Exhibit 10.5
 
ESCROW AGREEMENT
 
This Agreement is dated as of the 12th day of September, 2007 Virtualscopics,
Inc., a Delaware corporation (the "Company"), the Buyers identified on Schedule
A hereto (each a “Buyer” and collectively “Buyers”), and the law firm of Woods
Oviatt Gilman LLP (the "Escrow Agent"):
 
WITNESSETH:
 
WHEREAS, the Company and Buyers have entered into a Securities Purchase
Agreement (the “Securities Purchase Agreement”) as of a date even herewith,
calling for the sale by the Company to the Buyer of Series B Preferred Stock
(“Preferred Stock”) and Warrants for a minimum aggregate purchase price of
$4,000,000 and a maximum of $6,000,000 in the amounts set forth on Schedule A
hereto; and
 
WHEREAS, the parties hereto require the Company to deliver the Preferred Stock
and Warrants against payment therefor, with such Preferred Stock, Warrants and
the Escrowed Funds to be delivered to the Escrow Agent to be held in escrow and
released by the Escrow Agent in accordance with the terms and conditions of this
Agreement; and
 
WHEREAS, the Escrow Agent is willing to serve as escrow agent pursuant to the
terms and conditions of this Agreement;
 
NOW THEREFORE, the parties agree as follows:
 
ARTICLE I
 
INTERPRETATION
 
1.1. Definitions. Capitalized terms used and not otherwise defined herein that
are defined in the Securities Purchase Agreement shall have the meanings given
to such terms in the Securities Purchase Agreement. Whenever used in this
Agreement, the following terms shall have the following respective meanings:
 
·  "Agreement" means this Agreement and all amendments made hereto and thereto
by written agreement between the parties;
 
·  “Buyer’s Pro Rata Portion,” as to each Buyer, the Purchase Price of the
Buyer’s Preferred Stock divided by the aggregate Purchase Price of all Preferred
Stock issued in the Offering.
 
·  “Closing Date” shall have the meaning set forth in Section 1(b)(iii) of the
Securities Purchase Agreement;
 
·  “Irrevocable Written Consents” shall have the meaning set forth in the
Securities Purchase Agreement.
 
1

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

 
·  “Lead Investor Fee” means the $35,000 fee to the Lead Investor described in
Section 4(q) of the Securities Purchase Agreement;
 
·  "Escrowed Payment" means an aggregate cash payment of up to $6,000,000 which
is the purchase price for the Preferred Stock and accompanying Warrants;
 
·  "Initial Conversion Price" shall have the meaning set forth in the
Certificate of Designation of Rights and Preferences of Series B Convertible
Preferred Stock.
 
·  "Initial Warrant Exercise Price" shall have the same meaning as in the
Securities Purchase Agreement.
 
·  “Lead Investor” shall mean BridgePointe Master Funds Ltd.
 
·  “Legal Opinion” means the original signed legal opinion referred to in
Section 6 of the Securities Purchase Agreement;
 
·  “Preferred Stock” shall have the meaning set forth in the Securities Purchase
Agreement;
 
·  “Purchase Price” shall mean the amount invested by each Buyer, which amount
is delivered against the purchase and delivery of a corresponding Stated Value
of Preferred Stock and accompanying Warrants;
 
"Securities Purchase Agreement" shall have the meaning set forth in the Recitals
to this Agreement;
 
·  “Shareholder Approval Holdback Amount” shall have the meaning set forth in
Section 1(b)(iii) of the Securities Purchase Agreement.

·  “Reduced Shareholder Approval Holdback Amount” shall have the meaning set
forth in Section 1(b)(iii) of the Securities Purchase Agreement.

·  “Related Preferred Stock and Warrants” shall have the meaning set forth in
Section 1(b)(iii) of the Securities Purchase Agreement.
 
·  “Warrants” shall have the meaning set forth in Section 3 of the Securities
Purchase Agreement;
 
1.2. Entire Agreement. This Agreement along with the Company Documents and the
Buyer Documents constitute the entire agreement between the parties hereto
pertaining to the Company Documents and Buyer Documents and supersedes all prior
agreements, understandings, negotiations and discussions, whether oral or
written, of the parties. There are no warranties, representations and other
agreements made by the parties in connection with the subject matter hereof
except as specifically set forth in this Agreement, the Company Documents and
the Buyer Documents.
 
1.3. Extended Meanings. In this Agreement words importing the singular number
include the plural and vice versa; words importing the masculine gender include
the feminine and neuter genders. The word "person" includes an individual, body
corporate, partnership, trustee or trust or unincorporated association,
executor, administrator or legal representative.
 
2

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

 
1.4. Waivers and Amendments. This Agreement may be amended, modified,
superseded, cancelled, renewed or extended, and the terms and conditions hereof
may be waived, only by a written instrument signed by all parties, or, in the
case of a waiver, by the party waiving compliance. Except as expressly stated
herein, no delay on the part of any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof, nor shall any waiver on
the part of any party of any right, power or privilege hereunder preclude any
other or future exercise of any other right, power or privilege hereunder.
 
1.5. Headings. The division of this Agreement into articles, sections,
subsections and paragraphs and the insertion of headings are for convenience of
reference only and shall not affect the construction or interpretation of this
Agreement.
 
1.6. Law Governing this Agreement. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without regard to
conflicts of laws principles that would result in the application of the
substantive laws of another jurisdiction. Any action brought by either party
against the other concerning the transactions contemplated by this Agreement
shall be brought only in the state courts of New York or in the federal courts
located in the state of New York. Both parties and the individuals executing
this Agreement and other agreements on behalf of the Company agree to submit to
the jurisdiction of such courts and waive trial by jury. The prevailing party
(which shall be the party which receives an award most closely resembling the
remedy or action sought) shall be entitled to recover from the other party its
reasonable attorney's fees and costs. In the event that any provision of this
Agreement or any other agreement delivered in connection herewith is invalid or
unenforceable under any applicable statute or rule of law, then such provision
shall be deemed inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or rule of law. Any such
provision which may prove invalid or unenforceable under any law shall not
affect the validity or enforceability of any other provision of any agreement.
 
1.7. Specific Enforcement, Consent to Jurisdiction. The Company and Buyer
acknowledge and agree that irreparable damage would occur in the event that any
of the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injuction or injunctions to prevent or cure
breaches of the provisions of this Agreement and to enforce specifically the
terms and provisions hereof or thereof, this being in addition to any other
remedy to which any of them may be entitled by law or equity. Subject to Section
1.6 hereof, each of the Company and Buyer hereby waives, and agrees not to
assert in any such suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of such court, that the suit, action or
proceeding is brought in an inconvenient forum or that the venue of the suit,
action or proceeding is improper. Nothing in this Section shall affect or limit
any right to serve process in any other manner permitted by law.
 
3

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

 
ARTICLE II
 
DELIVERIES TO THE ESCROW AGENT
 
2.1. Company Deliveries. On or before the Closing Date, the Company shall
deliver documents the Company is required to deliver at Closing pursuant to
Section 1(b)(v) of the Securities Purchase Agreement (the “Company Documents”)
to the Escrow Agent.
 
2.2. Buyer Deliveries. On or before the Closing Date, each Buyer shall deliver
to the Escrow Agent such Buyer’s Purchase Price and the executed Securities
Purchase Agreement and Registration Rights Agreement and Form W-9, as required
pursuant to Section 1(b)(v) of the Securities Purchase Agreement (“Buyer
Documents”). The Escrowed Payment will be delivered pursuant to the following
wire transfer instructions:
 
M&T Bank
 
One M&T Plaza
 
Buffalo, NY 14240
 
For Credit to: Woods Oviatt Gilman LLP (Trust Account)
 
Account Number: 7200016526
 
ABA Number: 022000046
 
2.3. Intention to Create Escrow Over Company Documents and Buyer Documents. The
Buyer and Company intend that the Company Documents and Buyer Documents shall be
held in escrow by the Escrow Agent pursuant to this Agreement for their benefit
as set forth herein.
 
2.4. Escrow Agent to Deliver Company Documents and Buyer Documents. The Escrow
Agent shall hold and release the Company Documents and Buyer Documents only in
accordance with the terms and conditions of this Agreement.
 
ARTICLE III
 
RELEASE OF COMPANY DOCUMENTS AND BUYER DOCUMENTS
 
3.1. Release of Escrow. Subject to the provisions of Section 4.2, the Escrow
Agent shall release the Company Documents and Buyer’s Purchase Price and Buyer
Documents following the Closing as follows:
 
(a) On the Closing Date, subject to the satisfaction or waiver of the terms and
conditions of this Agreement and the Securities Purchase Agreement, the Closing
with respect to all Buyers shall occur when Buyer funds representing the Minimum
Amount are transmitted by wire transfer of immediately available funds by all
Buyers to the Escrow Agent. The Escrow Agent will simultaneously release the
Company Documents to the Buyer and release the Buyer Documents and the Buyer’s
Purchase Price to the Company except that: (i) the Lead Investor Fee will be
released to the Lead Investor, and (ii) an amount of each Buyer’s Purchase Price
equal to the Buyer’s Pro Rata Portion of the Shareholder Approval Holdback
Amount (the “Withheld Cash”) and a number of shares of Preferred Stock having an
aggregate Stated Value equal to the Buyer’s Pro Rata Portion of the Shareholder
Approval Holdback Amount, along with a corresponding number of Warrants, subject
to Section 3.1(h) based upon the Warrant Amount corresponding to the withheld
shares of Preferred Stock, as described in the Securities Purchase Agreement
(the “Withheld Securities”), shall be held back by the Escrow Agent following
the Closing. If the Closing as to at least the Minimum Amount has not occurred
by September 13, 2007, then within three (3) Business Days thereafter, the
Escrow Agent shall return the Buyer’s Purchase Price and Buyer Documents to the
Buyer, and shall return the Company Documents to the Company.  
 
4

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

 
(b) If, anytime following the Closing and prior to the Shareholder Approval
Deadline, the Escrow Agent receives (and the Lead Investor confirms receipt of)
copies of Irrevocable Written Consents of stockholders of the Company
representing a majority of the Company’s outstanding voting shares as of the
Trading Day immediately preceding the Original Issue Date, then within three (3)
Business Days thereafter, the Escrow Agent shall (x) release to the Company the
balance of the Shareholder Approval Holdback Amount, except for the Reduced
Shareholder Approval Holdback Amount, which the Escrow Agent shall continue to
retain, and (y) subject to Section 3.1(h), release to the Buyer the Related
Preferred Stock Certificates and Warrants (a “First Partial Release”);
 
(c) If, anytime following the Closing and prior to the Shareholder Approval
Deadline, the Escrow Agent receives (and the Lead Investor confirms receipt of)
written notice from the Company that the shareholders of the Company
affirmatively approved of the Offering (“Shareholder Approval Notification”),
then within three (3) Business Days thereafter, the Escrow Agent shall deliver
all of the remaining Withheld Cash to the Company and all of the Withheld
Securities to the Buyer.
 
(d) If, as of the Shareholder Approval Deadline, the Escrow Agent has not
received Shareholder Approval Notification (notwithstanding whether or not the
Escrow Agent has received copies of the Irrevocable Written Consents referred to
above), then within five (5) Business Days thereafter, the Escrow Agent shall
deliver all of Buyer’s remaining Withheld Cash to the Buyer, toward the
redemption price for an Exchange Cap Redemption, and shall return the
corresponding Withheld Securities to the Company.  
 
(e) All funds to be delivered to the Company shall be delivered pursuant to the
wire instructions to be provided in writing by the Company to the Escrow Agent.
 
(f) Notwithstanding the above, upon receipt by the Escrow Agent of joint written
instructions ("Joint Instructions") signed by the Company and the Buyer, it
shall deliver the Company Documents and Buyer Documents in accordance with the
terms of the Joint Instructions.
 
(g) Notwithstanding the above, upon receipt by the Escrow Agent of a final and
non-appealable judgment, order, decree or award of a court of competent
jurisdiction (a "Court Order"), the Escrow Agent shall deliver the Company
Documents and Buyer Documents in accordance with the Court Order. Any Court
Order shall be accompanied by an opinion of counsel for the party presenting the
Court Order to the Escrow Agent (which opinion shall be satisfactory to the
Escrow Agent) to the effect that the court issuing the Court Order has competent
jurisdiction and that the Court Order is final and non-appealable. 
 
5

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

 
(h) Whenever the release of Warrants is to be made under this Agreement, if less
than all of Buyer's Warrants are to be released, half of the Warrants to be
released shall have an Initial Exercise Price of 100% of the Initial Conversion
Price, and the remaining half shall have an Initial Exercise Price of 115% of
the Initial Conversion Price.
 
3.2. Acknowledgement of Company and Buyer; Disputes. The Company and the Buyer
acknowledge that the only terms and conditions upon which the Company Documents
and Buyer Documents are to be released are set forth in Sections 3 and 4 of this
Agreement. The Company and the Buyer reaffirm their agreement to abide by the
terms and conditions of this Agreement with respect to the release of the
Company Documents and Buyer Documents. Any dispute with respect to the release
of the Company Documents and Buyer Documents shall be resolved pursuant to
Section 4.2 or by agreement between the Company and Buyer.
 
ARTICLE IV
 
CONCERNING THE ESCROW AGENT
 
4.1. Duties and Responsibilities of the Escrow Agent. The Escrow Agent's duties
and responsibilities shall be subject to the following terms and conditions:
 
(a) The Buyer and Company acknowledge and agree that the Escrow Agent (i) shall
not be responsible for or bound by, and shall not be required to inquire into
whether either the Buyer or Company is entitled to receipt of the Company
Documents and Buyer Documents pursuant to, any other agreement or otherwise;
(ii) shall be obligated only for the performance of such duties as are
specifically assumed by the Escrow Agent pursuant to this Agreement; (iii) may
rely on and shall be protected in acting or refraining from acting upon any
written notice, instruction, instrument, statement, request or document
furnished to it hereunder and believed by the Escrow Agent in good faith to be
genuine and to have been signed or presented by the proper person or party,
without being required to determine the authenticity or correctness of any fact
stated therein or the propriety or validity or the service thereof; (iv) may
assume that any person believed by the Escrow Agent in good faith to be
authorized to give notice or make any statement or execute any document in
connection with the provisions hereof is so authorized; (v) shall not be under
any duty to give the property held by Escrow Agent hereunder any greater degree
of care than Escrow Agent gives its own similar property; and (vi) may consult
counsel satisfactory to Escrow Agent, the opinion of such counsel to be full and
complete authorization and protection in respect of any action taken, suffered
or omitted by Escrow Agent hereunder in good faith and in accordance with the
opinion of such counsel.
 
(b) The Buyer and Company acknowledge that the Escrow Agent is acting solely as
a stakeholder at their request and that the Escrow Agent shall not be liable for
any action taken by Escrow Agent in good faith and reasonably believed by Escrow
Agent to be authorized or within the rights or powers conferred upon Escrow
Agent by this Agreement. The Buyer and Company, jointly and severally, agree to
indemnify and hold harmless the Escrow Agent and any of Escrow Agent's partners,
employees, agents and representatives for any action taken or omitted to be
taken by Escrow Agent or any of them hereunder, including the fees of outside
counsel and other costs and expenses of defending itself against any claim or
liability under this Agreement, except in the case of gross negligence or
willful misconduct on Escrow Agent's part committed in its capacity as Escrow
Agent under this Agreement. The Escrow Agent shall owe a duty only to the Buyer
and Company under this Agreement and to no other person.
 
6

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

 
(c) The Buyer and Company jointly and severally agree to reimburse the Escrow
Agent for outside counsel fees, to the extent authorized hereunder and incurred
in connection with the performance of its duties and responsibilities hereunder.
 
(d) The Escrow Agent may at any time resign as Escrow Agent hereunder by giving
five (5) days prior written notice of resignation to the Buyer and the Company.
Prior to the effective date of the resignation as specified in such notice, the
Buyer and Company will issue to the Escrow Agent a Joint Instruction authorizing
delivery of the Company Documents and Buyer Documents to a substitute Escrow
Agent selected by the Buyer and Company. If no successor Escrow Agent is named
by the Buyer and Company, the Escrow Agent may apply to a court of competent
jurisdiction in the State of New York for appointment of a successor Escrow
Agent, and to deposit the Company Documents and Buyer Documents with the clerk
of any such court.
 
(e) The Escrow Agent does not have and will not have any interest in the Company
Documents and Buyer Documents, but is serving only as escrow agent, having only
possession thereof. The Escrow Agent shall not be liable for any loss resulting
from the making or retention of any investment in accordance with this Escrow
Agreement.
 
(f) This Agreement sets forth exclusively the duties of the Escrow Agent with
respect to any and all matters pertinent thereto and no implied duties or
obligations shall be read into this Agreement.
 
(g) The Escrow Agent shall be permitted to act as counsel for the Company in any
dispute as to the disposition of the Company Documents and Buyer Documents, in
any other dispute between the Buyer and Company, whether or not the Escrow Agent
is then holding the Company Documents and Buyer Documents and continues to act
as the Escrow Agent hereunder.
 
(h) The provisions of this Section 4.1 shall survive the resignation of the
Escrow Agent or the termination of this Agreement.
 
4.2. Dispute Resolution: Judgments. Resolution of disputes arising under this
Agreement shall be subject to the following terms and conditions:
 
(a) If any dispute shall arise with respect to the delivery, ownership, right of
possession or disposition of the Company Documents and Buyer Documents, or if
the Escrow Agent shall in good faith be uncertain as to its duties or rights
hereunder, the Escrow Agent shall be authorized, without liability to anyone, to
(i) refrain from taking any action other than to continue to hold the Company
Documents and Buyer Documents pending receipt of a Joint Instruction from the
Buyer and Company, or (ii) deposit the Company Documents and Buyer Documents
with any court of competent jurisdiction in the State of New York, in which
event the Escrow Agent shall give written notice thereof to the Buyer and the
Company and shall thereupon be relieved and discharged from all further
obligations pursuant to this Agreement. The Escrow Agent may, but shall be under
no duty to, institute or defend any legal proceedings which relate to the
Company Documents and Buyer Documents. The Escrow Agent shall have the right to
retain counsel if it becomes involved in any disagreement, dispute or litigation
on account of this Agreement or otherwise determines that it is necessary to
consult counsel.
 
7

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

 
(b) The Escrow Agent is hereby expressly authorized to comply with and obey any
Court Order. In case the Escrow Agent obeys or complies with a Court Order, the
Escrow Agent shall not be liable to the Buyer and Company or to any other
person, firm, corporation or entity by reason of such compliance.
 
ARTICLE V
 
GENERAL MATTERS
 
5.1. Termination. This escrow shall terminate upon the release of all of the
Company Documents and Buyer Documents or at any time upon the agreement in
writing of the Buyer and Company.
 
5.2. Notices. All notices, demands, requests, consents, approvals, and other
communications required or permitted hereunder shall be in writing and, unless
otherwise specified herein, shall be (i) personally served, (ii) deposited in
the mail, registered or certified, return receipt requested, postage prepaid,
(iii) delivered by reputable air courier service with charges prepaid, or (iv)
transmitted by hand delivery, telegram, or facsimile, addressed as set forth
below or to such other address as such party shall have specified most recently
by written notice. Any notice or other communication required or permitted to be
given hereunder shall be deemed effective (a) upon hand delivery or delivery by
facsimile, with accurate confirmation generated by the transmitting facsimile
machine, at the address or number designated below (if delivered on a business
day during normal business hours where such notice is to be received), or the
first business day following such delivery (if delivered other than on a
business day during normal business hours where such notice is to be received)
or (b) on the second business day following the date of mailing by express
courier service, fully prepaid, addressed to such address, or upon actual
receipt of such mailing, whichever shall first occur. The addresses for such
communications shall be:
 

(a)
If to the Company, to:

Attn: Molly Henderson, CFO
VirtualScopics, Inc.
500 Linden Oaks
Rochester, NY 14625
Phone: 585-249-6231
Fax: 585-218-7350

With copy by telecopier only to:

Attn: Gregory W. Gribben, Esq.
Woods Oviatt Gilman LLP
700 Crossroads Building, 2 State Street
Rochester, New York 14614
Phone: (585) 987-2800
Fax: (585) 987-2975
 
8

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

 

(b)
If to the Buyers, to: the addresses and fax numbers listed on Schedule A hereto

 

(c)
If to the Escrow Agent, to:

 
Attn: Gregory W. Gribben, Esq.
Woods Oviatt Gilman LLP
700 Crossroads Building, 2 State Street
Rochester, New York 14614
Phone: (585) 987-2800
Fax: (585) 987-2975
 
or to such other address as any of them shall give to the others by notice made
pursuant to this Section 5.2.
 
5.3. Interest. The Escrowed Payment shall be deposited in an interest bearing
account within a reasonable time after the Closing. In the event any portion of
a Buyer's Purchase Price is released to the Company pursuant to Section 3.1, any
accrued interest thereon shall be paid to the Company, minus any expenses in
maintaining such account. In the event, any portion of the Buyer's Purchase
Price is released to such Buyer pursuant to Section 3.1, any accrued interest
thereon shall be paid to the Buyer, but only if the Escrow Agent receives from
such Buyer the Buyer’s United States taxpayer identification number and other
requested information and forms.
 
5.4. Assignment; Binding Agreement. Neither this Agreement nor any right or
obligation hereunder shall be assignable by any party without the prior written
consent of the other parties hereto. This Agreement shall enure to the benefit
of and be binding upon the parties hereto and their respective legal
representatives, successors and assigns.
 
5.5. Invalidity. In the event that any one or more of the provisions contained
herein, or the application thereof in any circumstance, is held invalid,
illegal, or unenforceable in any respect for any reason, the validity, legality
and enforceability of any such provision in every other respect and of the
remaining provisions contained herein shall not be in any way impaired thereby,
it being intended that all of the rights and privileges of the parties hereto
shall be enforceable to the fullest extent permitted by law.
 
5.6. Counterparts/Execution. This Agreement may be executed in any number of
counterparts and by different signatories hereto on separate counterparts, each
of which, when so executed, shall be deemed an original, but all such
counterparts shall constitute but one and the same instrument. This Agreement
may be executed by facsimile transmission and delivered by facsimile
transmission.
 
5.7. Agreement. Each of the undersigned states that he has read the foregoing
Escrow Agreement and understands and agrees to it.
 
9

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

 
IN WITNESS WHEREOF, the undersigned have executed this Funds Escrow Agreement as
of the date first written above.
 

 COMPANY:
 
VirtualScopics, Inc.
   
BUYER:
 

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

       
By: /s/ Molly Henderson 

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

 Name: Molly Henderson
Title: Chief Financial Officer
   
By:

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

Name:

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

Title:

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

 
ADDRESS:
 
   
ADDRESS:
VirtualScopics, Inc.
500 Linden Oaks
Rochester, New York 14625
Phone: (585) 249-6231
Fax: (585) 218-7350
   

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

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

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

Phone:

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

Fax:  

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

 
       
ESCROW AGENT:
Woods Oviatt Gilman LLP
                   
/s/ Gregory W. Gribben  

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

Print Name: Gregory W. Gribben 
Title: Partner
     

 
 
10

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

 
 
SCHEDULE A TO FUNDS ESCROW AGREEMENT

 Buyer
 
Buyer’s Subscription Amount
 
Address and
Facsimile Number
 
 
Legal Representative’s
Address and
Facsimile Number
               
Bridgepointe Master Fund Ltd.
 
$2,000,000
 
1120 Sanctuary Parkway
Suite 325
Alpharetta, GA 30004
Facsimile: 770-777-5844
   
P. Bradford Hathorn, Esq.
Roswell Capital Partners, LLC
1120 Sanctuary Parkway, Suite 325
Alpharetta, GA 30004
Facsimile: 770-777-5844
               
BayStar Capital III Investment Fund, L.P..
 
$500,000
 
c/o Nathan Randel
80 E. Sir Francis Drake Blvd.
Suite 2B
Larkspur, CA 94939
Facsimile: 415-834-4601
   
John O’Neill, Esq.
Collette, Erickson, Farmer & O’Neill
235 Pine Stree
Suite 1300
San Francisco, CA 94104
Facsimile: 415-788-6929
               
Crescent International, Ltd.
 
$400,000
 
℅ Cantara (Switzerland) S.A.
84 Avenue Louis-Casal
CH-1216 Cointrin/Geneva
Switzerland
Facsimile: +41 22 7917171
   
Feldman Weinstein & Smith LLP
The Graybar Building
420 Lexington Avenue
New York, New York
10170-0002
Facsimile: (212) 401-4741
               
Gemini Master Fund, Ltd.
 
$400,000
 
℅ Gemini Strategies, LLC
12220 El Camino Real
Suite 400
San Diego, CA 92130
Facsimile: (858) 505-8808
   
Steven Winters
℅ Gemini Strategies, LLC
12220 El Camino Real
Suite 400
San Diego, CA 92130
Facsimile: (858) 505-8808
               
Bristol Investment Fund, Ltd.
 
$350,000
 
℅ Bristol Capital Advisors, LLC
10990 Wilshire Boulevard, Suite 1410
Los Angeles, CA 90024
Facsimile: (310) 696.0334
   
Amy Wang, Esq.
℅ Bristol Capital Advisors, LLC
10990 Wilshire Boulevard, Suite 1410
Los Angeles, CA 90024
Facsimile: (310) 696.0334
               
Robert G. Klimasewski
 
$100,000
 
19 Junction Road
Honeoye Falls, NY 14472
   
19 Junction Road
Honeoye Falls, NY 14472
               
SRK Management Co.
 
$500,000
 
810 Seventh Avenue
41st Floor
New York, New York 10019
   
810 Seventh Avenue
41st Floor
New York, New York 10019
               
EGATNIV, LLC
 
$100,000
 
150 West 46th Street
6th Floor
New York, New York 10036
Facsimile: (212) 730-4306
   
Joshua Greenberg
150 West 46th Street
6th Floor
New York, New York 10036
Facsimile: (212) 730-4306
               
Total:
 
$4,350,000
         

 
 
11

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

 
 
AMENDMENT AND WAIVER

This Amendment and Waiver to that certain Escrow Agreement dated as of the 12th
day of September, 2007 between VirtualScopics, Inc., a Delaware corporation (the
"Company"), the Buyers identified on Schedule A thereto (each a “Buyer” and
collectively “Buyers”), and the law firm of Woods Oviatt Gilman LLP (the "Escrow
Agent") is made as of the 13th day of September, 2007. Capitalized terms not
otherwise defined herein shall have the meanings ascribed thereto in the Escrow
Agreement.

WHEREAS, Section 3.1(a) of the Escrow Agreement provides that if the Closing as
to at least the Minimum Amount has not occurred by September 13, 2007, then
within three (3) Business Days thereafter, the Escrow Agent shall return the
Buyer’s Purchase Price and Buyer Documents to the Buyer, and shall return the
Company Documents to the Company; and

WHEREAS, the undersigned parties to the Escrow Agreement now contemplate that
the Closing will take place on September 14, 2007, and wish to amend the Escrow
Agreement to extend the date required for the Closing to occur.

NOW THEREFORE, for good and valuable consideration, receipt of which is hereby
acknowledged, the parties agree as follows:

1. The last sentence of Section 3.1(a) of the Escrow Agreement is hereby amended
to provide as follows: “If the Closing as to at least the Minimum Amount has not
occurred by September 14, 2007, then within three (3) Business Days thereafter,
the Escrow Agent shall return the Buyer’s Purchase Price and Buyer Documents to
the Buyer, and shall return the Company Documents to the Company.”

2. The undersigned hereby waives compliance with Section 3.1(a) as in effect
prior to this Amendment and Waiver, insofar as it requires that the Escrow Agent
return the Buyer’s Purchase Price and Buyer Documents to the Buyer, and return
the Company Documents to the Company, if the Closing has not occurred by
September 13, 2007.

3. This Amendment and Waiver may be executed in any number of counterparts and
by different signatories hereto on separate counterparts, each of which, when so
executed, shall be deemed an original, but all such counterparts shall
constitute but one and the same instrument. This Agreement may be executed by
facsimile transmission and delivered by facsimile transmission. This Waiver and
Amendment shall be governed by and construed in accordance with the laws of the
State of New York without regard to conflicts of laws principles that would
result in the application of the substantive laws of another jurisdiction.

[SIGNATURE PAGE FOLLOWS]
 
 
12

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

 
 
[SIGNATURE PAGE TO AMENDMENT AND WAIVER TO ESCROW AGREEMENT]

IN WITNESS WHEREOF, the undersigned have executed this Amendment and Waiver as
of the date first written above.
 
COMPANY:
 
VirtualScopics, Inc.
   
BUYER:
 

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

       
By: /s/ Molly Henderson 

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

Name: Molly Henderson
Title: Chief Financial Officer
   
By:

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

Name:

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

Title:

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

 
ESCROW AGENT:
Woods Oviatt Gilman LLP
 
   
 
/s/ Gregory W. Gribben

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

Print Name: Gregory W. Gribben 
Title: Partner
   
 

 
13

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