SERIES C PREFERRED
STOCK AND WARRANT PURCHASE AGREEMENT


 


THIS SERIES C
PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT (this “Agreement”) is made as of the 3rd day of April, 2012,
by and between VirtualScopics, Inc., a Delaware corporation (the “Company”), with a principal place of business
at 500 Linden Oaks, Rochester, New York 14625, and Merck Global Health Innovation Fund, LLC, a Delaware limited liability company
(the “Purchaser”), with a principal place of business at One Merck Drive, Whitehouse Station, New Jersey 08889-0100.


 


In consideration of
the premises and the mutual promises herein made, and in consideration of the representations, warranties, and covenants herein
contained, and other good and valuable consideration, receipt of which is hereby acknowledged, the parties hereby agree as follows:


 


1.            Purchase
and Sale of Preferred Stock and Warrants.


 


1.1.        Sale
and Issuance of Series C Preferred Stock and Warrants.


 


(a)          The
Company shall adopt and file with the Secretary of State of the State of Delaware on or before the Initial Closing (as defined
below) the Series C Certificate of Designation.


 


(b)          Subject
to the terms and conditions of this Agreement, the Purchaser agrees to purchase at the Initial Closing and the Company agrees to
sell and issue to the Purchaser at the Initial Closing (i) 3,000 shares (the “Initial Shares”) of the Company’s
Series C-1 Convertible Preferred Stock, $0.001 par value per share (the “Series C-1 Preferred Stock”), at a
purchase price of $1,000 per share, initially convertible into 2,491,073 shares of Common Stock (subject to adjustment as a result
of any stock dividend, stock split, combination or like event and as otherwise set forth in the Series C Certificate of Designation)
and (ii) a warrant entitling the Purchaser to purchase up to 1,361,316 shares of Common Stock at a purchase price of $1.2043
per share (subject to adjustment as a result of any stock dividend, stock split, combination or like event and as otherwise set
forth in such warrant), in the form of Exhibit A attached to this Agreement (the “Initial Warrant”),
for an aggregate purchase price of $3,000,000. The Initial Shares issued to the Purchaser pursuant to this Agreement, together
with any Milestone Shares, as defined below, shall be referred to in this Agreement, collectively, as the “Shares.”
The Initial Warrant together with the Milestone Warrant (as defined below) shall be referred to in this Agreement, collectively,
as the “Warrants.”


 



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(c)          After
the Initial Closing, and at any time until and including the first anniversary of the date of the Initial Closing, (i) subject
to the satisfaction by the Company of the conditions set forth in Subsection 5.2 of this Agreement (unless waived by
the Purchaser in writing), the Company on one occasion shall sell at the Second Closing, and the Purchaser shall purchase at the
Second Closing, and otherwise on the same terms and conditions as those contained in this Agreement, (x) 3,000 shares (the
“Milestone Shares”) of the Company’s Series C-2 Convertible Preferred Stock, $0.001 par value per share
(the “Series C-2 Preferred Stock”), at a purchase price equal to $1,000 per share, initially convertible into
2,491,073 shares of Common Stock (subject to adjustment as a result of any stock dividend, stock split, combination or like event
and as otherwise set forth in the Series C Certificate of Designation) and (y) a warrant entitling the Purchaser to purchase
up to 1,361,316 shares of Common Stock at a purchase price of $1.2043 per share (subject to adjustment as a result of any stock
dividend, stock split, combination or like event and as otherwise set forth in such warrant), in the form of Exhibit A attached
to this Agreement (the “Milestone Warrant”), for an aggregate purchase price of $3,000,000, provided
that the events specified in Exhibit D attached to this Agreement shall have occurred (the “Milestone Events”)
and the Company’s Board of Directors shall have delivered a written certification to the Purchaser to such effect and (ii) in
the event the Milestone Events shall not have occurred, the Purchaser may, at any time and from time to time prior to the first
anniversary of the Initial Closing, purchase, and in the event the Purchaser so exercises such option the Company shall, within
ten (10) days of its receipt of the Purchaser’s notice of exercise, sell to the Purchaser, the Milestone Shares and the Milestone
Warrant for the same price and on the same terms contained herein, at the option of the Purchaser exercisable upon notice to the
Company, subject to (1) in the case of the Company, the satisfaction by the Purchaser of the conditions set forth in Section
6 of this Agreement (unless waived by the Company in writing) and (2) in the case of the Purchaser, the satisfaction by the
Company of the conditions set forth in Section 5.2 of this Agreement (unless waived by the Purchaser in writing).


 


1.2.        Closing;
Delivery.


 


(a)          Subject
to the terms and conditions of this Agreement, the purchase and sale of the Initial Shares and the Initial Warrant shall
take place remotely via the exchange of documents and signatures, at 10:00 a.m. (Eastern time), on the later to occur of (a) April
3, 2012 and (b) the fifth business day following the satisfaction or waiver of all conditions to the obligations of the parties
set forth in Subsection 5.1 and Section 6, or at such other time and place as the Company and the Purchaser
mutually agree upon, orally or in writing (which time and place are designated as the “Initial Closing”). In
the event there is more than one closing, the term “Closing” shall apply to each such closing unless otherwise
specified.


 


(b)          Subject
to the terms and conditions of this Agreement, the purchase and sale of the Milestone Shares and the Milestone Warrant shall
take place remotely via the exchange of documents and signatures, at such time and place as the Company and the Purchaser mutually
agreed upon, orally or in writing, but in no event later than ten (10) days after (i) the delivery to the Purchaser of the
certification by the Company’s Board of Directors that the Milestone Events have occurred in accordance with Subsection 1.1(c)(i)
or (ii) the Purchaser’s delivery to the Company of its notice of exercise of its option as set forth in Subsection 1.1(c)(ii),
as the case may be. The date of the purchase and sale of the Milestone Shares and the Milestone Warrant is referred to in this
Agreement as the “Second Closing.”


 


(c)          At
each Closing, the Company shall deliver to the Purchaser a certificate representing the applicable Shares and the applicable Warrant
being purchased by the Purchaser at such Closing, against payment of the purchase price therefor, by wire transfer to a bank account
designated in advance by the Company.


 



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1.3.        Use
of Proceeds. The Company will use the proceeds from the sale of the Shares for working capital purposes, including establishing
the Company’s IT and software platform supporting its quantitative imaging center, and for the validation of the Company’s
DCE-MRI application.


 


1.4.        Defined
Terms Used in this Agreement. In addition to the terms defined above, the following terms used in this Agreement shall be construed
to have the meanings set forth or referenced below.


 


(a)          “Affiliate”
means, with respect to any specified Person, any other Person who, directly or indirectly, controls, is controlled by, or is under
common control with such Person.


 


(b)          “Certificate”
means the Company’s Certificate of Incorporation, as amended to the date of this Agreement, and includes any Certificate
of Designation filed pursuant thereto, other than the Series C Certificate of Designation.


 


(c)          “Code”
means the Internal Revenue Code of 1986, as amended.


 


(d)          “Common
Stock” means the common stock of the Company, $0.001 par value per share.


 


(e)          “Company
Intellectual Property” means all patents, patent applications, trademarks, trademark applications, service marks, service
mark applications, tradenames, copyrights, trade secrets, domain names, mask works, information and proprietary rights and processes,
similar or other intellectual property rights, subject matter of any of the foregoing, tangible embodiments of any of the foregoing,
licenses in to and under any of the foregoing, and any and all such cases that are owned or used by the Company or any Subsidiary
in the conduct of the Company’s or any Subsidiary’s business as now conducted and as presently proposed to be conducted.


 


(f)          “Contingent
Obligation” means, as to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect
to any indebtedness, lease, dividend or other obligation of another Person if the primary purpose or intent of the Person incurring
such liability, or the primary effect thereof, is to provide assurance to the obligee of such liability that such liability will
be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such liability will
be protected (in whole or in part) against loss with respect thereto.


 


(g)          “Conversion
Shares” means the shares of Common Stock issuable upon the conversion of the Shares.


 


(h)          “Eligible
Market” means the over the counter Bulletin Board, the New York Stock Exchange, Inc., the Nasdaq Capital Market,
the Nasdaq Global Market, the Nasdaq Global Select Market or the American Stock Exchange.


 


(i)          “Exchange
Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.


 



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(j)          “Indebtedness”
of any Person means, without duplication (i) all indebtedness for borrowed money, (ii) all obligations issued, undertaken
or assumed as the deferred purchase price of property or services (other than trade payables entered into in the ordinary course
of business), (iii) all reimbursement or payment obligations with respect to letters of credit, surety bonds and other similar
instruments, (iv) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced
incurred in connection with the acquisition of property, assets or businesses, (v) all indebtedness created or arising under
any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to any property
or assets acquired with the proceeds of such indebtedness (even though the rights and remedies of the seller or bank under such
agreement in the event of default are limited to repossession or sale of such property), (vi)  all indebtedness referred to
in clauses (i) through (v) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Lien upon or in any property or assets (including accounts and contract rights) owned by any Person,
even though the Person which owns such assets or property has not assumed or become liable for the payment of such indebtedness,
and (viii) all Contingent Obligations in respect of indebtedness or obligations of others of the kinds referred to in clauses (i)
through (vii) above.


 


(k)          “Investors
Rights Agreement” means the Investor Rights Agreement between the Company and the Purchaser dated as of the date of the
Initial Closing, in the form of Exhibit C attached to this Agreement.


 


(l)          “Issuable
Maximum” shall mean 19.9% of the number of shares of Common Stock outstanding on the Trading Day immediately preceding
the Initial Closing.


 


(m)          “Key
Employee” means any executive-level employee and any employee or consultant who either alone or in concert with others
develops, invents, programs or designs any Company Intellectual Property.


 


(n)          “Knowledge,”
including the phrase “to the Company’s knowledge,” shall mean the actual knowledge after reasonable
investigation of the following persons:  Jeffrey Markin and Molly Henderson.


 


(o)          “Liens”
means any liens, mortgages, charges, pledges, security interests, encumbrances, rights of first refusal, preemptive rights or other
restrictions.


 


(p)          “Material
Adverse Effect” means a material adverse effect on the business, operations, assets (including intangible assets), liabilities,
condition (financial or otherwise), property, prospects or results of operations of the Company or any of its Subsidiaries.


 


(q)          “Permitted
Liens” shall mean: (i) Liens on equipment purchased in the ordinary course of business, (ii) landlords’,
carriers’, warehousemen’s, mechanics’ and other similar Liens arising by operation of law in the ordinary course
of business of the Company or any Subsidiary; provided, however, that all such Liens shall be discharged or bonded
off within sixty (60) days from the filing thereof; (iii) Liens arising out of pledge or deposits under worker’s compensation,
unemployment insurance, old age pension, social security, retirement benefits or other similar legislation; (iv) Liens for
taxes (excluding any Lien imposed pursuant to any provision of ERISA) not yet due or which are being contested in good faith by
appropriate proceedings and the Company and its Subsidiaries maintain appropriate reserves in respect thereto; and (v) easements,
rights of way, restrictions and other similar charges or Liens relating to real property and not interfering in a material way
with the ordinary conduct of business of the Company or any Subsidiary.


 



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(r)          “Person”
means any individual, corporation, partnership, trust, limited liability company, association or other entity.


 


(s)          “SEC”
means the Securities and Exchange Commission.


 


(t)          “Securities”
means, collectively, the Shares, the Conversion Shares, the Warrants and the Warrant Shares.


 


(u)          “Securities
Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.


 


(v)         “SEC
Documents” means all reports, schedules, forms, statements and other documents required to be filed by the Company with
the SEC pursuant to the reporting requirements of the Securities Act and the Exchange Act, including all such proxy information,
solicitation statements and registration statements, exhibits included therein and financial statements, notes and schedules thereto,
and amendments and supplements thereto required, including filings incorporated by reference therein.


 


(w)         “Series
A Amendments” means the Amended and Restated Certificate of Designations, Powers, Preferences and Other Rights and Qualifications
of Series A Convertible Preferred Stock of the Company, in the form attached to this Agreement as Exhibit E.


 


(x)          “Series
A Certificate of Designation” means the Company’s Certificate of Designations, Powers, Preferences and Other Rights
and Qualifications of Series A Convertible Preferred Stock, dated November 4, 2005.


 


(y)          “Series
B Amendments” means the Amended and Restated Certificate of Designation of Rights and Preferences of the Series B Preferred
Stock of the Company, in the form attached to this Agreement as Exhibit F.


 


(z)          “Series
B Certificate of Designation” means the Company’s Certificate of Designation of Rights and Preferences of the Series
B Preferred Stock of VirtualScopics, Inc., dated September 12, 2007, as amended by amendment dated November 27, 2007.


 


(aa)       “Series
B Preferred Stock” means the Company’s Series B Convertible Preferred Stock, par value $0.001 per share. 


 


(bb)      “Series
B Securities Purchase Agreement” means that certain Securities Purchase Agreement dated as of September 12, 2007, by
and among the Company and each buyer listed on the Schedule of Buyers attached thereto.


 



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(cc)         “Series
B Warrants” means the series of warrants to purchase Common Stock issued pursuant to the Series B Securities Purchase
Agreement, including the Amended and Restated Series B Warrants.


 


(dd)         “Series
C Certificate of Designation” means the Certificate of Designations of Rights and Preferences of the Series C-1
Preferred Stock and the Series C-2 Preferred Stock of the Company, filed with the Delaware Secretary of State that creates, authorizes
and designates the Series C-1 Preferred Stock and Series C-2 Preferred Stock, in the form of Exhibit B attached to this
Agreement.


 


(ee)         “Series
C Director” means the one (1) director elected by the holders of Series C Preferred Stock, pursuant to Part I, Section
6.2 and Part II, Section 6.2 of the Series C Certificate of Designation.


 


(ff)         “Series
C Preferred Stock” means, collectively, the Series C-1 Preferred Stock and the Series C-2 Preferred Stock.


 


(gg)         
“Subsidiary” means any corporation, limited liability company, partnership or other entity, whether incorporated
or unincorporated, in which the Company owns, directly or indirectly, any equity or other ownership interest.


 


(hh)         “Trading
Day” means a day on which the Principal Market (or other applicable Eligible Market on which the Common Stock is listed
or quoted for trading) is open for trading.


 


(ii)         “Transaction
Agreements” means this Agreement, the Investors Rights Agreement, the Warrants, the Voting Agreement and the Director
Indemnification Agreement and all exhibits and schedules hereto and thereto and all certificates executed and/or delivered in connection
with the transactions contemplated hereunder.


 


(jj)         “Warrant
Shares” means the shares of Common Stock issuable upon exercise of the Warrants.


 


2.          Representations
and Warranties of the Company. The Company hereby represents and warrants to the Purchaser that, except as set forth on
the Disclosure Schedule delivered to the Purchaser at the Initial Closing, which exceptions shall be deemed to be part of the
representations and warranties made hereunder, the following representations are true and complete. The Disclosure Schedule
shall be arranged in sections corresponding to the numbered and lettered sections and subsections contained in this Section 2,
and the disclosures in any section or subsection of the Disclosure Schedule shall qualify other sections and subsections in
this Section 2 only to the extent it is readily apparent from a reading of the disclosure that such disclosure is
applicable to such other sections and subsections.


 


2.1.        Organization,
Good Standing, Corporate Power and Qualification. The Company and each of its Subsidiaries is a corporation, limited liability
company or other entity duly organized or formed, validly existing and in good standing under the laws of the state of its organization
and has all requisite corporate or other entity power and authority to carry on its business as presently conducted and as proposed
to be conducted. The Company and each of its Subsidiaries are duly qualified to transact business and are in good standing in each
jurisdiction in which the failure to so qualify would have a Material Adverse Effect.


 



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2.2.        Capitalization.


 


(a)          The
authorized capital of the Company consists, immediately prior to the Initial Closing, of:


 


(i)          85,000,000
shares of Common Stock, of which 29,363,228 are issued and outstanding immediately prior to the Initial Closing plus an additional
7,459 shares of Common Stcok which are to be issued upon the exchange of unexchanged common units of VirtualScopics, LLC, all of
which have been duly authorized, are fully paid and nonassessable and were validly issued in compliance with all applicable federal
and state securities laws, and the Company holds no shares of Common Stock or other capital stock in its treasury; and


 


(ii)         15,000,000
shares of preferred stock, $0.001 par value per share (the “Preferred Stock”), of which (w) 8,400 shares
have been designated Series A Convertible Preferred Stock, of which 2,190 are issued and outstanding immediately prior to the Initial
Closing, (x) 6,000 shares have been designated Series B Convertible Preferred Stock, of which 600 are issued and outstanding immediately
prior to the Initial Closing, (y) 3,000 shares have been designated Series C-1 Preferred Stock, none of which are issued and
outstanding immediately prior to the Initial Closing, and (z) 3,000 shares have been designated Series C-2 Preferred Stock,
none of which are issued and outstanding immediately prior to the Initial Closing. The rights, privileges and preferences of (A) the
Series A Convertible Preferred Stock are as stated in the Series A Certificate of Designation, (B) the Series B Convertible
Preferred Stock are as stated in the Series B Certificate of Designation and (C) the Series C-1 Preferred Stock and the Series
C-2 Preferred Stock are as stated in the Series C Certificate of Designation and, in each case, as provided by the Delaware General
Corporation Law. All of such outstanding shares of Preferred Stock have been, or upon issuance will be, duly authorized, fully
paid and nonassessable and validly issued in compliance with all applicable federal and state securities laws.


 


(b)          Immediately
prior to the Initial Closing the Company has reserved 1,346,926 shares of Common Stock for issuance upon exercise of certain outstanding
warrants for Common Stock, true and complete descriptions and copies of the forms of which have been filed by the Company in its
SEC Documents or provided to the Purchaser (the “Outstanding Warrants”), which include the Series B Warrants.
Immediately prior to the Initial Closing, the Outstanding Warrants are exercisable for an aggregate of 1,346,926 shares of Common
Stock (which includes the Series B Warrants, which are exercisable for an aggregate of 902,038 shares of Common Stock). Immediately
following the Initial Closing, (i) the Outstanding Warrants will be exercisable for an aggregate of 1,421,100 shares of Common
Stock, (ii) the Series B Warrants will be exercisable for an aggregate of 976,211 shares of Common Stock and (iii) each
of the Series B Warrants will have an exercise price of $1.2043 per share. Immediately following the Second Closing, assuming there
have been no issuances of equity securities by the Company following the Initial Closing other than the issuance of Securities
hereunder at the Second Closing, (i) the Outstanding Warrants will be exercisable for an aggregate of no more than 1,421,100 shares
of Common Stock, (ii) the Series B Warrants will be exercisable for an aggregate of no more than 976,211 shares of Common
Stock and (iii) each of the Series B Warrants will have an exercise price of $1.2043 per share.


 



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(c)          Immediately
prior to and as of the Initial Closing, the Company has reserved 7,220,534 shares of Common Stock for issuance to officers, directors,
employees and consultants of the Company pursuant to its 2001 Long-Term Incentive Plan, 2005 Long-Term Incentive Plan and 2006
Long-Term Incentive Plan, and an out-of-plan grant to Robert Klimasewski, each of which was duly adopted by the Company’s
Board of Directors and approved by the Company’s stockholders, if required by applicable law or regulation (the “Stock
Plans”). Immediately prior to and as of the Initial Closing, options to purchase 6,156,817 shares have been granted pursuant
to such Stock Plans and are currently outstanding, and 1,063,717 shares of Common Stock remain available for issuance to officers,
directors, employees and consultants pursuant to the Stock Plans. The Company has furnished to the Purchaser complete and accurate
copies of the Stock Plans and forms of agreements used thereunder.


 


(d)          The
Company has furnished to the Purchaser true and correct copies of the Company’s Certificate of Incorporation as in effect
on the date hereof, the Company's By-laws, as in effect on the date hereof, and the terms of all securities convertible into or
exercisable or exchangeable for Common Stock of the Company, and the material rights of the buyers thereof with respect thereto.
Except for (i) the conversion privileges of the Shares and Warrants to be issued under this Agreement, (ii) the conversion privileges
of the Series A Convertible Preferred Stock and the Series B Convertible Preferred Stock pursuant to the Series A Certificate of
Designation and the Series B Certificate of Designation, respectively (iii) the securities and rights described in Section 2.2(c)
and (iv) the Outstanding Warrants, there are no outstanding options, warrants, rights (including conversion or preemptive
rights and rights of first refusal or similar rights) or agreements, orally or in writing, to purchase or acquire from the Company
any shares of Common Stock or Preferred Stock or other capital stock or securities of the Company or any Subsidiary, or any securities
convertible into or exchangeable or exercisable for shares of Common Stock or Preferred Stock or other capital stock or securities
of the Company or any Subsidiary.


 


(e)          The
Company has no obligation (contingent or otherwise) to purchase or redeem any of the capital stock or other securities of the Company
or any Subsidiary, except as provided in the Series B Warrants (other than the Amended and Restated Series B Warrants) as in effect
on the date hereof held by any non-Exchanging Warrantholders.


 


(f)          The
Company has obtained valid waivers of any rights by other parties (i) to purchase any of the Securities covered by this Agreement
or (ii) with respect to price based anti-dilution price adjustments or similar rights, and no preemptive rights, anti-dilution
or price adjustments or similar provisions contained in any security issued by the Company (or in any agreement providing rights
to security holders) will be triggered by the issuance of any of the Securities, except that, upon the Initial Closing, the Series
B Warrants will be exercisable for an aggregate of 976,211 shares of Common Stock and each of the Series B Warrants will have an
exercise price of $1.2043 per share (the “Series B Adjustment”). The holders of the Series B Warrants who have
exchanged their Series B Warrants for the Amended and Restated Series B Warrants (the “Exchanging Warrantholders”)
constitute, immediately prior to the Initial Closing, the holders of 68% of the outstanding Series B
Warrants (determined by the number of unexercised underlying shares of Common Stock). The Exchanging Warrantholders, the
holders of the Company’s Series A Convertible Preferred Stock, and the holders of the Company’s Series B Convertible
Preferred Stock have waived the right to any adjustment in the conversion or exercise prices or the number of shares of Common
Stock into which their Series B Warrants, the Series A Convertible Preferred Stock and the Series B Convertible Preferred Stock,
respectively, are convertible or exercisable as a consequence of the transactions contemplated by this Agreement.


 



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(g)          Other
than the Series B Warrants (excluding the Amended and Restated Series B Warrants) as in effect on the date hereof held by any non-Exchanging
Warrantholders, no Outstanding Warrants entitling the holders thereof to purchase shares of Common Stock contain any provisions
relating to adjustments in the exercise price or the number of shares for which such warrants are exercisable as a consequence
of the issuance or deemed issuance by the Company of any shares of Common Stock or Preferred Stock or other securities convertible
into or exercisable or exchangeable for shares of Common Stock, at a price per share that is less than the exercise price at which
such warrants are exercisable.


 


2.3.        Subsidiaries.
As of the date hereof and the Initial Closing: other than VirtualScopics, LLC, a New York limited liability company, the Company
does not own or control, directly or indirectly, any interest in any other corporation, partnership, trust, joint venture, limited
liability company, association, or other business entity; and, the Company is not a participant in any joint venture, partnership
or similar arrangement. The Company owns, directly or indirectly, all of the capital stock of, or other interests in, each Subsidiary
free and clear of any Liens, and all of the issued and outstanding shares of capital stock of, or other interests in, each such
Subsidiary are duly authorized, validly issued, fully paid and nonassessable, and free of Liens and any preemptive and similar
rights to subscribe for or purchase securities.


 


2.4.        Authorization.
The Company has full power and authority to enter into this Agreement and the other Transaction Agreements. All corporate action
required to be taken by the Company’s Board of Directors and stockholders in order to authorize the Company to enter into
the Transaction Agreements, and to issue the Shares at the Initial Closing and the Second Closing, the Warrants at the Initial
Closing and the Second Closing, the Conversion Shares and the Warrant Shares, has been taken or will be taken prior to the Initial
Closing, other than with respect to the Second Closing, the approval contemplated by the Shareholder Issuance Approval and Series
A Amendments and the Series B Amendments. All action on the part of the officers of the Company necessary for the execution and
delivery of the Transaction Agreements, the performance of all obligations of the Company under the Transaction Agreements to be
performed as of the Initial Closing, and the issuance and delivery of the Initial Shares and the Initial Warrant has been taken
or will be taken prior to the Initial Closing. This Agreement has been has been duly executed and delivered by the Company and
constitutes, and the other Transaction Agreements, when executed and delivered by the Company shall constitute, valid and legally
binding obligations of the Company, enforceable against the Company in accordance with their respective terms except (i) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, or other laws of general application
relating to or affecting the enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability
of specific performance, injunctive relief, or other equitable remedies, or (iii) to the extent the indemnification provisions
contained in the Investors Rights Agreement and Director Indemnification Agreement may be limited by applicable federal or state
securities laws.


 



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2.5.        Valid
Issuance of Shares; Acknowledgment of Dilution.


 


(a)          The
Shares and Warrants, when issued, sold and delivered in accordance with the terms and for the consideration set forth in this
Agreement, will be duly authorized, validly issued, fully paid and nonassessable and free of any Liens or restrictions on transfer,
other than restrictions on transfer under the Transaction Agreements, applicable state and federal securities laws and Liens created
by or imposed by the Purchaser. Assuming the accuracy of the representations of the Purchaser in Section 3 of this
Agreement and subject to the filings described in Subsection 2.7 below, the Shares will be issued in compliance
with all applicable federal and state securities laws. The Conversion Shares and the Warrant Shares have been duly reserved for
issuance, and upon issuance in accordance with the terms of the Series C Certificate of Designation or the Warrants, as the
case may be, will be validly issued, fully paid and nonassessable and free of any Liens or restrictions on transfer, other than
restrictions on transfer under the Transaction Agreements, applicable federal and state securities laws and Liens created by or
imposed by the Purchaser. Based in part upon the representations of the Purchaser in Section 3 of this Agreement,
and subject to Subsection 2.7 below, the Conversion Shares and the Warrant Shares will be issued in compliance with
all applicable federal and state securities laws.


 


(b)          The
Company understands and acknowledges the potentially dilutive effect to the Common Stock upon the issuance of the Conversion Shares
upon conversion of the Series C Preferred Stock or otherwise pursuant to the Series C Certificate of Designation or upon issuance
of the Warrant Shares upon exercise of or otherwise pursuant to the Warrants. The Company’s directors and executive officers
have studied and fully understand the nature of the Securities being sold hereunder. Taking the foregoing into account, the Company’s
Board of Directors has determined, in its good faith business judgment, that the issuance of the Securities hereunder and under
the Series C Certificate of Designation and the Warrants and the consummation of the transactions contemplated hereby and thereby
are in the best interest of the Company and its stockholders.


 


2.6.        SEC
Documents. The Common Stock of the Company is registered pursuant to Section 12(b) of the Exchange Act and the
Company has timely filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC
pursuant to the reporting requirements of the Securities Act and the Exchange Act, including all such proxy information, solicitation
statement and registration statements, and any amendments thereto required to have been filed. As of their respective dates, the
SEC Documents complied in all material respects with the requirements of the Exchange Act and the rules and regulations of the
SEC promulgated thereunder and other federal, state and local laws, rules and regulations applicable to such SEC Documents, and
none of the SEC Documents, at the time they were filed with the SEC, contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. None of the statements made in any such SEC Documents is, or has been, required to
be amended or updated under applicable law (except for such statements as have been amended or updated in subsequent filings prior
to the date hereof).


 



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2.7.        Consents
and Filings. Assuming the accuracy of the representations made by the Purchaser in Section 3 of this Agreement, no
consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any
federal, state or local governmental authority is required on the part of the Company or any of its Subsidiaries in
connection with the consummation of the transactions contemplated by this Agreement, except for (i) the filing of the Series
C Certificate of Designations, which will have been filed as of the Initial Closing, (ii) the Series A Amendments and
Series B Amendments (iii) filings pursuant to applicable state securities laws, which have been made or will be made in a
timely manner, (iv) the filing of one or more Reports on Form 8-K with the SEC under the Exchange Act and (v) the filing
of a proxy statement on Schedule 14A with the SEC with respect to a meeting of the stockholders of the Company to be held to
obtain the requisite approval of such stockholders with respect to certain of the transactions and events contemplated by
this Agreement and (vi) a filing with the SEC on Form D, if applicable. The Company is not in violation of the listing
requirements of the Principal Market and does not reasonably anticipate that the Common Stock will cease to be listed on the
Principal Market in the foreseeable future. The Company and its Subsidiaries are unaware of any facts or circumstances which
might give rise to any of the foregoing.


 


2.8.        Litigation.
There is no claim, action, suit, proceeding, arbitration, complaint, charge or investigation pending or to the Company’s
knowledge, currently threatened in writing (i) against the Company or any Subsidiary or any officer, director or Key Employee of
the Company or any Subsidiary arising out of their employment or board relationship with the Company; or (ii) that questions the
validity of the Transaction Agreements or the right of the Company to enter into them, or to consummate the transactions contemplated
by the Transaction Agreements; or (iii) that would reasonably be expected to have, either individually or in the aggregate,
a Material Adverse Effect. Neither the Company or any Subsidiary nor, to the Company’s knowledge, any of the officers, directors
or Key Employees of the Company or any Subsidiary is a party or is named as subject to the provisions of any order, writ, injunction,
judgment or decree of any court or government agency or instrumentality (in the case of officers, directors or Key Employees, such
as would affect the Company or Subsidiary). There is no action, suit, proceeding or investigation by the Company or any Subsidiary
pending or which the Company or any Subsidiary intends to initiate. The foregoing includes, without limitation, actions, suits,
proceedings or investigations pending or threatened in writing (or any basis therefor known to the Company) involving the prior
employment of any of the employees of the Company or any Subsidiary, their services provided in connection with the business of
the Company or any Subsidiary, or any information or techniques allegedly proprietary to any of their former employers, or their
obligations under any agreements with prior employers.


 



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2.9.        Intellectual
Property. The Company owns or possesses or can acquire on commercially reasonable terms sufficient legal rights to all Company
Intellectual Property without any known conflict with, or infringement of, the rights of others.  No product or service
marketed or sold (or proposed to be marketed or sold) by the Company or any Subsidiary violates or will violate any license or
infringes or will infringe any intellectual property rights of any other party. Other than with respect to commercially available
software products under standard end-user object code license agreements, there are no outstanding options, licenses, agreements,
claims, encumbrances or shared ownership interests of any kind relating to the Company Intellectual Property, nor is the Company
or any Subsidiary bound by or a party to any options, licenses or agreements of any kind with respect to the patents, trademarks,
service marks, trade names, copyrights, trade secrets, licenses, information, proprietary rights and processes of any other Person.
Neither the Company nor or any Subsidiary has received any communications alleging that the Company or any Subsidiary has violated
or, by conducting its business, would violate any of the patents, trademarks, service marks, tradenames, copyrights, trade secrets,
mask works or other proprietary rights or processes of any other Person. The Company and each of its Subsidiaries have obtained
and possess valid licenses to use all of the software programs present on the computers and other software-enabled electronic
devices that any of them own or lease or that any of them have otherwise provided to their respective employees for their use
in connection with their business. It will not be necessary to use any inventions of any of the employees or consultants of the
Company or any Subsidiary (or Persons the Company or any Subsidiary currently intends to hire) made prior to their employment
by the Company or any Subsidiary, unless such inventions have been assigned to the Company or its applicable Subsidiary. Each
employee and consultant has assigned to the Company or its applicable Subsidiary all intellectual property rights he or she owns
that are related to the business of the Company or such Subsidiary as now conducted and as presently proposed to be conducted.
Subsection 2.9 of the Disclosure Schedule lists all Company Intellectual Property. Neither the Company nor any Subsidiary
has embedded any open source, copyleft or community source code in any of its products generally available or in development,
including but not limited to any libraries or code licensed under any General Public License, Lesser General Public License or
similar license arrangement. For purposes of this Subsection 2.9, the Company shall be deemed to have knowledge of a patent
right if the Company or any Subsidiary has actual knowledge of the patent right or would be found to be on notice of such patent
right as determined by reference to United States patent laws.


 


2.10.      Compliance
with Other Instruments. Neither the Company nor any Subsidiary is in breach, violation or default (i) of any provisions of
its Certificate of Incorporation, as amended (the “Certificate”) or Bylaws or other organizational documents,
(ii) of any instrument, judgment, order, writ or decree, (iii) under any note, indenture or mortgage, (iv) under any lease,
agreement, contract or purchase order to which it is a party or by which it is bound, or (v) of any provision of any
law, statute, rule or regulation (including federal and state securities laws and the rules and regulations of the Nasdaq Capital
Market (the “Principal Market”)) other than regulations governing the minimum bid price for continuing listing
of its Common Stock on the Nasdaq Capital Market, applicable to the Company or any Subsidiary, in the case of clause (iii),
(iv) or (v), the violation of which would have a Material Adverse Effect. The execution, delivery and performance of the Transaction
Agreements and the consummation of the transactions contemplated by the Transaction Agreements will not (x) result in any
such breach, violation or default, or be in conflict with or constitute, with or without the passage of time and giving of notice
or both, either (i) a violation or default under any such provision, law, rule, regulation, instrument, judgment, order, writ,
decree, contract or agreement that has not been waived or (ii) an event which results in the creation of any Lien upon any
assets of the Company or any Subsidiary, or the suspension, revocation, forfeiture, or nonrenewal of any material permit or license
applicable to the Company or any Subsidiary, (y) other than the Series B Adjustment with respect to the Series B Warrants
as in effect on the date hereof, trigger or otherwise require any resets or other change of conversion or exercise prices in any
other outstanding convertible securities, warrants or options of the Company or any Subsidiary, or (z) other than the Series
B Adjustment with respect to the Series B Warrants as in effect on the date hereof , trigger or otherwise require the issuance
of securities by the Company or any Subsidiary to any third party.


 



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2.11.      Agreements;
Actions.


 


(a)          As
of the date hereof and the Initial Closing, except for the Transaction Agreements, there are no material agreements, understandings,
instruments, contracts or proposed transactions to which the Company or any Subsidiary is a party or by which the Company or any
Subsidiary is bound, other than disclosed by the Company in the SEC Documents. Except as reflected in the SEC Documents, neither
the Company nor any Subsidiary (i) has any outstanding Indebtedness, (ii) as of the date hereof and the Initial Closing,
is a party to any contract, agreement or instrument, the violation of which, or default under which, by the other party(ies) to
such contract, agreement or instrument would result in a Material Adverse Effect, (iii) is in violation of any term of or
in default under any contract, agreement or instrument relating to any Indebtedness or (iv) is a party to any contract, agreement
or instrument relating to any Indebtedness, the performance of which, in the judgment of the Company’s officers, has or is
expected to have a Material Adverse Effect.


 


(b)          Since
September 30, 2011, except as disclosed in the SEC Documents, (1) there has been no event, occurrence or development that
has had, or that could reasonably be expected to result in, a Material Adverse Effect and (2) neither the Company nor any
Subsidiary has (i) declared or paid any dividends, or authorized or made any distribution upon or with respect to any class
or series of its capital stock or other interests, other than the payment or accrual of dividends on the Company’s
Series B Convertible Preferred Stock and Series C-1 Preferred Stock or purchased, redeemed or made any agreements to purchase or
redeem any shares of its capital stock or other interests, (ii) incurred any Indebtedness or incurred any other liabilities,
other than liabilities incurred in the ordinary course of the Company’s business consistent with past practices, (iii) made
any loans or advances to any Person, other than ordinary advances for travel expenses consistent with past practice, (iv) sold,
exchanged or otherwise disposed of any of its assets or rights, other than the sale of its inventory in the ordinary course of
business, (v) altered its method of accounting or (vi) issued any shares of capital stock or other interests to any officer,
director or Affiliate, except pursuant to the existing Stock Plans or pursuant to the exercise or conversion of outstanding warrants
or preferred stock. Neither the Company nor any Subsidiary is a guarantor or indemnitor of any Indebtedness of any other Person.
Neither the Company nor any Subsidiary has taken any steps to seek protection pursuant to any bankruptcy law nor does the Company
or any Subsidiary have any knowledge or reason to believe that any of its creditors intend to initiate involuntary bankruptcy proceedings
or any actual knowledge of any fact which would reasonably lead a creditor to do so. As of the date hereof and the Initial Closing,
the Company does not have pending before the SEC any request for confidential treatment of information. As of the date hereof and
the Initial Closing, except for the issuance of the Securities contemplated by this Agreement, no event, liability, fact, circumstance,
occurrence or development has occurred or exists, or is reasonably expected to occur or exist, with respect to the Company or any
of its Subsidiaries or their respective businesses, properties, operations, assets or financial condition, that would be required
to be disclosed by the Company under applicable securities laws at the time this representation is made or deemed made that has
not been publicly disclosed at least one (1) Trading Day prior to the date that this representation is made.


 



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2.12.      Certain
Transactions.


 


(a)          Other
than (i) standard employee benefits generally made available to all employees, (ii) standard director and officer indemnification
agreements approved by the Company’s Board of Directors, (iii) the purchase of shares of the Company’s capital stock
and the issuance of options to purchase shares of the Company’s Common Stock, in each instance, approved in the written minutes
of the Company’s Board of Directors or a committee thereof (previously provided to the Purchaser or its counsel) and (iv) as
disclosed in the SEC Documents, there are no agreements, understandings or proposed transactions between the Company or any Subsidiary,
on the one hand, and any of its officers, directors, consultants or Key Employees, or any Affiliate thereof, on the other.


 


(b)          Neither
the Company nor any Subsidiary is indebted, directly or indirectly, to any of its officers or employees or to their respective
spouses or children or to any Affiliate of any of the foregoing, other than in connection with expenses or advances of expenses
incurred in the ordinary course of business or employee relocation expenses and for other customary employee benefits made generally
available to all employees. None of the officers or employees of the Company or any Subsidiary, or any members of their immediate
families, or any Affiliate of the foregoing are, directly or indirectly, indebted to the Company or any Subsidiary or have any
(i) material commercial, industrial, banking, consulting, legal, accounting, charitable or familial relationship with any
of the customers, suppliers, service providers, joint venture partners, licensees and competitors of the Company or any Subsidiary,
(ii) direct or indirect ownership interest in any firm or corporation with which the Company or any Subsidiary is affiliated
or with which the Company or any Subsidiary has a business relationship, or any firm or corporation which competes with the Company
or any Subsidiary except that officers or employees or stockholders of the Company may own stock in (but not exceeding two percent
(2%) of the outstanding capital stock of) publicly traded companies that may compete with the Company or (iii) other than as disclosed
in the SEC Documents, financial interest in any material contract with the Company or any Subsidiary.


 


2.13.      Rights
of Registration and Voting Rights. Except as provided in the Investors Rights Agreement and except as disclosed in the SEC
Documents, neither the Company nor any Subsidiary is under any obligation to register under the Securities Act any of its currently
outstanding securities or any securities issuable upon exercise or conversion of its currently outstanding securities. Other than
as contemplated by the Transaction Agreements, to the Company’s knowledge, no stockholder of the Company or any Subsidiary
has entered into any agreements with respect to the voting or transfer of shares of capital stock of, or other interest in, the
Company or any Subsidiary.


 



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2.14.     Property.
The Company and each of its Subsidiaries own, lease or have the legal right to use all of the property and assets necessary for,
or used or intended to be used in, the conduct of their business. The property and assets that the Company or any Subsidiary owns,
leases or has the legal right to use are free and clear of all mortgages, deeds of trust, loans, encumbrances or other Liens, except
(a) for statutory liens for the payment of current taxes that are not yet delinquent, (b) encumbrances and liens that
arise in the ordinary course of business and do not materially impair or interfere with the ownership or use of such property or
assets by the Company or such Subsidiary and (c) as disclosed in the financial statements that are included in the SEC Documents.
With respect to the property and assets it leases, the Company and each of its Subsidiaries are in compliance with such leases
in all material respects and, to the Company’s knowledge, hold valid leasehold interests, free of any Liens, other than those
of the lessors of such property or assets. The Company does not own any real property. All of the property and assets of the Company
and any Subsidiary have been maintained in accordance with applicable law and good business practice, are in good operating condition
and repair and are suitable for the purposes for which they are used and intended to be used.


 


2.15.    Financial
Statements. As of their respective dates, the financial statements of the Company included in the SEC Documents comply as to
form and substance in all material respects with applicable accounting requirements and the published rules and regulations of
the SEC or other applicable rules and regulations with respect thereto. Such financial statements have been prepared in accordance
with United States generally accepted accounting principles applied on a consistent basis during the periods involved (except (i)
as may be otherwise indicated in such financial statements or the notes thereto or (ii) in the case of unaudited interim statements,
to the extent they may not include footnotes, or may be condensed or summary statements) and fairly present in all material respects
the consolidated financial position of the Company and its Subsidiaries as of the dates thereof and the consolidated results of
operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments).
Except as set forth in the financial statements of the Company included in the SEC Documents, the Company has no liabilities, contingent
or otherwise, other than (i) liabilities incurred in the ordinary course of business subsequent to the date of the Company’s
most recent Quarterly Report on Form 10-Q or Annual Report on Form 10-K and (ii) obligations under contracts and
commitments incurred in the ordinary course of business and not required under United States generally accepted accounting principles
to be reflected in such financial statements, which, individually or in the aggregate, are not material to the financial condition
or operating results of the Company or any of its Subsidiaries.


 


2.16.      Changes.
Since September 30, 2011, other than as disclosed in the SEC Documents, there has not been:


 


(a)          any
change in the assets, liabilities, financial condition or operating results of the Company or any Subsidiary from that reflected
in the financial statements included in the SEC Documents, except changes in the ordinary course of business that have not caused,
individually or in the aggregate, a Material Adverse Effect;


 


(b)          any
damage, destruction or loss, whether or not covered by insurance, that would have a Material Adverse Effect;


 


(c)          any
waiver or compromise by the Company or any Subsidiary of a valuable right or of a material debt owed to it;


 



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(d)          any
satisfaction or discharge of any Lien or payment of any obligation by the Company or any Subsidiary, except in the ordinary course
of business and the satisfaction or discharge of which would not have a Material Adverse Effect;


 


(e)          any
material change to a material contract or agreement by which the Company or any Subsidiary or any of their respective assets is
bound or subject;


 


(f)          any
material change in any compensation arrangement or agreement with any employee, officer, director or stockholder;


 


(g)          any
resignation or termination of employment of any officer or Key Employee of the Company or any Subsidiary;


 


(h)          any
mortgage, pledge, transfer of a security interest in, or other Lien, created by the Company or any Subsidiary, with respect to
any of its material properties or assets, except liens for taxes not yet due or payable and liens that arise in the ordinary course
of business and do not materially impair or interfere with the ownership or use of such property or assets by the Company or such
Subsidiary;


 


(i)          any
loans or guarantees made by the Company or any Subsidiary to or for the benefit of its employees, officers or directors, or any
members of their immediate families, other than travel advances and other advances made in the ordinary course of its business
consistent with past practices;


 


(j)          other
than the payment or accrual of dividends on the Series B Preferred Stock, any declaration, setting aside or payment or other distribution
in respect of any of the capital stock of, or other interests in, the Company or any Subsidiary, or any direct or indirect redemption,
purchase, or other acquisition of any of such stock or other interests by the Company or any Subsidiary;


 


(k)         any
sale, assignment or transfer of any Company Intellectual Property that could reasonably be expected to result in a Material Adverse
Effect;


 


(l)          receipt
of notice that there has been a loss of, or material order cancellation by, any major customer of the Company or any Subsidiary;


 


(m)         any
other event or condition of any character, other than events affecting the economy or the Company’s industry generally,
that could reasonably be expected to result in a Material Adverse Effect;


 


(n)          any
capital expenditures, individually or in the aggregate, in excess of $250,000;


 


(o)          any
issuance of any shares of capital stock, bonds or other securities or any rights, options or warrants with respect thereto other
than upon the grant or exercise of awards under the Stock Plans, the exercise of the Outstanding Warrants or upon the conversion
of Preferred Stock;


 



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(p)          borrowing
of any amount or incurring or becoming subject to any liabilities (absolute or contingent), except current liabilities incurred
in the ordinary course of business which are comparable in nature and amount to the current liabilities incurred in the ordinary
course of business during the comparable portion of its prior fiscal year, as adjusted to reflect the current nature and volume
of the Company’s or such Subsidiary’s business;


 


(q)          experiencing
any material problems with its labor force or Key Employees in connection with the terms and conditions of their employment;


 


(r)          any
charitable contributions or pledges in excess of $10,000;


 


(s)          entering
into, amending, modifying or waiving any other material transaction other than in the ordinary course of business, or entering
into, amending, modifying or waiving any other material transaction, whether or not in the ordinary course of business; or


 


(t)          any
arrangement or commitment by the Company or any Subsidiary to do any of the things described in this Subsection 2.16.


 


2.17.      Employee
Matters.


 


(a)          The
Company employs ninety-one full-time employees and seven part-time employees, and engages ten consultants or independent contractors.


 


(b)          The
SEC Documents include true and complete descriptions of all compensation paid to those of the executive officers and directors
of the Company whose compensation was required to be reported pursuant to applicable SEC rules and regulations for its fiscal year
ended December 31, 2010.


 


(c)          To
the Company’s knowledge, none of the employees of the Company or any Subsidiary is obligated under any contract (including
licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court
or administrative agency, that would materially interfere with such employee’s ability to promote the interest of the Company
or its Subsidiaries or that would conflict with the business of the Company or any Subsidiary. Neither the execution or delivery
of the Transaction Agreements, nor the carrying on of the business of the Company and its Subsidiaries by the employees of the
Company and its Subsidiaries, nor the conduct of the business of the Company and its Subsidiaries as now conducted and as presently
proposed to be conducted, will, to the Company’s knowledge, conflict with or result in a breach of the terms, conditions,
or provisions of, or constitute a default under, any contract, covenant or instrument under which any such employee is now obligated.


 


(d)          Neither
the Company nor any Subsidiary is delinquent in payments to any of its employees, consultants, or independent contractors for any
wages, salaries, commissions, bonuses, or other direct compensation for any service performed for it to the date of this Agreement
or amounts required to be reimbursed to such employees, consultants, or independent contractors. The Company and each of its Subsidiaries
have complied in all material respects with all applicable state and federal equal employment opportunity laws and with other laws
related to employment, including those related to wages, hours, worker classification, and collective bargaining. The Company and
each of its Subsidiaries have withheld and paid to the appropriate governmental entity or are holding for payment not yet due to
such governmental entity all amounts required to be withheld from employees of the Company or such Subsidiaries and are not liable
for any arrears of wages, taxes, penalties, or other sums for failure to comply with any of the foregoing.


 



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(e)          To
the Company’s knowledge, no Key Employee intends to terminate employment with the Company or any Subsidiary or is otherwise
likely to become unavailable to continue as an employee, nor does the Company or any Subsidiary have a present intention to terminate
the employment of any Key Employee. The employment of each employee of the Company or any Subsidiary is terminable at the will
of the Company.


 


(f)          The
financial statements included in the SEC Documents contain descriptions of all employee benefit plans maintained, established or
sponsored by the Company or any Subsidiary, or which the Company or any Subsidiary participates in or contributes to, which is
subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). The Company and each of
its or any Subsidiaries have made all required contributions and have no liability to any such employee benefit plan, other than
liability for health plan continuation coverage described in Part 6 of Title I(B) of ERISA, and have complied in all material respects
with all applicable laws relating to any such employee benefit plans.


 


(g)          Neither
the Company nor any Subsidiary is bound by or subject to (and none of their respective assets or properties is bound by or subject
to), any written or oral, express or implied, contract, commitment or arrangement with any labor union, and no labor union has
requested or has sought to represent any of the employees, representatives or agents of the Company or any Subsidiary. There is
no strike or other labor dispute involving the Company or any Subsidiary pending, or to the Company’s knowledge, threatened,
which could have a Material Adverse Effect, nor is the Company aware of any labor organization activity involving any employees
of the Company or any Subsidiary.


 


2.18.      Tax
Returns and Payments. There are no federal, state, county, local or foreign taxes due and payable by the Company or any Subsidiary
which have not been timely paid. There are no accrued and unpaid federal, state, county, local or foreign taxes of the Company
or any Subsidiary which are due, whether or not assessed or disputed. There have been no examinations or audits of any tax returns
or reports of the Company or any Subsidiary by any applicable federal, state, local or foreign governmental agency. The Company
and each of its Subsidiaries have duly and timely filed all federal, state, county, local and foreign tax returns required to have
been filed by them and there are in effect no waivers of applicable statutes of limitations with respect to taxes for any year.


 


2.19.      Insurance.
The Company and its Subsidiaries have in full force and effect fire and casualty insurance policies with extended coverage, sufficient
in amount (subject to reasonable deductions) to allow it to replace any of its properties that might be damaged or destroyed. The
Company and each of its Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and customary in the businesses in which the Company and
its Subsidiaries are engaged. Neither the Company nor any such Subsidiary has been refused any insurance coverage sought or applied
for and neither the Company nor any such Subsidiary has any reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue
its business at a cost that would not have a Material Adverse Effect.


 



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2.20.      Employee
Agreements. Each current and former employee, consultant and officer of the Company or any Subsidiary has executed an agreement
with the Company or such Subsidiary regarding confidentiality and proprietary information (the “Confidential Information
Agreements”). No current or former Key Employee has excluded works or inventions from his or her assignment of inventions
pursuant to such employee’s Confidential Information Agreement. The Company is not aware that any of its employees is in
violation of any agreement covered by this Subsection 2.20.


 


2.21.      Permits;
Compliance with Law.


 


(a)          The
Company and each of its Subsidiaries have all franchises, permits, licenses and any similar authority necessary for the conduct
of their business, the lack of which could reasonably be expected to have a Material Adverse Effect. Neither the Company nor any
Subsidiary is in default in any material respect under any of such franchises, permits, licenses or other similar authority.


 


(b)          The
Company and each of its Subsidiaries have complied with each, and are not in violation of any, law, rule or regulation to which
they are subject and have not failed in any respect to obtain or adhere to the requirements of any regulatory approval or other
governmental authorization necessary to the ownership of their assets and properties or to the conduct of their business where
such failure would have a Material Adverse Effect.


 


(c)          Neither
the Company nor any Subsidiary is in violation of any of the rules, regulations or requirements of the Principal Market and has
no knowledge of any facts or circumstances that would reasonably lead to delisting or suspension of the Common Stock by its Principal
Market in the foreseeable future. During the two (2) years prior to the date hereof, (i) the Common Stock has been designated
for quotation on the Principal Market, (ii) trading in the Common Stock has not been suspended by the SEC or the Principal
Market and (iii) the Company has received no communication, written or oral, from the SEC or the Principal Market regarding
the suspension or delisting of the Common Stock from the Principal Market other than with respect to non-compliance with regulations
governing the minimum bid price for continuing listing of its Common Stock on the Principal Market.


 


2.22.      Corporate
Documents. The Certificate and Bylaws of the Company are as included in the SEC Documents. The copy of the minute books of
the Company and its Subsidiaries provided to the Purchaser or its counsel contains minutes of all meetings of directors (or other
governing body) and stockholders (or other equity holders) and all actions by written consent without a meeting by the directors
(or other governing body) and stockholders (or other equity holders) since the date of incorporation (or formation, as applicable)
and accurately reflects in all material respects all actions by the directors (or other governing body), and any committee thereof
and stockholders (or other equity holders) with respect to all transactions referred to in such minutes.


 



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2.23.      Environmental
and Safety Laws. Except as could not reasonably be expected to have a Material Adverse Effect, (a) the Company and each
of its Subsidiaries are and have been in compliance with all Environmental Laws; (b) there has been no release or to the Company’s
knowledge threatened release of any pollutant, contaminant or toxic or hazardous material, substance or waste, or petroleum or
any fraction thereof (each a “Hazardous Substance”) on, upon, into or from any site currently or heretofore
owned, leased or otherwise used by the Company or any Subsidiary; (c) there have been no Hazardous Substances generated by
the Company or any Subsidiary that have been disposed of or come to rest at any site that has been included in any published U.S.
federal, state or local “superfund” site list or any other similar list of hazardous or toxic waste sites published
by any governmental authority in the United States; and (d) there are no underground storage tanks located on, no polychlorinated
biphenyls (“PCBs”) or PCB-containing equipment used or stored on, and no hazardous waste as defined by the Resource
Conservation and Recovery Act, as amended, stored on, any site owned or operated by the Company or any Subsidiary, except for the
storage of hazardous waste in compliance with Environmental Laws. The Company has made available to the Purchaser or its counsel
true and complete copies of all material environmental records, reports, notifications, certificates of need, permits, pending
permit applications, correspondence, engineering studies, and environmental studies or assessments.


 


For purposes of this
Section 2, “Environmental Laws” means any law, regulation, or other applicable requirement relating to
(a) releases or threatened release of Hazardous Substances; (b) pollution or protection of employee health or safety, public health
or the environment; or (c) the manufacture, handling, transport, use, treatment, storage, or disposal of Hazardous Substances.


 


2.24.      Regulatory
Matters; FDA. 


 


(a)          The
Company and its Subsidiaries have obtained all necessary approvals, clearances, authorizations, licenses and registrations required
by the United States Federal government or its agencies and all approvals, clearances, authorizations, licenses and registrations
required by any other governmental authority, to permit all activities (including pre-clinical testing) undertaken by the Company
and its Subsidiaries to date, other than the activities contemplated by the Milestone Events and for which regulatory approval
is being sought in connection therewith, (the “Activities to Date”) in jurisdictions where the Company or any
Subsidiary currently conducts or in the past conducted such activities (collectively, the “Regulatory Licenses”)
except where the failure to have such Regulatory Licenses would not be expected to have a Material Adverse Effect. The Company
and its Subsidiaries are in compliance in all material respects with all terms and conditions of each Regulatory License and with
all applicable laws, rules and regulations pertaining to the Activities to Date. The Company and its Subsidiaries are in compliance
in all material respects with all applicable reporting requirements for all Regulatory Licenses.


 


(b)          Neither
the Company nor any Subsidiary has received any notice or other communication from the U.S. Food and Drug Administration (the “FDA”)
or any other federal, state or foreign governmental authority or entity alleging any violation by the Company or any Subsidiary
of any law, regulation or other legal provision applicable to any of the products of the Company or any Subsidiary.


 



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(c)          None
of the Company, any Subsidiary or any officer, employee or agent of the Company has made an untrue statement of a material fact
or fraudulent statement to the FDA or any other federal, state or foreign governmental authority or entity performing similar functions
or failed to disclose a material fact required to be disclosed to the FDA or such other federal, state or foreign governmental
authority or entity.


 


2.25.      No
General Solicitation; No Integrated Offering. None of the Company or any Subsidiary, or any of their respective officers, directors,
employees, agents or affiliates, or any Person acting on its or their behalf, has either, directly or indirectly, including through
a broker or finder, (a) engaged in any form of general solicitation or general advertising (within the meaning of Regulation
D promulgated by the SEC pursuant to the Securities Act) in connection with the offer or sale of any of the Securities or (b) published
any advertisement in connection with the offer and sale of any of the Securities. Except as contemplated under the terms of the
Transaction Agreements, neither the Company nor any of its affiliates or any Person acting on its or their behalf, has directly
or indirectly made any offers or sales of any security or solicited any offers to buy any security under circumstances that would
require registration under the Securities Act of the issuance of any of the Securities to the Purchaser. The issuance of any of
the Securities to the Purchaser will not be integrated with any other issuance of the Company’s securities (past, current
or future) for purposes of any stockholder approval provisions applicable to the Company or its securities.


 


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


 


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


 


2.28.      Solvency.
The Company (both before and after giving effect to the transactions contemplated by this Agreement) is solvent (i.e., its
assets have a fair market value in excess of the amount required to pay its probable liabilities on its existing debts as they
become absolute and matured) and currently the Company has no information that would lead it to reasonably conclude that the Company
or any Subsidiary would not have the ability to, nor does it intend to take any action that would impair its ability to, pay its
debts from time to time incurred in connection therewith as such debts mature. The Company did not receive a qualified opinion
from its auditors with respect to its most recent fiscal year end and does not anticipate or know of any basis upon which its auditors
might issue a qualified opinion in respect of its current fiscal year.


 



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2.29.      No
Investment Company. Neither the Company nor any Subsidiary is, and upon the issuance and sale of the Securities as contemplated
by this Agreement will not be, an “investment company” required to be registered under the Investment Company Act of
1940 (an “Investment Company”). To the best of the Company’s knowledge, the Company is not controlled
by an Investment Company.


 


2.30.      No
Market Manipulation. Neither the Company or any Subsidiary has, and to the Company’s knowledge, no one acting on its
behalf has, (i) taken, directly or indirectly, any action designed to cause or to result in, or that has constituted or which
might reasonably be expected to constitute, the stabilization or manipulation of the price of any security of the Company to facilitate
the sale or resale of any of the Securities, (ii) sold, bid for, purchased, or paid anyone any compensation for soliciting
purchases of, any of the Securities or (iii) paid or agreed to pay to any Person any compensation for soliciting another to
purchase any other securities of the Company or any Subsidiary.


 


2.31.      Stop
Transfer. The Securities, when issued, will be restricted securities. The Company will not issue any stop transfer order or
other order impeding the sale, resale or delivery of any of the Securities, except as may be required by any applicable federal
or state securities laws and unless contemporaneous notice of such instruction is given to the Purchaser.


 


2.32.      Accountants;
No Disagreements With Accountants And Lawyers.


 


(a)          The
Company’s accounting firm is set forth in the SEC Documents. To the Company’s knowledge, such accounting firm: (i)
is a registered public accounting firm as required by the Exchange Act and (ii) shall express its opinion with respect to the financial
statements to be included in the Company’s Annual Report on Form 10-K for the fiscal year ending December 31, 2011.


 


(b)          There
are no disagreements of any kind presently existing, or reasonably anticipated by the Company or any Subsidiary to arise, between
the Company or any Subsidiary, on the one hand, and the accountants and lawyers formerly or presently employed by the Company or
any Subsidiary, on the other, including but not limited to disputes or conflicts over payment owed to such accountants and lawyers.


 



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2.33.         Absence
of Certain Company Control Person Actions or Events. To the Company’s knowledge, during the past five (5) years: (a) no
petition under the federal bankruptcy laws or any state insolvency law was filed by or against, and no receiver, fiscal agent or
similar officer was appointed by a court for the business or property of any Company Control Person (as defined below), or any
partnership in which he or she was a general partner at or within two years before the time of such filing, or any corporation
or business association of which he or she was an executive officer at or within two years before the time of such filing; (b) no
Company Control Person was convicted in a criminal proceeding or is a named subject of a pending criminal proceeding (excluding
traffic violations and other minor offenses); (c) no Company Control Person has been the subject of any order, judgment or
decree, that was not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily
enjoining him from, or otherwise limiting, the following activities: (A) acting, as an investment advisor, underwriter, broker
or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association
or insurance company, as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator,
floor broker, any other Person regulated by the Commodity Futures Trading Commission (“CFTC”) or engaging in
or continuing any conduct or practice in connection with such activity; (B) engaging in any type of business practice; or (C) engaging
in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of federal
or state securities laws or federal commodities laws; (d) no Company Control Person has been the subject of any order, judgment
or decree, not subsequently reversed, suspended or vacated, of any federal or state authority barring, suspending or otherwise
limiting for more than 60 days the right of such Company Control Person to engage in any activity described in paragraph (c) of
this item, or to be associated with Persons engaged in any such activity; and (e) no Company Control Person was found by a
court of competent jurisdiction in a civil action or by the CFTC or SEC to have violated any federal or state securities law, and
the judgment in such civil action or finding by the CFTC or SEC has not been subsequently reversed, suspended, or vacated.


 


For purposes hereof,
“Company Control Person” means each director, executive officer, promoter, and such other Persons as may be
deemed in control of the Company pursuant to Rule 405 under the Securities Act or Section 20 of the Exchange Act.


 


2.34.         DTC
Status. The Company’s transfer agent is a participant in and the Common Stock is eligible for transfer pursuant
to the Depository Trust Company Automated Securities Transfer Program. The name, address, telephone number, fax number, contact
person and email address of the Company transfer agent is set forth on Section 2.34 of the Disclosure Schedule.


 


2.35.         Sarbanes-Oxley.
The Company is in material compliance with all provisions of the Sarbanes-Oxley Act of 2002 which are applicable to it.


 


2.36.         Off
Balance Sheet Arrangements. There is no transaction, arrangement, or other relationship between the Company or any Subsidiary,
on the one hand, and an unconsolidated or other off balance sheet entity, on the other, that is required to be disclosed by the
Company in its SEC Documents and is not so disclosed or that otherwise would be reasonably likely to have a Material Adverse Effect.


 


2.37.         Regulation
M Compliance. Neither the Company nor any Subsidiary has, and to the Company’s knowledge, no one acting on its or their
behalf has, (i) taken, directly or indirectly, any action designed to cause or to result in the stabilization or manipulation
of the price of any security of the Company to facilitate the sale or resale of any of the Securities, (ii) sold, bid for,
purchased, or paid any compensation for soliciting purchases of, any of the securities of the Company or (iii) paid or agreed
to pay to any Person any compensation for soliciting another to purchase any other securities of the Company, other than, in the
case of clauses (ii) and (iii), compensation paid to Summer Street Research Partners in connection with the placement of the
Securities.


 



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2.38.         Application
of Takeover Protections; Rights Agreement. The Company and its Board of Directors have taken all necessary action, if any,
in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under
a rights agreement) or other similar anti-takeover provision under its organizational documents or the laws of the jurisdiction
of its incorporation which would prevent completion of the transactions contemplated by this Agreement. The Company has not adopted
a stockholder rights plan or similar arrangement relating to accumulations of beneficial ownership of Common Stock or a change
in control of the Company.


 


2.39.         Stock
Option Plans. Each stock option granted by the Company under the Company’s Stock Plans was granted (i) in accordance
with the terms of the Company’s Stock Plans and (ii) with an exercise price at least equal to the fair market value
of the Common Stock on the date such stock option would be considered granted under United States generally accepted accounting
principles and applicable law. No stock option granted under the Company’s Stock Option Plans has been backdated. The Company
has not knowingly granted, and there is no and has been no Company policy or practice to knowingly grant, stock options prior to,
or otherwise knowingly coordinate the grant of stock options with, the release or other public announcement of material information
regarding the Company or any of its Subsidiaries or their financial results or prospects.


 


2.40.         U.S.
Real Property Holding Corporation. The Company is not and has never been a U.S. real property holding corporation within the
meaning of Section 897 of the Internal Revenue Code of 1986, as amended.


 


2.41.         Nasdaq.
The Company has filed all applications and notices required by the rules of the Principal Market with respect to the issuance and
sale of the Securities to the Purchaser and the other transactions contemplated by this Agreement.


 


2.42.         Disclosure.
All disclosure provided to the Purchaser regarding the Company and its Subsidiaries, their business and the transactions contemplated
hereby, including the Disclosure Schedule to this Agreement, furnished by or on behalf of the Company is true and correct in all
material respects and does not contain any untrue statement of a material fact or omit to state any material fact necessary in
order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. No event
or circumstance has occurred or information exists with respect to the Company or any of its Subsidiaries or its or their business,
properties, prospects, operations or financial conditions, which, under applicable law, rule or regulation, requires public disclosure
or announcement by the Company but which has not been so publicly announced or disclosed, except for information that will be contained
within the Current Report on Form 8-K to be filed reporting this transaction or the Company’s next due Annual Report on Form 10-K
and information relative to this transaction.


 



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2.43.         Rights
of Holders of Series B Preferred Stock. The rights of holders of the Series B Preferred Stock under Sections 4 (“Covenants”)
and 5 (“Prohibition on Liens; Injunction”) of the Series B Securities Purchase Agreement and Sections 12 (“Certain
Negative Covenants; Misc.”) and 13 (“Events of Default”) and 14 (“Adjustment Upon Certain Events of Default;
Mandatory Redemption; Posting of Bond”) of the Series B Certificate of Designation, have expired and are no longer in effect.



 


3.            Representations
and Warranties of the Purchaser. The Purchaser hereby represents and warrants to the Company that:


 


3.1.          Authorization.
The Purchaser has full power and authority to enter into the Transaction Agreements to which the Purchaser is a party. The Transaction
Agreements to which the Purchaser is a party, when executed and delivered by the Purchaser, will constitute valid and legally binding
obligations of the Purchaser, enforceable against the Purchaser in accordance with their terms, except (a) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and any other laws of general application relating to
or affecting enforcement of creditors’ rights generally, and as limited by laws relating to the availability of specific
performance, injunctive relief, or other equitable remedies, or (b) to the extent the indemnification provisions contained
in the Investors Rights Agreement may be limited by applicable federal or state securities laws.


 


3.2.          Purchase
Entirely for Own Account. This Agreement is made with the Purchaser in reliance upon the Purchaser’s representation to
the Company, which by the Purchaser’s execution of this Agreement, the Purchaser hereby confirms, that the Shares will be
acquired for investment for the Purchaser’s own account, not as a nominee or agent, and not with a view to the resale or
distribution of any part thereof in violation of the Securities Act, and that the Purchaser has no present intention of selling,
granting any participation in, or otherwise distributing the same. By executing this Agreement, the Purchaser further represents
that the Purchaser does not presently have any contract, undertaking, agreement or arrangement with any Person to sell, transfer
or grant participations to such Person or to any third Person, with respect to any of the Shares, except for the Transaction Agreements.


 


3.3.          Disclosure
of Information. The Purchaser has had an opportunity to discuss the Company’s business, management, financial affairs
and the terms and conditions of the offering of the Shares with the Company’s management and has had an opportunity to review
the Company’s facilities. The foregoing, however, does not limit or modify the representations and warranties of the Company
in Section 2 of this Agreement or the right of the Purchaser to rely thereon.


 


3.4.          Restricted
Securities. The Purchaser understands that the Shares have not been, and will not be, registered under the Securities Act,
by reason of a specific exemption from the registration provisions of the Securities Act which depends upon, among other things,
the bona fide nature of the investment intent and the accuracy of the Purchaser’s representations as expressed herein. The
Purchaser understands that the Shares are “restricted securities” under applicable U.S. federal and state securities
laws and that, pursuant to these laws, the Purchaser must hold the Shares indefinitely unless they are registered with the
Securities and Exchange Commission and qualified by state authorities, or an exemption from such registration and qualification
requirements is available. The Purchaser acknowledges that the Company has no obligation to register or qualify the Shares, or
the Common Stock into which it may be converted, for resale except as set forth in the Investors Rights Agreement. The Purchaser
further acknowledges that if an exemption from registration or qualification is available, it may be conditioned on various requirements
including, but not limited to, the time and manner of sale, the holding period for the Shares, and on requirements relating to
the Company which are outside of the Purchaser’s control, and which the Company is under no obligation and may not
be able to satisfy.


 



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3.5.        Legends.
The Purchaser understands that the Shares and any securities issued in respect of or exchange for the Shares, may bear one or all
of the following legends:


 


(a)          “THE
SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT
AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH TRANSFER MAY BE EFFECTED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS
NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.”


 


(b)          Any
legend set forth in, or required by, the other Transaction Agreements.


 


(c)          Any
legend required by the securities laws of any state to the extent such laws are applicable to the Shares represented by the certificate
so legended.


 


(d)          The
Conversion Shares and the Warrant Shares, together with any other shares of Common Stock that are issued or issuable pursuant to
the Transaction Agreements shall be referred to herein as the “Issued Common Shares.” Certificates evidencing
the Issued Common Shares shall not contain any legend restricting the transfer thereof (including the legend set forth in Subsection 3.5(a)):
(i) following resale of such shares while a registration statement covering the resale of such security is effective under
the Securities Act, or (ii) following any sale of such Issued Common Shares pursuant to Rule 144, or (iii) if such Issued
Common Shares are eligible for sale without volume or manner of sale limitation or current public information requirements under
Rule 144 or (iv) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations
and pronouncements issued by the staff of the SEC) (collectively, the “Unrestricted Conditions”). The Company
shall cause its counsel to issue a legal opinion to the Company’s transfer agent promptly after the effective date of the
Registration Statement contemplated by the Investors Rights Agreement if required by the Company’s transfer agent to effect
the sale of Issued Common Shares by the Purchaser without a restrictive legend. If the Unrestricted Conditions are met at the time
of issuance or resale of Issued Common Shares, then such Issued Common Shares shall be issued free of all legends and the Purchaser
submits proof and proper documentation reasonably satisfactory to the Company and its transfer agent to the conditions in this
Subsection 3.5(d). The Company agrees that at such time as the Unrestricted Conditions are met or such legend is otherwise
no longer required under this Subsection 3.5(d), it will, no later than three (3) Trading Days following the delivery
by the Purchaser to the Company or the Company’s transfer agent of a certificate representing Issued Common Shares, as applicable,
issued with a restrictive legend and proof and proper documentation reasonably satisfactory to the Company and its transfer agent
to the conditions in this Subsection 3.5(d) (such third Trading Day, the “Legend Removal Date”),
deliver or cause to be delivered to the Purchaser a certificate representing such shares that is free from all restrictive and
other legends.


 



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3.6.          No
General Solicitation. Neither the Purchaser, nor any of its officers, directors, employees, agents, or members has either,
directly or indirectly, including through a broker or finder (a) engaged in any general solicitation or general advertising
(within the meaning of Regulation D promulgated by the SEC pursuant to the Securities Act) in connection with the offer or sale
of any of the Securities, or (b) published any advertisement in connection with the offer and sale of the Shares.


 


3.7.          Principal
Office. The office or offices of the Purchaser in which its principal place
of business is located is identified in the preamble to this Agreement.


 


3.8.          Accredited
Investor. The Purchaser is an Accredited Investor within the meaning of Regulation D promulgated by the SEC pursuant to the
Securities Act and has not been formed solely for the purpose of engaging in the transactions contemplated by this Agreement.


 


4.            Covenants.


 


4.1.          Reasonable
Best Efforts. The parties shall use their reasonable best efforts to satisfy timely each of the conditions described in Section 5
and Section 6 of this Agreement.


 


4.2.          Form
D; Blue Sky Laws. The Company agrees to file a Form D with respect to the Securities as required under Regulation D. The Company
shall, on or before the date of the Initial Closing, take such action as the Company shall reasonably determine is necessary to
qualify the Securities for sale to the Purchaser at each Closing pursuant to this Agreement under applicable securities or “blue
sky” laws of the states of the United States (or to obtain an exemption from such qualification), and shall provide evidence
of any such action so taken to the Purchaser on or prior to the date of the Initial Closing.


 


4.3.          Securities
Laws Disclosure; Publicity. The Company shall, by 5:30 p.m. (Eastern time) on the fourth business day following the date hereof,
file with the SEC a Current Report on Form 8-K, disclosing the terms of the transactions contemplated by the Transaction Agreements
in the form required by the Exchange Act and attaching the material Transaction Agreements (including, without limitation, this
Agreement (and all schedules to this Agreement), the form of Warrant, the Investors Rights Agreement, the Series C Certificate
of Designations and the Series A Amendments and Series B Amendments), as exhibits thereto (including all attachments, the “8-K
Filing”). The Company and the Purchaser shall consult with each other in issuing any other press releases with respect
to the transactions contemplated hereby, and the Company shall not issue any press release or otherwise make any such public statement
without the prior consent of the Purchaser, except if such disclosure is required by law, in which case the Company shall promptly
provide the Purchaser with prior notice of such public statement or communication. Notwithstanding the foregoing, the Company shall
not publicly disclose the name of the Purchaser, or include the name of the Purchaser in any filing with the SEC, any other governmental
authority or regulatory agency, or any market or exchange, without the prior written consent of the Purchaser, except (i) as required
by federal securities law in connection with (A) any registration statement contemplated by the Investors Rights Agreement and
(B) the filing of final Transaction Agreements (including signature pages thereto) with the SEC and (ii) to the extent such disclosure
is required by law or regulations of the Principal Market, in which case the Company shall provide the Purchaser with prior notice
of such disclosure permitted under this subclause (ii).


 



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4.4.        No
Integration. The Company shall not sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security
(as defined in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Securities to the Purchaser
in a manner that would require the registration under the Securities Act of the sale of the Securities to the Purchaser or that
would be integrated with the offer or sale of the Securities for purposes of the rules and regulations of the Principal Market
or any other market on which the Common Stock is sold or traded.


 


4.5.        Share
Issuance Authorization. As soon as practicable following the date hereof, the Company shall prepare a proxy or information
statement (which shall be in a form reasonably acceptable to the Purchaser and its counsel), shall submit the proxy or information
statement to the SEC and shall mail it to its shareholders, requesting and recommending that they vote affirmatively or informing
them that written consents have been obtained with respect to (a “Shareholder Issuance Vote”):


 


(a)          a
proposal to approve the issuance, under applicable law and the rules of the Principal Market or other applicable Eligible Market,
of all of the Conversion Shares and Warrant Shares and other shares of Common Stock issuable pursuant to the Transaction Agreements
without regard to the Issuable Maximum and to eliminate any prohibitions under applicable law or the rules or regulations of any
stock exchange, interdealer quotation system or other self-regulatory organization with jurisdiction over the Company or any of
its securities on the Company’s ability to issue shares of Common Stock in excess of the Issuable Maximum; and


 


(b)          the
proposed Series A Amendments and Series B Amendments;


 


If at any time prior to such shareholders’
meeting there shall occur any event that is required to be set forth in an amendment or supplement to the proxy statement, the
Company shall as promptly as practicable prepare and mail to its shareholders such an amendment or supplement.


 


The shareholder approval
of the foregoing proposals is referred to herein as the “Shareholder Issuance Approval”). The Shareholder Issuance
Approval shall occur before June 15, 2012; provided, however,
that if the Company’s failure to obtain the Shareholder Issuance Approval by the Shareholder Issuance Approval Deadline is
due to its inability to resolve, in good faith, to the SEC’s satisfaction any comments pertaining to its review of the proxy
or information statement, then the Shareholder Issuance Approval Deadline shall be extended to the earlier of (i) the date
that is forty-five (45) days after the date that the SEC notifies the Company that it has no further comments or (ii) July
31, 2012, as may be extended in the sole discretion of the Purchaser (the “Shareholder Issuance Approval Deadline”).
In the event that the Shareholder Issuance Approval is not obtained by the Shareholder Issuance Approval Deadline, in addition
to and without limitation of any other remedies that the Purchaser may have, the Company agrees to include such proposals at a
meeting of its shareholders no less than once in each subsequent annual period beginning in 2012 until such approval is obtained.


 



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4.6.        D&O
Insurance. So long as the Series C Director is a member of the Company’s Board of Directors, the Company shall maintain
a director’s and officer’s insurance policy in the amount of at least $5,000,000.


 


4.7.        Prohibition
on the Issuance of Shares. Absent the prior written consent of the Purchaser, prior
to the Shareholder Issuance Approval, the Company shall not issue any securities which would have resulted in an adjustment to
the Series C-1 Conversion Price (as defined in the Series C Certificate of Designation) had Part I, Section 7.8 of the Series C
Certificate of Designation then been in effect.


 


4.8.        Purchaser’s
Consent to Series A Amendments and Series B Amendments. The Purchaser hereby consents to the Series A Amendments and Series
B Amendments for purposes of Part I, Section 6.3 and Part II, Section 6.3 of the Series C Certificate of Designation, which constitutes
the consent of the Required Holders as defined in the Series C Certificate of Designation.


 


5.            Conditions
to the Purchasers’ Obligations at Closing.


 


5.1.        Conditions
to Initial Closing. The obligations of the Purchaser to purchase the Initial Shares and the Initial Warrant at the Initial
Closing are subject to the fulfillment, on or before such Initial Closing, of each of the following conditions, unless otherwise
waived:


 


(a)          Representations
and Warranties. The representations and warranties of the Company contained in Section 2 shall be true and correct
in all respects as of the Initial Closing.


 


(b)          Performance.
The Company shall have performed and complied with all covenants, agreements, obligations and conditions contained in this Agreement
that are required to be performed or complied with by the Company on or before such Closing.


 


(c)          Compliance
Certificate. The President and Chief Executive Officer or Chief Financial Officer of the Company shall deliver to the Purchaser
at such Closing a certificate certifying that the conditions specified in this Subsection 5.1 have been fulfilled.


 


(d)          Consents
and Approvals; Qualifications. The Purchaser shall have received, each in form and substance satisfactory to the Purchaser,
all authorizations, approvals, permits, consents, orders and approvals of any governmental authority or regulatory body and any
third party consents that are required in connection with the lawful issuance and sale of the Securities pursuant to this Agreement
(including, without limitation, waiver of all existing anti-dilution or other price adjustments, other than under the Series B
Warrants (other than the Amended and Restated Series B Warrants) as in effect on the date hereof held by any non-Exchanging Warrantholders).


 



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(e)         No
Litigation or Order. No litigation, statute, rule, regulation, executive order, decree, ruling or injunction shall have been
enacted, entered, promulgated or endorsed by or in any court or governmental authority of competent jurisdiction or any self-regulatory
organization having authority over the matters contemplated hereby which prohibits the consummation of any of the transactions
contemplated by this Agreement.


 


(f)         No
Suspension of Trading. The Common Stock (i) shall be designated for quotation or listed on the Principal Market and (ii) shall
not have been suspended by the SEC or the Principal Market from trading on the Principal Market and, within two (2) business days
of the Closing, the Company shall have made application to the Principal Market to have the Conversion Shares and the Warrant Shares
authorized for quotation.


 


(g)         No
Material Adverse Effect. No event or events shall have occurred, or be reasonably likely to occur, which, individually or in
the aggregate, have, or could have, a Material Adverse Effect.


 


(h)         Opinion
of Company Counsel. The Purchaser shall have received from Woods Oviatt Gilman, LLP, counsel for the Company, an opinion, dated
as of the date of the Initial Closing, in substantially the form of Exhibit G attached to this Agreement.


 


(i)          Board
of Directors. As of the Initial Closing, the authorized size of the Company’s Board of Directors shall be nine (9), which
shall include one seat for the Series C Director.


 


(j)          Investors
Rights Agreement. The Company and the Purchaser shall have executed and delivered the Investors Rights Agreement.


 


(k)          Amended
and Restated Series B Warrants. The holders of at least 68% of
the outstanding Series B Warrants (determined by the number of unexercised underlying shares of Common Stock)
shall have exchanged their outstanding Series B Warrants for amended and restated Series B Warrants, in the form of Exhibit H
attached hereto (the “Amended and Restated Series B Warrants”),
and such exchanged Series B Warrants shall have been cancelled and of no further force or effect.


 


(l)          Series
C Certificate of Designations. The Company shall have filed the Series C Certificate of
Designations with the Secretary of State of Delaware on or prior to the Initial Closing, which shall continue to be in full
force and effect as of the applicable Closing.


 


(m)         Secretary’s
Certificate. The Secretary of the Company shall have delivered to the Purchaser at the Initial Closing a certificate certifying
(i) the Certificate of Incorporation and Bylaws of the Company, as in effect, (ii) resolutions of the Board of Directors of the
Company approving the Transaction Agreements and the transactions contemplated under the Transaction Agreements, and (iii) written
consents of the holders of Series A Convertible Preferred Stock and the Series B Convertible Preferred Stock approving the creation
of the Series C Preferred Stock.


 



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


 


(o)          Preemptive
Rights; Anti-Dilution Rights. The Company shall have obtained enforceable waivers in respect of any preemptive rights, anti-dilution
rights, price adjustment rights or similar rights directly or indirectly affecting any of its securities, in form and substance
satisfactory to the Purchaser and its counsel, other than with respect to the Series B Warrants (excluding the Amended and Restated
Series B Warrants) as in effect on the date hereof held by any non-Exchanging Warrantholders.


 


(p)          Stock
and Warrant Certificates. The Company shall have delivered to the Purchaser the duly executed certificates representing the
Initial Shares and Initial Warrant.


 


(q)          Voting
Agreement. The Company shall have obtained Voting Agreements, in the form attached to this Agreement as Exhibit I
(the “Voting Agreements”), executed and delivered by the Company and the holders of at least a majority of the
outstanding shares of its Series A Preferred Stock and the holders of in excess of two-thirds of the outstanding shares of its
Series B Preferred Stock with respect to the Series A Amendments and Series B Amendments and the transactions contemplated
by this Agreement and the other Transaction Agreements.


 


(r)          
Director Indemnification Agreement. The Company shall have delivered to the Purchaser a Director Indemnification
Agreement in form reasonable satisfactory to the Purchaser.


 


5.2.        Conditions
to Second Closing. The obligations of the Purchaser to purchase Milestone Shares and the Milestone Warrant at the Second Closing
are subject to the fulfillment, on or before such Second Closing, of each of the following conditions, unless otherwise waived:


 


(a)          Representations
and Warranties. The representations and warranties of the Company contained in Section 2 shall have been true
and correct in all material respects as of the Second Closing, except that (i) the Fundamental Representations (as defined
below), shall have been true and correct in all respects as of the Second Closing, (except as provided in clause (ii)
below), and (ii) representations and warranties that are made as of a specific date, shall have been true and correct
as of such date.


 


(b)          Performance.
The Company shall have performed and complied with all covenants, agreements, obligations and conditions contained in this Agreement
and the other Transaction Agreements that are required to be performed or complied with by the Company on or before such Second
Closing.


 



    	31



    	 



    

 


(c)          Milestone
Conditions. The Purchaser shall have received the certification by the Company’s
Board of Directors that the Milestone Events have occurred in accordance with Subsection 1.1(c)(i).


 


(d)          Compliance
Certificate. The President and Chief Executive officer or Chief Financial Officer of the Company shall deliver to the Purchaser
at such Closing a certificate certifying that the conditions specified in this Subsection 5.2 have been fulfilled.


 


(e)          Consents
and Approvals; Qualifications. The Purchaser shall have received, each in form and substance satisfactory to the Purchaser,
all authorizations, approvals, permits, consents, orders and approvals of any governmental authority or regulatory body and any
third party consents that are required in connection with the lawful issuance and sale of the Securities pursuant to this Agreement
at the Second Closing (including, without limitation, waiver of all existing anti-dilution or other price adjustments, other than
under the Series B Warrants (other than the Amended and Restated Series B Warrants) as in effect on the date hereof held by any
non-Exchanging Warrantholders).


 


(f)          No
Litigation or Order. No litigation, statute, rule, regulation, executive order, decree, ruling or injunction shall have been
enacted, entered, promulgated or endorsed by or in any court or governmental authority of competent jurisdiction or any self-regulatory
organization having authority over the matters contemplated hereby, or shall have been threatened in writing, which prohibits the
consummation of the Second Closing or challenges or seeks to restrain or adversely alter the transactions contemplated by this
Agreement.


 


(g)         No
Suspension of Trading. The Common Stock (i) shall be designated for quotation or listed on the Principal Market and (ii) shall
not have been suspended by the SEC or the Principal Market from trading on the Principal Market and the Company shall have
made application to the Principal Market to have the Conversion Shares and the Warrant Shares authorized for quotation.


 


(h)         No
Material Adverse Effect. No event or events shall have occurred, or be reasonably likely to occur, which, individually or in
the aggregate, have, or could have, a Material Adverse Effect.


 


(i)          Shareholder
Issuance Approval. The Shareholder Issuance Approval shall have been obtained and remain in full force and effect.


 


(j)          Opinion
of Company Counsel. The Purchaser shall have received from Woods Oviatt Gilman, LLP,
counsel for the Company, an opinion, dated as of the date of the Second Closing, in substantially the form of Exhibit
G attached to this Agreement.


 


(k)         Stock
and Warrant Certificates. The Company shall have delivered to the Purchaser the duly executed certificates representing the
Milestone Shares and Milestone Warrant.


 


(l)          Scientific
Advisory Board. The Company shall have established the Scientific Advisory Board in
accordance with the Investors Rights Agreement.


 



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


 


(n)          
Series A Amendments and Series B Amendments. The Company shall have filed the Series A Amendments and Series
B Amendments with the Secretary of State of Delaware on or prior to the Initial Closing, which shall continue to be in full force
and effect as of the applicable Closing.


 


6.            Conditions
of the Company’s Obligations at Closing. The obligations of the Company to sell the Initial Shares and the Initial Warrant
to the Purchaser at the Initial Closing and the Milestone Shares and Milestone Warrant at the Second Closing are subject to the
fulfillment, on or before the applicable Closing, of each of the following conditions, unless otherwise waived:


 


6.1.        Representations
and Warranties. The representations and warranties of the Purchaser contained in Section 3 shall be true
and correct in all respects as of such Closing.


 


6.2.        Performance.
The Purchaser shall have performed and complied with all covenants, agreements, obligations and conditions contained in this Agreement
and the other Transaction Agreements that are required to be performed or complied with by it on or before such Closing.


 


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


 


6.4.        Investors
Rights Agreement. The Purchaser shall have executed and delivered the Investors Rights Agreement.


 


7.            Miscellaneous.


 


7.1.          Survival
of Warranties. Unless otherwise set forth in this Agreement, the representations and warranties of the Company and the Purchaser
contained in or made pursuant to this Agreement shall survive the execution and delivery of this Agreement and the Closing and
shall in no way be affected by any investigation or knowledge of the subject matter thereof made by or on behalf of the Purchaser
or the Company for a period of eighteen (18) months after the Initial Closing, except for those representations and warranties
in Subsections 2.1 (“Organization, Good Standing, Corporate Power and Qualification”), 2.2 (“Capitalization”),
2.4 (“Authorization”), 2.5 (“Valid Issuance of Shares”) (collectively, the “Fundamental Representations”)
and Section 3, which shall survive indefinitely.


 



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7.2.        Indemnification.


 


(a)          The
Company and the Purchaser (the “Indemnifying Party”) agree to indemnify and hold harmless the other, and all
of their respective officers, directors, employees, agents, members, partners, affiliates and managers (the “Indemnified
Party”), for loss or damage (including, without limitation, reasonable attorneys’ fees and other expenses) arising
as a result of or related to any breach by the Company or the Purchaser, as applicable, of any of its representations, warranties
and covenants set forth in this Agreement. For purposes of this Agreement, such loss or damage shall specifically exclude any lost
profits (but shall not exclude loss of value), consequential damages or punitive damages.


 


(b)          Promptly
after receipt of notice of the commencement of any action against an Indemnified Party, such Indemnified Party shall notify the
Indemnifying Party in writing of the commencement thereof and the basis hereunder upon which a claim for indemnification is asserted,
but the failure to do so shall not relieve the Indemnifying Party of its obligations hereunder, except to the extent the Indemnifying
Party is materially prejudiced by such failure. In the event of the commencement of any such action, the Indemnifying Party shall
be entitled to participate therein and to assume the defense thereof with counsel satisfactory to the Indemnified Party and, after
notice from the Indemnifying Party to the Indemnified Party of its election so to assume the defense thereof, the Indemnifying
Party shall not be liable to the Indemnified Party hereunder for any legal expenses (including attorneys’ fees) subsequently
incurred by such Indemnified Party in connection with the defense thereof other than reasonable costs of investigation and of liaison
with counsel so selected; provided, however, that, if the defendants in any such action include both the Indemnified
Party and the Indemnifying Party and the Indemnified Party shall have reasonably concluded that there may be reasonable defenses
available to it which are different from or additional to those available to the Indemnifying Party or if the interests of the
Indemnified Party reasonably may be deemed to conflict with the interests of the Indemnifying Party, the Indemnified Party shall
have the right to select one separate counsel and to assume such legal defenses and otherwise to participate in the defense of
such action, with the reasonable expenses and fees of such separate counsel and other expenses related to such participation to
be reimbursed by the Indemnifying Party as incurred.


 


(c)          As
to cases in which the Indemnifying Party has assumed and is providing the defense for the Indemnified Party, the control of such
defense shall be vested in the Indemnifying Party; provided that the consent of the Indemnified Party shall be required
prior to any settlement of such case or action, which consent shall not be unreasonably withheld. As to any action, the party which
is controlling such action shall provide to the other party reasonable information (including reasonable advance notice of all
proceedings and depositions in respect thereto) regarding the conduct of the action and the right to attend all proceedings and
depositions in respect thereto through its agents and attorneys, and the right to discuss the action with counsel for the party
controlling such action.


 


(d)          The
maximum amount payable by the Company to the Purchaser, or the Purchaser to the Company or any other Indemnified Party, for losses
or damages in respect of claims for indemnification under this Section 7.2, shall not exceed an amount equal to the purchase price
paid by the Purchaser.


 



    	34



    	 



    

 


7.3.          Successors
and Assigns. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors
and assigns of the parties. Neither the Company nor any Purchaser shall assign this Agreement or any rights or obligations hereunder
without the prior written consent of the other. Nothing in this Agreement, express or implied, is intended to confer upon any party
other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under
or by reason of this Agreement, except as expressly provided in this Agreement.


 


7.4.          Governing
Law. This Agreement shall be governed by the internal law of the State of New York.


 


7.5.          Counterparts.
This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together
shall constitute one and the same instrument. Counterparts may be delivered via facsimile, electronic mail (including pdf) or other
transmission method and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective
for all purposes.


 


7.6.          Titles
and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.


 


7.7.          Notices.
All notices and other communications given or made pursuant to this Agreement shall be in writing and shall be deemed effectively
given upon the earlier of actual receipt or: (a) personal delivery to the party to be notified, (b) when sent, if sent by facsimile
during normal business hours of the recipient, and if not sent during normal business hours, then on the recipient’s next
business day, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid,
or (d) one (1) business day after deposit with a nationally recognized overnight courier, freight prepaid, specifying next business
day delivery, with written verification of receipt. All communications shall be sent to the respective parties at their address
as first set forth above, or to such facsimile number or address as subsequently designated by written notice given in accordance
with this Section 7.7. If notice is given to the Company, a copy shall also be sent to Woods Oviatt Gilman, LLP, 2 State
Street, Rochester, NY 14614, Facsimile: 585-987-2975, Attn: Gregory W. Gribben, Esq. and if notice is given to the Purchaser, a
copy shall also be given to McDermott Will & Emery LLP, 340 Madison Avenue, New York, NY 10173, Facsimile: 212-547-5444, Attn:
Todd A. Finger, Esq. and Seth T. Goldsamt, Esq.


 


7.8.          No
Finder’s Fees. Other than the fee payable by the Company to Summer Street Research Partners, each party represents that
it neither is nor will be obligated for any finder’s fee or commission in connection with this transaction. The Purchaser
agrees to indemnify and to hold harmless the Company from any liability for any commission or compensation in the nature of a finder’s
or broker’s fee arising out of this transaction (and the costs and expenses of defending against such liability or asserted
liability) for which the Purchaser or any of its officers, employees, or representatives is responsible. The Company agrees to
indemnify and hold harmless the Purchaser from any liability for any commission or compensation in the nature of a finder’s
or broker’s fee arising out of this transaction (and the costs and expenses of defending against such liability or asserted
liability) for which the Company or any of its officers, employees or representatives is responsible.


 



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7.9.          Fees
and Expenses. At the Initial Closing, the Company shall pay the Purchaser’s reasonable fees and expenses incurred in
connection with this Agreement and the transactions contemplated hereby, including the fees and expenses of its counsel, in an
amount not to exceed, in the aggregate, $75,000. At the Second Closing, the Company shall pay the Purchaser’s reasonable
fees and expenses incurred in connection with the Second Closing, including the fees and expenses of its counsel, in an amount
not to exceed, in the aggregate, $5,000.


 


7.10.         Attorneys’
Fees. If any action at law or in equity (including arbitration) is necessary to enforce or interpret the terms of any of the
Transaction Agreements, the prevailing party shall be entitled to reasonable attorneys’ fees, costs and necessary disbursements
in addition to any other relief to which such party may be entitled.


 


7.11.         Amendments
and Waivers. Any term of this Agreement may be amended, modified, terminated or waived only with the written consent of the
Company and the Purchaser. Any amendment, modification, termination or waiver effected in accordance with this SubSection 7.11
shall be binding upon the Purchaser and each transferee of the Shares (or the Common Stock issuable upon conversion thereof), each
future holder of all such securities, and the Company.


 


7.12.         Severability.
The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision.


 


7.13.         Delays
or Omissions. No delay or omission to exercise any right, power or remedy accruing to any party under this Agreement, upon
any breach or default of any other party under this Agreement, shall impair any such right, power or remedy of such non-breaching
or non-defaulting party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or
of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver
of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character
on the part of any party of any breach or default under this Agreement, or any waiver on the part of any party of any provisions
or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing.
All remedies, either under this Agreement or by law or otherwise afforded to any party, shall be cumulative and not alternative.


 


7.14.         Entire
Agreement. This Agreement (including the Exhibits hereto), the Series C Certificate of Designations, the Warrants and
the other Transaction Agreements constitute the full and entire understanding and agreement between the parties with respect to
the subject matter hereof and thereof, and any other written or oral agreement relating to the subject matter hereof or thereof
existing between the parties are expressly canceled.


 



    	36



    	 



    

 


7.15.         Dispute
Resolution. The parties (a) hereby irrevocably and unconditionally submit to the jurisdiction of the state courts of New York
sitting in New York County and to the jurisdiction of the United States District Court for the Southern District of New York for
the purpose of any suit, action or other proceeding arising out of or based upon this Agreement, (b) agree not to commence any
suit, action or other proceeding arising out of or based upon this Agreement except in the state courts of New York sitting in
New York County or the United States District Court for the Southern District of New York, and (c) hereby waive, and agree
not to assert, by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that it is not subject
personally to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution, that
the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper
or that this Agreement or the subject matter hereof may not be enforced in or by such court.


 


7.16.         Waiver
of Jury Trial: EACH PARTY HEREBY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON
OR ARISING OUT OF THIS AGREEMENT, THE OTHER TRANSACTION AGREEMENTS, THE SECURITIES OR THE SUBJECT MATTER HEREOF OR THEREOF. THE
SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE
TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS (INCLUDING NEGLIGENCE),
BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. THIS SECTION HAS BEEN FULLY DISCUSSED BY EACH OF THE PARTIES
HERETO AND THESE PROVISIONS WILL NOT BE SUBJECT TO ANY EXCEPTIONS. EACH PARTY HERETO HEREBY FURTHER WARRANTS AND REPRESENTS THAT
SUCH PARTY HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT SUCH PARTY KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL
RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.


 


7.17.         Further
Assurances. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request
in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated
hereby.


 


7.18.         Headings.
The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this
Agreement.


 


7.19.         No
Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties to express
their mutual intent, and no rules of strict construction will be applied against any party.


 


7.20.         Remedies.
The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Purchaser, by vitiating
the intent and purpose of the transactions contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for
a breach of its obligations under this Agreement will be inadequate and agrees, in the event of a breach or threatened breach by
the Company of the provisions of this Agreement, that the Purchaser shall be entitled, in addition to all other available remedies
in law or in equity, to an injunction or injunctions to prevent or cure any breaches of the provisions of this Agreement and to
enforce specifically the terms and provisions of this Agreement, without the necessity of showing economic loss and without any
bond or other security being required.


  


[Signature Page Follows]


 



    	37



    	 



    

 


IN WITNESS WHEREOF,
the parties have executed this Series C Preferred Stock and Warrant Purchase Agreement as of the date first written above.


 


	 	COMPANY:
	 	 
	 	VIRTUALSCOPICS, INC.
	 	 
	 	By:	/s/ Molly Henderson
	 	 
	 	Name: Molly Henderson
	 	 
	 	Title: Chief Business and Financial Officer
	 	 
	 	PURCHASER:
	 	 
	 	
        MERCK GLOBAL HEALTH

        INNOVATION FUND, LLC

	 	 
	 	By:	/s/ William J. Taranto
	 	 
	 	Name: William J. Taranto
	 	 
	 	Title: Managing Director


 


SIGNATURE PAGE TO SERIES C PREFERRED STOCK


AND WARRANT PURCHASE AGREEMENT




 



    	 



    	 



    

 


EXHIBITS


 


Exhibit A – FORM OF SERIES
C WARRANT


 


Exhibit B - FORM OF
CERTIFICATE OF DESIGNATION OF SERIES C-1 AND SERIES C-2 PREFERRED STOCK


 


Exhibit C - FORM OF
INVESTORS RIGHTS AGREEMENT


 


Exhibit D - MILESTONE
EVENTS


 


Exhibit E – FORM
OF AMENDED CERTIFICATE OF DESIGNATION FOR SERIES A PREFERRED STOCK


 


Exhibit F - FORM OF
AMENDED CERTIFICATE OF DESIGNATION FOR SERIES B PREFERRED STOCK


 


Exhibit G – FORM
OF LEGAL OPINION


 


Exhibit H– AMENDED
AND RESTATED SERIES B WARRANT


 


Exhibit I – VOTING
AGREEMENT







 



    	 



    	 



    

 


EXHIBIT A


 


FORM OF SERIES C WARRANT


  






    	 



    	 



    



 


THIS WARRANT AND THE SECURITIES ISSUABLE
UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”),
OR ANY STATE SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF OR EXERCISED
UNLESS (i) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE WITH
REGARD THERETO, OR (ii) AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS IS AVAILABLE
IN CONNECTION WITH SUCH OFFER, SALE OR TRANSFER.


 


AN INVESTMENT IN THESE SECURITIES INVOLVES
A HIGH DEGREE OF RISK. HOLDERS MUST RELY ON THEIR OWN ANALYSIS OF THE INVESTMENT AND ASSESSMENT OF THE RISKS INVOLVED.


 


	Warrant to Purchase	 
	1,361,316 shares	Warrant Number WC1/2-1


 


Warrant to Purchase Common Stock


of


VirtualScopics, Inc.


 


THIS CERTIFIES that
Merck Global Health Innovation Fund, LLC, a Delaware limited liability company, or any subsequent holder hereof (“Holder”)
has the right to purchase from VirtualScopics, Inc., a Delaware corporation (the “Company”), up to one
million three hundred sixty-one thousand three hundred sixteen (1,361,316) fully paid and nonassessable shares, of the Company’s
common stock, $0.001 par value per share (“Common Stock”), subject to adjustment as provided herein, at a price
equal to the Exercise Price as defined in Section 3 below, at any time during the Term (as defined below).


 


Holder agrees with
the Company that this Warrant to Purchase Common Stock of the Company is issued and all rights hereunder shall be held subject
to all of the conditions, limitations and provisions set forth herein.


 


1.          Date
of Issuance and Term.


 


This Warrant shall
be deemed to be issued on April 3, 2012 (“Date of Issuance”). The term of this Warrant begins on the
Date of Issuance and ends at 5:00 p.m., New York City time, on the date that is seven (7) years after the Date of Issuance
(the “Term”). This Warrant is one of a series of Warrants (collectively, the “Warrants”)
issued or issuable in conjunction with the issuance of [Series C-1 Preferred Stock of the Company/Series C-2 Preferred Stock
of the Company] (the “Series C Preferred Stock”) to the Holder pursuant to the terms of the Series C
Preferred Stock and Warrant Purchase Agreement, dated April 3, 2012 (the “Securities Purchase Agreement”) by
and between the Company and Holder, the Certificate of Designation of Rights and Preferences of the Series C-1 Preferred Stock
and Series C-2 Preferred Stock of VirtualScopics, Inc. (the “Certificate of Designation”) and the Investor Rights
Agreement dated April 3, 2012 (the “Investor Rights Agreement”) by and between the Company and Holder. Capitalized
terms used herein but not otherwise defined herein shall have the meaning ascribed to such terms in the Securities Purchase Agreement.


 



    	 



    	 



    

 


This Warrant may be
exercisable at any time and from time to time on or after Sunday, September 30, 2012 (the “Initial Exercise Date”).


 


2.          Exercise.


 


(a) Manner of Exercise.
 During the Term and at any time on or after the Initial Exercise Date this Warrant may be Exercised as to all or any lesser
number of full shares of Common Stock covered hereby (the “Warrant Shares” or the “Shares”)
upon surrender of this Warrant, with the Notice of Exercise Form attached hereto as Exhibit A (the “Notice of Exercise”)
duly completed and executed, together with the full Exercise Price for each share of Common Stock as to which this Warrant is Exercised,
at the office of the Company, VirtualScopics, Inc., 500 Linden Oaks, Rochester, NY 14625, Fax: 585-218-7350 or at such other location
as the Company may then be located or such other office or agency as the Company may designate to Holder in writing, by overnight
mail or by facsimile (such surrender and payment of the Exercise Price called the “Exercise” of this Warrant).


 


(b) Date of Exercise.
The “Date of Exercise” of the Warrant shall be defined as the date that a copy of the Notice of Exercise,
completed and executed, is sent by facsimile to the Company, provided that the original Warrant and Notice of Exercise are
received by the Company and the Exercise Price is satisfied within 1 Trading Day thereafter or else the Date of Exercise shall
be deemed the Trading Day that the Notice of Exercise, Original Warrant and Exercise Price are received by the Company. Alternatively,
the Date of Exercise shall be defined as the date the original Notice of Exercise, Original Warrant and Exercise Price are received
by the Company, if Holder has not sent advance notice by facsimile. Upon delivery on the Date of Exercise, the Holder shall be
deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant
has been exercised, irrespective of the date such Warrant Shares are credited to the Holder's DTC account
or the date of delivery of the certificates evidencing such Warrant Shares, as the case may be. The Company shall deliver
any objection to any Notice of Exercise within three (3) Trading Days of receipt of such notice. In the event of any dispute or
discrepancy, the records of the Company shall be controlling and determinative in the absence of manifest error.


 


(c) Delivery of
Common Stock Upon Exercise. Within 3 Trading Days from the delivery to the Company of the Notice of Exercise, surrender of
this Warrant and payment of the aggregate Exercise Price (the “Warrant Shares Delivery Deadline”), the Company
shall issue and deliver (or cause its transfer agent so to issue and deliver) in accordance with the terms hereof to or upon the
order of the Holder that number of shares of Common Stock (“Exercise Shares”) for the portion of this Warrant
converted as shall be determined in accordance herewith. Upon the Exercise of this Warrant or any part thereof, the Company shall,
at its own cost and expense, take all necessary action, including obtaining and delivering, an opinion of counsel to assure that
the Company’s transfer agent shall issue stock certificates in the name of Holder (or its nominee) or such other persons
as designated by Holder and in such denominations to be specified at Exercise representing the number of shares of Common Stock
issuable upon such Exercise. The Company warrants that no instructions other than these instructions have been or will be given
to the transfer agent of the Company’s Common Stock.


 



    	2



    	 



    

 


(d) Revocation
of Exercise Upon Delivery Failure. In addition to any other remedies which may be available to the Holder, in the event
that the Company fails for any reason to effect delivery of the Exercise Shares by the Warrant Shares Delivery Deadline, the Holder
will be entitled to revoke all or part of the relevant Notice of Exercise by delivery of a notice to such effect to the Company
whereupon the Company and the Holder shall each be restored to their respective positions immediately prior to the delivery of
such notice.


 


(e) Legends.


 


(i) Restrictive
Legend. The Holder understands that the Warrant and, until such time as Exercise Shares have been registered under the Securities
Act of 1933, as amended (the “Securities Act”) as contemplated by the Investor Rights Agreement or otherwise
may be sold pursuant to Rule 144 under the Securities Act without any restriction as to the number of securities as of a particular
date that can then be immediately sold, the Exercise Shares may bear a restrictive legend in substantially the following form (and
a stop-transfer order may be placed against transfer of the certificates for such securities):


 


“THE SECURITIES REPRESENTED
BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR
ANY STATE SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF OR EXERCISED
UNLESS (i) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE WITH
REGARD THERETO, OR (ii) AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS IS AVAILABLE
IN CONNECTION WITH SUCH OFFER, SALE OR TRANSFER.”


 


(ii) Removal of
Restrictive Legends. Certificates evidencing the Exercise Shares shall not contain any legend restricting the transfer thereof
(including the legend set forth above in subsection 2(e)(i)): (i) following resale of such shares while a registration statement
(including the Registration Statement, as defined in the Investor Rights Agreement) covering the resale of such security is effective
under the Securities Act, (ii) following any sale of such Exercise Shares pursuant to Rule 144, (iii) if such Exercise
Shares are eligible for sale without volume or manner of sale limitation or current public information requirements under Rule
144 or (iv) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations
and pronouncements issued by the staff of the Commission) (collectively, the “Unrestricted Conditions”). The
Company shall cause its counsel to issue a legal opinion to the Company’s transfer agent promptly after the Effective Date
(as defined below) of the Registration Statement if required by the Company’s transfer agent to effect the sale of Exercise
Shares by Holder without a restrictive legend or removal of the legend hereunder. If the Unrestricted Conditions are met at the
time of issuance or resale of Exercise Shares, then such Exercise Shares shall be issued free of all legends and Holder submits
proof and proper documentation reasonably satisfactory to the Company and its transfer agent to the conditions in this Section
2(e). The Company agrees that at such time as the Unrestricted Conditions are met or such legend is otherwise no longer required
under this Section 2(e), it will, no later than three (3) Trading Days following the delivery by the Holder to the Company
or the Company’s transfer agent of a certificate representing Exercise Shares, as applicable, issued with a restrictive legend
and proof and proper documentation reasonably satisfactory to the Company and its transfer agent to the conditions in this Section 2(e),
deliver or cause to be delivered to such Holder a certificate (or electronic transfer) representing such shares that is free from
all restrictive and other legends. For purposes hereof, “Effective Date” shall mean the date that a Registration
Statement that the Company is required to file with respect to the Warrant Shares pursuant to the Investor Rights Agreement has
been declared effective by the Securities and Exchange Commission (the “Commission”).


 



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(iii) Sale of Unlegended
Shares. Holder agrees that the removal of the restrictive legend from certificates representing Securities as set forth in
this Section 2(e)(i) above is predicated upon the Company’s reliance that the Holder will sell any Exercise Shares pursuant
to either the registration requirements of the Securities Act, including any applicable prospectus delivery requirements, or an
exemption therefrom, and that if Securities are sold pursuant to a Registration Statement, they will be sold in compliance with
the plan of distribution set forth therein.


 


(f) Cancellation
of Warrant. This Warrant shall be canceled upon the full Exercise of this Warrant, and, as soon as practical after the Date
of Exercise, Holder shall be entitled to receive Common Stock for the number of shares purchased upon such Exercise of this Warrant,
and if this Warrant is not Exercised in full, Holder shall be entitled to receive a new Warrant (containing terms identical to
this Warrant) representing any unexercised portion of this Warrant in addition to such Common Stock.


 


(g) Holder of Record.
Each person in whose name any Warrant for shares of Common Stock is issued shall, for all purposes, be deemed to be the Holder
of record of such shares on the Date of Exercise of this Warrant, irrespective of the date of delivery of the Common Stock purchased
upon the Exercise of this Warrant. Nothing in this Warrant shall be construed as conferring upon Holder any rights as a stockholder
of the Company.


 


(h) Delivery
of Electronic Shares. In lieu of delivering physical certificates representing the unlegended shares
of Common Stock issuable upon Exercise (the “Unlegended Shares”), provided
the Company’s transfer agent is participating in the Depository Trust Company (“DTC”) Fast Automated Securities
Transfer (“FAST”) program, upon written request of the Holder, so long as the certificates therefor do
not bear a legend, are not required to bear a legend, and the Holder is not obligated to return such certificate for the placement
of a legend thereon, the Company shall cause its transfer agent to electronically transmit the Unlegended Shares to the Holder
by crediting the account of the Holder's prime broker with DTC identified in the written request through its Deposit Withdrawal
Agent Commission (“DWAC”) system.


 



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(i) Buy-In.
In addition to any other rights available to the Holder, if the Company fails to cause its transfer agent to transmit to the Holder
a certificate or certificates representing the Exercise Shares pursuant to an Exercise on or before the fifth (5th)
Business Day after the Warrant Shares Delivery Deadline (other than for circumstances related to an outbreak of hostilities, terrorist
activities or war, the effects of weather or meteorological events, acts of God or other calamity or crisis), and if after such
date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the Holder’s brokerage
firm otherwise purchases shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Exercise Shares which
the Holder anticipated receiving upon such Exercise (a “Buy-In”), then the Company shall (1) pay in cash to
the Holder the amount by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares
of Common Stock so purchased exceeds (y) the amount obtained by multiplying (A) the number of Exercise Shares that the Company
was required to deliver to the Holder in connection with the Exercise at issue times (B) the price at which the sell order giving
rise to such purchase obligation was executed, and (2) at the option of the Holder, either reinstate the portion of the Warrant
and equivalent number of Exercise Shares for which such Exercise was not honored or deliver to the Holder the number of shares
of Common Stock that would have been issued had the Company timely complied with its Exercise and delivery obligations hereunder.
For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an
attempted Exercise of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under
clause (1) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide
the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In, together with applicable confirmations
and other evidence reasonably requested by the Company. Nothing herein shall limit a Holder’s right to pursue any other remedies
available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive
relief with respect to the Company’s failure to timely deliver certificates representing shares of Common Stock upon Exercise
of the Warrant as required pursuant to the terms hereof.


 


(j) Surrender of
Warrant Upon Exercise; Book-Entry. Notwithstanding anything to the contrary set forth herein, upon Exercise of this Warrant
in accordance with the terms hereof, the Holder shall not be required to physically surrender the original Warrant Certificate
to the Company unless all of this Warrant is Exercised, in which case such Holder shall deliver the original Warrant being Exercised
to the Company within one (1) Trading Day following the Date of Exercise at issue. Partial exercises of this Warrant resulting
in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding
number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder
and the Company shall maintain records showing the amount of this Warrant that is so Exercised and the dates of such Exercises
or shall use such other method, reasonably satisfactory to the Holder and the Company, so as not to require physical surrender
of this original Warrant upon each such Exercise. In the event of any dispute or discrepancy, such records of the Company shall
be controlling and determinative in the absence of manifest error. The Holder and any assignee, by acceptance of this Warrant,
acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares
hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on
the face hereof.


  



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(k) Limitation
of Shares Issuable Upon Exercise


 





(i)          Notwithstanding
anything herein to the contrary, if the Company has not obtained Shareholder Issuance Approval (as defined in the Securities Purchase
Agreement) or a written opinion from outside counsel to the Company, reasonably satisfactory to the Required Warrant Holders, that
such approval is not required, then the Company may not issue any Warrant Shares if the issuance of such Warrant Shares would cause
the Company to exceed the aggregate number of shares of Series C-1 Preferred Stock and Series C-2 Preferred Stock which the Company
may issue and the number of shares of Common Stock which the Company may issue (A) upon conversion of all of the Series C-1 Preferred
Stock and Series C-2 Preferred Stock issued pursuant to the Securities Purchase Agreement, together with any conversion of any
accrued and unpaid Dividends, (B) upon exercise of all of the Warrants issued pursuant to the Securities Purchase Agreement and
(C) pursuant to any Dividends paid on the Series C-1 Preferred Stock and Series C-2 Preferred Stock, without breaching the Company’s
obligations under the rules and regulations of the Principal Market (as defined in the Securities Purchase Agreement), whether
or not the Common Stock is listed on the Principal Market (the “Exchange Cap”). Each Holder shall be entitled
to such Holder’s pro-rata portion (based on the aggregate stated value of the shares of Series C-1 Preferred Stock and Series
C-2 Preferred Stock acquired by such Holder under the Securities Purchase Agreement, divided by the aggregate stated value of all
shares of Series C-1 Preferred Stock and Series C-2 Preferred Stock issued under the Securities Purchase Agreement), of the Exchange
Cap (with respect to each such holder, the “Exchange Cap Allocation”). In the event that any such holder shall
sell or otherwise transfer any of such holder’s Warrants, the transferee shall be allocated a pro rata portion of such holder’s
Exchange Cap Allocation. In the event that any holder of Warrants shall exercise all of such holder’s Warrants into a number
of shares of Common Stock which, in the aggregate, is less than such holder’s Exchange Cap Allocation, then the difference
between such holder’s Exchange Cap Allocation and the number of shares of Common Stock actually issued to such holder shall
be allocated to the respective Exchange Cap Allocations of the remaining holders of Warrants on a pro rata basis in proportion
to the shares of Common Stock underlying the shares of Warrants then held by each such holder.


 


(ii) Notwithstanding
anything herein to the contrary, the Company shall not issue to any Holder any Warrant Shares to the extent such shares after giving
effect to such issuance after exercise and when added to the number of shares of Common Stock beneficially owned by such Holder
and which were previously issued upon conversion of any shares of Series C-1 Preferred Stock or, Series C-2 Preferred Stock or
the payment of dividends thereon, and the exercise of any Warrants issued pursuant to the Securities Purchase Agreement, such Holder
(together with such Holder's affiliates), would (a) beneficially own in excess of 19.9% of the number of shares of Common Stock
outstanding immediately after giving effect to such issuances or (b) control in excess of 19.9% of the total voting power of the
Company's securities outstanding immediately after giving effect to such issuances that are entitled to vote on a matter being
voted on by holders of the Common Stock, unless and until the Company obtains the Shareholder Issuance Approval or a written opinion
from outside counsel to the Company, reasonably satisfactory to the Required Warrant Holders, that such approval is not required.


 


For purposes of this
Section 2(k), beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934,
as amended, and the rules and regulations promulgated thereunder.


 


For purposes of this
Section 2(k), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares
of Common Stock as reflected in (i) the Company's most recent Quarterly Report on Form 10-Q or Annual Report on Form 10-K, as the
case may be, filed with the Securities and Exchange Commission, (ii) a more recent public announcement by the Company, or (iii)
any other notice by the Company or the Company's transfer agent setting forth the number of shares of Common Stock outstanding.
Upon the written or oral request of a Holder, the Company shall within two business days confirm orally and in writing to such
Holder the number of shares of Common Stock then outstanding.


 



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3.          Payment
of Warrant Exercise Price. The Exercise Price (“Exercise Price”) shall initially equal $1.2043 per share
(the “Initial Exercise Price”), subject to adjustment pursuant to the terms hereof, including but not limited
to Section 5 below. Payment of the Exercise Price shall be made in cash, bank or cashier’s check or wire transfer.


 


4.          Transfer
and Registration.


 


(a) Transfer
Rights. Subject to the provisions of Section 8 of this Warrant, this Warrant may be transferred on the books of the Company,
in whole or in part, in person or by attorney, upon surrender of this Warrant properly completed and endorsed. This Warrant shall
be canceled upon such surrender and, as soon as practicable thereafter, the person to whom such transfer is made shall be entitled
to receive a new Warrant or Warrants as to the portion of this Warrant transferred, and Holder shall be entitled to receive a new
Warrant as to the portion hereof retained.


 


(b) Registrable
Securities. The Common Stock issuable upon the Exercise of this Warrant has registration rights pursuant to the Investor Rights
Agreement.


 


5.          Anti-Dilution
Adjustments; Additional Adjustments.


(a) Recapitalization,
Reclassification and Succession. If any recapitalization of the Company or reclassification of its Common Stock or any merger
or consolidation of the Company into or with a corporation or other business entity (any such corporation or other business entity
being included within the meaning of the term “successor corporation”), or similar transaction shall be effected, at
any time while this Warrant remains outstanding and unexpired, then, as a condition of such recapitalization, reclassification,
merger, consolidation, or similar transaction, lawful and adequate provision shall be made whereby the Holder of this Warrant thereafter
shall have the right to receive upon the exercise hereof as provided in Section 2 and in lieu of the Warrant Shares immediately
theretofore issuable upon the exercise of this Warrant, such shares of capital stock, securities or other property as may be issued
or payable with respect to or in exchange for the number of outstanding shares of Common Stock equal to the number of Warrant Shares
immediately theretofore issuable upon the exercise of this Warrant had such recapitalization, reclassification, merger, consolidation,
or similar transaction, not taken place, and in each such case, the terms of this Warrant shall be applicable to the shares of
stock or other securities or property receivable upon the exercise of this Warrant after such consummation. Whenever the number
of Warrant Shares purchasable upon exercise of this Warrant is adjusted pursuant to Section 5(a), the Exercise Price shall be proportionately
adjusted. The Company shall not effect any such recapitalization, reclassification, merger, consolidation, or similar transaction
unless, prior to the consummation thereof, the successor corporation (if other than the Company) resulting from the consolidation
or merger assumes in writing all of the obligations of the Company under this Warrant pursuant to written agreements in form and
substance reasonably satisfactory to the Required Warrant Holders, including agreements to deliver to each holder of Warrants in
exchange for such Warrants a security of the successor corporation evidenced by a written instrument substantially similar in form
and substance to this Warrant, including, without limitation, having an exercise price equal to the Exercise Price of this Warrant
or equitably adjusted as provided herein, having similar exercise rights as this Warrant (including but not limited to similar
exercise price adjustment provisions), and satisfactory to the Holder. The provisions of this Section shall apply similarly and
equally to successive recapitalizations, reclassifications, mergers, consolidations or similar transactions and shall be applied
without regard to any limitations on the exercise of this Warrant. For purposes hereof, “Required
Warrant Holders” shall mean the Holders of a majority of the then outstanding Warrants (determined by the number of unexercised
underlying Warrant Shares).


 



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(b) Recapitalization
or Reclassification. If the Company shall at any time effect a recapitalization, reclassification or other similar transaction
(other than a transaction covered by Section 5(a) above) of such character that the shares of Common Stock shall be changed
into or become exchangeable for a larger or smaller number of shares of Common Stock, then upon the effective date thereof, the
number of shares of Common Stock which Holder shall be entitled to purchase upon Exercise of this Warrant shall be increased or
decreased, as the case may be, in direct proportion to the increase or decrease in the number of shares of Common Stock by reason
of such recapitalization, reclassification or similar transaction, and the Exercise Price shall be, in the case of an increase
in the number of shares, proportionally decreased and, in the case of decrease in the number of shares, proportionally increased.
The Company shall give Holder the same notice it provides to holders of Common Stock of any transaction described in this Section 5(b).


 


(c) Exercise Price
Adjusted. As used in this Warrant, the term “Exercise Price” shall mean the purchase price per share specified
in Section 3 of this Warrant, until the occurrence of an event stated in this Section 5 or otherwise set forth in this Warrant,
and thereafter shall mean said price as adjusted from time to time in accordance with the provisions of said subsection. No such
adjustment under this Section 5 shall be made unless such adjustment would change the Exercise Price at the time by $0.001 or more;
provided, however, that all adjustments not so made shall be deferred and made when the aggregate thereof would change
the Exercise Price at the time by $0.001 or more.


 


(d) Subdivision
or Combination of Common Stock. If the Company at any time subdivides (by any stock split, stock dividend, recapitalization,
reorganization, reclassification or otherwise) the shares of Common Stock acquirable hereunder into a greater number of shares,
then, after the date of record for effecting such subdivision, the Exercise Price in effect immediately prior to such subdivision
will be proportionately reduced and the number of shares represented by this Warrant shall proportionally increase. If the Company
at any time combines (by reverse stock split, recapitalization, reorganization, reclassification or otherwise) the shares of Common
Stock acquirable hereunder into a smaller number of shares, then, after the date of record for effecting such combination, the
Exercise Price in effect immediately prior to such combination will be proportionately increased and the number of shares represented
by this Warrant shall proportionally decrease.


 


(e)  Voluntary
Adjustment By Company. The Company may at any time during the term of this Warrant reduce the then current Exercise Price to
any amount and for any period of time deemed appropriate by the Board of Directors of the Company (a “Voluntary Adjustment”).


 



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(f) Adjustment
to Number of Shares. In the event of any adjustment to the Exercise Price pursuant to the terms of this Warrant, the number
of Warrant Shares issuable upon Exercise of this Warrant shall be adjusted (except as otherwise provided in Section 5(b))
such that the aggregate Exercise Price payable in full hereunder, after taking into account the adjustment in the Exercise Price,
shall be equal to the aggregate Exercise Price payable in a full prior to such adjustment.


 


(g) Adjustments:
Additional Shares, Securities or Assets. In the event that at any time, as a result of an adjustment made pursuant to this
Section 5 or otherwise, Holder shall, upon Exercise of this Warrant, become entitled to receive shares and/or other securities
or assets (other than Common Stock) then, wherever appropriate, all references herein to shares of Common Stock shall be deemed
to refer to and include such shares and/or other securities or assets; and thereafter the number of such shares and/or other securities
or assets shall be subject to adjustment from time to time in a manner and upon terms as nearly equivalent as practicable to the
provisions of this Section 5.


 


(h) Notice
of Adjustments. Whenever the Exercise Price is adjusted pursuant to the terms of this Warrant, the Company shall within Five
(5) Trading Days mail to the Holder a notice (a “Exercise Price Adjustment Notice”) setting forth the Exercise
Price after such adjustment and setting forth a statement of the facts requiring such adjustment. The Company shall, upon the written
request at any time of the Holder, furnish to such Holder a like Warrant setting forth (i) such adjustment or readjustment, (ii)
the Exercise 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 Exercise of the Warrant, following delivery of the original Warrant to the
Company for exchange. For purposes of clarification, whether or not the Company provides an Exercise Price Adjustment Notice pursuant
to this Section 5(h), upon the occurrence of any event that leads to an adjustment of the Exercise Price, the Holders are
entitled to receive a number of Exercise Shares based upon the new Exercise Price, as adjusted, for exercises occurring on or after
the date of such adjustment, regardless of whether a Holder accurately refers to the adjusted Exercise Price in the Notice of Exercise.


 


(i) Notice
to Holder. If (A) the Company shall declare a dividend (or any other
distribution in whatever form) on the Common Stock; (B) the Company shall declare a special nonrecurring cash dividend on or a
redemption of the Common Stock; (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants
to subscribe for or purchase any shares of capital stock of any class or of any rights; (D) the approval of any stockholders of
the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which
the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, of any compulsory share
exchange whereby the Common Stock is converted into other securities, cash or property; (E) the Company shall authorize the voluntary
or involuntary dissolution, liquidation or winding up of the affairs of the Company; then, in each case, the Company shall cause
to be mailed to the Holder at its last address as it shall appear upon the Warrant Register of the Company, at least 20 calendar
days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is
to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights
or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share
exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of
record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to mail such notice
or any defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be specified
in such notice. The Holder is entitled to exercise this Warrant during the period commencing on the date of such notice to the
effective date of the event triggering such notice.


 



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6.          Fractional
Interests.      No fractional shares or scrip representing fractional shares shall be issuable upon the Exercise of this Warrant,
but on Exercise of this Warrant, Holder may purchase only a whole number of shares of Common Stock. If, on Exercise of this Warrant,
Holder would be entitled to a fractional share of Common Stock or a right to acquire a fractional share of Common Stock, such
fractional share shall be disregarded and the number of shares of Common Stock issuable upon Exercise shall be the next closest
number of whole shares.


 


7.          Reservation
of Shares. From and after the date hereof, the Company shall at all times reserve for issuance such number of authorized and
unissued shares of Common Stock (or other securities substituted therefor as herein above provided) as shall be sufficient for
the Exercise of this Warrant and payment of the Exercise Price in full. If at any time the number of shares of Common Stock authorized
and reserved for issuance is below the number of shares sufficient for the Exercise of this Warrant (based on the Exercise Price
in effect from time to time), the Company will use commercially reasonable efforts to authorize and reserve a sufficient number
of shares, including, without limitation, calling a special meeting of stockholders to authorize additional shares to meet the
Company’s obligations under this Section 7, in the case of an insufficient number of authorized shares, and using its
commercially reasonable efforts to obtain stockholder approval of an increase in such authorized number of shares. The Company
covenants and agrees that upon the Exercise of this Warrant, all shares of Common Stock issuable upon such Exercise shall be duly
authorized and validly issued, fully paid, nonassessable and not subject to liens.


 


8.          Restrictions
on Transfer.


 


(a) Registration
or Exemption Required. This Warrant has been issued in a transaction exempt from the registration requirements of the Securities
Act and exempt from state registration under applicable state laws. The Warrant and the Common Stock issuable upon the Exercise
of this Warrant may not be transferred, sold or assigned except pursuant to an effective registration statement or an exemption
to the registration requirements of the Securities Act and applicable state laws.


 


(b) Assignment.
If Holder can provide the Company with reasonably satisfactory evidence that the conditions of (a) above regarding registration
or exemption have been satisfied, including an opinion of counsel reasonably satisfactory to the Company, the Holder may sell,
transfer, assign, pledge or otherwise dispose of this Warrant, in whole or in part. Holder shall deliver a written notice to Company,
substantially in the form of the Assignment attached hereto as Exhibit B, indicating the person or persons to whom the Warrant
shall be assigned and the respective number of warrants to be assigned to each assignee. The Company shall effect the assignment
within ten (10) days of receipt of the original Warrant and other information required by this Section 8(b), and shall deliver
to the assignee(s) designated by Holder a Warrant or Warrants of like tenor and terms for the appropriate number of shares.


 



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9.          Noncircumvention.
The Company hereby covenants and agrees that the Company will not, by amendment of its Certificate of Incorporation, Bylaws or
through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities,
or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, and will
at all times in good faith carry out all the provisions of this Warrant and take all action as may be required to protect the rights
of the Holder.  Without limiting the generality of the foregoing, the Company (i) shall not increase the par value of
any shares of Common Stock receivable upon the exercise of this Warrant above the Exercise Price then in effect, and (ii) shall
take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock upon the exercise of this Warrant.


 


10.         Remedies,
Other Obligations, Breaches and Injunctive Relief. The remedies provided in this Warrant shall be cumulative and in addition
to all other remedies available under this Warrant and the other Transaction Agreements, at law or in equity (including a decree
of specific performance and/or other injunctive relief), and nothing herein shall limit the right of the Holder right to pursue
actual damages for any failure by the Company to comply with the terms of this Warrant. The Company acknowledges that a breach
by it of its obligations hereunder will cause irreparable harm to the Holder and that the remedy at law for any such breach may
be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the holder of this Warrant
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 any bond or other security being required.


 


11.         Benefits
of this Warrant. Nothing in this Warrant shall be construed to confer upon any person other than the Company and Holder
any legal or equitable right, remedy or claim under this Warrant and this Warrant shall be for the sole and exclusive benefit of
the Company and Holder.


 


12.         Governing
Law. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be governed
by and construed and enforced in accordance with the internal laws of the State of New York. Each party agrees that all legal proceedings
concerning the interpretations, enforcement and defense of the transactions contemplated by this Warrant (whether brought against
a party hereto or its respective affiliates, directors, officers, shareholders, employees or agents) shall be commenced exclusively
in the state and federal courts sitting in the State of New York, County of New York. Each party hereby irrevocably submits to
the exclusive jurisdiction of the state and federal courts sitting in the State of New York, County of New York for the adjudication
of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with
respect to the enforcement of any of the Transaction Agreements), and hereby irrevocably waives, and agrees not to assert in any
suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit,
action or proceeding is improper or is an inconvenient venue for such proceeding. Each party hereby irrevocably waives personal
service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered
or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under
this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law. THE PARTIES
HEREBY WAIVE ALL RIGHTS TO A TRIAL BY JURY. If either party shall commence an action or proceeding to enforce any provisions of
this Warrant, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its reasonable
attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action
or proceeding.


 



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13.         Loss
of Warrant. Upon receipt by the Company of evidence of the loss, theft, destruction or mutilation of this Warrant, and (in
the case of loss, theft or destruction) of indemnity or security reasonably satisfactory to the Company, and upon surrender and
cancellation of this Warrant, if mutilated, the Company shall execute and deliver a new Warrant of like tenor and date.


 


14.         Notice
or Demands. Notices or demands pursuant to this Warrant to be given or made by Holder to or on the Company shall be sufficiently
given or made if sent by facsimile or certified or registered mail, return receipt requested, postage prepaid, and addressed, until
another address is designated in writing by the Company, to the address set forth in Section 2(a) above. Notices or demands
pursuant to this Warrant to be given or made by the Company to or on Holder shall be sufficiently given or made if sent by certified
or registered mail, return receipt requested, postage prepaid, and addressed, to the address of Holder set forth in the Company’s
records, until another address is designated in writing by Holder.


 


15.         Warrant
Holder Not a Stockholder. The Holder of this Warrant, as such, shall not be entitled by reason of this Warrant to any rights
whatsoever as a stockholder of the Company, including but not limited to voting rights.


 


[SIGNATURE PAGE FOLLOWS]


 



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IN WITNESS WHEREOF,
the undersigned has executed this Warrant as of the _____ day of April, 2012.


 


	 	VIRTUALSCOPICS, INC.
	 	 	 
	 	By:	 
	 	Print Name:	 
	 	Title:	 


 



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EXHIBIT A


 


NOTICE OF EXERCISE FORM FOR WARRANT


 


TO: VIRTUALSCOPICS, INC.


 


The undersigned hereby
irrevocably Exercises the right to purchase ____________ of the shares of Common Stock (the “Common Stock”)
of VIRTUALSCOPICS, INC., a Delaware corporation (the “Company”), evidenced by the attached warrant (the
“Warrant”), and herewith makes payment of the Exercise Price with respect to such shares in full, all in accordance
with the conditions and provisions of said Warrant.


 


1. The undersigned agrees not to offer,
sell, transfer or otherwise dispose of any of the Common Stock obtained on Exercise of the Warrant, except in accordance with the
provisions of Section 8(a) of the Warrant.


 


2. The undersigned requests that stock
certificates for such shares be issued free of any restrictive legend, if appropriate, and a warrant representing any unexercised
portion hereof be issued, pursuant to the Warrant in the name of the undersigned and delivered to the undersigned at the address
set forth below:


 


Dated:________





 


	 
	Signature
	 
	 
	Print Name
	 
	 
	Address
	 
	 


 


NOTICE


 


The signature to the foregoing Notice of
Exercise Form must correspond to the name as written upon the face of the attached Warrant in every particular, without alteration
or enlargement or any change whatsoever.





 



    	14



    	 



    

 


EXHIBIT B


 


ASSIGNMENT


 


(To be executed by the registered holder


desiring to transfer the Warrant)


 


FOR VALUE RECEIVED, the undersigned holder
of the attached warrant (the “Warrant”) hereby sells, assigns and transfers unto the person or persons below
named the right to purchase _______ shares of the Common Stock of VIRTUALSCOPICS, INC., a Delaware corporation, evidenced
by the attached Warrant and does hereby irrevocably constitute and appoint _______________________ attorney to transfer the said
Warrant on the books of the Company, with full power of substitution in the premises.


 


	Dated:	 	 	 
	 	 	 	Signature






	 	 	 	 
	Fill in for new registration of Warrant:	 	 
	 	 	 
	 	 	 
	Name	 	 
	 	 	 
	 	 	 
	Address	 	 
	 	 	 
	 	 	 
	Please print name and address of assignee	 	 
	(including zip code number)	 	 


 





 



  





NOTICE


 


The signature
to the foregoing Assignment must correspond to the name as written upon the face of the attached Warrant in every particular, without
alteration or enlargement or any change whatsoever.


 






    	15



    	 



    
 


EXHIBIT B


 


FORM OF CERTIFICATE OF DESIGNATION OF


SERIES C-1 AND SERIES C-2 PREFERRED STOCK


  






    	 



    	 



    



 


CERTIFICATE OF DESIGNATION
OF


RIGHTS AND PREFERENCES OF


THE SERIES C-1 PREFERRED
STOCK


AND


THE SERIES C-2 PREFERRED
STOCK


OF


VIRTUALSCOPICS, INC.


 


(Pursuant to Section 151 of
the


General Corporation Law of
the State of Delaware)


 


It is hereby
certified that:


 


1.          The
name of the Corporation (hereinafter called the “Corporation”) is VirtualScopics, Inc., a Delaware corporation.
For purposes hereof, references to the Corporation shall include any successor.


 


2.          The
Certificate of Incorporation of the Corporation (the “Certificate of Incorporation”) authorizes the issuance
of Fifteen Million (15,000,000) shares of preferred stock, $0.001 par value per share, Eight Thousand Four Hundred (8,400) of which
have been previously designated as Series A Convertible Preferred Stock and Six Thousand (6,000) of which have been previously
designated as Series B Convertible Preferred Stock, and expressly vests in the Board of Directors of the Corporation the authority
provided therein to issue any or all of said shares in one or more series and by resolution or resolutions to establish the designation
and number and to fix the relative rights and preferences of each series to be issued.


 


3.          The
Board of Directors of the Corporation, pursuant to the authority expressly vested in it as aforesaid, has adopted the following
resolutions creating a series of Preferred Stock to be designated as “Series C-1 Preferred Stock” and creating
a series of Preferred Stock to be designated as “Series C-2 Preferred Stock”:


 


RESOLVED,
that Three Thousand (3,000) of the Fourteen Million Nine Hundred Eighty-Five Thousand Six Hundred (14,985,600) authorized but undesignated
shares of preferred stock of the Corporation shall be designated Series C-1 Convertible Preferred Stock, $0.001 par value
per share, and shall possess the rights and preferences set forth below:


 


PART I. SERIES C-1 PREFERRED
STOCK:


 


Unless otherwise indicated,
references to “Sections” or “Subsections” in this Part I refer to sections and subsections of this Part
I. 


 



    	1



    	 



    

 


1. Certain Definitions.
For purposes of this Part I, capitalized terms used and not otherwise defined herein that are defined in that certain Series C
Preferred Stock and Warrant Purchase Agreement dated April 3, 2012 pursuant to which the Series C-1 Preferred Stock was originally
issued (the “Securities Purchase Agreement” or the “Purchase Agreement”) shall have
the meanings given such terms in the Securities Purchase Agreement. For the purposes hereof, the following terms shall have the
following meanings:


 


“Business
Day” shall mean any day other than a Saturday, Sunday or a day on which commercial banks in the City of New York,
New York are authorized or required by law or executive order to remain closed.


 


“Certificate
of Designation” shall mean this Certificate of Designation of Rights and Preferences of the Series C-1 Preferred
Stock and Series C-2 Preferred Stock of VirtualScopics, Inc.


 


“Convertible
Securities” shall mean any stock or securities (other than Options) directly or indirectly convertible into or exercisable
or exchangeable for Common Stock.


 


“Dividends”
shall have the meaning set forth in Part I, Section 4.1 below.


 


“Dividend
Payment Date” shall have the meaning set forth in Part I, Section 4.1 below. 


 


“Exchange
Act” shall mean the Securities Exchange Act of 1934, as amended.


 


“Exchange
Cap” shall have the meaning set forth in Part I, Section 7.1.5(a) below.


 


“Exempt
Issuance” shall mean the grant or issuance of Exempted Securities as specified in
Section 7.6.1.


 


“Investor
Rights Agreement” shall have the meaning ascribed to it in the Securities Purchase Agreement.


 


“Junior Securities”
shall have the meaning set forth in Section 3 below.


 


“Options”
shall mean any rights, warrants or options to subscribe for or purchase Common Stock or Convertible Securities.


 


“Person”
shall mean an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated
organization, any other entity and a government or any department or agency thereof.


 


“Preferred
Stock” shall mean the Corporation’s Series A Convertible Preferred Stock, Series B Convertible Preferred Stock,
Series C-1 Convertible Preferred Stock and Series C-2 Convertible Preferred Stock.


 


“Principal
Market” shall mean the Nasdaq Capital Market.


 



    	2



    	 



    

 


“Purchaser”
shall have the meaning ascribed to it in the Securities Purchase Agreement.


 


“Required
Holders” shall mean Persons holding, in the aggregate, at least a majority of the then outstanding shares of Series C-1
Preferred Stock and Series C-2 Preferred Stock.


 


“Securities
Purchase Agreement” shall have the meaning set forth in the initial paragraph of this Part I, Section 1 above.


 


“Series B Amendments”
shall have the meaning ascribed to it in the Securities Purchase Agreement.


 


“Series B Warrants” shall
have the meaning ascribed to it in the Securities Purchase Agreement.


 


“Series
C-1 Conversion Price” shall have the meaning set forth in
Part I, Section 7.1.1 below.


 


“Series
C-1 Holder”
shall mean a holder of Series C-1 Preferred
Stock at the applicable time.


 


“Series C-1
Original Issue Date” shall mean the date of the first issuance of any Series C-1 Preferred Stock regardless
of the number of transfers of any particular share of Series C-1 Preferred Stock.


 


“Series C-1
Original Issue Price” shall mean $1,000.


 


“Shareholder
Issuance Approval” shall have the meaning ascribed to it in the Securities Purchase Agreement.


 


“Shareholder
Issuance Approval Deadline” shall have the meaning ascribed to it in the Securities Purchase Agreement.


 


“Trading Day”
shall mean any day on which the Common Stock is traded for any period on the Principal Market, or on the principal securities exchange
or other securities market on which the Common Stock is then being traded.


 


“Transaction
Agreements” shall have the meaning ascribed to it in the Securities Purchase Agreement.


 



    	3



    	 



    

 


“Volume Weighted
Average Price” shall mean, for any security as of any date, (a) the volume weighted average sale price on the Principal
Market, as reported by, or as calculated based upon data reported by, Bloomberg Financial Markets or an equivalent, reliable reporting
service selected by the Corporation (“Bloomberg”), or (b) if no volume weighted average sale price is reported
for such security, then the last closing trade price of such security as reported by Bloomberg, or (c) if no last closing
trade price is reported for such security by Bloomberg, the average of the closing trade prices of any market makers for such security
that are listed in the “pink sheets” published by OTC Markets Group, Inc. (or a similar organization or agency succeeding
to its functions of reporting prices), or if not available, the most recent bid price per share of the Common Stock so reported;
or (d) in all other cases, the fair market value of a share of Common Stock as determined by the Corporation’s Board
of Directors in good faith. If the Volume Weighted Average Price is to be determined over a period of more than one Trading Day,
then “Volume Weighted Average Price” for the period shall mean the volume weighted average of the daily Volume
Weighted Average Prices, determined as set forth above, for all Trading Days during the period.


 


“Warrants”
shall have the meaning ascribed to it in the Securities Purchase Agreement.


 


“Warrant Shares”
shall mean the shares of Common Stock for which the Warrants can be exercised, as further described in the Warrants.


 


2. Designation
and Amount. Three Thousand (3,000) shares of the Corporation’s authorized but undesignated preferred stock shall
be designated as Series C-1 Convertible Preferred Stock (the “Series C-1 Preferred Stock”), par value
$0.001 per share. The Series C-1 Preferred Stock shall have a stated value of one thousand dollars ($1,000) per share (as
adjusted for any stock dividends, combinations or splits with respect to such shares) (the “Series C-1 Stated
Value”).


 


3. Rank.
The Series C-1 Preferred Stock shall rank: (i) pari passu to the Corporation’s Series C-2 Convertible
Preferred Stock (“Parity Securities”), (ii) prior and senior to all of the Corporation’s Common Stock,
$0.001 par value per share (“Common Stock”); (iii) prior and senior to all of the Corporation’s Series
A Convertible Preferred Stock and all of the Corporation’s Series B Convertible Preferred Stock; (iv) prior and senior
to any other class or series of capital stock, including but not limited to any preferred stock, of the Corporation hereafter created
(collectively, with the Corporation’s Series A Convertible Preferred Stock, the Corporation’s Series B Convertible
Preferred Stock and the Common Stock, “Junior Securities”); and (v) as applicable, junior to or on parity
with such preferred stock of the Corporation (upon an issuance of such securities pursuant to the affirmative vote or consent of
the Required Holders as permitted under the terms of Section 6.3 hereof) the terms of which expressly provide that
such preferred stock will rank senior to or on parity with the Series C-1 Preferred Stock (“Senior Securities”),
in each case as to distributions of assets upon liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary.


 



    	4



    	 



    

 


4.   Dividends.


 


4.1           Dividends.
Series C-1 Holders shall be entitled to receive, and the Corporation shall pay, cumulative dividends (“Dividends”)
at the rate per share (as a percentage of the Series C-1 Stated Value per share) of four percent (4%) per annum (the
“Dividend Rate”) payable (x) in cash quarterly, in arrears, on the first Business Day of each
calendar quarter after the Series C-1 Original Issue Date, if so elected for quarterly dividend payments in a calendar year
by Series C-1 Holders who at the relevant time hold a majority of the outstanding shares of Series C-1 Preferred Stock
(the “Series C-1 Majority Holders”), by written notice sent to the Corporation at least five (5) Business
Days in advance of such calendar year or with respect to calendar year 2012, by April 20, 2012 and (y) if
not so elected by such Series C-1 Majority Holders and except as provided in Section 4.2, such Dividends shall
accrue and be payable on the earlier to occur of (aa) each Conversion Time (as defined in Part I, Section 7.1.4)
(as to the Series C-1 Stated Value then being converted) or (bb) the liquidation of the Corporation or any redemption
of the Series C-1 Preferred Stock (except that, in the case of (aa) and (bb), if such date is not a Trading Day, the payment
date shall be the next succeeding Trading Day) (each, a “Dividend Payment Date”).


 


4.2           Payment
of Dividends. Dividend payments to each Series C-1 Holder shall be made by the Corporation, in cash, unless otherwise
expressly provided herein. Subject to the provisions of Section 7.1.5, the Series C-1 Majority Holders may request
in writing delivered to the Corporation that a Dividend payment shall be made in duly authorized, validly issued, fully paid and
non-assessable unregistered or registered shares of Common Stock or in a combination thereof and cash; provided, however,
that except as otherwise provided herein, if at any time the Corporation pays Dividends partially in cash and partially in shares,
then such payment shall be distributed ratably among the Series C-1 Holders and Series C-2 Holders based upon the number
of shares of Common Stock into which the Series C-1 Preferred Stock and Series C-2 Preferred Stock held by each such
Series C-1 Holder and Series C-2 Holder are then convertible on such Dividend Payment Date. Shares issued as the payment
of Dividends pursuant to the provisions of this paragraph shall be valued solely for such purpose at the average of the
Volume Weighted Average Prices for the twenty (20) Trading Days ending on the Trading Day that is immediately prior
to the applicable Dividend Payment Date; provided, however, in no event shall shares of Common Stock be issued as
the payment of Dividends at a price per share of less than $1.2043 (with such price subject to equitable adjustments for stock
splits, stock dividends or rights offerings by the Corporation relating to the Corporation’s securities, combinations, recapitalization,
reclassifications, extraordinary distributions and similar events), without the consent of the Corporation and the Series C-1
Majority Holders.


 


All payments due hereunder
(to the extent not converted into Common Stock in accordance with the terms hereof) shall be made in lawful money of the United
States of America, provided that, to the extent that any accrued Dividend has not been paid when due, the Series C-1
Majority Holders and the Corporation may agree, in whole or in part, that such accrued and unpaid Dividend may be added to the
Series C-1 Stated Value of the Series C-1 Preferred Stock and, at such time, cease being an accrued and unpaid Dividend,
in which event Dividends shall accrue thereon in accordance with the terms of this Certificate of Designation and such additional
Series C-1 Stated Value shall be convertible into Common Stock in accordance with the terms of this Certificate of Designation.
All payments shall be made at such address as the Series C-1 Holder shall hereafter give to the Corporation by written notice
made in accordance with the provisions of this Certificate of Designation. Whenever any amount expressed to be due by the terms
of this Certificate of Designation is due on any day which is not a Business Day, the same shall instead be due on the next succeeding
day which is a Business Day.


 



    	5



    	 



    

 


4.3           Certain
Rights and Remedies Regarding Dividends. The Series C-1 Holders shall have the same rights and remedies with respect to
the delivery of any shares delivered in the payment of Dividends as if such shares were being issued pursuant to Section 7.
Dividends on the Series C-1 Preferred Stock shall be calculated on the basis of a 360-day year, consisting of twelve 30 calendar
day periods, shall accrue daily commencing on the Series C-1 Original Issue Date, and shall be deemed to accrue from such
date whether or not earned or declared and whether or not there are profits, surplus or other funds of the Corporation legally
available for the payment of dividends.


 


4.4           Participation
in Common Stock Dividends. If the Corporation shall pay any dividends with respect to shares of Common Stock (and provided,
in each case, that the Required Holders have consented to such payment in accordance with Section 6.3), then, concurrently
with the payment of such dividend to the holders of Common Stock, and in addition to all other dividends to which the Series C-1
Holders may be entitled pursuant to the terms of this Certificate of Designation with respect to the Series C-1 Preferred
Stock held by them, the Corporation shall pay the Series C-1 Holders an amount equal to the aggregate dividends to which they
would have been entitled had all of their shares of Series C-1 Preferred Stock been converted into Common Stock (without regard
to any limitations on the ability to convert and whether or not a sufficient number of shares are authorized and reserved to effect
any such exercise and issuance) on or before the record date for such dividend.


 


4.5           Certain
Limitations on the Payment of Dividends. If the rules or regulations of any stock exchange, interdealer quotation system
or other self-regulatory organization with jurisdiction over the Corporation or any of its securities impose limits on the Corporation’s
ability to issue shares of Common Stock in excess of the number of shares which may be issued without violating such rules and
regulations, then the Corporation shall not be entitled or obligated to pay Dividends in shares of Common Stock if, and to the
extent that, such limitation would be exceeded, but shall instead pay any such dividends in cash.


 


4.6         Capital
of the Corporation; No Special Reserves. The Corporation acknowledges and agrees that the capital of the Corporation
(as such term is used in Section 154 of the Delaware General Corporation Law) in respect of the Series C-1 Preferred
Stock and any future issuances of the Corporation’s capital stock shall be equal to the aggregate par value of such Series C-1
Preferred Stock or capital stock, as the case may be, and that, on or after the date of the Purchase Agreement, it shall not increase
the capital of the Corporation with respect to any shares of the Corporation’s capital stock issued and outstanding on such
date. The Corporation also acknowledges and agrees that it shall not create any special reserves under Section 171 of the
Delaware General Corporation Law without the prior written consent of the Required Holders.


 



    	6



    	 



    

 


5.           Liquidation,
Dissolution or Winding Up; Certain Mergers, Consolidations and Asset Sales.


 


5.1           Preferential
Payments to Holders of Series C-1 Preferred Stock. In the event of any voluntary or involuntary liquidation, dissolution
or winding up of the Corporation or Deemed Liquidation Event, the holders of shares of Series C-1 Preferred Stock then outstanding
shall be entitled to be paid out of the assets of the Corporation available for distribution to its stockholders, before any payment
shall be made to the holders of Preferred Stock, other than the holders of Series C-2 Preferred Stock (who shall participate
pari passu with the holders of Series C-1 Preferred Stock), the holders of Common Stock or the holders of any other
Junior Securities by reason of their ownership thereof, an amount per share of Series C-1 Preferred Stock equal to the Series C-1
Stated Value, plus any dividends declared or accrued but unpaid thereon. If upon any such liquidation, dissolution or winding up
of the Corporation or Deemed Liquidation Event, the assets of the Corporation available for distribution to its stockholders shall
be insufficient to pay the holders of shares of Series C-1 Preferred Stock the full amount to which they shall be entitled
under this Subsection 5.1 and the holders of shares of Series C-2 Preferred Stock the full amount to which they shall
be entitled under Part II, Subsection 5.1, the holders of shares of Series C-1 Preferred Stock and the holders
of shares of Series C-2 Preferred Stock shall share ratably in any distribution of the assets available for distribution in
proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution
if all amounts payable on or with respect to such shares were paid in full.


 


5.2           Distribution
of Remaining Assets. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation
or Deemed Liquidation Event, after the payment of all preferential amounts required to be paid to the holders of shares of Series C-1
Preferred Stock and Series C-2 Preferred Stock and any other series of the Corporation’s preferred stock with priority
as to distributions of assets upon liquidation, the remaining assets of the Corporation available for distribution to its stockholders
shall be distributed among the holders of shares of Series C-1 Preferred Stock, the holders of shares of Series C-2 Preferred
Stock, the holders of shares of Common Stock and the holders of any other shares of the Corporation’s preferred stock entitled
to participate in the distribution of assets upon liquidation with the holders of Common Stock, pro rata based on the number
of shares held by each such holder, treating for this purpose all such securities as if they had been converted to Common Stock
pursuant to the terms of the Certificate of Incorporation (including all certificates of designation) immediately prior to such
dissolution, liquidation or winding up of the Corporation. The aggregate amount which a holder of a share of Series C-1 Preferred
Stock is entitled to receive under Part I, Subsections 5.1 and 5.2 is hereinafter referred to as the “Series C-1
Liquidation Amount.”


 



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5.3          Deemed
Liquidation Events.


 


5.3.1       Definition.
Each of the following events shall be considered a “Deemed Liquidation Event” unless the Required Holders elect
otherwise by written notice sent to the Corporation prior to the effective date of any such event:


 


a.           a
merger or consolidation in which the Corporation or a subsidiary of the Corporation is a constituent party and the Corporation
issues shares of its capital stock pursuant to such merger or consolidation, except any such merger or consolidation involving
the Corporation or a subsidiary in which the shares of capital stock of the Corporation outstanding immediately prior to such merger
or consolidation continue to represent, or are converted into or exchanged for shares of capital stock that represent, immediately
following such merger or consolidation, at least a majority, by voting power, of the capital stock of (1) the surviving or
resulting corporation or (2) if the surviving or resulting corporation is a wholly-owned subsidiary of another corporation
immediately following such merger or consolidation, the parent corporation of such surviving or resulting corporation; or


 


b.           the
sale, lease, transfer, exclusive license or other disposition, in a single transaction or series of related transactions, by the
Corporation or any subsidiary of the Corporation of all or substantially all the assets of the Corporation and its subsidiaries
taken as a whole, or the sale or disposition (whether by merger or otherwise) of one or more subsidiaries of the Corporation if
substantially all of the assets of the Corporation and its subsidiaries taken as a whole are held by such subsidiary or subsidiaries,
except where such sale, lease, transfer, exclusive license or other disposition is to a wholly owned subsidiary of the Corporation;
or


 


c.           the
acquisition by a Person or “group” (within the meaning of Section 13(d) or 14(d)(2) of the Exchange Act) pursuant
to a purchase, tender or exchange offer for the shares of the capital stock of the Corporation that has been approved by the Board
of Directors of the Corporation and to which the Corporation is a constituent party, pursuant to which stockholders of the Corporation
immediately prior to such tender offer own less than fifty percent (50%) of the equity or voting power of the Corporation
immediately after such purchase, tender or exchange offer, on a fully-diluted basis.


 


5.3.2       Effecting
a Deemed Liquidation Event.


 


a.           The
Corporation shall not have the power to effect a Deemed Liquidation Event unless the agreement or plan of merger or consolidation
or other applicable agreement for such transaction (the “Merger Agreement”) provides that the consideration
payable to the stockholders of the Corporation shall be allocated among the holders of capital stock of the Corporation in accordance
with Subsections 5.1 and 5.2.


 



    	8



    	 



    

 


b.           In
the event of a Deemed Liquidation Event, if the Corporation does not effect a dissolution of the Corporation under the Delaware
General Corporation Law within 90 days after such Deemed Liquidation Event, then (i) the Corporation shall send a written
notice to each holder of Series C-1 Preferred Stock no later than the 90th day after the Deemed Liquidation Event advising
such holders of their right (and the requirements to be met to secure such right) pursuant to the terms of the following clause
(ii) to require the redemption of such shares of Series C-1 Preferred Stock, and (ii) if the Required Holders
so request in a written instrument delivered to the Corporation not later than 120 days after such Deemed Liquidation Event, the
Corporation shall use the consideration received by the Corporation for such Deemed Liquidation Event (net of any retained liabilities
associated with the assets sold or technology licensed, as determined in good faith by the Board of Directors of the Corporation),
together with any other assets of the Corporation available for distribution to its stockholders, all to the extent permitted
by Delaware law governing distributions to stockholders (the “Available
Proceeds”), on the 150th day after such Deemed Liquidation Event, to redeem all outstanding shares of Series C-1
Preferred Stock and shares of Series C-2 Preferred Stock at a price per share equal to the Series C-1 Liquidation Amount
and Series C-2 Liquidation Amount, respectively. Notwithstanding the foregoing, in the event of a redemption pursuant to
the preceding sentence, if the Available Proceeds are not
sufficient to redeem all outstanding shares of Series C-1 Preferred Stock and Series C-2 Preferred Stock, the Corporation
shall ratably redeem each holder’s shares of Series C-1 Preferred Stock and Series C-2 Preferred Stock to the
fullest extent of such Available Proceeds (in proportion
to the respective amounts which would otherwise be payable on the shares held by them upon such distribution if all amounts payable
on or with respect to such shares were paid in full), and shall redeem the remaining shares as soon as it may lawfully do so under
Delaware law governing distributions to stockholders. Prior to the distribution or redemption provided for in this Subsection 5.3.2(b),
the Corporation shall not expend or dissipate the consideration received for such Deemed Liquidation Event, except to discharge
expenses incurred in connection with such Deemed Liquidation Event or in the ordinary course of business.


 


c.           Amount
Deemed Paid or Distributed. The amount deemed paid or distributed to the holders of capital stock of the Corporation upon any
such merger, consolidation, sale, transfer, exclusive license, other disposition or redemption shall be the cash and the value
of the property, rights or securities paid or distributed to such holders by the Corporation or the acquiring person, firm or other
entity. The value of such property, rights or securities shall be determined in good faith by the Board of Directors of the Corporation.


 


d.           Allocation
of Escrow. In the event
of a Deemed Liquidation Event, if any portion of the consideration payable to the stockholders of the Corporation is placed into
escrow and/or is payable to the stockholders of the Corporation subject to contingencies, the Merger Agreement shall provide that
(a) the portion of such consideration that is not placed in escrow and not subject to any contingencies (the “Initial
Consideration”) shall be allocated among the holders of capital stock of the Corporation in accordance with Subsections 5.1
and 5.2 as if the Initial Consideration were the only consideration payable in connection with such Deemed Liquidation Event
and (b) any additional consideration which becomes payable to the stockholders of the Corporation upon release from escrow
or satisfaction of contingencies shall be allocated among the holders of capital stock of the Corporation in accordance with Subsections 5.1
and 5.2 after taking into account the previous payment of the Initial Consideration as part of the same transaction.


 



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6.          Voting.


 


6.1           General.
On any matter presented to the stockholders of the Corporation for their action or consideration at any meeting of stockholders
of the Corporation (or by written consent of stockholders in lieu of meeting), each holder of outstanding shares of Series C-1
Preferred Stock shall be entitled to cast the number of votes equal to (a) the Series C-1 Stated Value of such shares
divided by (b) $1.53 (with such price in subsection (b) subject to equitable adjustments for stock splits, stock dividends
or rights offerings by the Corporation relating to the Corporation’s securities, combinations, recapitalization, reclassifications,
extraordinary distributions and similar events), as of the record date for determining stockholders entitled to vote on such matter,
or if no such record date is established, at the date such vote is taken or any written consent of stockholders is solicited. Except
as otherwise required by law or by the other provisions of the Certificate of Incorporation (including this Certificate of Designation),
holders of Series C-1 Preferred Stock and holders of Series C-2 Preferred Stock and holders of other voting preferred
stock of the Corporation shall vote together with the holders of Common Stock as a single class, and not as separate classes.


 


6.2           Election
of Directors. So long as the number of outstanding shares of Series C-1 Preferred Stock and Series C-2 Preferred
Stock, in the aggregate, shall equal or exceed such number of shares that can be converted into Common Stock which represents beneficial
ownership of more than five percent (5%) of the outstanding shares of Common Stock (without
regard to or giving effect to any limitations on the ability to convert in
effect prior to the date of the first Shareholder Issuance Vote (as defined in the Securities Purchase Agreement)), the
holders of record of the shares of Series C-1 Preferred Stock and Series C-2 Preferred Stock, voting together as a single
class, shall be entitled to elect one (1) director of the Corporation (the “Series C Director”). For purposes
of this Subsection 6.2, beneficial ownership shall be determined by the Corporation in accordance with Section 13(d) of the
Exchange Act and the rules and regulations promulgated thereunder. Any director elected as provided in the preceding sentences
may be removed with or without cause by, and only by, the affirmative vote of the holders of the Series C-1 Preferred Stock
and the holders of the Series C-2 Preferred Stock, given either at a special meeting of such stockholders duly called for
that purpose, or pursuant to a written consent of stockholders. If
the holders of shares of Series C-1 Preferred Stock and the holders of the Series C-2 Preferred Stock
fail to elect such a director, then any directorship not so filled shall remain vacant until such time as the holders of the Series C-1
Preferred Stock and the holders of the Series C-2 Preferred Stock elect
a person to fill such directorship by vote or written consent in lieu of a meeting; and no such directorship may be filled by stockholders
of the Corporation other than by the holders of shares of Series C-1 Preferred Stock and the holders of the Series C-2
Preferred Stock, voting exclusively and as a separate
class. Any vacancy in the position of
Series C Director shall be filled by the holders of the Series C-1 Preferred Stock and the holders of the Series C-2
Preferred Stock by vote or written consent in lieu
of a meeting; and no such directorship may be filled by stockholders of the Corporation other than by the holders of the Series C-1
Preferred Stock and the holders of the Series C-2 Preferred Stock,
voting exclusively and as a separate class. At any meeting held for the purpose of electing the Series C Director,
the presence in person or by proxy of the holders of a majority, in the aggregate, of the outstanding shares of the Series C-1
Preferred Stock and Series C-2 Preferred Stock shall constitute a quorum for the purpose of electing such Series C Director.


 



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6.3          Series C-1
Preferred Stock Protective Provisions. The Corporation shall not, either directly or indirectly by amendment, merger, consolidation
or otherwise, do any of the following without (in addition to any other vote required by law or the Certificate of Incorporation)
the written consent or affirmative vote of the Required Holders, given in writing or by vote at a meeting, consenting or voting
(as the case may be) separately as a class, and any such act or transaction entered into without such consent or vote shall be
null and void ab initio, and of no force or effect. 


 


6.3.1           alter
or change adversely the powers, preferences or rights given to the Series C-1 Preferred Stock or Series C-2 Preferred
Stock, or alter or amend this Certificate of Designation, or


 


6.3.2           authorize
or create any class of stock ranking as to dividends, redemption or distribution of assets upon a liquidation or Deemed Liquidation
Event senior to or otherwise pari passu with the Series C-1 Preferred Stock or Series C-2 Preferred Stock, or


 


6.3.3           amend
the Certificate of Incorporation or other charter documents so as to affect adversely any rights of the holders of Series C-1
Preferred Stock or Series C-2 Preferred Stock, or


 


6.3.4           increase
the authorized number of shares of the Series C-1 Preferred Stock, Series C-2 Preferred Stock, Series A Convertible Preferred
Stock, Series B Convertible Preferred Stock or any other preferred stock of the Corporation, or


 


6.3.5           do
any act or thing not authorized or contemplated by this Certificate of Designation which would result in taxation of the holders
of shares of Series C-1 Preferred Stock or Series C-2 Preferred Stock under Section 305 of the Internal Revenue
Code of 1986, as amended (or any comparable provision of the Internal Revenue Code as hereafter from time to time amended), or


 


6.3.6           decrease
the Dividend Rate of (i) the Series C-1 Preferred Stock as provided in Part I, Section 4.1, or (ii) the
Series C-2 Preferred Stock as provided in Part II, Section 4.1, or


 


6.3.7           declare,
pay or set apart for payment, any dividends or other distributions (whether in cash, securities or other property) on any other
class or series of the Corporation’s capital stock or make any other payment or distribution in respect of the Corporation’s
capital stock (other than (i) the payment and accrual of dividends in respect of Series B Convertible Preferred Stock outstanding
as of the Series C-1 Original Issue Date, at the dividend rate and on the other terms and conditions in the Series B Amendments,
(ii) the Series C-1 Preferred Stock pursuant to Part I, Section 4 and (iii) the Series C-2
Preferred Stock pursuant to Part II, Section 4), or


 



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6.3.8           redeem,
repay, repurchase or otherwise acquire (whether for cash or in exchange for property or other securities or otherwise) in any one
transaction or series of related transactions any shares of capital stock of the Corporation or any warrants, rights or options
to purchase or acquire any such shares, except (i) pursuant to the terms of any plan, agreement or arrangement approved
by the Board of Directors of the Corporation respecting employees of the Corporation, (ii) the Series B Warrants (other than the
Amended and Restated Series B Warrants (as defined in the Securities Purchase Agreement)) pursuant to the terms thereof as in effect
on the date hereof or (iii) for the redemption of Series C-1 Preferred Stock pursuant to Part I, Section 5.3.2
or Series C-2 Preferred Stock pursuant to Part II, Section 5.3.2, or


 


6.3.9           amend
the anti-dilution adjustment in respect of (i) the Series C-1 Preferred Stock for subsequent equity sales as provided
in Part I, Section 7.8 or (ii) the Series C-2 Preferred Stock for subsequent equity sales as provided
in Part II, Section 7.8, or


 


6.3.10         enter
into any Deemed Liquidation Event in which the Series C-1 Holders would receive an aggregate amount equal to less than the
liquidation preference set forth in Part I, Section 5.1, or


 


6.3.11         amend
the Certificate of Designations, Powers, Preferences and other Rights and Qualifications of Series A Convertible Preferred Stock,
as amended, or the Certificate of Designation of Rights and Preferences of the Series B Preferred Stock, as amended, or otherwise
alter or change the preferences or rights given to the holders of Series A Preferred Stock in the Certificate of Designations,
Powers, Preferences and other Rights and Qualifications of Series A Convertible Preferred Stock or the preferences or rights given
to the holders of Series B Preferred Stock in the Certificate of Designation of Rights and Preferences of the Series B Preferred
Stock, as amended, or


 


6.3.12         enter
into any agreement with respect to the foregoing.


 


7.          Optional
Conversion. The holders of the Series C-1 Preferred Stock shall have conversion rights
as follows (the “Conversion Rights”):


 


7.1         Right
to Convert.


 


7.1.1           Conversion
Ratio. Each share of Series C-1 Preferred Stock shall be convertible, at the option of the holder thereof, at any time
and from time to time, but not before the date of the first Shareholder Issuance Vote (as defined in the Securities Purchase Agreement)
(notwithstanding the outcome of said vote), without the payment of additional consideration by the holder thereof, into such number
of fully paid and nonassessable shares of Common Stock as is determined by dividing (i) the Series C-1 Stated
Value, plus, if consented to by the Corporation, all accrued and unpaid Dividends, by (ii) the Series C-1
Conversion Price (as defined below) in effect at the time of conversion. The “Series C-1 Conversion Price”
shall initially be equal to $1.2043. Such initial Series C-1 Conversion Price, and the rate at which shares of Series C-1
Preferred Stock may be converted into shares of Common Stock, shall be subject to adjustment as provided below.


 



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7.1.2           Termination
of Conversion Rights. In the event of a notice of redemption of any shares of Series C-1 Preferred Stock pursuant to Section 5.3.2(b),
the Conversion Rights of the shares designated for redemption shall terminate at the close of business on the last full day preceding
the date fixed for redemption, unless the redemption price is not fully paid on such redemption date, in which case the Conversion
Rights for such shares shall continue until such price is paid in full. In the event of a liquidation, dissolution or winding up
of the Corporation or a Deemed Liquidation Event, the Conversion Rights shall terminate at the close of business on the last full
day preceding the date fixed for the payment of any such amounts distributable on such event to the holders of Series C-1
Preferred Stock.


 


7.1.3           Fractional
Shares. No fractional shares of Common Stock shall be issued upon conversion of the Series C-1 Preferred Stock. In lieu
of any fractional shares to which the holder would otherwise be entitled, the Corporation shall pay cash equal to such fraction
multiplied by the fair market value of a share of Common Stock as determined in good faith by the Board of Directors of the Corporation.
Whether or not fractional shares would be issuable upon such conversion shall be determined on the basis of the total number of
shares of Series C-1 Preferred Stock the holder is at the time converting into Common Stock and the aggregate number of shares
of Common Stock issuable upon such conversion.


 


7.1.4           Mechanics
of Conversion. In order for a holder of Series C-1 Preferred Stock to voluntarily convert shares of Series C-1 Preferred
Stock into shares of Common Stock, such holder shall surrender the certificate or certificates for such shares of Series C-1
Preferred Stock (or, if such registered holder alleges that such certificate has been lost, stolen or destroyed, a lost certificate
affidavit and agreement reasonably acceptable to the Corporation to indemnify the Corporation against any claim that may be made
against the Corporation on account of the alleged loss, theft or destruction of such certificate), at the office of the transfer
agent for the Series C-1 Preferred Stock (or at the principal office of the Corporation if the Corporation serves as its own
transfer agent), together with written notice that such holder elects to convert all or any number of the shares of the Series C-1
Preferred Stock represented by such certificate or certificates and, if applicable, any event on which such conversion is contingent.
Such notice shall be substantially in the form of Notice of Conversion attached hereto as Exhibit A, and shall state such
holder’s name or the names of the nominees in which such holder wishes the certificate or certificates for shares of Common
Stock to be issued. If required by the Corporation, certificates surrendered for conversion shall be endorsed or accompanied by
a written instrument or instruments of transfer, in form reasonably satisfactory to the Corporation, duly executed by the registered
holder or his, her or its attorney duly authorized in writing. The close of business on the date of receipt by the transfer agent
(or by the Corporation if the Corporation serves as its own transfer agent) of such certificates (or lost certificate affidavit
and agreement) and notice shall be the time of conversion (the “Conversion Time”), and the shares of Common
Stock issuable upon conversion of the shares represented by such certificate shall be deemed to be outstanding of record as of
such date. The Corporation shall, as soon as practicable after the Conversion Time and in any event by no later than the third (3rd)
Trading Day after the Conversion Time, (i) issue and deliver to such holder of Series C-1 Preferred Stock, or to his,
her or its nominees, a certificate or certificates for the number of full shares of Common Stock issuable upon such conversion
in accordance with the provisions hereof and a certificate for the number (if any) of the shares of Series C-1 Preferred Stock
represented by the surrendered certificate that were not converted into Common Stock, (ii) pay in cash such amount as provided
in Subsection 7.1.3 in lieu of any fraction of a share of Common Stock otherwise issuable upon such conversion and (iii) pay
all declared or accrued but unpaid dividends on the shares of Series C-1 Preferred Stock converted (unless the Corporation
and such holder shall have agreed to the conversion of such unpaid dividends into shares of Common Stock).


 



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7.1.5       Limitations
on the Number of Shares Issuable.


 


a.           Notwithstanding
anything herein to the contrary, if the Corporation has not obtained Shareholder Issuance Approval or a written opinion from outside
counsel to the Corporation, reasonably satisfactory to the Series C-1 Majority Holders, that such approval is not required,
then the Corporation may not issue any shares of Common Stock upon conversion of the Series C-1 Preferred Stock or in payment
of Dividends, if the issuance of such shares of Common Stock would cause the Corporation to exceed the aggregate number of shares
of Common Stock which the Corporation may issue (A) upon conversion of all of the Series C-1 Preferred Stock and Series C-2
Preferred Stock issued pursuant to the Securities Purchase Agreement, together with any conversion of any accrued and unpaid
Dividends, (B) upon exercise of all of the Warrants issued pursuant to the Securities Purchase Agreement and (C) pursuant
to any Dividends paid on the Series C-1 Preferred Stock and Series C-2 Preferred Stock, without breaching the Corporation’s
obligations under the rules and regulations of the Principal Market, whether or not the Common Stock is listed on the Principal
Market (the “Exchange Cap”). Each holder of Series C-1 Preferred Stock and Series C-2 Preferred Stock
shall be entitled to such holder’s pro-rata portion (based on the aggregate Stated Value of the shares of Series C-1
Preferred Stock and Series C-2 Preferred Stock acquired by such holder under the Securities Purchase Agreement, divided
by the aggregate stated value of all shares of Series C-1 Preferred Stock and Series C-2 Preferred Stock issued
under the Securities Purchase Agreement) of the Exchange Cap (with respect to each such holder, the “Exchange Cap Allocation”).
In the event that any such holder shall sell or otherwise transfer any of such holder’s Series C-1 Preferred Stock or
Series C-2 Preferred Stock, the transferee shall be allocated a pro rata portion of such holder’s Exchange Cap Allocation.
In the event that any holder of Series C-1 Preferred Stock or Series C-2 Preferred Stock shall convert all of such holder’s
Series C-1 Preferred Stock and Series C-2 Preferred Stock into a number of shares of Common Stock which, in the aggregate,
is less than such holder’s Exchange Cap Allocation, then the difference between such holder’s Exchange Cap Allocation
and the number of shares of Common Stock actually issued to such holder shall be allocated to the respective Exchange Cap Allocations
of the remaining holders of Series C-1 Preferred Stock and Series C-2 Preferred Stock on a pro rata basis in proportion
to the shares of Common Stock underlying the shares of Series C-1 Preferred Stock and Series C-2 Preferred Stock then
held by each such holder.


 



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b.           Notwithstanding
anything herein to the contrary, the Corporation shall not issue to any Series C-1 Holder any shares of Common Stock issuable
upon conversion of the Series C-1 Preferred Stock (“Conversion Shares”) or in payment of any Dividends,
to the extent such shares after giving effect to such issuance and when added to the number of shares of Common Stock beneficially
owned by such Series C-1 Holder and which were previously issued upon conversion of any shares of Series C-1 Preferred
Stock, issued in payment of any Dividends and issued upon conversion of any shares of Series C-2 Preferred Stock and any dividends
thereon, and exercise of any Warrants issued pursuant to the Securities Purchase Agreement, such Series C-1 Holder (together
with such Series C-1 Holder’s affiliates), would (a) beneficially own in excess of 19.9% of the number of shares
of Common Stock outstanding immediately after giving effect to such issuances or (b) control in excess of 19.9% of the total
voting power of the Corporation’s securities outstanding immediately after giving effect to such issuances that are entitled
to vote on a matter being voted on by holders of the Common Stock, unless and until the Corporation obtains the Shareholder Issuance
Approval or a written opinion from outside counsel to the Corporation, reasonably satisfactory to the Series C-1 Majority
Holders, that such approval is not required.


 


For purposes of this
Subsection 7.1.5(b), beneficial ownership shall be determined in accordance with Section 13(d) of the Exchange Act, and the
rules and regulations promulgated thereunder.


 


For purposes of this
Subsection 7.1.5(b), in determining the number of outstanding shares of Common Stock, a Series C-1 Holder may rely on the
number of outstanding shares of Common Stock as reflected in (i) the Corporation’s most recent Quarterly Report on Form
10-Q or, if later, Annual Report on Form 10-K, filed with the Securities and Exchange Commission, (ii) a more recent public
announcement by the Corporation, or (iii) any other notice by the Corporation or the Corporation’s transfer agent setting
forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Series C-1 Holder, the Corporation
shall within five Business Days confirm orally and in writing to such Series C-1 Holder the number of shares of Common Stock
then outstanding.


 


7.2           Reservation
of Shares. The Corporation shall at all times when the Series C-1 Preferred Stock shall be outstanding, reserve and keep
available out of its authorized but unissued capital stock, for the purpose of effecting the conversion of the Series C-1
Preferred Stock, such number of its duly authorized shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding Series C-1 Preferred Stock; and if at any time the number of authorized but unissued shares
of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series C-1 Preferred
Stock, the Corporation shall take such corporate action as may be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purposes, including, without limitation, engaging in best efforts
to obtain the requisite stockholder approval of any necessary amendment to the Certificate of Incorporation. Before taking any
action which would cause an adjustment reducing the Series C-1 Conversion Price below the then par value of the shares of
Common Stock issuable upon conversion of the Series C-1 Preferred Stock, the Corporation will take any corporate action which
may, in the opinion of its counsel, be necessary in order that the Corporation may validly and legally issue fully paid and nonassessable
shares of Common Stock at such adjusted Series C-1 Conversion Price.


 



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7.3           Effect
of Conversion. All shares of Series C-1 Preferred Stock which shall have been surrendered for conversion as herein provided
shall no longer be deemed to be outstanding and all rights with respect to such shares shall immediately cease and terminate at
the Conversion Time, except only the right of the holders thereof to receive shares of Common Stock in exchange therefor, to receive
payment in lieu of any fraction of a share otherwise issuable upon such conversion as provided in Subsection 7.1.3
and to receive payment of any dividends declared or accrued but unpaid thereon. Any shares of Series C-1 Preferred Stock so
converted shall be retired and cancelled and may not be reissued as shares of such series, and the Corporation may thereafter take
such appropriate action (without the need for stockholder action) as may be necessary to reduce the authorized number of shares
of Series C-1 Preferred Stock accordingly.


 


7.4           No
Further Adjustment. Upon any such conversion, no adjustment to the Series C-1 Conversion Price shall be made for any declared
but unpaid dividends on the Series C-1 Preferred Stock surrendered for conversion or on the Common Stock delivered upon conversion.


 


7.5           Taxes.
The Corporation shall pay any and all issue and other similar taxes that may be payable in respect of any issuance or delivery
of shares of Common Stock upon conversion of shares of Series C-1 Preferred Stock pursuant to this Section 7.
The Corporation shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the
issuance and delivery of shares of Common Stock in a name other than that in which the shares of Series C-1 Preferred Stock
so converted were registered, and no such issuance or delivery shall be made unless and until the Person requesting such issuance
has paid to the Corporation the amount of any such tax or has established, to the satisfaction of the Corporation, that such tax
has been paid.


 


7.6         Adjustments
to Series C-1 Conversion Price for Diluting Issues.


 


7.6.1           Special
Definitions. For purposes of this Part I, Section 7, in addition to the definitions set forth above, the following definitions
shall apply


 


“Additional
Shares of Common Stock” shall mean all shares of Common Stock issued (or, pursuant to Section 7.7 below,
deemed to be issued) by the Corporation after the Series C-1 Original Issue Date, other than (x) the following shares
of Common Stock and (y) shares of Common Stock deemed issued pursuant to the following Options and Convertible Securities
(clauses (x) and (y), collectively, “Exempted Securities”):


 



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(i)          shares
of Common Stock, Options or Convertible Securities issued as a dividend or distribution on Series C-1 Preferred Stock, Series C-2
Preferred Stock or Series B Preferred Stock; or


 


(ii)         shares
of Common Stock, Options or Convertible Securities issued by reason of a dividend, stock split, split-up or other distribution
on shares of Common Stock that is covered by Subsection 7.10, 7.11, 7.12 or 7.13;
or


 


(iii)        shares
of Common Stock or Options issued to employees or directors of, or consultants or advisors to, the Corporation or any of its subsidiaries
pursuant to a plan, agreement or arrangement approved by the Board of Directors of the Corporation; or


 


(iv)         shares
of Common Stock or Convertible Securities actually issued upon the exercise of Options or shares of Common Stock actually issued
upon the conversion or exchange of Convertible Securities, in each case provided such issuance is pursuant to the terms of such
Option or Convertible Security; or


 


(v)          shares
of Common Stock, Options or Convertible Securities issued to banks, equipment lessors or other financial institutions, or to real
property lessors, pursuant to a debt financing, equipment leasing or real property leasing transaction approved by the Board of
Directors of the Corporation; or


 


(vi)         shares
of Common Stock, Options or Convertible Securities issued to suppliers or third party service providers in connection with the
provision of goods or services pursuant to transactions approved by the Board of Directors of the Corporation (including
shares underlying (directly or indirectly) any such Options or Convertible Securities); or


 


(vii)        shares
of Common Stock, Options or Convertible Securities issued in connection with the acquisition of another corporation by the Corporation
or its subsidiary by merger, purchase of substantially all of the assets or other reorganization or to a joint venture agreement,
provided, that such issuances are approved by the Board of Directors of the Corporation.


 


7.6.2           No
Adjustment of Series C-1 Conversion Price. No adjustment in the Series C-1 Conversion Price shall be made as the
result of the issuance or deemed issuance of Additional Shares of Common Stock if the Corporation receives written notice from
the Required Holders agreeing that no such adjustment shall be made as the result of the issuance or deemed issuance of such Additional
Shares of Common Stock.


 



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7.7         Deemed
Issue of Additional Shares of Common Stock. 


 


7.7.1           If
the Corporation at any time or from time to time after the Series C-1 Original Issue Date shall issue any Options or Convertible
Securities (excluding Options or Convertible Securities which are themselves Exempted Securities) or shall fix a record date for
the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then the
maximum number of shares of Common Stock (as set forth in the instrument relating thereto, assuming the satisfaction of any conditions
to exercisability, convertibility or exchangeability but without regard to any provision contained therein for a subsequent adjustment
of such number) issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the
conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the
time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date.


 


7.7.2           If
the terms of any Option or Convertible Security, the issuance of which resulted in an adjustment to the Series C-1 Conversion
Price pursuant to the terms of Subsection 7.8, are revised as a result of an amendment to such terms or any other adjustment
pursuant to the provisions of such Option or Convertible Security (but excluding automatic adjustments to such terms pursuant to
anti-dilution or similar provisions of such Option or Convertible Security) to provide for either (1) any increase or decrease
in the number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any such Option or Convertible
Security or (2) any increase or decrease in the consideration payable to the Corporation upon such exercise, conversion and/or
exchange, then, effective upon such increase or decrease becoming effective, the Series C-1 Conversion Price computed upon
the original issue of such Option or Convertible Security (or upon the occurrence of a record date with respect thereto) shall
be readjusted to such Series C-1 Conversion Price as would have obtained had such revised terms been in effect upon the original
date of issuance of such Option or Convertible Security. Notwithstanding the foregoing, no readjustment pursuant to this clause 7.7.2
shall have the effect of increasing the Series C-1 Conversion Price to an amount which exceeds the lower of (i) the Series C-1
Conversion Price in effect immediately prior to the original adjustment made as a result of the issuance of such Option or Convertible
Security, or (ii) the Series C-1 Conversion Price that would have resulted from any issuances of Additional Shares of
Common Stock (other than deemed issuances of Additional Shares of Common Stock as a result of the issuance of such Option or Convertible
Security) between the original adjustment date and such readjustment date.


 



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7.7.3           If
the terms of any Option or Convertible Security (excluding Options or Convertible Securities which are themselves Exempted Securities),
the issuance of which did not result in an adjustment to the Series C-1 Conversion Price pursuant to the terms of Subsection 7.8
(either because the consideration per share (determined pursuant to Subsection 7.8.1) of the Additional Shares of Common
Stock subject thereto was equal to or greater than the Series C-1 Conversion Price then in effect, or because such Option
or Convertible Security was issued before the Series C-1 Original Issue Date), are revised after the Series C-1 Original
Issue Date as a result of an amendment to such terms or any other adjustment pursuant to the provisions of such Option or Convertible
Security (but excluding automatic adjustments to such terms pursuant to anti-dilution or similar provisions of such Option or Convertible
Security) to provide for either (1) any increase in the number of shares of Common Stock issuable upon the exercise, conversion
or exchange of any such Option or Convertible Security or (2) any decrease in the consideration payable to the Corporation
upon such exercise, conversion or exchange, then such Option or Convertible Security, as so amended or adjusted, and the Additional
Shares of Common Stock subject thereto (determined in the manner provided in Subsection 7.7.1) shall be deemed to have been
issued effective upon such increase or decrease becoming effective.


 


7.7.4           Upon
the expiration or termination of any unexercised Option or unconverted or unexchanged Convertible Security (or portion thereof)
which resulted (either upon its original issuance or upon a revision of its terms) in an adjustment to the Series C-1 Conversion
Price pursuant to the terms of Subsection 7.8, the Series C-1 Conversion Price shall be readjusted to such Series C-1
Conversion Price as would have obtained had such Option or Convertible Security (or portion thereof) never been issued.


 


7.7.5           If
the number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any Option or Convertible Security,
or the consideration payable to the Corporation upon such exercise, conversion and/or exchange, is calculable at the time such
Option or Convertible Security is issued or amended but is subject to adjustment based upon subsequent events, any adjustment to
the Series C-1 Conversion Price provided for in this Subsection 7.7 shall be effected at the time of such issuance
or amendment based on such number of shares or amount of consideration without regard to any provisions for subsequent adjustments
(and any subsequent adjustments shall be treated as provided in clauses 7.7.2 and 7.7.3).
If the number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any Option or Convertible Security,
or the consideration payable to the Corporation upon such exercise, conversion and/or exchange, cannot be calculated at all at
the time such Option or Convertible Security is issued or amended, any adjustment to the Series C-1 Conversion Price that
would result under the terms of this Subsection 7.7 at the time of such issuance or amendment shall instead be effected
at the time such number of shares and/or amount of consideration is first calculable (even if subject to subsequent adjustments),
assuming for purposes of calculating such adjustment to the Series C-1 Conversion Price that such issuance or amendment took
place at the time such calculation can first be made.


 


7.8           Adjustment
of Series C-1 Conversion Price Upon Issuance of Additional Shares of Common Stock. In the event the Corporation shall,
at any time after the date the Corporation obtains the Shareholder Issuance Approval, issue Additional Shares of Common Stock (including
Additional Shares of Common Stock deemed to be issued pursuant to Subsection 7.7), without consideration or for a consideration
per share less than the Series C-1 Conversion Price in effect immediately prior to such issue, then the Series C-1 Conversion
Price shall be reduced, concurrently with such issue, to the consideration per share received by the Corporation for such issue
or deemed issue of the Additional Shares of Common Stock; provided that if such issuance or deemed issuance was without
consideration, then the Corporation shall be deemed to have received an aggregate of $0.001 of consideration for each such Additional
Share of Common Stock issued or deemed to be issued.


 



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7.8.1       Determination
of Consideration. For purposes of this Subsection 7.8.1, the consideration received by the Corporation for the
issue of any Additional Shares of Common Stock shall be computed as follows:


 


a.           Cash
and Property: Such consideration shall:


 


(i)          insofar
as it consists of cash, be computed at the aggregate amount of cash received by the Corporation, excluding amounts paid or payable
for accrued interest;


 


(ii)         insofar
as it consists of property other than cash, be computed at the fair market value thereof at the time of such issue, as determined
in good faith by the Board of Directors of the Corporation; and


 


(iii)        in
the event Additional Shares of Common Stock are issued together with other shares or securities or other assets of the Corporation
for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (i)
and (ii) above, as determined in good faith by the Board of Directors of the Corporation.


 


b.           Options
and Convertible Securities. The consideration per share received by the Corporation for Additional Shares of Common Stock deemed
to have been issued pursuant to Subsection 7.7, relating to Options and Convertible Securities, shall be determined by dividing:


 


(i)          the
total amount, if any, received or receivable by the Corporation as consideration for the issue of such Options or Convertible Securities,
plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such consideration) payable to the Corporation upon the exercise
of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities,
the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities, by


 


(ii)         the
maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained
therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of
such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible Securities.


 



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7.9           Multiple
Closing Dates. In the event the Corporation shall issue on more than one date Additional Shares of Common Stock that are a
part of one transaction or a series of related transactions and that would result in an adjustment to the Series C-1 Conversion
Price pursuant to the terms of Subsection 7.8 then, upon the final such issuance, the Series C-1 Conversion Price
shall be readjusted to give effect to all such issuances as if they occurred on the date of the first such issuance (and without
giving effect to any additional adjustments as a result of any such subsequent issuances within such period).


 


7.10         Adjustment
for Stock Splits and Combinations. If the Corporation shall at any time or from time to time after the Series C-1 Original
Issue Date effect a subdivision of the outstanding Common Stock, the Series C-1 Conversion Price in effect immediately before
that subdivision shall be proportionately decreased so that the number of shares of Common Stock issuable on conversion of each
share of such series shall be increased in proportion to such increase in the aggregate number of shares of Common Stock outstanding.
If the Corporation shall at any time or from time to time after the Series C-1 Original Issue Date combine the outstanding
shares of Common Stock, the Series C-1 Conversion Price in effect immediately before the combination shall be proportionately
increased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be decreased in
proportion to such decrease in the aggregate number of shares of Common Stock outstanding. Any adjustment under this subsection
shall become effective at the close of business on the date the subdivision or combination becomes effective.


 


7.11         Adjustment
for Certain Dividends and Distributions. In the event the Corporation at any time or from time to time after the Series C-1
Original Issue Date shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive,
a dividend or other distribution payable on the Common Stock in additional shares of Common Stock, then and in each such event
the Series C-1 Conversion Price in effect immediately before such event shall be decreased as of the time of such issuance
or, in the event such a record date shall have been fixed, as of the close of business on such record date, by multiplying the
Series C-1 Conversion Price then in effect by a fraction:


 


(i)          the
numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of
such issuance or the close of business on such record date, and


 


(ii)         the
denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of
such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such
dividend or distribution.


 



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Notwithstanding the
foregoing, (a) if such record date shall have been fixed and such dividend is not fully paid or if such distribution is not
fully made on the date fixed therefor, the Series C-1 Conversion Price shall be recomputed accordingly as of the close of
business on such record date and thereafter the Series C-1 Conversion Price shall be adjusted pursuant to this subsection
as of the time of actual payment of such dividends or distributions; and (b) no such adjustment shall be made if the holders
of Series C-1 Preferred Stock simultaneously receive a dividend or other distribution of shares of Common Stock in a number
equal to the number of shares of Common Stock as they would have received if all outstanding shares of Series C-1 Preferred
Stock had been converted into Common Stock on the date of such event.


 


7.12         Adjustments
for Other Dividends and Distributions. In the event the Corporation at any time or from time to time after the Series C-1
Original Issue Date shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive,
a dividend or other distribution payable in securities of the Corporation (other than a distribution of shares of Common Stock
in respect of outstanding shares of Common Stock) or in other property and the provisions of Section 4 do not apply
to such dividend or distribution, then and in each such event the holders of Series C-1 Preferred Stock shall receive, simultaneously
with the distribution to the holders of Common Stock, a dividend or other distribution of such securities or other property in
an amount equal to the amount of such securities or other property as they would have received if all outstanding shares of Series C-1
Preferred Stock had been converted into Common Stock on the date of such event.


 


7.13         Adjustment
for Merger or Reorganization, etc. Subject to the provisions of Subsection 5.3, if there shall occur any reorganization,
recapitalization, reclassification, consolidation or merger involving the Corporation in which the Common Stock (but not the Series C-1
Preferred Stock) is converted into or exchanged for securities, cash or other property (other than a transaction covered by Subsections 7.6,
7.11, or 7.12), then, following any such reorganization, recapitalization, reclassification, consolidation or merger,
each share of Series C-1 Preferred Stock shall thereafter be convertible in lieu of the Common Stock into which it was convertible
prior to such event into the kind and amount of securities, cash or other property which a holder of the number of shares of Common
Stock of the Corporation issuable upon conversion of one share of Series C-1 Preferred Stock immediately prior to such reorganization,
recapitalization, reclassification, consolidation or merger would have been entitled to receive pursuant to such transaction; and,
in such case, appropriate adjustment (as determined in good faith by the Board of Directors of the Corporation) shall be made in
the application of the provisions in this Section 7 with respect to the rights and interests thereafter of the holders
of the Series C-1 Preferred Stock, to the end that the provisions set forth in this Section 7 (including provisions
with respect to changes in and other adjustments of the Series C-1 Conversion Price) shall thereafter be applicable, as nearly
as reasonably may be, in relation to any securities or other property thereafter deliverable upon the conversion of the Series C-1
Preferred Stock.


 



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7.14       Certificate
as to Adjustments. Upon the occurrence of each adjustment or readjustment of the Series C-1 Conversion Price pursuant
to this Section 7, the Corporation at its expense shall, as promptly as reasonably practicable but in any event not
later than 10 days thereafter, compute such adjustment or readjustment in accordance with the terms hereof and furnish to each
holder of Series C-1 Preferred Stock a certificate setting forth such adjustment or readjustment (including the kind and amount
of securities, cash or other property into which the Series C-1 Preferred Stock is convertible) and showing in detail the
facts upon which such adjustment or readjustment is based. The Corporation shall, as promptly as reasonably practicable after the
written request at any time of any holder of Series C-1 Preferred Stock (but in any event not later than 10 days thereafter),
furnish or cause to be furnished to such holder a certificate setting forth (i) the Series C-1 Conversion Price then
in effect, and (ii) the number of shares of Common Stock and the amount, if any, of other securities, cash or property which
then would be received upon the conversion of Series C-1 Preferred Stock.


 


7.15       Notice
of Record Date. In the event:


 


7.15.1         the
Corporation shall take a record of the holders of its Common Stock (or other capital stock or securities at the time issuable upon
conversion of the Series C-1 Preferred Stock) for the purpose of entitling or enabling them to receive any dividend or other
distribution, or to receive any right to subscribe for or purchase any shares of capital stock of any class or any other securities,
or to receive any other security; or


 


7.15.2         of
any capital reorganization of the Corporation, any reclassification of the Common Stock of the Corporation, or any Deemed Liquidation
Event; or


 


7.15.3         of
the voluntary or involuntary dissolution, liquidation or winding-up of the Corporation,


 


then, and in each such case, the Corporation
will send or cause to be sent to the holders of the Series C-1 Preferred Stock a notice specifying, as the case may be, (i) the
record date for such dividend, distribution or right, and the amount and character of such dividend, distribution or right, or
(ii) the effective date on which such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation
or winding-up is proposed to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock
(or such other capital stock or securities at the time issuable upon the conversion of the Series C-1 Preferred Stock) shall
be entitled to exchange their shares of Common Stock (or such other capital stock or securities) for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up,
and the amount per share and character of such exchange applicable to the Series C-1 Preferred Stock and the Common Stock.
Such notice shall be sent at least 10 days prior to the record date or effective date for the event specified in such notice.


 


8.           Miscellaneous.


 


8.1           Waiver.
No failure or delay on the part of a Series C-1 Holder in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privileges. All rights and remedies existing hereunder are cumulative to, and
not exclusive of, any rights or remedies otherwise available.


 



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8.2           Consent
to Waiver. Any provision of this Certificate of Designation applicable to the Series C-1 Preferred Stock may be waived
by the affirmative vote or written consent of the Required Holders, which vote or written consent shall bind all Series C-1
Holders, and all future Series C-1 Holders for which such rights have been waived.


 


8.3           Notices.
Any notice herein required or permitted to be given shall be in writing and may be personally served or delivered by courier
or sent by United States mail or by overnight delivery and shall be deemed to have been given upon receipt if personally served,
or upon confirmation of receipt, when sent by facsimile, or five (5) days after being deposited in the United States mail,
certified, with postage pre-paid and properly addressed, if sent by mail, or one (1) business day after deposit with a nationally
recognized overnight delivery service, if delivery by overnight delivery. For the purposes hereof, the address of the Series C-1
Holders shall be as shown on the records of the Corporation; and the address of the Corporation shall be VirtualScopics,
Inc., 500 Linden Oaks, Rochester, NY 14625 Phone: 585-249-6231; Fax: 585-218-7350. Both the Series C-1 Holders
and the Corporation may change the address for service by service of written notice to the other as herein provided.


 


8.4           Equitable
Relief. All legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this
Certificate of Designation and any other Transaction Agreements (whether brought against a party
hereto or its respective affiliates, directors, officers, stockholders, employees or agents) shall be commenced exclusively in
the state and federal courts sitting in the State of New York, County of New York. The Corporation and each Series C-1 Holder
(a) hereby irrevocably and unconditionally submit to the jurisdiction of the state courts of the State of New York sitting
in New York County and to the jurisdiction of the United States District Court for the Southern District of New York for the purpose
of any suit, action or other proceeding arising out of or based upon this Agreement, (b) agree not to commence any suit, action
or other proceeding arising out of or based upon this Agreement except in the state courts of New York sitting in New York County
or the United States District Court for the Southern District of New York, and (c) hereby waive, and agree not to assert,
by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that it is not subject personally
to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution, that the suit,
action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that
this Agreement or the subject matter hereof may not be enforced in or by such court. THE CORPORATION AND SERIES C-1
HOLDERS EACH HEREBY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS CERTIFICATE
OF DESIGNATION, THE OTHER TRANSACTION AGREEMENTS, THE SERIES C-1 PREFERRED STOCK OR THE SUBJECT MATTER HEREOF OR THEREOF.


 



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8.5           Construction;
Headings. This Certificate of Designation shall be deemed to be jointly drafted by the Corporation and the initial purchaser
of the Series C-1 Preferred Stock and shall not be construed against any person as the drafter hereof. The headings of this
Certificate of Designation are for convenience of reference and shall not form part of, or affect the interpretation of, this Certificate
of Designation.


 


8.6           Remedies.
The remedies provided in this Certificate of Designation shall be cumulative and in addition to all other remedies available under
this Certificate of Designation and the other Transaction Agreements, at law or in equity (including a decree of specific performance
and/or other injunctive relief), and nothing herein shall limit the right of any Series C-1 Holder right to pursue actual
damages for any failure by the Corporation to comply with the terms of this Certificate of Designation or any of the other Transaction
Agreements. The Corporation acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Series C-1
Holders, by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Corporation acknowledges
that the remedy at law for a breach of its obligations under this Certificate of Designation will be inadequate and agrees, in
the event of a breach or threatened breach by the Corporation of the provisions of this Certificate of Designation or the other
Transaction Agreements, that the Series C-1 Holders shall be entitled, in addition to all other available remedies at law
or in equity, to an injunction or injunctions restraining, preventing or curing any breach of the Certificate of Designation and
the other Transaction Agreements and to enforce specifically the terms and provisions thereof, without the necessity of showing
economic loss and without any bond or other security being required.


 


and it is further


 


RESOLVED,
that Three Thousand (3,000) of the Fourteen Million Nine Hundred Eighty-Five Thousand Six Hundred (14,985,600) authorized but undesignated
shares of preferred stock of the Corporation shall be designated Series C-2 Convertible Preferred Stock, $0.001 par value
per share, and shall possess the rights and preferences set forth below:


 


PART II. SERIES C-2
PREFERRED STOCK:


 


Unless otherwise indicated,
references to “Sections” or “Subsections” in this Part II refer to sections and subsections of this Part
II. 


 


1. Certain Definitions.
For purposes of this Part II, capitalized terms used and not otherwise defined herein that are defined in that certain Series C
Preferred Stock and Warrant Purchase Agreement dated April 3, 2012 pursuant to which the Series C-2 Preferred Stock was originally
issued (the “Securities Purchase Agreement” or the “Purchase Agreement”), shall have
the meanings given such terms in the Securities Purchase Agreement. For the purposes hereof, the following terms shall have the
following meanings:


 



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“Business
Day” shall mean any day other than a Saturday, Sunday or a day on which commercial banks in the City of New York,
New York are authorized or required by law or executive order to remain closed.


 


“Certificate
of Designation” shall mean this Certificate of Designation of Rights and Preferences of the Series C-1 Preferred
Stock and Series C-2 Preferred Stock of VirtualScopics, Inc.


 


“Convertible
Securities” shall mean any stock or securities (other than Options) directly or indirectly convertible into or exercisable
or exchangeable for Common Stock.


 


“Dividends”
shall have the meaning set forth in Part II, Section 4.1 below.


 


“Dividend
Payment Date” shall have the meaning set forth in Part II, Section 4.1 below. 


 


“Exchange
Act” shall mean the Securities Exchange Act of 1934, as amended.


 


“Exchange
Cap” shall have the meaning set forth in Part II, Section 7.1.5(a) below.


 


“Exempt
Issuance” shall mean the grant or issuance of Exempted Securities as specified in
Section 7.6.1.


 


“Investor
Rights Agreement” shall have the meaning ascribed to it in the Securities Purchase Agreement.


 


“Junior Securities”
shall have the meaning set forth in Section 3 below.


 


“Options”
shall mean any rights, warrants or options to subscribe for or purchase Common Stock or Convertible Securities.


 


“Person”
shall mean an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated
organization, any other entity and a government or any department or agency thereof.


 


“Preferred
Stock” shall mean the Corporation’s Series A Convertible Preferred Stock, Series B Convertible Preferred Stock,
Series C-1 Convertible Preferred Stock and Series C-2 Convertible Preferred Stock.


 


“Principal
Market” shall mean the Nasdaq Capital Market.


 


“Purchaser”
shall have the meaning ascribed to it in the Securities Purchase Agreement.


 


“Required
Holders” shall mean Persons holding, in the aggregate, at least a majority of the then outstanding shares of Series C-1
Preferred Stock and Series C-2 Preferred Stock.


 



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“Securities
Purchase Agreement” shall have the meaning set forth in the initial paragraph of this Part I, Section 1 above.


 


“Series B
Amendments” shall have the meaning ascribed to it in the Securities Purchase Agreement.


 


“Series B
Warrants” shall have the meaning ascribed to it in the Securities Purchase Agreement.


 


“Series
C-2 Conversion Price” shall have the meaning set forth in
Part II, Section 7.1.1 below.


 


“Series
C-2 Holder”
shall mean a holder of Series C-2 Preferred
Stock at the applicable time.


 


“Series C-2
Original Issue Date” shall mean the date of the first issuance of any Series C-2 Preferred Stock regardless
of the number of transfers of any particular share of Series C-2 Preferred Stock.


 


“Series C-2
Original Issue Price” shall mean $1,000.


 


“Shareholder
Issuance Approval” shall have the meaning ascribed to it in the Securities Purchase Agreement.


 


“Shareholder
Issuance Approval Deadline” shall have the meaning ascribed to it in the Securities Purchase Agreement.


 


“Trading Day”
shall mean any day on which the Common Stock is traded for any period on the Principal Market, or on the principal securities exchange
or other securities market on which the Common Stock is then being traded.


 


“Transaction
Agreements” shall have the meaning ascribed to it in the Securities Purchase Agreement.


 


“Volume Weighted
Average Price” shall mean, for any security as of any date, (a) the volume weighted average sale price on the Principal
Market, as reported by, or as calculated based upon data reported by, Bloomberg Financial Markets or an equivalent, reliable reporting
service selected by the Corporation (“Bloomberg”), or (b) if no volume weighted average sale price is reported
for such security, then the last closing trade price of such security as reported by Bloomberg, or (c) if no last closing
trade price is reported for such security by Bloomberg, the average of the closing trade prices of any market makers for such security
that are listed in the “pink sheets” published by OTC Markets Group, Inc. (or a similar organization or agency succeeding
to its functions of reporting prices), or if not available, the most recent bid price per share of the Common Stock so reported;
or (d) in all other cases, the fair market value of a share of Common Stock as determined by the Corporation’s Board
of Directors in good faith. If the Volume Weighted Average Price is to be determined over a period of more than one Trading
Day, then “Volume Weighted Average Price” for the period shall mean the volume weighted average of the daily Volume
Weighted Average Prices, determined as set forth above, for all Trading Days during the period.


 



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“Warrants”
shall have the meaning ascribed to it in the Securities Purchase Agreement.


 


“Warrant Shares”
shall mean the shares of Common Stock for which the Warrants can be exercised, as further described in the Warrants.


 


2. Designation
and Amount. Three Thousand (3,000) shares of the Corporation’s authorized but undesignated preferred stock shall
be designated as Series C-2 Convertible Preferred Stock (the “Series C-2 Preferred Stock”), par value
$0.001 per share. The Series C-2 Preferred Stock shall have a stated value of one thousand dollars ($1,000) per share (as
adjusted for any stock dividends, combinations or splits with respect to such shares) (the “Series C-2 Stated
Value”).


 


3. Rank.
The Series C-2 Preferred Stock shall rank: (i) pari passu to the Corporation’s Series C-1 Convertible
Preferred Stock (“Parity Securities”), (ii) prior and senior to all of the Corporation’s Common Stock,
$0.001 par value per share (“Common Stock”); (iii) prior and senior to all of the Corporation’s Series
A Convertible Preferred Stock and all of the Corporation’s Series B Convertible Preferred Stock; (iv) prior and senior
to any other class or series of capital stock, including but not limited to any preferred stock, of the Corporation hereafter created
(collectively, with the Corporation’s Series A Convertible Preferred Stock, the Corporation’s Series B Convertible
Preferred Stock and the Common Stock, “Junior Securities”); and (v) as applicable, junior to or on parity
with such preferred stock of the Corporation (upon an issuance of such securities pursuant to the affirmative vote or consent of
the Required Holders as permitted under the terms of Section 6.3 hereof) the terms of which expressly provide that
such preferred stock will rank senior to or on parity with the Series C-2 Preferred Stock (“Senior Securities”)
in each case as to distributions of assets upon liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary.


 


4.  Dividends.


 


4.1           Dividends.
Series C-2 Holders shall be entitled to receive, and the Corporation shall pay, cumulative dividends (“Dividends”)
at the rate per share (as a percentage of the Series C-2 Stated Value per share) of four percent (4%) per annum (the
“Dividend Rate”) payable (x) in cash quarterly, in arrears, on the first Business Day of each calendar
quarter after the Series C-2 Original Issue Date, if so elected for quarterly dividend payments in a calendar year by Series C-2
Holders who at the relevant time hold a majority of the outstanding shares of Series C-2 Preferred Stock (the “Series C-2
Majority Holders”), by written notice sent to the Corporation at least five (5) Business Days in advance of such
calendar year or with respect to calendar year 2012, by April 20, 2012 and (y) if not so elected by such
Series C-2 Majority Holders and except as provided in Section 4.2, such Dividends shall accrue and be payable
on the earlier to occur of (aa) each Conversion Time (as defined in Part II, Section 7.1.4) (as to the Series C-2
Stated Value then being converted) or (bb) the liquidation of the Corporation, or any redemption of the Series C-2 Preferred
Stock (except that, in the case of (aa) and (bb), if such date is not a Trading Day, the payment date shall be the next succeeding
Trading Day) (each, a “Dividend Payment Date”).


 



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4.2           Payment
of Dividends. Dividend payments to each Series C-2 Holder shall be made by the Corporation, in cash, unless otherwise
expressly provided herein. Subject to the provisions of Section 7.1.5, the Series C-2 Majority Holders may request
in writing delivered to the Corporation that a Dividend payment shall be made in duly authorized, validly issued, fully paid and
non-assessable unregistered or registered shares of Common Stock or in a combination thereof and cash; provided, however,
that except as otherwise provided herein, if at any time the Corporation pays Dividends partially in cash and partially in shares,
then such payment shall be distributed ratably among the Series C-1 Holders and Series C-2 Holders based upon the number
of shares of Common Stock into which the Series C-1 Preferred Stock and Series C-2 Preferred Stock held by each such
Series C-1 Holder and Series C-2 Holder are then convertible on such Dividend Payment Date. Shares issued as the payment
of Dividends pursuant to the provisions of this paragraph shall be valued solely for such purpose at the average of the Volume
Weighted Average Prices for the twenty (20) Trading Days ending on the Trading Day that is immediately prior to the applicable
Dividend Payment Date; provided, however, in no event shall shares of Common Stock be issued as the payment of Dividends at a price
per share of less than $1.2043 (with such price subject to equitable adjustments for stock splits, stock dividends or rights offerings
by the Corporation relating to the Corporation’s securities, combinations, recapitalization, reclassifications, extraordinary
distributions and similar events), without the consent of the Corporation and the Series C-2 Majority Holders.


 


All payments due hereunder
(to the extent not converted into Common Stock in accordance with the terms hereof) shall be made in lawful money of the United
States of America, provided that, to the extent that any accrued Dividend has not been paid when due, the Series C-2
Majority Holders and the Corporation may agree, in whole or in part, that such accrued and unpaid Dividend may be added to the
Series C-2 Stated Value of the Series C-2 Preferred Stock and, at such time, cease being an accrued and unpaid Dividend,
in which event Dividends shall accrue thereon in accordance with the terms of this Certificate of Designation and such additional
Series C-2 Stated Value shall be convertible into Common Stock in accordance with the terms of this Certificate of Designation.
All payments shall be made at such address as the Series C-2 Holder shall hereafter give to the Corporation by written notice
made in accordance with the provisions of this Certificate of Designation. Whenever any amount expressed to be due by the terms
of this Certificate of Designation is due on any day which is not a Business Day, the same shall instead be due on the next succeeding
day which is a Business Day.


 


4.3           Certain
Rights and Remedies Regarding Dividends. The Series C-2 Holders shall have the same rights and remedies with respect to
the delivery of any shares delivered in the payment of Dividends as if such shares were being issued pursuant to Section 7.
Dividends on the Series C-2 Preferred Stock shall be calculated on the basis of a 360-day year, consisting of twelve 30 calendar
day periods, shall accrue daily commencing on the Series C-2 Original Issue Date, and shall be deemed to accrue from such
date whether or not earned or declared and whether or not there are profits, surplus or other funds of the Corporation legally
available for the payment of dividends.


 



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4.4           Participation
in Common Stock Dividends. If the Corporation shall pay any dividends with respect to shares of Common Stock (and provided,
in each case, that the Required Holders have consented to such payment in accordance with Section 6.3), then, concurrently
with the payment of such dividend to the holders of Common Stock, and in addition to all other dividends to which the Series C-2
Holders may be entitled pursuant to the terms of this Certificate of Designation with respect to the Series C-2 Preferred
Stock held by them, the Corporation shall pay the Series C-2 Holders an amount equal to the aggregate dividends to which they
would have been entitled had all of their shares of Series C-2 Preferred Stock been converted into Common Stock (without regard
to any limitations on the ability to convert and whether or not a sufficient number of shares are authorized and reserved to effect
any such exercise and issuance) on or before the record date for such dividend.


 


4.5           Certain
Limitations on the Payment of Dividends. If the rules or regulations of any stock exchange, interdealer quotation system
or other self-regulatory organization with jurisdiction over the Corporation or any of its securities impose limits on the Corporation’s
ability to issue shares of Common Stock in excess of the number of shares which may be issued without violating such rules and
regulations, then the Corporation shall not be entitled or obligated to pay Dividends in shares of Common Stock if, and to the
extent that, such limitation would be exceeded, but shall instead pay any such dividends in cash.


 


4.6          Capital
of the Corporation; No Special Reserves. The Corporation acknowledges and agrees that the capital of the Corporation
(as such term is used in Section 154 of the Delaware General Corporation Law) in respect of the Series C-2 Preferred
Stock and any future issuances of the Corporation’s capital stock shall be equal to the aggregate par value of such Series C-2
Preferred Stock or capital stock, as the case may be, and that, on or after the date of the Purchase Agreement, it shall not increase
the capital of the Corporation with respect to any shares of the Corporation’s capital stock issued and outstanding on such
date. The Corporation also acknowledges and agrees that it shall not create any special reserves under Section 171 of the
Delaware General Corporation Law without the prior written consent of the Required Holders.


 



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5.           Liquidation,
Dissolution or Winding Up; Certain Mergers, Consolidations and Asset Sales.


 


5.1           Preferential
Payments to Holders of Series C-2 Preferred Stock. In the event of any voluntary or involuntary liquidation, dissolution
or winding up of the Corporation or Deemed Liquidation Event, the holders of shares of Series C-2 Preferred Stock then outstanding
shall be entitled to be paid out of the assets of the Corporation available for distribution to its stockholders, before any payment
shall be made to the holders of Preferred Stock, other than the holders of Series C-1 Preferred Stock (who shall participate
pari passu with the holders of Series C-2 Preferred Stock), the holders of Common Stock or the holders of any other Junior
Securities by reason of their ownership thereof, an amount per share of Series C-2 Preferred Stock equal to the Series C-2
Stated Value, plus any dividends declared or accrued but unpaid thereon. If upon any such liquidation, dissolution or winding up
of the Corporation or Deemed Liquidation Event, the assets of the Corporation available for distribution to its stockholders shall
be insufficient to pay the holders of shares of Series C-2 Preferred Stock the full amount to which they shall be entitled
under this Subsection 5.1 and the holders of shares of Series C-1 Preferred Stock the full amount to which they shall
be entitled under Part I, Subsection 5.1, the holders of shares of Series C-1 Preferred Stock and the holders of shares
of Series C-2 Preferred Stock shall share ratably in any distribution of the assets available for distribution in proportion
to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all
amounts payable on or with respect to such shares were paid in full.


 


5.2           Distribution
of Remaining Assets. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation
or Deemed Liquidation Event, after the payment of all preferential amounts required to be paid to the holders of shares of Series C-1
Preferred Stock and Series C-2 Preferred Stock and any other series of the Corporation’s preferred stock with priority
as to distributions of assets upon liquidation, the remaining assets of the Corporation available for distribution to its stockholders
shall be distributed among the holders of shares of Series C-1 Preferred Stock, the holders of shares of Series C-2 Preferred
Stock, the holders of shares of Common Stock and the holders of any other shares of the Corporation’s preferred stock entitled
to participate in the distribution of assets upon liquidation with the holders of Common Stock, pro rata based on the number
of shares held by each such holder, treating for this purpose all such securities as if they had been converted to Common Stock
pursuant to the terms of the Certificate of Incorporation (including all certificates of designation) immediately prior to such
dissolution, liquidation or winding up of the Corporation. The aggregate amount which a holder of a share of Series C-2 Preferred
Stock is entitled to receive under Part II, Subsections 5.1 and 5.2 is hereinafter referred to as the “Series C-2
Liquidation Amount.”


 


5.3         Deemed
Liquidation Events.


 


5.3.1       Definition.
Each of the following events shall be considered a “Deemed Liquidation Event” unless the Required Holders elect
otherwise by written notice sent to the Corporation prior to the effective date of any such event:


 


a.           a
merger or consolidation in which the Corporation or a subsidiary of the Corporation is a constituent party and the Corporation
issues shares of its capital stock pursuant to such merger or consolidation, except any such merger or consolidation involving
the Corporation or a subsidiary in which the shares of capital stock of the Corporation outstanding immediately prior to such merger
or consolidation continue to represent, or are converted into or exchanged for shares of capital stock that represent, immediately
following such merger or consolidation, at least a majority, by voting power, of the capital stock of (1) the surviving or
resulting corporation or (2) if the surviving or resulting corporation is a wholly owned subsidiary of another corporation
immediately following such merger or consolidation, the parent corporation of such surviving or resulting corporation; or


 



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b.           the
sale, lease, transfer, exclusive license or other disposition, in a single transaction or series of related transactions, by the
Corporation or any subsidiary of the Corporation of all or substantially all the assets of the Corporation and its subsidiaries
taken as a whole, or the sale or disposition (whether by merger or otherwise) of one or more subsidiaries of the Corporation if
substantially all of the assets of the Corporation and its subsidiaries taken as a whole are held by such subsidiary or subsidiaries,
except where such sale, lease, transfer, exclusive license or other disposition is to a wholly owned subsidiary of the Corporation;
or


 


c.           the
acquisition by a Person or “group” (within the meaning of Section 13(d) or 14(d)(2) of the Exchange Act) pursuant
to a purchase, tender or exchange offer for the shares of the capital stock of the Corporation that has been approved by the Board
of Directors of the Corporation and to which the Corporation is a constituent party, pursuant to which stockholders of the Corporation
immediately prior to such tender offer own less than fifty percent (50%) of the equity or voting power of the Corporation immediately
after such purchase, tender or exchange offer, on a fully-diluted basis.


 


5.3.2       Effecting
a Deemed Liquidation Event.


 


a.           The
Corporation shall not have the power to effect a Deemed Liquidation Event unless the agreement or plan of merger or consolidation
or other applicable agreement for such transaction (the “Merger Agreement”) provides that the consideration
payable to the stockholders of the Corporation shall be allocated among the holders of capital stock of the Corporation in accordance
with Subsections 5.1 and 5.2.


 


b.           In
the event of a Deemed Liquidation Event, if the Corporation does not effect a dissolution of the Corporation under the Delaware
General Corporation Law within 90 days after such Deemed Liquidation Event, then (i) the Corporation shall send a written
notice to each holder of Series C-2 Preferred Stock no later than the 90th day after the Deemed Liquidation Event advising
such holders of their right (and the requirements to be met to secure such right) pursuant to the terms of the following clause
(ii) to require the redemption of such shares of Series C-2 Preferred Stock, and (ii) if the Required Holders so
request in a written instrument delivered to the Corporation not later than 120 days after such Deemed Liquidation Event, the
Corporation shall use the consideration received by the Corporation for such Deemed Liquidation Event (net of any retained liabilities
associated with the assets sold or technology licensed, as determined in good faith by the Board of Directors of the Corporation),
together with any other assets of the Corporation available for distribution to its stockholders, all to the extent permitted
by Delaware law governing distributions to stockholders (the “Available
Proceeds”), on the 150th day after such Deemed Liquidation Event, to redeem all outstanding shares of Series C-1
Preferred Stock and shares of Series C-2 Preferred Stock at a price per share equal to the Series C-1 Liquidation Amount
and Series C-2 Liquidation Amount, respectively. Notwithstanding the foregoing, in the event of a redemption pursuant to
the preceding sentence, if the Available Proceeds are not
sufficient to redeem all outstanding shares of Series C-1 Preferred Stock and Series C-2 Preferred Stock, the Corporation
shall ratably redeem each holder’s shares of Series C-1 Preferred Stock and Series C-2 Preferred Stock to the
fullest extent of such Available Proceeds (in proportion
to the respective amounts which would otherwise be payable on the shares held by them upon such distribution if all amounts payable
on or with respect to such shares were paid in full), and shall redeem the remaining shares as soon as it may lawfully do so under
Delaware law governing distributions to stockholders. Prior to the distribution or redemption provided for in this Subsection
5.3.2(b), the Corporation shall not expend or dissipate the consideration received for such Deemed Liquidation Event, except
to discharge expenses incurred in connection with such Deemed Liquidation Event or in the ordinary course of business.


 



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c.           Amount
Deemed Paid or Distributed. The amount deemed paid or distributed to the holders of capital stock of the Corporation upon any
such merger, consolidation, sale, transfer, exclusive license, other disposition or redemption shall be the cash and the value
of the property, rights or securities paid or distributed to such holders by the Corporation or the acquiring person, firm or other
entity. The value of such property, rights or securities shall be determined in good faith by the Board of Directors of the Corporation.


 


d.           Allocation
of Escrow. In the event
of a Deemed Liquidation Event, if any portion of the consideration payable to the stockholders of the Corporation is placed into
escrow and/or is payable to the stockholders of the Corporation subject to contingencies, the Merger Agreement shall provide that
(a) the portion of such consideration that is not placed in escrow and not subject to any contingencies (the “Initial
Consideration”) shall be allocated among the holders of capital stock of the Corporation in accordance with Subsections
5.1 and 5.2 as if the Initial Consideration were the only consideration payable in connection with such Deemed Liquidation
Event and (b) any additional consideration which becomes payable to the stockholders of the Corporation upon release from
escrow or satisfaction of contingencies shall be allocated among the holders of capital stock of the Corporation in accordance
with Subsections 5.1 and 5.2 after taking into account the previous payment of the Initial Consideration as part
of the same transaction. 


 


6.           Voting.


 


6.1           General.
On any matter presented to the stockholders of the Corporation for their action or consideration at any meeting of stockholders
of the Corporation (or by written consent of stockholders in lieu of meeting), each holder of outstanding shares of Series C-2
Preferred Stock shall be entitled to cast the number of votes equal to (a) the Series C-2 Stated Value of such shares
divided by (b) $1.53 (with such price in subsection (b) subject to equitable adjustments for stock splits, stock dividends
or rights offerings by the Corporation relating to the Corporation’s securities, combinations, recapitalization, reclassifications,
extraordinary distributions and similar events), as of the record date for determining stockholders entitled to vote on such matter,
or if no such record date is established, at the date such vote is taken or any written consent of stockholders is solicited. Except
as otherwise required by law or by the other provisions of the Certificate of Incorporation (including this Certificate of Designation),
holders of Series C-1 Preferred Stock and holders of Series C-2 Preferred Stock and holders of other voting preferred
stock of the Corporation shall vote together with the holders of Common Stock as a single class, and not as separate classes.


 



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6.2           Election
of Directors. So long as the number of outstanding shares of Series C-1 Preferred Stock and Series C-2 Preferred
Stock, in the aggregate, shall equal or exceed such number of shares that can be converted into Common Stock which represents beneficial
ownership of more than five percent (5%) of the outstanding shares of Common Stock (without
regard to or giving effect to any limitations on the ability to convert in effect prior to the
date of the first Shareholder Issuance Vote (as defined in the Securities Purchase Agreement)), the holders of record of
the shares of Series C-1 Preferred Stock and Series C-2 Preferred Stock, voting together as a single class, shall be
entitled to elect one (1) director of the Corporation (the “Series C Director”). For purposes of this
Subsection 6.2, beneficial ownership shall be determined by the Corporation in accordance with Section 13(d) of the
Exchange Act and the rules and regulations promulgated thereunder. Any director elected as provided in the preceding sentences
may be removed with or without cause by, and only by, the affirmative vote of the holders of the Series C-1 Preferred Stock
and the holders of the Series C-2 Preferred Stock, given either at a special meeting of such stockholders duly called for
that purpose or pursuant to a written consent of stockholders. If
the holders of shares of Series C-1 Preferred Stock and the holders of the Series C-2 Preferred Stock
fail to elect such a director, then any directorship not so filled shall remain vacant until such time as the holders of the Series C-1
Preferred Stock and the holders of the Series C-2 Preferred Stock elect
a person to fill such directorship by vote or written consent in lieu of a meeting; and no such directorship may be filled by stockholders
of the Corporation other than by the holders of shares of Series C-1 Preferred Stock and the holders of the Series C-2
Preferred Stock, voting exclusively and as a separate
class. Any vacancy in the position of
Series C Director shall be filled by the holders of the Series C-1 Preferred Stock and the holders of the Series C-2
Preferred Stock by vote or written consent in lieu
of a meeting; and no such directorship may be filled by stockholders of the Corporation other than by the holders of the Series C-1
Preferred Stock and the holders of the Series C-2 Preferred Stock,
voting exclusively and as a separate class. At any meeting held for the purpose of electing the Series C Director,
the presence in person or by proxy of the holders of a majority, in the aggregate, of the outstanding shares of the Series C-1
Preferred Stock and Series C-2 Preferred Stock shall constitute a quorum for the purpose of electing such Series C Director.


 


6.3           Series C-2
Preferred Stock Protective Provisions. The Corporation shall not, either directly or indirectly by amendment, merger, consolidation
or otherwise, do any of the following without (in addition to any other vote required by law or the Certificate of Incorporation)
the written consent or affirmative vote of the Required Holders, given in writing or by vote at a meeting, consenting or voting
(as the case may be) separately as a class, and any such act or transaction entered into without such consent or vote shall
be null and void ab initio, and of no force or effect. 


 



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6.3.1           alter
or change adversely the powers, preferences or rights given to the Series C-1 Preferred Stock or Series C-2 Preferred
Stock, or alter or amend this Certificate of Designation, or


 


6.3.2           authorize
or create any class of stock ranking as to dividends, redemption or distribution of assets upon a liquidation or Deemed Liquidation
Event senior to or otherwise pari passu with the Series C-1 Preferred Stock or Series C-2 Preferred Stock, or


 


6.3.3           amend
the Certificate of Incorporation or other charter documents so as to affect adversely any rights of the holders of Series C-1
Preferred Stock or Series C-2 Preferred Stock, or


 


6.3.4           increase
the authorized number of shares of the Series C-1 Preferred Stock, Series C-2 Preferred Stock, Series A Convertible Preferred
Stock, Series B Convertible Preferred Stock or any other preferred stock of the Corporation, or


 


6.3.5           do
any act or thing not authorized or contemplated by this Certificate of Designation which would result in taxation of the holders
of shares of Series C-1 Preferred Stock or Series C-2 Preferred Stock under Section 305 of the Internal Revenue
Code of 1986, as amended (or any comparable provision of the Internal Revenue Code as hereafter from time to time amended), or


 


6.3.6           decrease
the Dividend Rate of (i) the Series C-1 Preferred Stock as provided in Part I, Section 4.1, or (ii) the
Series C-2 Preferred Stock as provided in Part II, Section 4.1, or


 


6.3.7           declare,
pay or set apart for payment, any dividends or other distributions (whether in cash, securities or other property) on any other
class or series of the Corporation’s capital stock or make any other payment or distribution in respect of the Corporation’s
capital stock (other than (i) the payment and accrual of dividends in respect of Series B Convertible Preferred Stock outstanding
as of the Series C-2 Original Issue Date, at the dividend rate and on the other terms and conditions in the Series B Amendments,
(ii) the Series C-1 Preferred Stock pursuant to Part I, Section 4 and (iii) the Series C-2 Preferred
Stock pursuant to Part II, Section 4), or


 


6.3.8           redeem,
repay, repurchase or otherwise acquire (whether for cash or in exchange for property or other securities or otherwise) in any one
transaction or series of related transactions any shares of capital stock of the Corporation or any warrants, rights or options
to purchase or acquire any such shares, except (i) pursuant to the terms of any plan, agreement or arrangement approved
by the Board of Directors of the Corporation respecting employees of the Corporation, (ii) the Series B Warrants (other than the
Amended and Restated Series B Warrants (as defined in the Securities Purchase Agreement)) pursuant to the terms thereof as in effect
on the date hereof or (iii) for the redemption of Series C-1 Preferred Stock pursuant to Part I, Section 5.3.2
or Series C-2 Preferred Stock pursuant to Part II, Section 5.3.2, or


 



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6.3.9           amend
the anti-dilution adjustment in respect of (i) the Series C-1 Preferred Stock for subsequent equity sales as provided
in Part I, Section 7.8 or (ii) the Series C-2 Preferred Stock for subsequent equity sales as provided in Part
II, Section 7.8, or


 


6.3.10         enter
into any Deemed Liquidation Event in which the Series C-2 Holders would receive an aggregate amount equal to less than the
liquidation preference set forth in Part II, Section 5.1, or


 


6.3.11         amend
the Certificate of Designations, Powers, Preferences and other Rights and Qualifications of Series A Convertible Preferred Stock,
as amended, or the Certificate of Designation of Rights and Preferences of the Series B Preferred Stock, as amended, or otherwise
alter or change the preferences or rights given to the holders of Series A Preferred Stock in the Certificate of Designations,
Powers, Preferences and other Rights and Qualifications of Series A Convertible Preferred Stock or the preferences or rights given
to the holders of Series B Preferred Stock in the Certificate of Designation of Rights and Preferences of the Series B Preferred
Stock, as amended, or


 


6.3.12         enter
into any agreement with respect to the foregoing.


 


7.          Optional
Conversion. The holders of the Series C-2 Preferred Stock shall have conversion rights
as follows (the “Conversion Rights”):


 


7.1         Right
to Convert.


 


7.1.1           Conversion
Ratio. Each share of Series C-2 Preferred Stock shall be convertible, at the option of the holder thereof, at any time
and from time to time, but not before the date of the first Shareholder Issuance Vote (as defined in the Securities Purchase Agreement)
(notwithstanding the outcome of said vote), without the payment of additional consideration by the holder thereof, into such number
of fully paid and nonassessable shares of Common Stock as is determined by dividing (i) the Series C-2 Stated Value,
plus, if consented to by the Corporation, all accrued and unpaid Dividends, by (ii) the Series C-2 Conversion Price (as
defined below) in effect at the time of conversion. The “Series C-2 Conversion Price” shall initially be
equal to $1.2043. Such initial Series C-2 Conversion Price, and the rate at which shares of Series C-2 Preferred Stock
may be converted into shares of Common Stock, shall be subject to adjustment as provided below.


 


7.1.2           Termination
of Conversion Rights. In the event of a notice of redemption of any shares of Series C-2 Preferred Stock pursuant to Section 5.3.2(b),
the Conversion Rights of the shares designated for redemption shall terminate at the close of business on the last full day preceding
the date fixed for redemption, unless the redemption price is not fully paid on such redemption date, in which case the Conversion
Rights for such shares shall continue until such price is paid in full. In the event of a liquidation, dissolution or winding up
of the Corporation or a Deemed Liquidation Event, the Conversion Rights shall terminate at the close of business on the last full
day preceding the date fixed for the payment of any such amounts distributable on such event to the holders of Series C-2
Preferred Stock.


 



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7.1.3           Fractional
Shares. No fractional shares of Common Stock shall be issued upon conversion of the Series C-2 Preferred Stock. In lieu
of any fractional shares to which the holder would otherwise be entitled, the Corporation shall pay cash equal to such fraction
multiplied by the fair market value of a share of Common Stock as determined in good faith by the Board of Directors of the Corporation.
Whether or not fractional shares would be issuable upon such conversion shall be determined on the basis of the total number of
shares of Series C-2 Preferred Stock the holder is at the time converting into Common Stock and the aggregate number of shares
of Common Stock issuable upon such conversion.


 


7.1.4           Mechanics
of Conversion. In order for a holder of Series C-2 Preferred Stock to voluntarily convert shares of Series C-2 Preferred
Stock into shares of Common Stock, such holder shall surrender the certificate or certificates for such shares of Series C-2
Preferred Stock (or, if such registered holder alleges that such certificate has been lost, stolen or destroyed, a lost certificate
affidavit and agreement reasonably acceptable to the Corporation to indemnify the Corporation against any claim that may be made
against the Corporation on account of the alleged loss, theft or destruction of such certificate), at the office of the transfer
agent for the Series C-2 Preferred Stock (or at the principal office of the Corporation if the Corporation serves as its own
transfer agent), together with written notice that such holder elects to convert all or any number of the shares of the Series C-2
Preferred Stock represented by such certificate or certificates and, if applicable, any event on which such conversion is contingent.
Such notice shall be substantially in the form of Notice of Conversion attached hereto as Exhibit A, and shall state such holder’s
name or the names of the nominees in which such holder wishes the certificate or certificates for shares of Common Stock to be
issued. If required by the Corporation, certificates surrendered for conversion shall be endorsed or accompanied by a written instrument
or instruments of transfer, in form reasonably satisfactory to the Corporation, duly executed by the registered holder or his,
her or its attorney duly authorized in writing. The close of business on the date of receipt by the transfer agent (or by the Corporation
if the Corporation serves as its own transfer agent) of such certificates (or lost certificate affidavit and agreement) and notice
shall be the time of conversion (the “Conversion Time”), and the shares of Common Stock issuable upon conversion
of the shares represented by such certificate shall be deemed to be outstanding of record as of such date. The Corporation shall,
as soon as practicable after the Conversion Time and in any event by no later than the third (3rd) Trading Day
after the Conversion Time, (i) issue and deliver to such holder of Series C-2 Preferred Stock, or to his, her or its
nominees, a certificate or certificates for the number of full shares of Common Stock issuable upon such conversion in accordance
with the provisions hereof and a certificate for the number (if any) of the shares of Series C-2 Preferred Stock represented
by the surrendered certificate that were not converted into Common Stock, (ii) pay in cash such amount as provided in Subsection
7.1.3 in lieu of any fraction of a share of Common Stock otherwise issuable upon such conversion and (iii) pay all declared
or accrued but unpaid dividends on the shares of Series C-2 Preferred Stock converted (unless the Corporation and such holder
shall have agreed to the conversion of such unpaid dividends into shares of Common Stock).


 



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7.1.5       Limitations
on the Number of Shares Issuable.


 


a.           Notwithstanding
anything herein to the contrary, if the Corporation has not obtained Shareholder Issuance Approval or a written opinion from outside
counsel to the Corporation, reasonably satisfactory to the Series C-2 Majority Holders, that such approval is not required,
then the Corporation may not issue any shares of Common Stock upon conversion of the Series C-2 Preferred Stock or in payment
of Dividends, if the issuance of such shares of Common Stock would cause the Corporation to exceed the aggregate number of shares
of Common Stock which the Corporation may issue (A) upon conversion of all of the Series C-2 Preferred Stock and Series C-2
Preferred Stock issued pursuant to the Securities Purchase Agreement, together with any conversion of any accrued and unpaid Dividends,
(B) upon exercise of all of the Warrants issued pursuant to the Securities Purchase Agreement and (C) pursuant to any
Dividends paid on the Series C-1 Preferred Stock and Series C-2 Preferred Stock, without breaching the Corporation’s
obligations under the rules and regulations of the Principal Market, whether or not the Common Stock is listed on the Principal
Market (the “Exchange Cap”). Each holder of Series C-1 Preferred Stock and Series C-2 Preferred Stock
shall be entitled to such holder’s pro-rata portion (based on the aggregate Stated Value of the shares of Series C-1
Preferred Stock and Series C-2 Preferred Stock acquired by such holder under the Securities Purchase Agreement, divided
by the aggregate stated value of all shares of Series C-1 Preferred Stock and Series C-2 Preferred Stock issued
under the Securities Purchase Agreement) of the Exchange Cap (with respect to each such holder, the “Exchange Cap Allocation”).
In the event that any such holder shall sell or otherwise transfer any of such holder’s Series C-1 Preferred Stock or
Series C-2 Preferred Stock, the transferee shall be allocated a pro rata portion of such holder’s Exchange Cap Allocation.
In the event that any holder of Series C-1 Preferred Stock or Series C-2 Preferred Stock shall convert all of such holder’s
Series C-1 Preferred Stock and Series C-2 Preferred Stock into a number of shares of Common Stock which, in the aggregate,
is less than such holder’s Exchange Cap Allocation, then the difference between such holder’s Exchange Cap Allocation
and the number of shares of Common Stock actually issued to such holder shall be allocated to the respective Exchange Cap Allocations
of the remaining holders of Series C-1 Preferred Stock and Series C-2 Preferred Stock on a pro rata basis in proportion
to the shares of Common Stock underlying the shares of Series C-1 Preferred Stock and Series C-2 Preferred Stock then
held by each such holder.


 



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b.           Notwithstanding
anything herein to the contrary, the Corporation shall not issue to any Series C-2 Holder any shares of Common Stock issuable
upon conversion of the Series C-2 Preferred Stock (“Conversion Shares”) or in payment of any Dividends,
to the extent such shares after giving effect to such issuance and when added to the number of shares of Common Stock beneficially
owned by such Series C-2 Holder and which were previously issued upon conversion of any shares of Series C-2 Preferred
Stock, issued in payment of any Dividends and issued upon conversion of any shares of Series C-1 Preferred Stock and any dividends
thereon, and exercise of any Warrants issued pursuant to the Securities Purchase Agreement, such Series C-2 Holder (together
with such Series C-2 Holder’s affiliates), would (a) beneficially own in excess of 19.9% of the number of shares
of Common Stock outstanding immediately after giving effect to such issuances or (b) control in excess of 19.9% of the total
voting power of the Corporation’s securities outstanding immediately after giving effect to such issuances that are entitled
to vote on a matter being voted on by holders of the Common Stock, unless and until the Corporation obtains the Shareholder Issuance
Approval or a written opinion from outside counsel to the Corporation, reasonably satisfactory to the Series C-2 Majority
Holders, that such approval is not required.


 


For purposes of this
Subsection 7.1.5(b), beneficial ownership shall be determined in accordance with Section 13(d) of the Exchange Act, and the
rules and regulations promulgated thereunder.


 


For purposes of this
Subsection 7.1.5(b), in determining the number of outstanding shares of Common Stock, a Series C-2 Holder may rely on the
number of outstanding shares of Common Stock as reflected in (i) the Corporation’s most recent Quarterly Report on Form
10-Q or, if later, Annual Report on Form 10-K, filed with the Securities and Exchange Commission, (ii) a more recent public
announcement by the Corporation, or (iii) any other notice by the Corporation or the Corporation’s transfer agent setting
forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Series C-2 Holder, the Corporation
shall within five Business Days confirm orally and in writing to such Series C-2 Holder the number of shares of Common Stock
then outstanding.


 


7.2           Reservation
of Shares. The Corporation shall at all times when the Series C-2 Preferred Stock shall be outstanding, reserve and keep
available out of its authorized but unissued capital stock, for the purpose of effecting the conversion of the Series C-2
Preferred Stock, such number of its duly authorized shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding Series C-2 Preferred Stock; and if at any time the number of authorized but unissued shares
of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series C-2 Preferred
Stock, the Corporation shall take such corporate action as may be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purposes, including, without limitation, engaging in best efforts
to obtain the requisite stockholder approval of any necessary amendment to the Certificate of Incorporation. Before taking any
action which would cause an adjustment reducing the Series C-2 Conversion Price below the then par value of the shares of
Common Stock issuable upon conversion of the Series C-2 Preferred Stock, the Corporation will take any corporate action which
may, in the opinion of its counsel, be necessary in order that the Corporation may validly and legally issue fully paid and nonassessable
shares of Common Stock at such adjusted Series C-2 Conversion Price.


 



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7.3           Effect
of Conversion. All shares of Series C-2 Preferred Stock which shall have been surrendered for conversion as herein provided
shall no longer be deemed to be outstanding and all rights with respect to such shares shall immediately cease and terminate at
the Conversion Time, except only the right of the holders thereof to receive shares of Common Stock in exchange therefor, to receive
payment in lieu of any fraction of a share otherwise issuable upon such conversion as provided in Subsection 7.1.3 and to
receive payment of any dividends declared or accrued but unpaid thereon. Any shares of Series C-2 Preferred Stock so converted
shall be retired and cancelled and may not be reissued as shares of such series, and the Corporation may thereafter take such appropriate
action (without the need for stockholder action) as may be necessary to reduce the authorized number of shares of Series C-2
Preferred Stock accordingly.


 


7.4           No
Further Adjustment. Upon any such conversion, no adjustment to the Series C-2 Conversion Price shall be made for any declared
but unpaid dividends on the Series C-2 Preferred Stock surrendered for conversion or on the Common Stock delivered upon conversion.


 


7.5           Taxes.
The Corporation shall pay any and all issue and other similar taxes that may be payable in respect of any issuance or delivery
of shares of Common Stock upon conversion of shares of Series C-2 Preferred Stock pursuant to this Section 7.
The Corporation shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the
issuance and delivery of shares of Common Stock in a name other than that in which the shares of Series C-2 Preferred Stock
so converted were registered, and no such issuance or delivery shall be made unless and until the Person requesting such issuance
has paid to the Corporation the amount of any such tax or has established, to the satisfaction of the Corporation, that such tax
has been paid.


 


7.6         Adjustments
to Series C-2 Conversion Price for Diluting Issues.


 


7.6.1           Special
Definitions. For purposes of this Part II, Section 7, in addition to the definitions set forth above, the following definitions
shall apply


 


“Additional
Shares of Common Stock” shall mean all shares of Common Stock issued (or, pursuant to Section 7.7 below,
deemed to be issued) by the Corporation after the Series C-2 Original Issue Date, other than (x) the following shares
of Common Stock and (y) shares of Common Stock deemed issued pursuant to the following Options and Convertible Securities
(clauses (x) and (y), collectively, “Exempted Securities”):


 


(i)          shares
of Common Stock, Options or Convertible Securities issued as a dividend or distribution on Series C-1 Preferred Stock, Series C-2
Preferred Stock or Series B Preferred Stock; or


 


(ii)         shares
of Common Stock, Options or Convertible Securities issued by reason of a dividend, stock split, split-up or other distribution
on shares of Common Stock that is covered by Subsection 7.10, 7.11, 7.12, or 7.13;
or


 



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(iii)        shares
of Common Stock or Options issued to employees or directors of, or consultants or advisors to, the Corporation or any of its subsidiaries
pursuant to a plan, agreement or arrangement approved by the Board of Directors of the Corporation; or


 


(iv)         shares
of Common Stock or Convertible Securities actually issued upon the exercise of Options or shares of Common Stock actually issued
upon the conversion or exchange of Convertible Securities, in each case provided such issuance is pursuant to the terms of such
Option or Convertible Security; or


 


(v)          shares
of Common Stock, Options or Convertible Securities issued to banks, equipment lessors or other financial institutions, or to real
property lessors, pursuant to a debt financing, equipment leasing or real property leasing transaction approved by the Board of
Directors of the Corporation; or


 


(vi)         shares
of Common Stock, Options or Convertible Securities issued to suppliers or third party service providers in connection with the
provision of goods or services pursuant to transactions approved by the Board of Directors of the Corporation (including
shares underlying (directly or indirectly) any such Options or Convertible Securities); or


 


(vii)        shares
of Common Stock, Options or Convertible Securities issued in connection with the acquisition of another corporation by the Corporation
or its subsidiary by merger, purchase of substantially all of the assets or other reorganization or to a joint venture agreement,
provided, that such issuances are approved by the Board of Directors of the Corporation.


 


7.6.2           No
Adjustment of Series C-2 Conversion Price. No adjustment in the Series C-2 Conversion Price shall be made as the
result of the issuance or deemed issuance of Additional Shares of Common Stock if the Corporation receives written notice from
the Required Holders agreeing that no such adjustment shall be made as the result of the issuance or deemed issuance of such Additional
Shares of Common Stock.


 


7.7         Deemed
Issue of Additional Shares of Common Stock. 


 


7.7.1           If
the Corporation at any time or from time to time after the Series C-2 Original Issue Date shall issue any Options or Convertible
Securities (excluding Options or Convertible Securities which are themselves Exempted Securities) or shall fix a record date for
the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then the
maximum number of shares of Common Stock (as set forth in the instrument relating thereto, assuming the satisfaction of any conditions
to exercisability, convertibility or exchangeability but without regard to any provision contained therein for a subsequent adjustment
of such number) issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the
conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the
time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date.


 



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7.7.2           If
the terms of any Option or Convertible Security, the issuance of which resulted in an adjustment to the Series C-2 Conversion
Price pursuant to the terms of Subsection 7.8, are revised as a result of an amendment to such terms or any other adjustment
pursuant to the provisions of such Option or Convertible Security (but excluding automatic adjustments to such terms pursuant to
anti-dilution or similar provisions of such Option or Convertible Security) to provide for either (1) any increase or decrease
in the number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any such Option or Convertible
Security or (2) any increase or decrease in the consideration payable to the Corporation upon such exercise, conversion and/or
exchange, then, effective upon such increase or decrease becoming effective, the Series C-2 Conversion Price computed upon
the original issue of such Option or Convertible Security (or upon the occurrence of a record date with respect thereto) shall
be readjusted to such Series C-2 Conversion Price as would have obtained had such revised terms been in effect upon the original
date of issuance of such Option or Convertible Security. Notwithstanding the foregoing, no readjustment pursuant to this clause
7.7.2 shall have the effect of increasing the Series C-2 Conversion Price to an amount which exceeds the lower of (i) the
Series C-2 Conversion Price in effect immediately prior to the original adjustment made as a result of the issuance of such
Option or Convertible Security, or (ii) the Series C-2 Conversion Price that would have resulted from any issuances of
Additional Shares of Common Stock (other than deemed issuances of Additional Shares of Common Stock as a result of the issuance
of such Option or Convertible Security) between the original adjustment date and such readjustment date.


 


7.7.3           If
the terms of any Option or Convertible Security (excluding Options or Convertible Securities which are themselves Exempted Securities),
the issuance of which did not result in an adjustment to the Series C-2 Conversion Price pursuant to the terms of Subsection
7.8 (either because the consideration per share (determined pursuant to Subsection 7.8.1) of the Additional Shares of
Common Stock subject thereto was equal to or greater than the Series C-2 Conversion Price then in effect, or because such
Option or Convertible Security was issued before the Series C-2 Original Issue Date), are revised after the Series C-2
Original Issue Date as a result of an amendment to such terms or any other adjustment pursuant to the provisions of such Option
or Convertible Security (but excluding automatic adjustments to such terms pursuant to anti-dilution or similar provisions of such
Option or Convertible Security) to provide for either (1) any increase in the number of shares of Common Stock issuable upon
the exercise, conversion or exchange of any such Option or Convertible Security or (2) any decrease in the consideration payable
to the Corporation upon such exercise, conversion or exchange, then such Option or Convertible Security, as so amended or adjusted,
and the Additional Shares of Common Stock subject thereto (determined in the manner provided in Subsection 7.7.1) shall
be deemed to have been issued effective upon such increase or decrease becoming effective.


 



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7.7.4           Upon
the expiration or termination of any unexercised Option or unconverted or unexchanged Convertible Security (or portion thereof)
which resulted (either upon its original issuance or upon a revision of its terms) in an adjustment to the Series C-2 Conversion
Price pursuant to the terms of Subsection 7.8, the Series C-2 Conversion Price shall be readjusted to such Series C-2
Conversion Price as would have obtained had such Option or Convertible Security (or portion thereof) never been issued.


 


7.7.5           If
the number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any Option or Convertible Security,
or the consideration payable to the Corporation upon such exercise, conversion and/or exchange, is calculable at the time such
Option or Convertible Security is issued or amended but is subject to adjustment based upon subsequent events, any adjustment to
the Series C-2 Conversion Price provided for in this Subsection 7.7 shall be effected at the time of such issuance
or amendment based on such number of shares or amount of consideration without regard to any provisions for subsequent adjustments
(and any subsequent adjustments shall be treated as provided in clauses 7.7.2 and 7.7.3).
If the number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any Option or Convertible Security,
or the consideration payable to the Corporation upon such exercise, conversion and/or exchange, cannot be calculated at all at
the time such Option or Convertible Security is issued or amended, any adjustment to the Series C-2 Conversion Price that
would result under the terms of this Subsection 7.7 at the time of such issuance or amendment shall instead be effected
at the time such number of shares and/or amount of consideration is first calculable (even if subject to subsequent adjustments),
assuming for purposes of calculating such adjustment to the Series C-2 Conversion Price that such issuance or amendment took
place at the time such calculation can first be made.


 


7.8         Adjustment
of Series C-2 Conversion Price Upon Issuance of Additional Shares of Common Stock. In the event the Corporation shall,
at any time after the date the Corporation obtains the Shareholder Issuance Approval, issue Additional Shares of Common Stock (including
Additional Shares of Common Stock deemed to be issued pursuant to Subsection 7.7), without consideration or for a consideration
per share less than the Series C-2 Conversion Price in effect immediately prior to such issue, then the Series C-2 Conversion
Price shall be reduced, concurrently with such issue, to the consideration per share received by the Corporation for such issue
or deemed issue of the Additional Shares of Common Stock; provided that if such issuance or deemed issuance was without
consideration, then the Corporation shall be deemed to have received an aggregate of $0.001 of consideration for each such Additional
Share of Common Stock issued or deemed to be issued.


 


7.8.1           Determination
of Consideration. For purposes of this Subsection 7.8.1, the consideration received by the Corporation for the
issue of any Additional Shares of Common Stock shall be computed as follows:


 



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a.           Cash
and Property: Such consideration shall:


 


(i)          insofar
as it consists of cash, be computed at the aggregate amount of cash received by the Corporation, excluding amounts paid or payable
for accrued interest;


 


(ii)         insofar
as it consists of property other than cash, be computed at the fair market value thereof at the time of such issue, as determined
in good faith by the Board of Directors of the Corporation; and


 


(iii)        in
the event Additional Shares of Common Stock are issued together with other shares or securities or other assets of the Corporation
for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (i)
and (ii) above, as determined in good faith by the Board of Directors of the Corporation.


 


b.           Options
and Convertible Securities. The consideration per share received by the Corporation for Additional Shares of Common Stock deemed
to have been issued pursuant to Subsection 7.7, relating to Options and Convertible Securities, shall be determined by dividing:


 


(i)          the
total amount, if any, received or receivable by the Corporation as consideration for the issue of such Options or Convertible Securities,
plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such consideration) payable to the Corporation upon the exercise
of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities,
the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities, by


 


(ii)         the
maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained
therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of
such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible Securities.


 


7.9           Multiple
Closing Dates. In the event the Corporation shall issue on more than one date Additional Shares of Common Stock that are a
part of one transaction or a series of related transactions and that would result in an adjustment to the Series C-2 Conversion
Price pursuant to the terms of Subsection 7.8 then, upon the final such issuance, the Series C-2 Conversion Price shall
be readjusted to give effect to all such issuances as if they occurred on the date of the first such issuance (and without giving
effect to any additional adjustments as a result of any such subsequent issuances within such period).


 



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7.10         Adjustment
for Stock Splits and Combinations. If the Corporation shall at any time or from time to time after the Series C-2 Original
Issue Date effect a subdivision of the outstanding Common Stock, the Series C-2 Conversion Price in effect immediately before
that subdivision shall be proportionately decreased so that the number of shares of Common Stock issuable on conversion of each
share of such series shall be increased in proportion to such increase in the aggregate number of shares of Common Stock outstanding.
If the Corporation shall at any time or from time to time after the Series C-2 Original Issue Date combine the outstanding
shares of Common Stock, the Series C-2 Conversion Price in effect immediately before the combination shall be proportionately
increased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be decreased in
proportion to such decrease in the aggregate number of shares of Common Stock outstanding. Any adjustment under this subsection
shall become effective at the close of business on the date the subdivision or combination becomes effective.


 


7.11         Adjustment
for Certain Dividends and Distributions. In the event the Corporation at any time or from time to time after the Series C-2
Original Issue Date shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive,
a dividend or other distribution payable on the Common Stock in additional shares of Common Stock, then and in each such event
the Series C-2 Conversion Price in effect immediately before such event shall be decreased as of the time of such issuance
or, in the event such a record date shall have been fixed, as of the close of business on such record date, by multiplying the
Series C-2 Conversion Price then in effect by a fraction:


 


(i)          the
numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of
such issuance or the close of business on such record date, and


 


(ii)         the
denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of
such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such
dividend or distribution.


 


Notwithstanding the
foregoing, (a) if such record date shall have been fixed and such dividend is not fully paid or if such distribution is not
fully made on the date fixed therefor, the Series C-2 Conversion Price shall be recomputed accordingly as of the close of
business on such record date and thereafter the Series C-2 Conversion Price shall be adjusted pursuant to this subsection
as of the time of actual payment of such dividends or distributions; and (b) no such adjustment shall be made if the holders
of Series C-2 Preferred Stock simultaneously receive a dividend or other distribution of shares of Common Stock in a number
equal to the number of shares of Common Stock as they would have received if all outstanding shares of Series C-2 Preferred
Stock had been converted into Common Stock on the date of such event.


 



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7.12         Adjustments
for Other Dividends and Distributions. In the event the Corporation at any time or from time to time after the Series C-2
Original Issue Date shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive,
a dividend or other distribution payable in securities of the Corporation (other than a distribution of shares of Common Stock
in respect of outstanding shares of Common Stock) or in other property and the provisions of Section 4 do not apply
to such dividend or distribution, then and in each such event the holders of Series C-2 Preferred Stock shall receive, simultaneously
with the distribution to the holders of Common Stock, a dividend or other distribution of such securities or other property in
an amount equal to the amount of such securities or other property as they would have received if all outstanding shares of Series C-2
Preferred Stock had been converted into Common Stock on the date of such event.


 


7.13         Adjustment
for Merger or Reorganization, etc. Subject to the provisions of Subsection 5.3, if there shall occur any reorganization,
recapitalization, reclassification, consolidation or merger involving the Corporation in which the Common Stock (but not the Series C-2
Preferred Stock) is converted into or exchanged for securities, cash or other property (other than a transaction covered by Subsections
7.6, 7.11, or 7.12), then, following any such reorganization, recapitalization, reclassification, consolidation
or merger, each share of Series C-2 Preferred Stock shall thereafter be convertible in lieu of the Common Stock into which
it was convertible prior to such event into the kind and amount of securities, cash or other property which a holder of the number
of shares of Common Stock of the Corporation issuable upon conversion of one share of Series C-2 Preferred Stock immediately
prior to such reorganization, recapitalization, reclassification, consolidation or merger would have been entitled to receive pursuant
to such transaction; and, in such case, appropriate adjustment (as determined in good faith by the Board of Directors of the Corporation)
shall be made in the application of the provisions in this Section 7 with respect to the rights and interests thereafter
of the holders of the Series C-2 Preferred Stock, to the end that the provisions set forth in this Section 7 (including
provisions with respect to changes in and other adjustments of the Series C-2 Conversion Price) shall thereafter be applicable,
as nearly as reasonably may be, in relation to any securities or other property thereafter deliverable upon the conversion of the
Series C-2 Preferred Stock.


 


7.14         Certificate
as to Adjustments. Upon the occurrence of each adjustment or readjustment of the Series C-2 Conversion Price pursuant
to this Section 7, the Corporation at its expense shall, as promptly as reasonably practicable but in any event not
later than 10 days thereafter, compute such adjustment or readjustment in accordance with the terms hereof and furnish to each
holder of Series C-2 Preferred Stock a certificate setting forth such adjustment or readjustment (including the kind and amount
of securities, cash or other property into which the Series C-2 Preferred Stock is convertible) and showing in detail the
facts upon which such adjustment or readjustment is based. The Corporation shall, as promptly as reasonably practicable after the
written request at any time of any holder of Series C-2 Preferred Stock (but in any event not later than 10 days thereafter),
furnish or cause to be furnished to such holder a certificate setting forth (i) the Series C-2 Conversion Price then
in effect, and (ii) the number of shares of Common Stock and the amount, if any, of other securities, cash or property which
then would be received upon the conversion of Series C-2 Preferred Stock.


 



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7.15       Notice
of Record Date. In the event:


 





7.15.1         the
Corporation shall take a record of the holders of its Common Stock (or other capital stock or securities at the time issuable upon
conversion of the Series C-2 Preferred Stock) for the purpose of entitling or enabling them to receive any dividend or other
distribution, or to receive any right to subscribe for or purchase any shares of capital stock of any class or any other securities,
or to receive any other security; or


 


7.15.2         of
any capital reorganization of the Corporation, any reclassification of the Common Stock of the Corporation, or any Deemed Liquidation
Event; or


 


7.15.3         of
the voluntary or involuntary dissolution, liquidation or winding-up of the Corporation,


 


then, and in each such case, the Corporation
will send or cause to be sent to the holders of the Series C-2 Preferred Stock a notice specifying, as the case may be, (i) the
record date for such dividend, distribution or right, and the amount and character of such dividend, distribution or right, or
(ii) the effective date on which such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation
or winding-up is proposed to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock
(or such other capital stock or securities at the time issuable upon the conversion of the Series C-2 Preferred Stock) shall
be entitled to exchange their shares of Common Stock (or such other capital stock or securities) for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up,
and the amount per share and character of such exchange applicable to the Series C-2 Preferred Stock and the Common Stock.
Such notice shall be sent at least 10 days prior to the record date or effective date for the event specified in such notice.


 


8.        Miscellaneous.


 


8.1           Waiver.
No failure or delay on the part of a Series C-2 Holder in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privileges. All rights and remedies existing hereunder are cumulative to, and
not exclusive of, any rights or remedies otherwise available.


 


8.2           Consent
to Waiver. Any provision of this Certificate of Designation applicable to the Series C-2 Preferred Stock may be waived
by the affirmative vote or written consent of the Required Holders, which vote or written consent shall bind all Series C-2
Holders, and all future Series C-2 Holders for which such rights have been waived.


 



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8.3           Notices.
Any notice herein required or permitted to be given shall be in writing and may be personally served or delivered by courier or
sent by United States mail or by overnight delivery and shall be deemed to have been given upon receipt if personally served, or
upon confirmation of receipt, when sent by facsimile, or five (5) days after being deposited in the United States mail, certified,
with postage pre-paid and properly addressed, if sent by mail, or one (1) business day after deposit with a nationally recognized
overnight delivery service, if delivery by overnight delivery. For the purposes hereof, the address of the Series C-2 Holders
shall be as shown on the records of the Corporation; and the address of the Corporation shall be VirtualScopics, Inc.,
500 Linden Oaks, Rochester, NY 14625 Phone: 585-249-6231; Fax: 585-218-7350. Both the Series C-2 Holders and the
Corporation may change the address for service by service of written notice to the other as herein provided.


 


8.4           Equitable
Relief. All legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated
by this Certificate of Designation and any other Transaction Agreements (whether brought against
a party hereto or its respective affiliates, directors, officers, stockholders, employees or agents) shall be commenced exclusively
in the state and federal courts sitting in the State of New York, County of New York. The Corporation and each Series C-2
Holder (a) hereby irrevocably and unconditionally submit to the jurisdiction of the state courts of the State of New York
sitting in New York County and to the jurisdiction of the United States District Court for the Southern District of New York for
the purpose of any suit, action or other proceeding arising out of or based upon this Agreement, (b) agree not to commence
any suit, action or other proceeding arising out of or based upon this Agreement except in the state courts of New York sitting
in New York County or the United States District Court for the Southern District of New York, and (c) hereby waive, and agree
not to assert, by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that it is not subject
personally to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution, that
the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper
or that this Agreement or the subject matter hereof may not be enforced in or by such court. THE CORPORATION AND SERIES C-2
HOLDERS EACH HEREBY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS CERTIFICATE
OF DESIGNATION, THE OTHER TRANSACTION AGREEMENTS, THE SERIES C-2 PREFERRED STOCK OR THE SUBJECT MATTER HEREOF OR THEREOF.


 


8.5           Construction;
Headings. This Certificate of Designation shall be deemed to be jointly drafted by the Corporation and the initial purchaser
of the Series C-2 Preferred Stock and shall not be construed against any person as the drafter hereof. The headings of this
Certificate of Designation are for convenience of reference and shall not form part of, or affect the interpretation of, this Certificate
of Designation.


 



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8.6           Remedies.
The remedies provided in this Certificate of Designation shall be cumulative and in addition to all other remedies available under
this Certificate of Designation and the other Transaction Agreements, at law or in equity (including a decree of specific performance
and/or other injunctive relief), and nothing herein shall limit the right of any Series C-2 Holder right to pursue actual
damages for any failure by the Corporation to comply with the terms of this Certificate of Designation or any of the other Transaction
Agreements. The Corporation acknowledges that a breach by it of its obligations hereunder will
cause irreparable harm to the Series C-2 Holders, by vitiating the intent and purpose of the transaction contemplated hereby.
Accordingly, the Corporation acknowledges that the remedy at law for a breach of its obligations under this Certificate of Designation
will be inadequate and agrees, in the event of a breach or threatened breach by the Corporation of the provisions of this Certificate
of Designation or the other Transaction Agreements, that the Series C-2 Holders shall be entitled, in addition to all other
available remedies at law or in equity, to an injunction or injunctions restraining, preventing or curing any breach of the Certificate
of Designation and the other Transaction Agreements and to enforce specifically the terms and provisions thereof, without the necessity
of showing economic loss and without any bond or other security being required.


 


IN WITNESS WHEREOF,
Corporation has caused the Certificate of Designation to be executed in its name by its Chief Business and Financial Officer, Molly
Henderson, this 3rd day of April, 2012.


 


	 	CORPORATION:
	 	VIRTUALSCOPICS, INC.
	 	 
	 	By:	/s/ Molly Henderson	 
	 	 	Molly Henderson
	 	 	Chief Business and Financial Officer


 



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EXHIBIT
A


 


NOTICE
OF CONVERSION


 


(To be Executed by the Registered Holder
in order to convert the Series C-1 or Series C-2 Convertible Preferred Stock of VIRTUALSCOPICS, INC.)


 


The undersigned hereby irrevocably elects
to convert ___________ shares of Series [C-1/C-2] Preferred Stock, having an aggregate Stated Value of $__________ into shares
of Common Stock, par value $0.001 per share (“Common Stock”), of VIRTUALSCOPICS, INC. (the “Corporation”)


 


[plus $_____________ in accrued and
unpaid Dividends,]


 


all according to the conditions of the
Certificate of Designation of Rights and Preferences of Series C-1 Preferred Stock and Series C-2 Preferred Stock of
the Corporation dated as of April 3rd, 2012 (the “Certificate of Designation”), as of the date written below.
If securities are to be issued in the name of a Person other than the undersigned, the undersigned will pay all transfer taxes
payable with respect thereto and is delivering herewith such certificates. No fee will be charged to the holder for any conversion,
except for transfer taxes, if any.


 


The undersigned represents and warrants
that all offers and sales by the undersigned of the securities issuable to the undersigned upon conversion of the Series [C-1/C-2]
Preferred Stock shall be made pursuant to registration of the securities under the Securities Act of 1933, as amended (the “Act”),
or pursuant to an exemption from registration under the Act.


 


(i) Date of Conversion:_______________________________


Applicable Conversion Price:________________________


Number of Shares of Common


Stock to be Issued Pursuant to


Conversion of the Preferred Stock:_______________________


 


[(ii) Conversion of accrued and unpaid Dividends:
______________________]


 


Signature: ___________________________________________________


Name: ______________________________________________________


Address: ____________________________________________________


 






    	 



    	 



    
  


EXHIBIT C


 


FORM OF INVESTORS RIGHTS AGREEMENT








 






    	 



    	 



    



 


INVESTOR RIGHTS AGREEMENT


 


THIS INVESTOR RIGHTS
AGREEMENT (the “Agreement”) is made as of the 3rd day of April, 2012,
by and between VirtualScopics, Inc. a Delaware corporation
(the “Company”), and Merck Global Health Innovation Fund LLC, a Delaware limited liability company (the “Investor”).


 


RECITALS


 


WHEREAS, the Company
and Investor are parties to the Series C Preferred Stock and Warrant Purchase Agreement dated April 3rd, 2012 (the “Purchase
Agreement”); and


 


WHEREAS, in order
to induce the Company to enter into the Purchase Agreement and to induce the Investor to invest funds in the Company pursuant to
the Purchase Agreement, the Investor and the Company hereby agree that this Agreement shall govern the rights of the Investor to
cause the Company to register shares of Common Stock issuable to the Investor and to participate in future equity offerings by
the Company, and shall govern certain other matters as set forth in this Agreement.


 


NOW, THEREFORE,
the parties hereby agree as follows:


 


1.           Definitions.
For purposes of this Agreement:


 


1.1.          “Affiliate”
means, with respect to any specified Person, any other Person who, directly or indirectly, controls, is controlled by, or is under
common control with such Person, including without limitation any general
partner, managing member, officer or director
of such Person or any venture capital fund now or hereafter existing that is controlled by one or more general partners
or managing members of, or shares the same management company with, such Person.


 


1.2.          “Board
of Directors” means the board of the directors of the Company.


 


1.3.          “Common
Stock” means shares of the Company’s common stock, par value $0.001 per share.


 


1.4.          “Competitor”
means a Person engaged, directly or indirectly (including through any partnership,
limited liability company, corporation, joint venture or similar arrangement (whether now existing or formed hereafter)), in the
manufacture, sale or distribution of products that are competitive with the products of the Company as of the relevant time, but
shall not include any financial investment firm or collective investment vehicle that, together with its Affiliates, holds less
than 20% of the outstanding equity of any Competitor and does not, nor do any of its Affiliates, have a right to designate any
members of the board of directors of any Competitor.


 






    	 



    	 



    
  


1.5.          “Damages”
means any loss, damage, claim or liability (joint or several) to which a party hereto may become subject under the Securities Act,
the Exchange Act, or other federal or state law, insofar as such loss, damage, claim or liability (or any action in respect thereof)
arises out of or is based upon (i) any untrue statement or alleged untrue statement of a material fact contained in any registration
statement of the Company, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements
thereto; (ii) an omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make
the statements therein not misleading; or (iii) any violation or alleged violation by the
indemnifying party (or
any of its agents or Affiliates) of the Securities Act, the Exchange Act, any state securities law, or any rule or
regulation promulgated under the Securities Act, the Exchange Act, or any state securities law.


 


1.6.          “Derivative
Securities” means any securities or rights convertible into, or exercisable or exchangeable for
(in each case, directly or indirectly), Common Stock, including options and warrants.


 


1.7.          “Exchange
Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.


 


1.8.          “Excluded
Registration” means (i) a registration relating to
the sale of securities to employees of the Company or a subsidiary pursuant to a stock option, stock purchase, or similar plan;
(ii) a registration relating to an SEC Rule 145 transaction; (iii) a registration on any form that does not include substantially
the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities;
or (iv) a registration in which the only Common Stock being registered is Common Stock issuable upon conversion of debt securities
that are also being registered.


 


1.9.          
“Form S-3” means such form under the Securities Act as in effect on the date
hereof or any registration form under the Securities Act subsequently adopted by the SEC that permits incorporation of substantial
information by reference to other documents filed by the Company with the SEC.


 


1.10.         “GAAP”
means generally accepted accounting principles in the United States.


 


1.11.         “Holder”
means the Investor and any assignee who is a holder of Registrable Securities and who becomes a party to this Agreement.


 


1.12.         “Immediate
Family Member” means a child, stepchild,
grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law,
or sister-in-law, including adoptive relationships,
of a natural person referred to herein.


 


1.13.         “Initiating
Holders” means, collectively, Holders who properly initiate a registration request under this Agreement.


 


1.14.         “New
Securities” means, collectively, equity securities of the Company, whether or not currently authorized, as well as rights,
options, or warrants to purchase such equity securities, or securities of any type whatsoever that are, or may become, convertible
or exchangeable into or exercisable for such equity securities.


 



    	2



    	 



    

 


1.15.         “Person”
means any individual, corporation, partnership, trust, limited liability company, association or
other entity.


 


1.16.         “Preferred
Stock” means, collectively, shares of the Company’s Series A Convertible Preferred Stock, Series B Convertible
Preferred Stock, Series C-1 Preferred Stock and Series C-2 Preferred Stock.


 


1.17.         “Registrable
Securities” means (i) the Common Stock issuable or issued upon conversion of the Series C-1 Preferred Stock
and Series C-2 Preferred Stock, (ii) the Warrant Shares, and (iii) any Common Stock issued as (or issuable upon the
conversion or exercise of any warrant, right, or other security that is issued as) a dividend or other distribution or
payment with respect to, or in exchange for or in replacement of, the shares referenced in clauses (i) and (ii) above
and (iv) any other Common Stock owned by any Holder; excluding in all cases, however, any Registrable Securities sold by a
Person in a transaction in which the applicable rights
under this Agreement are not assigned pursuant
to Subsection 5.1, and excluding
for purposes of Section 2 any shares for which registration rights have terminated pursuant to Subsection 2.13
of this Agreement.


 


1.18.         “Registrable
Securities then outstanding” means the number of shares determined by adding the number
of shares of outstanding Common Stock that are Registrable
Securities and the number of shares of Common
Stock issuable (directly or indirectly) pursuant to then exercisable
and/or convertible securities that are Registrable Securities.


 


1.19.         
“SEC” means the Securities and Exchange Commission.


 


1.20.         “SEC
Rule 144” means Rule 144 promulgated by the SEC under the Securities Act.


 


1.21.         “SEC
Rule 145” means Rule 145 promulgated by the SEC under the Securities Act.


 


1.22.         “Securities
Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.


 


1.23.         “Selling
Expenses” means all underwriting discounts, selling commissions, and stock transfer taxes applicable to the sale of
Registrable Securities, and fees and disbursements of counsel for any Holder, except for
the fees and disbursements of the Selling Holder Counsel borne and paid by the Company as provided in Subsection 2.6.


 


1.24.         “Series
C Certificate of Designations” means the Certificate of Designations of Rights and Preferences of the Series C-1 Preferred
Stock and Series C-2 Preferred Stock of VirtualScopics, Inc., filed with the Secretary of State of Delaware.


 


1.25.         
“Series C Director” means the one (1) director elected by the holders of Series C Preferred Stock, pursuant
to Part I, Section 6.2 and Part II, Section 6.2 of the Series C Certificate of Designation.


 



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1.26.         “Series
C-1 Preferred Stock” means shares of the Company’s Series C-1 Convertible Preferred Stock, par value $0.001 per
share.


 


1.27.         “Series
C-2 Preferred Stock” means shares of the Company’s Series C-2 Convertible Preferred Stock, par value $0.001 per
share.


 


1.28.         “Warrants”
means the stock purchase warrants issued and to be issued to the Investor pursuant to the Purchase Agreement.


 


1.29.         “Warrant
Shares” means the shares of Common Stock issuable upon the exercise of the Warrants.


 


2.           Registration
Rights. The Company covenants and agrees as follows:


 


2.1.          Demand
Registration.


 


(a)          Form
S-1 Demand. If at any time the Company receives a request from Holders
that the Company file a Form
S-1 registration statement with respect to Registrable
Securities then outstanding (including a shelf registration of such Registrable securities to be offered on a continuous or delayed
basis), that would have an anticipated aggregate offering price, net of Selling Expenses, in excess of $1,000,000, then the Company
shall (i) within ten (10) days after the date such request is given, give notice thereof (the “Demand Notice”)
to all Holders other than the Initiating Holders; and (ii) as soon as reasonably practicable, and in any event within seventy-five
(75) days after the date such request is given by the Initiating Holders, file a
Form S-1 registration statement under the Securities Act covering all Registrable Securities that the Initiating
Holders requested to be registered and any
additional Registrable Securities requested to be included in such registration by any other Holders, as specified by notice given
by each such Holder to the Company within twenty (20) days of the date the Demand Notice is given, and in each case, subject
to the limitations of Subsection 2.1(c)


and Subsection 2.3.


 


(b)          Form
S-3 Demand. If at any time when it is eligible to use a Form S-3 registration statement,
the Company receives a request from Holders of the Registrable Securities then outstanding that the Company file a Form S-3 registration
statement with respect to outstanding Registrable Securities of such Holders having an anticipated aggregate offering price, net
of Selling Expenses, of at least $1,000,000, then the
Company shall (i) within ten (10) days after the date such request is given, give a Demand Notice to all Holders other than the
Initiating Holders; and (ii) as soon as reasonably practicable, and in any event within sixty (60) days after the date such
request is given by the Initiating Holders, file a Form S-3 registration
statement under the Securities Act covering all Registrable Securities requested to be included in such registration by any other
Holders, as specified by notice given by each such Holder to the Company within twenty (20) days of the date the Demand Notice
is given, and in each case, subject to the limitations of Subsection 2.1(c)


and Subsection 2.3.


 



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(c)          Limitations.
Notwithstanding the foregoing obligations, if the Company furnishes to Holders requesting a registration pursuant to this Subsection
2.1 a certificate signed an executive officer of the Company stating that in the good faith judgment of the
Company’s Board of Directors it would be materially detrimental to the Company and its stockholders for such
registration statement to either become effective or remain effective for as long as such registration statement otherwise
would be required to remain effective, because such action would (i) materially interfere with a significant acquisition,
corporate reorganization, or other similar transaction involving the Company; (ii) require premature disclosure of material
information that the Company has a bona fide business purpose for preserving as confidential; or (iii) render the Company
unable to comply with requirements under the Securities Act or Exchange Act, then the Company shall have the right to defer
taking action with respect to such filing, and any time periods with respect to filing or effectiveness thereof shall be
tolled correspondingly, for a period of not more than ninety (90) days after the request of the Initiating Holders is given; provided, however,
that the Company may not invoke this right more than once in any twelve (12) month period; and provided, further
that the Company shall not register any securities for its own account or that of any other stockholder during such ninety
(90) day period.


 


(d)          Frequency.
The Company shall not be obligated to effect, or to take any action to effect, any registration pursuant to Subsection 2.1(a)
(i) during the period that is sixty (60) days before the Company’s good faith estimate of
the date of filing of, and ending on a date that is one hundred eighty (180) days after the effective date of, a Company-initiated
registration, provided, that the Company is actively employing in good faith commercially reasonable efforts to cause such
registration statement to become effective; (ii) within six (6) months after the effective date of a registrations
pursuant to Subsection 2.1(a); (iii) after the Company has effected three registrations
pursuant to Subsection 2.1(a); or (iv) if the Initiating Holders propose to dispose of shares of Registrable Securities
that may be immediately registered on Form S-3 pursuant to a request made pursuant to Subsection 2.1(b).
The Company shall not be obligated to effect, or to take any action to effect, any registration pursuant to Subsection
2.1(b) (i) during the period that is thirty (30) days before the Company’s good faith estimate of the
date of filing of, and ending on a date that is ninety (90) days after the effective date of, a Company-initiated registration,
provided, that the Company is actively employing in good faith commercially reasonable efforts to cause such registration statement
to become effective; or (ii) if the Company has effected a registration pursuant to Subsection
2.1(b) within the six (6) month period immediately preceding the date of such request.
A registration shall not be counted as “effected” for purposes of this Subsection 2.1(d) until such
time as the applicable registration statement has been declared effective by the SEC, unless the Initiating Holders withdraw their
request for such registration, elect not to pay the registration expenses therefor, and
forfeit their right to one demand registration statement pursuant to Subsection 2.6,
in which case such withdrawn registration statement shall be counted as “effected” for purposes of this Subsection
2.1(d).


  


2.2.          Company
Registration. If the Company proposes to register (including, for this purpose, a
registration effected by the Company for stockholders other than the Holders) any of its Common Stock under the Securities
Act in connection with the public offering of such securities solely for cash (other than in an Excluded Registration), the
Company shall, at such time, promptly give each Holder notice of such registration. Upon the request of each Holder given
within twenty (20) days after such notice is given by the Company, the Company shall, subject to the provisions of Subsection
2.3, cause to be registered all of the Registrable Securities that each such Holder has requested to be included
in such registration. The Company shall have the right to terminate or withdraw any registration initiated by it under this Subsection
2.2 before the effective date of such registration, whether or not any Holder has elected to include Registrable
Securities in such registration. The expenses (other than Selling Expenses) of such withdrawn registration shall be borne by
the Company in accordance with Subsection 2.6.


 



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2.3.         Underwriting
Requirements.


 


(a)          If,
pursuant to Subsection 2.1, the Initiating Holders intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made
pursuant to Subsection 2.1, and the Company shall include such information in the Demand
Notice. The underwriter(s) will be selected by the
Company and shall be reasonably acceptable to a majority in interest of the Initiating Holders. In such event, the right of any
Holder to include such Holder’s Registrable Securities in such registration shall be conditioned upon such Holder’s
participation in such underwriting and the inclusion of such Holder’s Registrable Securities in the underwriting to the
extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the
Company as provided in Subsection 2.4(e)) enter into an underwriting agreement in customary form with the underwriter(s)
selected for such underwriting. Notwithstanding any other provision of this Subsection 2.3,
if the underwriter(s) advise(s) the Initiating Holders in writing that marketing factors require a
limitation on the number of shares to be underwritten, then the Initiating Holders shall so advise all Holders of Registrable
Securities that otherwise would be underwritten pursuant hereto, and the number of Registrable Securities that may be included
in the underwriting shall be allocated among such
Holders of Registrable Securities, including the Initiating Holders, in proportion (as nearly as practicable) to the number of
Registrable Securities owned by each Holder or in such other proportion
as shall mutually be agreed to by all such selling Holders; provided, however, that the number of Registrable
Securities held by the Holders to be included in such underwriting shall not be reduced unless all other securities are first
entirely excluded from the underwriting.


 


(b)          In
connection with any offering involving an underwriting of shares of the Company’s capital stock pursuant to Subsection
2.2, the Company shall not be required to include any of the Holders’ Registrable Securities in such underwriting
unless the Holders accept the terms of the underwriting as agreed upon between the Company and its underwriters, and then
only in such quantity as the underwriters in their sole discretion determine will not jeopardize the success of the offering
by the Company. If the total number of securities, including Registrable Securities, requested by stockholders to be included
in such offering exceeds the number of securities to be sold (other than by the Company) that the underwriters in their
reasonable discretion determine is compatible with the success of the offering, then the Company shall be required to include
in the offering only that number of such securities, including Registrable Securities, which the underwriters and the Company
in their sole discretion determine will not jeopardize the success of the offering. If the underwriters determine that less
than all of the Registrable Securities requested to be registered can be included in such offering, then the Registrable
Securities that are included in such offering shall be allocated
among the selling Holders in proportion (as nearly as
practicable to) the number of Registrable Securities owned by each
selling Holder or in such other proportions as shall
mutually be agreed to by all such selling Holders. Notwithstanding the foregoing, in no event shall (i)
the number of Registrable Securities included in the offering be reduced unless all other securities (other than securities
to be sold by the Company) are first entirely excluded from the offering, or (ii) the number of Registrable Securities
included in the offering be reduced to less than thirty percent (30%) of the total number of securities included in
such offering.  For
purposes of the provision in this Subsection 2.3(b) concerning apportionment, for any selling Holder that
is a partnership, limited liability company, or corporation, the partners, members, retired partners, retired
members, stockholders, and Affiliates of such Holder, or the estates and Immediate Family Members of any such partners,
retired partners, members, and retired members and any trusts for the benefit of any of the foregoing Persons, shall be
deemed to be a single “selling Holder,” and any pro rata reduction with respect to such “selling
Holder” shall be based upon the aggregate number of Registrable Securities owned by all Persons included in such
“selling Holder,” as defined in this sentence.


 



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(c)          For
purposes of Subsection 2.1, a registration shall not be counted as “effected” if,
as a result of an exercise of the underwriter’s cutback provisions in Subsection 2.3(a), fewer than fifty
percent (50%) of the total number of Registrable Securities that Holders have requested to be included in such registration statement
are actually included.


 


2.4.         Obligations
of the Company. Whenever required under
this Section 2 to effect the registration of any Registrable Securities, the Company shall, as expeditiously as
reasonably possible:


 


(a)          prepare
and file with the SEC a registration statement with respect to such Registrable Securities and use its commercially reasonable
efforts to cause such registration statement to become effective and, upon the request of the Holders of a majority of the Registrable
Securities registered thereunder, keep such registration statement effective for a period of up to one hundred twenty (120) days
or, if earlier, until the distribution contemplated in the registration statement has been completed; provided, however,
that (i) such one hundred twenty (120) day period shall be extended for a period of time equal to the period the Holder refrains,
at the request of an underwriter of Common Stock (or other securities) of the Company, from selling any securities included in
such registration, and (ii) in the case of any registration of Registrable Securities on Form S-3 that are intended to be offered
on a continuous or delayed basis, subject to compliance with applicable SEC rules, such one hundred twenty (120) day period shall
be extended for up to one hundred eighty days (180) days, if necessary, to keep the registration statement effective until all
such Registrable Securities are sold;


 


(b)          prepare
and file with the SEC such amendments and supplements to such registration statement, and the prospectus used in connection with
such registration statement, as may be necessary to comply with the Securities Act in order to enable the disposition of all securities
covered by such registration statement;


 


(c)          furnish
to the selling Holders such numbers of copies of a prospectus, including a preliminary prospectus, as required by the Securities
Act, and such other documents as the Holders may reasonably request in order to facilitate their disposition of their Registrable
Securities;


 


(d)          use
its commercially reasonable efforts to register and qualify the securities covered by such registration statement under such other
securities or blue-sky laws of such jurisdictions as shall be reasonably requested by the selling Holders; provided that
the Company shall not be required to qualify to do business or to file a general consent to service of process in any such states
or jurisdictions, unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities
Act;


 



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(e)          in
the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual
and customary form, with the underwriter(s) of such offering;


 


(f)          use
its commercially reasonable efforts to cause all such Registrable Securities covered by such registration statement to be listed
on a national securities exchange or trading system and each securities exchange and trading system (if any) on which similar securities
issued by the Company are then listed and maintain such listing; and, not take any action which would reasonably be expected to
result in delisting or suspension on such market;


 


(g)          provide
a transfer agent and registrar for all Registrable Securities registered pursuant to this Agreement and provide a CUSIP number
for all such Registrable Securities, in each case not later than the effective date of such registration;


 


(h)          promptly
make available for inspection by the selling Holders, any underwriter(s)
participating in any disposition pursuant to such registration statement, and any attorney or accountant or other agent retained
by any such underwriter or selected by the selling Holders, all financial and other records, pertinent corporate documents, and
properties of the Company, and cause the Company’s officers, directors, employees, and independent accountants to supply
all information reasonably requested by any such seller, underwriter, attorney, accountant, or agent,
in each case, as necessary or advisable to verify the accuracy of the information in such registration statement and to conduct
appropriate due diligence in connection therewith;


 


(i)          notify
each selling Holder, promptly after the Company receives notice thereof, of the time when such registration statement has been
declared effective or a supplement to any prospectus forming a part of such registration statement has been filed; and


 


(j)          after
such registration statement becomes effective, notify each selling Holder of any request by the SEC that the Company amend or supplement
such registration statement or prospectus.


 


2.5.         Furnish
Information. It shall be a condition precedent to the obligations of the Company to take any
action pursuant to this Section 2 with respect to the Registrable Securities of any selling Holder that such Holder
shall furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended
method of disposition of such securities as is reasonably required to effect the registration of such Holder’s
Registrable Securities.


 



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2.6.          Expenses
of Registration. All expenses (other than Selling Expenses) incurred in connection with registrations,
filings, or qualifications pursuant to Section 2, including all registration, filing, and qualification fees; printers’
and accounting fees; fees and disbursements of counsel for the Company; and the reasonable fees and disbursements, not to exceed
$15,000, of one counsel for the selling Holders (“Selling
Holder Counsel”), shall be borne and paid by the Company; provided,
however, that the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to
Subsection 2.1 if the registration request is subsequently withdrawn at the request of the Holders of a majority
of the Registrable Securities to be registered (in which case all selling Holders shall bear such expenses pro rata based upon
the number of Registrable Securities that were to be included in the withdrawn registration), unless the Holders of a majority
of the Registrable Securities agree to forfeit their right to one registration pursuant to Subsection 2.1(a) or Subsection
2.1(b), as the case may be; provided further that
if, at the time of such withdrawal, the Holders shall have learned of a material adverse change in the condition, business, or
prospects of the Company from that known to the Holders at the time of their request and have withdrawn the request with reasonable
promptness after learning of such information then the Holders shall not be required to pay any of such expenses and shall not
forfeit their right to one registration pursuant to Subsection 2.1(a) or Subsection 2.1(b). All Selling Expenses
relating to Registrable Securities registered pursuant to this Section 2 shall be borne and paid by the Holders pro rata
on the basis of the number of Registrable Securities registered on their behalf.


 


2.7.         Delay
of Registration. No Holder shall have any right to obtain or seek an injunction restraining or otherwise
delaying any registration pursuant to this Agreement as the result of any controversy that might arise with respect to the interpretation
or implementation of this Section 2.


 


2.8.         Indemnification.
If any Registrable Securities are included in a registration statement under this Section 2:


 


(a)          To
the extent permitted by law, the Company will indemnify and hold harmless each selling Holder, and the partners, members,
officers, directors, and stockholders of each such Holder; legal counsel and accountants for each such Holder; any
underwriter (as defined in the Securities Act) for each such Holder; and each Person, if any, who controls such Holder or
underwriter within the meaning of the Securities Act or the Exchange Act, against any Damages, and the Company will pay to
each such Holder, underwriter, controlling Person, or other aforementioned Person any legal or other expenses reasonably
incurred thereby in connection with investigating or defending any
claim or proceeding from which Damages may result, as such expenses are incurred; provided, however,
that the indemnity agreement contained in this Subsection 2.8(a) shall not apply to amounts paid in settlement of any
such claim or proceeding if such settlement is effected
without the consent of the Company, which consent shall not be unreasonably withheld, nor shall the Company be liable for any
Damages to the extent that they arise out of or are based upon actions or omissions made in reliance upon and in conformity
with written information furnished by or on behalf of any such Holder, underwriter, controlling Person, or other
aforementioned Person expressly for use in connection with such registration.


 



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(b)          To
the extent permitted by law, each selling Holder, severally and not jointly, will indemnify and hold harmless the
Company, and each of its directors, each of its officers who has signed the registration statement, each Person (if any), who
controls the Company within the meaning of the Securities Act, legal counsel and accountants for the Company, any underwriter
(as defined in the Securities Act), any other Holder selling securities in such registration statement, and any
controlling Person of any such underwriter or other Holder, against any Damages, in each case only to the extent that such
Damages arise out of or are based upon actions or omissions made in reliance upon and in conformity with written information
furnished by or on behalf of such selling Holder expressly for use in connection with such registration; and each such
selling Holder will pay to the Company and each other aforementioned Person any legal or other expenses reasonably incurred
thereby in connection with investigating or defending any claim
or proceeding from which Damages may result, as such expenses are incurred; provided, however, that the
indemnity agreement contained in this Subsection 2.8(b) shall not apply to amounts paid in settlement of any such claim
or proceeding if such settlement is effected without the consent of the Holder, which consent shall not be
unreasonably withheld; and provided further that in no event shall the aggregate amounts payable by any Holder
by way of indemnity or contribution under Subsections 2.8(b) and Subsection
2.8(d) exceed the proceeds from the offering received
by such Holder (net of any Selling Expenses paid by such
Holder), except in the case of fraud or willful misconduct by such Holder.


 


(c)          Promptly
after receipt by an indemnified party under this Subsection 2.8 of notice of the commencement of any action (including
any governmental action) for which a party may be entitled to indemnification hereunder, such indemnified party will, if a claim
in respect thereof is to be made against any indemnifying party under this Subsection 2.8,
give the indemnifying party notice of the commencement thereof. The indemnifying party shall have the
right to participate in such action and, to the extent the indemnifying party so desires, participate jointly with any other indemnifying
party to which notice has been given, and to assume the defense thereof with counsel mutually satisfactory to the parties; provided,
however, that an indemnified party (together with all other indemnified parties that may be represented without conflict
by one counsel) shall have the right to retain one separate counsel, with the fees and expenses to be paid by the indemnifying
party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due
to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such
action. The failure to give notice to the indemnifying party within a reasonable time of the commencement of any such action shall
relieve such indemnifying party of any liability to the indemnified party under this Subsection 2.8,
to the extent that such failure materially prejudices the indemnifying party’s ability to defend such action. The failure
to give notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise
than under this Subsection 2.8.


 



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(d)          To
provide for just and equitable contribution to joint liability under the Securities Act in any case in which either (i) any
party otherwise entitled to indemnification hereunder makes a claim for indemnification pursuant to this Subsection 2.8 but
it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the
expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such
case, notwithstanding the fact that this Subsection 2.8 provides for indemnification
in such case, or (ii) contribution under the Securities Act may be required on the part of any party hereto for which
indemnification is provided under this Subsection 2.8,
then, and in each such case, such parties will contribute to the aggregate losses, claims, damages, liabilities, or expenses
to which they may be subject (after contribution from others) in such proportion as is appropriate to reflect the relative
fault of each of the indemnifying party and the
indemnified party in connection with the statements, omissions, or other actions that resulted in such loss, claim, damage,
liability, or expense, as well as to reflect any other relevant equitable considerations. The relative fault of the
indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue
or allegedly untrue statement of a material fact, or the omission or alleged omission of a material fact, relates to
information supplied by the indemnifying party or by the indemnified party and the parties’ relative intent,
knowledge, access to information, and opportunity to correct or prevent such statement or omission; provided, however,
that, in any such case, (x) no Holder will be required to contribute any amount in excess of the public offering price of all
such Registrable Securities offered and sold by such Holder pursuant to such registration statement, and (y) no Person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) will be entitled to contribution
from any Person who was not guilty of such fraudulent misrepresentation; and provided, further that in no event
shall a Holder’s liability pursuant to this Subsection 2.8(d), when combined with the amounts paid or payable by
such Holder pursuant to Subsection 2.8(b), exceed the proceeds from the offering received
by such Holder (net of any Selling Expenses paid
by such Holder), except in the case of willful misconduct or fraud by such
Holder.


 


(e)          Notwithstanding
the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered
into in connection with an underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.


 


(f)          Unless
otherwise superseded by an underwriting agreement entered into in connection with an underwritten public offering, the obligations
of the Company and Holders under this Subsection 2.8 shall survive the completion of any offering of Registrable Securities
in a registration under this Section 2, and otherwise shall survive the termination of this Agreement.


 


2.9.         Reports
Under Exchange Act. With a view to making available to the Holders the benefits of SEC Rule 144
and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Company to the public
without registration or pursuant to a registration on Form S-3, the Company shall:


 


(a)          make
and keep available adequate current public information, as
those terms are understood and defined in SEC Rule 144;


 


(b)          use
commercially reasonable efforts to file with the SEC in a timely manner all reports and other documents required of the Company
under the Securities Act and the Exchange Act; and


 


(c)          furnish
to any Holder, so long as the Holder owns any Registrable Securities, forthwith upon request (i) to
the extent accurate, a written statement by the Company that it has complied with the reporting requirements of SEC Rule
144, the Securities Act, and the Exchange Act, or that it qualifies as a registrant whose securities may be resold pursuant to
Form S-3 (at any time after and so long as the Company so qualifies); and (ii) such other information as may be reasonably requested
in availing any Holder of any rule or regulation of the SEC that permits the selling of any such securities without registration
or pursuant to Form S-3 (at any time after and so long as the Company qualifies to use such form).


 



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2.10.         Limitations
on Subsequent Registration Rights. From and after the date of this Agreement, the Company shall
not, without the prior written consent of the Holders of a majority of the Registrable Securities then outstanding, enter into
any agreement with any holder or prospective holder of any securities of the Company that would provide to such holder the right
to include such securities in any registration unless, under the terms of such agreement, such holder or prospective holder may
include such securities in any such registration only to the extent that the inclusion of such securities will not reduce the number
of the Registrable Securities of the Holders that are included.


 


2.11.         Termination
of Registration Rights. The
right of any Holder to request registration or inclusion of Registrable Securities in any registration pursuant to Subsection
2.1 or Subsection 2.2 shall terminate upon the earliest
to occur of:


 


(a)          the
closing of a Deemed Liquidation Event, as such term is defined in the Series C Certificate of Designations (but only so long as
any securities received in connection therewith are freely tradable without volume or manner of sale limitation, current public
information requirements or other limitation); and


 


(b)          such
time as Rule 144 or another similar exemption under the Securities Act is available for the sale of all of
such Holder’s Registrable Securities without volume
or manner of sale limitation, current public
information requirements or other limitation.


 


3.            Board
Observer and Scientific Advisory Board and Other Rights.


 


3.1.          Right
to Designate Observer. As long as the Investor and any Affiliates, in the aggregate (i) own
not less than 35% of the total number of shares of Series C-1 Preferred Stock and Series C-2 Preferred Stock, in the aggregate,
originally purchased by it under the Purchase Agreement, (ii) own shares of Common Stock, on a fully diluted basis (assuming the
conversion of all outstanding convertible securities and the exercise of all options, warrants and other rights to purchase Common
Stock and securities convertible into Common Stock held by them) representing beneficial ownership of more than ten percent
(10%) of the outstanding shares of Common Stock, as determined by the Corporation in accordance with Section 13(d) of the Exchange
Act and Regulations 13D-G thereunder or (iii) is/are Affiliate(s) of the Company (clauses (i), (ii) or (iii) referred to herein
as the “Observer Conditions”), then the Company shall invite a representative of the Investor
to attend all meetings of its Board of Directors in a nonvoting observer capacity and, in this respect, shall give such representative
copies of all notices, minutes, consents, and other materials that it provides to its directors at the same time and in the same
manner as provided to such directors; provided, however, that such representative shall agree to hold in confidence
and trust and to act in a fiduciary manner with respect to all information so provided; and provided further, that
the Company reserves the right to withhold any information and to exclude such representative from any meeting or portion thereof
if access to such information or attendance at such meeting could adversely affect the attorney-client privilege between the Company
and its counsel or result in disclosure of trade secrets or a conflict of interest, or if such Investor or its representative is
a Competitor of the Company. The Company shall reimburse such designated observer to the Board
for all reasonable expenses incurred in connection with his or her work on behalf of the Company, including in respect of their
attendance of Board meetings and other Company events consistent with the Company’s then current Board compensation plan.
The Investor may unilaterally relinquish its Board observer rights at anytime upon notice to the Company.


 



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3.2.          Scientific
Advisory Board. The Company will form a Scientific Advisory Board within 180 days of the date of this Agreement. That Scientific
Advisory Board shall have five (5) initial members, and the Investor shall have the right to designate one (1) initial member,
after consultation with the Company with respect to the identification of such members and function of such Board. The Company
shall consult with Investor on the identity of the prospective Scientific Advisory Board initial members in good faith. No such
member shall be a Competitor. The Investor shall assist the Company with respect to the indentification and recruitment of advisory
board members and provide consultations on the function of one or more such advisory boards until the earlier to occur of (i) the
date the Investor no longer meets the Observer Conditions and (ii) the date that is two years following the date of this Agreement.


 


3.3.          Information
Rights. As long as Investor meets the Observer Conditions, the Company shall deliver to the Investor (upon request) such information
relating to the financial condition, business, prospects, or corporate affairs of the Company as the Investor may from time to
time reasonably request; provided, however, that the Company shall not be obligated under this Section 3.3 to provide information
(i) that the Company reasonably determines in good faith to be a trade secret or confidential information (unless covered by an
enforceable confidentiality agreement, in form reasonably acceptable to the Company) or (ii) the disclosure of which would adversely
affect the attorney-client privilege between the Company and its counsel.


 


3.4.          Inspection
Rights. As long as Investor meets the Observer Conditions, the Company shall permit the Investor, at its expense, to visit
and inspect the Company's properties; examine its books of account and records; and discuss the Company's affairs, finances, and
accounts with its officers, during normal business hours of the Company as may be reasonably requested by the Investor. Notwithstanding
the foregoing, the Company shall not be obligated pursuant to this Section 3.4 to provide access to any information that it reasonably
and in good faith considers to be a trade secret or confidential information (unless covered by an enforceable confidentiality
agreement, in form reasonably acceptable to the Company) or the disclosure of which would adversely affect the attorney-client
privilege between the Company and its counsel.


 


3.5.          Successor
Indemnification. If the Company or any of its successors or assignees consolidates with or merges into any other Person and
is not the continuing or surviving corporation or entity of such consolidation or merger, then to the extent necessary, proper
provision shall be made so that the successors and assignees of the Company assume the obligations of the Company with respect
to indemnification of members of the Board of Directors as in effect immediately before such transaction, whether such obligations
are contained in the Company’s Bylaws, its Charter, or elsewhere, as the case may be.


 



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3.6.          Nominating
and Corporate Governance Committee Rights. As long as Investor meets the Observer Conditions, and a Series C Director is sitting
on the Board of Directors, the Company shall appoint the Series C Director to serve on the Company’s Nominating and Corporate
Governance Committee, provided that the Series C Director is qualified to serve on such committee under all applicable stock market
requirements, including, but not limited to, the standard for an independent director with respect to service on the Board of Directors
pursuant to Section 5605(a)(2) of the Rules of The Nasdaq Stock Market or any successor thereto (to the Company’s knowledge
the proposed Series C Director, David Rubin, would meet such independence criteria). The first appointment of the Series C Director
to the Nominating and Corporate Governance Committee shall take place no later than the Company’s Annual Meeting of Directors
to be held in 2012.


 


3.7.          Nomination
of Director at 2013 Annual Meeting. With respect to the election of directors to be held at the Company’s 2013 annual
meeting of stockholders, the Company agrees to include in the slate of nominees recommended to stockholders by the Company’s
Corporate Governance and Nominating Committee and Board of Directors for election as a director, one individual consented to by
Investor (for avoidance of doubt, who shall be in addition to the Series C Director (as defined in the Series C Certificate of
Designations)), which consent shall not be unreasonably withheld and shall be provided in time for filing and dissemination of
the Company’s proxy materials to stockholders.


 


4.           Rights
to Future Stock Issuances. 


 


4.1.          Right
of First Refusal. Subject to the terms and conditions of this Subsection 4.1 and applicable
securities laws, if the Company proposes to offer or sell any New Securities, the Company shall first offer such New Securities
to the Investor. 


 


(a)          The
Company shall give notice (the “Offer Notice”) to the Investor, stating (i) its bona fide intention to offer
such New Securities, (ii) the number of such New Securities to be offered, and (iii) the price and terms, if any, upon which it
proposes to offer such New Securities.


 


(b)          By
notification to the Company within twenty (20) days after the Offer Notice is given, the Investor may elect to purchase or otherwise
acquire, at the price and on the terms specified in the Offer Notice, up to that portion of such New Securities which equals the
proportion that the shares of Common Stock issued and held, or issuable (directly
or indirectly) upon conversion and/or exercise, as applicable,
of the Series C-1 Preferred Stock, Series C-2 Preferred
Stock, the Warrants and any other Derivative Securities then held by the Investor bears to the total number of shares of Common
Stock then outstanding (assuming full conversion of all then-outstanding convertible securities and the exercise of all then-outstanding
warrants or other rights to purchase Common Stock). At the expiration of such twenty (20) day period, the Company shall promptly
notify the Investor and each other Person who has the preemptive or similar right to subscribe, and who elects to purchase or
acquire all the shares available to it, of any other Person’s failure to do likewise. During the ten (10) day period commencing
after the Company has given such notice, each Person (including the Investor) electing to purchase such securities may, by giving
notice to the Company, elect to purchase or acquire, in addition to the number of shares specified above, up to that portion of
the New Securities for which such Persons were entitled to subscribe but that were not subscribed for which is equal to the proportion
that the shares of Common Stock issued and held, or issuable (directly or indirectly) upon conversion and/or
exercise, as applicable, of the securities held by it to the shares of Common Stock issued and held, or issuable (directly
or indirectly) upon conversion and/or exercise, as applicable,
of securities held by all of such Persons who wish to purchase such unsubscribed shares. The closing of any sale pursuant
to this Subsection 4.1(b) shall occur within the later of ninety days of the date that the Offer Notice is given and the
date of initial sale of New Securities pursuant to Subsection
4.1(c).


 



    	14



    	 



    

 


(c)          If
all New Securities referred to in the Offer Notice are not elected to be purchased or acquired as provided in Subsection
4.1(b), the Company may, during the ninety (90) day period following the expiration of the periods provided in Subsection
4.1(b), offer and sell the remaining unsubscribed portion of such New Securities to any Person or Persons at a price not
less than, and upon terms no more favorable to the offeree than, those specified in the Offer Notice. If the Company does not
enter into an agreement for the sale of the New Securities within such period, or if such agreement is not consummated within
thirty (30) days of the execution thereof, the right provided hereunder shall be deemed to be revived and such New Securities
shall not be offered unless first reoffered to the Investor in accordance with this Subsection 4.1.


 


(d)          The
right of first refusal in this Subsection 4.1 shall not be applicable to Exempted
Securities (as defined in the Series C Certificate of Designations).


 


4.2.          Termination.
The covenants set forth in Subsection 4.1 shall terminate and be of no further force or effect (a) upon a Deemed
Liquidation Event, as such term is defined in the Series C Certificate of Designations or (b) immediately when Investor
beneficially owns less than 35% of the total number of shares of Series C-1 Preferred Stock and Series C-2 Preferred Stock,
in the aggregate, purchased by it under the Purchase Agreement.


 


5.           Miscellaneous.


 


5.1           Successors
and Assigns. Notwithstanding anything to the contrary herein, neither the Company nor any Investor
shall assign this Agreement without the prior written consent of the other; provided however, that the rights
under Section 2 of this Agreement may be
assigned (but only with all related obligations) by
a Holder; provided, however,
that (x) the Company is, within a reasonable time after such transfer, furnished with written notice of the name and address
of such transferee and the Registrable Securities with respect to which
such rights are being transferred; and (y) such transferee
agrees in a written instrument delivered to the Company
to be bound by and subject to the terms and
conditions of this Agreement. The terms and conditions
of this Agreement inure to the benefit of and are binding upon the respective successors and permitted assignees of the parties.
Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective
successors and permitted assignees any rights, remedies, obligations or liabilities under or by reason of this Agreement, except
as expressly provided herein.


 


5.2           Governing
Law. This Agreement shall be governed by the internal law of the State of New York.


 



    	15



    	 



    

 


5.3           Counterparts.
This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together
shall constitute one and the same instrument. Counterparts may be
delivered via facsimile, electronic mail (including pdf) or other transmission method and any counterpart so delivered shall be
deemed to have been duly and validly delivered and be valid and effective for all purposes.


 


5.4           Titles
and Subtitles. The titles and subtitles used in this Agreement are for convenience only and are
not to be considered in construing or interpreting this Agreement.


 


5.5           Notices.
All notices and other communications given or made pursuant to this Agreement shall be in writing and shall be deemed effectively
given upon the earlier of actual receipt or: (i) personal delivery to the party to be notified; (ii) when sent, if sent by facsimile
during the recipient’s normal business hours, and if not sent during normal business hours, then on the recipient’s
next business day; (iii) five (5) days after having been sent by registered or certified mail, return receipt requested, postage
prepaid; or (iv) one (1) business day after
the business day of deposit with a nationally recognized overnight courier, freight prepaid, specifying next-day delivery,
with written verification of receipt. All communications shall be sent to the respective parties at the following addresses:


 


	If to the Investor:	 	Merck Global Health Innovation Fund, LLC
	 	 	One Merck Drive
	 	 	Whitehouse Station, New Jersey 08889-0100
	 	 	Attn: David Rubin
	 	 	Facsimile: 908 735-1341
	 	 	
	With a copy to:	 	McDermott Will & Emery LLP
	 	 	340 Madison Avenue
	 	 	New York, New York 10173-1922
	 	 	Attn:  Todd A. Finger, Esq. and Seth T. Goldsamt, Esq.
	 	 	Facsimile: 212-547-5444
	 	 	 
	If to the Company	 	VirtualScopics, Inc.
	 	 	500 Linden Oaks
	 	 	Rochester, New York  14625
	 	 	Attn:  Molly Henderson, Chief Business and Financial Officer
	 	 	Facsimile: 585-218-7350
	 	 	 
	With a copy to:	 	Woods Oviatt Gilman LLP
	 	 	700 Crossroads Building, 2 State Street
	 	 	Rochester, New York 14614
	 	 	Attn:  Gregory W. Gribben, Esq.
	 	 	Facsimile:585-987-2975


 


or
to such facsimile number or address as subsequently modified by written notice given in accordance with this Subsection
5.5.


 



    	16



    	 



    

 


5.6           Amendments
and Waivers. Any term of this Agreement may be amended and the observance of any term of this Agreement
may be waived (either generally or in a particular instance, and either retroactively or prospectively) only with the written consent
of the Company and the holders of a majority of the Registrable Securities then outstanding; provided,
that any provision hereof may be waived by any waiving party on such party’s own behalf, without the consent of any other
party. The Company shall give prompt notice of any amendment or termination hereof or waiver hereunder to any party
hereto that did not consent in writing to such amendment, termination, or waiver. Any amendment, termination, or waiver effected
in accordance with this Subsection 5.6 shall be binding on all parties hereto,
regardless of whether any such party has consented thereto. No waivers of or exceptions to any term, condition, or provision of
this Agreement, in any one or more instances, shall be deemed to be or construed as a further or continuing waiver of any such
term, condition, or provision.


 


5.7           Severability.
In case any one or more of the provisions contained in this Agreement is for any reason held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality, or unenforceability shall not affect any other provision of this Agreement, and such
invalid, illegal, or unenforceable provision shall be reformed and construed so that it will be valid, legal, and enforceable to
the maximum extent permitted by law.


 


5.8           Entire
Agreement. This Agreement (including any Schedules and Exhibits hereto) constitutes the full and
entire understanding and agreement between the parties
with respect to the subject matter hereof, and any other written or oral agreement relating to the subject matter hereof existing
between the parties is expressly canceled.


 


5.9           Dispute
Resolution.  The parties (a) hereby irrevocably and unconditionally submit to the jurisdiction
of the state courts of New York sitting in New York County and to the jurisdiction of the United States District Court for the
Southern District of New York for the purpose of any suit, action or other proceeding arising out of or based upon this Agreement,
(b) agree not to commence any suit, action or other proceeding arising out of or based upon this Agreement except in the state
courts of New York sitting in New York County or the United States District Court for the Southern District of New York, and (c)
hereby waive, and agree not to assert, by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any
claim that it is not subject personally to the jurisdiction of the above-named courts, that its property is exempt or immune from
attachment or execution, that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action
or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced in or by such court. Each of
the parties to this Agreement consents to personal jurisdiction for any equitable action sought in the U.S. District Court for
the Southern District of New York or any court of the State of New York having subject matter jurisdiction.


 



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5.10         WAIVER
OF JURY TRIAL. EACH PARTY HEREBY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF THIS AGREEMENT, THE OTHER TRANSACTION AGREEMENTS, THE SECURITIES OR THE SUBJECT MATTER HEREOF OR THEREOF. THE SCOPE OF THIS
WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT
MATTER OF THIS TRANSACTION, INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS (INCLUDING NEGLIGENCE), BREACH OF DUTY
CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. THIS SECTION HAS BEEN FULLY DISCUSSED BY EACH OF THE PARTIES HERETO AND
THESE PROVISIONS WILL NOT BE SUBJECT TO ANY EXCEPTIONS. EACH PARTY HERETO HEREBY FURTHER WARRANTS AND REPRESENTS THAT SUCH PARTY
HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT SUCH PARTY KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL


 


5.11         Delays
or Omissions. No delay or omission to exercise any right, power, or remedy accruing to any party
under this Agreement, upon any breach or default of any other party under this Agreement, shall impair any such right, power, or
remedy of such nonbreaching or nondefaulting party, nor shall it be construed to be a waiver of or acquiescence to any such breach
or default, or to any similar breach or default thereafter occurring, nor shall any waiver of any single breach or default be deemed
a waiver of any other breach or default theretofore or thereafter occurring. All remedies, whether under this Agreement or by law
or otherwise afforded to any party, shall be cumulative and not alternative.


 


[SIGNATURE PAGE FOLLOWS]


 



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IN WITNESS WHEREOF,
the parties have executed this Investor Rights Agreement as of the date first written above.


 


	 	 	VIRTUALSCOPICS, INC.
	 	 	 
	 	By:	 
	 	Name:	 
	 	Title	 
	 	 	 
	 	 	MERCK GLOBAL HEALTH
	 	 	INNOVATION FUND, LLC
	 	 	 
	 	By:	 
	 	Name:	 
	 	Title	 


 


[SIGNATURE PAGE TO
INVESTOR RIGHTS AGREEMENT]


 






    	19



    	 



    



 


EXHIBIT D


 


MILESTONE EVENTS


 


(i)          FDA
clearance on DCE-MRI application;


 


(ii)         Development
of independent/standalone software platform to ‘house’ applications for the QIC;


 


(iii)        Design
of DCE-MRI validation trial in support of obtaining reimbursement/broader proof of utility;


 


(iv)        Signed
agreement, or similar arrangement with academic site to run DCE-MRI validation trial;


 


(v)         Design
of volumetric tumor validation trial in support of obtaining broader proof of utility; and


 


(vi)        Hiring
senior marketing executive (who will be head of marketing and product management for the quantitative imaging center) and development
of a marketing plan.


 






    	 



    	 



    
 


EXHIBIT E


 


FORM OF AMENDED CERTIFICATE OF DESIGNATION
FOR SERIES A 

PREFERRED STOCK


  






    	 



    	 



    
  


AMENDED AND RESTATED


CERTIFICATE OF DESIGNATIONS, POWERS,


PREFERENCES AND OTHER RIGHTS 


AND QUALIFICATIONS OF 


SERIES A CONVERTIBLE PREFERRED STOCK


(Pursuant to Section 151 of the Delaware
General Corporation Law)


 


The undersigned, _______________[Name],
______________________[Title], does hereby certify that:


 


A.           He/She
is the ___________________[Title] of VirtualScopics, Inc., a Delaware corporation (the "Corporation").


 


B.           The
Corporation originally adopted the Certificate of Designations, Powers, Preferences and Other Rights and Qualifications of Series
A Convertible Preferred Stock (the “Series A Certificate of Designation”) pursuant to the authority of the Board
of Directors as required by Section 151 of the Delaware General Corporation Law (“DGCL”) and the Certificate
of Incorporation of the Corporation, as amended (the “Certificate of Incorporation”) by resolution filed November
[4], 2005.


 


C.           The
Corporation hereby amends and restates the Series A Certificate of Designation in its entirety as follows:


 


Series A Convertible Preferred Stock:


 


1.           Designation
and Number of Shares. There shall be a series of Preferred Stock that shall be designated as “Series A Convertible
Preferred Stock,” and the number of shares constituting such series shall be 8,400 shares. Such number of shares may
be increased or decreased by resolution of the Board; provided, however, that no decrease shall reduce the number
of shares of Series A Convertible Preferred Stock to less than the number of shares then issued and outstanding plus the number
of shares issuable upon exercise of outstanding rights, options or warrants or upon conversion of outstanding securities issued
by the Corporation.


 


2.           Ranking.
The Series A Convertible Preferred Stock shall, with respect to distribution rights upon a Liquidation (as defined in Section 3
below) of the Corporation, rank (a) subject to clause (b), senior to the common stock, par value $0.001 per share, of the Corporation
(the “Common Stock”), and all other preferred stock of the Corporation, and (b) as applicable, junior to or
on a parity with such preferred stock of the Corporation the terms of which expressly provide that such preferred stock will rank
senior to or on a parity with the Series A Convertible Preferred Stock.


 



    	1



    	 



    

 


3.           Liquidation.


 


(a)           Upon
any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary (a “Liquidation”),
the holders of record of the shares of the Series A Convertible Preferred Stock shall be entitled to receive, immediately after
any distributions required by the Corporation’s Certificate of Incorporation and any certificate(s) of designation, powers,
preferences and rights in respect of any securities of the Corporation having priority over the Series A Convertible Preferred
Stock with respect to the distribution of the assets of the Corporation upon a Liquidation, and before and in preference to any
distribution or payment of assets of the Corporation or the proceeds thereof may be made or set apart with respect to any securities
of the Corporation over which the Series A Convertible Preferred Stock has priority with respect to the distribution of the assets
of the Corporation upon a Liquidation (“Junior Securities”), an amount in cash with respect to each share of
Series A Convertible Preferred Stock held by such holders, equal to $1,000 per share (subject to proportional adjustment in the
event of a stock split, combination or similar event changing the number of outstanding shares of Series A Convertible Preferred
Stock) (the “Liquidation Preference”). If, upon such a Liquidation, the assets of the Corporation available
for distribution to the holders of Series A Convertible Preferred Stock and, if applicable, any securities of the Corporation
having equal priority with the Series A Convertible Preferred Stock with respect to the distribution of the assets of the Corporation
upon a Liquidation (“Parity Securities”) shall be insufficient to permit payment in full to the holders of
the Series A Convertible Preferred Stock and Parity Securities, then the entire assets and funds of the Corporation legally available
for distribution to such holders of the Series A Convertible Preferred Stock and Parity Securities then outstanding shall be distributed
ratably among such holders based upon the proportion that the total amount distributable on each share upon a liquidation bears
to the aggregate amount available for distribution on all shares of the Series A Convertible Preferred Stock and of such Parity
Securities, if any. 


 


The consolidation or
merger of the Corporation with another person other than a wholly-owned subsidiary of the Corporation, or the sale, transfer or
lease of all or substantially all of its assets to another person shall not be deemed to be a Liquidation within the meaning of
this Section 3(a).


 


(b)           Upon
the completion of the distributions required by Section 3(a) of this Section 3, if assets remain in the Corporation, they shall
be distributed to holders of Series A Convertible Preferred Stock pro rata with holders of Junior Securities and
holders of other securities entitled to participate in the distribution of assets upon liquidation with holders of Junior Securities,
based on the number of shares of Common Stock held by each such holder, treating for this purpose all such securities as
if they had been converted to Common Stock pursuant to the terms of the Certificate of Incorporation (including all certificates
of designation) immediately prior to such Liquidation.


 


4.           Dividends.
The holders of the Series A Convertible Preferred Stock shall not be entitled to receive dividends or other distributions from
the Corporation with respect to the Series A Convertible Preferred Stock and no dividends or distributions shall be payable with
respect thereto.


 


5.           Conversion
Rights. Each holder of record of shares of the Series A Convertible Preferred Stock shall have the right to convert all or
any part of such holder’s shares of Series A Convertible Preferred Stock into Common Stock, without any further payment therefor,
as follows:


 



    	2



    	 



    

 


(a)           Optional
Conversion. Subject to and upon compliance with the provisions of this Section 5, the holder of any shares of Series A Convertible
Preferred Stock shall have the right, at such holder’s option, at any time and from time to time, to convert any of such
shares of Series A Convertible Preferred Stock into fully paid and non-assessable whole shares of Common Stock. Each share of Series
A Convertible Preferred Stock shall initially be convertible into 400 shares of Common Stock (the “Conversion Rate”),
subject to adjustment upon the terms hereinafter set forth.


 


(b)           Mechanics
of Conversion.


 


(i)           Before
any holder of Series A Convertible Preferred Stock shall be entitled to convert the same into shares of Common Stock, such holder
shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent
for the Series A Convertible Preferred Stock, and shall give written notice to the Corporation at its principal corporate office,
of the election to convert the same and shall state therein the name or names in which the certificate or certificates for shares
of Common Stock are to be issued. The Corporation shall, as soon as practicable thereafter, issue and deliver at such office to
such holder of Series A Convertible Preferred Stock, or to the nominee or nominees of such holder, a certificate or certificates
for the number of shares of Common Stock to which such holder shall be entitled as aforesaid. Conversion shall be deemed to have
been effected on the date when a notice of an election to convert and properly endorsed certificates are delivered, and such date
is referred to herein as the “Conversion Date.”


 


(ii)           All
Common Stock which may be issued upon conversion of the Series A Convertible Preferred Stock will, upon issuance, be duly issued,
fully paid and non-assessable and free from all taxes, liens, and charges with respect to the issuance thereof.


 


(c)           Fractional
Shares. No fractional shares shall be issued upon conversion of Series A Convertible Preferred Stock into Common Stock and
the number of shares of Common Stock to be issued shall be rounded to the nearest whole share. If any fractional share of Common
Stock would, except for the provisions of the first sentence of this Section 5(c), be delivered upon such conversion, the Corporation,
in lieu of delivering such fractional share, shall pay to the holder surrendering the Class A Preferred Stock for conversion an
amount in cash equal to the current market price of such fractional share as determined in good faith by the Board.


 


6.           Anti-Dilution
Provisions. During the period in which any shares of Series A Convertible Preferred Stock remain outstanding, the Conversion
Rate in effect at any time, and/or the number and kind of securities issuable upon the conversion of the Series A Convertible Preferred
Stock, shall be subject to adjustment from time to time following the date of the original issuance of the Series A Convertible
Preferred Stock upon the happening of certain events as follows:


 



    	3



    	 



    

 


(a)           Recapitalization,
Reclassification and Succession. If any recapitalization of the Corporation or reclassification of its Common Stock or any
merger or consolidation of the Corporation into or with a corporation or other business entity (any such corporation or other business
entity being included within the meaning of the term “successor corporation”) shall be effected, then, as a condition
of such recapitalization, reclassification, merger, consolidation or similar transaction, lawful and adequate provision shall be
made whereby each holder of shares of Series A Convertible Preferred Stock thereafter shall have the right to receive such shares
of capital stock, securities or other property as may be issued or payable with respect to or in exchange for a number of outstanding
shares of Common Stock equal to the number of shares of Common Stock immediately theretofore issuable upon conversion of the shares
of Series A Convertible Preferred Stock held by such holder prior to such recapitalization, reclassification, merger, consolidation,
sale or transfer, and in each such case, the terms of this Section 6 shall be applicable to the shares of stock or other securities
or property receivable upon the conversion of such shares of Series A Convertible Preferred Stock after such consummation.


 


(b)           Subdivisions,
Combinations, Stock Dividends or Distributions of Shares. If the Corporation shall subdivide or combine its Common Stock or
shall issue or pay the holders of its Common Stock, or take a record of the holders of its Common Stock for the purpose of entitling
them to receive, a dividend payable in, or other distribution of, Common Stock, the Conversion Rate then in effect shall be proportionately
adjusted to the number of shares of Common Stock that a holder of a share of Series A Convertible Preferred Stock would have owned
immediately following such action had such share of Series A Convertible Preferred Stock been converted immediately prior thereto.


 


(c)           Valuation
Adjustment to Conversion Rate.


 


(i)           If
the Corporation issues, or shall be deemed to have issued, Additional Shares of Common Stock (as defined below) for a consideration
per share less than the Conversion Price (as defined below) or with a per share conversion, exercise or exchange price of less
than the Conversion Price (such lower price being a “Lower Offering Price”), then and in such event, the Conversion
Rate shall be adjusted to the number of shares of Common Stock equal to the Liquidation Preference divided by such Lower Offering
Price. The Conversion Price shall initially be $2.50 per share. The Conversion Price shall be reduced to the last Lower Offering
Price for each successive issuance or deemed issuance of Additional Shares of Common Stock with a Lower Offering Price below the
Conversion Price in effect at the time of the issuance or deemed issuance of the Additional Shares of Common Stock at such Lower
Offering Price.


 


Notwithstanding anything
to the contrary herein, in no event under this Section 6(c) shall the Conversion Price be reduced to, or the Conversion Rate be
determined with a Lower Offering Price of, a price lower than $1.2043per share (with such price subject to equitable adjustments
for stock splits, stock dividends or rights offerings by the Corporation relating to the Corporation's securities, combinations,
recapitalization, reclassifications, extraordinary distributions and similar events) (the “Series C Conversion Price”).


 



    	4



    	 



    

 


(ii)           As
used herein, “Additional Shares” shall mean all shares of Common Stock, or any stock options, warrants, convertible
securities or other rights to purchase or acquire shares of Common Stock (“Common Stock Equivalents”), issued
or deemed to be issued by the Corporation after the date hereof; provided, however, that none of the following shall be deemed
issuances of Additional Shares of Common Stock: (A) an issuance or deemed issuance described in subsections (a), (b) or (c) of
this Section 6, (B) an issuance or deemed issuance of Common Stock or Common Stock Equivalents (and the issuance of Common Stock
upon the exercise of any such Common Stock Equivalents) in which the Corporation’s gross proceeds as consideration for such
issuance are less than $300,000, (C) an issuance or deemed issuance of Common Stock or Common Stock Equivalents (and the issuance
of Common Stock upon the exercise of any such Common Stock Equivalents) in connection with an acquisition, merger or a strategic
alliance, that is approved by the Board, or (D) an issuance or deemed issuance of Common Stock Equivalents (and the issuance of
Common Stock upon the exercise of any such Common Stock Equivalents) issued to officers, directors or employees of or consultants
to the Corporation or any wholly-owned subsidiary of the Corporation pursuant to options of VirtualScopics, LLC assumed by the
Corporation, or any other issuance or deemed issuance of “Exempted Securities”, as defined in Part I, Section 7.6.1
of the Corporation’s Certificate of Designation of Rights and Preferences of the Series
C-1 Preferred Stock and the Series C-2 Preferred Stock of the Company filed April 3, 2012.


 


(d)           Omitted.


 


(e)           Certain
Shares Excluded. The number of shares of Common Stock outstanding at any given time for purposes of the adjustments set forth
in this Section 6 shall exclude any shares then directly or indirectly held in the treasury of the Corporation.


 


(f)           Deferral
and Cumulation of De Minimis Adjustments. The Corporation shall not be required to make any adjustment pursuant to this Section
6 if the amount of such adjustment would be less than one percent (1%) of the Conversion Rate in effect immediately before the
event that would otherwise have given rise to such adjustment. In such case, however, any adjustment that would otherwise have
been required to be made shall be made at the time of and together with the next subsequent adjustment which, together with any
adjustment or adjustments so carried forward, shall amount to not less than one percent (1%) of the Conversion Rate in effect immediately
before the event giving rise to such next subsequent adjustment. All calculations under this Section 6 shall be made to the nearest
one-hundredth of a share, as the case may be, but in no event shall the Corporation be obligated to issue fractional shares of
Common Stock or fractional portions of any securities upon the conversion of the Series A Convertible Preferred Stock.


 


(g)           Duration
of Adjustment. Following each computation or readjustment as provided in this Section 6, the new adjusted Conversion Rate shall
remain in effect until a further computation or readjustment thereof is required.


 


7.           Redemption.
The Corporation may not redeem the outstanding shares of Series A Convertible Preferred Stock and the holders shall not have any
right, at any time or under any circumstances, to require the Corporation to redeem any of the Series A Convertible Preferred Stock.


 



    	5



    	 



    

 


8.           Voting
Rights.


 


(a)           Except
as otherwise required by law, the holders of shares of Series A Convertible Preferred Stock shall be entitled to vote on all matters
submitted to a vote of the holders of the Common Stock and shall have such number of votes equal to the largest whole number of
shares of Common Stock into which such holders’ shares of Series A Convertible Preferred Stock are convertible pursuant
to the provisions hereof at the record date for the determination of holders of Common stock 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.
Except as otherwise required by law or provided in or permitted by Sections 3(a), 8(c) and 8(d) hereof, or elsewhere in the Certificate
of Incorporation (including certificates of designation) the holders of shares of Series A Convertible Preferred Stock, Series
B Convertible Preferred Stock, Series C-1 Convertible Preferred Stock, Series C-2 Convertible Preferred Stock and Common Stock
shall vote together as a single class, and not as separate classes. In the event that the holders of the Series A Convertible
Preferred Stock are required or permitted to vote as a class, the approval (by vote or written consent) of holders of not less
than a majority of the outstanding shares of Series A Convertible Preferred Stock shall be required to approve each such matter
to be voted upon, and if any matter is approved by such requisite percentage of holders of Series A Convertible Preferred Stock,
such matter shall bind all holders of Series A Convertible Preferred Stock.


 


(b)           So
long as any shares of Series A Convertible Preferred Stock are outstanding, the Corporation shall not, without first obtaining
the approval (by vote or written consent) as provided by the Delaware General Corporation Law of the holders of not less than a
majority of the outstanding shares of Series A Convertible Preferred Stock:           


 


(i)           alter,
amend or repeal the rights, preferences or privileges of the Series A Convertible Preferred Stock so as to affect adversely the
Series A Convertible Preferred Stock;


 


(ii)           Omitted;


 


(iii)           Omitted;


 


(iv)           increase
the authorized number of shares of Series A Convertible Preferred Stock;


 


(v)           do
any act or thing not authorized or contemplated by this Certificate of Designations which would result in taxation of the holders
of shares of the Series A Convertible Preferred Stock under Section 305 of the Internal Revenue Code of 1986, as amended (or any
comparable provision of the Internal Revenue Code as hereafter from time to time amended).


 


The voting rights in this Section 8(b)
shall not apply in connection with the consolidation or merger of the Corporation with another person, or the sale, transfer or
lease of all or substantially all of its assets to another.


 


(c)           Holders
of a majority of the outstanding shares of Series A Convertible Preferred Stock may, voting as a single class, elect to waive any
provision of this Certificate of Designations, and the affirmative vote of such percentage with respect to any proposed waiver
of any of the provisions contained herein shall bind all holders of Series A Convertible Preferred Stock.


 



    	6



    	 



    

 


(d)           Any
waiver by vote or written consent of the holders of the Corporation’s Series C-1 Convertible Preferred Stock and Series C-2
Convertible Preferred Stock (if any), pursuant to the Certificate of Designation of Rights and Preferences thereof, of an adjustment
to the Series C Conversion Price of such shares in connection with any issuance or deemed issuance of Additional Shares of Common
Stock without consideration or for a consideration per share less than the Series C Conversion Price shall also, automatically
and without any further action of the Corporation, any holder of Series A Convertible Preferred Stock or any other person, constitute
a waiver by the holders of Series A Convertible Preferred Stock of an adjustment to the Conversion Price under Section 6(c) hereof,
which vote or written consent shall bind all existing holders of the Series A Convertible Preferred Stock and all future holders
of Series A Convertible Preferred Stock.


 


10.           Reservation
of Shares. The Corporation shall at all times reserve and keep available and free of preemptive rights out of its authorized
but unissued Common Stock, solely for the purpose of effecting the conversion of the Series A Convertible Preferred Stock pursuant
to the terms hereof, such number of its shares of Common Stock (or other shares or other securities as may be required) as shall
from time to time be sufficient to effect the conversion of all outstanding Series A Convertible Preferred Stock pursuant to the
terms hereof. If at any time the number of authorized but unissued shares of Common Stock (or such other shares or other securities)
shall not be sufficient to affect the conversion of all then outstanding Series A Convertible Preferred Stock, the Corporation
shall promptly take such action as may be necessary to increase its authorized but unissued Common Stock (or other shares or other
securities) to such number of shares as shall be sufficient for such purpose.


 


11.           Miscellaneous.


 


(a)           There
is no sinking fund with respect to the Series A Convertible Preferred Stock.


 


(b)           The
shares of the Series A Convertible Preferred Stock shall not have any preferences, voting powers or relative, participating, optional,
preemptive or other special rights except as set forth in this Certificate of Designations and in the Certificate of Incorporation
of the Corporation.


 


(c)           The
holders of the Series A Convertible Preferred Stock shall be entitled to receive all communications sent by the Corporation to
the holders of the Common Stock.


 


[SIGNATURE PAGE FOLLOWS]


 



    	7



    	 



    

 


[SIGNATURE PAGE TO
CERTIFICATE OF DESIGNATION]


 


That a resolution was
duly adopted by the Board of Directors of the Corporation, pursuant to Sections 141 and 242 of the General Corporation Law of the
State of Delaware, setting forth the above-mentioned amended and restated Certificate of Designation and declaring said amendment
and restatement to be advisable, followed by the affirmative vote of the holders of a majority of the outstanding shares of common
stock of the Corporation entitled to vote thereon, including the votes of the holders of the preferred stock entitled to vote thereon
on an as-converted basis, at a meeting of stockholders duly called and held on June [14], 2012, and the affirmative vote of the
holders of a majority of the outstanding shares of Series A Convertible Preferred Stock, in accordance with Section 242 of the
General Corporation Law of the State of Delaware.


 


IN WITNESS WHEREOF,
VirtualScopics, Inc. has caused this Certificate to be signed on this ___ day of ____________, 2012.


 


	 	VIRTUALSCOPICS, INC.
	 	 
	 	By:	 
	 	Name:	 
	 	Title: 	 


  



    	8



    	 



    



  


EXHIBIT F


 


FORM OF AMENDED CERTIFICATE OF DESIGNATION
FOR SERIES B 

PREFERRED STOCK








 






    	 



    	 



    



 


AMENDED AND RESTATED CERTIFICATE OF
DESIGNATION


OF RIGHTS AND PREFERENCES OF THE


SERIES B PREFERRED STOCK


OF


VIRTUALSCOPICS, INC.


(Pursuant to Section 151 of the 


General Corporation Law of the State
of Delaware)


 


VirtualScopics, Inc.,
a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the “Corporation”),
does hereby certify as follows:


 


1.          The
name of the Corporation is VirtualScopics, Inc. For purposes hereof, references to the Corporation shall include any successor.


 


2.          The
Corporation originally adopted the Certificate of Designation of Rights and Preferences of the Series B Preferred Stock of VirtualScopics,
Inc., by resolution of the Board of Directors filed September 12, 2007.


 


3.          The
Corporation hereby amends and restates the Certificate of Designation of Rights and Preferences of the Series B Preferred Stock
of VirtualScopics, Inc. (the “Certificate of Designation”) in its entirety as follows:


 


  RESOLVED, that Six Thousand
(6,000) of the Fourteen Million Nine Hundred Ninety-One Thousand Six Hundred (14,991,600) authorized but undesignated shares of
preferred stock of the Corporation, $0.001 par value per share, shall be designated Series B Convertible Preferred Stock, $0.001
par value per share, and shall possess the rights and preferences set forth below:


 


Section 1. Certain
Definitions. Capitalized terms used and not otherwise defined herein that are defined in that certain Securities Purchase
Agreement, dated September 12, 2007, pursuant to which the Preferred Stock was originally issued (the "Securities Purchase
Agreement" or the “Purchase Agreement”), shall have the meanings given such terms in the Securities
Purchase Agreement. For the purposes hereof, the following terms shall have the following meanings:


 


“1934 Act”
shall have the meaning ascribed to it in the Securities Purchase Agreement.


 


“Adjustment
Exceptions” shall have the meaning set forth in Section 10(a) below.


 


“Approved
Stock Plan” shall have the meaning ascribed to it in the Securities Purchase Agreement.


 



    	 



    	 



    

 


"Business Day"
shall mean any day other than a Saturday, Sunday or a day on which commercial banks in the City of New York, New York are authorized
or required by law or executive order to remain closed.


 


“Buyer(s)”
shall have the meaning ascribed to it in the Securities Purchase Agreement.


 


"Closing Bid
Price," as of any date, means the last bid price of the Common Stock on the Principal Market as reported by Bloomberg
or, if the Principal Market is not the principal trading market for such security, the last bid price of such security on the principal
securities exchange or trading market where such security is listed or traded as reported by Bloomberg, Inc., or if no last bid
price of such security is available on the Principal Market for such security or in any of the foregoing manners, the average of
the bid prices of any market makers for such security that are listed in the "pink sheets" by the National Quotation
Bureau, Inc. If the Closing Bid Price cannot be calculated for such security on such date in the manner provided above, the Closing
Bid Price shall be the fair market value as mutually determined by the Corporation and the Required Holders.


 


“Common Stock
Equivalents” shall have the meaning ascribed to it in the Securities Purchase Agreement.


 


"Conversion
Amount" shall have the meaning set forth in Section 7(a)(iv) below.


 


“Conversion
Date” shall have the meaning set forth in Section 7(d)(ii) below.


 


“Conversion
Price” shall have the meaning set forth in Section 7(b) below.


 


"Convertible
Securities" means any stock or securities (other than Options) directly or indirectly convertible into or exercisable
or exchangeable for Common Stock.


 


“Conversion
Shares” shall have the meaning set forth in Section 7(d)(iii) below.


 


“Conversion
Shares Delivery Deadline” shall have the meaning set forth in Section 7(d)(iii) below.


 


“Dividend”
shall have the meaning set forth in Section 4(a) below.


 


“Dividend
Payment Date” shall have the meaning set forth in Section 4(a) below.


 


“Dividend
Shares” shall mean shares of Common Stock used to pay Dividends as allowed under this Certificate of Designation.


 



    	2



    	 



    

 


“Effective
Date” shall mean the date that the initial Registration Statement that the Corporation is required to file pursuant to
the Registration Rights Agreement has been declared effective by the Securities and Exchange Commission.


 


"Eligible Market"
shall have the meaning ascribed to it in the Securities Purchase Agreement by and between the Corporation and the Holder.


 


“Equity Payment
Conditions” shall mean, during each Trading Day of the period in question, (i)
the Corporation shall have duly honored all Conversions scheduled to occur or occurring by virtue of one or more Notices of Conversion,
if any, (ii) (omitted); (iii) no (A) Events of Default or (B) event that with the passage of time or giving of notice would
constitute an Event of Default, have occurred that have not been cured,
(iv) there is an effective Registration Statement pursuant to which the Holder is permitted to utilize the prospectus thereunder
to resell Conversion Shares and Warrant Shares (and the Corporation believes, in good faith, that such effectiveness will continue
uninterrupted for the foreseeable future) or such shares may be resold, without restriction, pursuant to Rule 144(k)), (v) the
Common Stock is trading on an Eligible Market and all of the shares issuable pursuant to the Transaction Documents are listed for
trading on an Eligible Market (and the Corporation believes, in good faith, that trading of the Common Stock on a Principal Market
will continue uninterrupted for the foreseeable future), (vi) such issuance would be permitted in full without violating the rules
or regulations of the Eligible Market on which such shares are listed or quoted, (vii) there is a sufficient number of authorized
but unissued and otherwise unreserved shares of Common Stock for the issuance of all of the shares issuable pursuant to the Transaction
Documents, (viii) (omitted), and (ix) the average daily trading dollar volume of the Common Stock for each three (3) consecutive
Trading Day period during such period exceeds $30,000.


 


“Exempt
Issuance” means the grant or issuance of (a) any Common Stock or Common Stock Equivalents issued or issuable in connection
with any Approved Stock Plan, (b) securities upon the exercise, exchange of, conversion or redemption of, or payment of interest
or liquidated or similar damages on, any Securities issued hereunder, or to a Placement Agent in connection with the Offering,
(c) other securities exercisable, exchangeable for, convertible into, or redeemable for shares of Common Stock issued and outstanding
on the Original Issue Date, provided that such securities have not been amended since the Original Issue Date to directly or indirectly
effectively increase the number of such securities or to decrease the exercise, exchange or conversion price of such securities,
and (d) any Common Stock issued or issuable in connection with any acquisition by the Company, whether through an acquisition of
stock or a merger of any business, assets or technologies the primary purpose of which is not to raise equity capital. 


 


“Holders”
shall mean the Holder, and the holders of Other Preferred Stock issued pursuant to the Securities Purchase Agreement.


 


“Issuable
Shares” shall have the meaning set forth in Section 7(a)(iii) below.


 


“Junior Securities”
shall have the meaning set forth in Section 3 below.


 



    	3



    	 



    

 


"Market Price,"
as of any date, means the Volume Weighted Average Price (as defined herein) of the Common Stock during the five (5) consecutive
Trading Day period immediately preceding the date in question.


 


"Options"
means any rights, warrants or options to subscribe for or purchase Common Stock or Convertible Securities.


 


“Original
Issue Date” shall mean the date of the first issuance of any Series B Preferred Stock regardless of the number of transfers
of any particular share of Series B Preferred Stock.


 


“Other Preferred
Stock” shall mean Preferred Stock issued pursuant to the Certificate of Designation to holders other than a given Holder.


 


"Person"
means an individual, a limited liability company, a partnership, a joint venture, a Corporation, a trust, an unincorporated organization,
any other entity and a government or any department or agency thereof.


 


“Preferred
Stock” or “Series B Preferred Stock” shall mean the Corporation’s Series B Convertible Preferred
Stock, $0.001 par value per share.


 


“Principal
Market” shall have the meaning ascribed to it in the Securities Purchase Agreement by and between the Corporation and
the Holder.


 


“Redemption”
shall mean any redemption of any Preferred Stock hereunder.


 


“Registration
Rights Agreement” shall have the meaning ascribed to it in the Securities Purchase Agreement.


 


“Registration
Statement(s)” shall have the meaning ascribed to it in the Registration Rights Agreement.


 


“Required
Holders” shall mean Holders holding at least two-thirds (2/3) of the then outstanding shares of Preferred Stock.


 


“SEC”
shall mean the Securities and Exchange Commission.


 


“Securities
Purchase Agreement” shall have the meaning set forth in the initial paragraph of this Section 1 above.


 


“Series C-1
Preferred Stock” shall mean the Corporation’s Series C-1 Convertible Preferred Stock, $0.001 par value per share.


 


“Series C-2
Preferred Stock” shall mean the Corporation’s Series C-2 Convertible Preferred Stock, $0.001 par value per share.


 



    	4



    	 



    

 


“Series C
Certificate of Designation” shall mean the Corporation’s Certificate of Designations of Rights and Preferences
of the Series C-1 Preferred Stock and the Series C-2 Preferred Stock of the Company filed April 3, 2012, as amended.


 


“Shares” shall mean the
shares of Common Stock issuable upon Conversion of the Preferred Stock.


 


“Subsidiaries”
shall have the meaning ascribed to it in the Securities Purchase Agreement. 


 


"Trading Day"
shall mean any day on which the Common Stock is traded for any period on the Principal Market, or on the principal securities exchange
or other securities market on which the Common Stock is then being traded.


 


“Transaction
Documents” shall have the meaning ascribed to it in the Securities Purchase Agreement.


 


The "Volume
Weighted Average Price" or “VWAP” for any security as of any date means (a) the volume weighted average
sale price on the Principal Market, as reported by, or as calculated based upon data reported by, Bloomberg Financial Markets or
an equivalent, reliable reporting service mutually acceptable to and hereafter designated by holders of a majority in interest
of the Preferred Stock and the Corporation ("Bloomberg") or, (b) if no volume weighted average sale price is reported
for such security, then the last closing trade price of such security as reported by Bloomberg, or, (c) if no last closing trade
price is reported for such security by Bloomberg, the average of the closing trade prices of any market makers for such security
that are listed in the "pink sheets" published by Pink Sheets, LLC (or a similar organization or agency succeeding
to its functions of reporting prices), or if not available, the most recent bid price per share of the Common Stock so reported;
or (d) in all other cases, the fair market value of a share of Common Stock as determined by the Corporation’s Board of Directors
in good faith. If the Volume Weighted Average Price is to be determined over a period of more than one Trading Day, then “Volume
Weighted Average Price” for the period shall mean the volume weighted average of the daily Volume Weighted Average Prices,
determined as set forth above, for all Business Days during the period.


 


“Warrant”
shall have the meaning ascribed to it in the Securities Purchase Agreement.


 


“Warrant Shares”
shall mean the shares of Common Stock into which the Warrants are convertible, as further described in the Warrants.


 


Section 2. Designation
and Amount. Six Thousand (6,000) shares of the Corporation’s authorized but undesignated preferred stock shall be
designated as Series B Convertible Preferred Stock (the "Series B Preferred Stock"), par value $0.001 per share.
The Series B Preferred Stock shall have a stated value of one thousand dollars ($1,000) per share (as adjusted for any stock dividends,
combinations or splits with respect to such shares) (the "Original Series B Issue Price" or the "Stated
Value.


 



    	5



    	 



    

 


Section 3.   Rank.
The Series B Preferred Stock shall rank: (i) pari passu to the Corporation’s Series A Convertible Preferred Stock("Parity
Securities"), (ii) prior and senior to all of the Corporation's Common Stock, $.001 par value per share ("Common
Stock"); and (iii) prior and senior to any other class or series of capital stock, including but not limited to any preferred
stock, of the Corporation hereafter created (collectively, with the Common Stock, "Junior Securities"); and (iv)
as applicable, junior to or on parity with such preferred stock of the Corporation (upon an issuance of such securities pursuant
to the affirmative vote of the Required Holders as permitted under the terms of Section 19 hereof) the terms of which expressly
provide that such preferred stock will rank senior to or on parity with the Series B Preferred Stock (“Senior Securities”)
in each case as to distributions of assets upon liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary. The Series C-1 Preferred Stock and Series C-2 Preferred Stock shall be Senior Securities and shall rank senior to
the Series B Preferred Stock.


 


Section 4.    Dividends.


 


(a) Dividends in Cash
or in Kind.  Holders shall be entitled to receive and the Corporation shall pay, cumulative dividends (“Dividends”)
at the rate per share (as a percentage of the Stated Value per share) of eight percent (8%) per annum (the “Dividend Rate”)
payable (i) quarterly, in arrears, on the first Business Day of each calendar quarter after the date hereof, (A) in cash, provided
that full dividends in cash, are first paid, or concurrently paid, to the holders of Series C-1 Preferred Stock and the holders
of Series C-2 Preferred Stock pursuant to the Series C Certificate of Designation for such quarter of such calendar year or (B)
in shares of Common Stock, or a combination thereof and cash, provided that (1) full dividends in shares of Common Stock,
or a combination thereof and cash, are first paid, or concurrently paid, to the holders of Series C-1 Preferred Stock and the holders
of Series C-2 Preferred Stock pursuant to the Series C Certificate of Designation for such quarter of such calendar year (2) the
Dividends paid to the holders of Series B Preferred Stock in shares of Common Stock, or a combination thereof and cash, are in
the same relative proportion, and the shares issued as the payment of Dividends are valued at the same price per share, as the
dividends paid in shares of Common Stock, or a combination thereof and cash, to the holders of Series C-1 Preferred Stock and the
holders of Series C-2 Preferred Stock for such quarter (for example, if full dividends are paid to the holders of Series C-1 Preferred
Stock and Series C-2 Preferred Stock for such quarter of such calendar year in the form of 25% in cash and 75% in shares, then
the holders of Series B Preferred Stock would be entitled to be paid their respective Dividends for such period in the form of
25% in cash and 75% in shares) and (3) the Corporation and the Required Holders shall have agreed in writing to such payment of
Dividends in full or in part in shares of Common Stock in such quarter; provided further, however, that except as otherwise provided
herein, if at any time the Corporation pays Dividends partially in cash and partially in shares, then such payment shall be distributed
ratably among the Holders and holders of other Parity Securities entitled to share in such dividends on a pari passu basis, based
upon the number of shares of Common Stock into which the Series B Preferred Stock and such Parity Securities held by each such
Holder and holder of such Parity Securities are then convertible, on such Dividend Payment Date (the dividends on the Series C-1
Preferred Stock and Series C-2 Preferred Stock referred to in clause (A) or (B) “Annual Series C Cash Dividends”),
and (ii) if the holders of Series C-1 Preferred Stock and the holders of Series C-2 Preferred Stock have not so received payment
of their full Annual Series C Cash Dividends for such quarter, such Dividends shall accrue on the Series B Preferred Stock and
be payable on the earlier to occur of (x) each Conversion Date (as defined in Section 7(d)(ii)) (as to that Stated Value then being
converted), and (y) the liquidation of the Corporation (except that, if such date is not a Trading Day, the payment date shall
be the next succeeding Trading Day) (each, a “Dividend Payment Date”).


 



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The form of Dividend
payments to each Holder shall be made by the Corporation, in cash, unless otherwise expressly provided herein. Shares issued as
the payment of Dividends pursuant to the provisions of the previous paragraph shall be valued solely for such purpose at the average
of the Volume Weighted Average Prices for the twenty (20) Trading Days ending on the Trading Day that is immediately prior to the
applicable Dividend Payment Date; provided, however, in no event shall shares of Common Stock be issued as the payment of Dividends
at price per share of less than $1.2043 (with such price subject to equitable adjustments for stock splits, stock dividends or
rights offerings by the Corporation relating to the Corporation’s securities, combinations, recapitalization reclassifications,
extraordinary distributions and similar events).


 


(b)  Omitted. 


 


(c) Certain Rights
and Remedies Regarding Dividends. The Holders shall have the same rights and remedies with respect to the delivery of any shares
delivered in the payment of Dividends as if such shares were being issued pursuant to Section 7. The Corporation shall promptly
notify the Holders at any time the Corporation shall become able or unable, as the case may be, to legally pay cash dividends.
Dividends on the Preferred Stock shall be calculated on the basis of a 360-day year, consisting of twelve 30 calendar day periods,
shall accrue daily commencing on the Original Issue Date, and shall be deemed to accrue from such date whether or not earned or
declared and whether or not there are profits, surplus or other funds of the Corporation legally available for the payment of dividends.


 


All payments due hereunder
(to the extent not converted into Common Stock, in accordance with the terms hereof) shall be made in lawful money of the United
States of America All payments shall be made at such address as the Holder shall hereafter give to the Corporation by written notice
made in accordance with the provisions of this Certificate of Designation. Whenever any amount expressed to be due by the terms
of this Certificate of Designation is due on any day which is not a business day, the same shall instead be due on the next succeeding
day which is a business day.


 



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(d) Capital
of the Corporation; No Special Reserves. The Corporation acknowledges and agrees that the capital of the Corporation
(as such term is used in Section 154 of the Delaware General Corporation Law) in respect of the Preferred Stock and any future
issuances of the Corporation’s capital stock shall be equal to the aggregate par value of such Preferred Stock or capital
stock, as the case may be, and that, on or after the date of the Purchase Agreement, it shall not increase the capital of the Corporation
with respect to any shares of the Corporation’s capital stock issued and outstanding on such date. The Corporation also acknowledges
and agrees that it shall not create any special reserves under Section 171 of the Delaware General Corporation Law without the
prior written consent of the Required Holders.


 


Section 5. Voting
Rights. Except as otherwise required by law, the Holder shall be entitled to vote on all matters submitted to a vote of
the holders of the Common Stock and shall have such number of votes equal to (a) the Stated Value of such shares divided by (b)
$1.23 (with such price in subsection (b) subject to equitable adjustments for stock splits, stock dividends or rights offerings
by the Corporation relating to the Corporation's securities, combinations, recapitalization, reclassifications, extraordinary distributions
and similar events) at the record date for the determination of holders of Common stock 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. Except
as otherwise required by law or provided in or permitted by Section 19, in the Certificate of Designations, Powers, Preferences
and Other Rights and Qualifications of Series A Convertible Preferred Stock, as amended from time to time, and in the Certificate
of Designation of Rights and Preferences of the Series C-1 Preferred Stock and the Series C-2 Preferred Stock, as amended from
time to time, the holders of shares of Series C-1 Preferred Stock, Series C-2 Preferred Stock, Series B Preferred Stock, Series
A Convertible Preferred Stock and Common Stock shall vote together as a single class, and not as separate classes. Except as otherwise
provided herein, in the event that the holders of the Series B Preferred Stock are required or permitted to vote as a class, the
approval (by vote or written consent) of holders of not less than a majority of the outstanding shares of Series B Preferred Stock
shall be required to approve each such matter to be voted upon, and if any matter is approved by such requisite percentage of holders
of Series B Preferred Stock, such matter shall bind all holders of Series B Preferred Stock.


 


Section 6. Liquidation
Preference. Upon any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary (a “Liquidation”),
the Holders shall be entitled to receive out of the assets of the Corporation, whether such assets are capital or surplus, for
each share of Preferred Stock an amount equal to the Stated Value per share plus any accrued and unpaid Dividends thereon, immediately
after any distributions required by the Corporation’s Certificate of Incorporation, or any certificate(s) of designation
in respect of the Series C-1 Preferred Stock and Series C-2 Preferred Stock and any other securities of the Corporation having
priority over the Series B Preferred Stock and before any distribution or payment shall be made to the holders of any Junior Securities.
If, upon such a Liquidation, the assets of the Corporation available for distribution to the Holders, and the holders of any Parity
Securities with respect to distribution on a Liquidation shall be insufficient to pay in full such amounts, then the entire assets
to be distributed to the Holders and the holders of Parity Securities shall be distributed among the Holders ratably in accordance
with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full, pari passu with
the Parity Securities based upon the liquidation preferences of each such series.


 



    	8



    	 



    

 


The consolidation or
merger of the Corporation with or into another entity, or the sale, lease, transfer, exclusive license or other disposition, in
a single transaction or series of related transactions, by the Corporation or any subsidiary of the Corporation, of all or substantially
all of its assets to another Person or group of Persons, or a purchase, tender or exchange offer made to and accepted by the holders
of more than the 50% of the outstanding shares of Common Stock shall not be deemed to be a Liquidation within the meaning of this
Section 6.


 


Section 7. Conversion.


 


(a) Conversion
Right.


 


(i)   Conversion Timing
and Amount. Subject to the limitations on Conversion contained herein, the record Holder of the Preferred Stock shall have
the right (a “Conversion Right”) from time to time, and at any time on or after the Original Issue Date hereof,
to convert any or all of the Preferred Stock, into fully paid and non-assessable shares of Common Stock, or any shares of capital
stock or other securities of the Corporation into which such Common Stock shall hereafter be changed or reclassified, at the Conversion
Price (as defined in Section 7(b) below, subject to adjustment as provided herein) determined as provided herein (a "Conversion").
The Conversion Rights set forth in this Section 7 shall remain in full force and effect immediately from the Original Issue Date
until the Preferred Stock is paid in full.


 


(ii)    Calculation
of Conversion Amount. The number of shares of Common Stock to be issued upon each Conversion of Preferred Stock shall be determined
by dividing the Conversion Amount (as defined herein) by the applicable Conversion Price. The term "Conversion Amount"
means, with respect to any Conversion of the Preferred Stock, the aggregate Stated Value of the Preferred Stock to be converted
in such Conversion.


 


(b)   Conversion Price.
The "Conversion Price" shall initially equal $1.2043 (the "Initial Conversion Price") (subject
to resets and adjustments pursuant to the terms of the Certificate of Designation and subject to equitable adjustments for stock
splits, stock dividends or rights offerings by the Corporation relating to the Corporation's securities, combinations, recapitalization,
reclassifications, extraordinary distributions and similar events).


  






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(c) Reservation of
Shares.


 


(i)     Increase and
Maintenance of Authorized and Reserved Amount. The Corporation covenants that it will initially reserve (the “Initial
Share Reservation”) from its authorized and unissued Common Stock a number of shares of Common Stock equal to at least
150% of the initial aggregate Stated Value of the Preferred Stock, divided by the Conversion Price in effect on the Original
Issue Date of the Preferred Stock, to provide for the issuance of Common Stock upon the Conversion of the Preferred Stock (the
“Initial Required Preferred Stock Reserve Amount”). Corporation further covenants that, beginning on
the Original Issue Date hereof, and continuing until all of the Preferred Stock has been converted, redeemed or otherwise satisfied
in accordance with their terms, the Corporation will reserve from its authorized and unissued Common Stock a sufficient number
of shares (the “Required Preferred Stock Reserve Amount”), equal to 150% of the number of shares as shall from
time to time be necessary to provide for the issuance of Common Stock upon the full Conversion of all of the Preferred Stock (without
regard to any limitations on conversions) and full exercise of all of the Warrants (without regard to any limitations on exercises)
(together with the Required Preferred Stock Reserve Amount, collectively referred to as the “Required Reserve Amount”).
In addition, if the Corporation shall issue any securities or make any change to its capital structure which would change the number
of shares of Common Stock into which the Preferred Stock shall be convertible at the then applicable Conversion Price, or if the
Conversion Price shall be adjusted, the Corporation shall at the same time make proper provision so that thereafter there shall
be a sufficient number of shares of Common Stock authorized and reserved, free from preemptive rights, for Conversion of the outstanding
portion of the Preferred Stock.


 


(ii) Insufficient
Authorized Shares. If at any time while any of the Preferred Stock remains outstanding the Corporation does not have a sufficient
number of authorized and unreserved shares of Common Stock to satisfy its obligation to reserve for issuance upon conversion of
the Preferred Stock and exercise of the Warrants at least a number of shares of Common Stock equal to the Required Reserve Amount
(an "Authorized Share Failure"), then the Corporation shall immediately take all action necessary to increase
the Corporation's authorized shares of Common Stock to an amount sufficient to allow the Corporation to reserve the Required Reserve
Amount for the Preferred Stock and Warrants then outstanding. Without limiting the generality of the foregoing sentence, as soon
as practicable after the date of the occurrence of an Authorized Share Failure, but in no event later than sixty (60) days after
the occurrence of such Authorized Share Failure, the Corporation shall hold a meeting of its stockholders for the approval of an
increase in the number of authorized shares of Common Stock. In connection with such meeting, the Corporation shall provide each
stockholder with a proxy statement and shall use its commercially reasonable best efforts to solicit its stockholders' approval
of such increase in authorized shares of Common Stock and to cause its board of directors to recommend to the stockholders that
they approve such proposal.


 


The
Corporation shall use its commercially reasonable best efforts to authorize and reserve a sufficient number of shares of Common
Stock as soon as practicable following the earlier of (i) such time that the Holder notifies the Corporation or that the Corporation
otherwise becomes aware that there are or likely will be insufficient authorized, reserved and unissued shares to allow full Conversion
of the outstanding amount of the Preferred Stock and full exercise of the outstanding amount of Holder’s Warrants, based
upon the Holder’s Reserved Share Allocation (as defined below). The Corporation shall send notice to the Holder of the authorization
of additional shares of Common Stock, and the Authorization Date. 


 



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(iii) Allocations
of Reserve Amount. The initial number of shares of Common Stock authorized and reserved for conversions of the Preferred Stock
and exercise of the Warrants and each increase in the number of shares so reserved (collectively, the “Actual Reserved
Amount”) shall be allocated pro rata among the holders (the "Reserved Share Allocation") of the
Preferred Stock based on the aggregate number of Shares into which all of the Holder’s outstanding Preferred Stock would
be convertible and into which all of Holder’s outstanding Warrants would be exercisable at the time of the increase (collectively,
the “Fully Diluted Holdings”). In the event a holder shall sell or otherwise transfer such Holder’s Preferred
Stock, each transferee shall immediately be allocated a pro rata portion of such transferor’s Reserved Share Allocation.
Any portion of the Reserved Share Allocation which remains allocated to any Person or entity which does not hold any Preferred
Stock shall be allocated to the remaining holders of Preferred Stock, pro rata based on the Holder’s Fully Diluted Holdings
at the time of such allocation.


 


(d) Method of Conversion.


 


(i) Mechanics of
Conversion. Subject to Section 7(a) and the other provisions of the Certificate of Designation, the Preferred Stock may be
converted into Common Stock by the Holder in whole or in part at any time and from time to time after the Original Issue Date,
by (A) submitting to the Corporation a duly executed notice of Conversion in the form attached hereto as Exhibit A ("Notice
of Conversion") by facsimile dispatched prior to 5:00 p.m., New York City time (the "Conversion Notice Deadline")
on the date specified therein as the Conversion Date (as defined herein) (or by other means resulting in written notice to the
Corporation on the date specified therein as the Conversion Date) to the office of the Corporation; which notice shall specify
the aggregate Stated Value of the Preferred Stock to be converted (plus the dollar amount of any accrued but unpaid Dividends that
the Holder elects to convert into Common Stock), the applicable Conversion Price, and the number of shares of Common Stock issuable
upon such Conversion; and (B) surrendering the certificate (“Preferred Stock Certificate”) representing a share
of Preferred Stock, duly endorsed at the principal office of the Corporation.


 


(ii) Conversion
Date. The "Conversion Date" shall be the date specified in the Notice of Conversion, provided that the Notice
of Conversion is submitted by facsimile (or by other means resulting in, or reasonably expected to result in, written notice) to
the Corporation or its transfer agent, Continental Stock Transfer & Trust Company, 17 Battery Place, 8th Floor, New York, NY
10004-1123; Tel: 212-509-4000; Fax: 212-616-7608 (“Transfer Agent”) before 5:00 p.m., New York City time, on
the date so specified, otherwise the Conversion Date shall be the date that the Notice of Conversion is first received by the Corporation
or its Transfer Agent. The Person or Persons entitled to receive the shares of Common Stock issuable upon Conversion shall be treated
for all purposes as the record holder or holders of such securities as of the Conversion Date. In the event Notice of Conversion
is provided to the Corporation, the Holder shall simultaneously provide a copy to the Transfer Agent, by facsimile.


 



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(iii)    Delivery
of Common Stock Upon Conversion. Upon submission of a Notice of Conversion, the Corporation shall, by no later than the third
(3rd) Business Day after the Conversion Date (the "Conversion Shares Delivery Deadline"), issue and deliver (or
cause its Transfer Agent so to issue and deliver) in accordance with the terms hereof and the Securities Purchase Agreement to
or upon the order of the Holder that number of shares of Common Stock (“Conversion Shares”) for the Stated
Value of the Preferred Stock converted as shall be determined in accordance herewith. Upon the Conversion of the Preferred Stock,
the Corporation shall, at its own cost and expense, take all commercially reasonable action, including obtaining and delivering
an opinion of counsel to assure that the Corporation's Transfer Agent shall issue stock certificates in the name of Holder (or
its nominee) or such other Persons as designated by Holder and in such denominations to be specified at Conversion representing
the number of shares of Common Stock issuable upon such Conversion. The Corporation warrants that no instructions other than these
instructions have been or will be given to the Transfer Agent of the Common Stock.


 


(iv)   Delivery
Failure; Revocation of Conversion. In addition to any other remedies which may be available to the Holder, in the event that
the Corporation fails for any reason to effect delivery of the Conversion Shares by the Conversion Shares Delivery Deadline (a
“Delivery Failure”), the Holder, at its option, will be entitled to revoke
all or part of the relevant Notice of Conversion (a “Conversion Revocation”)
by delivery of a notice to such effect to the Corporation whereupon the Holder shall regain the rights of a Holder of the Preferred
Stock with respect to such unconverted portions of the Preferred Stock and the Corporation and the Holder shall each be restored
to their respective positions immediately prior to the delivery of such notice. 


 


(v)    Obligation of
Corporation to Deliver Common Stock. Upon receipt by the Corporation of a Notice of Conversion, the Holder shall be deemed
to be the holder of record of the Common Stock issuable upon such Conversion, and, except as otherwise provided in this Certificate
of Designation, unless the Corporation defaults on its obligations hereunder, all rights with respect to the portion of
the Preferred Stock being so converted shall forthwith terminate except the right to receive the Common Stock or other securities,
cash or other assets, as herein provided, on such Conversion. The provisions of this subsection are subject to the provisions of
Section 7(d)(iv) hereof.


 


(vi) Omitted.


 


(vii) Omitted.


 



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(viii) No  Fractional
Shares. No fractional share shall be issued upon the conversion of any share or shares of Series B Preferred Stock. All shares
of Common Stock (including fractions thereof) issuable upon conversion of more than one share of Series B Preferred Stock by a
holder thereof shall be aggregated for purposes of determining whether the conversion would result in the issuance of any fractional
share. If, after the aforementioned aggregation, the conversion would result in the issuance of a fraction of a share of Common
Stock, the Corporation shall, in lieu of issuing any fractional share, pay the holder otherwise entitled to such fraction a sum
in cash equal to the fair market value of such fraction on the date of conversion (as determined in good faith by the Board of
Directors).


 


(ix) Lost or Stolen
Preferred Stock Certificates.  Upon receipt by the Corporation of evidence of the loss, theft, destruction or mutilation of
a Preferred Stock Certificate, and (in the case of loss, theft or destruction) of indemnity reasonably satisfactory to the Corporation,
and upon surrender and cancellation of the Preferred Stock Certificate, if mutilated, the Corporation shall execute and deliver
a new Preferred Stock Certificate of like tenor and date.


 


(e) Legends. The
Holder understands that the Preferred Stock Certificates and, until such time as Conversion Shares and any other Issued Common
Shares (as defined in the Securities Purchase Agreement) have been registered under the 1933 Act as contemplated by the Registration
Rights Agreement or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular
date that can then be immediately sold, the Conversion Shares and any other Issued Common Shares may bear a restrictive legend
in substantially the following form (and a stop-transfer order may be placed against transfer of the certificates for such Securities):


 


"THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER SAID ACT, OR AN OPINION OF COUNSEL, IN FORM, SUBSTANCE AND SCOPE REASONABLY SATISFACTORY TO COUNSEL TO
THE CORPORATION, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT."


 


(i) Removal of Legends.
The Corporation will issue and deliver the Conversion Shares without restrictive legends (including the legend set forth above
in this Section 7(e)), and will remove any restrictive legends on any Conversion Shares that contain restrictive legends (including
the legend set forth above in this Section 7(e)), in each case when and as required under Section 6(a) of the Securities Purchase
Agreement. The Holder agrees to sell all Securities, including those represented by a certificate(s) from which the legend has
been removed, in compliance with applicable prospectus delivery requirements, if any.


 



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(f) DTC Delivery.
In lieu of delivering physical certificates representing the unlegended shares of Common Stock (the “Unlegended Shares”),
provided the Holder’s Transfer Agent is participating in the Depository Trust Corporation ("DTC") Fast Automated
Securities Transfer ("FAST") program, upon written request of the Holder, so long as the certificates therefor
do not bear a legend, are not required to bear a legend and the Holder is not obligated to return such certificate for the placement
of a legend thereon, the Corporation shall cause its Transfer Agent to electronically transmit the Unlegended Shares to the Holder
by crediting the account of the Holder's prime broker with DTC identified in the written request through its Deposit Withdrawal
Agent Commission ("DWAC") system.


 


(g) Status as Shareholder.
Upon submission of a Notice of Conversion by a Holder, (i) the shares of Preferred Stock covered thereby (other than the shares,
if any, which cannot be issued because their issuance would exceed such Holder's allocated portion of the Required Reserve Amount)
shall be deemed converted into shares of Common Stock and (ii) the Holder's rights as a Holder of such converted portion of the
Preferred Stock shall cease and terminate, excepting only the right to receive certificates for such shares of Common Stock and
other remedies provided herein because of a failure by the Corporation to comply with the terms of the Certificate of Designation,
provided in Section 7(d)(iv) hereof. Notwithstanding the foregoing, if a Holder initiates a Conversion Revocation pursuant to Section
7(d)(iv) hereof, the Holder shall regain the rights of a Holder of Preferred Stock with respect to such unconverted portion of
the Preferred Stock as specified in Section 7(d)(iv) and the Corporation shall, as soon as practicable, return such unconverted
portion of the Preferred Stock to the Holder or, if the Preferred Stock Certificate has not been surrendered, adjust its records
to reflect that such portion of the Preferred Stock has not been converted.


 


(h) Pro Rata Conversion.
In the event that the Corporation receives a Conversion Notice from more than one holder of Preferred Stock for the same Conversion
Date and the Corporation can convert some, but not all, of such portions of the Preferred Stock submitted for conversion, the Corporation
shall convert from each holder of Preferred Stock electing to have Preferred Stock converted on such date a pro rata amount of
such holder's portion of its Preferred Stock submitted for conversion based on the aggregate Stated Value of the Preferred Stock
submitted for conversion on such date by such holder relative to the aggregate Stated Value of all Preferred Stock submitted for
conversion on such date.


 



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Section 8. Omitted.


 


Section 9. Effect
of Certain Events. 


 


(a) Participation.
The Holder, as the holder of the Preferred Stock, shall be entitled to receive such dividends paid and distributions made to the
holders of Common Stock to the same extent as if the Holder had completely converted the Preferred Stock into Common Stock (without
regard to any limitations on Conversion herein or elsewhere and without regard to whether or not a sufficient number of shares
are authorized and reserved to effect any such exercise and issuance) and had held such shares of Common Stock on the record date
for such dividends and distributions. Payments under the preceding sentence shall be made concurrently with the dividend or distribution
to the holders of Common Stock.


 


Section 10. Certain
Adjustments. The Conversion Price shall be subject to adjustment from time to time as provided in this Section. 


 


(a) Adjustments
to Conversion Price Due to Subsequent Equity Sales. If, at any time while any Preferred Stock is outstanding, the Corporation
sells or grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues (or announces
any sale, grant or any option to purchase or other disposition), any Common Stock (including Common Stock issued in consideration
for settlement or retirement of existing debt) or Common Stock Equivalents entitling any Person to acquire shares of Common Stock
at an effective price per share that is lower than the then Conversion Price (such lower price, the “Base Conversion Price”
and such issuances, collectively, a “Dilutive Issuance”) (if the holder of the Common Stock or Common Stock
Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion,
exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such
issuance, be entitled to receive shares of Common Stock at an effective price per share that is lower than the Conversion Price,
such issuance shall be deemed to have occurred for less than the Conversion Price on such date of the Dilutive Issuance), regardless
of whether or not any such issuance or repricing of securities is conditional upon circumstances or events that may occur in the
future, then the Conversion Price shall be reduced (but not increased) to equal the lesser of (i) the Base Conversion Price, or
(ii) the Conversion Price in effect immediately prior to such Dilutive Issuance. Such adjustment shall be made whenever such Common
Stock or Common Stock Equivalents are issued in a Dilutive Issuance. Notwithstanding anything to the contrary herein, no adjustment
will be made under this Section 10(a) in respect of an Exempt Issuance or in respect of Adjustment Exceptions (as defined below).
The adjustments required by this Section 10(a) are referred to in the singular, as a “Subsequent Issuance Adjustment,”
and collectively, as the “Subsequent Issuance Adjustments”). No adjustment shall be made under this Section
10(a) if such adjustment would result in an increase of the Conversion Price then in effect. 


 



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As used herein, "Adjustment
Exceptions" shall mean all shares of Common Stock or Common Stock Equivalents issued (A) pursuant to any Approved Stock
Plan, (B) upon the exercise, exchange of, conversion or redemption of, or payment of interest or liquidated or similar damages
on, any Securities issued hereunder or in the Offering or to a Placement Agent in connection with the Offering, (C) upon the exercise,
exchange, conversion, or redemption of Common Stock Equivalents issued and outstanding on the Original Issue Date, provided that
the terms of such Common Stock Equivalents are not amended after the Original Issue Date, (D) in connection with any acquisition
by the Company or any Subsidiary, whether through an acquisition of stock or a merger of any business, assets or technologies the
primary purpose of which is not to raise equity capital, (E) in connection with an adjustment made pursuant to Section 10(b) or
(f), and (F) that are “Exempted Securities” as defined in Part I, Section 7.6.1 of the Series C Certificate of Designation.


 


Notwithstanding anything
to the contrary herein, in no event shall a Subsequent Issuance Adjustment be made for any Dilutive Issuance to reduce the Conversion
Price to a price lower than $1.2043 per share (with such price subject to equitable adjustments for stock splits, stock
dividends or rights offerings by the Corporation relating to the Corporation's securities, combinations, recapitalization, reclassifications,
extraordinary distributions and similar events) (the “Series C Conversion Price”) .


 


(b) Omitted.


 


(c) Omitted.


 


(d) Omitted.


 


(e) Omitted.


 


(f) Subdivision or
Combination of Common Stock.  If the Corporation at any time subdivides (by any stock split, stock dividend, recapitalization,
reorganization, reclassification or otherwise) the shares of Common Stock acquirable hereunder into a greater number of shares,
then, after the date of record for effecting such subdivision, the Conversion Price in effect immediately prior to such subdivision
will be proportionately reduced. If the Corporation at any time combines (by reverse stock split, recapitalization, reorganization,
reclassification or otherwise) the shares of Common Stock acquirable hereunder into a smaller number of shares, then, after the
date of record for effecting such combination, the Conversion Price in effect immediately prior to such combination will be proportionately
increased.


 


(g) Omitted.


 



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(h) Notice to Allow
Conversion by Holder.  If (i) the Corporation shall declare a dividend (or any other distribution in whatever form)
on the Common Stock, (ii) the Corporation shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock,
(iii) the Corporation shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or
purchase any shares of capital stock of any class or of any rights, (iv) the approval of any stockholders of the Corporation shall
be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Corporation is
a party, any sale or transfer of all or substantially all of the assets of the Corporation, of any compulsory share exchange whereby
the Common Stock is converted into other securities, cash or property or (v) the Corporation shall authorize the voluntary or involuntary
dissolution, liquidation or winding up of the affairs of the Corporation, then, in each case, the Corporation shall cause to be
filed at each office or agency maintained for the purpose of conversion of the Preferred Stock, and shall cause to be delivered
to the Holder at its last address as it shall appear upon the Preferred Stock Register, at least 10 calendar days prior to the
applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the
purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which
the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to
be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected
to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled
to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation,
merger, sale, transfer or share exchange, provided that the failure to deliver such notice or any defect therein or in the delivery
thereof shall not affect the validity of the corporate action required to be specified in such notice. The Holder is entitled to
convert the Preferred Stock during the 10-day period commencing on the date of such notice through the effective date of the event
triggering such notice.


 



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Section 11.         Corporation’s
Right to Redeem. 


 


(a) Corporation’s
Right to Redeem at its Election. Anytime after the Effective Date, if (i) the Equity Payment Conditions have all been met for
each of the prior three (3) Trading Days, except the average daily trading volume requirement in clause (ix) of such defined term,
and (ii) the Market Price of the Common Stock for each of the prior three (3) Trading Days exceeds 250% of the Initial Conversion
Price for the Preferred Stock, then the Corporation may provide to the Holders a twenty (20) Trading Day advance notice (an “Advance
Corporation Redemption Notice”) stating that the Corporation has elected to Redeem all or any portion (the “Target
Redemption Amount”) of the outstanding Preferred Stock on the date that is twenty (20) Trading Days after the date of
such notice (the “Target Redemption Date”), and certifying that the Corporation has set aside available cash
in the amount of the aggregate projected Corporation Redemption Amount (as defined below) for use in effecting the redemption.
If the Equity Payment Conditions are met during each Trading Day of the seventeen (17) consecutive Trading Day period immediately
preceding the Target Redemption Date (the “Threshold Period”) and the Market Price for the Common Stock exceeds
250% of the Initial Conversion Price of the Preferred Stock during each Trading Day of such Threshold Period (the “Trading
Price Requirement”), then the Corporation shall, within five (5) Trading Days after such Threshold Period, deliver the
Corporation Redemption Amount (as defined below) to each Holder (a “Corporation Redemption”). If any one or
more of the Equity Payment Conditions are not met or the Trading Price Requirements are not met, in each case on any Trading Day
during the Threshold Period, then the Corporation shall not be entitled to redeem the portion of the Preferred Stock described
in the Advance Corporation Redemption Notice. Any Corporation Redemption shall be applied ratably to all of the Holders in proportion
to each Holder’s initial purchase of its Preferred Stock under the Securities Purchase Agreement, provided that any voluntary
Conversions by a Holder during the Threshold Period shall be applied against such Holder’s pro-rata allocation thereby decreasing
the aggregate amount forcibly converted hereunder. The Holder, at its option, may continue to convert all or any portion of its
Preferred Stock (including but not limited to the portion that is the subject of the Corporation Redemption) in accordance with
the terms hereof after the receipt of an Advance Corporation Redemption Notice until the Holder receives payment of the Corporation
Redemption Amount, and the amount of the Preferred Stock to be redeemed shall not exceed the amount which remains outstanding as
of the date of Payment of the Corporation Redemption Amount. Unless otherwise indicated by the Holder in the applicable Notice
of Conversion, any shares of Preferred Stock converted during the period from the date of the Advance Corporation Redemption Notice
until the date the Corporation Redemption Amount (as defined below) is paid in full shall be considered to be a conversion (instead
of a Redemption) of the shares of Preferred Stock that would have been subject to such Corporation Redemption, and any amounts
of the Preferred Stock converted from time to time during such period shall converted in full into Common Stock at the Conversion
Price then in effect, and the dollar amount so converted into Common Stock shall be deducted from the Target Redemption Amount
(as defined above) that is subject to such redemption. Once the Corporation delivers an Advance Corporation Redemption Notice,
the Corporation may not deliver another such notice for at least thirty (30) Trading Days. The “Corporation Redemption
Amount” shall equal 110% of the aggregate Stated Value of the outstanding Preferred Stock being redeemed, plus
all accrued and unpaid Dividends.


 


The Holder shall surrender
the Preferred Stock Certificates duly endorsed representing the shares to be redeemed at the office of the Corporation on the Target
Redemption Date. Upon surrender and payment of the Corporation Redemption Amount, from and after the Target Redemption Date, dividends
on the shares of Series B Preferred Stock to be redeemed shall cease to accrue, and said shares shall no longer be deemed outstanding,
and all rights of the holders thereof as holders of Series B Preferred Stock (except for the right to receive from the Corporation
the Corporation Redemption Amount for such shares) shall cease. If the Corporation Redemption Amount is paid, then, notwithstanding
that any certificate for shares of Series B Preferred Stock to be redeemed shall not have been surrendered for cancellation, after
the close of business on such Target Redemption Date, the shares called for redemption shall no longer be deemed outstanding and
all rights with respect to such shares shall forthwith cease, except only the right of the holders thereof to receive, upon surrender
of the certificate representing such shares, the aggregate Corporation Redemption Amount therefor, if not already received.


 





 (b) omitted.


 


Section 12.  Omitted.





 



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Section 13.  Omitted.


 


Section 14.  Omitted.


 


Section 15.  Omitted.


 


Section 16.  Omitted.


 


Section 17.  Omitted.



 


Section 18.
Dispute Resolution. In the case of a dispute as to the determination of the Conversion Price or the arithmetic calculation
of the number of Conversion Shares issuable upon any conversion of the Preferred Stock, the Corporation shall promptly issue to
the Holder the number of Conversion Shares that are not disputed and resolve such dispute in accordance with this section. In the
case of a dispute as to the determination of the Volume Weighted Average Price or the arithmetic calculation of the Conversion
Price, Conversion Price Adjustment, Dividends or dividend calculation, or any redemption price, redemption amount or similar calculation,
or the determination of whether or not a Dilutive Issuance has occurred, the Corporation shall submit the disputed determinations
or arithmetic calculations via facsimile within five (5) Business Days of receipt, or deemed receipt, of the Conversion Notice,
any redemption notice or other event giving rise to such dispute, as the case may be, to the Holder. If the Holder and the Corporation
are unable to agree upon such determination or calculation within (5) Business Days of such disputed determination or arithmetic
calculation being submitted to the Holder, then the Corporation shall, within five (5) Business Days submit via facsimile (a) the
disputed determination of the Volume Weighted Average Price to an independent, reputable investment bank selected by the Corporation
and approved by the Holder, which approval shall not be unreasonably withheld, (b) the disputed arithmetic calculation of the Conversion
Price, Conversion Price Adjustment or any redemption price or redemption amount to the Corporation’s independent, outside
accountant or (c) the disputed facts regarding the occurrence of a Dilutive Issuance (or any other occurrence not specifically
assigned to the investment bank or outside accountant pursuant to subsections (a) or (b) immediately above) to an expert attorney
from a nationally recognized outside law firm (having at least 100 attorneys and having with no prior relationship with the Corporation)
selected by the Corporation and approved by the Lead Investor as defined in the Securities Purchase Agreement). The Corporation
shall request that the investment bank, the accountant, the law firm, or other expert, as the case may be, to perform the determinations
or calculations and notify the Corporation and the Holder of the results no later than ten (10) Business Days from the time it
receives the disputed determinations or calculations. Such investment bank’s or accountant’s or law firm’s determination
or calculation, as the case may be, shall be binding upon all parties absent demonstrable error (collectively, the “Dispute
Resolution Procedures”). The expense of the submission of such dispute shall be split equally by the Corporation and
the Holder.


 



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Section 19.         Protective
Provision. So long as any shares of Preferred Stock are outstanding, the Corporation shall not, without the affirmative
vote or written consent of the Required Holders:


 


(a) alter or
change adversely the powers, preferences or rights given to the Preferred Stock or alter or amend this Certificate of Designation,
or


 


(b) omitted


 


(c) omitted


 


(d) increase
the authorized number of shares of Preferred Stock, or


 


(e) do any act
or thing not authorized or contemplated by this Certificate of Designation which would result in taxation of the holders of shares
of the Series B Preferred Stock under Section 305 of the Internal Revenue Code of 1986, as amended (or any comparable provision
of the Internal Revenue Code as hereafter from time to time amended), or


 


(f) decrease
the Dividend Rate as provided in Section 4(a), or


 


(g) omitted


 


(h) enter into
any agreement with respect to the foregoing.


 


The voting rights in
this Section 19 shall not apply in connection with the consolidation or merger of the Corporation with or into another entity,
or the sale, lease, transfer, exclusive license or other disposition, in a single transaction or series of related transactions,
by the Corporation or any subsidiary of the Corporation, of all or substantially all of its assets to another Person or group of
Persons.


 


Section 20. Miscellaneous.


 


(a) Waiver.



 


(i)  No failure or delay
on the part of the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other
right, power or privileges. All rights and remedies existing hereunder are cumulative to, and not exclusive of, any rights or remedies
otherwise available.


 


(ii)   Any provision
of this Certificate of Designation may be waived by the affirmative vote or written consent of the Required Holders, which vote
or written consent shall bind all Holders of the Series B Preferred Stock, and all future Holders of Series B Preferred Stock for
which such rights have been waived.


 



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(iii) Any waiver by
vote or written consent of the holders of Series C-1 Preferred Stock and Series C-2 Preferred Stock (if any), pursuant to the Certificate
of Designation of Rights and Preferences thereof, of an adjustment to the Series C Conversion Price of such shares in connection
with any Dilutive Issuance or other issuance or deemed issuance of Additional Shares of Common Stock without consideration or for
a consideration per share less than the Series C Conversion Price shall also, automatically and without any further action of the
Corporation, any holder of Series B Preferred Stock or any other person, constitute a waiver by the holders of Series B Preferred
Stock of an adjustment to the Conversion Price under Sections 9(a), 9(b), 10(a) and 10(b) hereof, and such vote or written consent
shall bind all existing holders of the Series B Preferred Stock, and all future holders of Series B Preferred Stock.


 


(b) Notices.
 Any notice herein required or permitted to be given shall be in writing and may be personally served or delivered by courier
or sent by United States mail or by overnight delivery and shall be deemed to have been given upon receipt if personally served,
or upon confirmation of receipt, when sent by facsimile, or five (5) days after being deposited in the United States mail, certified,
with postage pre-paid and properly addressed, if sent by mail, or one (1) day after deposit with a nationally recognized overnight
delivery service, if delivery by overnight delivery. For the purposes hereof, the address of the Holder shall be as shown on the
records of the Corporation; and the address of the Corporation shall be  VirtualScopics, Inc., 500 Linden
Oaks, Rochester, NY 14625 Phone: 585-249-6231; Fax: 585-218-7350. Both the Holder and the Corporation may change the address
for service by service of written notice to the other as herein provided. The Corporation shall provide
the Holder with prompt written notice of all actions taken pursuant to this Certificate of Designation, including in reasonable
detail a description of such action and the reason therefore.  Without limiting the generality of the foregoing, the Corporation
will give written notice to the Holder (i) at least ten (10) days after any adjustment of the Conversion Price, setting forth in
reasonable detail, and certifying, the calculation of such adjustment and (ii) at least ten (10) days prior to the date on which
the Corporation closes its books or takes a record (A) with respect to any dividend or distribution upon the Common Stock, (B)
with respect to any pro rata subscription offer to holders of Common Stock or (C) for determining rights to vote with respect to
any dissolution or liquidation, provided in each case that such information shall be made known to the public prior to or in conjunction
with such notice being provided to the Holder.


 


(c)          Payments.
 Whenever any payment of cash is to be made by the Corporation to any Person pursuant to this Certificate of Designation or
pursuant to the Transaction Documents, such payment shall be made in lawful money of the United States of America by a check drawn
on the account of the Corporation and sent via overnight courier service to such Person at such address as previously provided
to the Corporation in writing (which address, in the case of each of the Buyers, shall initially be as set forth on the Schedule
of Buyers attached to the Securities Purchase Agreement); provided that the Holder may elect to receive a payment of cash via wire
transfer of immediately available funds by providing the Corporation with prior written notice setting out such request and the
Holder's wire transfer instructions.  Whenever any amount expressed to be due by the terms of this Certificate of Designation
is due on any day which is not a Business Day, the same shall instead be due on the next succeeding day which is a Business Day
and, in the case of any Dividends Payment Date which is not the date on which the Preferred Stock is paid in full, the extension
of the due date thereof shall not be taken into account for purposes of determining the amount of Dividends due on such date.  


 



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(e) Equitable Relief.
Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated
by this Agreement and any other Transaction Documents (whether brought against a party hereto or its respective affiliates, directors,
officers, shareholders, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City
of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the
City of New York, borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby
irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of any such court, that such suit, action or proceeding is improper or is an inconvenient venue for such proceeding.
Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action
or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such
party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process
in any other manner permitted by law. The parties hereby waive all rights to a trial by jury. If either party shall commence an
action or proceeding to enforce any provisions of the Transaction Documents, then the prevailing party in such action or proceeding
shall be reimbursed by the other party for its reasonable attorneys’ fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such action or proceeding.


 


(f) Rule 144 Hold
Period. For purposes of Rule 144, it is intended, understood
and acknowledged that the Common Stock issuable upon Conversion of the Preferred Stock shall be deemed to have been acquired at
the time the Preferred Stock was issued. Moreover, it is intended, understood and acknowledged that the holding period for the
Common Stock issuable upon Conversion of the Preferred Stock shall be deemed to have commenced on the date the Preferred Stock
was issued. 


 


(g) Purchase Agreement.
By its acceptance of the Preferred Stock, the Holder agrees to be bound by the applicable terms of the Securities Purchase Agreement.


 



    	22



    	 



    

 


(h) Notice of Corporate
Events.  Except as otherwise provided in this Certificate of Designation, the Holder of the Preferred Stock shall
have no rights as a Holder of Common Stock unless and only to the extent that it converts the Preferred Stock into Common Stock.
The Corporation shall provide the Holder with prior notification of any meeting of the Corporation's shareholders (and copies of
proxy materials and other information sent to shareholders). In the event the Corporation takes a record of its shareholders for
the purpose of determining shareholders who are entitled to receive payment of any dividend or other distribution, any right to
subscribe for, purchase or otherwise acquire (including by way of merger, consolidation, reclassification or recapitalization)
any share of any class or any other securities or property, or to receive any other right, or for the purpose of determining shareholders
who are entitled 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 liquidation, dissolution or winding up of the Corporation, the Corporation shall mail a notice
to the Holder, at least ten (10) days prior to the record date specified therein or the consummation of the transaction or event,
whichever is earlier), of the date on which any such record is to be taken for the purpose of such dividend, distribution, right
or other event, and a brief statement regarding the amount and character of such dividend, distribution, right or other event to
the extent known at such time. The Corporation shall make a public announcement of any event requiring notification to the Holder
hereunder substantially simultaneously with the notification to the Holder in accordance with the terms of this Section 20(h).


 


(i) Remedies.
The remedies provided in this Certificate of Designation shall be cumulative and in addition to all other remedies available
under this Certificate of Designation, Preferred Stock and the other Transaction Documents, at law or in equity (including a decree
of specific performance and/or other injunctive relief), and nothing herein shall limit the right of the Holder right to pursue
actual damages for any failure by the Corporation to comply with the terms of this Certificate of Designation or the Transaction
Documents. The Corporation acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder,
by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Corporation acknowledges that the
remedy at law for a breach of its obligations under this Certificate of Designation will be inadequate and agrees, in the event
of a breach or threatened breach by the Corporation of the provisions of this Certificate of Designation or the other Transaction
Documents, that the Holder shall be entitled, in addition to all other available remedies at law or in equity, to an injunction
or injunctions restraining, preventing or curing any breach of the Certificate of Designation and the other Transaction Documents
and to enforce specifically the terms and provisions thereof, without the necessity of showing economic loss and without any bond
or other security being required.


 


(j) Construction;
Headings.  This Certificate of Designation shall be deemed to be jointly drafted by the Corporation and all the
Purchasers and shall not be construed against any person as the drafter hereof.  The headings of this Certificate of Designation
are for convenience of reference and shall not form part of, or affect the interpretation of, this Certificate of Designation.


 



    	23



    	 



    

 


That a resolution was
duly adopted by the Board of Directors of the Corporation, pursuant to Sections 141 and 242 of the General Corporation Law of the
State of Delaware, setting forth the above-mentioned amendment and restatement to the Certificate of Designation and declaring
said amendment and restatement to be advisable, followed by the affirmative vote of the holders of a majority of the outstanding
shares of common stock of the Corporation entitled to vote thereon, including the votes of the holders preferred stock entitled
to vote thereon on an as-converted basis, at a meeting of stockholders duly called and held on June __, 2012, and the affirmative
vote of the holders of at least two-thirds (2/3) of the outstanding shares of Series B Convertible Preferred Stock, in accordance
with Section 242 of the General Corporation Law of the State of Delaware.


 


IN WITNESS WHEREOF,
Corporation has caused the Certificate of Designation to be executed in its name by its Chief Financial Officer, Molly Henderson,
this ____ day of ___________, 2012.


  


	 	CORPORATION: 
	 	VIRTUALSCOPICS, INC.
	 	 
	 	By:	 
	 	Print Name:  Molly Henderson
	 	Title:  Chief Financial Officer


 



    	24



    	 



    

 


EXHIBIT A


 


NOTICE OF CONVERSION


 


(To be Executed by the Registered Holder
in order to Convert the Series B Convertible Preferred Stock of VIRTUALSCOPICS, INC.)


 


The undersigned hereby irrevocably
elects to convert ___________ shares of Series B Preferred Stock, having an aggregate Stated Value of $__________ into shares of
Common Stock, par value $0.001 per share ("Common Stock"), of VIRTUALSCOPICS, INC. (the "Corporation"),


 


all according to the conditions of the
Certificate of Designation of Series B Preferred Stock of the Corporation dated as of September __, 2007, as amended (the "
Certificate of Designation "), as of the date written below. If securities are to be issued in the name of a Person other
than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such
certificates. No fee will be charged to the Holder for any Conversion, except for transfer taxes, if any. By submitting this Notice
of Conversion, the Holder certifies that the issuance of the number of shares of Common Stock requested hereby will not result
in a violation of the Beneficial Ownership Limitation.


 


The Corporation shall
electronically transmit the Common Stock issuable pursuant to this Notice of Conversion to the account of the undersigned or its
nominee with DTC through its Deposit Withdrawal Agent Commission system ("DWAC Transfer").


 


Name of DTC Prime Broker:______________________________


Account Number:________________________________________


 


In lieu of receiving
shares of Common Stock issuable pursuant to this Notice of Conversion by way of a DWAC Transfer, the undersigned hereby
requests that the Corporation issue a certificate or certificates for the number of shares of Common Stock set forth above
(which numbers are based on the Holder's calculation attached hereto) in the name(s) specified immediately below or, if
additional space is necessary, on an attachment hereto:


 


Name: _________________________________________________


 


Address: _______________________________________________


 


The undersigned represents and warrants
that all offers and sales by the undersigned of the securities issuable to the undersigned upon Conversion of the Series B Preferred
Stock shall be made pursuant to registration of the securities under the Securities Act of 1933, as amended (the "ACT"),
or pursuant to an exemption from registration under the Act.


 



    	 



    	 



    

 


(i) Date of Conversion:_______________________________


Applicable Conversion Price:________________________


Number of Shares of Common ______________________


Stock to be Issued Pursuant to
(i): ____________________


Conversion of the Preferred Stock:_______________________


 


The Corporation shall issue and deliver shares of Common Stock
to an overnight courier not later than the third (3rd) Business Day following receipt of the Notice of Conversion and,
the Preferred Stock Certificate representing the Preferred Stock to be converted, or evidence of loss, theft or destruction thereof).


 






    	 



    	 



    
  


EXHIBIT G


 


FORM OF LEGAL OPINION


 






    	 



    	 



    



 


Exhibit H


 


AMENDED AND RESTATED SERIES B WARRANT


  






    	 



    	 



    
  


THIS WARRANT AND THE SECURITIES ISSUABLE
UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”),
OR ANY STATE SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF OR EXERCISED
UNLESS (i) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE WITH
REGARD THERETO, OR (ii) AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS IS AVAILABLE
IN CONNECTION WITH SUCH OFFER, SALE OR TRANSFER.


 


AN INVESTMENT IN THESE SECURITIES INVOLVES
A HIGH DEGREE OF RISK. HOLDERS MUST RELY ON THEIR OWN ANALYSIS OF THE INVESTMENT AND ASSESSMENT OF THE RISKS INVOLVED.


 


	Warrant to Purchase	 
	________ shares	Warrant Number _____


 


Amended and Restated Warrant to Purchase
Common Stock


of


VirtualScopics, Inc.


 


Date of Amendment and Restatement: April
3, 2012


 


THIS CERTIFIES that
________________, a ______________, or any subsequent holder hereof (“Holder”) has the right to purchase from
VirtualScopics, Inc., a Delaware corporation, (the “Company”), up to ______________ (_____________) fully
paid and nonassessable shares, of the Company's common stock, $0.001 par value per share (“Common Stock”), subject
to adjustment as provided herein, at a price equal to the Exercise Price as defined in Section 3 below, at any time during the
Term (as defined below).


 


Holder agrees with
the Company that this Warrant to Purchase Common Stock of the Company (this “Warrant” or this “Agreement”)
is issued and all rights hereunder shall be held subject to all of the conditions, limitations and provisions set forth herein.


 


1.          Date
of Issuance and Term.


 


This Warrant shall
be deemed to be issued on September 17, 2007 (“Date of Issuance”). The term of this Warrant begins on the Date
of Issuance and ends at 5:00 p.m., New York City time, on the date that is seven (7) years after the Date of Issuance (the
“Term”). This Warrant amends, supplements, modifies and completely restates and supersedes the Warrant (the
“Existing Warrant”) dated as of the Date of Issuance, issued by the Company to the Holder. The Existing Warrant
was issued in conjunction with the issuance of Series B Preferred Stock of the Company (“the “Preferred Stock”)
to the Holder pursuant to the terms of the Securities Purchase Agreement, dated September 12, 2007 (“Securities Purchase
Agreement”), the Certificate of Designation of Rights and Preferences of the Company’s Series B Convertible Preferred
Stock (the “Certificate of Designation”) and the Registration Rights Agreement (“Registration Rights
Agreement”) by and between the Company and Holder dated on or about September 12, 2007.


 



    	 



    	 



    

 


Notwithstanding anything
to the contrary herein, the applicable portion of this Warrant shall not be exercisable during any time that, and only to the extent
that, the number of shares of Common Stock to be issued to Holder upon such Exercise (as defined in Section 2(a)), when added to
the number of shares of Common Stock, if any, that the Holder otherwise beneficially owns (outside of this Warrant, and not including
any other warrants or securities of Holder’s having a provision substantially similar to this paragraph) at the time of such
Exercise, would exceed 4.99% (the “Maximum Percentage”) of the number of shares of Common Stock outstanding
immediately after giving effect to the issuance of shares of Common Stock issuable upon Exercise of this Warrant held by the Holder,
as determined in accordance with Section 13(d) of the Securities Exchange Act of 1934 (the “Beneficial Ownership Limitation”).
The Beneficial Ownership Limitation shall be conclusively satisfied if the applicable Notice of Exercise includes a signed representation
by the Holder that the issuance of the shares in such Notice of Exercise will not violate the Limitation, and the Company shall
not be entitled to require additional documentation of such satisfaction.


 


Notwithstanding the
above, in the event that the Company receives any purchase, tender or exchange offer or any offer to enter into a merger with another
entity whereby the Company shall not be the surviving entity (an “Offer”), then the Maximum Percentage shall
be increased (but not decreased) to 9.99%, and “4.99%” shall be automatically revised immediately after such offer
to read “9.99%” each place it occurs in this Section 1. The Beneficial Ownership Limitation provisions of this Section
1 may be waived by such Holder, at the election of such Holder, upon not less than 61 days’ prior notice to the Company,
to change the Beneficial Ownership Limitation to any amount not in excess of 9.99% of the number of shares of the Common Stock
outstanding immediately after giving effect to the issuance of shares of Common Stock upon Exercise of this Warrant held by the
Holder and the Beneficial Ownership Limitation shall continue to apply. Upon such a change by a Holder of the Beneficial Ownership
Limitation from such 4.99% limitation to such 9.99% limitation, the Beneficial Ownership Limitation may not be further waived by
such Holder, provided that, if an Event of Default occurs, thereafter the Beneficial Ownership Limitation provisions of this Section
1 may be waived by such Holder, at the election of such Holder, upon not less than 61 days’ prior notice to the Company,
to change the Maximum Percentage to any other percentage (and not limited to 9.99%) of the number of shares of the Common Stock
outstanding immediately after giving effect to the issuance of shares of Common Stock upon Exercise of the Warrants held by the
Holder and the provisions of this Section 1 shall continue to apply. The limitations on Exercise set forth in this subsection are
referred to as the “Beneficial Ownership Limitations.” The provisions of this paragraph shall be construed and
implemented in a manner otherwise than in strict conformity with the terms of this Section 1 to correct this paragraph (or any
portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to
make changes or supplements necessary or desirable to properly give effect to such limitation.


 



    	2



    	 



    

 


Notwithstanding the
above, Holder shall retain the option to either Exercise or not Exercise its option(s) to acquire Common Stock pursuant to the
terms hereof after an Offer, and, in the event of a cash Exercise following a tender offer, the Exercise Price per share that would
otherwise be due shall instead be offset against the tender price per share to be received by the Holder, provided, however, that
in the event a tender offer is not completed, Holder, at its option may either (i) complete any Exercise that was initiated after
the Offer by promptly paying to the Company the Exercise Price that would have been due at the time the Warrant was Exercised,
or (ii) cancel such Exercise by providing written notice to the Company, in which case such Exercise shall be deemed void ad initio.


 


Maximum Exercise
of Rights. In the event the Holder notifies the Company that the Exercise of the rights described herein would result in the
issuance of an amount of Common Stock of the Company that would exceed the maximum amount that may be issued to a Holder calculated
in the manner described above, then the issuance of such additional shares of Common Stock of the Company to such Holder will be
deferred in whole or in part until such time as such Holder is able to beneficially own such Common Stock without exceeding the
maximum amount calculated in the manner described herein. The determination of when such Common Stock may be issued shall be made
by each Holder as to only such Holder.


 


2.          Exercise.


 


(a) Manner of Exercise.
 During the Term and at any time on or after the Shareholder Issuance Vote (as defined in the Securities Purchase Agreement)
and the effective date of the written consents given therefor, but in any event at any time after the Shareholder Issuance Approval
Deadline (as defined in the Securities Purchase Agreement) this Warrant may be Exercised as to all or any lesser number of full
shares of Common Stock covered hereby (the “Warrant Shares” or the “Shares”) upon surrender
of this Warrant, with the Notice of Exercise Form attached hereto as Exhibit A (the “Notice of Exercise”)
duly completed and executed, together with the full Exercise Price (as defined below, which may be satisfied by either a Cash Exercise
or a Cashless Exercise, as each is defined below) for each share of Common Stock as to which this Warrant is Exercised, at the
office of the Company, VirtualScopics, Inc.; 500 Linden Oaks, Rochester, NY 14625; Phone: 585-249-6231, Fax: 585-218-7350,
or at such other location as the Company may then be located or such other office or agency as the Company may designate in writing,
by overnight mail, by facsimile (such surrender and payment of the Exercise Price hereinafter called the “Exercise”
of this Warrant). In the case of a Cashless Exercise, the Exercise Price is deemed to have been delivered upon the Holder’s
deliver of a Notice of Exercise to the Company.


 



    	3



    	 



    

 


(b) Date of Exercise.
The “Date of Exercise” of the Warrant shall be defined as the date that a copy of the Notice of Exercise
Form attached hereto as Exhibit A, completed and executed, is sent by facsimile to the Company, provided that the original Warrant
and Notice of Exercise Form are received by the Company and the Exercise Price is satisfied within 1 Business Day thereafter or
else the Date of Exercise shall be deemed the Business Day that the Notice of Exercise Form, Original Warrant and Exercise Price
are received by the Company. Alternatively, the Date of Exercise shall be defined as the date the original Notice of Exercise Form,
Original Warrant and Exercise Price are received by the Company, if Holder has not sent advance notice by facsimile. Upon
delivery of the Date of Exercise, the Holder shall be deemed for all corporate purposes to have
become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date
such Warrant Shares are credited to the Holder's DTC account or the date of delivery of the certificates evidencing such Warrant
Shares as the case may be.  The Company shall deliver any objection to any Notice of Exercise within three (3) Business Days
of receipt of such notice. In the event of any dispute or discrepancy, the records of the Company shall be controlling and determinative
in the absence of manifest error.


 


(c) Delivery of
Common Stock Upon Exercise. Within 3 Trading Days from the delivery to the Company of the Notice of Exercise, surrender of
this Warrant and payment of the aggregate Exercise Price (which, in the case of a Cashless Exercise, shall be deemed to have been
paid upon the submission by the Holder of a Notice of Exercise)(the “Warrant Shares Delivery Deadline”), the
Company shall issue and deliver (or cause its transfer agent so to issue and deliver) in accordance with the terms hereof to or
upon the order of the Holder that number of shares of Common Stock (“Exercise Shares”) for the portion of this
Warrant converted as shall be determined in accordance herewith. Upon the Exercise of this Warrant or any part thereof, the Company
shall, at its own cost and expense, take all necessary action, including obtaining and delivering, an opinion of counsel to assure
that the Company's transfer agent shall issue stock certificates in the name of Holder (or its nominee) or such other persons as
designated by Holder and in such denominations to be specified at Exercise representing the number of shares of Common Stock issuable
upon such Exercise. The Company warrants that no instructions other than these instructions have been or will be given to the transfer
agent of the Company's Common Stock.


 


(d) (Omitted) 


 


(e) (Omitted) 


 


(f) Revocation
of Exercise Upon Delivery Failure. In addition to any other remedies which may be available to the Holder, in the event
that the Company fails for any reason to effect delivery of the Exercise Shares by the Warrant Shares Delivery Deadline, the Holder
will be entitled to revoke all or part of the relevant Notice of Exercise by delivery of a notice to such effect to the Company
whereupon the Company and the Holder shall each be restored to their respective positions immediately prior to the delivery of
such notice.


 


(g) Legends.


 


(i) Restrictive
Legend. The Holder understands that the Warrant and, until such time as Exercise Shares have been registered under the 1933
Act as contemplated by the Registration Rights Agreement or otherwise may be sold pursuant to Rule 144 or Rule 144(k) under the
1933 Act without any restriction as to the number of securities as of a particular date that can then be immediately sold, the
Exercise Shares may bear a restrictive legend in substantially the following form (and a stop-transfer order may be placed against
transfer of the certificates for such securities):


 



    	4



    	 



    

 


“THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER SAID ACT, OR AN OPINION OF COUNSEL, IN FORM, SUBSTANCE AND SCOPE REASONABLY SATISFACTORY TO COUNSEL TO
THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.”


 


(ii) Removal of
Restrictive Legends. Certificates evidencing the Exercise Shares shall not contain any legend restricting the transfer thereof
(including the legend set forth above in subsection 2(g)(i)): (i) following resale of such shares while a registration statement
(including the Registration Statement, as defined in the Registration Rights Agreement) covering the resale of such security is
effective under the Securities Act, or (ii) following any sale of such Exercise Shares pursuant to Rule 144, or (iii) if such Exercise
Shares are eligible for sale under Rule 144(k), or (iv) if such legend is not required under applicable requirements of the Securities
Act (including judicial interpretations and pronouncements issued by the staff of the Commission) (collectively, the “Unrestricted
Conditions”). The Company shall cause its counsel to issue a legal opinion to the Company’s transfer agent promptly
after the Effective Date (as defined below) of the Registration Statement if required by the Company’s transfer agent to
effect the sale of Exercise Shares by Holder without a restrictive legend or removal of the legend hereunder. If the Unrestricted
Conditions are met at the time of issuance or resale of Exercise Shares, then such Exercise Shares shall be issued free of all
legends and Holder submits proof and proper documentation satisfactory to the Company and its transfer agent to the conditions
in this Section 2(g). The Company agrees that following the Effective Date or at such time as the Unrestricted Conditions are met
or such legend is otherwise no longer required under this Section 2(g), it will, no later than three (3) Trading Days following
the delivery by the Holder to the Company or the Company’s transfer agent of a certificate representing Exercise Shares,
as applicable, issued with a restrictive legend and proof and proper documentation satisfactory to the Company and its transfer
agent to the conditions in this Section 2(g), deliver or cause to be delivered to such Holder a certificate (or electronic transfer)
representing such shares that is free from all restrictive and other legends. For purposes hereof, “Effective Date”
shall mean the date that the Registration Statement that the Company is required to file pursuant to the Registration Rights Agreement
has been declared effective by the Securities and Exchange Commission (the “Commission”).


 


(iii) Sale of Unlegended
Shares. Holder agrees that the removal of the restrictive legend from certificates representing Securities as set forth in
this Section 2(g)(i) above is predicated upon the Company’s reliance that the Holder will sell any Exercise Shares pursuant
to either the registration requirements of the Securities Act, including any applicable prospectus delivery requirements, or an
exemption therefrom, and that if Securities are sold pursuant to a Registration Statement, they will be sold in compliance with
the plan of distribution set forth therein.


 



    	5



    	 



    

 


(h) Cancellation
of Warrant. This Warrant shall be canceled upon the full Exercise of this Warrant, and, as soon as practical after the Date
of Exercise, Holder shall be entitled to receive Common Stock for the number of shares purchased upon such Exercise of this Warrant,
and if this Warrant is not Exercised in full, Holder shall be entitled to receive a new Warrant (containing terms identical to
this Warrant) representing any unexercised portion of this Warrant in addition to such Common Stock.


 


(i) Holder of Record.
Each person in whose name any Warrant for shares of Common Stock is issued shall, for all purposes, be deemed to be the Holder
of record of such shares on the Date of Exercise of this Warrant, irrespective of the date of delivery of the Common Stock purchased
upon the Exercise of this Warrant. Nothing in this Warrant shall be construed as conferring upon Holder any rights as a stockholder
of the Company.


 


(j) Delivery
of Electronic Shares. In lieu of delivering physical certificates representing the unlegended shares
of Common Stock issuable upon Exercise (the “Unlegended Shares”), provided
the Company’s transfer agent is participating in the Depository Trust Company (“DTC”) Fast Automated Securities
Transfer (“FAST”) program, upon written request of the Holder, so long as the certificates therefor do
not bear a legend, are not required to bear a legend, and the Holder is not obligated to return such certificate for the placement
of a legend thereon, the Company shall cause its transfer agent to electronically transmit the Unlegended Shares to the Holder
by crediting the account of the Holder's prime broker with DTC identified in the written request through its Deposit Withdrawal
Agent Commission (“DWAC”) system.


 


(k) Buy-In.
In addition to any other rights available to the Holder, if the Company fails to cause its transfer agent to transmit to the Holder
a certificate or certificates representing the Exercise Shares pursuant to an Exercise on or before the fifth (5th)
Business Day after the Warrant Shares Delivery Deadline (other than for circumstances related to an outbreak of hostilities, terrorist
activities or war, the effects of weather or meteorological events, acts of God or other calamity or crisis), and if after such
date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the Holder’s brokerage
firm otherwise purchases shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Exercise Shares which
the Holder anticipated receiving upon such Exercise (a “Buy-In”), then the Company shall (1) pay in cash to
the Holder the amount by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares
of Common Stock so purchased exceeds (y) the amount obtained by multiplying (A) the number of Exercise Shares that the Company
was required to deliver to the Holder in connection with the Exercise at issue times (B) the price at which the sell order giving
rise to such purchase obligation was executed, and (2) at the option of the Holder, either reinstate the portion of the Warrant
and equivalent number of Exercise Shares for which such Exercise was not honored or deliver to the Holder the number of shares
of Common Stock that would have been issued had the Company timely complied with its Exercise and delivery obligations hereunder.
For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an
attempted Exercise of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under
clause (1) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide
the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In, together with applicable confirmations
and other evidence reasonably requested by the Company. Nothing herein shall limit a Holder’s right to pursue any other remedies
available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive
relief with respect to the Company’s failure to timely deliver certificates representing shares of Common Stock upon Exercise
of the Warrant as required pursuant to the terms hereof.


 



    	6



    	 



    

 


(l) Surrender of
Warrant Upon Exercise; Book-Entry. Notwithstanding anything to the contrary set forth herein, upon Exercise of this Warrant
in accordance with the terms hereof, the Holder shall not be required to physically surrender the original Warrant Certificate
to the Company unless all of this Warrant is Exercised, in which case such Holder shall deliver the original Warrant being Exercised
to the Company within one (1) Business Day following the Date of Exercise at issue. Partial exercises of this Warrant resulting
in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding
number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder
and the Company shall maintain records showing the amount of this Warrant that is so Exercised and the dates of such Exercises
or shall use such other method, reasonably satisfactory to the Holder and the Company, so as not to require physical surrender
of this original Warrant upon each such Exercise. In the event of any dispute or discrepancy, such records of the Company shall
be controlling and determinative in the absence of manifest error. The Holder and any assignee, by acceptance of this Warrant,
acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares
hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on
the face hereof.


 


3.          Payment
of Warrant Exercise Price.


 


(a) Exercise Price.
The Exercise Price (“Exercise Price”) shall initially equal $1.2043 per share (the “Initial Exercise
Price”), subject to adjustment pursuant to the terms hereof, including but not limited to Section 5 below.


 


Payment of the Exercise
Price may be made by either of the following, or a combination thereof, at the election of Holder:


 


(i)   Cash
Exercise: The Holder may exercise this Warrant in cash, bank or cashiers check or wire transfer (a “Cash
Exercise”); or


 


(ii)  Cashless
Exercise: The Holder, at its option, may exercise this Warrant in a cashless exercise transaction. In order to effect
a Cashless Exercise, the Holder shall surrender of this Warrant at the principal office of the Company together with notice
of cashless election, in which event the Company shall issue Holder a number of shares of Common Stock computed using the following
formula (a “Cashless Exercise”):


 



    	7



    	 



    

 


X = Y (A-B)/A


 


where:X = the number of shares of Common
Stock to be issued to Holder.


 


Y = the number of shares of Common
Stock for which this Warrant is beingExercised.


 


A = the Market Price of one (1)
share of Common Stock (for purposes of this Section 3(ii), where “Market Price,” as of any date, means the Volume
Weighted Average Price (as defined herein) of the Company’s Common Stock during the five (5) consecutive trading day
period immediately preceding the date of Exercise, or other applicable date.


 


B = the Exercise
Price.


 


As used herein,
the “Volume Weighted Average Price” or “VWAP” for any security as of any date means the volume
weighted average sale price on the Over the Counter Electronic Bulletin Board (the “OTC-BB”) as reported by,
or based upon data reported by, Bloomberg Financial Markets or an equivalent, reliable reporting service mutually acceptable to
and hereafter designated by holders of a majority in interest of the Warrants and the Company (“Bloomberg”)
or, if the OTC-BB is not the principal trading market for such security, the volume weighted average sale price of such security
on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or, if
no volume weighted average sale price is reported for such security, then the last closing trade price of such security as reported
by Bloomberg, or, if no last closing trade price is reported for such security by Bloomberg, the average of the bid prices of any
market makers for such security that are listed in the “pink sheets” by the National Quotation Bureau, Inc.
If the Volume Weighted Average Price cannot be calculated for such security on such date in the manner provided above, the volume
weighted average price shall be the fair market value as mutually determined by the Company and the holders of a majority in interest
of the Warrants being Exercised for which the calculation of the volume weighted average price is required in order to determine
the Exercise Price of such Warrants. “Trading Day” shall mean any day on which the Common Stock is traded for
any period on the OTC-BB, or on the principal securities exchange or other securities market on which the Common Stock is then
being traded.


 


For purposes of Rule
144 and sub-section (d)(3)(ii) thereof, it is intended, understood and acknowledged that the Common Stock issuable upon Exercise
of this Warrant in a cashless Exercise transaction shall be deemed to have been acquired at the time this Warrant was issued. Moreover,
it is intended, understood and acknowledged that the holding period for the Common Stock issuable upon Exercise of this Warrant
in a cashless Exercise transaction shall be deemed to have commenced on the date this Warrant was issued.


 



    	8



    	 



    

  


(b)
Dispute Resolution. In the case of a dispute as to the determination of the Exercise Price or the arithmetic
calculation of the number of Warrant Shares issuable upon any exercise of this Warrant, the Company shall promptly issue to the
Holder the number of Warrant Shares that are not disputed and resolve such dispute in accordance with this subsection. In the case
of a dispute as to the determination of the closing price or the Volume Weighted Average Price of the Company’s Common Stock
or the arithmetic calculation of the Exercise Price, or Market Price, the Company shall submit the disputed determinations or arithmetic
calculations via facsimile within five (5) Business Days of receipt, or deemed receipt, of the Notice of Exercise or Redemption
Notice or other event giving rise to such dispute, as the case may be, to the Holder. If the Holder and the Company are unable
to agree upon such determination or calculation within five (5) Business Days of such disputed determination or arithmetic calculation
being submitted to the Holder, then the Company shall, within five (5) Business Days submit via facsimile (i) the disputed determination
of the closing price or the Volume Weighted Average Price of the Company’s Common Stock to an independent, reputable investment
bank selected by the Company and approved by the Holder, which approval shall not be unreasonably withheld, (ii) the disputed arithmetic
calculation of the Exercise Price, or Market Price to the Company’s independent, outside accountant or (iii) the disputed
facts regarding any other matter referred to above that is not expressly designated to the independent investment bank or the independent
outside accountant pursuant to (i) or (ii) immediately above to an expert attorney from a nationally recognized outside law firm
(having at least 100 attorneys and having with no prior relationship with the Company) selected by the Company and approved by
the Holder. The Company shall request that the investment bank or the accountant, law firm, or other expert, as the case may be,
to perform the determinations or calculations and notify the Company and the Holder of the results no later than ten (10) Business
Days from the time it receives the disputed determinations or calculations. Such investment bank’s or accountant’s
or law firm’s determination or calculation, as the case may be, shall be binding upon all parties absent demonstrable error.


 


4.          Transfer
and Registration.


 


(a) Transfer
Rights. Subject to the provisions of Section 8 of this Warrant, this Warrant may be transferred on the books of the Company,
in whole or in part, in person or by attorney, upon surrender of this Warrant properly completed and endorsed. This Warrant shall
be canceled upon such surrender and, as soon as practicable thereafter, the person to whom such transfer is made shall be entitled
to receive a new Warrant or Warrants as to the portion of this Warrant transferred, and Holder shall be entitled to receive a new
Warrant as to the portion hereof retained.


 


(b) Registrable
Securities. The Common Stock issuable upon the Exercise of this Warrant has registration rights pursuant to that certain Registration
Rights Agreements between the Company and the Holder dated the Date of Issuance.


 



    	9



    	 



    

 


5.          Anti-Dilution
Adjustments; Additional Adjustments; Purchase Rights.


 


(a)  (Omitted).


 


(b)  Recapitalization
or Reclassification. If the Company shall at any time effect a recapitalization, reclassification or other similar transaction
of such character that the shares of Common Stock shall be changed into or become exchangeable for a larger or smaller number of
shares, then upon the effective date thereof, the number of shares of Common Stock which Holder shall be entitled to purchase upon
Exercise of this Warrant shall be increased or decreased, as the case may be, in direct proportion to the increase or decrease
in the number of shares of Common Stock by reason of such recapitalization, reclassification or similar transaction, and the Exercise
Price shall be, in the case of an increase in the number of shares, proportionally decreased and, in the case of decrease in the
number of shares, proportionally increased. The Company shall give Holder the same notice it provides to holders of Common Stock
of any transaction described in this Section 5(b).


 


(c) Exercise Price
Adjusted. As used in this Warrant, the term “Exercise Price” shall mean the purchase price per share specified
in Section 3 of this Warrant, until the occurrence of an event stated in this Section 5 or otherwise set forth in this Warrant,
and thereafter shall mean said price as adjusted from time to time in accordance with the provisions of said subsection. No such
adjustment under this Section 5 shall be made unless such adjustment would change the Exercise Price at the time by $.01 or more;
provided, however, that all adjustments not so made shall be deferred and made when the aggregate thereof would change the Exercise
Price at the time by $.01 or more. No adjustment made pursuant to any provision of this Section 5 shall have the net effect of
increasing the Exercise Price in relation to the split adjusted and distribution adjusted price of the Common Stock.


 


(d) Adjustments:
Additional Shares, Securities or Assets. In the event that at any time, as a result of an adjustment made pursuant to this
Section 5 or otherwise, Holder shall, upon Exercise of this Warrant, become entitled to receive shares and/or other securities
or assets (other than Common Stock) then, wherever appropriate, all references herein to shares of Common Stock shall be deemed
to refer to and include such shares and/or other securities or assets; and thereafter the number of such shares and/or other securities
or assets shall be subject to adjustment from time to time in a manner and upon terms as nearly equivalent as practicable to the
provisions of this Section 5.


 


(e)  (Omitted)


 


(f)  (Omitted).


 


(g)  (Omitted).


 


(h)  (Omitted).


 


(i) Subdivision
or Combination of Common Stock. If the Company at any time subdivides (by any stock split, stock dividend, recapitalization,
reorganization, reclassification or otherwise) the shares of Common Stock acquirable hereunder into a greater number of shares,
then, after the date of record for effecting such subdivision, the Exercise Price in effect immediately prior to such subdivision
will be proportionately reduced and the number of shares represented by this Warrant shall proportionally increase. If the Company
at any time combines (by reverse stock split, recapitalization, reorganization, reclassification or otherwise) the shares of Common
Stock acquirable hereunder into a smaller number of shares, then, after the date of record for effecting such combination, the
Exercise Price in effect immediately prior to such combination will be proportionately increased and the number of shares represented
by this Warrant shall proportionally decrease.


 



    	10



    	 



    

 


(j)  (Omitted).


 


(k) Adjustment
to Number of Shares. In the event of any adjustment to the Exercise Price pursuant to the terms of this Warrant, the number
of Warrant Shares issuable upon Exercise of this Warrant shall be adjusted (except as otherwise provided in Section 5(b) or (i))
such that the aggregate Exercise Price payable in a full Cash Exercise hereunder, after taking into account the decrease in the
Exercise Price, shall be equal to the aggregate Exercise Price payable in a full Cash Exercise prior to such adjustment, and the
number of Warrant Shares issuable in a Cashless Exercise shall be adjusted accordingly.


 


(l) Notice
of Adjustments. Whenever the Exercise Price is adjusted pursuant to the terms of this Warrant, the Company shall within Five
(5) Business Days mail to the Holder a notice (a “Exercise Price Adjustment Notice”) setting forth the Exercise
Price after such adjustment and setting forth a statement of the facts requiring such adjustment. The Company shall, upon the written
request at any time of the Holder, furnish to such Holder a like Warrant setting forth (i) such adjustment or readjustment, (ii)
the Exercise 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 Exercise of the Warrant, following delivery of the original Warrant to the
Company for exchange. For purposes of clarification, whether or not the Corporation provides an Exercise Price Adjustment Notice
pursuant to this Section 5(l), upon the occurrence of any event that leads to an adjustment of the Exercise Price, the Holders
are entitled to receive a number of Exercise Shares based upon the new Exercise Price, as adjusted, for exercises occurring on
or after the date of such adjustment, regardless of whether a Holder accurately refers to the adjusted Exercise Price in the Notice
of Exercise.


 


(m) Notice
to Holder. If (A) the Company shall declare a dividend (or any other
distribution in whatever form) on the Common Stock; (B) the Company shall declare a special nonrecurring cash dividend on or a
redemption of the Common Stock; (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants
to subscribe for or purchase any shares of capital stock of any class or of any rights; (D) the approval of any stockholders of
the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which
the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, of any compulsory share
exchange whereby the Common Stock is converted into other securities, cash or property; (E) the Company shall authorize the voluntary
or involuntary dissolution, liquidation or winding up of the affairs of the Company; then, in each case, the Company shall cause
to be mailed to the Holder at its last address as it shall appear upon the Warrant Register of the Company, at least 10 calendar
days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is
to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights
or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share
exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of
record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to mail such notice or any
defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be specified in such
notice. The Holder is entitled to exercise this Warrant during the period commencing on the date of such notice to the effective
date of the event triggering such notice.


 



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(n) (Omitted).


 


6.          Fractional
Interests.


 


No fractional shares
or scrip representing fractional shares shall be issuable upon the Exercise of this Warrant, but on Exercise of this Warrant, Holder
may purchase only a whole number of shares of Common Stock. If, on Exercise of this Warrant, Holder would be entitled to a fractional
share of Common Stock or a right to acquire a fractional share of Common Stock, such fractional share shall be disregarded and
the number of shares of Common Stock issuable upon Exercise shall be the next closest number of whole shares.


 


7.          Reservation
of Shares.


 


From and after the
date hereof, the Company shall at all times reserve for issuance such number of authorized and unissued shares of Common Stock
(or other securities substituted therefor as herein above provided) as shall be sufficient for the Exercise of this Warrant and
payment of the Exercise Price in full without regard to any Beneficial Ownership Limitation. If at any time the number of shares
of Common Stock authorized and reserved for issuance is below the number of shares sufficient for the Exercise of this Warrant
(based on the Exercise Price in effect from time to time), the Company will use commercially reasonable efforts to authorize and
reserve a sufficient number of shares, including, without limitation, calling a special meeting of stockholders to authorize additional
shares to meet the Company's obligations under this Section 7, in the case of an insufficient number of authorized shares,
and using its commercially reasonable efforts to obtain stockholder approval of an increase in such authorized number of shares.
The Company covenants and agrees that upon the Exercise of this Warrant, all shares of Common Stock issuable upon such Exercise
shall be duly and validly issued, fully paid, nonassessable and not subject to liens.


 


8.          Restrictions
on Transfer.


 


(a) Registration
or Exemption Required. This Warrant has been issued in a transaction exempt from the registration requirements of the Act by
virtue of Regulation D and exempt from state registration under applicable state laws. The Warrant and the Common Stock issuable
upon the Exercise of this Warrant may not be transferred, sold or assigned except pursuant to an effective registration statement
or an exemption to the registration requirements of the Act and applicable state laws.


 



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(b) Assignment.
If Holder can provide the Company with reasonably satisfactory evidence that the conditions of (a) above regarding registration
or exemption have been satisfied, including an opinion of counsel satisfactory to the Company, the Holder may sell, transfer, assign,
pledge or otherwise dispose of this Warrant, in whole or in part. Holder shall deliver a written notice to Company, substantially
in the form of the Assignment attached hereto as Exhibit B, indicating the person or persons to whom the Warrant shall be
assigned and the respective number of warrants to be assigned to each assignee. The Company shall effect the assignment within
ten (10) days of receipt of the original Warrant and other information required by this Section 8(b), and shall deliver to the
assignee(s) designated by Holder a Warrant or Warrants of like tenor and terms for the appropriate number of shares.


 


9.          Noncircumvention.



 


The Company hereby
covenants and agrees that the Company will not, by amendment of its Certificate of Incorporation, Bylaws or through any reorganization,
transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, and will at all times in good
faith carry out all the provisions of this Warrant and take all action as may be required to protect the rights of the Holder.
 Without limiting the generality of the foregoing, the Company (i) shall not increase the par value of any shares of
Common Stock receivable upon the exercise of this Warrant above the Exercise Price then in effect, and (ii) shall take all
such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable
shares of Common Stock upon the exercise of this Warrant.


 





10.         Rights
Upon Major Transaction or Change of Entity Transaction. 







 


(a) “Change
of Entity Transaction.” “Change of Entity Transaction” means (i) a consolidation, merger, exchange
of shares, recapitalization, reorganization, business combination or other similar event, (A) following which the holders of Common
Stock immediately preceding such consolidation, merger, combination or event either (1) no longer hold a majority of the shares
of Common Stock of the Company or (2) no longer have the ability to elect the board of directors of the Company or (B) as a result
of which shares of Common Stock shall be changed into (or the shares of Common Stock become entitled to receive) the same or a
different number of shares of the same or another class or classes of stock or securities of another entity.


 



    	13



    	 



    

 


(b)
 Assumption Upon Change of Entity Transaction. The Company shall not, so long as any portion of this Warrant
remains outstanding, enter into or be party to a Change of Entity Transaction unless any Person purchasing
the Company’s assets or Common Stock, or any successor entity resulting from such Change of Entity Transaction (in each case,
an “Successor Entity”), assumes (an “Assumption”) in writing all of the obligations of the
Company under this Warrant in accordance with the provisions of this Section 10(b) pursuant to written agreements in form and substance
reasonably satisfactory to the Required Warrant Holders (as defined below) and approved by the Required Warrant Holders prior to
such Change of Entity Transaction, including agreements to deliver to each holder of Warrants in exchange for such Warrants a security
of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant, including,
without limitation, having an exercise price equal to the Exercise Price of this Warrant or equitably adjusted as provided herein,
having similar exercise rights as this Warrant (including but not limited to similar exercise price adjustment provisions), and
reasonably satisfactory to the Required Warrant Holders.  Upon the occurrence of any Change of Entity Transaction, the Successor
Entity shall succeed to, and be substituted for (so that from and after the date of such Change of Entity Transaction, the provisions
of this Warrant referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right
and power of the Company and shall assume all of the obligations of the Company under the Warrant with the same effect as if such
Successor Entity had been named as the Company herein. Upon consummation of a Change of Entity Transaction, the Successor Entity
shall deliver to the Holder confirmation that there shall be issued upon exercise of the Warrant at any time after the consummation
of the Change of Entity Transaction, in lieu of the shares of Common Stock (or other securities, cash, assets or other property)
issuable upon the exercise of this Warrant prior to such Change of Entity Transaction, such shares of common stock (or their equivalent)
of the Successor Entity, as adjusted in accordance with the provisions of this Warrant. The provisions of this Section shall apply
similarly and equally to successive Change of Entity Transactions and shall be applied without regard to any limitations on the
conversion of the Warrant. The requirements of this Section 10(b) are referred to herein as the “Assumption Requirements.”


 


For purposes hereof,
“Required Warrant Holders” shall mean the Holders of two-thirds (2/3) of the then outstanding Warrants (determined
by the number of unexercised underlying shares).


 


(c)  (Omitted).


 


(d)  (Omitted).


 


(e)  (Omitted).


 


(f)   (Omitted).


 


(g)  (Omitted).


 


11.         (Omitted).


 


12.         (Omitted).


 


13.         (Omitted).


 



    	14



    	 



    

 


14.        Remedies, Other Obligations, Breaches And Injunctive Relief. 


 


The
remedies provided in this Warrant shall be cumulative and in addition to all other remedies available under this Warrant and the
other Transaction Documents, at law or in equity (including a decree of specific performance and/or other injunctive relief), and
nothing herein shall limit the right of the Holder right to pursue actual damages for any failure by the Company to comply with
the terms of this Warrant. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm
to the Holder and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event
of any such breach or threatened breach, the holder of this Warrant 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 any bond or other security
being required.


 


15.         Benefits
of this Warrant.


 


Nothing in this Warrant
shall be construed to confer upon any person other than the Company and Holder any legal or equitable right, remedy or claim under
this Warrant and this Warrant shall be for the sole and exclusive benefit of the Company and Holder.


 


16.         Governing
Law.


 


All questions concerning
the construction, validity, enforcement and interpretation of this Agreement shall be governed by and construed and enforced in
accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each
party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated
by this Agreement (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, employees
or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York. Each party hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, borough of Manhattan for
the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein
(including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not
to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court,
that such suit, action or proceeding is improper or is an inconvenient venue for such proceeding. Each party hereby irrevocably
waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy
thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect
for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and
notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted
by law. The parties hereby waive all rights to a trial by jury. If either party shall commence an action or proceeding to enforce
any provisions of this Agreement, then the prevailing party in such action or proceeding shall be reimbursed by the other party
for its reasonable attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution
of such action or proceeding.


 


17.         Loss
of Warrant.


 


Upon receipt by the
Company of evidence of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction)
of indemnity or security reasonably satisfactory to the Company, and upon surrender and cancellation of this Warrant, if mutilated,
the Company shall execute and deliver a new Warrant of like tenor and date.


 



    	15



    	 



    

 


18.         Notice
or Demands.


 


Notices or demands
pursuant to this Warrant to be given or made by Holder to or on the Company shall be sufficiently given or made if sent by certified
or registered mail, return receipt requested, postage prepaid, and addressed, until another address is designated in writing by
the Company, to the address set forth in Section 2(a) above. Notices or demands pursuant to this Warrant to be given or made by
the Company to or on Holder shall be sufficiently given or made if sent by certified or registered mail, return receipt requested,
postage prepaid, and addressed, to the address of Holder set forth in the Company’s records, until another address is designated
in writing by Holder.


 


19.         Warrant
Holder Not a Stockholder.


 


The Holder of this
Warrant, as such, shall not be entitled by reason of this Warrant to any rights whatsoever as a stockholder of the Company, including
but not limited to voting rights.


 


[SIGNATURE PAGE
FOLLOWS]


 



    	16



    	 



    

 


IN WITNESS WHEREOF,
the undersigned has executed this Amended and Restated Warrant as of the ___th day of March, 2012.


 


	 	      VirtualScopics, Inc.
	 	 
	 	By:	 
	 	Print Name: Molly Henderson
	 	Title: Chief Business and Financial Officer


 



    	17



    	 



    

 


EXHIBIT A


 


NOTICE OF EXERCISE FORM FOR AMENDED AND
RESTATED WARRANT


 


TO: VIRTUALSCOPICS, INC.


 


The undersigned hereby
irrevocably Exercises the right to purchase ____________ of the shares of Common Stock (the “Common Stock”)
of VIRTUALSCOPICS, INC., a Delaware corporation (the “Company”), evidenced by the attached amended and
restated warrant (the “Warrant”), and herewith makes payment of the Exercise price with respect to such shares
in full, all in accordance with the conditions and provisions of said Warrant.


 


1. The undersigned agrees not to offer,
sell, transfer or otherwise dispose of any of the Common Stock obtained on Exercise of the Warrant, except in accordance with the
provisions of Section 8(a) of the Warrant.


 


2. The undersigned requests that stock
certificates for such shares be issued free of any restrictive legend, if appropriate, and a warrant representing any unexercised
portion hereof be issued, pursuant to the Warrant in the name of the undersigned and delivered to the undersigned at the address
set forth below:


 


Dated:________


 


	 
	Signature
	 
	 
	Print Name
	 
	 
	Address
	 
	 


 


NOTICE


 


The signature to the foregoing Notice of
Exercise Form must correspond to the name as written upon the face of the attached Warrant in every particular, without alteration
or enlargement or any change whatsoever.


	 


 



    	18



    	 



    

 


EXHIBIT B


 


ASSIGNMENT


 


(To be executed by the registered holder


desiring to transfer the Warrant)


 


FOR VALUE RECEIVED, the undersigned holder
of the attached amended and restated warrant (the “Warrant”) hereby sells, assigns and transfers unto the person
or persons below named the right to purchase _______ shares of the Common Stock of VIRTUALSCOPICS, INC., a Delaware corporation,
evidenced by the attached Warrant and does hereby irrevocably constitute and appoint _______________________ attorney to transfer
the said Warrant on the books of the Company, with full power of substitution in the premises.


 


	Dated: _________	 	 
	 	 	Signature


 


	Fill in for new registration of Warrant:
	 
	 	 
	Name	 
	 	 
	 	 
	Address	 
	 	 
	 	 
	Please print name and address of assignee	 
	(including zip code number)	 
	 
	 


 


NOTICE


 


The signature to the foregoing Assignment
must correspond to the name as written upon the face of the attached Warrant in every particular, without alteration or enlargement
or any change whatsoever.


	 


 








    	19



    	 



    



 


Exhibit I


 


VOTING AGREEMENT


  



    	 



    	 



    



 








VOTING AGREEMENT


 


This Voting Agreement
(this “Agreement”), dated as of March __, 2012 between the
undersigned stockholder (“Stockholder”) of VirtualScopics,
Inc., a Delaware corporation (the “Company”), and the Company.


 


WHEREAS, concurrently
with or following the execution of this Agreement, the Company and Merck Global Health Innovation Fund, LLC, a Delaware limited
liability company (“Purchaser”) have entered, or will enter, into a Series C Preferred Stock and Warrant Purchase
Agreement (as the same may be amended from time to time, the “Purchase Agreement”),
providing for, among other things, the purchase by Purchaser of up to $6,000,000 of Series C-1 Convertible Preferred Stock and
Series C-2 Convertible Preferred Stock (“Series C Stock”), and warrants for common stock, par value $0.001 per
share, of the Company (“Common Stock”) pursuant to the terms and conditions of the Purchase Agreement (the “Transaction”);


 


WHEREAS, it is a condition
of the Purchaser’s obligations to purchase the Series C-1 Preferred Stock and warrants for Common Stock that (a) it
shall have obtained voting agreements from the holders of a majority of the Company’s outstanding Series A Convertible Preferred
Stock (“Series A Stock”) and the holders of at least two-thirds of the Company’s outstanding Series B
Convertible Preferred Stock (“Series B Stock”) in favor of the Series A Amendments and Series B Amendments to
be presented at the Company’s Annual Meeting of Stockholders to be held in 2012, and to approve the Transaction at any Company
Meeting of Stockholders (and at every adjournment or postponement thereof) and (b) the Required Holders (as defined in the
Certificate of Designation of Rights and Preferences of the Series B Preferred Stock of the Company (the “Series B Designations”))
shall have given their consent to the issuance of the Series C Stock pursuant the Series B Designations, including pursuant to
Section 19 thereunder and (c) the holders of a majority of the outstanding shares of Series A Stock shall have given their
consent to the issuance of the Series C Stock pursuant to Section 8 of the Certificate of Designations, Powers, Preferences and
Other Rights and Qualifications of Series A Convertible Preferred Stock;


 


WHEREAS, as a condition
to its willingness to enter into the Purchase Agreement, Purchaser has required that Stockholder and the Company execute and deliver
this Agreement; and


 


WHEREAS, in order to
induce Purchaser to enter into the Purchase Agreement, Stockholder is willing to make certain representations, warranties, covenants
and agreements with respect to the shares of preferred stock, par value $0.001 per share, of the Company (“Company
Preferred Stock”) beneficially owned by Stockholder and set forth below Stockholder's signature on the signature
page hereto (the “Original Shares” and, together with any
additional shares of Company Preferred Stock pursuant to Section 6 hereof, the “Shares”).


 



    	 



    	 



    

 


NOW, THEREFORE, in
consideration of the premises and for other good and valuable consideration, the receipt, sufficiency and adequacy of which are
hereby acknowledged, the parties hereto agree as follows:


 


		1.	Definitions.



 


For purposes of this
Agreement, capitalized terms used and not defined herein shall have the respective meanings ascribed to them in the Purchase Agreement
or the Series A Certificate of Designations, as applicable.


 


		2.	Representations of Stockholder.



 


Stockholder represents
and warrants that:


 


		(a)	(i) Stockholder owns beneficially (as such term is defined in Rule 13d-3 under the Exchange Act)
all of the Original Shares free and clear of all liens, claims or other encumbrances and (ii) except pursuant hereto, there are
no options, warrants or other rights, agreements, arrangements or commitments of any character to which Stockholder is a party
or is otherwise bound relating to the pledge, disposition or voting of any of the Original Shares and there are no proxies, voting
trusts or voting agreements with respect to the Original Shares.



 


		(b)	Stockholder does not beneficially own any shares of the Company’s capital stock other than
the Original Shares.



 


		(c)	Stockholder (if any entity) has full corporate power and authority and (if an individual) legal
capacity to enter into, execute and deliver this Agreement and to perform fully Stockholder's obligations hereunder (including
the proxy described in Section 3(b) below)). This Agreement has been duly and validly executed and delivered by Stockholder
and constitutes the legal, valid and binding obligation of Stockholder, enforceable against Stockholder in accordance with its
terms.



 


		(d)	None of the execution and delivery of this Agreement by Stockholder, the consummation by Stockholder
of the transactions contemplated hereby or compliance by Stockholder with any of the provisions hereof will conflict with or result
in a breach, or constitute a violation or default (with or without notice of lapse of time or both) under any provision of, any
trust agreement, loan or credit agreement, note, bond, mortgage, indenture, lease or other agreement, or instrument or law, rule
or regulation applicable to Stockholder or to Stockholder's property or assets or, if an entity, any of its governing documents.



 



    	2



    	 



    

 


		(e)	No consent, approval or authorization of, or designation, declaration or filing with, any governmental
authority or other Person on the part of Stockholder is required in connection with the valid execution and delivery of this Agreement.
No consent of Stockholder's spouse is necessary under any “community property” or other laws in order for Stockholder
to enter into and perform its obligations under this Agreement.



 


		3.	Agreement to Vote Shares; Irrevocable Proxy.



 


		(a)	Stockholder agrees during the term of this Agreement to vote the Shares, and to cause any holder
of record of Shares to vote or execute a written consent or consents if stockholders of the Company are requested to vote their
shares through the execution of an action by written consent in lieu of any such annual or special meeting of stockholders of the
Company: (i) in favor of the Series A Amendments and Series B Amendments and the Transaction, at every meeting (or in connection
with any action by written consent) of the stockholders of the Company at which such matters are considered and at every adjournment
or postponement thereof; (ii) against any action, proposal, transaction or agreement that could reasonably be expected to impede,
interfere with, delay, discourage, adversely affect or inhibit the timely consummation of the Series A Amendments and Series B
Amendments and the Transaction; and (iii) in favor of any other matter necessary for the adoption of the Series A Amendments and
Series B Amendments and consummation of the transactions contemplated by the Purchase Agreement (and each other document delivered
thereunder), which is considered at every meeting (or in connection with any action by written consent) of the stockholders of
the Company at which such matters are considered and at every adjournment or postponement thereof, and in connection therewith
to execute any documents reasonably requested by the Company or Purchaser that are necessary or appropriate in order to effectuate
the foregoing.



 



    	3



    	 



    

 


		(b)	Stockholder hereby revokes (or agrees to cause to be revoked) any proxies that such Stockholder
has heretofore granted with respect to the Shares. Stockholder hereby appoints Company and/or its designee, and each of them individually,
its proxies and attorneys-in-fact, with full power of substitution and resubstitution, to vote or act by written consent during
the term of this Agreement with respect to the Shares in accordance with Section 3(a). This proxy and power of attorney
is given to secure the performance of the duties of Stockholder under this Agreement. Stockholder shall take such further action
or execute such other instruments as may be necessary to effectuate the intent of this proxy. This proxy and power of attorney
granted by Stockholder shall be irrevocable during the term of this Agreement, shall be deemed to be coupled with an interest sufficient
in law to support an irrevocable proxy and shall revoke any and all prior proxies granted by Stockholder with respect to the Shares.
The power of attorney granted by Stockholder herein is a durable power of attorney and shall survive the dissolution, bankruptcy,
death or incapacity of Stockholder. The proxy and power of attorney granted hereunder shall terminate upon the termination of this
Agreement.



 


		(c)	With respect to its Shares, Stockholder hereby agrees that, during the term of this Agreement,
Stockholder shall not take, nor shall cause any other Person to take, or propose to take, any action that is inconsistent with,
or contrary to the terms, of the Series A Amendments and Series B Amendments (as if each had been adopted and in effect), or which
is otherwise inconsistent with the Series A Amendments and Series B Amendments or the Transaction, and shall (in its capacity as
a holder of Company Preferred Stock) approve any action approved by the Board of Directors of the Company which Stockholder is
currently entitled to vote on but which Stockholder would not be entitled to vote on upon adoption of the Series A Amendments and
Series B Amendments. Without limiting the foregoing, for the avoidance of doubt, without the prior written consent of the Required
Holders (as defined in the Certificate of Designation of Rights and Preferences of the Series C-1 Preferred Stock and Series C-2
Preferred Stock of the Company (the “Series C Designation”)) (i) Stockholder shall not cause or permit any of
its Shares to be redeemed at anytime while the Series C Stock is outstanding, (ii) Stockholder shall not cause or permit any payment
of dividends or other distributions or payments on any of its Shares in cash or shares of the Common Stock, or other securities
or property, except as permitted in the Series A Amendments and Series B Amendments (as if each had been adopted and in effect),
and in the Company’s certificate of incorporation, as amended from time to time following the date of the Initial Closing
(the “COI”), including the Series C Certificate of Designation, (iii) no Shares will be entitled to any adjustments
for the conversion rate under Section 6 of the Series A Certificate of Designations with respect to the Transaction, including
with respect to the issuance of the Series C Stock, the issuance of any of the Company’s Common Stock upon the conversion
of such preferred stock or accrued dividends thereon, and for the payment of dividends or other distributions or payments in respect
of the Series C Stock, or for the issuance of Warrants under the Purchase Agreement, or Common Stock upon the exercise thereof,
or for the issuances by the Company of securities at an effective per share price of Common Stock less than the highest effective
per share price paid by Purchaser for any Series C Stock, and (iv) Stockholder, as a holder of Shares shall, with respect to its
Shares, approve any issuance of senior or pari passu preferred stock and any Major Transaction or other Change of Entity
Transaction (as such terms are defined in the Series B Designations) approved by the Board of Directors of the Company.



 



    	4



    	 



    

 


		4.	No Voting Trusts or Other Arrangement.



 


Stockholder agrees
that Stockholder will not, and will not cause or permit any entity under Stockholder's control to, deposit any of the Shares in
a voting trust, grant any proxies with respect to the Shares or subject any of the Shares to any arrangement with respect to the
voting of the Shares other than as contemplated by this Agreement.


 


		5.	Transfer and Encumbrance.



 


Stockholder agrees
that during the term of this Agreement, Stockholder will not, directly or indirectly, transfer, sell, offer, exchange, assign,
give, exchange, mortgage, hypothecate, pledge or otherwise dispose of or encumber (by operation of law or otherwise) (“Transfer”)
any of the Shares or enter into any contract, option or other agreement with respect to, or consent to, a Transfer of, any of the
Shares or Stockholder's voting or economic interest therein. Any attempted Transfer of Shares or any interest therein in violation
of this Section 5 shall be null and void. This Section 5 shall not prohibit a Transfer of the Shares by Stockholder
to any member of Stockholder's immediate family, or to a trust for the benefit of Stockholder or any member of Stockholder's immediate
family, or upon the death of Stockholder, or to an Affiliate of Stockholder; provided, that a Transfer referred to in this sentence
shall be permitted only if, as a precondition to such Transfer, the transferee agrees in a writing, reasonably satisfactory in
form and substance to the Company and the Purchaser, to be bound by all of the terms of this Agreement.


 


		6.	Additional Shares.



 


Stockholder agrees
that all shares of Company preferred stock that Stockholder purchases, acquires the right to vote or otherwise acquires beneficial
ownership (as defined in Rule 13d-3 under the Exchange Act) of after the execution of this Agreement shall be subject to the terms
of this Agreement and shall constitute Shares for all purposes of this Agreement.


 


		7.	Termination.



 


This Agreement shall
terminate upon the earliest to occur of (i) the mutual agreement of Stockholder, the Company and the Purchaser, (ii) ten
business days after adoption of the Series A Amendments and Series B Amendments and the Purchase Agreement, and approval by the
Company’s stockholders of the Transaction and (iii) December 31, 2013.


 



    	5



    	 



    

 


		8.	No Agreement as Director or Officer.



 


Stockholder makes no
agreement or understanding in this Agreement in Stockholder's capacity as a director or officer of the Company or any of its subsidiaries
(if Stockholder holds such office), and nothing in this Agreement: (a) will limit or affect any actions or omissions taken by Stockholder
in stockholder's capacity as such a director or officer, including in exercising rights under the Purchase Agreement, and no such
actions or omissions shall be deemed a breach of this Agreement or (b) will be construed to prohibit, limit or restrict Stockholder
from exercising Stockholder's fiduciary duties as an officer or director to the Company or its stockholders.


 


		9.	Specific Performance.



 


Each party hereto acknowledges
that it will be impossible to measure in money the damage to the other party if a party hereto fails to comply with any of the
obligations imposed by this Agreement, that every such obligation is material and that, in the event of any such failure, the other
party will not have an adequate remedy at law or damages. Accordingly, each party hereto agrees that injunctive relief or other
equitable remedy, in addition to remedies at law or damages, is the appropriate remedy for any such failure and will not oppose
the seeking of such relief on the basis that the other party has an adequate remedy at law. Each party hereto agrees that it will
not seek, and agrees to waive any requirement for, the securing or posting of a bond in connection with the other party's seeking
or obtaining such equitable relief.


 


		10.	Entire Agreement.



 


This Agreement supersedes
all prior agreements, written or oral, between the parties hereto with respect to the subject matter hereof and contains the entire
agreement between the parties with respect to the subject matter hereof. This Agreement may not be amended or supplemented, and
no provisions hereof may be modified or waived, except by an instrument in writing signed by the parties hereto. No waiver of any
provisions hereof by either party shall be deemed a waiver of any other provisions hereof by such party, nor shall any such waiver
be deemed a continuing waiver of any provision hereof by such party.


 



    	6



    	 



    

 


		11.	Notices.



 


All notices, requests,
claims, demands, and other communications hereunder shall be in writing and shall be deemed to have been given (a) when delivered
by hand (with written confirmation of receipt), (b) when received by the addressee if sent by a nationally recognized overnight
courier (receipt requested), (c) on the date sent by facsimile or e-mail of a PDF document (with confirmation of transmission)
if sent during normal business hours of the recipient, and on the next Business Day if sent after normal business hours of the
recipient, or (d) on the third day after the date mailed, by certified or registered mail, return receipt requested, postage prepaid.
Such communications must be sent to the respective parties at the following addresses (or at such other address for a party as
shall be specified in a notice given in accordance with this Section 11):


 


	If to Company:	 	VirtualScopics, Inc.
	 	 	500 Linden Oaks
	 	 	Rochester, New York  14625
	 	 	Attn:	Molly Henderson, Chief Business and Financial Officer
	 	 	Facsimile: 585-218-7350
	 	 	 	 
	With a copy to:	 	Woods Oviatt Gilman LLP
	 	 	700 Crossroads Building, 2 State Street
	 	 	Rochester, New York 14614
	 	 	Attn:	Gregory W. Gribben, Esq.
	 	 	Facsimile: 585-987-2975
	 	 	 	 
	If to Purchaser:	 	Merck Global Health Innovation Fund, LLC
	 	 	One Merck Drive
	 	 	Whitehouse Station, New Jersey 08889-0100
	 	 	Attn:	David Rubin
	 	 	Facsimile: 908 735-1341
	 	 	 	 
	With a copy to:	 	McDermott Will & Emery LLP
	 	 	340 Madison Avenue
	 	 	New York, NY 10173-1922
	 	 	Attn:	Todd Finger, Esq. and Seth Goldsamt, Esq.
	 	 	Facsimile: +1 212 547 5444


 


If to Stockholder,
to the address or facsimile number set forth for Stockholder on the signature page hereof.


 


		12.	Miscellaneous.



 


		(a)	This Agreement shall be governed by and construed in accordance with the internal laws of the State
of Delaware without giving effect to any choice or conflict of law provision or rule (whether of the State of Delaware or any other
jurisdiction) that would cause the application of Laws of any jurisdiction other than those of the State of Delaware.



 



    	7



    	 



    

 


		(b)	Each of the parties hereto irrevocably agrees that any legal action or proceeding with respect
to this Agreement and the rights and obligations arising hereunder, or for recognition and enforcement of any judgment in respect
of this Agreement and the rights and obligations arising hereunder brought by the other party hereto or its successors or assigns
shall be brought and determined exclusively in the state and federal courts located in the State of New York, County of New York.
Each of the parties hereto agrees that mailing of process or other papers in connection with any such action or proceeding in the
manner provided in Section 11 or in such other manner as may be permitted by applicable Laws, will be valid and sufficient
service thereof. Each of the parties hereto hereby irrevocably submits with regard to any such action or proceeding for itself
and in respect of its property, generally and unconditionally, to the personal jurisdiction of the aforesaid courts and agrees
that it will not bring any action relating to this Agreement or any of the transactions contemplated by this Agreement in any court
or tribunal other than the aforesaid courts. Each of the parties hereto hereby irrevocably waives, and agrees not to assert, by
way of motion, as a defense, counterclaim or otherwise, in any action or proceeding with respect to this Agreement and the rights
and obligations arising hereunder, or for recognition and enforcement of any judgment in respect of this Agreement and the rights
and obligations arising hereunder (i) any claim that it is not personally subject to the jurisdiction of the above named courts
for any reason other than the failure to serve process in accordance with this Section 12(b), (ii) any claim that it or
its property is exempt or immune from jurisdiction of any such court or from any legal process commenced in such courts (whether
through service of notice, attachment prior to judgment, attachment in aid of execution of judgment, execution of judgment or otherwise),
and (iii) to the fullest extent permitted by the applicable Law, any claim that (x) the suit, action or proceeding in such court
is brought in an inconvenient forum, (y) the venue of such suit, action or proceeding is improper, or (z) this Agreement, or the
subject matter hereof, may not be enforced in or by such courts.



 



    	8



    	 



    

 


		(c)	EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS
LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES AND, THEREFORE, EACH SUCH PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT
IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LEGAL ACTION ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT. EACH PARTY TO THIS AGREEMENT CERTIFIES AND ACKNOWLEDGES THAT (A) NO REPRESENTATIVE OF ANY OTHER
PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT SEEK TO ENFORCE THE FOREGOING WAIVER IN THE EVENT
OF A LEGAL ACTION, (B) SUCH PARTY HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (C) SUCH PARTY MAKES THIS WAIVER VOLUNTARILY,
AND (D) SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS
IN THIS Section 12(c).



 


		(d)	If any term or provision of this Agreement is invalid, illegal or unenforceable in any jurisdiction,
such invalidity, illegality or unenforceability shall not affect any other term or provision of this Agreement or invalidate or
render unenforceable such term or provision in any other jurisdiction. Upon such determination that any term or other provision
is invalid, illegal or unenforceable, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated
hereby be consummated as originally contemplated to the greatest extent possible.



 


		(e)	This Agreement may be executed in one or more counterparts, each of which shall be deemed to be
an original but all of which together shall constitute one and the same instrument.



 


		(f)	Each party hereto shall execute and deliver such additional documents as may be necessary or desirable
to effect the transactions contemplated by this Agreement.



 


		(g)	All Section headings herein are for convenience of reference only and are not part of this Agreement,
and no construction or reference shall be derived therefrom.



 


		(h)	The obligations of Stockholder set forth in this Agreement shall not be effective or binding upon
Stockholder until after such time as the Purchase Agreement is executed and delivered by the Purchaser to the Company, and the
parties agree that there is not and has not been prior to the date of execution hereof any other agreement, arrangement or understanding
between the parties hereto with respect to the matters set forth herein.



 



    	9



    	 



    

 


		(i)	Neither party to this Agreement may assign any of its rights or obligations under this Agreement
without the prior written consent of the other party hereto. Any assignment contrary to the provisions of this Section 12(i)
shall be null and void.



 


		(j)	The parties agree that the Purchaser shall be a third party beneficiary of this Agreement and shall
have the right to enforce this Agreement and approve any amendment, waiver or termination of this Agreement.



 


[SIGNATURE PAGE FOLLOWS]


 



    	10



    	 



    

 


IN WITNESS WHEREOF,
the parties hereto have executed and delivered this Agreement as of the date first written above.


 





	 	VIRTUALSCOPICS, INC.
	 	 	 	 
	 	By	 	 
	 	Name:	 	 
	 	Title:	 	 
	 	 	 	 
	 	STOCKHOLDER
	 	 	 	 
	 	By	 	 
	 	 	 	 
	 	Name:	 	 



 





	 	Series and Number of Shares of Company Preferred Stock Beneficially Owned as of the Date of this Agreement:
	 	Series: _______________
	 	Number:______________
	 	 
	 	Street Address:______________
	 	__________________________
	 	City/State/Zip Code: _________
	 	__________________________
	 	Fax: ______________________


 


 


[SIGNATURE PAGE TO VOTING AGREEMENT]


 



    	11



    	 



    

 


VOTING AGREEMENT


 


This Voting Agreement
(this “Agreement”), dated as of March __, 2012 between the
undersigned stockholder (“Stockholder”) of VirtualScopics,
Inc., a Delaware corporation (the “Company”), and the Company.


 


WHEREAS, concurrently
with or following the execution of this Agreement, the Company and Merck Global Health Innovation Fund, LLC, a Delaware limited
liability company (“Purchaser”) have entered, or will enter, into a Series C Preferred Stock and Warrant Purchase
Agreement (as the same may be amended from time to time, the “Purchase Agreement”),
providing for, among other things, the purchase by Purchaser of up to $6,000,000 of Series C-1 Convertible Preferred Stock and
Series C-2 Convertible Preferred Stock (“Series C Stock”), and warrants for common stock, par value $0.001 per
share, of the Company (“Common Stock”) pursuant to the terms and conditions of the Purchase Agreement(the “Transaction”);


 


WHEREAS, it is a condition
of the Purchaser’s obligations to purchase the Series C-1 Preferred Stock and warrants for Common Stock that (a) it
shall have obtained voting agreements from the holders of a majority of the Company’s outstanding Series A Convertible Preferred
Stock (“Series A Stock”) and the holders of at least two-thirds of the Company’s outstanding Series B
Convertible Preferred Stock (“Series B Stock”) in favor of the Series A Amendments and Series B Amendments to
be presented at the Company’s Annual Meeting of Stockholders to be held in 2012, and to approve the Transaction at any Company
Meeting of Stockholders (and at every adjournment or postponement thereof) and (b) the Required Holders (as defined in the
Certificate of Designation of Rights and Preferences of the Series B Preferred Stock of the Company (the “Series B Designations”))
shall have given their consent to the issuance of the Series C Stock pursuant the Series B Designations, including pursuant to
Section 19 thereunder and (c) the holders of a majority of the outstanding shares of Series A Stock shall have given their
consent to the issuance of the Series C Stock pursuant to Section 8 of the Certificate of Designations, Powers, Preferences and
Other Rights and Qualifications of Series A Convertible Preferred Stock;


 


WHEREAS, as a condition
to its willingness to enter into the Purchase Agreement, Purchaser has required that Stockholder and the Company execute and deliver
this Agreement; and


 


WHEREAS, in order to
induce Purchaser to enter into the Purchase Agreement, Stockholder is willing to make certain representations, warranties, covenants
and agreements with respect to the shares of preferred stock, par value $0.001 per share, of the Company (“Company
Preferred Stock”) beneficially owned by Stockholder and set forth below Stockholder's signature on the signature
page hereto (the “Original Shares” and, together with any
additional shares of Company Preferred Stock pursuant to Section 6 hereof, the “Shares”).


 



    	12



    	 



    

 


NOW, THEREFORE, in
consideration of the premises and for other good and valuable consideration, the receipt, sufficiency and adequacy of which are
hereby acknowledged, the parties hereto agree as follows:


 


		13.	Definitions.



 


For purposes of this
Agreement, capitalized terms used and not defined herein shall have the respective meanings ascribed to them in the Purchase Agreement
or the Series B Designations, as applicable.


 


		14.	Representations of Stockholder.



 


Stockholder represents
and warrants that:


 


		(a)	(i) Stockholder owns beneficially (as such term is defined in Rule 13d-3 under the Exchange Act)
all of the Original Shares free and clear of all liens, claims or other encumbrances and (ii) except pursuant hereto, there are
no options, warrants or other rights, agreements, arrangements or commitments of any character to which Stockholder is a party
or is otherwise bound relating to the pledge, disposition or voting of any of the Original Shares and there are no proxies, voting
trusts or voting agreements with respect to the Original Shares.



 


		(b)	Stockholder does not beneficially own any shares of the Company Preferred Stock other than the
Original Shares.



 


		(c)	Stockholder (if any entity) has full corporate power and authority and (if an individual) legal
capacity to enter into, execute and deliver this Agreement and to perform fully Stockholder's obligations hereunder (including
the proxy described in Section 3(b) below)). This Agreement has been duly and validly executed and delivered by Stockholder
and constitutes the legal, valid and binding obligation of Stockholder, enforceable against Stockholder in accordance with its
terms.



 


		(d)	None of the execution and delivery of this Agreement by Stockholder, the consummation by Stockholder
of the transactions contemplated hereby or compliance by Stockholder with any of the provisions hereof will conflict with or result
in a breach, or constitute a violation or default (with or without notice of lapse of time or both) under any provision of, any
trust agreement, loan or credit agreement, note, bond, mortgage, indenture, lease or other agreement, or instrument or law, rule
or regulation applicable to Stockholder or to Stockholder's property or assets or, if an entity, any of its governing documents.



 



    	13



    	 



    

 


		(e)	No consent, approval or authorization of, or designation, declaration or filing with, any governmental
authority or other Person on the part of Stockholder is required in connection with the valid execution and delivery of this Agreement.
No consent of Stockholder's spouse is necessary under any “community property” or other laws in order for Stockholder
to enter into and perform its obligations under this Agreement.



 


		15.	Agreement to Vote Shares; Irrevocable Proxy.



 


		(a)	Stockholder agrees during the term of this Agreement to vote the Shares, and to cause any holder
of record of Shares to vote or execute a written consent or consents if stockholders of the Company are requested to vote their
shares through the execution of an action by written consent in lieu of any such annual or special meeting of stockholders of the
Company: (i) in favor of the Series A Amendments and Series B Amendments and the Transaction, at every meeting (or in connection
with any action by written consent) of the stockholders of the Company at which such matters are considered and at every adjournment
or postponement thereof; (ii) against any action, proposal, transaction or agreement that could reasonably be expected to impede,
interfere with, delay, discourage, adversely affect or inhibit the timely consummation of the Series A Amendments and Series B
Amendments and the Transaction; and (iii) in favor of any other matter necessary for the adoption of the Series A Amendments and
Series B Amendments and consummation of the transactions contemplated by the Purchase Agreement (and each other document delivered
thereunder), which is considered at every meeting (or in connection with any action by written consent) of the stockholders of
the Company at which such matters are considered and at every adjournment or postponement thereof, and in connection therewith
to execute any documents reasonably requested by the Company or Purchaser that are necessary or appropriate in order to effectuate
the foregoing.



 



    	14



    	 



    

 


		(b)	Stockholder hereby revokes (or agrees to cause to be revoked) any proxies that such Stockholder
has heretofore granted with respect to the Shares. Stockholder hereby appoints Company and/or its designee, and each of them individually,
its proxies and attorneys-in-fact, with full power of substitution and resubstitution, to vote or act by written consent during
the term of this Agreement with respect to the Shares in accordance with Section 3(a). This proxy and power of attorney
is given to secure the performance of the duties of Stockholder under this Agreement. Stockholder shall take such further action
or execute such other instruments as may be necessary to effectuate the intent of this proxy. This proxy and power of attorney
granted by Stockholder shall be irrevocable during the term of this Agreement, shall be deemed to be coupled with an interest sufficient
in law to support an irrevocable proxy and shall revoke any and all prior proxies granted by Stockholder with respect to the Shares.
The power of attorney granted by Stockholder herein is a durable power of attorney and shall survive the dissolution, bankruptcy,
death or incapacity of Stockholder. The proxy and power of attorney granted hereunder shall terminate upon the termination of this
Agreement.



 


		(c)	With respect to its Shares, Stockholder hereby agrees that, during the term of this Agreement,
Stockholder shall not take, nor shall cause any other Person to take, or propose to take, any action that is inconsistent with,
or contrary to the terms, of the Series A Amendments and Series B Amendments (as if each had been adopted and in effect), or which
is otherwise inconsistent with the Series A Amendments and Series B Amendments or the Transaction, and shall (in its capacity as
a holder of Company Preferred Stock) approve any action approved by the Board of Directors of the Company which Stockholder is
currently entitled to vote on but which Stockholder would not be entitled to vote on upon adoption of the Series A Amendments and
Series B Amendments. Without limiting the foregoing, for the avoidance of doubt, without the prior written consent of the Required
Holders (as defined in the Certificate of Designation of Rights and Preferences of the Series C-1 Preferred Stock and Series C-2
Preferred Stock of the Company (the “Series C Designation”)) (i) Stockholder shall not cause or permit any of
its Shares to be redeemed at anytime while the Series C Stock is outstanding, (ii) Stockholder shall not cause or permit any payment
of dividends or other distributions or payments on any of its Shares in cash or shares of the Common Stock, or other securities
or property, except as permitted in the Series A Amendments and Series B Amendments (as if each had been adopted and in effect),
and in the Company’s certificate of incorporation, as amended from time to time following the date of the Initial Closing
(the “COI”), including the Series C Certificate of Designation, (iii) no Shares will be entitled to any adjustments
for the conversion rate under Section 10(a) of the Series B Certificate of Designations with respect to the issuance of the Series
C Stock, the issuance of any of the Company’s Common Stock upon the conversion of such preferred stock or accrued dividends
thereon, and for the payment of dividends or other distributions or payments in respect of the Series C Stock, or for the issuance
of Warrants under the Purchase Agreement, or Common Stock upon the exercise thereof, or for the issuances by the Company of securities
at an effective per share price of Common Stock less than the highest effective per share price paid by Purchaser for any Series
C Stock, (iv) Stockholder, as a holder of Shares shall, with respect to its Shares, approve any issuance of senior or pari passu
preferred stock and any Major Transaction or other Change of Entity Transaction (as such terms are defined in the Series B
Designations) approved by the Board of Directors of the Company, and (v) Stockholder, as a holder of Shares, hereby irrevocably
waives any rights it may have under Section 8 of the Series B Certificate of Designations.



 



    	15



    	 



    

 


		16.	No Voting Trusts or Other Arrangement.



 


Stockholder agrees
that Stockholder will not, and will not cause or permit any entity under Stockholder's control to, deposit any of the Shares in
a voting trust, grant any proxies with respect to the Shares or subject any of the Shares to any arrangement with respect to the
voting of the Shares other than as contemplated by this Agreement.


 


		17.	Transfer and Encumbrance.



 


Stockholder agrees
that during the term of this Agreement, Stockholder will not, directly or indirectly, transfer, sell, offer, exchange, assign,
give, exchange, mortgage, hypothecate, pledge or otherwise dispose of or encumber (by operation of law or otherwise) (“Transfer”)
any of the Shares or enter into any contract, option or other agreement with respect to, or consent to, a Transfer of, any of the
Shares or Stockholder's voting or economic interest therein. Any attempted Transfer of Shares or any interest therein in violation
of this Section 5 shall be null and void. This Section 5 shall not prohibit a Transfer of the Shares by Stockholder
to any member of Stockholder's immediate family, or to a trust for the benefit of Stockholder or any member of Stockholder's immediate
family, or upon the death of Stockholder, or to an Affiliate of Stockholder; provided, that a Transfer referred to in this sentence
shall be permitted only if, as a precondition to such Transfer, the transferee agrees in a writing, reasonably satisfactory in
form and substance to the Company and the Purchaser, to be bound by all of the terms of this Agreement.


 


		18.	Additional Shares.



 


Stockholder agrees
that all shares of Company preferred stock that Stockholder purchases, acquires the right to vote or otherwise acquires beneficial
ownership (as defined in Rule 13d-3 under the Exchange Act) of after the execution of this Agreement shall be subject to the terms
of this Agreement and shall constitute Shares for all purposes of this Agreement.


 



    	16



    	 



    

 


		19.	Termination.



 


This Agreement shall
terminate upon the earliest to occur of (i) the mutual agreement of Stockholder, the Company and the Purchaser, (ii) ten
business days after adoption of the Series A Amendments and Series B Amendments and the Purchase Agreement, and approval by the
Company’s stockholders of the Transaction and (iii) December 31, 2013.


 


		20.	No Agreement as Director or Officer.



 


Stockholder makes no
agreement or understanding in this Agreement in Stockholder's capacity as a director or officer of the Company or any of its subsidiaries
(if Stockholder holds such office), and nothing in this Agreement: (a) will limit or affect any actions or omissions taken by Stockholder
in stockholder's capacity as such a director or officer, including in exercising rights under the Purchase Agreement, and no such
actions or omissions shall be deemed a breach of this Agreement or (b) will be construed to prohibit, limit or restrict Stockholder
from exercising Stockholder's fiduciary duties as an officer or director to the Company or its stockholders.


 


		21.	Specific Performance.



 


Each party hereto acknowledges
that it will be impossible to measure in money the damage to the other party if a party hereto fails to comply with any of the
obligations imposed by this Agreement, that every such obligation is material and that, in the event of any such failure, the other
party will not have an adequate remedy at law or damages. Accordingly, each party hereto agrees that injunctive relief or other
equitable remedy, in addition to remedies at law or damages, is the appropriate remedy for any such failure and will not oppose
the seeking of such relief on the basis that the other party has an adequate remedy at law. Each party hereto agrees that it will
not seek, and agrees to waive any requirement for, the securing or posting of a bond in connection with the other party's seeking
or obtaining such equitable relief.


 


		22.	Entire Agreement.



 


This Agreement supersedes
all prior agreements, written or oral, between the parties hereto with respect to the subject matter hereof and contains the entire
agreement between the parties with respect to the subject matter hereof. This Agreement may not be amended or supplemented, and
no provisions hereof may be modified or waived, except by an instrument in writing signed by the parties hereto. No waiver of any
provisions hereof by either party shall be deemed a waiver of any other provisions hereof by such party, nor shall any such waiver
be deemed a continuing waiver of any provision hereof by such party.


 



    	17



    	 



    

 


		23.	Notices.



 


All notices, requests,
claims, demands, and other communications hereunder shall be in writing and shall be deemed to have been given (a) when delivered
by hand (with written confirmation of receipt), (b) when received by the addressee if sent by a nationally recognized overnight
courier (receipt requested), (c) on the date sent by facsimile or e-mail of a PDF document (with confirmation of transmission)
if sent during normal business hours of the recipient, and on the next Business Day if sent after normal business hours of the
recipient, or (d) on the third day after the date mailed, by certified or registered mail, return receipt requested, postage prepaid.
Such communications must be sent to the respective parties at the following addresses (or at such other address for a party as
shall be specified in a notice given in accordance with this Section 11):


 


	If to Company:	 	VirtualScopics, Inc.
	 	 	500 Linden Oaks
	 	 	Rochester, New York  14625
	 	 	Attn:	Molly Henderson, Chief Business and Financial Officer
	 	 	Facsimile: 585-218-7350
	 	 	 	 
	With a copy to:	 	Woods Oviatt Gilman LLP
	 	 	700 Crossroads Building, 2 State Street
	 	 	Rochester, New York 14614
	 	 	Attn:	Gregory W. Gribben, Esq.
	 	 	Facsimile: 585-987-2975
	 	 	 	 
	If to Purchaser:	 	Merck Global Health Innovation Fund, LLC
	 	 	One Merck Drive
	 	 	Whitehouse Station, New Jersey 08889-0100
	 	 	Attn:	David Rubin
	 	 	Facsimile: 908 735-1341
	 	 	 	 
	With a copy to:	 	McDermott Will & Emery LLP
	 	 	340 Madison Avenue
	 	 	New York, NY 10173-1922
	 	 	Attn:	Todd Finger, Esq. and Seth Goldsamt, Esq.
	 	 	Facsimile: +1 212 547 5444


 


If to Stockholder,
to the address or facsimile number set forth for Stockholder on the signature page hereof.


 



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		24.	Miscellaneous.



 


		(a)	This Agreement shall be governed by and construed in accordance with the internal laws of the State
of Delaware without giving effect to any choice or conflict of law provision or rule (whether of the State of Delaware or any other
jurisdiction) that would cause the application of Laws of any jurisdiction other than those of the State of Delaware.



 


		(b)	Each of the parties hereto irrevocably agrees that any legal action or proceeding with respect
to this Agreement and the rights and obligations arising hereunder, or for recognition and enforcement of any judgment in respect
of this Agreement and the rights and obligations arising hereunder brought by the other party hereto or its successors or assigns
shall be brought and determined exclusively in the state and federal courts located in the State of New York, County of New York.
Each of the parties hereto agrees that mailing of process or other papers in connection with any such action or proceeding in the
manner provided in Section 11 or in such other manner as may be permitted by applicable Laws, will be valid and sufficient
service thereof. Each of the parties hereto hereby irrevocably submits with regard to any such action or proceeding for itself
and in respect of its property, generally and unconditionally, to the personal jurisdiction of the aforesaid courts and agrees
that it will not bring any action relating to this Agreement or any of the transactions contemplated by this Agreement in any court
or tribunal other than the aforesaid courts. Each of the parties hereto hereby irrevocably waives, and agrees not to assert, by
way of motion, as a defense, counterclaim or otherwise, in any action or proceeding with respect to this Agreement and the rights
and obligations arising hereunder, or for recognition and enforcement of any judgment in respect of this Agreement and the rights
and obligations arising hereunder (i) any claim that it is not personally subject to the jurisdiction of the above named courts
for any reason other than the failure to serve process in accordance with this Section 12(b), (ii) any claim that it or
its property is exempt or immune from jurisdiction of any such court or from any legal process commenced in such courts (whether
through service of notice, attachment prior to judgment, attachment in aid of execution of judgment, execution of judgment or otherwise),
and (iii) to the fullest extent permitted by the applicable Law, any claim that (x) the suit, action or proceeding in such court
is brought in an inconvenient forum, (y) the venue of such suit, action or proceeding is improper, or (z) this Agreement, or the
subject matter hereof, may not be enforced in or by such courts.



 



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		(c)	EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS
LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES AND, THEREFORE, EACH SUCH PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT
IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LEGAL ACTION ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT. EACH PARTY TO THIS AGREEMENT CERTIFIES AND ACKNOWLEDGES THAT (A) NO REPRESENTATIVE OF ANY OTHER
PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT SEEK TO ENFORCE THE FOREGOING WAIVER IN THE EVENT
OF A LEGAL ACTION, (B) SUCH PARTY HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (C) SUCH PARTY MAKES THIS WAIVER VOLUNTARILY,
AND (D) SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS
IN THIS Section 12(c).



 


		(d)	If any term or provision of this Agreement is invalid, illegal or unenforceable in any jurisdiction,
such invalidity, illegality or unenforceability shall not affect any other term or provision of this Agreement or invalidate or
render unenforceable such term or provision in any other jurisdiction. Upon such determination that any term or other provision
is invalid, illegal or unenforceable, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated
hereby be consummated as originally contemplated to the greatest extent possible.



 


		(e)	This Agreement may be executed in one or more counterparts, each of which shall be deemed to be
an original but all of which together shall constitute one and the same instrument.



 


		(f)	Each party hereto shall execute and deliver such additional documents as may be necessary or desirable
to effect the transactions contemplated by this Agreement.



 


		(g)	All Section headings herein are for convenience of reference only and are not part of this Agreement,
and no construction or reference shall be derived therefrom.



 



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		(h)	The obligations of Stockholder set forth in this Agreement shall not be effective or binding upon
Stockholder until after such time as the Purchase Agreement is executed and delivered by the Purchaser to the Company, and the
parties agree that there is not and has not been prior to the date of execution hereof any other agreement, arrangement or understanding
between the parties hereto with respect to the matters set forth herein.



 


		(i)	Neither party to this Agreement may assign any of its rights or obligations under this Agreement
without the prior written consent of the other party hereto. Any assignment contrary to the provisions of this Section 12(i)
shall be null and void.



 


		(j)	The parties agree that the Purchaser shall be a third party beneficiary of this Agreement and shall
have the right to enforce this Agreement and approve any amendment, waiver or termination of this Agreement.



 


[SIGNATURE PAGE FOLLOWS]


 



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IN WITNESS WHEREOF,
the parties hereto have executed and delivered this Agreement as of the date first written above.


 





	 	VIRTUALSCOPICS, INC.
	 	 	 	 
	 	By	 	 
	 	Name:	 	 
	 	Title:	 	 
	 	 	 	 
	 	STOCKHOLDER
	 	 	 	 
	 	By	 	 
	 	 	 	 
	 	Name:	 	 



 





	 	Series and Number of Shares of Company Preferred Stock Beneficially Owned as of the Date of this Agreement:
	 	Series: _______________
	 	Number:______________
	 	 
	 	Street Address:______________
	 	__________________________
	 	City/State/Zip Code: _________
	 	__________________________
	 	Fax: ______________________


  


[SIGNATURE PAGE TO VOTING AGREEMENT]


 






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