Document:

EXHIBIT
        10.3

       

      EXHIBIT
        B

      STOCK
        PURCHASE AND LOAN OPTION AGREEMENT

       

      MR3
        SYSTEMS, INC.

      WARRANT
        I

       

      THE
        SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
        THE
        SECURITIES ACT OF 1933; THEY HAVE BEEN ACQUIRED BY THE HOLDER FOR INVESTMENT
        AND
        MAY NOT BE PLEDGED, HYPOTHECATED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED
        OF
        EXCEPT AS MAY BE AUTHORIZED UNDER THE SECURITIES ACT OF 1933, AND THE RULES
        AND
        REGULATIONS PROMULGATED THEREUNDER.

       

      This
        certifies that, for good and valuable consideration, receipt of which is
        hereby
        acknowledged, MRD Holdings Inc. (the “Holder”)
        is
        entitled to purchase, subject to the terms and conditions of this Warrant,
        from
        MR3 Systems, Inc., a Delaware corporation (the “Company”),
        a
        number of fully paid and nonassessable shares of Common Stock (the “Shares”)
        of the
        Company, which when issued upon exercise and added to the number of shares
        of
        Common Stock and Series B Convertible Preferred Stock of the Company currently
        owned by the Holder on the date of exercise, will equal fifty-one percent
        (51%)
        of the total number of outstanding shares of capital stock and fifty-one
        percent
        (51%) of the total number of outstanding voting securities of the Company,
        calculated on a fully-diluted as converted-to-common basis, during the period
        commencing on the date hereof (the “Commencement
        Date”)
        and
        ending at 5:00 p.m. California time, on the date which is ten (10)
        years
        from the Commencement Date (the “Expiration
        Date”),
        at
        which time this Warrant will expire and become void unless earlier terminated
        as
        provided herein. This Warrant has been issued in connection with that certain
        Stock Purchase and Loan Option Agreement between Holder and the Company
        (“Purchase
        Agreement”)
        dated
        May 30, 2005 (“Purchase
        Agreement”).
        Upon
        exercise of this Warrant, the Company will issue to Holder a new Warrant
        in the
        form hereof, representing Holder’s continuing right to purchase that number of
        shares of Common Stock of the Company, which when issued upon exercise, and
        added to the number of shares of Common Stock and Series B Preferred Stock
        currently owned by the Holder on the date of exercise will equal fifty-one
        percent (51%) of the total number of outstanding shares of capital stock
        and
        fifty-one percent (51%) of the total number of outstanding voting securities
        of
        the Company, calculated on a fully-diluted as converted-to-common basis.
        The
        Company shall provide Investor with written notice within five (5) business
        days
        after the issuance of any capital stock of the Company 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/or other equity securities of the Company
        outstanding on the date hereof, so as to enable Investor to exercise this
        Warrant.

       

      1. Vesting
        and Exercise Price.

       

      (a) The
        right
        to exercise this Warrant shall fully vest on the Commencement Date.

       

      (b) The
        aggregate exercise or purchase price for the Shares shall be one cent ($.01)
        (the “Exercise
        Price”).

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      
        EXHIBIT
          B

        STOCK
          PURCHASE AND LOAN OPTION AGREEMENT

         

      

      2. Exercise
        and Payment.

       

      (a) Cash
        Exercise.
        At any
        time after the Commencement Date, this Warrant may be exercised, in whole
        or in
        part, from time to time by the Holder, during the term hereof, by surrender
        of
        this Warrant and the Notice of Exercise annexed hereto duly completed and
        executed by the Holder to the Company at the principal executive offices
        of the
        Company, together with payment in the amount of the Exercise Price then in
        effect, as designated in the Notice of Exercise. Payment may be in cash or
        by
        check payable to the order of the Company. 

       

      (b) Net
        Issuance.
        In lieu
        of payment of the Exercise Price described in Section 2(a), the Holder may
        elect
        to receive, without the payment by the Holder of any additional consideration,
        Shares equal to the value of this Warrant or any portion hereof by the surrender
        of this Warrant or such portion to the Company, with the net issue election
        notice annexed hereto (the “Net
        Issuance Election Notice”)
        duly
        executed, at the office of the Company. Thereupon, the Company shall issue
        to
        the Holder such number of fully paid and nonassessable Shares as is computed
        using the following formula:

       

      where:
        X
        = Y
        (A-B)

      A

       

      X
        =         the
        number of Shares to be issued to the Holder pursuant to this Section 2.

       

      
        	 	
                Y
                  =

              	
                the
                  number of Shares covered by this Warrant in respect of which the
                  net
                  issuance election is made pursuant to this Section
                  2.

              

      

       

      
        	 	
                A
                  =

              	
                the
                  fair market value of one Share, as determined in accordance with
                  the
                  provisions of this Section 2.

              

      

       

      
        	 	
                B
                  =

              	
                the
                  Exercise Price in effect under this Warrant at the time the net
                  issuance
                  election is made pursuant to this Section
                  2.

              

      

       

      For
        purposes of this Section 2, the “fair market value” per Share shall
        mean:

       

      i. If
        the
        class of Shares is traded on a national securities exchange or is listed
        on the
        Nasdaq National Market (the “NNM”)
        or
        other over-the-counter quotation system, the fair market value shall be the
        last
        reported sale price of a Share on such exchange or on the NNM or other
        over-the-counter quotation system on the last business day before the effective
        date of exercise of the net issuance election or if no such sale is made
        on such
        day, the mean of the closing bid and asked prices for such day on such exchange,
        the NNM or over-the-counter quotation system; and 

       

      ii. If
        the
        class of Shares is not so listed and bid and ask prices are not reported,
        the
        fair market value shall be the price per Share which the Company could obtain
        from a willing buyer for Shares sold by the Company, as such price shall
        be
        determined in good faith by the Company’s Board of Directors.

       

      
        
           

        

        
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        EXHIBIT
          B

        STOCK
          PURCHASE AND LOAN OPTION AGREEMENT

         

         

      

      (c) Replacement
        Warrant.
        Immediately following the exercise of this Warrant, the Company shall prepare
        a
        new Warrant, substantially identical hereto, representing the right to purchase,
        for an aggregate exercise price of one cent ($0.01), a number of fully paid
        and
        nonassessable shares of Common Stock of the Company, which when issued upon
        exercise and added to the number of shares of Common Stock and Series B
        Convertible Preferred Stock of the Company then-owned by the Holder on the
        date
        of exercise, will equal fifty-one percent (51%) of the total number of
        outstanding shares of capital stock and fifty-one percent (51%) of the total
        number of outstanding voting securities of the Company, calculated on a
        fully-diluted as converted-to-common basis.

       

      3. Delivery
        of Certificates.
        Within
        a reasonable time after exercise, in whole or in part, of this Warrant, the
        Company shall issue in the name of and deliver to the Holder, a certificate
        or
        certificates for the number of fully paid and nonassessable Shares which
        the
        Holder shall have requested in the Notice of Exercise or Net Issuance Election
        Notice. If this Warrant is exercised in part, the Company shall deliver to
        the
        Holder a new Warrant for the unexercised portion of this Warrant at the time
        of
        delivery of such certificate or certificates.

       

      4. No
        Fractional Shares.
        No
        fractional Shares or scrip representing fractional Shares will be issued
        upon
        exercise of this Warrant. If upon any exercise of this Warrant a fraction
        of a
        Share results, the Company will pay the Holder the difference between the
        cash
        value of the fractional Share and the portion of the Exercise Price allocable
        to
        the fractional Share.

       

      5. Charges,
        Taxes and Expenses.
        The
        Holder shall pay all transfer taxes or other incidental charges, if any,
        in
        connection with the transfer of the Shares purchased pursuant to the exercise
        hereof from the Company to the Holder.

       

      6. Loss,
        Theft, Destruction or Mutilation of Warrant.
        Upon
        receipt by the Company of evidence reasonably satisfactory to it of the loss,
        theft, destruction or mutilation of this Warrant, and in case of loss, theft
        or
        destruction, of indemnity or security reasonably satisfactory to the Company,
        and upon reimbursement to the Company of all reasonable expenses incidental
        thereto, and upon surrender and cancellation of this Warrant, if mutilated,
        the
        Company will make and deliver a new Warrant of like tenor and dated as of
        such
        cancellation, in lieu of this Warrant.

       

      7. Saturdays,
        Sundays, Holidays, Etc.
        If the
        last or appointed day for the taking of any action or the expiration of any
        right required or granted herein shall be a Saturday or a Sunday or shall
        be a
        legal holiday, then such action may be taken or such right may be exercised
        on
        the next succeeding weekday which is not a legal holiday.

       

      8. Rights
        As Shareholder.
        Prior
        to exercise of this Warrant, the Holder shall not be entitled to any rights
        as a
        shareholder of the Company with respect to the Shares, including (without
        limitation) the right to vote such Shares, receive dividends or other
        distributions thereon, or be notified of Shareholder meetings, and, except
        as
        provided in the Purchase Agreement and in the Investor Rights and Stockholder
        Agreement dated May 30, 2005, the Holder shall not be entitled to any notice
        or
        other communication concerning the business or affairs of the Company. However,
        in the event of any taking by the Company of a record of the holders of any
        class of securities for the purpose of determining the holders thereof who
        are
        entitled to receive any dividend (other than a cash dividend) or other
        distribution, any right to subscribe for, purchase or otherwise acquire any
        Common Stock or any other securities or property, or to receive any other
        right,
        the Company shall mail to each Holder of this Warrant, at least ten (10)
        days
        prior to the date specified therein, a notice specifying the date on which
        any
        such record is to be taken for the purpose of such dividend, distribution
        or
        right, and the amount and character of such dividend, distribution or right.
        

       

      
        
           

        

        
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        EXHIBIT
          B

        STOCK
          PURCHASE AND LOAN OPTION AGREEMENT

         

         

      

      9. Restricted
        Securities.
        The
        Holder understands that this Warrant and the Shares purchasable hereunder
        constitute “restricted securities” under the federal securities laws inasmuch as
        they are, or will be, acquired from the Company in transactions not involving
        a
        public offering and accordingly may not, under such laws and applicable
        regulations, be resold or transferred without registration under the Securities
        Act of 1933 (the “1933
        Act”)
        or an
        applicable exemption from such registration. In this connection, the Holder
        acknowledges that Rule 144 of the Securities and Exchange Commission (the
        “SEC”)
        is not
        now, and may not in the future be, available for resale of the Warrant and
        the
        Shares purchasable hereunder. Unless the Shares are subsequently registered,
        the
        Holder further acknowledges that the securities legend on Exhibit A
        to the
        Notice of Exercise attached hereto shall be placed on any Shares issued to
        the
        Holder upon exercise of this Warrant.

       

      10. Certification
        of Investment Purpose.
        Unless
        a current registration statement under the 1933 Act shall be in effect with
        respect to the securities to be issued upon exercise of this Warrant, the
        Holder
        covenants and agrees that, at the time of exercise hereof, he will deliver
        to
        the Company a written certification executed by the Holder that the securities
        acquired by such Holder upon exercise hereof are for the account of such
        Holder
        and acquired for investment purposes only and that such securities are not
        acquired with a view to, or for sale in connection with, any distribution
        thereof.

       

      11. Disposition
        of Shares.
        Holder
        hereby agrees not to make any disposition of any Shares purchased hereunder
        unless and until:

       

      (a) Holder
        shall have notified the Company of the proposed disposition and provided
        a
        written summary of the terms and conditions of the proposed
        disposition;

       

      (b) Holder
        shall have complied with all requirements of this Warrant applicable to the
        disposition of the Shares; and

       

      (c) Holder
        shall have provided the Company with written assurances, in form and substance
        reasonably satisfactory to legal counsel of the Company, that (i) the
        proposed disposition does not require registration of the Shares under the
        1933
        Act or (ii) all appropriate action necessary for compliance with the
        registration requirements of the 1933 Act or of any exemption from registration
        available under the 1933 Act has been taken.

       

      The
        Company shall not
        be
        required (i) to
        transfer on its books any Shares which have been sold or transferred in
        violation of the provisions of this Section 11 or (ii) to
        treat as the owner of the Shares, or otherwise to accord voting or dividend
        rights to, any transferee to whom the Shares have been transferred in
        contravention of the terms of this Warrant.

       

      
        
           

        

        
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        EXHIBIT
          B

        STOCK
          PURCHASE AND LOAN OPTION AGREEMENT

         

         

      

      12. Transferability.

       

      (a) General.
        This
        Warrant shall be transferable only on the books of the Company maintained
        at its
        principal office in San Francisco, California or wherever its principal office
        may then be located, upon delivery thereof duly endorsed by the Holder or
        by its
        duly authorized attorney or representative, accompanied by proper evidence
        of
        succession, assignment or authority to transfer. Upon any registration of
        transfer, the Company shall execute and deliver new Warrants to the person
        entitled thereto.

       

      (b) Limitations
        on Transfer.
        This
        Warrant shall not be sold, transferred, assigned or hypothecated by the Holder
        except to (i) one or more persons, each of whom on the date of transfer is
        an
        officer of the Holder; (ii) a general partnership or general partnerships,
        the
        general partners of which are the Holder and one or more persons, each of
        whom
        on the date of transfer is an officer of the Holder; (iii) a successor to
        the
        Holder in any merger or consolidation; (iv) a purchaser of all or substantially
        all of the Holder’s assets; or (v) any person receiving this Warrant from one or
        more of the persons listed in this Section 12(b) at such person’s or persons’
        death pursuant to will, trust or the laws of intestate succession. This Warrant
        may be divided or combined, upon request to the Company by the Holder, into
        a
        certificate or certificates representing the right to purchase the same
        aggregate number of Shares. 

       

      13. Miscellaneous.

       

      (a) Construction.
        Unless
        the context indicates otherwise, the term “Holder” shall include any transferee
        or transferees of this Warrant pursuant to Section 12(b), and the term “Warrant”
        shall include any and all warrants outstanding pursuant to this Agreement,
        including those evidenced by a certificate or certificates issued upon division,
        exchange, substitution or transfer pursuant to Section 12(b).

       

      (b) Restrictions.
        By
        receipt of this Warrant, the Holder makes the same representations with respect
        to the acquisition of this Warrant as the Holder is required to make upon
        the
        exercise of this Warrant and acquisition of the Shares purchasable hereunder
        as
        set forth in the Form of Investment Letter attached as Exhibit A to
        the
        Notice of Exercise attached hereto.

       

      (c) Notices.
        Unless
        otherwise provided, any notice required or permitted under this Warrant shall
        be
        given in writing and shall be deemed effectively given upon personal delivery
        to
        the party to be notified or three (3) days following deposit with the United
        States Post Office, by registered or certified mail, postage prepaid and
        addressed to the party to be notified (or one (1) day following timely deposit
        with a reputable overnight courier with next day delivery instructions),
        or upon
        confirmation of receipt by the sender of any notice by facsimile transmission,
        at the address indicated below or at such other address as such party may
        designate by ten (10) days’ advance written notice to the other
        parties.

       

      
        
           

        

        
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        EXHIBIT
          B

        STOCK
          PURCHASE AND LOAN OPTION AGREEMENT

         

         

      

      
        	 	
                To
                  Holder:

              	
                Charles
                  K. C. Chan

              

      

      MRD
        Holdings Inc.

      The
        Naaman’s Building Suite 206

      305
        Silverside Rd.,

      DE
        19810
        Wilmington

      Delaware,
        USA

      

      
        	 	
                To
                  the Company:

              	
                Dr.
                  William C. Tao

              

      

      Chief
        Executive Officer

      MR3
        Systems, Inc.

      435
        Brannan Street, Suite 200

      San
        Francisco, California 94107

       

      (d) Governing
        Law.
        This
        Warrant shall be governed by and construed under the laws of the State of
        California as applied to agreements among California residents entered into
        and
        to be performed entirely within California.

       

      (e) Entire
        Agreement.
        This
        Warrant, the exhibits and schedules hereto, and the documents referred to
        herein, constitute the entire agreement and understanding of the parties
        hereto
        with respect to the subject matter hereof, and supersede all prior and
        contemporaneous agreements and understandings, whether oral or written, between
        the parties hereto with respect to the subject matter hereof.

       

      (f) Binding
        Effect.
        This
        Warrant and the various rights and obligations arising hereunder shall inure
        to
        the benefit of and be binding upon the Company and its successors and assigns,
        and Holder and its successors and assigns.

       

      (g) Waiver;
        Consent.
        This
        Warrant may not be changed, amended, terminated, augmented, rescinded or
        discharged (other than by performance), in whole or in part, except by a
        writing
        executed by the parties hereto, and no waiver of any of the provisions or
        conditions of this Warrant or any of the rights of a party hereto shall be
        effective or binding unless such waiver shall be in writing and signed by
        the
        party claimed to have given or consented thereto.

       

      (h) Severability.
        If one
        or more provisions of this Warrant are held to be unenforceable under applicable
        law, such provision shall be excluded from this Warrant and the balance of
        the
        Warrant shall be interpreted as if such provision were so excluded and the
        balance shall be enforceable in accordance with its terms.

       

      
        
           

        

        
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            EXHIBIT
              B

            STOCK
              PURCHASE AND LOAN OPTION AGREEMENT

          

        

      

      IN
        WITNESS WHEREOF, the parties hereto have executed this Warrant effective
        as of
        the date hereof.

      

      

      
        	
                DATED:
                  May 30, 2005

              	
                THE
                  COMPANY:

                 

                MR3
                  SYSTEMS, INC.

                 

                By:
                  /s/
                  William C. Tao
                  
                  

                

                Name:
                  William C. Tao, Ph.D. 

                Title:
                  Chief Executive Officer

                 

              
	 	
                HOLDER:

                 

                MRD
                  HOLDINGS INC.

                 

                By:
                  /s/
                  Charles K.C. Chan
                  
                  

                

                Name:
                  Charles K. C. Chan

                Title:
                  Managing Director

                 

                 

              
	 	 

      

      

      

       

      
        
           

        

        
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      EXHIBIT
        B

      STOCK
        PURCHASE AND LOAN OPTION AGREEMENT

      NOTICE
        OF EXERCISE

       

      To: MR3
        SYSTEMS, INC.

       

      The
        undersigned hereby elects to purchase _____________ shares of _________ Stock
        (the “Shares”)
        of MR3
        Systems, Inc., a Delaware corporation (the “Company”)
        pursuant to the terms of the attached Warrant, and tenders herewith payment
        of
        the purchase price pursuant to the terms of the Warrant.

       

      Attached
        as Exhibit A is an investment representation letter addressed to the
        Company and executed by the undersigned as required by Section 10
        of the
        Warrant.

       

      Please
        issue certificates representing the Common Stock purchased hereunder in the
        names and in the denominations indicated on Exhibit A attached
        hereto.

       

      Please
        issue a new Warrant for the unexercised portion of the attached Warrant,
        if any,
        in the name of the undersigned.

       

      
        	
                Dated:
                  ______________________________________

              	
                ________________________________________

                Name:_________________________________________

                Title:__________________________________________

                 

              

      

      

      

       

      
        
           

        

        
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      EXHIBIT
        B

      STOCK
        PURCHASE AND LOAN OPTION AGREEMENT

      NET
        ISSUANCE ELECTION NOTICE

       

      To:
        MR3
        SYSTEMS, INC.

      Date:_____________

       

      The
        undersigned hereby elects under Section 2 of the attached Warrant to surrender
        the right to purchase ___________ shares of ___________ Stock (the “Shares”)
        pursuant to the attached Warrant. The Certificate(s) for the Shares issuable
        upon such net issuance election shall be issued in the name of the undersigned
        or as otherwise indicated below.

       

      Attached
        as Exhibit A is an investment representation letter addressed to the Company
        and
        executed by the undersigned as required by Section 12 of the
        Warrant.

       

      Please
        issue certificates representing the Shares purchased hereunder in the names
        and
        in the denominations indicated on Exhibit A attached hereto.

       

      Please
        issue a new Warrant for the unexercised portion of the attached Warrant,
        if any,
        in the name of the undersigned.

       

      ___________________________

      Signature

       

      ___________________________

      Name
        for
        Registration

       

      ___________________________

      Mailing
        Address

      
        
           

        

        
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            EXHIBIT
              B

            STOCK
              PURCHASE AND LOAN OPTION AGREEMENT

          

        

      

       

      EXHIBIT
        A-1

       

      To: MR3
        SYSTEMS, INC.

       

      In
        connection with the purchase by the undersigned of _________ shares of Common
        Stock (the “Shares”)
        of MR3
        Systems, Inc., a Delaware corporation (the “Company”),
        upon
        exercise of that certain Warrant dated as of _______, 2005, the undersigned
        hereby represents and warrants as follows:

       

      The
        Shares to be received by the undersigned upon exercise of the Warrant are
        being
        acquired for its own account, not as a nominee or agent, and not with a view
        to
        resale or distribution of any part thereof, and the undersigned has no present
        intention of selling, granting any participation in, or otherwise distributing
        the same. The undersigned further represents that it does not have any contract,
        undertaking, agreement or arrangement with any person to sell, transfer or
        grant
        participation to such person or to any third person, with respect to the
        Shares.
        The undersigned believes it has received all the information it considers
        necessary or appropriate for deciding whether to purchase the
        Shares.

       

      The
        undersigned understands that the Shares are characterized as “restricted
        securities” under the federal securities laws inasmuch as they are being
        acquired from the Company in transactions not involving a public offering
        and
        that under such laws and applicable regulations such securities may be resold
        without registration under the Securities Act of 1933, as amended (the
“Act”),
        only
        in certain limited circumstances. In this connection, the undersigned represents
        that it is familiar with SEC Rule 144, as presently in effect, and understands
        the resale limitations imposed thereby and by the Act.

       

      Without
        in any way limiting the representations set forth above, the undersigned
        agrees
        not to make any disposition of all or any portion of the Shares unless and
        until:

       

      There
        is
        then in effect a registration statement under the Act covering such proposed
        disposition and such disposition is made in accordance with such registration
        statement; or

       

      (i) The
        undersigned shall have notified the Company of the proposed disposition and
        shall have furnished the Company with a detailed statement of the circumstances
        surrounding the proposed disposition, and (ii) if requested, the
        undersigned shall have furnished the Company with an opinion of counsel,
        reasonably satisfactory to the Company that such disposition will not require
        registration of such shares under the Act. The Company will not require an
        opinion of counsel for sales made pursuant to Rule 144 except in unusual
        circumstances.

       

      
        
           

        

        
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        EXHIBIT
          B

        STOCK
          PURCHASE AND LOAN OPTION AGREEMENT

      

       

      The
        undersigned understands the instruments evidencing the Shares may bear the
        following legend:

       

      THE
        SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
        THE
        SECURITIES ACT OF 1933; THEY HAVE BEEN ACQUIRED BY THE HOLDER FOR INVESTMENT
        AND
        MAY NOT BE PLEDGED, HYPOTHECATED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED
        OF
        EXCEPT AS MAY BE AUTHORIZED UNDER THE SECURITIES ACT OF 1933, AND THE RULES
        AND
        REGULATIONS PROMULGATED THEREUNDER.

       

       

      
        	
                Dated:
                  ______________________________________

              	
                ________________________________________

                Name:_________________________________________

                Title:__________________________________________

                 

              

      

       

      

      
        
           

        

          -11-EXHIBIT
        10.4

       

      EXHIBIT
        C

      STOCK
        PURCHASE AND LOAN OPTION AGREEMENT

       

      CERTIFICATE
        OF DESIGNATION, 

      PREFERENCES
        AND RIGHTS OF

      SERIES
        B CONVERTIBLE PREFERRED STOCK

      OF

      MR3
        SYSTEMS, INC.

      (Pursuant
        to Section 151 of the 

      Delaware
        General Corporation Law)

      

      

      

      It
        is
        hereby certified that:

      

      1.
        The
        name of the corporation (hereinafter called the “Corporation”)
        is:

      

      MR3
        Systems, Inc.

      

      2.
        The
        certificate of incorporation as amended of the Corporation authorizes the
        issuance of Five Million (5,000,000) shares of Preferred Stock of a par value
        of
        $.01 each and expressly vests in the Board of Directors of the Corporation
        (“Board
        of Directors”)
        the
        authority provided therein to issue any or all of said shares in one or more
        series and by resolution or resolutions, the designation, number, full or
        limited voting powers, or the denial of voting powers, preferences and relative,
        participating, optional, and other special rights and the qualifications,
        limitations, restrictions, and other distinguishing characteristics of each
        series to be issued. The Board of Directors has designated a class of Series
        A
        preferred stock comprised of One Million Two Hundred Fifty Thousand (1,250,000)
        shares and Three Million Seven Hundred Fifty Thousand (3,750,000) shares
        of
        preferred stock remain available for designation by the Corporation’s Board of
        Directors.

      

      3.
        The
        Board of Directors of the Corporation, pursuant to the authority expressly
        vested in it as aforesaid, has adopted the following resolutions creating
        an
        issue of Series B Preferred Stock:

      

      RESOLVED,
        that a series of preferred stock to be called Series B Convertible Preferred
        Stock be designated out of the Three Million Seven Hundred Fifty Thousand
        shares
        of preferred stock available for designation (“Series B Preferred Stock”),

      

      FURTHER
        RESOLVED, That the rights, preferences, privileges, powers and restrictions
        of
        the Series B Preferred Stock shall be as follows:

      

      A.  DESIGNATION
        AND NUMBER.

       

      Three
        Million One Hundred Fifty Thousand (3,150,000) of the Three Million Seven
        Hundred Fifty Thousand (3,750,000) authorized but not designated shares of
        Preferred Stock of the Corporation shall be designated Series B Convertible
        Preferred Stock (the “Series
        B Preferred Stock”)
        and
        shall possess the rights and privileges set forth below.

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      
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      B.  PAR
        VALUE STATED VALUE, PURPOSE OF ISSUANCE AND
        CERTIFICATES.

       

      Each
        share of Series B Preferred Stock shall have a par value of $.01. Certificates
        representing the shares of Series B Preferred Stock purchased shall be issued
        by
        the Corporation to the purchasers.

      

      C.  DIVIDENDS.

       

      Holders
        of the shares of Series B Preferred Stock shall not be entitled to any dividends
        nor shall the Corporation be required to pay or declare any dividends on
        the
        Series B Preferred Stock. Notwithstanding the foregoing, in the event that
        the
        Corporation pays any dividends or makes any distribution to the holders of
        its
        Common Stock, a dividend or distribution shall be made to the holders of
        the
        Series B Preferred Stock equal to what they would have received had they
        converted their Series B Preferred Stock into Common Stock immediately prior
        to
        such dividend or distribution.

      

      D.  LIQUIDATION
        PREFERENCE.

       

      In
        the
        event of any liquidation, dissolution or winding-up of the Corporation, either
        voluntary or involuntary (a “Liquidation”),
        the
        holders of shares of the Series B Preferred Stock then issued and outstanding
        shall be entitled to receive, prior and in preference to any distribution
        of any
        assets of this Corporation to the holders of any shares of capital stock
        of the
        Corporation (other than the Series A Preferred Stock pursuant to the rights,
        preferences and privileges thereof), the greater of (i) an amount equal to
        $2.50
        per share (“Face
        Amount”)
        plus
        all declared but unpaid dividends on such shares, or (ii) the amount that
        would
        be distributed upon Liquidation on the number of shares of Common Stock into
        which a share of Series B Preferred Stock could be converted immediately
        prior
        to such Liquidation, assuming all shares of Series B Preferred Stock were
        so
        converted (the “Liquidation
        Preference”).
        If,
        upon any Liquidation of the Corporation, the assets of the Corporation available
        for distribution to its stockholders shall be insufficient to pay the holders
        of
        shares of the Series B Preferred Stock the full amounts of the Liquidation
        Preference to which they shall respectively be entitled, no distribution
        shall
        be made to the holders of any shares of capital stock of the Corporation
        (other
        than the Series A Preferred Stock) pursuant to the rights, preferences and
        privileges thereof, upon Liquidation, unless prior thereto the holders of
        shares
        of Series B Preferred Stock shall have received the Liquidation Preference
        with
        respect to each share. If, upon the occurrence of a Liquidation, the assets
        and
        funds available for distribution among the holders of the Series B Preferred
        Stock shall be insufficient to permit the payment to such holders of the
        preferential amounts payable thereon, then the entire assets and funds of
        the
        Corporation legally available for distribution to the Series B Preferred
        Stock
        shall be distributed ratably among such shares in proportion to the ratio
        that
        the Liquidation Preference payable on each such share bears to the aggregate
        Liquidation Preference payable on all such shares.

       

      
        
           

        

        
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        E.  CONVERSION

         

      

      (a)  Conversion
        at the Option of the Holder.
        Each
        holder of shares of Series B Preferred Stock may, at any time and from time
        to
        time convert (an “Optional
        Conversion”)
        each
        of its shares of Series B Preferred Stock into Common Stock as provided in
        this
Section
        3E.

       

      (b)  Number
        of Shares.
        Upon an
        Optional Conversion before the occurrence of any of the events described
        in
        clauses (i)-(iv) of Section
        3E(c)
        below
        (each a “Conversion
        Event”),
        each
        share of Series B Preferred Stock shall be converted into that number of
        fully
        paid and non-assessable shares of Common Stock determined by dividing the
        Face
        Amount thereof by the then effective Conversion Price. Upon an Optional
        Conversion after the occurrence of a Conversion Event, each share of Series
        B
        Preferred Stock shall be converted into that number of fully paid and
        non-assessable shares of Common Stock in accordance with the following
        formula:

       

              
        V

        
          

        

      

           
        C C P

       

      

      where
        the
        values of V and CCP shall depend on the Conversion Event Price as described
        in
        clauses (i) and (ii) below. For purposes of this formula, the term “Conversion
        Event Price”
        means,
        in the case of a Conversion Event described in Section
        E(c)(i),
        below,
        the total consideration received or to be received by the Corporation (whether
        or not contingent, and including the assumption of debt) per share of Common
        Stock outstanding at the time of the Conversion Event, and, in the case of
        any
        other Conversion Event, the price per share of Common Stock valued at the
        arithmetic mean of the Closing Sales Price of the Corporation’s Common Stock for
        the thirty (30) day period ending on the day prior to the day the Corporation
        receives the Notice of Conversion.

       

      (i)  If
        the
        Conversion Event Price (as hereafter defined) is
        greater than
        $0.10

       

      “V”
        means
        One Hundred Percent (100%) of the Face Amount thereof plus all accrued dividends
        thereon through the date of payment of the Conversion Amount; and

       

      “CCP”
        means
        the Conversion Price in effect on the date on which the Corporation receives
        the
        Notice of Conversion.

       

      (ii)  If
        the
        Conversion Event Price is
        less than or equal to
        $0.10:

       

      “V”
        means
        one hundred percent (100%) of the Face Amount thereof plus all accrued Dividends
        thereon through the date of payment of the Conversion Amount; and

       

      “CCP”
        means
        the Conversion Event Price.

       

      (c)  Conversion
        Events.
        The
        following shall constitute Conversion Events:

       

      (i)  a
        sale,
        conveyance or disposition of all or substantially all of the Corporation’s
        assets (the presentation of any such transaction for stockholder approval
        being
        conclusive evidence that such transaction involves the sale of all or
        substantially all of the assets of the Corporation);

       

      
        
           

        

        
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      (ii)  the
        adoption of or entry into any agreement or plan to cause either a Liquidation
        (as defined in Section
        3D)
        or the
        other Conversion Events described in this Section 3E
        unless
        the agreement is terminated or the plan abandoned prior to the occurrence
        of the
        Liquidation or Conversion Event;

       

      (iii)  any
        event, occurrence or transaction, or sequence of related events, occurrences
        or
        transactions, resulting in the holders of the Common Stock immediately prior
        to
        such event, occurrence, transaction or sequence holding or having the right
        to
        direct the voting of fifty percent (50%) or less of the total outstanding
        voting
        securities of the Corporation or other surviving or acquiring person or entity
        immediately following such event, occurrence, transaction, or sequence;
        and

       

      (iv) any
        event, occurrence or transaction, or sequence of related events, occurrences
        or
        transactions, resulting in the members of the Board of Directors comprising
        fifty percent (50%) or less of the members of the Board of Directors (or
        a
        surviving or acquiring person or entity) immediately following such event,
        transaction, change or sequence.

       

      If
        the
        Corporation is prohibited from issuing shares of Common Stock upon an Optional
        Conversion of Series B Preferred Stock after the occurrence of a Conversion
        Event, the Corporation shall immediately notify the holders of Series B
        Preferred Stock of such occurrence and each holder of Series B Preferred
        Stock
        shall thereafter have the option, exercisable in whole or in part at any
        time
        and from time to time, by delivery of a Redemption Notice (as defined in
        Section
        3G(a))
        to the
        Corporation, to require the Corporation to redeem for cash, at an amount
        per
        share equal to the Redemption Amount (as defined in Section
        3G(b)).If
        the
        Corporation fails to redeem any of such shares within five (5) business days
        after its receipt of such Redemption Notice, then such holder shall be entitled
        to the remedies provided in Section
        3G(c)
        and in
        the Securities Purchase Agreement.

       

      (d)  Mechanics
        of Conversion.
        In
        order to effect an Optional Conversion, a holder shall (x) fax (or otherwise
        deliver) a copy of the fully executed Notice of Conversion to the Corporation
        (Attention: Secretary) and (y) surrender or cause to be surrendered the original
        certificates representing the Series B Preferred Stock being converted (the
        “Preferred
        Stock Certificates”),
        duly
        endorsed, along with a copy of the Notice of Conversion as soon as practicable
        thereafter to the Corporation. Upon receipt by the Corporation of a facsimile
        copy of a Notice of Conversion from a holder, the Corporation shall promptly
        send, via facsimile, a confirmation to such holder stating that the Notice
        of
        Conversion has been received, the date upon which the Corporation expects
        to
        deliver the Common Stock issuable upon such conversion and the name and
        telephone number of a contact person at the Corporation regarding the
        conversion. 

       

      (i)  Delivery
        of Common Stock Upon Conversion.
        Upon
        the surrender of Preferred Stock Certificates accompanied by a Notice of
        Conversion, the Corporation (itself, or through its transfer agent) shall,
        no
        later than the later of (a) the second business day following the Conversion
        Date and (b) the business day following the date of such surrender (the
“Delivery
        Period”),
        issue
        and deliver (i.e.,
        

       

      
        
           

        

        
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      deposit
        with a nationally recognized overnight courier service postage prepaid) to
        the
        holder or its nominee (x) that number of shares of Common Stock issuable
        upon
        conversion of such shares of Series B Preferred Stock being converted and
        (y) a
        certificate representing the number of shares of Series B Preferred Stock
        not
        being converted, if any. Notwithstanding the foregoing, if the Corporation’s
        transfer agent is participating in the Depository Trust Company (“DTC”)
        Fast
        Automated Securities Transfer program, and so long as the certificates therefor
        do not bear a legend (pursuant to the terms of the Securities Purchase
        Agreement) and the holder thereof is not then required to return such
        certificate for the placement of a legend thereon (pursuant to the terms
        of the
        Securities Purchase Agreement), the Corporation shall cause its transfer
        agent
        to promptly electronically transmit the Common Stock issuable upon conversion
        to
        the holder by crediting the account of the holder or its nominee with DTC
        through its Deposit Withdrawal Agent Commission system (“DTC
        Transfer”).
        If
        the aforementioned conditions to a DTC Transfer are not satisfied, the
        Corporation shall deliver as provided above to the holder physical certificates
        representing the Common Stock issuable upon conversion. Further, a holder
        may
        instruct the Corporation to deliver to the holder physical certificates
        representing the Common Stock issuable upon conversion in lieu of delivering
        such shares by way of DTC Transfer.

       

      (ii)  Taxes.
        The
        Corporation shall pay any and all taxes that may be imposed upon it with
        respect
        to the issuance and delivery of the shares of Common Stock upon the conversion
        of the Series B Preferred Stock.

       

      (iii)  No
        Fractional Shares.
        If any
        conversion of Series B Preferred Stock would result in the issuance of a
        fractional share of Common Stock (aggregating all shares of Series B Preferred
        Stock being converted pursuant to a given Notice of Conversion), such fractional
        share shall be payable in cash based upon the Closing Sales Price of the
        Common
        Stock at such time, and the number of shares of Common Stock issuable upon
        conversion of the Series B Preferred Stock shall be the next lower whole
        number
        of shares. If the Corporation elects not to, or is unable to, make such a
        cash
        payment, the holder shall be entitled to receive, in lieu of the final fraction
        of a share, one whole share of Common Stock.

       

      (iv)  Conversion
        Disputes.
        In the
        case of any dispute with respect to a conversion, the Corporation shall promptly
        issue such number of shares of Common Stock as are not disputed in accordance
        with subparagraph (i) above. If such dispute involves the calculation of
        the
        Conversion Price, and such dispute is not promptly resolved by discussion
        between the relevant holder and the Corporation, the Corporation shall submit
        the disputed calculations to an independent outside accountant via facsimile
        within three (3) business days of receipt of the Notice of Conversion. The
        accountant, at the Corporation’s sole expense, shall promptly audit the
        calculations and notify the Corporation and the holder of the results no
        later
        than three business days from the date it receives the disputed calculations.
        The accountant’s calculation shall be deemed conclusive and binding on the
        Corporation and the applicable holders, absent manifest error. The Corporation
        shall then issue the appropriate number of shares of Common Stock in accordance
        with subparagraph (i) above.

       

      (v)  Payment
        of Accrued Amounts.
        Upon
        conversion of any shares of Series B Preferred Stock, all amounts then accrued
        or payable on such shares under this Certificate of Designation (including,
        without limitation, all dividends) or the Securities Purchase Agreement through
        and including the Conversion Date shall be paid in cash by the
        Corporation.

       

      
        
           

        

        
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      F.  RESERVATION
        OF SHARES OF COMMON STOCK

       

      (a)  Reserved
        Amount.
        On or
        prior to the date of the Initial Closing under the Securities Purchase Agreement
        by and among the Corporation and the purchasers of Series B Preferred Stock
        named therein (the “Securities
        Purchase Agreement”),
        pursuant to which the Corporation issued to such purchasers, and such purchasers
        purchased, the Series B Preferred Stock (the “Initial
        Closing”)
        and at
        each subsequent Closing Date, the Corporation shall reserve shares of its
        authorized but unissued shares of Common Stock for issuance upon conversion
        of
        the Series B Preferred Stock, and, thereafter, the number of authorized but
        unissued shares of Common Stock so reserved (the “Reserved
        Amount”)
        shall
        at all times be sufficient to provide for the full conversion of all of the
        Series B Preferred Stock outstanding at the then current Conversion Price
        thereof.

       

      (b)  Increases
        to Reserved Amount.
        If the
        Reserved Amount shall be less than one hundred percent (100%) of the number
        of
        shares of Common Stock issuable upon full conversion of the then outstanding
        shares of Series B Preferred Stock, the Corporation shall immediately notify
        the
        holders of Series B Preferred Stock of such occurrence and shall take immediate
        action to increase the Reserved Amount to one hundred percent (100%) of the
        number of shares of Common Stock then issuable upon full conversion of all
        of
        the outstanding Series B Preferred Stock at the then current Conversion Price.
        In the event the Corporation fails to so increase the Reserved Amount, each
        holder of Series B Preferred Stock shall thereafter have the option, exercisable
        in whole or in part at any time and from time to time, by delivery of a
        Redemption Notice to the Corporation, to require the Corporation to redeem
        for
        cash, at an amount per share equal to the Redemption Amount (as defined in
        Section
        3G(b)),
        a
        number of the holder’s shares of Series B Preferred Stock such that, after
        giving effect to such redemption, the then unissued portion of such holder’s
        Reserved Amount is at least equal to one hundred percent (100%) of the total
        number of shares of Common Stock issuable upon conversion of such holder’s
        shares of Series B Preferred Stock. If the Corporation fails to redeem any
        of
        such shares within five (5) business days after its receipt of such Redemption
        Notice, then such holder shall be entitled to the remedies provided in
Section
        3G(c)
        and in
        the Securities Purchase Agreement.

       

      (c)  Costs.
        The
        Corporation shall pay all documentary, stamp, transfer or other transactional
        taxes attributable to the issuance or delivery of shares of Common Stock
        upon
        conversion of any shares of Series B Preferred Stock; provided that the
        Corporation shall not be required to pay any taxes which may be payable in
        respect of any transfer involved in the issuance or delivery of any certificate
        for such shares in a name other than that of the holder of the shares of
        Series
        B Preferred Stock in respect of which such shares are being issued.

       

      (c) Approvals.
        If any
        shares of Common Stock to
        be
        reserved for the purpose of conversion of shares of Series B Preferred Stock
        require registration
        with or
        approval of any governmental authority under any Federal or state law before
        such shares may be validly issued or delivered upon conversion, then the
        Corporation will in good faith and as expeditiously as possible endeavor
        to
        secure such registration or approval, as the case may be. If, and so long
        as,
        any Common Stock into which the shares of Series B Preferred Stock are then
        convertible is listed on any national securities exchange or on the NMS or
        NSCM,
        the Corporation will, if permitted by the rules of such exchange or NASDAQ,
        list
        and keep listed on such exchange or the NMS or NSCM, upon official notice
        of
        issuance, all shares of such Common Stock issuable upon conversion.

       

      
        
           

        

        
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      (d)  Lost
        or Stolen Certificates.
        Upon
        receipt by the Corporation of evidence of the loss, destruction, theft or
        mutilation of any Series B Preferred Stock certificates (the “Certificates”)
        and
        (in the case of loss, theft or destruction) of indemnity or security reasonably
        satisfactory to the Corporation, and upon surrender and cancellation of the
        Certificates, if mutilated, the Corporation shall execute and deliver new
        Series
        B Preferred Stock Certificates of like tenor and date. However, the Corporation
        shall not be obligated to re-issue such lost or stolen Series B Preferred
        Stock
        Certificates if the Holder thereof contemporaneously requests the Corporation
        to
        convert such Series B Preferred Stock into Common Stock, in which event the
        Corporation shall be entitled to rely on an affidavit of loss, destruction
        or
        theft of the Series B Preferred Stock Certificate or, in the case of mutilation,
        tender of the mutilated certificate, and shall issue the shares of Common
        Stock
        issuable upon conversion.

       

      G.  REDEMPTION
        DUE TO CERTAIN EVENTS

       

      (a)  Redemption
        by Holder.
        If
        (each of the events described in clauses (i)-(viii) below after expiration
        of
        the applicable cure period (if any) being a “Redemption
        Event”):

       

      (i)  the
        Common Stock (including any of the shares of Common Stock issuable upon
        conversion of the Series B Preferred Stock) is suspended from trading on
        any of,
        or is not listed (and authorized) for trading on at least one of, the New
        York
        Stock Exchange, the American Stock Exchange, the Nasdaq National Market or
        the
        Nasdaq SmallCap Market, or the Principal Market as defined in the Securities
        Purchase Agreement, for an aggregate of ten (10) or more trading days in
        any
        twelve (12) month period;

       

      (ii)  the
        registration statement (“Registration
        Statement”)
        required to be filed by the Corporation pursuant to the Investor Rights and
        Stockholder Agreement by and among the Corporation and the purchasers of
        the
        Series B Preferred Stock (“Investor
        Rights Agreement”)
        has
        not been declared effective by such date as is required under the Investor
        Rights Agreement or such Registration Statement, after being declared effective,
        cannot be utilized by the holders of Series B Preferred Stock for the resale
        of
        all of their Registrable Securities (as defined in the Securities Purchase
        Agreement) for an aggregate of more than 60 days;

       

      (iii)  the
        Corporation fails to remove any restrictive legend on any certificate or
        any
        shares of Common Stock issued to the holders of Series B Preferred Stock
        upon
        conversion of the Series B Preferred Stock as and when required by this
        Certificate of Designation or the Securities Purchase Agreement, and any
        such
        failure continues uncured for five business days after the Corporation has
        been
        notified thereof in writing by the holder;

       

      (iv)  the
        Corporation provides written notice (or otherwise indicates) to any holder
        of
        Series B Preferred Stock, or states by way of public announcement distributed
        via a press release, at any time, of its intention not to issue, or otherwise
        refuses to issue, shares of Common Stock to any holder of Series B Preferred
        Stock upon conversion in accordance with the terms of this Certificate of
        Designation.

       

      
        
           

        

        
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      (v)  the
        Corporation shall make an assignment for the benefit of creditors, or apply
        for
        or consent to the appointment of a receiver or trustee for it or for a
        substantial part of its property or business, or such a receiver or trustee
        shall otherwise be appointed; 

       

      (vi)  bankruptcy,
        insolvency, reorganization or liquidation proceedings or other proceedings
        for
        the relief of debtors shall be instituted by the Corporation;

       

      (vii)  except
        with respect to matters covered by subparagraphs (i) - (vii) above, as to
        which
        such applicable subparagraphs shall apply, the Corporation otherwise shall
        breach any material term hereunder or under the Securities Purchase Agreement,
        the Investor Rights Agreement or the Warrants, including, without limitation,
        the representations and warranties contained therein (i.e.,
        in the
        event of a material breach as of the date such representation and warranty
        was
        made) and if such breach is curable, shall fail to cure such breach within
        ten
        (10) business days after the Corporation has been notified thereof in writing
        by
        the holder;

       

      then,
        upon the occurrence of any such Redemption Event, each holder of shares of
        Series B Preferred Stock shall thereafter have the option, exercisable in
        whole
        or in part at any time and from time to time by delivery of a written notice
        to
        such effect (a “Redemption
        Notice”)
        to the
        Corporation while such Redemption Event continues, to require the Corporation
        to
        purchase for cash any or all of the then outstanding shares of Series B
        Preferred Stock held by such holder for an amount per share equal to the
        Redemption Amount (as defined in Section
        3G(b)_)
        in
        effect at the time of the redemption hereunder. For the avoidance of doubt,
        the
        occurrence of any event described in clauses (i), (ii), (iii), (v), (vi)
        and
        (vii) above shall immediately constitute a Redemption Event and there shall
        be
        no cure period. Upon the Corporation’s receipt of any Redemption Notice
        hereunder, the Corporation shall immediately (and in any event within one
        (1)
        business day following such receipt) deliver a written notice (a “Redemption
        Announcement”)
        to all
        holders of Series B Preferred Stock stating the date upon which the Corporation
        received such Redemption Notice and the amount of Series B Preferred Stock
        covered thereby. The Corporation shall not redeem any shares of Series B
        Preferred Stock during the three (3) trading day period following the delivery
        of a required Redemption Announcement hereunder. At any time and from time
        to
        time during such three (3) trading day period, each holder of Series B Preferred
        Stock may request (either orally or in writing) information from the Corporation
        with respect to the instant redemption (including, but not limited to, the
        aggregate number of shares of Series B Preferred Stock covered by Redemption
        Notices received by the Corporation) and the Corporation shall furnish (either
        orally or in writing) as soon as practicable such requested information to
        such
        requesting holder.

       

      (b)  Definition
        of Redemption Amount.

       

      The
        “Redemption
        Amount”
        with
        respect to a share of Series B Preferred Stock means an amount equal to:
        

       

      
        
           

        

        
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      V

      
        
          
R
          C P

      

       

      where:

       

      “V”
        means
        100% of the Face Amount thereof plus all accrued dividends thereon through
        the
        date of payment of the Redemption Amount; and

       

      “RCP”
        means
        the (I) the Conversion Price in effect on the date on which the Corporation
        receives the Redemption Notice, or (II) the value of a share of Common Stock
        on
        the date on which the Corporation receives the Redemption Notice, whichever
        is lower
        (with
        each share of Common Stock valued at the arithmetic mean of the Closing Sales
        Price of the Corporation’s Common Stock for the thirty (30) day period ending on
        the day prior to the day the Corporation receives the Redemption Notice).
        “Closing Sales Price” means, for any security as of any date, the last sales
        price of such security on the principal trading market where such security
        is
        listed or traded as reported by Bloomberg Financial Markets (or a comparable
        reporting service of national reputation selected by the Corporation and
        reasonably acceptable to the holders of Series B Preferred Stock if Bloomberg
        Financial Markets is not then reporting closing bid prices of such security)
        (in
        any case, “Bloomberg”),
        or if
        the foregoing does not apply, the last reported sales price of such security
        on
        a national exchange or in the over-the-counter market on the electronic bulletin
        board for such security as reported by Bloomberg, or, if no such price is
        reported for such security by Bloomberg, the average of the bid prices of
        all
        market makers for such security as reported in the “pink sheets” by the National
        Quotation Bureau, Inc., in each case for such date or, if such date was not
        a
        trading day for such security, on the next preceding date which was a trading
        day. If the Closing Sales Price cannot be calculated for such security as
        of
        either of such dates on any of the foregoing bases, the Closing Sales Price
        of
        such security on such date shall be the fair market value as reasonably
        determined by an investment banking firm selected by the Corporation and
        reasonably acceptable to the holders of Series B Preferred Stock, with the
        costs
        of such appraisal to be borne by the Corporation.

       

      (c)  Redemption
        Defaults.
        If the
        Corporation fails to pay any holder the Redemption Amount with respect to
        any
        share of Series B Preferred Stock within five (5) business days after its
        receipt of a Redemption Notice (the “Redemption
        Date”),
        then
        the holder of Series B Preferred Stock entitled to redemption shall be entitled
        to interest on the Redemption Amount at a per annum rate equal to the lower
        of
        ten percent (10%) and the highest interest rate permitted by applicable law
        from
        the Redemption Date until the date of payment of the Redemption Amount
        hereunder. In the event the Corporation is not able to redeem all of the
        shares
        of Series B Preferred Stock required to be redeemed on the Redemption Date
        (including for such purpose all shares of Series B Preferred Stock subject
        to
        Redemption Notices delivered prior to the Redemption Date), the Corporation
        shall redeem shares of Series B Preferred Stock from each holder pro
        rata,
        based
        on the total number of shares of Series B Preferred Stock outstanding at
        the
        time of redemption and required to be redeemed on the Redemption Date relative
        to the total number of shares of Series B Preferred Stock outstanding on
        the
        Redemption Date.

       

      
        
           

        

        
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        EXHIBIT
          C

        STOCK
          PURCHASE AND LOAN OPTION AGREEMENT

         

      

      H.  RANK

       

      All
        shares of the Series B Preferred Stock shall rank (i) prior to the Corporation’s
        Common Stock and any class or series of capital stock of the Corporation
        hereafter created (unless, with the written consent of the holders of Series
        B
        Preferred Stock obtained in accordance with Section
        3K
        hereof,
        such class or series of capital stock specifically, by its terms, ranks senior
        to or pari passu
        with the
        Series B Preferred Stock) (collectively with the Common Stock, “Junior
        Securities”);
        (ii)
pari passu
        with any
        class or series of capital stock of the Corporation hereafter created (with
        the
        written consent of the holders of Series B Preferred Stock obtained in
        accordance with Section
        3K
        hereof)
        specifically ranking, by its terms, on parity with the Series A Preferred
        Stock
        (the “Pari Passu
        Securities”);
        and
        (iii) junior to any class or series of Series A Preferred Stock (collectively,
        the “Senior
        Securities”),
        in
        each case as to distribution of assets upon liquidation, dissolution or winding
        up of the Corporation, whether voluntary or involuntary.

       

      I.  ADJUSTMENTS
        TO THE CONVERSION PRICE

       

      The
        Conversion Price shall be subject to adjustment from time to time as
        follows:

       

      (a)  Stock
        Splits, Stock Dividends, Etc.
        If, at
        any time on or after the Closing Date, the number of outstanding shares of
        Common Stock is increased by a stock split, stock dividend, combination,
        reclassification or other similar event, the Conversion Price shall be
        proportionately reduced, or if the number of outstanding shares of Common
        Stock
        is decreased by a reverse stock split, combination, reclassification or other
        similar event, the Conversion Price shall be proportionately increased. In
        such
        event, the Corporation shall notify the Corporation’s transfer agent of such
        change on or before the effective date thereof.

       

      (b)  Merger,
        Consolidation, Etc.
        If, at
        any time after the Closing Date, there shall be (i) any reclassification
        or
        change of the outstanding shares of Common Stock (other than a change in
        par
        value, or from par value to no par value, or from no par value to par value,
        or
        as a result of a subdivision or combination), (ii) any consolidation or merger
        of the Corporation with any other entity (other than a merger in which the
        Corporation is the surviving or continuing entity and its capital stock is
        unchanged), (iii) any sale or transfer of all or substantially all of the
        assets
        of the Corporation or (iv) any share exchange or other transaction pursuant
        to
        which all of the outstanding shares of Common Stock are converted into other
        securities or property (each of (i) - (iv) above being a “Corporate
        Change”),
        then
        the holders of Series B Preferred Stock shall thereafter have the right to
        receive upon conversion, in lieu of the shares of Common Stock otherwise
        issuable, such shares of stock, securities and/or other property as would
        have
        been issued or payable in such Corporate Change with respect to or in exchange
        for the number of shares of Common Stock which would have been issuable upon
        conversion had such Corporate Change not taken place and in any such case,
        appropriate provisions (in form and substance reasonably satisfactory to
        the
        holders of Series B Preferred Stock) shall be made with respect to the rights
        and interests of the holders of the Series B Preferred Stock to the end that
        the
        economic value of the shares of Series B Preferred Stock are in no way
        diminished by such Corporate Change and that the provisions hereof (including,
        without limitation, in the case of any such consolidation, merger or sale
        in
        which the successor entity or purchasing entity is not the Corporation, an
        immediate adjustment of the Conversion Price so that the Conversion Price
        immediately after the

       

      
        
           

        

        
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          PURCHASE AND LOAN OPTION AGREEMENT

         

      

       Corporate
        Change reflects the same relative value as compared to the value of the
        surviving entity’s common stock that existed between the Conversion Price and
        the value of the Corporation’s Common Stock immediately prior to such Corporate
        Change) shall thereafter be applicable, as nearly as may be practicable in
        relation to any shares of stock or securities thereafter deliverable upon
        the
        conversion thereof. The Corporation shall not effect any Corporate Change
        unless
        (i) each holder of Series B Preferred Stock has received written notice of
        such
        transaction at least forty-five (45) days prior thereto, but in no event
        later
        than fifteen (15) days prior to the record date for the determination of
        stockholders entitled to vote with respect thereto, and (ii) the resulting
        successor or acquiring entity (if not the Corporation) assumes by written
        instrument (in form and substance reasonable satisfactory to the holders
        of
        Series B Preferred Stock) the obligations of this Certificate of Designation
        (including, without limitation, the obligation to make payments of dividends
        accrued but unpaid through the date of such consolidation, merger or sale
        and
        accruing thereafter). The above provisions shall apply regardless of whether
        or
        not there would have been a sufficient number of shares of Common Stock
        authorized and available for issuance upon conversion of the shares of Series
        B
        Preferred Stock outstanding as of the date of such transaction, and shall
        similarly apply to successive reclassifications, consolidations, mergers,
        sales,
        transfers or share exchanges. 

       

      (c)  Distributions.
        If, at
        any time after the Closing Date, the Corporation shall declare or make any
        distribution of its assets (or rights to acquire its assets) to holders of
        Common Stock as a partial liquidating dividend, by way of return of capital
        or
        otherwise (including any dividend or distribution to the Corporation’s
        stockholders in cash or shares (or rights to acquire shares) of capital stock
        of
        a subsidiary (i.e.,
        a
        spin-off)) (a “Distribution”),
        then
        the holders of Series B Preferred Stock shall be entitled, upon any conversion
        of shares of Series B Preferred Stock after the date of record for determining
        stockholders entitled to such Distribution (or if no such record is taken,
        the
        date on which such Distribution is declared or made), to receive the amount
        of
        such assets which would have been payable to the holder with respect to the
        shares of Common Stock issuable upon such conversion.

       

      (d)  Convertible
        Securities and Purchase Rights.
        If, at
        any time after the Closing Date, the Corporation issues any securities or
        other
        instruments which are convertible into or exercisable or exchangeable for
        Common
        Stock (“Convertible
        Securities”)
        or
        options, warrants or other rights to purchase or subscribe for Common Stock
        or
        Convertible Securities (“Purchase
        Rights”)
        pro
        rata to
        the
        record holders of the Common Stock, whether or not such Convertible Securities
        or Purchase Rights are immediately convertible, exercisable or exchangeable,
        then the holders of Series B Preferred Stock shall be entitled, upon any
        conversion of shares of Series B Preferred Stock after the date of record
        for
        determining stockholders entitled to receive such Convertible Securities
        or
        Purchase Rights (or if no such record is taken, the date on which such
        Convertible Securities or Purchase Rights are issued), to receive the aggregate
        number of Convertible Securities or Purchase Rights which such holder would
        have
        received with respect to the shares of Common Stock issuable upon such
        conversion. If the right to exercise or convert any such Convertible Securities
        or Purchase Rights would expire in accordance with their terms prior to the
        conversion of the Series B Preferred Stock, then the terms of such Convertible
        Securities or Purchase Rights shall provide that such exercise or convertibility
        right shall remain in effect until thirty (30) days after the date the holder
        of
        Series B Preferred Stock receives such Convertible Securities or Purchase
        Rights
        pursuant to the conversion hereof.

       

      
        
           

        

        
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          EXHIBIT
            C

          STOCK
            PURCHASE AND LOAN OPTION
            AGREEMENT

        

      

       

      (e)  Dilutive
        Issuances.

       

      (i)  Adjustment
        Upon Dilutive Issuance.
        If, at
        any time after the Closing Date, the Corporation issues or sells, or in
        accordance with subparagraph (ii) of this Section
        3I(e)
        is
        deemed to have issued or sold, any shares of Common Stock for no consideration
        or for a consideration per share less than the Conversion Price on the date
        of
        issuance or sale (or deemed issuance or sale) (a “Dilutive
        Issuance”),
        then
        effective immediately upon the Dilutive Issuance, the Conversion Price shall
        be
        adjusted so as to equal an amount determined by multiplying such Conversion
        Price by the following fraction:

       

      N0
        +
        N1

      
        
          

        

      

      N0
        +
        N2

       

      where:

       

      N0
        = the
        number of shares of Common Stock outstanding immediately prior to the issuance,
        sale or deemed issuance or sale of such additional shares of Common Stock
        in
        such Dilutive Issuance (without taking into account any shares of Common
        Stock
        issuable upon conversion, exchange or exercise of any Convertible Securities
        or
        Purchase Rights, including the Series B Preferred Stock and
        Warrants);

       

      N1
        = the
        number of shares of Common Stock which the aggregate consideration, if any,
        received or receivable by the Corporation for the total number of such
        additional shares of Common Stock so issued, sold or deemed issued or sold
        in
        such Dilutive Issuance (which, in the case of a deemed issuance or sale,
        shall
        be calculated in accordance with subparagraph (ii) below) would purchase
        at the
        Conversion Price in effect immediately prior to such Dilutive Issuance;
        and

       

      N2
        = the
        number of such additional shares of Common Stock so issued, sold or deemed
        issued or sold in such Dilutive Issuance.

       

      Notwithstanding
        the foregoing, no adjustment shall be made pursuant to this Section
        3I(e)
        if such
        adjustment would result in an increase in the Conversion Price.

       

      (ii)  Effect
        on Conversion Price of Certain Events.
        For
        purposes of determining the adjusted Conversion Price under subparagraph
        (i) of
        this Section
        (e)
        the
        following will be applicable:

       

      (1)  Issuance
        of Purchase Rights.
        If the
        Corporation issues or sells any Purchase Rights, whether or not immediately
        exercisable, and the price per share for which Common Stock is issuable upon
        the
        exercise of such Purchase Rights (and the price of any conversion of Convertible
        Securities, if applicable) is less than the Conversion Price in effect on
        the
        date of issuance or sale of such Purchase Rights, then the maximum total
        number
        of shares of Common Stock issuable upon the exercise of all such Purchase
        Rights
        (assuming full conversion, exercise or exchange of Convertible Securities,
        if
        applicable) shall, as of the date

       

      
        
           

        

        
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        STOCK
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      of
        the
        issuance or sale of such Purchase Rights, be deemed to be outstanding and
        to
        have been issued and sold by the Corporation for such price per share. For
        purposes of the preceding sentence, the “price per share for which Common Stock
        is issuable upon the exercise of such Purchase Rights” shall be determined by
        dividing (A) the total amount, if any, received or receivable by the Corporation
        as consideration for the issuance or sale of all such Purchase Rights, plus
        the
        minimum aggregate amount of additional consideration, if any, payable to
        the
        Corporation upon the exercise of all such Purchase Rights, plus,
        in the
        case of Convertible Securities issuable upon the exercise of such Purchase
        Rights, the minimum aggregate amount of additional consideration payable
        upon
        the conversion, exercise or exchange thereof (determined in accordance with
        the
        calculation method set forth in subparagraph (ii)(b) of this Section
        3I(e))
        at the
        time such Convertible Securities first become convertible, exercisable or
        exchangeable, by (B) the maximum total number of shares of Common Stock issuable
        upon the exercise of all such Purchase Rights (assuming full conversion,
        exercise or exchange of Convertible Securities, if applicable). No further
        adjustment to the Conversion Price shall be made upon the actual issuance
        of
        such Common Stock upon the exercise of such Purchase Rights or upon the
        conversion, exercise or exchange of Convertible Securities issuable upon
        exercise of such Purchase Rights. 

       

      (2)  Issuance
        of Convertible Securities.
        If the
        Corporation issues or sells any Convertible Securities, whether or not
        immediately convertible, exercisable or exchangeable, and the price per share
        for which Common Stock is issuable upon such conversion, exercise or exchange
        is
        less than the Conversion Price in effect on the date of issuance or sale
        of such
        Convertible Securities, then the maximum total number of shares of Common
        Stock
        issuable upon the conversion, exercise or exchange of all such Convertible
        Securities shall, as of the date of the issuance or sale of such Convertible
        Securities, be deemed to be outstanding and to have been issued and sold
        by the
        Corporation for such price per share. If the Convertible Securities so issued
        or
        sold do not have a fluctuating conversion or exercise price or exchange ratio,
        then for the purposes of the preceding sentence, the “price per share for which
        Common Stock is issuable upon such conversion, exercise or exchange” shall be
        determined by dividing (A) the total amount, if any, received or receivable
        by
        the Corporation as consideration for the issuance or sale of all such
        Convertible Securities, plus the minimum aggregate amount of additional
        consideration, if any, payable to the Corporation upon the conversion, exercise
        or exchange thereof (determined in accordance with the calculation method
        set
        forth in this subparagraph (ii)(b) of this Section
        3I(e))
        at the
        time such Convertible Securities first become convertible, exercisable or
        exchangeable, by (B) the maximum total number of shares of Common Stock issuable
        upon the exercise, conversion or exchange of all such Convertible Securities.
        If
        the Convertible Securities so issued or sold have a fluctuating conversion
        or
        exercise price or exchange ratio (a “Variable
        Rate Convertible Security”),
        then
        for purposes of the next preceding sentence, the “price per share for which
        Common Stock is issuable upon such conversion, exercise or exchange” shall be
        deemed to be the lowest price per share which would be applicable (assuming
        all
        holding period and other conditions to any discounts contained in such Variable
        Rate Convertible Security have been satisfied) if the conversion price of
        such
        Variable Rate Convertible Security on the date of issuance or sale thereof
        were
        seventy-five percent (75%) of the actual conversion price on such date (the
        “Assumed
        Variable Market Price”),
        and,
        further, if the conversion price of such Variable Rate Convertible Security
        at
        any time or times thereafter is less than or equal to the Assumed Variable
        Market Price last used for making any adjustment under this Section
        3I(e)
        with
        respect to any Variable Rate Convertible Security, the Conversion Price in
        effect at such time shall be readjusted to equal the Conversion Price which
        would have resulted if the Assumed Variable Market Price at the time of issuance
        of the Variable Rate Convertible Security had been seventy-five percent (75%)
        of
        the actual conversion price of such Variable Rate Convertible Security existing
        at the time of the adjustment required by this sentence. No further adjustment
        to the Conversion Price shall be made upon the actual issuance of such Common
        Stock upon conversion, exercise or exchange of such Convertible
        Securities.

       

      
        
           

        

        
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        EXHIBIT
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        STOCK
          PURCHASE AND LOAN OPTION
          AGREEMENT

      

       

      (3)  Change
        in Option Price or Conversion Rate.
        If
        there is a change at any time in (A) the amount of additional consideration
        payable to the Corporation upon the exercise of any Purchase Rights; (B)
        the
        amount of additional consideration, if any, payable to the Corporation upon
        the
        conversion, exercise or exchange of any Convertible Securities; or (C) the
        rate
        at which any Convertible Securities are convertible into or exercisable or
        exchangeable for Common Stock (in each such case, other than under or by
        reason
        of provisions designed to protect against dilution), the Conversion Price
        in
        effect at the time of such change shall be readjusted to the Conversion Price
        which would have been in effect at such time had such Purchase Rights or
        Convertible Securities still outstanding provided for such changed additional
        consideration or changed conversion, exercise or exchange rate, as the case
        may
        be, at the time initially issued or sold.

       

      (4)  Calculation
        of Consideration Received.
        If any
        Common Stock, Purchase Rights or Convertible Securities are issued or sold
        for
        cash, the consideration received therefor will be the amount received by
        the
        Corporation therefor, after deduction of all underwriting discounts or
        allowances in connection with such issuance, grant or sale. In case any Common
        Stock, Purchase Rights or Convertible Securities are issued or sold for a
        consideration part or all of which shall be other than cash, including in
        the
        case of a strategic or similar arrangement in which the other entity will
        provide services to the Corporation, purchase services from the Corporation
        or
        otherwise provide intangible consideration to the Corporation, the amount
        of the
        consideration other than cash received by the Corporation (including the
        net
        present value of the consideration expected by the Corporation for the provided
        or purchased services) shall be the fair market value of such consideration,
        except where such consideration consists of securities, in which case the
        amount
        of consideration received by the Corporation will be the Closing Sales Price
        thereof as of the date of receipt. In case any Common Stock, Purchase Rights
        or
        Convertible Securities are issued in connection with any merger or consolidation
        in which the Corporation is the surviving corporation, the amount of
        consideration therefor will be deemed to be the fair market value of such
        portion of the net assets and business of the non-surviving corporation as
        is
        attributable to such Common Stock, Purchase Rights or Convertible Securities,
        as
        the case may be. Notwithstanding anything else herein to the contrary, if
        Common
        Stock, Purchase Rights or Convertible Securities are issued or sold in
        conjunction with each other as part of a single transaction or in a series
        of
        related transactions, any holder of Series B Preferred Stock may elect to
        determine the amount of consideration deemed to be received by the Corporation
        therefor by deducting the fair value of any type of securities (the
“Disregarded
        Securities”)
        issued
        or sold in such transaction or series of transactions. If the holder makes
        an
        election pursuant to the immediately preceding sentence, no adjustment to
        the
        Conversion Price shall be made pursuant to this Section
        3I(e)
        for the
        issuance of the Disregarded Securities or upon any conversion, exercise or
        exchange thereof. For example, if the Corporation were to issue convertible
        notes having a face value of $1,000,000 and warrants to purchase shares of
        Common Stock at an exercise price equal to the market price of the Common
        Stock
        on the date of issuance of such warrants in exchange for $1,000,000 of
        consideration, the fair value of the warrants would be subtracted from the
        $1,000,000 of consideration received by the Corporation for the purposes
        of
        determining whether the shares of Common Stock issuable upon conversion of
        the
        convertible notes shall be deemed to be issued at a price per share below
        the
        Conversion Price then in effect and, if so, for purposes of determining any
        adjustment to the Conversion Price hereunder as a result of the issuance
        of the
        convertible notes. The Corporation shall calculate, using standard commercial
        valuation methods appropriate for valuing such assets, the fair market value
        of
        any consideration other than cash or securities; provided,
        however,
        that if
        the holders of the Series B Preferred Stock do not agree to such fair market
        value calculation within three business days after receipt thereof from the
        Corporation, then such fair market value shall be determined in good faith
        by an
        investment banker or other appropriate expert of national reputation selected
        by
        the holders of the Series B Preferred Stock and reasonably acceptable to
        the
        Corporation, with the costs of such appraisal to be borne by the
        Corporation.

       

      
        
           

        

        
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        EXHIBIT
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        STOCK
          PURCHASE AND LOAN OPTION AGREEMENT

         

      

      (5)  Issuances
        Pursuant to Existing Securities.
        If the
        Corporation issues (or becomes obligated to issue) shares of Common Stock
        pursuant to any antidilution or similar adjustments (other than as a result
        of
        stock splits, stock dividends and the like) contained in any Convertible
        Securities or Purchase Rights outstanding as of the date hereof but not included
        in the Disclosure Schedule to the Securities Purchase Agreement, then all
        shares
        of Common Stock so issued shall be deemed to have been issued for no
        consideration. If the Corporation issues (or becomes obligated to issue)
        shares
        of Common Stock pursuant to any antidilution or similar adjustments contained
        in
        any Convertible Securities or Purchase Rights included in the Disclosure
        Schedule to the Securities Purchase Agreement as a result of the issuance
        of the
        Notes, Series B Preferred Stock or Warrants and the number of shares that
        the
        Corporation issues (or is obligated to issue) as a result of such initial
        issuance exceeds the amount specified in the Disclosure Schedule to the
        Securities Purchase Agreement, such excess shares shall be deemed to have
        been
        issued for no consideration.

       

      (f)  Exceptions
        to Adjustment of Conversion Price.
        Notwithstanding the foregoing, no adjustment to the Conversion Price shall
        be
        made upon the issuance of any Excluded Securities.

       

      (g)  Other
        Action Affecting Conversion Price.
        If, at
        any time after the Closing Date, the Corporation takes any action affecting
        the
        Common Stock that would be covered by Section
        3I(a)
        through
        (e), but for the manner in which such action is taken or structured, which
        would
        in any way diminish the value of the Series B Preferred Stock, then the
        Conversion Price shall be adjusted in such manner as the Board of Directors
        shall in good faith determine to be equitable under the
        circumstances.

       

      (h)  Notice
        of Adjustments.
        Upon
        the occurrence of each adjustment or readjustment of the Conversion Price
        pursuant to this Section
        3I
        amounting to a more than one percent (1%) change in such Conversion Price,
        or
        any change in the number or type of stock, securities and/or other property
        issuable upon conversion of the Series B Preferred Stock, the Corporation,
        at
        its expense, shall promptly compute such adjustment or readjustment or change
        and prepare and furnish to each holder of Series B Preferred Stock a certificate
        setting forth such adjustment or readjustment or change and showing in detail
        the facts upon which such adjustment or readjustment or change is based.
        The
        Corporation shall, upon the written request at any time of any holder of
        Series
        B Preferred Stock, furnish to such holder a like certificate setting forth
        (i)
        such adjustment or readjustment or change, (ii) the Conversion Price at the
        time
        in effect and (iii) the number of shares of Common Stock and the amount,
        if any,
        of other securities or property which at the time would be received upon
        conversion of a share of Series B Preferred Stock.

       

      J.  VOTING
        RIGHTS.

       

      (a)  Number
        and Voting with other Stockholders.
        The
        holders of shares of Series B Preferred Stock shall be entitled to vote upon
        all
        matters upon which holders of the Common Stock have the right to vote, and
        shall
        be entitled to the number of votes equal to the largest number of full shares
        of
        Common Stock into which such shares of Preferred Stock could be converted
        pursuant to the provisions of Sections
        3E and 3I
        hereof
        at the record date for the determination of the stockholders entitled to
        vote on
        such matters, or, if no such record date is established, at the date such
        vote
        is taken or any written consent of stockholders is solicited, such votes
        to be
        counted together with all other shares of capital stock having general voting
        powers and not separately as a class. In all cases where the holders of shares
        of Series B Preferred Stock have the right to vote separately as a class,
        such
        holders shall be entitled to one vote for each such share held by them
        respectively.

       

      (b)  Notices.
        The
        Corporation shall provide each holder of Series B Preferred Stock with prior
        notification of any meeting of the stockholders (and copies of proxy materials
        and other information sent to stockholders). If the Corporation takes a record
        of its stockholders for the purpose of determining stockholders entitled
        to (i)
        receive payment of any dividend or other distribution, any right to subscribe
        for, purchase or otherwise acquire (including by way of merger, consolidation
        or
        recapitalization) any share of any class or any other securities or property,
        or
        to receive any other right, or (ii) to vote in connection with any proposed
        sale, lease or conveyance of all or substantially all of the assets of the
        Corporation, or any proposed merger, consolidation, liquidation, dissolution
        or
        winding up of the Corporation, the Corporation shall mail a notice to each
        holder of Series B Preferred Stock, at least fifteen (15) days prior to the
        record date specified therein (or forty-five (45) days prior to the consummation
        of the transaction or event, whichever is earlier, but in no event earlier
        than
        public announcement of such proposed transaction), of the date on which any
        such
        record is to be taken for the purpose of such vote, dividend, distribution,
        right or other event, and a brief statement regarding the amount and character
        of such vote, dividend, distribution, right or other event to the extent
        known
        at such time.

       

      
        
           

        

        
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        EXHIBIT
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          PURCHASE AND LOAN OPTION AGREEMENT

         

      

      (c)  Stockholder
        Action.
        Subject
        to Section
        3K,
        to the
        extent that under the DGCL the vote of the holders of the Series B Preferred
        Stock, voting separately as a class or series, as applicable, is required
        to
        authorize a given action of the Corporation, the affirmative vote or consent
        of
        the holders of at least a majority of the then outstanding shares of the
        Series
        B Preferred Stock (“Majority
        Holder”)
        represented at a duly held meeting at which a quorum is present or by written
        consent of the Majority Holders (except as otherwise may be required under
        the
        DGCL) shall constitute the approval of such action by the class. To the extent
        that under the DGCL the vote of the holders of the Series B Preferred Stock,
        voting together with the holders of Common Stock, is required to authorize
        a
        given action of the Corporation, each share of Series B Preferred Stock shall
        be
        entitled to a number of votes equal to the number of shares of Common Stock
        into
        which it is then convertible, using the record date for the taking of such
        vote
        of stockholders as the date as of which the Conversion Price is
        calculated.

       

      (d)  Number
        and Election of Directors.
        The
        number of directors of the Company and the number of the Company’s directors to
        be elected by the holders of the Series B Preferred voting as a class shall
        be
        determined in accordance with the provisions of the Stock Purchase and Loan
        Option Agreement between the Company and the initial holders of the Series
        B
        Preferred Stock. So long as any shares of Series B Preferred Stock are
        outstanding, the holders of Series B Preferred Stock, voting as a separate
        class, shall be entitled, to elect one member of the Board of Directors (the
        “Series
        B Directors”)
        One
        Series B Director shall be a member of all committees of the Board of Directors.
        Any vacancy of a director’s seat filled by a Series B Director shall be filled
        by a vote of a majority of the shares of Series B Preferred Stock then
        outstanding at a meeting or by written consent. The holders of Series B
        Preferred Stock shall be entitled to exercise this right as to the election
        of a
        member of the particular class of directors at each stockholders’ meeting or
        pursuant to each consent of the Corporation’s stockholders for the election of
        members of that particular class of directors.

       

      K.  PROTECTIVE
        PROVISIONS

       

      (a)  Certain
        Actions.
        

       

      (i)  So
        long
        as any shares of Series B Preferred Stock are outstanding, the Corporation
        shall
        not take any of the following corporate actions (whether by merger,
        consolidation or otherwise) without first obtaining the approval (by vote
        or
        written consent, as provided by the DGCL) of the holders of seventy-five
        percent
        (75%) of the then-outstanding shares of the Series B Preferred
        Stock:

       

      (1)  alter
        or
        change the rights, preferences or privileges of the Series B Preferred Stock,
        or
        increase the authorized number of shares of Series B Preferred
        Stock;

       

      (2)  alter
        or
        change the rights, preferences or privileges of any capital stock of the
        Corporation so as to affect adversely the Series B Preferred Stock;

       

      
        
           

        

        
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        EXHIBIT
          C

        STOCK
          PURCHASE AND LOAN OPTION AGREEMENT

         

      

      (3)  alter
        or
        change the rights, preferences or privileges of the Series A Preferred Stock,
        or
        increase the authorized number of shares of Series A Preferred
        Stock;

       

      (4)  create
        or
        issue any Senior Securities;

       

      (5)  issue
        any
        shares of Series B Preferred Stock other than pursuant to the Securities
        Purchase Agreement or as payment of dividend on outstanding shares of Series
        B
        Preferred Stock; or

       

      (6)  sell,
        convey, or otherwise dispose of all or substantially all of the Corporation’s
        property or business or merge into or effect a reorganization with any other
        corporation in which stockholders of this Corporation immediately prior to
        such
        transaction possess less than 50% of the voting power of the surviving entity
        (or its parent) immediately after the transaction;

       

      (7)  voluntarily
        commence a liquidation, dissolution or winding up of the Corporation;
        or

       

      (8)  enter
        into any agreement, commitment, understanding or other arrangement to take
        any
        of the foregoing actions.

       

      (ii)  So
        long
        as any shares of Series B Preferred Stock are outstanding, the Corporation
        shall
        not take any of the following corporate actions (whether by merger,
        consolidation or otherwise) without first obtaining the approval (by vote
        or
        written consent, as provided by the DGCL) of the Majority Holders:

       

      (1)  redeem,
        repurchase or otherwise acquire, or declare or pay any cash dividend or
        distribution on, any Junior Securities, except pursuant to any equity
        compensation plan approved by the Corporation’s Board of Directors;

       

      (2)  create
        or
        allow to exist any lien or security interest on any of the Corporation’s assets
        other than (A) a security interest in favor of High
        Stakes Capital, (B) “precautionary” security interests taken by equipment
        lessors with respect to the equipment leased, (C) any interest of the government
        or of a government prime contractor in any of the Corporation’s intellectual
        property that was created in connection with a project under a government
        contract, and (D) any lien or security interest created by operation of law;
        or

       

      (3)  enter
        into any agreement, commitment, understanding or other arrangement to take
        any
        of the foregoing actions.

       

      (b)  Exchange
        Right.
        The
        Corporation hereby grants to the holders of Series B Preferred Stock a right
        to
        exchange (the “Exchange
        Right”)
        with
        respect to New Securities (as defined below) which the Corporation may, from
        time to time, propose to sell and issue. The Exchange Right shall be subject
        to
        the following provisions:

       

      
        
           

        

        
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        EXHIBIT
          C

        STOCK
          PURCHASE AND LOAN OPTION AGREEMENT

         

      

      (i)  “New
        Securities”
        shall
        mean any capital stock (including Common Stock and/or Preferred Stock) of
        the
        Corporation whether now authorized or not, and rights, options or warrants
        to
        purchase such capital stock, and securities of any type whatsoever that are,
        or
        may become, convertible into capital stock; provided that the term “New
        Securities” does not include (a) securities purchased under the Securities
        Purchase Agreement; (b) securities issued upon conversion or exercise of
        (I) the
        Series B Preferred Stock, (II) any Convertible Securities or Purchase Rights
        outstanding on the Closing Date and disclosed in the Disclosure Schedules
        to the
        Securities Purchase Agreement, and (III) the Warrants; (c) shares of Common
        Stock issuable or issued to (I) employees, consultants or directors from
        time to
        time upon the exercise of options, in such case granted or to be granted
        in the
        discretion of the Board of Directors pursuant to one or more stock option
        plans
        or restricted stock plans disclosed in the Disclosure Schedules to the
        Securities Purchase Agreement or approved by the holders of Series B Preferred
        Stock as compensation for services rendered to the Corporation, and (II)
        vendors
        or lessors, pursuant to warrants to purchase Common Stock that are outstanding
        on the date hereof or issued hereafter, provided such issuances are approved
        by
        the Board of Directors; (d) any borrowings, direct or indirect, from financial
        institutions by the Corporation, which are approved by the Board of Directors,
        including any type of loan or payment evidenced by any type of debt instrument,
        provided the equity portion of any such borrowings, including warrants, options
        or other rights to purchase capital stock and other interests convertible
        into
        capital stock of the Corporation, does not exceed ten percent (10%) of such
        borrowing; (e) securities issued in a bona fide public offering; (f)
        shares
        of Common Stock issued in connection with any stock split, stock dividend
        or
        recapitalization of the Corporation; and (g) shares of Common Stock issued
        in
        connection with the acquisition by the Company of any corporation or other
        entity (the securities described in clauses (a) though (g) are referred to
        as
“Excluded
        Securities”).

       

      (ii)  If
        the
        Corporation proposes to undertake an issuance of New Securities, it shall
        give
        the holders of Series B Preferred Stock written notice of its intention,
        describing the type of New Securities, their price and the material terms
        upon
        which the Corporation proposes to issue the same, and the definitive
        documentation to be entered into in connection therewith. Each holder shall
        have
        five (5) Trading Days after any such notice is delivered to agree to purchase
        such New Securities for the price and upon the terms specified in the notice
        by
        giving written notice to the Corporation of its intention to exercise its
        Exchange Right and stating therein the quantity of New Securities to be
        purchased. Each exercising holder shall thereupon be entitled to purchase
        New
        Securities at the price specified in the Corporation’s notice by tendering to
        the Corporation certificate(s) representing shares of Series B Preferred
        Stock.
        Such tendered shares shall, for this purpose, be valued at one hundred percent
        (100%) of Face Value. If the terms and conditions of an issuance of New
        Securities are amended in any material respect after delivery of written
        notice
        to the holders of Series B Preferred Stock, the Corporation shall deliver
        a new
        notice to each such holder describing the amended terms and conditions of
        such
        issuance of New Securities and granting such holders a new five (5) Trading
        Day
        period in which to exercise their Exchange Right. The foregoing sentence
        shall
        apply to successive amendments to the terms and conditions of any issuance
        of
        New Securities.

       

      (iii)  The
        Exchange Right shall not be exercisable as to any particular offering of
        New
        Securities with a per share offering price equal to or greater than the
        Conversion Price (subject to adjustment as provided in this Certificate of
        Designation) after the Corporation has accepted binding subscriptions of
        $1,000,000 or more with respect thereto.

       

      
        
           

        

        
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        EXHIBIT
          C

        STOCK
          PURCHASE AND LOAN OPTION AGREEMENT

         

      

      (c)  Right
        of First Offer.
        The
        Corporation hereby grants to the holders of Series B Preferred Stock a right
        of
        first offer (the “Right
        of First Offer”)
        with
        respect to New Securities which the Corporation may, from time to time, propose
        to sell and issue. The Right of First Offer shall be subject to the following
        provisions:

       

      (i)  If
        the
        Corporation proposes to undertake an issuance of New Securities, it shall
        give
        the holders of Series B Preferred Stock written notice of its intention,
        describing the type of New Securities, and their price and the general terms
        upon which the Corporation proposes to issue the same. Each holder shall
        have
        five (5) trading days after any such notice is delivered to agree to purchase
        an
        amount of such New Securities for the price and upon the terms specified
        in the
        notice by giving written notice to the Corporation and stating therein the
        quantity of New Securities to be purchased.
        If the
        terms and conditions of an issuance of New Securities are amended in any
        material respect after delivery of written notice to the holders of Series
        B
        Preferred Stock, the Corporation shall deliver a new notice to each such
        holder
        describing the amended terms and conditions of such issuance of New Securities
        and granting such holders a new five (5) Trading Day period in which to exercise
        their Right of First Offer. The foregoing sentence shall apply to successive
        amendments to the terms and conditions of any issuance of New
        Securities.

       

      (ii)  If
        the
        holders of Series B Preferred Stock fail to exercise fully the Right of First
        Offer within such five (5) trading day period, the Corporation shall have
        sixty
        (60) days thereafter to sell or enter into an agreement (pursuant to which
        the
        sale of New Securities covered thereby shall be closed, if at all, within
        ninety
        (90) days from the date of said agreement) to sell the New Securities respecting
        which the Right of First Offer was not exercised, at a price and upon terms
        no
        more favorable to the purchasers thereof than specified in the Corporation’s
        notice to the holders of Series B Preferred Stock. If the Corporation has
        not
        sold, or entered into an agreement to sell, the New Securities within such
        sixty
        (60) day period or closed the sale of New Securities pursuant to such agreement
        to sell within such ninety (90) day period, the Corporation shall not thereafter
        issue or sell any New Securities, without first again offering such securities
        to the holders of Series B Preferred Stock in the manner provided by
Section
        3K(c)(i).

       

      (iii)  The
        Right
        of First Offer shall expire upon the date that is nine (9) months after the
        Initial Closing Date.

       

      L.  MISCELLANEOUS

       

      (a)  Cancellation
        of Series B Preferred Stock.
        If any
        shares of Series B Preferred Stock are converted pursuant to Section
        3E
        or
        redeemed or repurchased by the Corporation, the shares so converted or redeemed
        shall be canceled, shall return to the status of authorized, but unissued
        Preferred Stock of no designated series, and shall not be issuable by the
        Corporation as Series B Preferred Stock.

       

      (b)  Lost
        or Stolen Certificates.
        Upon
        receipt by the Corporation of (i) evidence of the loss, theft, destruction
        or
        mutilation of any Preferred Stock Certificate(s) and (ii) (y) in the case
        of
        loss, theft or destruction, indemnity (without any bond or other security)
        reasonably satisfactory to the Corporation, or (z) in the case of mutilation,
        the Preferred Stock Certificate(s) (surrendered for cancellation), the
        Corporation shall execute and deliver new Preferred Stock Certificate(s)
        of like
        tenor and date. However, the Corporation shall not be obligated to reissue
        such
        lost, stolen, destroyed or mutilated Preferred Stock Certificate(s) if the
        holder contemporaneously requests the Corporation to convert such Series
        B
        Preferred Stock.

       

      
        
           

        

        
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        EXHIBIT
          C

        STOCK
          PURCHASE AND LOAN OPTION AGREEMENT

         

      

      (c)  Allocation
        of Reserved Amount.
        The
        initial Reserved Amount shall be allocated pro
        rata among
        the
        holders of Series B Preferred Stock based on the number of shares of Series
        B
        Preferred Stock issued to each such holder. Each increase to the Reserved
        Amount
        shall be allocated pro
        rata among
        the
        holders of Series B Preferred Stock based on the number of shares of Series
        B
        Preferred Stock held by each holder at the time of the increase in the Reserved
        Amount. In the event a holder shall sell or otherwise transfer any of such
        holder’s shares of Series B Preferred Stock, each transferee shall be allocated
        a pro
        rata portion
        of such transferor’s Reserved Amount. Any portion of the Reserved Amount which
        remains allocated to any person or entity which does not hold any Series
        B
        Preferred Stock shall be allocated to the remaining holders of shares of
        Series
        B Preferred Stock, pro
        rata based
        on
        the number of shares of Series B Preferred Stock then held by such
        holders.

       

      (d)  Quarterly
        Statements of Available Shares.
        For
        each calendar quarter beginning in the quarter in which the Registration
        Statement is declared effective and thereafter for so long as any shares
        of
        Series B Preferred Stock are outstanding, the Corporation shall deliver (or
        cause its transfer agent to deliver) to the holders of Series B Preferred
        Stock
        a written report notifying the holders of Series B Preferred Stock of any
        occurrence that prohibits the Corporation from issuing Common Stock upon
        any
        conversion. The report shall also specify (i) the total number of
        shares of
        Series B Preferred Stock outstanding as of the end of such quarter,
        (ii) the total number of shares of Common Stock issued upon all conversions
        of Series B Preferred Stock prior to the end of such quarter, (iii) the
        total number of shares of Common Stock which are reserved for issuance upon
        conversion of the Series B Preferred Stock as of the end of such quarter
        and
        (iv) the total number of shares of Common Stock which may thereafter
        be
        issued by the Corporation upon conversion of the Series B Preferred Stock
        before
        the Corporation would exceed the Cap Amount and the Reserved Amount. The
        Corporation shall use its best efforts to deliver (or shall cause its transfer
        agent to deliver) the report for each quarter to the Series B Investors prior
        to
        the tenth (10th)
        day of
        the calendar month following the quarter to which such report relates. In
        addition, the Corporation shall provide, or shall cause its transfer agent
        to
        provide, as promptly as practicable following delivery to the Corporation
        of a
        written request by any holder of Series B Preferred Stock, any of the
        information enumerated in clauses (i) - (iv) of this Section
        3L(d)
        as of
        the date of such request.

       

      (e)  Payment
        of Cash; Defaults.
        Whenever the Corporation is required to make any cash payment to a holder
        under
        this Certificate of Designation (as payment of any dividend, upon redemption
        or
        otherwise), such cash payment shall be made to the holder within five (5)
        business days after delivery by such holder of a notice specifying that the
        holder elects to receive such payment in cash and the method (e.g.,
        by
        check, wire transfer) in which such payment should be made and any supporting
        documentation reasonably requested by the Corporation to substantiate the
        holder’s claim to such cash payment or the amount thereof. If such payment is
        not delivered within such five (5) business day period, such holder shall
        thereafter be entitled to interest on the unpaid amount at a per annum rate
        equal to the lower of eighteen percent (18%) and the highest interest rate
        permitted by applicable law until such amount is paid in full to the
        holder.

       

      
        
           

        

        
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        EXHIBIT
          C

        STOCK
          PURCHASE AND LOAN OPTION AGREEMENT

         

      

      (f)  Status
        as Stockholder.
        Upon
        submission of a Notice of Conversion by a holder of Series B Preferred Stock,
        (i) the shares covered thereby (other than the shares, if any, which cannot
        be
        issued because their issuance would exceed such holder’s allocated portion of
        the Reserved Amount shall be deemed converted into shares of Common Stock
        and
        (ii) the holder’s rights as a holder of such converted shares of Series B
        Preferred Stock shall cease and terminate, excepting only the right to receive
        certificates for such shares of Common Stock and to any remedies provided
        herein, under the Securities Purchase Agreement or otherwise available at
        law or
        in equity to such holder because of a failure by the Corporation to comply
        with
        the terms of this Certificate of Designation. Notwithstanding the foregoing,
        if
        a holder has not received certificates or if the appropriate DTC Transfer
        has
        not been effected for all shares of Common Stock prior to the sixth
        (6th)
        business day after the expiration of the Delivery Period with respect to
        a
        conversion of Series B Preferred Stock for any reason, then (unless the holder
        otherwise elects to retain its status as a holder of Common Stock by so
        notifying the Corporation within five (5) business days after the expiration
        of
        such six (6) business day period after expiration of the Delivery Period)
        the
        holder shall regain the rights of a holder of Series B Preferred Stock with
        respect to such unconverted shares of Series B Preferred Stock, and the
        Corporation shall, as soon as practicable, return such unconverted shares
        to the
        holder. In all cases, the holder shall retain all of its rights and remedies
        for
        the Corporation’s failure to convert Series B Preferred Stock.

       

      (g)  Remedies
        Cumulative.
        The
        remedies provided in this Certificate of Designation shall be cumulative
        and in
        addition to all other remedies available under this Certificate of Designation,
        under the Securities Purchase Agreement, at law or in equity (including a
        decree
        of specific performance and/or other injunctive relief), and nothing herein
        shall limit a holder’s right to pursue actual damages for any failure by the
        Corporation to comply with the terms of this Certificate of Designation.
        The
        Corporation acknowledges that a breach by it of its obligations hereunder
        will
        cause irreparable harm to the holders of Series B Preferred Stock and that
        the
        remedy at law for any such breach may be inadequate. The Corporation therefore
        agrees, in the event of any such breach or threatened breach, that the holders
        of Series B Preferred Stock shall be entitled, in addition to all other
        available remedies, to an injunction restraining any breach, without the
        necessity of showing economic loss and without the requirement to post any
        bond
        or other security.

       

      (h)  Waiver.
        Notwithstanding any provision in this Certificate of Designation to the
        contrary, any provision contained herein and any right of the holders of
        Series
        B Preferred Stock granted hereunder may be waived as to all shares of Series
        B
        Preferred Stock (and the holders thereof) upon the written consent of the
        Majority Holders, unless a higher percentage is required by this Certificate
        of
        Designation or applicable law, in which case the written consent of the holders
        of not less than such higher percentage of shares of Series B Preferred Stock
        shall be required.

       

      
        
           

        

        
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        EXHIBIT
          C

        STOCK
          PURCHASE AND LOAN OPTION AGREEMENT

         

      

      (i)  Notices.
        Any
        notices required or permitted to be given under the terms hereof shall be
        sent
        by certified or registered mail (return receipt requested) or delivered
        personally, by responsible overnight carrier or by confirmed facsimile, and
        shall be effective five (5) days after being placed in the mail, if mailed,
        or
        upon receipt or refusal of receipt, if delivered personally or by responsible
        overnight carrier or confirmed facsimile, in each case addressed to a party.
        The
        addresses for such communications are (i) if to the Corporation; to MR3 Systems,
        Inc., 435 Brannan Street, Suite 200, San Francisco, CA 94107, Telephone:
        (415)
        947-1090, Facsimile: (415) 947-1095, Attention: CEO, and (ii) if to any holder
        to the address set forth under such holder’s name on Exhibit A to the Securities
        Purchase Agreement, or such other address as may be designated in writing
        hereafter, in the same manner, by such person.

       

      FURTHER
        RESOLVED, that the statements contained in the foregoing resolutions creating
        and designating the said Series B issue of Preferred Stock and fixing the
        number, powers, preferences and relative, optional, participating, and other
        special rights and the qualifications, limitations, restrictions, and other
        distinguishing characteristics thereof shall, upon the effective date of
        said
        series, be deemed to be included in and be a part of the certificate of
        incorporation of the corporation pursuant to the provisions of Sections 104
        and
        151 of the General Corporation Law of the State of
        Delaware.

       

      

      Signed
        on
        May 30, 2005

       

      

       

      _____________________________________

      Randall
        S. Reis, Chairman 

       

       

      
        
           

        

          -22-

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