and, until such time as the sale of the Securities have been
      registered under the Securities Act, the stock certificates and other
      instruments representing the Securities, except as set forth below, shall bear
      a
      restrictive legend in substantially the following form (and a stop-transfer
      order may be placed against transfer of such stock certificates):

     

    THE
      SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
      SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
      SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN
      THE
      ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER
      THE
      SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS OR
      (B)
      AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS
      NOT
      REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR (II) UNLESS
      SOLD
      PURSUANT TO RULE 144 UNDER THAT ACT. 

     

    
      
         

      

      
        -18-

        
          

        

      

      
         

      

    

    The
      legend set forth above shall be removed and the Company shall issue a
      certificate without such legend to the holder of the Securities upon which
      it is
      stamped, if, unless otherwise required by state securities laws, (i) the
      Securities are registered for resale under the Securities Act, (ii) in
      connection with a sale transaction, such holder provides the Company with an
      opinion of counsel, in a generally acceptable form, to the effect that a public
      sale, assignment or transfer of the Securities may be made without registration
      under the Securities Act, or (iii) such holder provides the Company with
      reasonable assurances that the Securities can be sold pursuant to Rule 144
      without any restriction as to the number of securities acquired as of a
      particular date that can then be immediately sold.

     

    4.8  Authorization;
      Enforcement; Validity.
      This
      Agreement has been duly and validly authorized, executed and delivered on behalf
      of Investor and is a valid and binding agreement of Investor enforceable against
      Investor in accordance with its terms, subject as to enforceability to general
      principles of equity and to applicable bankruptcy, insolvency, reorganization,
      moratorium, liquidation and other similar laws relating to, or affecting
      generally, the enforcement of applicable creditors’ rights and
      remedies.

     

    4.9  Residency.
      Investor is a resident of that jurisdiction specified in its address in
Section
      9.6.

     

    4.10  Representations
      and Warranties Effective as of Closing Date.
      The
      representations and warranties of Investor set forth in this Section
      4
      will be
      true, correct and complete on the Initial Closing and on each Closing Date
      as if
      made as of that date.

     

    5.  COVENANTS. 

     

    The
      Company covenants and agrees as set forth in Sections
      5.1 through 5.10.
      Investor covenants and agrees as set forth in Section
      5.11.
      

     

    5.1  Notice
      of Issuance.
      Promptly, and in any event within five (5) business days after an officer of
      the
      Company obtains knowledge thereof, the Company shall deliver to Investor written
      notice of the issuance of any capital stock of the Company issued or issuable
      pursuant to the exercise, conversion or exchange of stock options, rights to
      acquire stock or other equity securities or securities convertible into stock
      or
      other equity securities, convertible notes, warrants and other equity securities
      of the Company outstanding on the date hereof.

     

    5.2  Notice
      of Default or Litigation.
      Promptly, and in any event within five (5) business days after an officer of
      the
      Company obtains knowledge thereof, the Company shall deliver to Investor notice
      of (i) the occurrence of any event, act or condition which constitutes a Default
      or Event of Default, (ii) any litigation or governmental proceeding pending
      against the Company and (iii) any other event which is likely to have a Material
      Adverse Effect. Each such notice shall specify in reasonable detail the nature
      of the event, act, condition, Default, Event of Default or proceeding and what
      action the Company is taking or proposes to take with respect
      thereto.

     

    
      
         

      

      
        -19-

        
          

        

      

      
         

      

    

    5.3  Books,
      Records and Inspections.
      The
      Company shall keep proper books of record and account in which full, true and
      correct entries in conformity with all requirements of law and with GAAP (except
      that all interim information shall be subject to normal year-end adjustments)
      shall be made of all dealings and transactions in relation to its business
      and
      activities. The Company shall permit designated agents of Investor to visit
      and
      inspect any of the properties of the Company, and to examine the books of
      account and records of the Company and make copies thereof, and discuss the
      affairs, finances and accounts of the Company with, and be advised as to the
      same by, its officers and independent accountants, all during the Company’s
      normal business hours, upon prior notice and to such extent as Investor may
      request.

     

    5.4  Taxes.
      The
      Company shall pay when due all Taxes, except as contested in good faith and
      by
      appropriate proceedings if adequate reserves have been established with respect
      thereto.

     

    5.5  Form
      D
      and Blue Sky.
      The
      Company agrees to file, at its expense, a Form D with respect to the Securities
      as required under Regulation D and to provide a copy thereof to Investor and
      their counsel promptly after the filing. The Company shall take such action
      as
      the Company shall reasonably determine is necessary in order to obtain an
      exemption for or to qualify the Securities for sale to Investor pursuant to
      this
      Agreement under applicable securities or “Blue Sky” laws of the states of the
      United States, and shall provide evidence of any such action so taken to
      Investor. The Company, at its expense, shall make all filings and reports
      relating to the offer and sale of the Securities required under applicable
      securities or “Blue Sky” laws of the states of the United States.

     

    5.6  Reporting
      Status.
      Until
      the date as of which Investor may sell all of the Securities without restriction
      pursuant to Rule 144(k) promulgated under the Securities Act (or successor
      thereto), the Company shall timely file all reports required to be filed with
      the SEC pursuant to the Exchange Act and with any Principal Market, and the
      Company shall not terminate its status as an issuer required to file reports
      under the Exchange Act even if the Exchange Act or the rules and regulations
      thereunder would otherwise permit termination.

     

    5.7  Reservation
      of Shares.
      The
      Company shall take all action necessary to at all times have authorized, and
      reserved for the purpose of issuance, the number of shares of Common Stock
      and
      Preferred Shares needed to provide for the issuance of the shares of Securities
      upon the Initial Closing and any subsequent Closings.

     

    5.8  Listing.
      The
      Company shall promptly secure the listing of all of the Common Stock upon each
      national securities exchange and automated quotation system, if any, upon which
      shares of Common Stock are then listed (subject to official notice of issuance)
      and shall maintain, so long as any other shares of Common Stock shall be so
      listed, such listing of all Common Stock issuable under the terms of the Warrant
      and the Transaction Documents. The Company shall maintain the Common Stock’s
      authorization for quotation on the OTCBB (the “Principal
      Market”).
      The
      Company shall not take any action that would be reasonably expected to result
      in
      the delisting or suspension of the Common Stock from the Principal Market,
      and
      the Company shall use best efforts to continue such listing. The Company shall
      pay all fees and expenses in connection with satisfying its obligations under
      this Section
      5.8.

     

    
      
         

      

      
        -20-

        
          

        

      

      
         

      

    

    5.9  Filing
      of Form 8-K.
      On or
      before the second Business Day following the execution of this Agreement and
      each Closing Date, the Company shall issue a press release describing the
      material terms of the Transactions and shall also file a Current Report on
      Form
      8-K with the SEC describing the terms of the transactions, as and to the extent
      required by the Exchange Act, and including as exhibits to the Form 8-Ks this
      Agreement and other Transaction Documents.

     

    5.10  Reservation
      of Common Stock.
      The
      Company shall at all time reserve and keep available from its authorized shares
      of Common Stock, the maximum number of shares that are issuable upon the
      conversion of the Preferred Stock and the exercise of the Warrant. The Company
      shall promptly upon exercise of the Warrant, issue to Investor the maximum
      number of shares that are issuable upon exercise of the Warrant, and issue
      to
      Investor a new Warrant in the form of Exhibit
      B.

     

    5.11  Investor
      Covenants.
      Investor hereby covenants and agrees that it shall comply with all prospectus
      delivery requirements under applicable law in connection with the Securities
      as
      to which the legend referenced in Section
      4.7
      has been
      removed, and if a registration statement covering any such stock has lapsed,
      been withdrawn or is otherwise ineffective, and the Company so requests it
      shall
      tender certificates representing such previously registered stock held by it
      to
      the Company (whereupon the Company shall promptly return to Investor new
      certificates for such stock bearing a legend substantially similar to the one
      referenced in Section
      4.7),
      it
      being understood and agreed that Investor shall in any case have the right
      to
      pursue any remedies it may have under any applicable law or agreement if such
      lapse, withdrawal or ineffectiveness constitutes a breach or violation of the
      Company’s obligations to Investor.

     

    6.  DEFAULTS
      AND REMEDIES.

     

    6.1  Events
      of Default.
      An
“Event
      of Default”
      occurs
      if:

     

    6.1.1  the
      Company fails to comply with any of the agreements or covenants contained in,
      or
      otherwise breaches, the Certificate of Incorporation, the Certificate of
      Designation for the Series B Preferred Stock, this Agreement or any other
      agreement, covenant or provision contained in the Transaction Documents and
      such
      failure continues for a period of ten days after an officer of the Company
      obtains knowledge thereof;

     

    6.1.2  any
      representation or warranty made by the Company under, relating to or in
      connection with this Agreement shall be false or misleading when
      made;

     

    6.1.3  the
      Company, pursuant to or within the meaning of any Bankruptcy Law, commences
      a
      voluntary case or proceeding, consents to the entry of an order for relief
      against it in an involuntary case or proceeding, consents to the appointment
      of
      a Custodian of it or for all or substantially all of its property, makes a
      general assignment for the benefit of its creditors, or generally is unable
      to
      pay its debts as they become due;

     

    
      
         

      

      
        -21-

        
          

        

      

      
         

      

    

    6.1.4  a
      court
      of competent jurisdiction enters an order or decree under any Bankruptcy Law
      that is for relief against the Company in an involuntary case or proceeding,
      appoints a Custodian of the Company or for all or substantially all of its
      property, or orders the liquidation of the Company;

     

    6.1.5  except
      for liens or security interests described in Section
      3.15,
      the
      Company grants or agrees to grant to any Person a security interest in any
      property of the Company; or

     

    6.1.6  the
      Company fails for any reason to effect the registration of the Securities
      pursuant to Section
      1.2
      of the
      Stockholder Agreement (as hereinafter defined).

     

    6.2  Remedies.
      If any
      Default or Event of Default occurs and is continuing, Investor may proceed
      to
      protect and enforce its rights under this Agreement or the Transaction Documents
      with respect to the Securities by exercising such remedies as are available
      in
      respect thereof under this Agreement and/or the Transaction Documents or under
      applicable law, either by suit in equity or by action at law, or both, or to
      enforce the specific performance of any covenant or other agreement contained
      in
      this Agreement or the Transaction Documents. No remedy conferred in this
      Agreement upon Investor is intended to be exclusive of any other remedy, and
      each and every remedy shall be cumulative and shall be in addition to every
      other remedy conferred herein or now or hereafter existing at law or in equity
      or by statute or otherwise.

     

    6.3  Waiver
      of Past Defaults.
      Investor, by written notice to the Company, may waive an existing Default or
      Event of Default and its consequences with respect to the Securities; provided,
      however, that no such waiver will extend to any subsequent or other Default
      or
      Event of Default or impair any right of Investor which may arise as a result
      of
      the Default or Event of Default.

     

    7.  CONDITIONS
      TO THE COMPANY’S OBLIGATION TO SELL OR BORROW.

     

    The
      obligation of the Company hereunder to issue and sell the Preferred Shares
      or
      issue the Promissory Note is subject to the satisfaction, at or before each
      Closing Date, of each of the following conditions as to such Investor, and
      may
      be waived by the Company at any time in its sole discretion:

     

    7.1  Execution
      of Transaction Documents.
      Investor shall have executed this Agreement and each other Transaction Document
      to which Investor is a party and delivered the same to the Company.

     

    7.2  Payment
      of Purchase Price.
      Investor shall have delivered to the Company the full amount of the cash portion
      of Investor’s Purchase Price or amount of the Notes by wire transfer in
      accordance with the Company’s written wiring instructions.

     

    7.3  Representations
      and Warranties True; Covenants Performed.
      The
      representations and warranties of Investor shall be true and correct as of
      the
      date when made and as of the Initial Closing and each subsequent Closing Date
      as
      though made at that time (except for representations and warranties that speak
      as of a specific date, which representations and warranties shall be true and
      correct as of such date), and Investor shall have performed, satisfied and
      complied with the covenants, agreements and conditions required by this
      Agreement to be performed, satisfied or complied with by such Investor at or
      prior to the Initial Closing and each subsequent Closing Date. 

     

    
      
         

      

      
        -22-

        
          

        

      

      
         

      

    

    7.4  No
      Legal Prohibition.
      No
      statute, rule, regulation, executive order, decree, ruling, injunction, action
      or proceeding shall have been enacted, entered, promulgated or endorsed by
      any
      court or governmental authority of competent jurisdiction or any self-regulatory
      organization having authority over the matters contemplated hereby which
      restricts or prohibits the consummation of any of the transactions contemplated
      by this Agreement.

     

    7.5  Amendment
      of Certificate of Incorporation.
      The
      parties hereto agree that the Company’s Certificate of Incorporation or the
      by-laws shall not be amended in any manner, which is inconsistent with the
      terms
      of this Agreement while this Agreement remains in effect. To the extent that
      any
      provisions of this Agreement shall conflict with any provision of the Company’s
      Certificate of Incorporation or the by-laws, the parties agree that the
      provisions of this Agreement shall supersede and the Company shall cause the
      Certificate of Incorporation or the by-laws to be amended to comply with the
      provisions of this Agreement.

     

    8.  CONDITIONS
      TO INVESTOR’S OBLIGATIONS TO PURCHASE OR LEND.

     

    The
      obligation of Investor hereunder to purchase the Securities for which it is
      subscribing from the Company hereunder, is subject to the satisfaction, at
      or
      before the Initial Closing and at each subsequent Closing Date, of each of
      the
      following conditions, provided that such conditions may be waived by Investor
      at
      any time in Investor’s sole discretion:

     

    8.1  Execution
      of Transaction Documents.
      The
      Company shall have executed this Agreement and each other Transaction Document
      to which the Company is a party and delivered executed originals of the same
      to
      Investor, and shall have filed the Certificate of Designation for the Series
      B
      Preferred Stock in the form of Exhibit
      C
      hereto.

     

    8.2  Listing.
      The
      Common Stock shall be authorized for quotation and listed on the OTCBB and
      trading in the Common Stock (or on the OTCBB generally) shall not have been
      suspended by the SEC or the OTCBB, and there is no pending or threatened or
      anticipated suspension.

     

    8.3  Representations
      and Warranties True; Covenants Performed.
      The
      representations and warranties of the Company shall be true and correct as
      of
      the date when made and as of the Initial Closing and each subsequent Closing
      Date as though made at that time (except for representations and warranties
      that
      speak as of a specific date, which representations and warranties shall be
      true
      and correct as of such date) and the Company shall have performed, satisfied
      and
      complied with the covenants, agreements and conditions required by this
      Agreement to be performed, satisfied or complied with by the Company at or
      prior
      to each Closing Date. Investor shall have received a certificate, executed
      by
      the Chief Executive Officer of the Company after reasonable investigation,
      dated
      as of the Closing Date to the foregoing effect and as to such other matters
      as
      may reasonably be requested by Investor.

     

    
      
         

      

      
        -23-

        
          

        

      

      
         

      

    

    8.4  No
      Legal Prohibition.
      No
      statute, rule regulation, executive order, decree, ruling, injunction, action
      or
      proceeding shall have been enacted, entered, promulgated or endorsed by any
      court or governmental authority of competent jurisdiction or any self-regulatory
      organization having authority over the matters contemplated hereby which
      restricts or prohibits the consummation of any of the transactions contemplated
      by this Agreement.

     

    8.5  Legal
      Opinion.
      Investor shall have received an opinion of the Company’s counsel, dated as of
      each Closing Date, in the form and substance acceptable to
      Investor.

     

    8.6  Corporate
      Approvals.
      Investor shall have received a copy of resolutions, duly adopted by the Board
      of
      Directors of the Company, which shall be in full force and effect at the time
      of
      the Closing, authorizing the execution, delivery and performance by the Company
      of this Agreement and the other Transaction Documents and the consummation
      by
      the Company of the Transactions, certified as such by the Secretary or Assistant
      Secretary of the Company, and such other documents they reasonably request
      in
      connection with the Closing, and any subsequent Closing.

     

    8.7  Qualifications.
      All
      authorizations, approvals or permits, if any, of any governmental authority
      or
      regulatory body of the United States or of any state required in connection
      with
      the lawful issuance and sale of the Securities pursuant to this Agreement shall
      be obtained and effective as of each Closing Date.

     

    8.8  Board
      of Directors.
      As of
      the Initial Closing, the Board shall be comprised of Randall S. Reis, William
      C.
      Tao, Ph.D. and Charles K. C. Chan or his designate, and the officers shall
      be
      Randall S. Reis as Chairman of the Board, William C. Tao, Ph.D as the Chief
      Executive Officer. As of the Loan Closing, the Board shall be comprised of
      Randall S. Reis, William C. Tao, Ph.D., Charles K. C. Chan, and two (2)
      additional members designated by the Investor.

     

    8.9  Stockholder
      Agreement.
      At the
      Loan Closing, the Company, Investor and each of management stockholders
      designated in Schedule
      8.9
      shall
      have executed and delivered the Investor Rights and Stockholder Agreement
      (“Stockholder
      Agreement”),
      in
      the form attached as Exhibit
      D
      hereto.

     

    8.10  Secretary’s
      Certificate.
      The
      Secretary of the Company shall deliver to Investor at the Initial Closing the
      Certificate certifying (i) the Certificate of Incorporation of the Company,
      (ii)
      the Bylaws of the Company, and (iii) Resolutions of the Board of Directors
      of
      the Company approving the Agreement and the Transaction Documents.

     

    8.11  Proceedings
      and Documents.
      All
      corporate and other proceedings in connection with the transactions contemplated
      at each Closing and all documents incident thereto shall be reasonably
      satisfactory in form and substance to Investor, and Investor (or its counsel)
      shall have received all such counterpart original and certified or other copies
      of such documents as reasonably requested. Such documents may include good
      standing certificates.

     

    9.  MISCELLANEOUS.

     

    9.1  Consent
      to Amendments.
      This
      Agreement may be amended, restated, supplemented, modified or extended, and
      the
      Company may take any action herein prohibited, or omit to perform any act herein
      required to be performed by it, if, and only if, prior to taking any such action
      or omitting to perform any such act, the Company shall have obtained the written
      consent of Investor to such amendment, restatement, supplement, modification,
      extension, action, or omission to act.

     

    
      
         

      

      
        -24-

        
          

        

      

      
         

      

    

    9.2  Form,
      Registration, Transfer and Exchange of Certificates; Lost
      Certificates.
      The
      Company shall cause its transfer agent to keep a register in which it shall
      provide for the registration of its securities and of transfers of its
      securities or any portions thereof. Upon surrender of any certificate for
      registration or transfer of such securities at the principal office of the
      transfer agent, the transfer agent shall, within three Business Days of such
      surrender and provided it can do so without violating Applicable Law, execute
      and deliver one or more new certificates of like tenor, which new securities
      shall be registered in the name of such transferee or transferees.

     

    9.3  Entire
      Agreement.
      This
      Agreement, the Transaction Documents, and the other agreements and instruments
      furnished pursuant hereto or in connection herewith constitute the full and
      entire agreement and understanding between Investor and the Company, and
      supersede all prior written or oral agreements and understandings relating
      to
      the subject matter hereof.

     

    9.4  Severability.
      Any
      provision of this Agreement that is prohibited or unenforceable in any
      jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
      such prohibition or unenforceability without invalidating the remaining
      provisions hereof or affecting the validity or enforceability of such provisions
      in any other jurisdiction.

     

    9.5  Successors
      and Assigns.
      All
      covenants and agreements in this Agreement by or on behalf of any of the parties
      hereto shall bind and inure to the benefit of the respective successors and
      assigns of the parties hereto (including, without limitation, any Transferee).
      Investor may assign any and all of its rights under this Agreement, and the
      Securities to any Transferee and upon such assignment the Transferee shall
      be
      entitled to all of the rights of Investor hereunder to the same extent as if
      the
      Transferee were an original party hereof, provided that the Transferee agrees
      to
      be bound by any covenants, restrictions or limitations applicable to Investor
      under this Agreement and the other Transaction Documents.

     

    9.6  Notices.
      All
      notices, requests, demands and other communications which are required or may
      be
      given under this Agreement shall be in writing and shall be deemed to have
      been
      duly given if transmitted by telecopier with receipt acknowledged, or upon
      delivery, if delivered personally or by recognized commercial courier with
      receipt acknowledged, or upon the expiration of 72 hours after mailing, if
      mailed by registered or certified mail, return receipt requested, postage
      prepaid, addressed as follows:

     

    
      
        	
                If
                  to the Company, at:

              	
                If
                  to the Investor, at:

              
	
                Dr.
                  William C. Tao

              	
                Charles
                  K. C. Chan

              
	
                Chief
                  Executive Officer

              	
                Managing
                  Director

              
	
                MR3
                  Systems, Inc.

              	
                MRD
                  Holdings Inc.

              
	
                435
                  Brannan Street, Suite 200

              	
                The
                  Naaman’s Building Suite 206

              
	
                San
                  Francisco, California 94107

              	
                305
                  Silverside Rd

              
	 	
                DE
                  19810 Wilmington, Delaware USA

              
	 	 

      

    

    
      or
      at such other address or addresses as Investor or the Company, as the case
      may
      be, may specify by written notice given in accordance with this Section
      9.6.

     

    
      
         

      

      
        -25-

        
          

        

      

      
         

      

    

    9.7  Accounting
      Terms.
      For
      purposes of this Agreement, all accounting terms not otherwise defined herein
      shall have the meanings assigned to them by generally accepted accounting
      principles (“GAAP”) in the United States and all accounting determinations
      hereunder or pursuant hereto shall be made, and all financial statements
      required to be delivered by the Company hereunder shall be prepared in
      accordance with generally accepted accounting principles in the United States
      applied on a consistent basis.

     

    9.8  Descriptive
      Headings.
      The
      descriptive headings of the several paragraphs of this Agreement are for
      convenience of reference only and do not constitute a part of this Agreement
      and
      are not to be considered in construing or interpreting this
      Agreement.

     

    9.9  Exhibits
      and Disclosure Schedules.
      The
      Exhibits and the Schedules attached hereto are incorporated herein and shall
      be
      an integral part of this Agreement.

     

    9.10  Counterparts.
      This
      Agreement may be executed in two or more counterparts, each of which shall
      be
      deemed an original, but all of which together shall constitute one
      instrument.

     

    9.11  Survival.
      The
      warranties and representations of the Company and Investor contained in or
      made
      pursuant to this Agreement shall survive the execution and delivery of this
      Agreement, and each Closing Date and any investigation of the subject matter
      thereof made by or on behalf of Investor.

     

    9.12  Remedies.
      In the
      event of any litigation relating to this Agreement or the Securities, each
      party
      shall bear its own fees, costs, and expenses, including without limitation
      fees
      and expenses of attorneys and accountants and all fees, costs and expenses
      of
      appeals. None of the rights, powers or remedies conferred under this Agreement
      or the Securities shall be mutually exclusive, and each such right, power or
      remedy shall be cumulative and in addition to any other right, power or remedy
      whether conferred by this Agreement or now or hereafter available at law, in
      equity, by statute or otherwise.

     

    9.13  Governing
      Law and Choice of Forum.
      In all
      respects, including all matters of construction, validity and performance,
      this
      Agreement and the rights and obligations arising hereunder shall be governed
      by,
      and construed and enforced in accordance with, the laws of the State of
      California applicable to contracts made and performed in such state, without
      regard to principles thereof regarding conflicts of laws. The parties hereby
      consent, in any dispute, action, litigation or other proceeding concerning
      the
      Transaction Documents (including arbitration) to the jurisdiction of the courts
      of California, with the County of San Francisco being the sole venue for the
      bringing of the action or proceeding.

     

    9.14  Indemnification.
      The
      Company shall indemnify and hold harmless Investor, its respective Affiliates
      and their respective officers, directors, partners and members (collectively,
      the “Investor
      Indemnitees”),
      from
      and against any and all claims, losses, damages and liabilities, and agrees
      to
      reimburse Investor Indemnitees for all reasonable out-of-pocket expenses
      (including without limitation the reasonable fees and expenses of legal
      counsel), in each case promptly as incurred by Investor Indemnitees and to
      the
      extent arising out of or in connection with:

     

    
      
         

      

      
        -26-

        
          

        

      

      
         

      

    

    9.14.1  any
      misrepresentation, omission of fact or breach of any of the representations
      or
      warranties by the Company contained in this Agreement, the annexes, schedules
      or
      exhibits hereto or any instrument, agreement or certificate entered into or
      delivered by the Company pursuant to this Agreement;

     

    9.14.2  any
      failure by the Company to perform in any material respect its respective
      covenants, agreements, undertakings or obligations set forth in this Agreement,
      the annexes, schedules or exhibits hereto or any instrument, agreement or
      certificate entered into or delivered by the Company pursuant to this Agreement;
      or

     

    9.14.3  any
      action instituted against Investor by any stockholder of the Company who is
      not
      an Affiliate of Investor, with respect to any of the transactions contemplated
      by this Agreement;

     

    9.14.4  any
      action, suit, proceeding, inquiry or investigation disclosed in Schedule
      3.9,
      and/or

     

    9.14.5  any
      taxes
      or other payments due to any taxing authorities, including, without limitation,
      those disclosed on Schedule
      3.19.
      

     

    9.15  Representation
      by Counsel.
      Each
      party represents and warrants that it has been represented by independent
      counsel in the negotiation of this Agreement, its Exhibits and
      Schedules.

     

    9.16  WAIVER
      OF JURY TRIAL.
      BECAUSE
      DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST
      QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE
      PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION
      RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING
      SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS
      OF THE JUDICIAL SYSTEM AND OF ARBITRATION AND UNDERSTANDING THEY ARE WAIVING
      A
      CONSTITUTIONAL RIGHT, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN
      ANY
      ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER IN CONTRACT,
      TORT OR OTHERWISE, ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL
      TO,
      THIS AGREEMENT, THE SECURITIES AND/OR ANY RELATED AGREEMENT OR THE TRANSACTIONS
      COMPLETED HEREBY OR THEREBY.

     

    [Signatures
      on following page.]

    

    
      
         

      

      
        -27-

        
          

        

      

      
         

      

    

    IN
      WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
      and delivered by their duly authorized representatives as of the date first
      written above.

     

    
      	
              “COMPANY”

            	
              MR3
                SYSTEMS, INC., a Delaware
                corporation

            

    

     

    

    By: 
      /s/
      William C. Tao, PhD

    Its:
      Chief Executive Officer

     

     

    By: 
      /s/
      Randall S. Reis

    Its: 
      Chairman of the Board

     

     

    
      	
              “INVESTOR”

            	
              MRD
                HOLDINGS INC., a Delaware
                corporation

            

    

     

     

    By: 
      /s/
      Charles K. C. Chan

    Its: 
      Managing Director

     

     

    

    
      
         

      

      
        -28-

        
          

        

      

      
         

      

    

    EXHIBIT
      A

     

    CONVERTIBLE
      PROMISSORY NOTE

     

     

     

     

     

    

    
      
         

      

      
        -29-

        
          

        

      

      
         

      

    

    EXHIBIT
      B

     

    WARRANTS
      I

     

     

     

     

     

    

    

    
      
         

      

      
        -30-

        
          

        

      

      
         

      

    

    EXHIBIT
      C

     

    CERTIFICATE
      OF DESIGNATION

     

     

     

     

    

    
      
         

      

      
        -31-

        
          

        

      

      
         

      

    

    EXHIBIT
      D

     

    INVESTOR
      RIGHTS AND STOCKHOLDER AGREEMENT

     

     

     

     

     

    

    
      
         

      

      
        -32-

        
          

        

      

      
         

      

    

    EXHIBIT
      E

     

    SECURITY
      AGREEMENT

    

    
      
         

      

      
        -33-

        
          

        

      

      
         

      

    

    EXHIBIT
      F

     

    DEFINITIONS

     

    “Affiliate”
      has the
      meaning specified in Rule 405 under the Securities Act.

     

    “Applicable
      Laws”
      means
      any federal, state or local statute, law, rule, regulation or ordinance
      applicable to the Company or its business, including, without limitation, laws
      relating to franchise, building, zoning, health, sanitation, safety or labor
      relations, and any order, ruling, judgment or decree of any court, governmental
      agency or authority or self-regulatory agency which is binding on the Company
      or
      its properties.

     

    “Bankruptcy
      Law”
      means
      Title 11 of the U.S. Code or any similar Federal or state law for the relief
      of
      debtors.

     

    “Board
      of Directors”
      means
      the board of directors of any Person.

     

    “Business
      Day”
      means
      any day except Saturday, Sunday and any day, which either is a legal holiday
      under the laws of the State of California or is a day on which banking
      institutions located in such state are authorized or required by law or other
      governmental action to close.

     

    “Certificate
      of Incorporation”
      means
      the Certificate of Incorporation and any Certificate of Designation, Preferences
      and Rights of the Company, as filed with the Secretary of State of the State
      of
      Delaware on June 14, 1999, and as amended on November 5, 2004.

     

    “Common
      Stock”
      means
      the common stock, $0.01 par value per share, of the Company.

     

    “Company
      Technology”
      means
      the MR3 technology itself, the collective technologies and intellectual property
      rights of the company necessary to ensure the basic, and optimum application
      of
      the MR3 technology.

     

    “Custodian”
      means
      any receiver, trustee, assignee, liquidator, sequestrator or similar official
      under any Bankruptcy Law.

     

    “Default”
      means
      any event which is, or after notice or lapse of time or both would be, an Event
      of Default.

     

    “ERISA”
      means
      the Employee Retirement Income Securities Act of 1974, as amended, and the
      rules
      and regulations promulgated thereunder, all as the same shall be in effect
      at
      the time.

     

    “Escrow
      Agent”
      has the
      meaning ascribed to such term in the Escrow Agreement.

     

    “Escrow
      Agreement”
      means
      that certain Escrow Agreement, dated the date hereof, along the Company, the
      Escrow Agent and the Investor substantially in the form attached hereto as
      Exhibit
      E.

     

    
      
         

      

      
        -34-

        
          

        

      

      
         

      

    

    “Exchange
      Act”
      means
      the Securities Exchange Act of 1934, as amended, and the rules and regulations
      of the Commission promulgated thereunder, all as the same shall be in effect
      at
      the time.

     

    “GAAP”
      means
      generally accepted accounting principles and practices set forth in the opinions
      and pronouncements of the Accounting Principles Board and the American Institute
      of Certified Public Accountants and statements and pronouncements of the
      Financial Accounting Standards Board.

     

    “Material
      Adverse Effect”
      means
      an adverse effect on the Company’s ability to satisfy its covenants or
      obligations to Investor under this Agreement or the other Transaction Documents
      or, with respect to any Person, a material adverse effect on the condition
      (financial or otherwise), business, results of operations, prospects or
      properties of that Person.

     

    “Notes”
      means
      the Secured Convertible Promissory Notes issued by the Company at the Second
      Closing and any subsequent closing, if applicable.

     

    “Person”
      means
      any individual, trustee, sole proprietorship, partnership, joint venture, trust,
      unincorporated organization, association, corporation, limited liability
      company, limited liability partnership, public benefit corporation, institution,
      entity or government.

     

    “Registrable
      Securities”
      has the
      meaning given to it in the Stockholder Agreement.

     

    “SEC”
      means
      the Securities and Exchange Commission or any other Federal agency at the time
      administering the Securities Act.

     

    “Preferred
      Stock”
      means
      the shares of the Company’s Series B Convertible Preferred Stock issuable to
      Investor under Section
      2
      of this
      Agreement.
      Each
      share of Preferred Shares shall be convertible into Common shares of the Company
      at the rate of twenty-five (25) Common shares for each share of Preferred
      Shares.

     

    “Securities”
      means
      the Preferred Shares, the Notes and the Warrants issuable to the Investor
      hereunder and the Conversion Shares issuable upon conversion or exercise
      thereof.

     

    “Securities
      Act”
      means
      the Securities Act of 1933, as amended, and the rules and regulations of the
      Commission promulgated thereunder, all as the same shall be in effect at the
      time.

     

    “Subsidiary”
      and
“Subsidiaries”
      means
      any Person of which more than 50% of the total voting power of shares of capital
      stock (or equivalent interest in a limited liability company or other entity)
      entitled (without regard to the occurrence of any contingency) to vote in the
      election of directors, officers or trustees thereof, is at the time owned in
      the
      aggregate, directly or indirectly, by the Company or its
      Subsidiaries.

     

    “Taxes”
      means
      any income, excise, sales, use, stamp or franchise taxes and any other taxes,
      fees, duties, levies, withholdings or other charges of any nature whatsoever
      imposed by any taxing authority, whether Federal, state, local or foreign,
      together with any interest and penalties and additions to tax.

     

    “Transferee”
      means
      any direct or indirect transferee of all or any part of the Securities.

     

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

    

    
      
         

      

      
        -35-

        
          

        

      

      
         

      

    

    EXHIBIT
      G

     

    STRATEGIC
      PARTNERSHIP AGREEMENT

     

    

     

     

     

     

    

    
      
         

      

      
        -36-

        
          

        

      

      
         

      

    

    DISCLOSURE
      SCHEDULES

     

    

     

    SCHEDULE
      3.2 Reference
      CFDD Section II(A)(1) & IV(A)(2)(a)

     

    SCHEDULE
      3.3 None
      -
      Not Applicable

     

    SCHEDULE
      3.4 Reference
      CFDD Section I(A)

     

    SCHEDULE
      3.6 Reference
      CFDD Section V(H)

     

    SCHEDULE
      3.7 Reference
      CFDD Section V(L)

     

    SCHEDULE
      3.8 Reference
      CFDD Section V(L)(2)(d) & V(L)(3)(a)

     

    SCHEDULE
      3.9 Reference
      CFDD Section V(A) & V(B)

     

    SCHEDULE
      3.10 Reference
      CFDD Section V(B)

     

    SCHEDULE
      3.13 Reference
      CFDD Section II(B)(1) & V(A)

     

    SCHEDULE
      3.14 Reference
      CFDD Section V(L)(2)(c)(page F-26)

     

    SCHEDULE
      3.15 Reference
      CFDD Section V(G)

     

    SCHEDULE
      3.16 Reference
      CFDD Section V(D)

     

    SCHEDULE
      3.19 Reference
      CFDD Section V(E)

     

    SCHEDULE
      3.20 Reference
      CFDD Section IV(B)(2) & V(J)(1)

     

    SCHEDULE
      3.23 Reference
      CFDD Section IV(B)(2) & V(J)(1)

     

    SCHEDULE
      3.26 Reference
      CFDD Section IV(F)(1)

     

    SCHEDULE
      3.28 Reference
      CFDD Section V(H)

     

    SCHEDULE
      3.33 None
      -
      Not Applicable

     

    SCHEDULE
      3.35 Reference
      CFDD Section V(F)

     

    SCHEDULE
      3.36 Reference
      CFDD Section IV(D)

     

    SCHEDULE
      3.37 Reference
      CFDD Section V(C)

     

    SCHEDULE
      3.39 None
      -
      Not Applicable

     

    
      
         

      

      
        -37-

        
          

        

      

      
         

      

    

    

     

    

    

     

    STOCK
      PURCHASE AND LOAN OPTION AGREEMENT

     

    by
      and among

     

    MR3
      SYSTEMS, INC.

     

    and

     

    MRD
      HOLDINGS INC.

     

    Dated
      as of May 30, 2005

    

    

    

    
      
         

      

      
         

        
          

        

      

      
         

        
        

      

    

     

    TABLE
      OF CONTENTS

    Page

    
      	
              1.

            	
              DEFINITIONS.

            	
              1

            
	 	 	 
	
              2.

            	
              PURCHASE
                AND SALE OF COMPANY SECURITIES - LOAN OPTION.

            	
              1

            

    

    
      	 	
              2.1

            	
              Purchase
                Price

            	
              1

            
	 	
              2.2

            	
              Closing;
                Delivery

            	
              2

            
	 	
              2.3

            	
              Option

            	
              2

            
	 	
              2.4

            	
              Second
                Closing

            	
              2

            
	 	
              2.5

            	
              Jurisdictions,
                Technology Transfer, Protection and Access To Trade
                Secrets

            	
              3

            
	 	
              2.6

            	
              Joint
                Best Strategy.

            	
              4

            

    

    

    
      	
              3.

            	
              REPRESENTATIONS
                AND WARRANTIES OF THE COMPANY.

            	
              4

            

    

    
      	 	
              3.1

            	
              Organization
                and Qualification

            	
              4

            
	 	
              3.2

            	
              Subsidiaries

            	
              4

            
	 	
              3.3

            	
              Authorization;
                Enforcement; Validity

            	
              4

            
	 	
              3.4

            	
              Capitalization

            	
              5

            
	 	
              3.5

            	
              Issuance
                of Stock

            	
              6

            
	 	
              3.6

            	
              No
                Conflicts

            	
              6

            
	 	
              3.7

            	
              SEC
                Documents; Financial Statements

            	
              7

            
	 	
              3.8

            	
              Absence
                of Certain Changes

            	
              7

            
	 	
              3.9

            	
              Absence
                of Litigation

            	
              8

            
	 	
              3.10

            	
              No
                Undisclosed Events, Liabilities, Developments or
                Circumstances

            	
              8

            
	 	
              3.11

            	
              No
                General Solicitation

            	
              8

            
	 	
              3.12

            	
              Employee
                Relations

            	
              8

            
	 	
              3.13

            	
              Intellectual
                Property Rights

            	
              9

            
	 	
              3.14

            	
              Environmental
                Laws

            	
              10

            
	 	
              3.15

            	
              Title

            	
              10

            
	 	
              3.16

            	
              Insurance

            	
              10

            
	 	
              3.17

            	
              Regulatory
                Permits

            	
              10

            
	 	
              3.18

            	
              Internal
                Accounting Controls

            	
              11

            
	 	
              3.19

            	
              Tax
                Status

            	
              11

            
	 	
              3.20

            	
              Agreements.

            	
              11

            
	 	
              3.21

            	
              Disclosure

            	
              12

            
	 	
              3.22

            	
              Labor
                Agreements and Actions

            	
              12

            
	 	
              3.23

            	
              Obligations
                to Related Parties

            	
              13

            
	 	
              3.24

            	
              Changes

            	
              13

            
	 	
              3.25

            	
              Rights
                Agreement; Employee Benefit Plan

            	
              14

            
	 	
              3.26

            	
              Confidential
                Information and Invention Assignment Agreements

            	
              14

            
	 	
              3.27

            	
              Corporate
                Documents

            	
              15

            
	 	
              3.28

            	
              Real
                Property Holding Corporation

            	
              15

            
	 	
              3.29

            	
              Foreign
                Corrupt Practices

            	
              15

            
	 	
              3.30

            	
              No
                Undisclosed Liabilities

            	
              15

            
	 	
              3.31

            	
              Investment
                Company Act Status

            	
              15

            

       

       

      
        
           

        

        
          -i-

          
            

          

        

        
           

        

      

       

      Page

      
        	 	
                3.32

              	
                No
                  Integrated Offering

              	
                15

              
	 	
                3.33

              	
                Certain
                  Officers

              	
                16

              
	 	
                3.34

              	
                Significant
                  Stockholders

              	
                16

              
	 	
                3.35

              	
                Key
                  Employees

              	
                16

              
	 	
                3.36

              	
                Listing

              	
                16

              
	 	
                3.37

              	
                Anti-Takeover
                  Provisions

              	
                16

              
	 	
                3.38

              	
                Acknowledgement
                  Regarding Investor’s Purchase of the Securities

              	
                16

              
	 	
                3.39

              	
                Legal
                  Compliance

              	
                17

              
	 	
                3.40

              	
                Variable
                  Securities

              	
                17

              
	 	
                3.41

              	
                Representations
                  and Warranties Effective as of Each Closing Date

              	
                17

              

      

    

    

    
      	
              4.

            	
              INVESTOR
                REPRESENTATIONS AND WARRANTIES.

            	
              17

            

    

    
      	 	
              4.1

            	
              Investment
                Purpose

            	
              17

            
	 	
              4.2

            	
              Accredited
                Investor Status

            	
              17

            
	 	
              4.3

            	
              Reliance
                on Exemptions

            	
              17

            
	 	
              4.4

            	
              Information

            	
              18

            
	 	
              4.5

            	
              No
                Governmental Review

            	
              18

            
	 	
              4.6

            	
              Transfer
                or Resale

            	
              18

            
	 	
              4.7

            	
              Legends

            	
              18

            
	 	
              4.8

            	
              Authorization;
                Enforcement; Validity

            	
              19

            
	 	
              4.9

            	
              Residency

            	
              19

            
	 	
              4.10

            	
              Representations
                and Warranties Effective as of Closing Date

            	
              19

            

    

    

    
      	
              5.

            	
              COVENANTS.

            	
              19

            

    

    
      	 	
              5.1

            	
              Notice
                of Issuance

            	
              19

            
	 	
              5.2

            	
              Notice
                of Default or Litigation

            	
              19

            
	 	
              5.3

            	
              Books,
                Records and Inspections

            	
              20

            
	 	
              5.4

            	
              Taxes

            	
              20

            
	 	
              5.5

            	
              Form
                D and Blue Sky

            	
              20

            
	 	
              5.6

            	
              Reporting
                Status

            	
              20

            
	 	
              5.7

            	
              Reservation
                of Shares

            	
              20

            
	 	
              5.8

            	
              Listing

            	
              20

            
	 	
              5.9

            	
              Filing
                of Form 8-K

            	
              21

            
	 	
              5.10

            	
              Reservation
                of Common Stock

            	
              21

            
	 	
              5.11

            	
              Investor
                Covenants

            	
              21

            

    

    

    
      	
              6.

            	
              DEFAULTS
                AND REMEDIES.

            	
              21

            

    

    
      	 	
              6.1

            	
              Events
                of Default

            	
              21

            
	 	
              6.2

            	
              Remedies

            	
              22

            
	 	
              6.3

            	
              Waiver
                of Past Defaults

            	
              22

            

    

    

    
      	
              7.

            	
              CONDITIONS
                TO THE COMPANY’S OBLIGATION TO SELL OR BORROW.

            	
              22

            

    

    
      	 	
              7.1

            	
              Execution
                of Transaction Documents

            	
              22

            
	 	
              7.2

            	
              Payment
                of Purchase Price

            	
              22

            
	 	
              7.3

            	
              Representations
                and Warranties True; Covenants Performed

            	
              22

            
	 	
              7.4

            	
              No
                Legal Prohibition

            	
              23

            
	 	
              7.5

            	
              Amendment
                of Certificate of Incorporation

            	
              23

            

    

     

     

    
      
         

      

      
        -ii-

        
          

        

      

      
         

      

    

     

    Page

    
      	
              8.

            	
              CONDITIONS
                TO INVESTOR’S OBLIGATIONS TO PURCHASE OR LEND.

            	
              23

            

    

    
      	 	
              8.1

            	
              Execution
                of Transaction Documents

            	
              23

            
	 	
              8.2

            	
              Listing

            	
              23

            
	 	
              8.3

            	
              Representations
                and Warranties True; Covenants Performed

            	
              23

            
	 	
              8.4

            	
              No
                Legal Prohibition

            	
              24

            
	 	
              8.5

            	
              Legal
                Opinion

            	
              24

            
	 	
              8.6

            	
              Corporate
                Approvals

            	
              24

            
	 	
              8.7

            	
              Qualifications

            	
              24

            
	 	
              8.8

            	
              Board
                of Directors

            	
              24

            
	 	
              8.9

            	
              Stockholder
                Agreement

            	
              24

            
	 	
              8.10

            	
              Secretary’s
                Certificate

            	
              24

            
	 	
              8.11

            	
              Proceedings
                and Documents

            	
              24

            

    

    

    
      	
              9.

            	
              MISCELLANEOUS.

            	
              24

            

    

    
      	 	
              9.1

            	
              Consent
                to Amendments

            	
              24

            
	 	
              9.2

            	
              Form,
                Registration, Transfer and Exchange of Certificates; Lost
                Certificates

            	
              25

            
	 	
              9.3

            	
              Entire
                Agreement

            	
              25

            
	 	
              9.4

            	
              Severability

            	
              25

            
	 	
              9.5

            	
              Successors
                and Assigns

            	
              25

            
	 	
              9.6

            	
              Notices

            	
              25

            
	 	
              9.7

            	
              Accounting
                Terms

            	
              26

            
	 	
              9.8

            	
              Descriptive
                Headings

            	
              26

            
	 	
              9.9

            	
              Exhibits
                and Disclosure Schedules

            	
              26

            
	 	
              9.10

            	
              Counterparts

            	
              26

            
	 	
              9.11

            	
              Survival

            	
              26

            
	 	
              9.12

            	
              Remedies

            	
              26

            
	 	
              9.13

            	
              Governing
                Law and Choice of Forum

            	
              26

            
	 	
              9.14

            	
              Indemnification

            	
              26

            
	 	
              9.15

            	
              Representation
                by Counsel

            	
              27

            
	 	
              9.16

            	
              Waiver
                of Jury Trial

            	
              27

            

    

    

    EXHIBITS

    Exhibit
      A CONVERTIBLE
      PROMISSORY NOTE

    Exhibit
      B WARRANTS
      I

    Exhibit
      C CERTIFICATE
      OF DESIGNATION

    Exhibit
      D INVESTOR
      RIGHTS AND STOCKHOLDER AGREEMENT

    Exhibit
      E SECURITY
      AGREEMENT

    Exhibit
      F DEFINITIONS

    Exhibit
      G STRATEGIC
      PARTNERSHIP AGREEMENT

     

    Disclosure
      Schedules

     

     

    
      
         

      

        -iii-EXHIBIT
      10.2

     

    EXHIBIT
      A

    STOCK
      PURCHASE AND LOAN OPTION
      AGREEMENT

    
 

    THE
      SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE
      SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER APPLICABLE STATE
      SECURITIES LAWS AND HAVE BEEN TAKEN FOR INVESTMENT PURPOSES ONLY AND NOT WITH
      A
      VIEW TO OR FOR SALE IN CONNECTION WITH ANY DISTRIBUTION THEREOF. THE
      SECURITIES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH
      REGISTRATION AND QUALIFICATION WITHOUT, EXCEPT UNDER CERTAIN SPECIFIC LIMITED
      CIRCUMSTANCES, AN OPINION OF COUNSEL FOR THE HOLDER, CONCURRED IN BY COUNSEL
      FOR
      THE COMPANY THAT SUCH REGISTRATION AND QUALIFICATION ARE NOT
      REQUIRED.

     

    CONVERTIBLE
      

    PROMISSORY
      NOTE

     

    
      	$4,500,000.00  	
              Dated:
                SEPTEMBER, 1,
                2005

            

    

     

    FOR
      VALUE
      RECEIVED, the undersigned, MR3 SYSTEMS, INC. (the “Borrower”), HEREBY
      UNCONDITIONALLY PROMISES TO PAY to the order of MRD HOLDINGS INC., or nominee
      (the “Lender”), the principal sum of 4.5 MILLION DOLLARS (US$4,500,000), on
      September 1, 2008. This Note is secured by a Security Agreement of even date
      herewith.

     

    The
      Borrower further promises to pay interest on the outstanding principal amount
      of
      this Promissory Note from the date hereof until maturity, at a rate per annum
      equal at all times to five percent (5%), said interest to accrue and be payable
      at maturity. All computations of interest shall be made on the basis of a year
      of 365 or 366 days, as the case may be, for the actual number of days (including
      the first day but excluding the last day) occurring in the period for which
      such
      interest is payable. Any unpaid principal and unpaid accrued interest on this
      Note is due and payable at maturity, or upon conversion, whichever shall first
      occur.

     

    All
      payments hereunder shall be made in lawful money of the United States of America
      and in same day or immediately available funds, to the Lender at such place
      or
      to such account as the Lender from time to time shall designate in a written
      notice to the Borrower.

     

    Whenever
      any payment hereunder shall be stated to be due, or whenever any interest
      payment date or any other date specified hereunder would otherwise occur, on
      a
      day other than a Business Day (as defined below), then such payment shall be
      made, and such interest payment date or other date shall occur, on the next
      succeeding Business Day, and such extension of time shall in such case be
      included in the computation of payment of interest hereunder. As used herein,
      “Business Day” means a day (i) other than Saturday or Sunday, and (ii) on which
      commercial banks are open for business in San Francisco,
      California.

     

    Anything
      herein to the contrary notwithstanding, if during any period for which interest
      is computed hereunder, the amount of interest computed on the basis provided
      for
      in this Note, together with all fees, charges and other payments which are
      treated as interest under applicable law, as provided for herein or in any
      other
      document executed in connection herewith, would exceed the amount of such
      interest computed on the basis of the Highest Lawful Rate, the Borrower shall
      not be obligated to pay, and the Lender shall not be entitled to charge,
      collect, receive, reserve or take, interest in excess of the Highest Lawful
      Rate, and during any such period the interest payable hereunder shall be
      computed on the basis of the Highest Lawful Rate. As used herein, “Highest
      Lawful Rate” means the maximum non-usurious rate of interest, as in effect from
      time to time, which may be charged, contracted for, reserved, received or
      collected by the Lender in connection with this Note under applicable
      law.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    
      EXHIBIT
        A

      STOCK
        PURCHASE AND LOAN OPTION AGREEMENT

    

     

    So
      long
      as any amount payable by the Borrower hereunder shall remain unpaid, the
      Borrower will furnish to the Lender from time to time such information
      respecting the Borrower’s financial condition as the Lender may from time to
      time reasonably request.

     

    The
      Borrower represents and warrants to the Lender that this Note does not
      contravene any contractual or judicial restriction binding on or affecting
      the
      Borrower and that this Note is the legal, valid and binding obligation of the
      Borrower enforceable against him in accordance with its terms.

     

    The
      occurrence of any of the following shall constitute an “Event of Default” under
      this Note:

     

    i.  the
      failure to make any payment of principal, interest or any other amount payable
      hereunder when due under this Note or the breach of any other condition or
      obligation under this Note; or

     

    ii.  a
      breach
      of or failure to perform any representation, condition or obligation under
      the
      Agreement or Security Agreement; or

     

    iii.  the
      filing of a petition by or against the Borrower under any provision of the
      Bankruptcy Reform Act, Title 11 of the United States Code, as amended or
      recodified from time to time, or under any similar law relating to bankruptcy,
      insolvency or other relief for debtors; or appointment of a receiver, trustee,
      custodian or liquidator of or for all or any part of the assets or property
      of
      the Borrower; or the insolvency of the Borrower; or the making of a general
      assignment for the benefit of creditors by the Borrower.

     

    Upon
      the
      occurrence of any Event of Default, the Lender, at its option, may (i) by notice
      to the Borrower, declare the unpaid principal amount of this Note, all interest
      accrued and unpaid hereon and all other amounts payable hereunder to be
      immediately due and payable, whereupon the unpaid principal amount of this
      Note,
      all such interest and all such other amounts shall become immediately due and
      payable, without presentment, demand, protest or further notice of any kind;
      provided that if an event described in paragraph (iii) above shall occur, the
      result which would otherwise occur only upon giving of notice by the Lender
      to
      the Borrower as specified above shall occur automatically, without the giving
      of
      any such notice; and (ii) whether or not the actions referred to in clause
      (i)
      have been taken, exercise any or all of the Lender’s rights and remedies
      available to the Lender under the Agreement or Security Agreement, each dated
      as
      of May 30, 2005 between the Borrower and the Lender, or otherwise available
      to
      the Lender under applicable law.

     

    
      
         

      

      
        -2-

        
          

        

      

      
         

      

    

    
      EXHIBIT
        A

      STOCK
        PURCHASE AND LOAN OPTION AGREEMENT

       

    

    The
      outstanding principal balance of this Note may be converted prior to payment
      in
      full of the principal balance of this Note, at the option of Lender, into Series
      B Convertible Preferred Stock of the Company, at the rate of one Preferred
      Share
      for each $2.50 of principal balance to be converted. Upon receipt by Borrower
      of
      the Notice of Conversion, the outstanding principal balance of this Note shall
      be converted automatically without any further action by Lender and whether
      or
      not the Note is surrendered to Borrower or its transfer agent. Borrower shall
      not be obligated to issue certificates evidencing the shares of the securities
      issuable upon conversion unless such Note is either delivered to Borrower or
      its
      transfer agent, or the Lender notifies Borrower or its transfer agent that
      such
      Note has been lost, stolen or destroyed and executes an agreement satisfactory
      to Borrower to indemnify Borrower from any loss incurred by it in connection
      with such Note. Borrower shall, as soon as practicable after such delivery,
      or
      such agreement and indemnification, issue and deliver at such office to such
      holder of such Note, a certificate or certificates for the securities to which
      the Lender shall be entitled and a check payable to the Lender in the amount
      of
      any accrued and unpaid interest on such Note, and any cash amounts payable
      as
      the result of a conversion into fractional shares of the securities. Upon
      conversion of the Note, Borrower shall be released from all of its obligations
      and liabilities under this Note.

     

    The
      Borrower agrees to pay on demand all the losses, costs, and expenses (including,
      without limitation, attorneys’ fees and disbursements) which the Lender incurs
      in connection with enforcement or attempted enforcement of this Note, or the
      protection or preservation of the Lender’s rights under this Note, whether by
      judicial proceedings or otherwise. Such costs and expenses include, without
      limitation, those incurred in connection with any workout or refinancing, or
      any
      bankruptcy, insolvency, liquidation or similar proceedings.

     

    The
      Borrower hereby waives diligence, demand, presentment, protest or further notice
      of any kind. The Borrower agrees to make all payments under this Note without
      setoff or deduction and regardless of any counterclaim or defense.

     

    No
      single
      or partial exercise of any power under this Note shall preclude any other or
      further exercise of such power or exercise of any other power. No delay or
      omission on the part of the Lender in exercising any right under this Note
      shall
      operate as a waiver of such right or any other right hereunder.

     

    This
      Note
      shall be binding on the Borrower and its successors and
      assigns,
      and shall be binding upon and inure to the benefit of the Lender, any future
      holder of this Note and their respective successors and assigns. The Borrower
      may not assign or transfer this Note or any of its obligations hereunder without
      the Lender’s prior written consent.

     

     

    [Signatures
      on following page.]

    

    
      
         

      

      
        -3-

        
          

        

      

      
         

        
          EXHIBIT
            A

          STOCK
            PURCHASE AND LOAN OPTION AGREEMENT

        

      

    

    

     

    THIS
      NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH CALIFORNIA
      LAW.

     

     

    MR3
      SYSTEMS, INC.

     

     

    By:
      /s/
      William C. Tao

    Name: William
      C. Tao, Ph.D.

    Title: CEO
&
      Director

    Address: 435
      Brannan Street

    Suite
      200

    San
      Francisco, CA 94107

     

    

    
      
         

      

      
        -4-

        
          

        

      

      
         

        
        

      

    

    
      EXHIBIT
        A

      STOCK
        PURCHASE AND LOAN OPTION AGREEMENT

     

    NOTICE
      OF CONVERSION

     

    (To
      Be
      Signed Only Upon Conversion of Note)

     

     

    TO:
      MR3
      SYSTEMS, INC.

     

    The
      undersigned, Lender of the foregoing Note, hereby surrenders such Note for
      conversion into Series B Convertible Preferred Stock of MR3 SYSTEMS, INC.,
      a
      California corporation (the "Company") to the extent of $ _________
      unpaid
      principal amount of such Note, and requests that the certificates for such
      shares be issued in the name of, and delivered to, _________________________,
      whose address is _________________________________. The undersigned hereby
      confirms to Borrower that the representations and warranties set forth in
Section
      4
      of the
      Purchase Agreement to which Borrower and the undersigned are parties are true,
      correct and accurate on and as of the date hereof and hereby makes such
      representations and warranties to Borrower on and as of the date hereof.

     

    Dated:____________________________

     

     

    
      
        

      

    

    (Signature
      must conform in all respects to name 

    of
      holder
      as specified on the face of the Note)

     

    
      
        

      

       

    

    
      
        

      

    

                                                                                                                                                                            
    
      (Address)

     

     

    
      
         

      

        -5-

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