Document:

Exhibit
      10.1

     

    SECURITIES
      PURCHASE AGREEMENT

    

    SECURITIES
      PURCHASE AGREEMENT (this “Agreement,” “Purchase
      Agreement,”
      or
“Securities
      Purchase Agreement”),
      dated
      as of September 12, 2007, by and among VIRTUALSCOPICS,
      INC.,
      a
      Delaware corporation, (“Company”),
      and
      each buyer listed
      on
      the Schedule of Buyers attached hereto (each,
      including its successors and assigns, a “Buyer”
      and
      collectively the “Buyers”).

    

    WHEREAS:
      

    

    A. The
      Company and the Buyers are executing and delivering this Agreement in reliance
      upon the exemption from securities registration afforded by Rule 506 under
      Regulation D (“Regulation
      D”)
      as
      promulgated by the United States Securities and Exchange Commission (the
“SEC”)
      under
      the Securities Act of 1933, as amended (the “1933 ACT” or the “Securities
      Act”);

    

    B. Buyers
      desire to purchase and the Company desires to issue and sell in a private
      offering, upon the terms and conditions set forth in this Agreement, (i) Series
      B Preferred Stock (the “Preferred
      Stock”) of
      the
      Company and (ii) Warrants (as defined in Section 1(b)(iv) in the form described
      in this Agreement, to purchase shares of common stock, par value $0.001
      per
      share, of the Company (“Common
      Stock”).
      The
      minimum aggregate offering amount of this offering of the Preferred Stock to
      all
      of the Buyers shall be Four Million Dollars (U.S. $4,000,000)(the “Minimum
      Amount”)
      and the
      maximum aggregate offering amount of this offering of the Preferred Stock all
      of
      the Buyers shall be Six Million U.S. Dollars (U.S. $6,000,000)(the “Maximum
      Amount”)(collectively,
      the “Offering”);
      

    

    C. The
      terms
      of the Preferred Stock, including the terms on which the Preferred Stock may
      be
      converted into Common Stock, are set forth in the Certificate of Designation
      of
      Rights and Preferences of Series B Preferred Stock of the Company, in the form
      attached hereto as Exhibit
      A;

    

    D. Contemporaneously
      with the execution and delivery of this Agreement, the parties hereto are
      executing and delivering a Registration Rights Agreement, in the form attached
      hereto as Exhibit
      B
      (the
“REGISTRATION RIGHTS AGREEMENT”), pursuant to which the Company has agreed to
      provide certain registration rights under the 1933 Act and the rules and
      regulations promulgated thereunder, and applicable state securities laws.

    

    NOW
      THEREFORE,
      the
      Company and each Buyer, severally and not jointly, hereby agree as
      follows:

    

    1.
      PURCHASE
      AND SALE OF PREFERRED STOCK AND WARRANTS.

    

    (a)
      Certain
      Definitions.
      This
      Securities Purchase Agreement, the Certificate of Designation, the Registration
      Rights Agreement, the Warrants, and any other agreements delivered together
      with
      this Agreement or in connection herewith shall be referred to herein as the
      “Transaction
      Documents.”
      The
      Company and each Buyer (severally and not jointly) mutually agree to the terms
      of each of the Transaction Documents. For purposes hereof:

    

    “1934
      Act”
      shall
      mean the Securities Exchange Act of 1934.

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

    

    “Approved
      Stock Plan”
      means
      any employee benefit plan which has been duly
      adopted by a majority of the non-employee members of the Board of Directors
      of
      the Company or a majority of the members of a committee of non-employee
      directors established for such purpose,
      pursuant to which the Company's securities may be issued to any employee,
      consultant, officer or director for services provided to the Company, and the
      VirtualScopics LLC 2001 Long-Term Incentive Plan, as amended, the
      VirtualScopics, LLC 2005 Long-Term Incentive Plan, the VirtualScopics, Inc.
      2006
      Long-Term Incentive Plan, as amended, and option agreements dated November
      5,
      2005, between the Company and Robert Klimasewski.

    

    “Closing
      Bring-Down Certificate”
      shall
      have the meaning set forth in Section 3(c) below.

    

    “Closing
      Certificate”
      shall
      have the meaning set forth in Section 1(b)(v)(B) below.

    

    “Closing
      Legal Opinion”
      shall
      have the meaning set forth in Section 1(b)(v)(C) below.

    

    “Common
      Stock Equivalents”
      means
      any securities of the Company or the Subsidiaries which would entitle the holder
      thereof to acquire, directly or indirectly, at any time Common Stock, including
      without limitation, any debt, preferred stock, rights, options, warrants or
      other instrument that is at any time convertible into or exercisable or
      exchangeable for, or otherwise entitles the holder thereof to receive, Common
      Stock.

    

    “Conversion
      Shares”
      shall
      have the meaning set forth in Section 2(a) below.

    

    “Convertible
      Securities”
      shall
      have the meaning ascribed to it in the Certificate of Designation.

    

    “Designated
      Insiders” shall
      have the meaning set forth in Section 4(r) below.

    

    “Dividend
      Payment Shares”
      shall
      have the meaning ascribed to it in the Certificate of Designation.

    

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

    

    “Exempt
      Issuance”
      shall
      have the meaning ascribed to it in the Certificate of Designation.
      Notwithstanding anything to the contrary herein or therein, no issuance of
      Prohibited Equity Securities shall be an Exempt Issuance.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    

    “Indebtedness”
      of
      any
      Person shall mean, without duplication (A) all indebtedness for borrowed money,
      (B) all obligations issued, undertaken or assumed as the deferred purchase
      price
      of property or services including (without limitation) “Capital
      Leases”
      in
      accordance with generally accepted accounting principles (other than trade
      payables entered into in the ordinary course of business), (C) all reimbursement
      or payment obligations with respect to letters of credit, surety bonds and
      other
      similar instruments, (D) 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, (E) 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), (F)
      all
      monetary obligations under any leasing or similar arrangement which, in
      connection with generally accepted accounting principles, consistently applied
      for the periods covered thereby, is classified as a capital lease, (G) all
      indebtedness referred to in clauses (A) through (F) above secured by (or for
      which the holder of such Indebtedness has an existing right, contingent or
      otherwise, to be secured by) any mortgage, lien, pledge, charge, security
      interest or other encumbrance 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 (H) all Contingent Obligations in respect of indebtedness
      or obligations of others of the kinds referred to in clauses (A) through (G)
      above; where (y) "Contingent
      Obligation"
      means,
      as to any Person, any direct or indirect liability, contingent or otherwise,
      of
      that Person with respect to any indebtedness, lease 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.

    

    “Initial
      Warrant Exercise Price”
      shall
      have the meaning set forth in Section 1(b)(iv) below.

    

    “Intellectual
      Property”
      shall
      have the meaning set forth in Section 3(j) below.

    

    “Intellectual
      Property Rights”
      shall
      have the meaning set forth in Section 3(j) below.

    

     “Knowledge”
means,
      actual knowledge of the Company’s Chief Executive Officer and Chief Financial
      Officer without independent investigation.

    

    “Lien”
      shall
      have the meaning set forth in Section 5 below.

    

    “Limited
      Standstill Agreements”
      shall
      have the meaning set forth in Section 4(r) below.

    

    “Market
      Price,”
      for any
      security as of any date, shall have the meaning ascribed to it in the applicable
      security.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    

    “Material
      Adverse Effect”
      shall
      have the meaning set forth in Section 3(a) below.

    

    “Officer’s
      Certificate”
      shall
      have the meaning set forth in Section 8(c) below.

    

    “Ongoing
      Share Reservation Requirement”
      shall
      have the meaning set forth in Section 4(h)(i) below.

    

    “Options”
      shall
      have the meaning ascribed to it in the Certificate of Designation.

    

    “Patents”
      shall
      have the meaning set forth in Section 3(j) below.

    

    “Payment
      Shares”
      shall
      mean (i) Default Shares (as defined in the Certificate of Designation), (ii)
      Dividend Payment Shares (as defined in the Certificate of Designation) and
      into
      Common Stock of the Company. The Payment Shares shall be treated as Common
      Stock
      issuable upon conversion of the Preferred Stock for all purposes hereof and
      thereof and shall be subject to all of the limitations and afforded all of
      the
      rights of the other shares of Common Stock issuable hereunder or thereunder,
      including without limitation, the right to be included in the Registration
      Statement (as defined in the Registration Rights Agreement) filed pursuant
      to
      the Registration Rights Agreement. 

    

    “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 the Company's business;
      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 maintains 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 the Company's business.

    

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

    

    “Principal
      Market”
      shall
      have the meaning set forth in Section 4(j) below.

    

    “Purchase
      Price”
      shall
      have the meaning set forth in Section 1(b)(ii) below.

    

    “Registration
      Rights Agreement” shall
      have the meaning set forth in Recital “D” above.

    

    “Required
      Holders”
      shall
      have the meaning ascribed to it in the Certificate of Designation.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    

    “SEC
      Documents”
      shall
      have the meaning set forth in Section 3(g) below.

    

    “Securities”
      shall
      have the meaning set forth in Section 2(a) below.

    

    “Shareholder
      Approval Holdback Amount”
      shall
      have the meaning set forth in Section 1(b)(iii) below.

    

    “Shareholder
      Issuance Approval”
      shall
      have the meaning set forth in Section 4(x) below.

    

    “Shareholder
      Issuance Approval Deadline”
      shall
      have the meaning set forth in Section 4(x) below.

    

    “Stated
      Value”
      shall
      have the meaning ascribed to it in the Certificate of Designation.

    

    “Subscription
      Amount”
      shall
      have the meaning set forth in Section 10 below.

    

    “Subsidiaries”
      shall
      have the meaning set forth in Section 3(a) below.

    

    “Trading
      Market”
      means
      the Eligible Market on which the Common Stock is listed or quoted for trading
      on
      the date in question.

    

    “Underlying
      Shares”
      means
      the shares of Common Stock issued and issuable upon conversion or redemption
      of
      the Preferred Stock or as Payment Shares, issued and issuable upon exercise
      of
      the Warrants and issued and issuable in lieu of the cash payment of dividends
      on the
      Preferred Stock in accordance with their terms.

    

    “VWAP”
      means,
      for any date, the price determined by the first of the following clauses that
      applies: (a) if the Common Stock is then listed or quoted on a Trading Market,
      the daily volume weighted average price of the Common Stock for such date (or
      the nearest preceding date) on the Trading Market on which the Common Stock
      is
      then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day
      from
      9:30 a.m. (New York City time) to 4:02 p.m. (New York City time); (b) if the
      Common Stock is not then listed or quoted for trading on a Trading Market and
      if
      prices for the Common Stock are then reported in the “Pink Sheets” published by
      Pink Sheets, LLC (or a similar organization or agency succeeding to its
      functions of reporting prices), the most recent bid price per share of the
      Common Stock so reported; or (c) in all other cases, the fair market value
      of a
      share of Common Stock as determined by an independent appraiser selected in
      good
      faith by the Buyers of a majority in interest of the Securities then outstanding
      and reasonably acceptable to the Company.

    

    “Warrants”
      shall
      have the meaning set forth in Section 1(b)(iv) below.

    

    “Warrant
      Amount”
      shall
      have the meaning set forth in Section 1(b)(iv) below.

    

    “Warrant
      Shares”
      shall
      have the meaning set forth in Section 2(a) below.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    

    (b)
      Purchase
      of Preferred Stock And Warrants.
      Subject
      to the satisfaction or waiver of the terms and conditions of this Agreement,
      on
      the Closing Date (as defined below), the Company shall issue and sell to each
      Buyer and each Buyer, severally and not jointly, agrees to purchase from the
      Company Preferred Stock having an aggregate Stated Value equal to the
      Subscription Amount (as defined in Section 10) and an accompanying number of
      Warrants (as described below) to purchase a number of shares equal to the
      Warrant Amount (as defined below). 

    

    (i)
      Form
      of Certificate of Designation. The
      Certificate of Designation shall be in the form annexed hereto as Exhibit
      A.

    

    (ii)
      Form
      of Payment.
      The
      purchase price (“Purchase
      Price”)
      for the
      Preferred Stock and related Warrants shall equal the aggregate Stated Value
      of
      the Preferred Stock to be purchased by such Buyer. On or before the Closing
      Date
      (as defined below), (i) each Buyer shall pay the Purchase Price for the
      Preferred Stock and the Warrants to be issued and sold to it at the Closing
      (as
      defined below) by wire transfer of immediately available funds to the Company,
      in accordance with the Company's written wiring instructions, against delivery
      of duly executed certificates representing the Buyer’s Preferred Stock
      (“Preferred
      Stock Certificates”)
      having
      an aggregate Stated Value equal to the Purchase Price and the number of Warrants
      equal to the Warrant Amount, and (ii) the Company shall deliver such
Preferred
      Stock
      Certificates and Warrants duly executed on behalf of the Company, to such Buyer,
      against delivery of such Purchase Price, minus Preferred Stock Certificates
      and
      Warrants representing the Shareholder Approval Holdback Amount, which shall
      be
      delivered to the Escrow Agent pursuant to Section 1(b)(iii) below. 

    

    (iii)
      Closing
      Date.
      Subject
      to the satisfaction or waiver of the terms and conditions of this Agreement,
      the
“Closing” with respect to all Buyers shall occur when subscriber funds
      representing the Minimum Amount are transmitted by wire transfer of immediately
      available funds by all Buyers to the Company. The date of the Closing shall
      be
      referred to herein as the “Closing
      Date.”
      The
      Closing contemplated by this Agreement shall occur on the applicable Closing
      Date at the offices of the Escrow Agent (as defined in the Escrow Agreement)
      pursuant to the Escrow Agreement in the form attached hereto as Exhibit
      C
      (the
“Escrow
      Agreement”),
      or at
      such other location as may be agreed to by the parties. 

    

    The
      Escrow Agreement shall contain instructions to the Escrow Agent to hold back,
      after the Closing, an amount of funds equal to fifty percent (50%) of Buyer’s
      Subscription Amount (the “Shareholder
      Approval Holdback Amount”),
      and the
      Company shall deliver to the Escrow Agent the Related Preferred Stock
      Certificates and Warrants to hold back, with such funds and certificates to
      be
      released as follows: 

    

    (A)
      on
      the date (the “Irrevocable
      Consent Date”)
      that
      the Company delivers to the Escrow Agent and the Lead Investor copies of
      Irrevocable Written Consents of stockholders of the Company representing a
      majority of the Company’s outstanding voting shares as of the Trading Day
      immediately preceding the Original Issue Date, provided that such Irrevocable
      Written Consent are received by the Escrow Agent prior to the Shareholder
      Issuance Approval Deadline, then Escrow Agreement shall instruct the Escrow
      Agent to (x) release to the Company the balance of the Shareholder Approval
      Holdback Amount, except for the Reduced Shareholder Approval Holdback Amount,
      which the Escrow Agent shall continue to retain, and (y) release to the Buyer
      the Related Preferred Stock Certificates and Warrants; 

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    

    (B)
      if
      the Shareholder Issuance Approval has occurred by the Shareholder Issuance
      Approval Deadline, then the Company and the Buyer hereby instruct the Escrow
      Agent to immediately deliver the remaining portion of the Shareholder Approval
      Holdback Amount to the Company and Related Preferred Stock Certificates and
      Warrants to Buyer; and 

    

    (C)
      if
      the Shareholder Issuance Approval (as defined in Section 4(x) below) has not
      occurred by the Shareholder Issuance Approval Deadline (as defined in Section
      4(x) below), then the Company and the Buyer hereby instruct the Escrow Agent
      to
      deliver the remaining portion of the Shareholder Approval Holdback Amount (as
      defined below) to Buyer, which payment shall be deemed to be a payment by the
      Company to the Buyer toward the Exchange Cap Redemption Amount (as defined
      in
      the Certificate of Designation) for an Exchange Cap Redemption (as defined
      in
      the Certificate of Designation), and the Related Preferred Stock Certificates
      and Warrants to the Company for cancellation.

    

    For
      purposes hereof, 

    

    “Irrevocable
      Written Consents”
      shall
      mean irrevocable written consents of stockholders of the Company whereby they
      irrevocably agree to vote in favor of the Shareholder Issuance
      Approval.

    

    “Reduced
      Shareholder Approval Holdback Amount”
      shall
      mean the Exchange Cap Redemption Amount which would be required to effect an
      Exchange Cap Redemption as of the Irrevocable Consent Date, if the Company
      were
      required to effect an Exchange Cap Redemption on such date. 

    

    “Related
      Preferred Stock Certificates and Warrants”
      shall
      mean shares of Preferred Stock having an aggregate Stated Value equal to the
      amount of funds being released, and a number of Warrants equal to the
      corresponding Warrant Amount; 

    

    (iv)
      Warrants.
      Each
      Buyer’s Preferred Stock shall be accompanied by a number of warrants
      (“Warrants”)
      equal
      to 60%
      of the
      aggregate Stated Value of the Preferred Stock being purchased by such Buyer,
      divided by the Initial Conversion Price (as defined in the Certificate of
      Designation) (the “Warrant
      Amount”).
      The
      Warrants shall be in the form of the Warrant annexed hereto as Exhibit
      D,
      except
      that the “Initial Exercise Price,” as defined therein, for one-half of such
      Warrants shall equal $_____ and the Initial Warrant Exercise Price for the
      other
      half of the Warrants shall equal $_____ (as applicable, the “Initial
      Warrant Exercise Price”),
      subject to adjustment therein. The Warrants shall contain Exercise Price
      adjustment provisions that are consistent with the adjustment provisions
      afforded to the Conversion Price of the Preferred Stock in the Certificate
      of
      Designation and shall have a seven
      (7)
      year
      term.

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

    

    (v)
      Closing
      Deliveries.
      On the
      Closing Date, the Company will deliver or cause to be delivered to each Buyer
      (for purposes of this subsection, deliveries to the Escrow Agent on account
      of
      the Buyer shall be deemed to be deliveries to the Buyer): 

    

    (A)
      the
      items required to be delivered to Buyer pursuant to Section 8, duly executed
      by
      the Company where so required,

    

    (B)
      a
      certificate (“Closing
      Certificate”)
      signed
      by its chief executive officer or chief financial officer (1) representing
      the
      truth and accuracy of all the representations and warranties made by the Company
      contained in this Agreement, as of the applicable Closing Date, as if such
      representations and warranties were made and given on all such dates, (2) and
      certifying that an Event of Default has not occurred,

    

    (C)
      a
      legal opinion of the Company's counsel, dated as of the Closing Date, in form,
      scope and substance reasonably satisfactory to the Buyer and in substantially
      the same form as Exhibit
      E
      attached
      hereto in relation to the Company, the applicable Preferred Stock, the
      applicable Warrant and the Transaction Documents (“Closing
      Legal Opinion”),
      

    

    (D)
      a
      duly executed Preferred Stock Certificates with an aggregate Stated Value equal
      to such Buyer’s Subscription Amount, registered in the name of such Buyer, minus
      Preferred Stock Certificates representing the Shareholder Approval Holdback
      Amount, which shall be delivered to and registered in the name of the Escrow
      Agent,

    

    (E)
      two
      duly executed Warrants registered in the name of such Buyer, each to purchase
      up
      to a number of shares of Common Stock equal to the one-half of Warrant Amount
      (as defined in Section 1(b)(iv)), minus the Shareholder Approval Holdback Amount
      with respect to the Warrant, each with an exercise price equal to the applicable
      Initial Warrant Exercise Price (as defined in Section 1(b)(iv)) subject to
      adjustment therein, and two duly executed Warrants registered in the name of
      the
      Escrow Agent to purchase up to a number of shares equal to the Shareholder
      Approval Holdback Amount with respect to the Warrant,

    

    (F)
      Limited Standstill Agreements, duly executed by each of the Designated Insiders
      (as defined in Section 4(r));

    

    (G)
      The
      Company shall have delivered to such Buyer a true copy of certificate evidencing
      the formation and good standing of the Company and each of its Subsidiaries
      in
      such entity's jurisdiction of formation issued by the Secretary of State (or
      comparable office) of such jurisdiction, as of a date within 10 days of the
      Closing Date.

    

    (H)
      The
      Company shall have delivered to such Buyer a true copy of certificate evidencing
      the Company's qualification as a foreign corporation and good standing issued
      by
      the Secretary of State (or comparable office) of each jurisdiction in which
      the
      Company conducts business, as of a date within ten (10) days of the Closing
      Date.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    

    (I)
      The
      Company shall have delivered to such Buyer a certified copy of the Certificate
      of Incorporation as certified by the Secretary of the State of Delaware as
      of a
      date that is ten (10) days prior to the Closing Date.

    

    On
      each
      Closing Date, each Buyer shall deliver or cause to be delivered to the Company
      the following (for purposes of this subsection, deliveries to the Escrow Agent
      on account of the Company shall be deemed to be deliveries to the
      Company):

    

    (A)
      this
      Securities Purchase Agreement, the Registration Rights Agreement and the Escrow
      Agreement, duly executed by such Buyer,

    

    (B)
      such
      Buyer’s Subscription Amount by wire transfer to the account as specified in
      writing by the Company (subject to offsets for any expenses to which such Buyer
      is entitled). 

    

    (C)
      a
      Form W-9 (or Form W-8BEN, if the Buyer is a non-US citizen), duly executed
      by
      the Buyer.

    

    2.
      BUYER’S
      REPRESENTATIONS AND WARRANTIES.
      Each
      Buyer represents and warrants to the Company solely as to such Buyer
      that:

    

    (a)
      Investment
      Purpose.
      As of
      the date hereof, the Buyer is purchasing the Preferred Stock and the shares
      of
      Common Stock issuable upon conversion of the Preferred Stock or otherwise
      pursuant to the Certificate of Designation and the other Transaction Documents
      (including, without limitation, the Payment Shares) (such shares of Common
      Stock
      being collectively referred to herein as the “Conversion
      Shares”)
      and
      the Warrants and the shares of Common Stock issuable upon exercise thereof
      (the
“Warrant
      Shares”
      and,
      collectively with the Preferred Stock, Warrants and Conversion Shares, the
      “Securities”)
      for its
      own account and not with a present view towards the public sale or distribution
      thereof, except pursuant to sales registered or exempted from registration
      under
      the 1933 Act; PROVIDED, HOWEVER, that by making the representations herein,
      the
      Buyer does not agree to hold any of the Securities for any minimum or other
      specific term and reserves the right to dispose of the Securities at any time
      in
      accordance with or pursuant to a registration statement or an exemption under
      the 1933 Act and applicable state securities laws. 

    

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

    

    (c)
      Reliance
      On Exemptions.
      The
      Buyer understands that the Securities are being offered and sold to it in
      reliance upon specific exemptions from the registration requirements of United
      States federal and state securities laws and that the Company is relying upon
      the truth and accuracy of, and the Buyer's compliance with, the representations,
      warranties, agreements, acknowledgments and understandings of the Buyer set
      forth herein in order to determine the availability of such exemptions and
      the
      eligibility of the Buyer to acquire the Securities.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    

    (d)
      Information.
      The
      Buyer and its advisors, if any, have been furnished with all materials relating
      to the business, finances and operations of the Company and materials relating
      to the offer and sale of the Securities which have been requested by the Buyer
      or its advisors. The Buyer and its advisors, if any, have been afforded the
      opportunity to ask questions of the Company. The Buyer understands that its
      investment in the Securities involves a significant degree of risk.

    

    (e)
      Governmental
      Review.
      The
      Buyer understands that no United States federal or state agency or any other
      government or governmental agency has passed upon or made any recommendation
      or
      endorsement of the Securities.

    

    (f)
      Transfer
      Or Re-Sale.
      The
      Buyer understands that (i) except as provided in the Registration Rights
      Agreement, the sale or re-sale of the Securities has not been and is not being
      registered under the 1933 Act or any applicable state securities laws, and
      the
      Securities may not be transferred or resold unless (a) the Securities are sold
      pursuant to an effective registration statement under the 1933 Act, (b) the
      Buyer shall have delivered to the Company an opinion of counsel (which opinion
      shall be in form, substance and scope reasonably satisfactory to counsel to
      the
      Company) to the effect that the Securities to be sold or transferred may be
      sold
      or transferred pursuant to an exemption from such registration, (c) the
      Securities are sold or transferred to an “affiliate”
      (as
      defined in Rule 144 promulgated under the 1933 Act (or a successor rule)
      (“Rule
      144”)
      of the
      Buyer who agrees to sell or otherwise transfer the Securities only in accordance
      with this Section 2(f) and who is an Accredited Investor, or (d) the Securities
      are sold pursuant to Rule 144 or Rule 144(k); and (ii) any sale of such
      Securities made in reliance on Rule 144 or Rule 144(k) may be made only in
      accordance with the terms of said Rule. Notwithstanding the foregoing or
      anything else contained herein to the contrary, the Securities may be pledged
      as
      collateral in connection with a bona fide margin account or other lending
      arrangement.

    

    (g)
      Organization;
      Authorization; Enforcement.
      Buyer is
      a duly organized, validly existing and in good standing under the laws of the
      jurisdiction in which it is organized. Buyer has all requisite power and
      authority to enter into and perform this Agreement and the other Transaction
      Documents to which Buyer is a signatory and to consummate the transactions
      contemplated hereby and thereby in accordance with the terms hereof and thereof.
      The execution and delivery of this Agreement and the other Transaction Documents
      to which Buyer is a signatory have been duly and validly authorized and no
      further consent or authorization of Buyer, its manager or members is required.
      This Agreement has been duly executed and delivered on behalf of the Buyer,
      and
      this Agreement constitutes, and upon execution and delivery by the Buyer of
      the
      other Transaction Documents to which Buyer is a signatory, such agreements
      will
      constitute, legal, valid and binding agreements of the Buyer enforceable in
      accordance with their terms except (i) as limited by general equitable
      principles and applicable bankruptcy, insolvency, reorganization, moratorium
      and
      other laws of general application affecting enforcement of creditors’ rights
      generally, (ii) as limited by laws relating to the availability of specific
      performance, injunctive relief or other equitable remedies and (iii) insofar
      as
      indemnification and contribution provisions may be limited by applicable
      law.

    

    (h)
      Residency.
      The
      Buyer’s residency is as indicated on its signature page hereto. 

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    

    (i)
      Knowledge
      And Experience.
      Buyer
      has such knowledge and experience in financial and business matters that it
      is
      capable of evaluating the merits and risks of the investment in the
      Securities.

    

    (j)
      Short
      Sales Prior To The Date Hereof.
      Buyer
      and
      its Affiliates have not from the time that such Buyer first received a term
      sheet (written or oral) from the Company or any other person setting forth
      the
      material terms of the transactions contemplated hereunder until the date hereof
      entered into or effected, or attempted to induce any third party to enter into
      or effect, any short sales of the Common Stock, or any hedging transaction
      which
      establishes a net short position with respect to the Common Stock. 

    

    (k)
      No
      General Solicitation.
      Buyer
      has not been the subject of general solicitation with respect to this
      Offering.

    

    (l) Independent
      Investment Decision.
       Such Buyer has independently evaluated the merits of its decision to
      purchase the Securities pursuant to the Transaction Documents, and such Buyer
      confirms that it has not relied on the advice of any other Buyer's business
      and/or legal counsel in making such decision.  

    

    (m)
      No
      Conflicts.
      (i) The
      execution, delivery and performance of each of the Transaction Documents by
      the
      Buyer and the consummation by the Buyer of the transactions contemplated hereby
      and thereby does not and will not conflict with or result in a violation of
      any
      provision of the articles of organization, partnership certificate, partnership
      agreement, operating agreement or similar organizational documents.

    

    (ii)
      Buyer is not subject to any provision of any other agreement, instrument,
      judgment, order, decree, law, rule, regulation or any other restriction of
      any
      governmental authority that would prevent the purchase of the Securities being
      purchased by it hereunder.

    

    (iii) The
      Buyer
      is not required to obtain any consent, authorization or order of, or make any
      filing or registration with, any court, governmental agency, regulatory agency,
      self regulatory organization or stock market or any third party in order for
      it
      to execute, deliver or perform any of its obligations under the Transaction
      Documents.

    

    (n)
      No
      Brokers.
      The
      Buyer has taken no action which would give rise to any claim by any person
      for
      brokerage commissions, finder's fees or similar payments relating to this
      Agreement or the transactions contemplated hereby. 

    

    3.
      REPRESENTATIONS
      AND WARRANTIES OF THE COMPANY.
      The
      Company represents and warrants to each Buyer that, except as set forth on
      the
      Company’s disclosure schedules referred to herein and attached hereto or any
      update thereto prior to the Closing Date (collectively, the “Disclosure
      Schedules”):

    

    (a)
      Organization
      And Qualification.
      The
      Company and each of its Subsidiaries (as defined below), if any, is a
      corporation or limited liability company duly organized, validly existing and
      in
      good standing under the laws of the jurisdiction in which it is organized,
      with
      full power and authority (corporate and other) to own, lease, use and operate
      its properties and to carry on its business as and where now owned, leased,
      used, operated and conducted. Schedule
      3(a)
      sets
      forth a list of all of the Subsidiaries of the Company and the jurisdiction
      in
      which each is incorporated or organized. The Company and each of its
      Subsidiaries is duly qualified as a foreign corporation or limited liability
      company to do business and is in good standing in every jurisdiction in which
      its ownership or use of property or the nature of the business conducted by
      it
      makes such qualification necessary except where the failure to be so qualified
      or in good standing would not have a Material Adverse Effect. “Material
      Adverse Effect”
      means
      any material adverse effect on (i) the Securities, (ii) the business,
      operations, assets, financial condition or prospects of the Company and its
      Subsidiaries, if any, taken as a whole, (iii) on the transactions contemplated
      hereby or by the agreements or instruments to be entered into in connection
      herewith or (iv) the authority or the ability of the Company to perform its
      obligations under this Agreement, the Registration Rights Agreement, the
      Certificate of Designation or the Warrants. “Subsidiaries”
      means
      any
      corporation or other organization, whether incorporated or unincorporated,
      in
      which the Company owns, directly or indirectly, any controlling equity or other
      ownership interest.

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

    

    (b)
      Authorization;
      Enforcement.
      (i) The
      Company has all requisite corporate power and authority to enter into and
      perform this Agreement, the Registration Rights Agreement, the Certificate
      of
      Designation and the Warrants and to consummate the transactions contemplated
      hereby and thereby and to issue the Securities, in accordance with the terms
      hereof and thereof, (ii) except as otherwise set forth in Schedule
      3(b),
      the
      execution and delivery of this Agreement, the Registration Rights Agreement,
      the
      Certificate of Designation and the Warrants by the Company and the consummation
      by it of the transactions contemplated hereby and thereby (including without
      limitation, the issuance of the Preferred Stock and the Warrants and the
      issuance and reservation for issuance of the Conversion Shares issuable upon
      conversion of or otherwise pursuant to the Certificate of Designation and the
      Warrant Shares issuable upon exercise of or otherwise pursuant to the Warrants)
      have been duly authorized by the Company's Board of Directors and no further
      consent or authorization of the Company, its Board of Directors, or its
      stockholders is required, (iii) this Agreement has been duly executed and
      delivered by the Company, and (iv) this Agreement constitutes, and upon
      execution and delivery by the Company of,
      the
      Registration Rights Agreement, the Certificate of Designation and the Warrants,
      each of such agreements and instruments will constitute, a legal, valid and
      binding obligation of the Company enforceable against the Company in accordance
      with its terms, except (i) as limited by general equitable principles and
      applicable bankruptcy, insolvency, reorganization, moratorium and other laws
      of
      general application affecting enforcement of creditors’ rights generally, (ii)
      as limited by laws relating to the availability of specific performance,
      injunctive relief or other equitable remedies and (iii) insofar as
      indemnification and contribution provisions may be limited by applicable law.
      

    

    (c)
      Capitalization.
      The
      authorized capital stock of the Company consists of 85,000,000 shares of Common
      Stock, of which approximately 23,118,562
      shares
      are outstanding as of the date hereof and 15,000,000
      shares
      of preferred stock, par value $0.001
      per
      share, of which 4,000,512
      shares
      of Series A Convertible Preferred Stock are outstanding as of the date hereof.
      There are no outstanding securities which are convertible into shares of Common
      Stock, whether such conversion is currently convertible or convertible only
      upon
      some future date or the occurrence of some event in the future, except as
      disclosed on Schedule
      3(c-1).
      If any
      such securities are listed on the Schedule
      3(c-1),
      the
      number or amount of each such outstanding convertible security are set forth
      in
      said Schedule
      3(c-1).
      All of
      such outstanding shares of capital stock set forth in Schedule
      3(c-1) are,
      or
      upon issuance will be, duly authorized, validly issued, fully paid and
      nonassessable.

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

    

    No
      shares
      of capital stock of the Company are subject to preemptive rights or any other
      similar rights of the stockholders of the Company or any liens or encumbrances
      imposed through the actions or failure to act of the Company. Except as
      disclosed in Schedule
      3(c-2),
      as of
      the effective date of this Agreement, (i) there are no outstanding options,
      warrants, scrip, rights to subscribe for, puts, calls, rights of first refusal,
      agreements, understandings, claims or other commitments or rights of any
      character whatsoever relating to, or securities or rights convertible into
      or
      exchangeable for any shares of capital stock of the Company or any of its
      Subsidiaries, or arrangements by which the Company or any of its Subsidiaries
      is
      or may become bound to issue additional shares of capital stock of the Company
      or any of its Subsidiaries, (ii) there are no agreements or arrangements under
      which the Company or any of its Subsidiaries is obligated to register the sale
      of any of its or their securities under the 1933 Act (except the Registration
      Rights Agreement) and (iii) there are no anti-dilution or price adjustment
      provisions contained in any security issued by the Company (or in any agreement
      providing rights to security holders) that will be triggered by the issuance
      of
      the Preferred Stock, the Warrants, the Conversion Shares, the Payment Shares,
      or
      the Warrant Shares. The Company has furnished to each Buyer true and correct
      copies of the Company's Certificate of Incorporation as in effect on the date
      hereof (“Certificate
      of Incorporation”),
      the
      Company's By-laws, as in effect on the date hereof (the “By-Laws”),
      and
      the terms of all securities convertible into or exercisable for Common Stock
      of
      the Company and the material rights of the buyers thereof in respect thereto.
      In
      the event that the date of execution of this Agreement is not the Closing Date,
      the Company shall provide each Buyer with a written update of this
      representation signed by the Company's President and Chief Executive or Chief
      Financial Officer on behalf of the Company as of the Closing Date (“Closing
      Bring-Down Certificate”).
      Except
      as disclosed in Schedule 3(c-2), the issuance and sale of the Securities will
      not obligate the Company to issue shares of Common Stock or other securities
      to
      any Person (other than the Buyers) and will not result in a right of any holder
      of Company securities to adjust the exercise, conversion, exchange or reset
      price under any of such securities. Except as disclosed in Schedule 3(c-2),
      no
      further approval or authorization of any stockholder, the Board of Directors
      of
      the Company or others is required for the issuance and sale of the Securities.
      Except as disclosed in Schedule 3(c-2), there are no stockholders agreements,
      voting agreements or other similar agreements with respect to the Company’s
      capital stock to which the Company is a party or, to the Knowledge of the
      Company, between or among any of the Company’s stockholders.

    

    (d)
      Issuance
      of Shares.
      Upon
      issuance and upon conversion of the Preferred Stock and upon exercise of the
      Warrants in accordance with their respective terms, and receipt of the exercise
      price therefor, the Conversion Shares and Warrant Shares, along with any Payment
      Shares will be validly issued, fully paid and non-assessable, and free from all
      taxes, liens, claims and encumbrances other than securities law restrictions
      and
      shall not be subject to preemptive rights or other similar rights of
      stockholders of the Company, except as provided in the Transaction Documents.
      

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

    

    (e)
      Acknowledgment
      of Dilution.
      The
      Company understands and acknowledges the potentially dilutive effect to the
      Common Stock upon the issuance of the Conversion Shares upon conversion of
      or
      otherwise pursuant to the 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
      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.

    

    (f)
      No
      Conflicts.
      Except
      as otherwise set forth in Schedule
      3(f),
      the
      execution, delivery and performance of each of the Transaction Documents by
      the
      Company and the consummation by the Company of the transactions contemplated
      hereby and thereby (including, without limitation, the issuance and reservation
      for issuance of the Conversion Shares and Warrant Shares) will not (i) conflict
      with or result in a violation of any provision of the Certificate of
      Incorporation or By-laws, (ii) trigger any resets of conversion or exercise
      prices in other outstanding convertible securities, warrants or options of
      the
      Company, (iii) trigger the issuance of securities by the Company to any third
      party, (iv) violate or conflict with, or result in a breach of any provision
      of,
      or constitute a default (or an event which with notice or lapse of time or
      both
      would become a default) under, or give to others any rights of termination,
      amendment, acceleration or cancellation of, any agreement, indenture, patent,
      patent license or instrument to which the Company or any of its Subsidiaries
      is
      a party, or (v) result in a violation of any law, rule, regulation, order,
      judgment or decree (including federal and state securities laws and regulations
      and regulations of any self-regulatory organizations to which the Company or
      its
      securities are subject) applicable to the Company or any of its Subsidiaries
      or
      by which any property or asset of the Company or any of its Subsidiaries is
      bound or affected (except, in the case of clauses (i), (iv) and (v) above,
      for
      such conflicts, defaults, terminations, amendments, accelerations, cancellations
      and violations as would not, individually or in the aggregate, have a Material
      Adverse Effect). Neither the Company nor any of its Subsidiaries is in violation
      of its Certificate of Incorporation, By-laws or other organizational documents
      and neither the Company nor any of its Subsidiaries is in default (and no event
      has occurred which with notice or lapse of time or both could put the Company
      or
      any of its Subsidiaries in default) under, and neither the Company nor any
      of
      its Subsidiaries has taken any action or failed to take any action that would
      give to others any rights of termination, amendment, acceleration or
      cancellation of, any agreement, indenture or instrument to which the Company
      or
      any of its Subsidiaries is a party or by which any property or assets of the
      Company or any of its Subsidiaries is bound or affected, except for possible
      defaults as would not, individually or in the aggregate, have a Material Adverse
      Effect. The businesses of the Company and its Subsidiaries, if any, are not
      being conducted, in violation of any law, ordinance or regulation of any
      governmental entity the violation of which would have a Material Adverse Effect.
      Except as disclosed in Schedule
      3(f)
      or as
      specifically contemplated by this Agreement or as required under the 1933 Act
      and 1934 Act and any applicable state securities laws, the Company is not
      required to obtain any consent, authorization or order of, or make any filing
      or
      registration with, any court, governmental agency, regulatory agency, self
      regulatory organization or stock market or any third party in order for it
      to
      execute, deliver or perform any of its obligations under this Agreement, the
      Registration Rights Agreement, the Certificate of Designation or the Warrants
      in
      accordance with the terms hereof or thereof or to issue and sell the Preferred
      Stock and Warrants in accordance with the terms hereof and to issue the
      Conversion Shares upon conversion of the Preferred Stock or otherwise pursuant
      to the Certificate of Designation and the Warrant Shares upon exercise of or
      otherwise pursuant to the Warrants. The Company is not in violation of the
      listing requirements of the Principal Market (as defined herein) and does not
      reasonably anticipate that the Common Stock will cease to be listed on the
      Principal Market in the foreseeable future. Except as disclosed in Schedule
      3(f), the Company and its Subsidiaries are unaware of any facts or circumstances
      which might give rise to any of the foregoing.

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

    

    (g)
      SEC
      Documents; Financial Statements.
      Since at
      least September 14, 2006, the Company has timely filed all reports, schedules,
      and statements required to be filed by it with the SEC pursuant to the reporting
      requirements of the 1934 Act (and all exhibits included therein and financial
      statements and schedules thereto and documents (other than exhibits to such
      documents) incorporated by reference therein, being hereinafter referred to
      herein as the “SEC
      Documents”).
      For
      purposes of this Agreement, “Timely
      Filed”
      shall
      mean that the applicable document was filed (i) by its original due date under
      the 1934 Act, or, if a request for an extension was timely filed, (ii) by such
      extended due date. True and complete copies of the SEC Documents are available
      on the SEC’s internet website (www.sec.gov), except for such exhibits and
      incorporated documents. Except as provided in the comment letter received from
      the SEC dated May 7, 2007, as of their respective dates, the SEC Documents
      complied in all material respects with the requirements of the 1934 Act and
      the
      rules and regulations of the SEC promulgated thereunder applicable to the 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. Except as provided in the comment letter received from the
      SEC
      dated May 7, 2007, 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). Except as provided in the comment letter received from the
      SEC
      dated May 7, 2007, as of their respective dates, the financial statements of
      the
      Company (and the Buyers thereto) included in the SEC Documents complied as
      to
      form in all material respects with applicable accounting requirements and the
      published rules and regulations of the SEC with respect thereto. Such financial
      statements have been prepared in accordance with United States generally
      accepted accounting principles, consistently applied, during the periods
      involved (except (i) as may be otherwise indicated in such financial statements
      or the notes thereto, or (ii) in the case of unaudited interim statements,
      to
      the extent they may 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 consolidated Subsidiaries as of the
      dates thereof and the consolidated results of their 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
      10-QSB or 10-KSB and (ii) obligations under contracts and commitments incurred
      in the ordinary course of business and not required under 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. 

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

    

    (h)
      Absence
      of Certain Changes.
      Except
      for losses incurred in the ordinary course of business that have been publicly
      disclosed at least five (5) days prior to the date hereof or as set forth on
      Schedule
      3(h)
      hereof,
      since the date of the Company’s most recent 10-QSB or 10-KSB, there has been no
      material adverse change in the assets, liabilities, business, properties,
      operations, financial condition, results of operations or prospects of the
      Company or any of its Subsidiaries. For purposes of this Section 3(h), the
      term
“Material
      Adverse Change”
      shall
      exclude continuing losses that are consistent with the Company's historical
      losses.

    

    Except
      as
      disclosed in Schedule 3(h),
      since
      the date of the Company’s most recent audited financial statements contained in
      a Form 10-K, neither the Company nor any of its Subsidiaries has

    

    (i) declared
      or paid any dividends on its Common Stock;

    

    (ii)
      sold
      any assets, individually or in the aggregate, in excess of $100,000 outside
      of
      the ordinary course of business; 

    

    (iii) except
      as set forth in
      Schedule 3(h),
      had
      capital expenditures, individually or in the aggregate, in excess of
      $250,000;

    

    (iv)
      issued
      any stock, bonds or other corporate securities or any rights, options or
      warrants with respect thereto;

    

    (v)
      borrowed any amount or incurred or become 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;

    

    (vi)
      discharged or satisfied any lien or encumbrance or paid any obligation or
      liability (absolute or contingent), other than current liabilities paid in
      the
      ordinary course of business;

    

    (vii)
      declared or made any payment or distribution of cash or other property to
      stockholders with respect to its stock, or purchased or redeemed, or made any
      agreements so to purchase or redeem, any shares of its capital
      stock;

    

    (viii)
      sold, assigned or transferred any other tangible assets, or canceled any debts
      or claims, except in the ordinary course of business;

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

    

    (ix)
      sold, assigned or transferred any patent rights, trademarks, trade names,
      copyrights, trade secrets or other intangible assets or intellectual property
      rights, or disclosed any proprietary confidential information to any person
      except to customers in the ordinary course of business or to the Purchasers
      or
      their representatives;

    

    (x)
      suffered any material losses or waived any rights of material value, whether
      or
      not in the ordinary course of business, or suffered the loss of any material
      amount of prospective business;

    

    (xi)
      made
      any changes in employee compensation except in the ordinary course of business
      and consistent with past practices;

    

    (xii)
      made capital expenditures or commitments therefor that aggregate in excess
      of
      $250,000;

    

    (xiii)
      entered into any other transaction other than in the ordinary course of
      business, or entered into any other material transaction, whether or not in
      the
      ordinary course of business;

    

    (xiv)
      made charitable contributions or pledges in excess of $10,000;

    

    (xv)
      suffered any material damage, destruction or casualty loss, whether or not
      covered by insurance;

    

    (xvi)
      experienced any material problems with labor or management in connection with
      the terms and conditions of their employment;

    

    (xvii)
      effected any two or more events of the foregoing kind which in the aggregate
      would be material to the Company or its subsidiaries; or

    

    (xviii)
      entered into an agreement, written or otherwise, to take any of the foregoing
      actions.

    

    Except
      as
      set forth in Schedule
      3(h),
      neither
      the Company nor any of its Subsidiaries has taken any steps to seek protection
      pursuant to any bankruptcy law nor does the Company have any knowledge or reason
      to believe that its creditors intend to initiate involuntary bankruptcy
      proceedings or any actual knowledge of any fact which would reasonably lead
      a
      creditor to do so. 

    

    (i)
      Absence
      of Litigation.
      Except
      as disclosed in Schedule
      3(i-1),
      to the
      knowledge of the Company or any of its subsidiaries, there is no action, suit,
      claim, proceeding, inquiry or investigation before or by any court, public
      board, government agency, self-regulatory organization or body pending or,
      to
      the Knowledge of the Company or any of its Subsidiaries, threatened against
      or
      affecting the Company or any of its Subsidiaries, or their officers or directors
      in their capacity as such which if adversely decided would have a Material
      Adverse Effect. Schedule
      3(i-2)
      contains
      a complete list and summary description of any known pending or threatened
      proceeding against or affecting the Company or any of its Subsidiaries, if
      adversely decided would have a Material Adverse Effect. Except as disclosed
      in
      Schedule 3(i-2), the Company and its Subsidiaries are unaware of any facts
      or
      circumstances which might give rise to any of the foregoing.

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

    

    (j)
      Patents,
      Copyrights, Etc.
      All of
      the Company’s material patents, patent applications, Patents (as defined below),
      patent rights, inventions, know-how, trade secrets, trademarks, trademark
      applications, service marks, service names, trade names and copyrights
      (“Intellectual
      Property”)
      are set
      forth in Schedule
      3(j-1)
      hereof. The
      Company and its Subsidiaries own or possess adequate rights or licenses to
      use
      all of the Intellectual property and
      the
      rights to receive proceeds from patent licensing agreements, patent infringement
      litigation or other litigation related to such intellectual property
      (collectively, the “Intellectual
      Property Rights”).
      Any
      Liens, encumbrances or licenses that have been granted against the Intellectual
      Property are listed in Schedule
      3(j-2).
      Except
      as
      set forth in Schedule
      3(j-2),
      none of
      the Company's Intellectual Property Rights have expired or terminated, or are
      expected to expire or terminate, within three years from the date of this
      Agreement. The Company does not have any knowledge of any infringement by the
      Company or its Subsidiaries of Intellectual Property Rights of
      others
      which if
      adversely decided would have a Material Adverse Effect.
      Except
      as
      otherwise set forth on Schedule
      3(j-2),
      the
      Company owns all right and title to the Intellectual Property free and clear
      of
      any Liens or encumbrances and has not granted any licenses or rights to use
      any
      of the Patents to any third party. The Company and each of its Subsidiaries
      owns
      or possesses the requisite licenses or rights to use all Intellectual Property
      necessary to enable it to conduct its business as now operated, including but
      not limited to the intellectual property set forth in Schedule
      3(j-1)
      hereof
      (and, except as otherwise set forth in Schedule
      3(j-2) hereof,
      to the best of the Company's knowledge, as presently contemplated to be operated
      in the future), except for such licenses or rights the failure of which to
      own
      or possess would not, individually or in the aggregate, have a Material Adverse
      Effect; there is no claim or action by any person pertaining to, or proceeding
      pending, or to the Company's Knowledge threatened, which challenges the right
      of
      the Company or of a Subsidiary with respect to any Intellectual Property
      necessary to enable it to conduct its business as now operated (and, except
      as
      otherwise set forth in Schedule
      3(j-2) hereof,
      to the best of the Company's Knowledge, as presently contemplated to be operated
      in the future), except for actions or claims which, if adversely decided, would
      not have a Material Adverse Effect. The Company and each of its Subsidiaries
      have taken reasonable security measures to protect the secrecy, confidentiality
      and value of their Intellectual Property.

    

    For
      purposes hereof, “Patents”
      means
      all domestic and foreign letters patent, design patents, utility patents,
      industrial designs, inventions, trade secrets, ideas, concepts, methods,
      techniques, processes, proprietary information, technology, know-how, formulae,
      rights of publicity and other general intangibles of like nature, now existing
      or hereafter acquired all applications, registrations and recordings thereof
      (including, without limitation, applications, registrations and recordings
      in
      the United States Patent and Trademark Office, or in any similar office or
      agency of the United States or any other country or any political subdivision
      thereof), and all reissues, divisions, continuations, continuations in part
      and
      extensions or renewals thereof, in each case owned by the Company or an of
      its
      Subsidiaries.

    

    (k)
      Omitted.

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

    

    (l)
      Tax
      Status.
      Except
      as set forth on Schedule
      3(l),
      the
      Company and each of its Subsidiaries has made or filed all federal, state and
      foreign income and all other tax returns, reports and declarations required
      by
      any jurisdiction to which it is subject (unless and only to the extent that
      the
      Company and each of its Subsidiaries has set aside on its books provisions
      reasonably adequate for the payment of all unpaid and unreported taxes) and
      has
      paid all taxes and other governmental assessments and charges that are material
      in amount, shown or determined to be due on such returns, reports and
      declarations, except those being contested in good faith and has set aside
      on
      its books provisions reasonably adequate for the payment of all taxes for
      periods subsequent to the periods to which such returns, reports or declarations
      apply. There are no unpaid taxes in any material amount claimed to be due by
      the
      taxing authority of any jurisdiction, and the officers of the Company know
      of no
      basis for any such claim. The Company has not executed a waiver with respect
      to
      the statute of limitations relating to the assessment or collection of any
      foreign, federal, state or local tax. Except as set forth on Schedule
      3(l),
      none of
      the Company's tax returns is presently being audited by any taxing
      authority.

    

    (m)
      Transactions
      With And Obligations To Affiliates.
         Other
      than the grant of stock options under an Approved Stock Plan, or as disclosed
      on
Schedule
      3(m),
      none
      of
      the officers or directors of the Company is presently a party to any transaction
      with the Company or any of its Subsidiaries (other than customary employment
      contracts, compensatory arrangements or plans for ordinary course services
      as
      employees, officers and directors or confidentiality agreement in connection
      with such employment), including any contract, agreement or other arrangement
      providing for the furnishing of services to or by, providing for rental of
      real
      or personal property to or from, or otherwise requiring payments to or from
      any
      officer, director or such employee or, to the Knowledge of the Company, any
      corporation, partnership, trust or other entity in which any officer, director,
      or any such employee has a substantial interest or is an officer, director,
      trustee or partner.  Schedule
      3(m)
      sets
      forth any loans, payables, payments, transactions, debt or equity securities,
      or
      similar agreements or obligations between the Company and any officers,
      directors, management or affiliates of the Company.

    

    (n)
      Omitted.
      

    

    (o)
      Acknowledgment
      Regarding Buyer’s Purchase of Securities.
      The
      Company acknowledges and agrees that each Buyer is acting solely in the capacity
      of arm's length purchaser with respect to this Agreement and the transactions
      contemplated hereby. The Company further acknowledges that each Buyer is not
      acting as a financial advisor or fiduciary of the Company (or in any similar
      capacity) with respect to this Agreement and the transactions contemplated
      hereby and that any statement made by each Buyer or any of its respective
      representatives or agents in connection with this Agreement and the transactions
      contemplated hereby is not advice or a recommendation and is merely incidental
      to the Buyer’s purchase of the Securities and has not been relied upon by the
      Company, its officers or directors in any way. The Company further represents
      to
      each Buyer that the Company's decision to enter into this Agreement has been
      based solely on the independent evaluation of the Company and its
      representatives.

     

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

    

    (p)
      No
      Integrated Offering.
      Except
      as contemplated under the terms of the Offering, neither the Company, nor to
      its
      Knowledge 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 1933 Act of the issuance of the Securities to any Buyer. The issuance
      of the Securities to each Buyer 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.

    

    (q)
      No
      Brokers.
      Other
      than the retention of Canaccord Adams as its financial advisor, the Company
      has
      taken no action which would give rise to any claim by any person for brokerage
      commissions, finder's fees or similar payments relating to this Agreement or
      the
      transactions contemplated hereby. 

    

    (r)
      Conduct
      of Business; Regulatory Permits; Compliance.
      The
      Company and each of its Subsidiaries is in possession of all licenses, permits,
      easements, and variances necessary to own, lease and operate its properties
      and
      to carry on its business as it is now being conducted (collectively, the
“Company
      Permits”),
      except
      where the failure to so possess any such Company Permits would not have a
      Material Adverse Effect. Neither the Company nor any such Subsidiary has
      received any notice of proceedings relating to the revocation or modification
      of
      any such certificate, authorization or permit. Except as set forth in
Schedule
      3(r),
      the
      Company is not 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. Since at least May 31, 2006, (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. 

    

    (s)
      Environmental
      Matters.

    

    (i)
      Except as set forth in Schedule
      3(s),
      there
      are, to the Company's Knowledge, with respect to the Company or any of its
      Subsidiaries or any predecessor of the Company, no past or present violations
      of
      Environmental Laws (as defined below), releases of any material into the
      environment, actions, activities, circumstances, conditions, events, incidents,
      or contractual obligations which may give rise to any common law environmental
      liability or any liability under the Comprehensive Environmental Response,
      Compensation and Liability Act of 1980 or similar federal, state, local or
      foreign laws and neither the Company nor any of its Subsidiaries has received
      any notice with respect to any of the foregoing, nor is any action pending
      or,
      to the Company's knowledge, threatened in connection with any of the foregoing.
      The term “Environmental
      Laws” means
      all
      federal, state, local or foreign laws relating to pollution or protection of
      human health or the environment (including, without limitation, ambient air,
      surface water, groundwater, land surface or subsurface strata), including,
      without limitation, laws relating to emissions, discharges, releases or
      threatened releases of chemicals, pollutants contaminants, or toxic or hazardous
      substances or wastes (collectively, “Hazardous
      Materials”)
      into
      the environment, or otherwise relating to the manufacture, processing,
      distribution, use, treatment, storage, disposal, transport or handling of
      Hazardous Materials, as well as all authorizations, codes, decrees, demands
      or
      demand letters, injunctions, judgments, licenses, notices or notice letters,
      orders, permits, plans or regulations issued, entered, promulgated or approved
      thereunder.

     

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

    

    (ii)
      Other than those that are or were stored, used or disposed of in compliance
      with
      applicable law, no Hazardous Materials are contained on or about any real
      property currently owned, leased or used by the Company or any of its
      Subsidiaries, and no Hazardous Materials were released on or about any real
      property previously owned, leased or used by the Company or any of its
      Subsidiaries during the period the property was owned, leased or used by the
      Company or any of its Subsidiaries, except in the normal course of the Company's
      or any of its Subsidiaries' business.

    

    (iii)
      Except as set forth in Schedule
      3(s),
      there
      are no underground storage tanks on or under any real property owned, leased
      or
      used by the Company or any of its Subsidiaries that are not in compliance with
      applicable law.

    

    (t)
      Title
      To Property.
      The
      Company owns no real property. The Company has good and marketable title to
      all
      personal property owned by them which is material to the business of the Company
      and its Subsidiaries, in each case free and clear of all Liens, encumbrances
      and
      defects except such as are described in Schedule 3(t) or such as would not
      have
      a Material Adverse Effect. Any real property and facilities held under lease
      by
      the Company and its Subsidiaries are held by them under valid, subsisting and
      enforceable leases with such exceptions as would not have a Material Adverse
      Effect.

    

    (u)
      Insurance. The
      Company and the Subsidiaries maintain policies of insurance of the type and
      in
      such amounts as are reasonably and customarily carried by Persons conducting
      businesses or owning assets similarly situated to the Company and the
      Subsidiaries, respectively, at least equal to the aggregate Subscription Amount.
      The Company maintains a director’s and officer’s insurance policy in the amount
      of at least $5,000,000.
      To the
      best of the Company’s Knowledge, such insurance policy is in full force and
      effect and accurate and complete. Neither the Company nor any 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 without a
      significant increase in cost.

    

    (v)
      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 board of directors, to
      provide reasonable assurance that (i) transactions are executed in accordance
      with management's general or specific authorizations, (ii) transactions are
      recorded as necessary to permit preparation of financial statements in
      conformity with generally accepted accounting principles and to maintain asset
      accountability, (iii) access to assets is permitted only in accordance with
      management's general or specific authorization and (iv) the recorded
      accountability for assets is compared with the existing assets at reasonable
      intervals and appropriate action is taken with respect to any
      differences.

     

    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

    

    (w)
      Foreign
      Corrupt Practices.
      Neither
      the Company, nor any of its Subsidiaries, nor to its 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,
      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.

    

    (x)
      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 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. Except as disclosed in Schedule
      3(x),
      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.

    

    (y)
      No
      Investment Company.
      The
      Company is not, 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 its Knowledge, the Company is not controlled by an Investment
      Company.

    

    (z)
      No
      Market Manipulation.
      The
      Company has not, and to its 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.

    

    (aa)
      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 Buyers.

    

    (bb)
      No
      Undisclosed Liabilities.
      The
      Company has no liabilities or obligations which are material, individually
      or in
      the aggregate, other than those incurred in the ordinary course of the Company's
      businesses which have been disclosed in the Company’s public filings and which,
      individually or in the aggregate, would reasonably be expected to have a
      Material Adverse Effect other than as set forth in Schedule
      3(bb).

    

    (cc)
      Omitted.
      

     

    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

    

    

    (dd)
      No
      Disagreements With Accountants And Lawyers.
      There
      are no disagreements of any kind presently existing, or reasonably anticipated
      by the Company to arise, between the Company and the accountants and lawyers
      formerly or presently employed by the Company, including but not limited to
      disputes or conflicts over payment owed to such accountants and lawyers.
      Attached hereto as Schedule
      3(dd)
      are
      signed letters from the Company’s current accounting firm and outside law firm
      attesting to the facts in the immediately preceding sentence (the “Accountant
      And Lawyer Letters”).

    

    (ee)
      Company
      Acknowledgment.
      The
      Company hereby acknowledges that each Buyer may elect to hold its Preferred
      Stock and the Warrants for various periods of time, as permitted by the terms
      of
      the Transaction Documents and the Company further acknowledges that Buyer has
      made no representations or warranties, either written or oral, as to how long
      the Securities will be held by such Buyer or regarding Buyer’s trading history
      or investment strategies.

    

    (ff)
      Omitted.
      

    

    (gg)
      Absence
      of Certain Company Control Person Actions Or Events.
      To the
      Company’s Knowledge, during the past five (5) years:

    

    (i)
      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 such Company Control Person, or any
      partnership in which he was a general partner at or within two years before
      the
      time of such filing, or any corporation or business association of which he
      was
      an executive officer at or within two years before the time of such
      filing;

    

    (ii)
      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);

    

    (iii)
      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

     

    
      
        
        

      

      
        23

        
          

        

      

      
        
        

      

    

    

    (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;

    

    (iv)
      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 (3) of this item, or to be associated with Persons engaged in any
      such
      activity; or

    

    (v)
      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 1933 Act or
      Section 20 of the 1934 Act.

    

    (hh)
      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
Schedule
      3(hh)
      hereto.

    

    (ii)
      Sarbanes-Oxley;
      Internal Accounting Controls.
      The
      Company is in material compliance with all provisions of the Sarbanes-Oxley
      Act
      of 2002 which are applicable to it as of the Closing Date.

    

    (jj)
      Registration
      Rights.
      Except
      as
      set forth on Schedule
      3(jj) hereto,
      other than each of the Buyers, no Person has any right to cause the Company
      to
      effect the registration under the Securities Act of any securities of the
      Company.

    

    (kk) Off
      Balance Sheet Arrangements.
      There is
      no transaction, arrangement, or other relationship between the Company and
      an
      unconsolidated or other off balance sheet entity that is required to be
      disclosed by the Company in its 1934 Act filings and is not so disclosed or
      that
      otherwise would be reasonably likely to have a Material Adverse
      Effect.

    

    (ll)
      Employee
      Relations.

    

    (i)
       Neither the Company nor any of its Subsidiaries is a party to any
      collective bargaining agreement or employs any member of a union.  The
      Company and its Subsidiaries believe that their relations with their employees
      are good.  Except as disclosed in Schedule
      3(ll),
      no
      executive officer (as defined in Rule 501(f) of the 1933 Act) of the Company
      or
      any of its Subsidiaries has notified the Company or any such Subsidiary that
      such officer intends to leave the Company or any such Subsidiary or otherwise
      terminate such officer's employment with the Company or any such Subsidiary.
       No executive officer of the Company or any of its Subsidiaries, to the
      Knowledge of the Company or any such Subsidiary, is, or is now expected to
      be,
      in violation of any material term of any employment contract, confidentiality,
      disclosure or proprietary information agreement, non-competition agreement,
      or
      any other contract or agreement or any restrictive covenant, and, the continued
      employment of each such executive officer does not, subject the Company or
      any
      of its Subsidiaries to any liability with respect to any of the foregoing
      matters.

     

    
      
        
        

      

      
        24

        
          

        

      

      
        
        

      

    

    

    (ii)
      The
      Company and its Subsidiaries are in compliance with all federal, state, local
      and foreign laws and regulations respecting labor, employment and employment
      practices and benefits, terms and conditions of employment and wages and hours,
      except where failure to be in compliance would not, either individually or
      in
      the aggregate, reasonably be expected to result in a Material Adverse
      Effect.

    

    (mm)
      Obligations
      To Issue Additional Securities.
      Schedule
      3(mm)
      lists
      all outstanding debt or equity securities, warrants or options, or Common Stock
      Equivalents, and all contractual agreements of the Company, in each case, that
      contain any provisions (“Triggering
      Provisions”)
      that
      could require the adjustment to conversion or exercise prices of existing
      securities, or the issuance of additional securities triggered as a result
      of
      the issuance of securities by the Company or by the passage of time on or after
      the date of this Securities Purchase Agreement.

    

    (nn)
      Acknowledgment
      Regarding Purchasers’ Trading Activity.
      Notwithstanding anything in this Agreement or elsewhere herein to the contrary
      (except for Sections 2(j) and 4(i) hereof), it is understood and acknowledged
      by
      the Company that (i) none of the Buyers has been asked to agree by the Company,
      nor has any Buyer agreed, to desist from purchasing or selling, long and/or
      short, securities of the Company, or “derivative” securities based on securities
      issued by the Company or to hold the Securities for any specified term, (ii)
      past or future open market or other transactions by any Buyer, specifically
      including, without limitation, Short Sales or “derivative” transactions, before
      or after the closing of this or future private placement transactions, may
      negatively impact the market price of the Company’s publicly-traded securities,
      (iii) any Buyer, and counter-parties in “derivative” transactions to which any
      such Buyer is a party, directly or indirectly, may presently have a “short”
position in the Common Stock, and (iv) each Buyer shall not be deemed to have
      any affiliation with or control over any arm’s length counter-party in any
“derivative” transaction. 

    

    (oo)
      Regulation
      M Compliance.
      The
      Company has not, and to its Knowledge no one acting on its 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
      the Company’s placement agent in connection with the placement of the
      Securities.

     

    
      
        
        

      

      
        25

        
          

        

      

      
        
        

      

    

    

    4.
      COVENANTS.

    

    Notwithstanding
      anything to the contrary herein, with respect to the covenants in Sections
      4 and
      5 applicable to the Company: the Company’s obligations to follow such covenants
      shall continue until such time as less than 20% of the Preferred Stock issued
      in
      the Offering remain outstanding; and, any or all of such covenants may be waived
      by the written consent of the Required Holders (as defined in the Certificate
      of
      Designation).

    

    (a)
      Best
      Efforts.
      The
      parties shall use their best efforts to satisfy timely each of the conditions
      described in Sections 7 and 8 of this Agreement.

    

    (b)
      Form
      D; Blue Sky Laws.
      The
      Company agrees to file a Form D with respect to the Securities as required
      under
      Regulation D and to provide a copy thereof to each Buyer promptly after such
      filing. The Company shall, on or before the Closing Date, take such action
      as
      the Company shall reasonably determine is necessary to qualify the Securities
      for sale to the Buyer at the 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 each Buyer on or prior to the Closing Date.

    

    (c)
      Reporting
      Status.
      The
      Company's Common Stock is registered under Section 12(b) or 12(g) of the 1934
      Act. The Company shall timely file (or obtain extensions in respect thereof
      and
      file within the applicable grace period) all reports required to be filed with
      the SEC pursuant to the 1934 Act (“1934
      Act Filings”).
      

    

    (d)
      Use
      of Proceeds.
      The
      Company shall segregate at least $200,000
      of the
      Offering proceeds into a separate designated bank account to be used only as
      payment to the Trout Group or other third-party entities acceptable to the
      Required Holders, for carrying out investor relations services (“IR
      Purposes”).
      The
      Company shall use at least $100,000 of the proceeds of the Offering for IR
      Purposes during the first calendar year after the Closing Date. The Company
      shall use the remainder of the proceeds from the sale of the Preferred Stock
      and
      the Warrants for marketing and working capital. The Company shall not use any
      of
      such proceeds (i) to repay any of its corporate debt or other Indebtedness,
      (ii)
      to redeem any Common Stock or Common Stock Equivalents, (iii) to settle any
      outstanding litigation, or (iv) to repay any debt or obligation to any officer,
      director or manager of the Company, including but not limited to the Company’s
      president, chief executive officer, chief financial officer and chief operations
      officer, and any of their affiliates or family members (collectively,
“Insiders”).
      

    

    (e)
      Securities
      Issuance Restrictions; Prohibited Equity Securities Lock-Up; Right of
      Participation; Securities Exchange.

    

    (i)
      Lock-Up
      of Issuance of Securities.
      Except
      for Exempt Issuances, and except for the transactions or other issuances of
      securities by the Company to the Buyers as contemplated by the Transaction
      Documents, during the period from the date hereof until the date that is 90
      days
      following the Effective Date (the “Limitation
      Period”),
      neither the Company nor any Subsidiary shall issue shares of Common Stock or
      Common Stock Equivalents (the “Equity
      Issuance Lock-Up”),
      provided,
      however,
      the 90
      day period set forth in this Section 4(e)(i) shall be extended for the number
      of
      Trading Days during such period in which (i) trading in the Common Stock is
      suspended by any Trading Market, or (ii) following the Effective Date, the
      Registration Statement is not effective or the prospectus included in the
      Registration Statement may not be used by the Buyers for the resale of the
      Underlying Shares. The Equity Issuance Lock-Up shall not apply in respect of
      an
      Exempt Issuance.

     

    
      
        
        

      

      
        26

        
          

        

      

      
        
        

      

    

    

    (ii)
      Prohibited
      Equity Securities Lock-Up.
      During
      the period that any Preferred Stock remains outstanding, notwithstanding whether
      or not an issuance of securities is an Exempt Issuance, the Company shall not
      issue or sell, or agree to issue or sell Prohibited Equity Securities (as
      defined below)(the “Prohibited
      Equity Securities Lock-Up”),
      without obtaining the prior written approval of the Required Holders, with
      the
      exception of any such agreements or transactions that (x) exist as of the date
      hereof and (y) are not amended or modified after the date hereof. 
      For
      purposes hereof, the following shall be collectively referred to herein as,
      the
“Prohibited
      Equity Securities”:
      (A) any
      debt or equity securities which are convertible into, exercisable or
      exchangeable for, or carry the right to receive additional shares of Common
      Stock either (1) at any conversion, exercise or exchange rate or other price
      (each, a “Price”)
      that is
      based upon and/or varies with the trading prices of or quotations for Common
      Stock at any time after the initial issuance of such debt or equity security
      (regardless of whether or not such Price or any change of Price is conditioned
      upon the occurrence or non-occurrence of future events or circumstances), or
      (2)
      with a fixed conversion, exercise or exchange price that is subject to being
      reset at some future date at any time after the initial issuance of such debt
      or
      equity security due to a change in the market price of the Company’s Common
      Stock since date of initial issuance (regardless of whether or not such Price
      or
      any change of Price is conditioned upon the occurrence or non-occurrence of
      future events or circumstances), or (B) any amortizing convertible security
      which amortizes prior to its maturity date, where the Company is required to
      or
      has the option to (or the investor in such transaction has the option to require
      the Company to) make such amortization payments in shares of Common Stock
      (whether or not such payments in stock are subject to certain equity
      conditions), or (C) any transaction involving a written agreement between the
      Company and an investor or underwriter whereby the Company has the right to
      “put” its securities to the investor or underwriter over an agreed period of
      time and at an agreed price or price formula (each, an “Equity
      Line”
      transaction). For purposes of the above, the “Market
      Price”
      at time
      of closing shall mean the Market Price, as defined in the Certificate of
      Designation.

    

    It
      is
      expressly agreed and understood that the Prohibited Equity Securities Lock-Up
      shall
      apply in
      respect of an Exempt Issuance and that no issuance of Prohibited Equity
      Securities shall be an Exempt Issuance. 

    

    (iii)
      Omitted.

     

    (iv)
      Buyer’s
      Right of Participation in Future Financings. 

    

    (A)
      From
      the date hereof and during the period that any shares of Preferred Stock are
      outstanding but no longer than four years from the Closing Date, upon any
      financing by the Company or any of its subsidiaries (each, a “Subsequent
      Financing”)
      of
      Common Stock or Common Stock Equivalents (as defined in Section 1(a)) for cash
      consideration, excluding any securities issued pursuant to the Offering
      described in this Agreement, to an Exempt Issuance or a firm commitment
      underwritten public offering of Common Stock, each Buyer shall have the right
      to
      participate (the “Buyer’s
      Right of Participation”)
      in an
      amount up to the Buyer’s Participation Percentage (as defined below) of the
      Subsequent Financing, provided that any securities issued to the Buyer pursuant
      to Buyer’s exercise of the rights under the Buyer’s Right of Participation
      (“Participation Securities”), and any securities issuable pursuant to the
      conversion or exercise of such securities, shall be subject to the Beneficial
      Ownership Limitation, provided further that the Maximum Ownership Percentage
      for
      the Beneficial Ownership Limitation applicable to Participation Securities
      may
      not be waived or changed to an amount greater than 9.99%. 

     

    
      
        
        

      

      
        27

        
          

        

      

      
        
        

      

    

    

    (B)
      At
      least twenty (20) days prior to the closing of the Subsequent Financing, the
      Company shall deliver to each Buyer a written notice of its intention to effect
      a Subsequent Financing (an “Advance
      Notice of Financing”),
      which
      Advance Notice of Financing shall ask such Buyer if it wants to review the
      details of such financing (such additional notice, a “Subsequent
      Financing Notice”).
      Upon
      the request of a Buyer, and only upon a request by such Buyer, for a Subsequent
      Financing Notice, the Company shall promptly, but no later than three (3)
      Trading Days after such request, deliver a Subsequent Financing Notice to such
      Buyer. The Subsequent Financing Notice shall describe in reasonable detail
      the
      proposed terms of such Subsequent Financing, the amount of proceeds intended
      to
      be raised thereunder, the Person with whom such Subsequent Financing is proposed
      to be effected, and attached to which shall be a term sheet or similar document
      relating thereto and complete, definitive legal documentation (“Legal
      Documents”)
      for the
      transaction. 

    

    (C)
      Any
      Buyer desiring to participate in such Subsequent Financing must provide written
      notice (“Participation
      Notice”)
      to the
      Company by not later than 5:30 p.m. (New York City time) on the tenth
      (10th)
      day
      after such Buyer has received the Advance Notice of Financing that the Buyer
      is
      willing to participate in the Subsequent Financing, the amount of the Buyer’s
      participation, and that the Buyer has such funds ready, willing, and available
      for investment on the terms set forth in the Subsequent Financing Notice. If
      the
      Company receives no notice from a Buyer as of such tenth (10th)
      day,
      such Buyer shall be deemed to have notified the Company that it does not elect
      to participate. Buyer shall not be obligated to participate in a Subsequent
      Offering after delivering a Participation Notice to the Company until after
      the
      Buyer has reviewed and agreed to the final Legal Documents for such offering,
      which in any event shall be completed within ten (10) days after delivery of
      a
      Participation Notice, or else Buyer shall be deemed to have waived to the
      Buyer’s Right of Participation.

    

    (D)
      If by
      5:30 p.m. (New York City time) on the tenth (10th) day
      after
      all of the requesting Buyers have received the Advance Notice of Financing,
      notifications by the Buyers of their willingness to participate in the
      Subsequent Financing (or to cause their designees to participate) is, in the
      aggregate, less than the total amount of all Buyer’s Right of Participation in
      the Subsequent Financing, then the Company may effect the remaining portion
      of
      such Subsequent Financing on the terms and to the Persons set forth in the
      Subsequent Financing Notice. 

     

    
      
        
        

      

      
        28

        
          

        

      

      
        
        

      

    

    

    (E)
      If by
      5:30 p.m. (New York City time) on the tenth (10th) day after all of the Buyers
      have received the Advance Notice of Financing, the Company receives responses
      to
      a Subsequent Financing Notice from Buyers seeking to purchase more than the
      aggregate amount of the Subsequent Financing, each such Buyer shall have the
      right to purchase up to (the “Buyer’s
      Participation Maximum”)
      (a)
      their Pro Rata Portion (as defined below) of the Subsequent Financing, plus
      (b)
      a pro rata amount (based upon the relative amount of the participating Buyers’
respective Pro Rata Portions) of the aggregate of the unused Pro Rata Portions
      of the other Buyers. For purposes hereof, “Pro
      Rata Portion”
      shall
      mean the ratio of (x) the Subscription Amount of Securities purchased on the
      Closing Date by a Buyer participating under this Section 4(e)(iv) and (y) the
      sum of the aggregate Subscription Amounts of Securities purchased on the Closing
      Date by all Buyers participating under this Section 4(e)(iv). 

    

    (F)
      For
      purposes of clarity, in the event that there is any amount of a Subsequent
      Financing that is not requested to be purchased by a Buyer, then any other
      Buyer
      shall have the right to purchase such remaining amount of the Subsequent
      Financing.

    

    (G)
      The
      Company must provide the Buyers with a second Subsequent Financing Notice,
      and
      the Buyers will again have the right of participation set forth above in this
      Section 4(e)(iv), if the Subsequent Financing subject to the initial Subsequent
      Financing Notice is not consummated for any reason on the terms set forth in
      such Subsequent Financing Notice within sixty (60) Trading Days after the date
      of the initial Subsequent Financing Notice.

    

    (H)
      The
      Company and the Buyers agree that if any Buyer elects to participate in the
      Subsequent Financing, (x) neither the agreement regarding the Subsequent
      Placement (the “Subsequent
      Placement Agreement”)
      with
      respect to such Subsequent Financing nor any other transaction documents related
      thereto (collectively, the “Subsequent
      Placement Documents”)
      shall
      include any term or provisions whereby any Buyer shall be required to agree
      to
      any restrictions in trading as to any securities of the Company owned by such
      Buyer prior to such Subsequent Placement, except for reasonable restrictions
      requested by the lead underwriter in an underwritten public offering, and (y)
      the Buyers shall be entitled to the same registration rights provided to other
      investors in the Subsequent Placement.

    

    (v)
      Most
      Favored Nation (MFN) Securities Exchange Provision. From
      the
      date hereof until the date when such Buyer holds less than 20% in aggregate
      State Value of the Preferred Stock originally purchased by such Buyer hereunder
      but no longer than four years from the Closing Date, if the Company effects
      a
      Subsequent Financing, each Buyer may elect, in its sole discretion, to exchange
      (an “MFN
      Exchange”)
      all or
      some of the Preferred Stock then held by such Buyer for any securities or units
      issued in a Subsequent Financing, in lieu of paying the purchase price for
      such
      securities or units in cash, on a $1.00 for $1.00 basis based on (i) the
      aggregate Stated Value of the Buyer’s Preferred Stock, along with any accrued
      but unpaid Dividends, and (ii) the effective price at which such securities
      were
      sold in such Subsequent Financing; PROVIDED,
      HOWEVER,
      that
      this Section 4(e)(v) shall not apply with respect to (a) an Exempt
      Issuance or
      (b) a
      firm commitment underwritten public offering of Common Stock with a reputable
      national underwriter. The Company shall provide each Buyer with notice of any
      such Subsequent Financing in the manner set forth in Section 4(e)(iv).
      Simultaneously with and as a condition to such an exchange, the Buyer shall
      surrender to the Company for cancellation all of its unconverted Warrants in
      the
      Warrant Amount accompanying the purchase of such Preferred Stock. 

     

    
      
        
        

      

      
        29

        
          

        

      

      
        
        

      

    

    

    (vi)
      Injunctive Relief. The
      remedies provided in this Agreement shall be cumulative and in addition to
      all
      other remedies available under this Agreement and any of 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 Buyer's right
      to
      pursue actual and consequential damages for any failure by the Company to comply
      with the terms of this Agreement or any of the Transaction Documents. The
      Company acknowledges that a breach by it of its obligations under this
      subsection 4(e) or its obligations under Section 4(m) hereof, will cause
      irreparable harm to Buyer, 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 subsection 4(e) or
      a
      breach of its obligations under subsection 4(m) hereof, will be inadequate
      and
      agrees, in the event of a breach or threatened breach by the Company of
      subsections 4(e) and 4(m) of this Agreement, that Buyer 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 its obligations under this
      subsection 4(e) or of subsection 4(m) hereof, and to enforce specifically the
      terms and provisions of subsection 4(e) or of subsection 4(m) hereof, without
      the necessity of showing economic loss and without any bond or other security
      being required. 

    

    (f)
      Securities
      Laws Disclosure; Publicity.
      The
      Company shall, by 8:30 a.m. New York City time on the third (3rd)
      Business Day following the Closing Date, issue a Current Report on Form 8-K,
      disclosing the material terms of the transactions contemplated hereby and
      including the Transaction Documents as exhibits thereto. The Company and each
      Buyer shall consult with each other in issuing any other press releases with
      respect to the transactions contemplated hereby, and neither the Company nor
      any
      Buyer shall issue any such press release or otherwise make any such public
      statement without the prior consent of the Company, with respect to any press
      release of any Buyer, or without the prior consent of each Buyer, with respect
      to any press release of the Company, which consent shall not unreasonably be
      withheld or delayed, except if such disclosure is required by law, in which
      case
      the disclosing party shall promptly provide the other party with prior notice
      of
      such public statement or communication. Notwithstanding the foregoing, the
      Company shall not publicly disclose the name of any Buyer, or include the name
      of any Buyer in any filing with the Commission or any regulatory agency or
      any
      market or exchange, without the prior written consent of such Buyer, except
      (i)
      as required by federal securities law in connection with (A) any registration
      statement contemplated by the Registration Rights Agreement and (B) the filing
      of final Transaction Documents (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 Buyers with prior notice
      of
      such disclosure permitted under this subclause (ii).

    

    (g)
      Financial
      Information.
      The
      Company agrees to send, or make available via public filings on the internet,
      the following reports to each Buyer until such Buyer transfers, assigns, or
      sells all of the Securities, but no longer than two years after the Closing
      Date: (i) within ten (10) days after the filing with the SEC, a copy of its
      Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q and any Current
      Reports on Form 8-K; (ii) within one (1) day after release, copies of all press
      releases issued by the Company or any of its Subsidiaries; and (iii)
      contemporaneously with the making available or giving to the stockholders of
      the
      Company, copies of any notices or other information the Company makes available
      or gives to such stockholders.

     

    
      
        
        

      

      
        30

        
          

        

      

      
        
        

      

    

    

    (h)
      Omitted. 

    

    (i)
      Certain
      Trading Activities.
      For so
      long as such Buyer owns any Preferred Stock, such Buyer shall not maintain
      any
      short position in the Company’s securities common stock. 

    

    (j)
      Listing.
      The
      Company shall use its best efforts to promptly secure the listing of the
      Conversion Shares and Warrant Shares upon each national securities exchange
      or
      automated quotation system, if any, upon which shares of Common Stock are then
      listed (subject to official notice of issuance). The Company will use its best
      efforts to obtain and, for four years following the Closing Date, maintain
      the
      listing and trading of its Common Stock on an Eligible Market (whichever
      Eligible Market is at the time the principal trading exchange or market for
      the
      Common Stock is referred to herein as the “Principal
      Market”).

    

    (k)
      Corporate
      Existence.
      So long
      as a Buyer beneficially owns any Preferred Stock or Warrants or for at least
      four (4) years following the Closing Date, whichever period ends sooner, the
      Company shall maintain its corporate existence in good standing and remain
      a
“Reporting
      Issuer”
      (defined
      as a Company which files periodic reports under the 1934 Act).

    

    (l)
      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
      Buyers in a manner that would require the registration under the Securities
      Act
      of the sale of the Securities to the Buyers or that would be integrated with
      the
      offer or sale of the Securities for purposes of the rules and regulations of
      any
      Trading Market.

    

    (m)
      Limitation
      On Sale or Disposition of Intellectual Property.
      The
      Corporation shall not sell, convey, dispose of, spin off or assign any or all
      of
      its Intellectual Property (including but not limited to the Intellectual
      Property set forth in Schedules
      3(j)(1) and (2)
      hereof),
      or any of the Intellectual Property Rights, in each case without the written
      consent of the Required Holders, provided that the Company may, without the
      Buyer’s written consent, enter into one or more licensing agreements with
      respect to its Intellectual Property so long as such licensing agreements exceed
      $5 million per calendar year and so long as such agreements are not with any
      affiliate (as such term is defined in Rule 501(b) of Regulation D) of the
      Company or with any relative of, or entity controlled by, or any entity 10%
      or
      more of which is owned by, any officer, director, employee or former employee
      of
      the Company, provided, further, that the Company shall not be subject to the
      restrictions of this Section 4(m) if the cash consideration received by the
      Company in exchange for such Intellectual Property Rights exceeds $50 million,
      or for the licensing of its Intellectual Property in the ordinary course of
      business consistent with past practice, or in connection with any current
      licensing arrangements or the amendment or renewal of such arrangements.

     

    
      
        
        

      

      
        31

        
          

        

      

      
        
        

      

    

    

    (n)
       Limitation
      On Rate of Issuance of Shares.
      The
      parties agree that, if by virtue of this AGREEMENT, or by virtue of any other
      agreement between the parties, Buyer becomes entitled to receive from the
      Company a number of shares of Common Stock of the Company (collectively,
“Issuable
      Securities”),
      such
      that the sum of (1) the number of shares of Common Stock of the Company
      beneficially owned by Buyer and any applicable affiliates (other than shares
      of
      Common Stock which may be deemed beneficially owned through the ownership of
      the
      unconverted portion of the Preferred Stock, the unexercised Warrants or the
      unexercised or unconverted portion of any other security of Buyer subject to
      a
      limitation on conversion or exercise analogous to the limitations contained
      herein)(collectively, the “Beneficially
      Owned Shares”)
      and (2)
      the number Issuable Securities described above, with respect to which the
      determination of this proviso is being made, would result in beneficial
      ownership by the Buyer and its affiliates of more than 4.99% (as may be changed
      from time to time pursuant to the terms hereof, the “Maximum
      Ownership Percentage”)
      of the
      outstanding shares of Common Stock (the “Beneficial
      Ownership Limitation”),
      then
      the Company shall immediately deliver to Buyer the number of shares of Common
      Stock of the Company, that can be issued without exceeding the Beneficial
      Ownership Limitation, and the Company shall not issue shares of Common Stock
      to
      the Buyer in excess of the Beneficial Ownership Limitation.

    
       

    

    For
      purposes of the proviso to the immediately preceding sentence, (i) beneficial
      ownership shall be determined by the Buyer in accordance with Section 13(d)
      of
      the 1934 Act and Regulations 13D-G thereunder, except as otherwise provided
      in
      clause (1) of such proviso to the immediately preceding sentence, and PROVIDED
      THAT the Beneficial Ownership Limitation shall be conclusively satisfied if
      the
      applicable notice from Buyer includes a signed representation by the Buyer
      that
      the issuance of the shares in such notice will not violate the Beneficial
      Ownership Limitation, and the Company shall not be entitled to require
      additional documentation of such satisfaction. 

    

    The
      parties agree that, in the event that the Company receives any tender offer
      or
      any offer to enter into a merger with another entity whereby the Company shall
      not be the surviving entity (an “Offer”),
      or in
      the event the Company is issuing Default Shares (as defined in the Certificate
      of Designation) to the Buyer, then “4.99%” shall be automatically revised
      immediately after such offer to read “9.99%” each place it occurs in the first
      two paragraphs of this Section 4(n) above. Notwithstanding the above, Buyer
      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. In addition,
      the Beneficial Ownership Limitation provisions of this Section 4(n) may be
      waived by such Buyer, at the election of such Buyer, upon not less than 61
      days’
prior notice to the Company, to change the Beneficial Ownership Limitation
      to
      any other percentage not less than 4.99% and 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 conversion of the Preferred
      Stock
      held by the Buyer or upon exercise of a Warrant held by the Buyer, as
      applicable, and the provisions of this Section 4(n) shall continue to apply.
      Any
      such increase or decrease to the Maximum Amount will apply only to the Buyer
      and
      not to any other buyer of Preferred Stock. The limitations on conversion set
      forth in this subsection are referred to as the “Beneficial
      Ownership Limitation.”
      Upon
      such a change by a Buyer of the Beneficial Ownership Limitation from such 4.99%
      Beneficial Ownership Limitation to such 9.99% limitation, the Beneficial
      Ownership Limitation may not be further waived by such Buyer, provided that,
      if
      an Event of Default (as defined in the Certificate of Designation) occurs,
      thereafter the Beneficial Ownership Limitation provisions of this Section 4(n)
      may be waived by such Buyer, at the election of such Buyer, upon not less than
      61 days’ prior notice to the Company, to change the Maximum Percentage to any
      other percentage not less than 4.99% (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 conversion of the Preferred Stock held
      by the Buyer and the provisions of this Section 4(n) shall continue to apply.
      

     

    
      
        
        

      

      
        32

        
          

        

      

      
        
        

      

    

    

    The
      provisions of this paragraph shall be construed and implemented in a manner
      otherwise than in strict conformity with the terms of this Section 4(n) 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.

    

    Maximum
      Exercise of Rights.
      In the
      event the Buyer notifies the Company that the exercise of the rights described
      herein or in the Warrants, or the issuance of Payment Shares or other shares
      of
      Common Stock issuable to the Buyer under the terms of the Transaction Documents
      (collectively, “Issuable
      Shares”)
      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 Buyer calculated in the manner
      described in this Section 4(n) of this Agreement, then the issuance of such
      additional shares of Common Stock of the Company to such Buyer will be deferred
      in whole or in part until such time as such Buyer is able to beneficially own
      such Common Stock without exceeding the maximum amount set forth calculated
      in
      the manner described in herein but no longer than the applicable term of the
      Warrants. The determination of when such Common Stock may be issued shall be
      made by each Buyer as to only such Buyer. 

    

    (o)
      Omitted. 

    

    (p)
      Equal
      Treatment of Buyers.
      The
      terms of Securities issued to Buyers per the terms of this Agreement and the
      Transaction Documents shall be identical in all material respects. In addition,
      neither the Company nor any of its affiliates shall, directly or indirectly,
      pay
      or cause to be paid any consideration (immediate or contingent), whether by
      way
      of interest, fee, payment for the redemption, conversion of the Preferred Stock
      or exercise of the Warrants, or otherwise, to any Buyer or holder of Securities,
      for or as an inducement to, or in connection with the solicitation of, any
      consent, waiver or amendment of any terms or provisions of the Transaction
      Documents, unless such consideration is required to be paid to all Buyers or
      holders of Securities bound by such consent, waiver or amendment. The Company
      shall not, directly or indirectly, redeem any Securities unless such offer
      of
      redemption is made pro rata to all Buyers or holders of Securities, as the
      case
      may be, on identical terms. For clarification purposes, this provision
      constitutes a separate right granted by the Company to each Buyer of Securities
      and negotiated separately by each Buyer, is intended for the Company to treat
      the Buyers as a class, and shall not in any way be construed as the Buyers
      acting in concert or as a group with respect to the purchase, disposition or
      voting of Securities or otherwise.

     

    
      
        
        

      

      
        33

        
          

        

      

      
        
        

      

    

    

    (q)
      Legal
      And Due Diligence Fees.
      The
      Company shall pay to BridgePointe Master Fund Ltd. (the “Lead
      Investor”)
      a
      non-accountable cash fee of $35,000,
      $17,500 of which has already been paid and the remaining $17,500 of which shall
      be paid
      at
      closing as reimbursement for legal services rendered by its attorneys in
      connection with this Agreement and the purchase and sale of the Preferred Stock
      and Warrants and as reimbursement for due diligence expenses. Half of such
      fee
      is due upon the execution of this Agreement, and the other half of such fee
      is
      due at Closing. The Lead Investor may withhold such amount out of the Purchase
      Price for its Preferred Stock.

    

    (r)
      Limited
      Standstill.
      The
      Company will deliver to the Buyers on or before the Closing Date and enforce
      the
      provisions of irrevocable standstill agreements (“Limited
      Standstill Agreements”)
      in the
      form annexed hereto as Exhibit
      F
      with the
      Insiders and other shareholders that are identified on Schedule
      4(r)
      hereto
      (collectively, the “Designated
      Insiders”).
      

    

    (s)
      Non-Public
      Information.
      The
      Company covenants and agrees that from and after the date hereof, neither it
      nor
      any other Person acting on its behalf will provide any Buyer or its agents
      or
      counsel with any information that constitutes material non-public information,
      unless prior thereto (i) such Buyer shall have executed a written agreement
      regarding the confidentiality and use of such information, or (ii) the Required
      Holders have approved the receipt of material non-public information in order
      to
      facilitate a workout under the Transaction Documents (an “Approved Workout”).
      The Company understands and confirms that each Buyer shall be relying on the
      foregoing representations in effecting transactions in securities of the
      Company. In the event of a breach of the foregoing covenant by the Company,
      or
      any of its Subsidiaries, or any of its or their respective officers, directors,
      employees and agents, in addition to any other remedy provided herein or in
      the
      Transaction Documents, the Company shall publicly disclose any material,
      non-public information in a Form 8-K within twenty (20) Business Days of the
      date that it discloses such information to the Buyer. In the event that the
      Company discloses any material, non-public information to the Buyer and fails
      to
      publicly file a Form 8-K in accordance with the above, a Buyer shall have the
      right to make a public disclosure, in the form of a press release, public
      advertisement or otherwise, of such material, nonpublic information without
      the
      prior approval by the Company, its Subsidiaries, or any of its or their
      respective officers, directors, employees or agents. No Buyer shall have any
      liability to the Company, its Subsidiaries, or any of its or their respective
      officers, directors, employees, stockholders or agents, for any such disclosure.
      The Company understands and confirms that each Buyer shall be relying on the
      foregoing representations in effecting transactions in securities of the
      Company.

    

    (t)
      Transactions
      With Affiliates.
      So
      long
      as any Preferred Stock or Warrant is outstanding, the Company shall not, and
      shall cause each of its Subsidiaries not to, enter into, amend, modify or
      supplement, or permit any Subsidiary to enter into, amend, modify or supplement
      any agreement, transaction, commitment, or arrangement with any of its or any
      Subsidiary’s officers, directors, employees, persons who were officers or
      directors at any time during the previous two (2) years, stockholders who
      beneficially own ten percent (10%) or more of the Common Stock, or Affiliates
      (as defined below) of any thereof, or with any individual related by blood,
      marriage, or adoption to any such individual or with any entity in which any
      such entity or individual owns a ten percent (10%) or more beneficial interest
      (each a “Related
      Party”),
      except
      for customary employment arrangements and benefit programs and director
      compensation on reasonable terms or transactions with Pfizer, Inc., General
      Electric Co., GE Health Care or the University of Rochester or any successor
      or
      assignees of such parties, or amendments or modifications of the Transaction
      Documents with any Buyer or assignee. “Affiliate”
      for
      purposes hereof means, with respect to any person or entity, another person
      or
      entity that, directly or indirectly, (i) has a ten percent (10%) or more equity
      interest in that person or entity, (ii) has ten percent (10%) or more common
      ownership with that person or entity, (iii) controls that person or entity,
      or
      (iv) shares common control with that person or entity. “Control”
      or
“Controls”
      for
      purposes hereof means that a person or entity has the power, direct or indirect,
      to conduct or govern the policies of another person or entity.

     

    
      
        
        

      

      
        34

        
          

        

      

      
        
        

      

    

     

    (u)
      Pledge
      of Securities.
      The
      Company acknowledges and agrees that the Securities may be pledged by an
“Investor”
      (as
      defined in the Registration Rights Agreement) in connection with a bona fide
      margin agreement or other loan or financing arrangement that is secured by
      the
      Securities. The pledge of Securities shall not be deemed to be a transfer,
      sale
      or assignment of the Securities hereunder, and no Investor effecting a pledge
      of
      Securities shall be required to provide the Company with any notice thereof
      or
      otherwise make any delivery to the Company pursuant to this Agreement or any
      other Transaction Document, including, without limitation, Section 2(f) hereof;
      provided that an Investor and its pledgee shall be required to comply with
      the
      provisions of Section 2(f) hereof in order to effect a sale, transfer or
      assignment of Securities to such pledgee. The Company hereby agrees to execute
      and deliver such documentation as a pledgee of the Securities may reasonably
      request in connection with a pledge of the Securities to such pledgee by an
      Investor provided such transaction may be accomplished pursuant to Rule
      144.

    

    (v)
      Omitted.
      

    

    (w)
      Principal
      Market Regulation.
      The
      Company shall not be obligated to issue any shares of Common Stock upon
      conversion of the Preferred Stock or upon exercise of the Warrant, and the
      Buyer
      of the Preferred Stock and Warrant shall not have the right to receive upon
      conversion of the Preferred Stock, or exercise of the Warrant, respectively,
      any
      shares of Common Stock, (x) prior to the Shareholder Issuance Vote or effective
      date of written consents given therefore and (y) if the issuance of such shares
      of Common Stock would exceed the aggregate number of shares of Common Stock
      which the Company may issue upon conversion or exercise, as applicable, of
      the
      Preferred Stock and Warrants without breaching the Company’s obligations under
      the rules or regulations of the applicable Eligible Market (the number of shares
      which may be issued without violating such rules and regulations, the
“Exchange
      Cap Amount”),
      except
      that such limitation shall not apply in the event that the Company (A) obtains
      the approval of its stockholders as required by the applicable rules of such
      Eligible Market for issuances of Common Stock in excess of such amount
      (“Eligible
      Market Shareholder Approval”)
      or (B)
      obtains a written opinion from outside counsel to the Company that such approval
      is not required, which opinion shall be reasonably satisfactory to the Required
      Holders. Unless and until such approval or written opinion is obtained, no
      Buyer
      of the Preferred Stock pursuant to the Securities Purchase Agreement shall
      be
      issued in the aggregate, upon conversion or exercise or otherwise, as
      applicable, of Preferred Stock or Warrants, shares of Common Stock in an amount
      greater than the product of the Exchange Cap multiplied by a fraction, the
      numerator of which is the aggregate Stated Value of the Preferred Stock issued
      to the subject Buyers, and the denominator of which is the aggregate Stated
      Value of the Preferred Stock issued to all such Buyers. 

     

    
      
        
        

      

      
        35

        
          

        

      

      
        
        

      

    

    

    (x) Share
      Issuance Authorization.
      As soon
      as practicable following the Closing (as defined herein), the Company shall
      prepare a proxy or information statement, shall submit the proxy or information
      statement to the SEC and shall mail it to it shareholders, requesting and
      recommending that they vote affirmatively or informing them that written
      consents have been obtained (a “Shareholder
      Issuance Vote”)
      on a
      proposal to approve the issuance, under the applicable rules of the Eligible
      Market, of all of the Conversion Shares and Exercise Shares and other shares
      of
      Common Stock issuable pursuant to the Transaction Documents without regard
      to
      the Exchange Cap Amount 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 Exchange Cap Amount (the shareholder approval of such proposal
      is
      referred to herein as the “Shareholder
      Issuance Approval”).
      The
      Shareholder Issuance Approval shall occur before December 1, 2007  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) January 15, 2008 (the “Shareholder
      Issuance Approval Deadline”).
      

    

    (y)
      D&O
      Insurance.
      The
      Company shall maintain a director’s and officer’s insurance policy in the amount
      of at least $5,000,000. 

    

    5.
      PROHIBITION ON LIENS; INJUNCTION.
      The
      Company hereby represents that, except for Permitted Liens and except as
      otherwise set forth on Schedule
      5
      annexed
      hereto, there are no liens or encumbrances on the Company’s Property (as defined
      below). The Company agrees that from the Issue Date of the Preferred
      Stock
      through
      the date that less than a 20% of the Preferred
      Stock
      issued
      in the Offering remains outstanding (the “Covered
      Period”),
      the
      Company shall not, and the Company shall not permit any of its Subsidiaries
      to,
      directly or indirectly, enter into, create, incur, assume or suffer to exist
      any
      mortgage, lien, pledge, security interest or other encumbrance (collectively,
      “Liens”)
      upon or
      in the Property (as defined below) owned by the Company or any of its
      Subsidiaries (except for Permitted Liens). In the event that the Company
      attempts to place any Lien or Liens on the Company’s Property during the Covered
      Period, the Buyer shall have the right to apply for an injunction in any state
      or federal courts sitting in the City of New York, borough of Manhattan to
      prevent such Lien or transfer. 

    

    For
      purposes hereof, “Property”
      shall
      mean any property of the Company, including but not limited to 

    

    (A)
      “Accounts”, “Cash Proceeds”, “Chattel Paper”, “Commercial Tort Claim”,
“Commodity Account”, “Commodity Contracts”, “Deposit Account”, “Documents”,
“Equipment”, “Fixtures”, “General Intangibles”, “Goods”, “Instruments”,
“Inventory”, “Investment Property”, “Letter-of-Credit Rights”, “Noncash
      Proceeds”, “Payment Intangibles”, “Proceeds”, “Promissory Notes”, “Security”,
“Record”, “Security Account”, “Software”, and “Supporting Obligations,” as each
      such term is defined in the Uniform Commercial Code as
      in
      effect from time to time in the State of New York,

     

    
      
        
        

      

      
        36

        
          

        

      

      
        
        

      

    

    

    (B)
      real
      property, 

    

    (C)
      Intellectual Property (as defined herein), and

    

    (D)
      all
      other assets of the Company.

    

    6.
      LEGENDS. 

    

    (a)
      The
      Conversion Shares and the Warrant Shares, together with any other shares of
      Common Stock that are issued or issuable pursuant to the Transaction Documents
      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 Section
      7(e)
      of the Certificate of Designation): (i) following resale of such shares while
      a
      registration statement (including the 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 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 of the Registration Statement
      if required by the Company’s transfer agent to effect the sale of Issued Common
      Shares by a Buyer without a restrictive legend or removal of the legend
      hereunder. 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 Buyer submits proof and proper documentation
      satisfactory to the Company and its transfer agent to the conditions in Section
      6(a). 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 6(a), it will, no later than three (3) Trading
      Days
      following the delivery by a Buyer 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 satisfactory to the
      Company and its transfer agent to the conditions in Section 6(a) (such third
      Trading Day, the “Legend
      Removal Date”),
      deliver or cause to be delivered to such Buyer a certificate representing such
      shares that is free from all restrictive and other legends. 

    

    (b)
      Omitted.

    

    (c)
      Each
      Buyer, severally and not jointly with the other Buyers, agrees that the removal
      of the restrictive legend from certificates representing Securities as set
      forth
      in this Section 6 is predicated upon the Company’s reliance that each Buyer will
      sell any Securities 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. 

     

    
      
        
        

      

      
        37

        
          

        

      

      
        
        

      

    

    

    (d)
      The
      Company’s obligations under Section 6(a) and (b) shall expire on the third
      anniversary of the Closing Date.

    

    7.
      CONDITIONS
      TO THE COMPANY'S OBLIGATION TO SELL.
      The
      obligation of the Company hereunder to issue and sell the Preferred Stock and
      Warrants to a Buyer at the Closing is subject to the satisfaction, at or before
      the Closing Date, of each of the following conditions thereto, provided that
      these conditions are for the Company's sole benefit and may be waived by the
      Company at any time in its sole discretion:

    

    (a)
      The
      Buyer shall have executed each of the Transaction Documents which requires
      Buyer’s signature, and delivered the same to the Company.

    

    (b)
      The
      Buyer shall have delivered the applicable Purchase Price in accordance with
      Section 1(b) above.

    

    (c)
      The
      representations and warranties of the Buyer shall be true and correct in all
      material respects as of the date when made and as of the applicable Closing
      Date
      as though made at that time (except for representations and warranties that
      speak as of a specific date, which representations and warranties shall be
      true
      and correct as of such date), and the Buyer shall have performed, satisfied
      and
      complied in all material respects with the covenants, agreements and conditions
      required by this Agreement to be performed, satisfied or complied with by the
      Buyer at or prior to the Closing Date, and the Company shall have received
      a
      certificate from the Buyer to that effect and to such other matters as may
      be
      reasonably required by the Company.

    

    (d)
      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.

    

    (e)
      The
      Company shall have received the deliveries under Section 7(a) and (b) from
      the
      Buyers representing the Minimum Amount.

    

    8.
      CONDITIONS
      TO BUYER'S OBLIGATION TO PURCHASE.
      The
      obligation of each Buyer hereunder to purchase the Preferred Stock and Warrants
      at the Closing is subject to the satisfaction, at or before the Closing Date,
      of
      each of the following conditions, provided that these conditions are for such
      Buyer's sole benefit and may be waived by such Buyer at any time in its sole
      discretion (for purposes of this section, deliveries to the Escrow Agent on
      account of the Buyer shall be deemed to be deliveries to the
      Buyer):

    

    (a)
      The
      Company shall have executed this Agreement, the Registration Rights Agreement,
      and the Escrow Agreement and delivered the same to the Buyer.

     

    
      
        
        

      

      
        38

        
          

        

      

      
        
        

      

    

    

    (b)
      The
      Company shall have delivered to such Buyer the duly executed Preferred Stock
      Certificates and Warrants to the Escrow Agent in accordance with Section 1
      above, and a copy of the Certificate of Designation stamped to indicate that
      it
      has been filed with the State of Delaware.

    

    (c)
      The
      representations and warranties of the Company contained in this Agreement,
      as
      modified by the Exhibits and Schedules hereto, shall be true and correct in
      all
      material respects as of the date when made and as of the Closing Date as though
      made at such time (except for representations and warranties that speak as
      of a
      specific date, which representations and warranties shall be true and correct
      as
      of such date) and the Company shall have performed, satisfied and complied
      in
      all material respects with the covenants, agreements and conditions required
      by
      this Agreement to be performed, satisfied or complied with by the Company at
      or
      prior to the Closing Date. The Buyer shall have received a certificate or
      certificates (the “Officer’s
      Certificate”),
      executed by the President and Chief Executive Officer or Chief Financial Officer
      of the Company, dated as of the applicable Closing Date, to the foregoing effect
      and as to such other matters as may be reasonably requested by such Buyer
      including, but not limited to certificates with respect to the Company's
      Certificate of Incorporation, By-laws and Board of Directors' resolutions
      relating to the transactions contemplated hereby.

    

    (d)
      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.

    

    (e)
      Trading in the Common Stock on the Principal Market shall not have been
      suspended by the SEC or the Nasdaq and, within two (2) business days of the
      Closing, the Company will make application to the Principal Market, if legally
      required by the Principal Market, to have the Conversion Shares and the Warrant
      Shares authorized for quotation.

    

    (f)
      The
      Buyer shall have received a Closing Legal Opinion as further described in
      Section 1(b)(v)(D) hereof.

    

    (g)
      The
      Company shall have delivered to the Buyer executed Accountant and Lawyer
      Letters, as described in Buyer shall have received a Closing Certificate
      described in Section 1(b)(v)(C) above, dated as of the Closing
      Date.

    

    (h)
      The
      Company shall have delivered to the Buyer executed Accountant and Lawyer
      Letters, as described in Section 3(dd) hereof. 

    

    (i)
      Within two (2) Business Days prior to the Closing, the Company shall have
      delivered or caused to be delivered to each Buyer certified copies of UCC search
      results, listing all effective financing statements which name as debtor the
      Company or any of its Subsidiaries filed in the prior five (5) years to perfect
      an interest in any assets thereof, together with copies of such financing
      statements, and the results of searches for any tax lien and judgment lien
      filed
      against such Person or its property, which results, except as otherwise agreed
      to in writing by the Buyers shall not show any such liens.

     

    
      
        
        

      

      
        39

        
          

        

      

      
        
        

      

    

    

    (j)
      The
      Company shall have received funds from Buyers representing their respective
      Purchase Prices in an amount exceeding the Minimum Amount, in the aggregate
      and
      not exceeding the Maximum Amount, in the aggregate.

    

    (k)
      No
      Material Adverse Changes have occurred since the date that the Buyer executed
      this Agreement.

    

    9.
      GOVERNING
      LAW; MISCELLANEOUS.

    

    (a)
      Governing
      Law.
      All
      questions concerning the construction, validity, enforcement and interpretation
      of this Agreement and the other Transaction Documents 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 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. 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.
THE
      PARTIES HEREBY WAIVE ALL RIGHTS TO, AND AGREES NOT TO REQUEST, A TRIAL BY JURY
      FOR ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING
      OUT
      OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY OR BY ANY OF THE
      TRANSACTION DOCUMENTS. 

    

    (b)
      Counterparts;
      Signatures By Facsimile.
      This
      Agreement may be executed in one or more counterparts, all of which shall be
      considered one and the same agreement and shall become effective when
      counterparts have been signed by each party and delivered to the other party.
      This Agreement, once executed by a party, may be delivered to the other party
      hereto by facsimile transmission of a copy of this Agreement bearing the
      signature of the party so delivering this Agreement.

     

    
      
        
        

      

      
        40

        
          

        

      

      
        
        

      

    

    

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

    

    (d)
      Severability.
      If any
      provision of this Agreement shall be invalid or unenforceable in any
      jurisdiction, such invalidity or unenforceability shall not affect the validity
      or enforceability of the remainder of this Agreement or the validity or
      enforceability of this Agreement in any other jurisdiction.

    

    (e)
      Entire
      Agreement; Amendments.
      This
      Agreement and the instruments referenced herein contain the entire understanding
      of the parties with respect to the matters covered herein and therein and
      supersede all previous communication, representation, or Agreements whether
      oral
      or written, between the parties with respect to the matters covered herein.
      Except as specifically set forth herein or therein, neither the Company nor
      the
      Buyer makes any representation, warranty, covenant or undertaking with respect
      to such matters. The Agreement may not be orally modified. Only a modification
      in writing, signed authorized representatives of both parties will be
      enforceable. The parties waive the right to rely on any oral representations
      made by the other party, whether in the past or in the future, regarding the
      subject matter of the Agreement, the instruments referenced herein or any other
      dealings between the parties related to investments or potential investments
      into the Company or any securities transactions or potential securities
      transactions with the Company.

    

    (f)
      Independent
      Nature of Buyers’ Obligations And Rights.
      The
      obligations of each Buyer under any Transaction Document are several and not
      joint with the obligations of any other Buyer, and no Buyer shall be responsible
      in any way for the performance of the obligations of any other Buyer under
      any
      Transaction Document. Nothing contained herein or in any Transaction Document,
      and no action taken by any Buyer pursuant thereto, shall be deemed to constitute
      the Buyers as a partnership, an association, a joint venture or any other kind
      of entity, or create a presumption that the Buyers are in any way acting in
      concert or as a group with respect to such obligations or the transactions
      contemplated by the Transaction Documents. Each Buyer shall be entitled to
      independently protect and enforce its rights, including without limitation,
      the
      rights arising out of this Agreement or out of the other Transaction Documents,
      and it shall not be necessary for any other Buyer to be joined as an additional
      party in any proceeding for such purpose. Each Buyer has been represented by
      its
      own separate legal counsel in its review and negotiation of the Transaction
      Documents. 

    

    (g)
      Notices.
      Any
      notices required or permitted to be given under the terms of this Agreement
      shall be sent by certified or registered mail (return receipt requested) or
      delivered personally or by courier (including a recognized overnight delivery
      service) or by facsimile and shall be effective five days after being placed
      in
      the mail, if mailed by regular United States mail, or upon receipt, if delivered
      personally or by courier (including a recognized overnight delivery service)
      or
      by facsimile, in each case addressed to a party. The addresses for such
      communications shall be:

    

    If
      to the
      Company, to:

    

    Attn:
      Molly Henderson, CFO

    VirtualScopics,
      Inc.

    500
      Linden Oaks

    Rochester,
      NY 14625

    Phone:
      585-249-6231

    Fax:
      585-218-7350

     

    
      
        
        

      

      
        41

        
          

        

      

      
        
        

      

    

    

    With
      copy
      to:

    

    Attn:
      Gregory W. Gribben, Esq.

    Woods
      Oviatt Gilman LLP

    700
      Crossroads Building, 2 State Street

    Rochester,
      New York 14614

    Phone:
      (585) 987-2800

    Fax:
      (585) 987-2975

    

    If
      to a
      Buyer: To the address set forth immediately below such

    Buyer's
      name on the signature pages hereto.

    

    Each
      party shall provide notice to the other party of any change in
      address.

    

    (h)
      Successors
      And Assigns.
      This
      Agreement shall be binding upon and inure to the benefit of the parties and
      their successors and assigns. Neither the Company nor any Buyer shall assign
      this Agreement or any rights or obligations hereunder without the prior written
      consent of the other. Notwithstanding the foregoing, subject to Section 2(f),
      Buyer may assign its rights hereunder to any person that purchases Securities
      in
      a private transaction from a Buyer or to any of its “Affiliates,”
      as that
      term is defined under the 1934 Act, without the consent of the Company provided
      that prior with notice of such assignment along with the terms thereof, and
      the
      full name and contact information of the transferee is provided to the Company
      .

    

    (i)
      Third
      Party Beneficiaries.
      This
      Agreement is intended for the benefit of the parties hereto and their respective
      permitted successors and assigns, and is not for the benefit of, nor may any
      provision hereof be enforced by, any other person.

    

    (j)
      Survival.
      The
      representations and warranties of the parties hereto contained in Sections
      2 and
      3(a)-(d) of this Agreement shall survive the closing hereunder for the maximum
      period permitted by applicable law. The representations and warranties in the
      remaining portion of Section 3 shall survive until the eighteen (18) month
      anniversary of the Closing at which time they shall terminate.

     

    
      
        
        

      

      
        42

        
          

        

      

      
        
        

      

    

    

    (k)
      Indemnification.
      The
      Company and the Buyer (the “Indemnifying
      Party”)
      agree
      to indemnify and hold harmless the other, and all of their respective officers,
      directors, employees, agents, members and managers (the “Indemnified
      Party”)
      for
      loss or damage arising as a result of or related to any breach by the Company
      or
      the Buyer, as applicable, of any of its representations, warranties and
      covenants set forth in Sections 2, 3 and 4 hereof or any of their respective
      covenants and obligations under this Agreement or the Registration Rights
      Agreement.

    

    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.

     

    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.

     

    (l)
      Publicity.
      The
      Company and BridgePointe, on behalf of the other Buyers, shall have the right
      to
      review a reasonable period of time before issuance of any press releases,
      filings with the SEC, NASD or any stock exchange or interdealer quotation
      system, or any other public statements with respect to the transactions
      contemplated hereby; PROVIDED, HOWEVER, that the Company shall be entitled,
      without the prior approval of BridgePointe, to make any press release or public
      filings with respect to such transactions as is required by applicable law
      and
      regulations (although the Buyer shall be consulted by the Company in connection
      with any such press release prior to its release and shall be provided with
      a
      copy thereof and be given an opportunity to comment thereon). The Company agrees
      that it will not disclose, and will not include in any public announcement,
      the
      name of the Buyers without the consent of the Buyers unless and until such
      disclosure is required by law or applicable regulation, and then only to the
      extent of such requirement.

     

    
      
        
        

      

      
        43

        
          

        

      

      
        
        

      

    

    

    (m)
      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.

    

    (n)
      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.

    

    (o)
      Omitted.

    

    (p)
      Remedies.
      The
      Company acknowledges that a breach by it of its obligations hereunder will
      cause
      irreparable harm to Buyer, 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 Buyer 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.

    

    10. NUMBER
      OF SHARES AND PURCHASE PRICE.
      Buyer
      subscribes for a Preferred Stock having an aggregate initial Stated Value equal
      to the subscription amount (“Subscription
      Amount”)
      set
      forth on such Buyer’s signature page below against payment by wire transfer in
      the amount of the Subscription Amount (less any offset of expenses as permitted
      hereunder).

    

    The
      undersigned acknowledges that this Agreement and the subscription represented
      hereby shall not be effective unless accepted by the Company as indicated
      below.

    

    [INTENTIONALLY
      LEFT BLANK]

     

    
      
        
        

      

      
        44

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF, the undersigned Buyer does represent and certify under penalty
      of perjury that the foregoing statements are true and correct and that Buyer
      by
      the following signature(s) executed this Agreement.

    

    Dated
      this ___day
      of
      September, 2007.

    

      
        	_____________________________________________________	 	 	 	_______________________________________
	
                Your
                  Signature

              	 	 	 	
                PRINT
                  EXACT NAME IN WHICH YOU WANT

              
	 	 	 	 	
                THE
                  SECURITIES TO BE REGISTERED

              
	
                Buyer’s
                  Subscription Amount:
                  $____________________________________.

              	 	 	
                 

              	 
	 	 	 	 	 
	
                Buyer’s
                  Entity Type and Residency:_________________________________.

              	 	
                 

              	 	 
	 	 	 	 	 
	____________________________________	 	
                DELIVERY
                  INSTRUCTIONS:

              
	
                Name:
                  Please Print

              	 	
                Please
                  type or print address where your security is to be
                  delivered

              
	 	 	 	 	 
	____________________________________	 	
                ATTN.:______________________________________________________

              
	
                Title/Representative
                  Capacity (if applicable)

              	 	 	 	 
	 	 	 	 	 
	____________________________________	 	____________________________________________________
	
                Name
                  of Company You Represent (if applicable)

              	 	
                Street
                  Address

              
	 	 	 	 	 
	____________________________________	 	____________________________________________________
	
                Place
                  of Execution of this Agreement

              	 	
                City,
                  State or Province, Country, Offshore Postal Code

              
	 	 	 	 	 
	 	 	 	 	 
	______________________________________________	 	 	 	 
	
                Phone
                  Number (For Federal Express) and Fax Number (re:
                  Notice)

              

      

    

     

    THIS
      AGREEMENT IS ACCEPTED BY THE COMPANY IN THE AMOUNT OF $
      ----------------------
      (“SUBSCRIPTION AMOUNT”) ON THE 12th
      DAY OF
      SEPTEMBER, 2007.

     

    
      	 	 	 
	 	
              VIRTUALSCOPICS,
                INC.

            
	 
 	 
 	 
 
	 	By:  	/s/ Molly
              Henderson 
	 	
              
Print
              Name: Molly Henderson
	 	Title:
              Chief Financial Officer

    

    

    
      
        
        

      

      
        45

        
          

        

      

      
        
        

      

    

    SCHEDULE
      OF BUYERS

     

    
      	
              (1)

            	
               

            	
              (2)

            	
               

            	
              (3)

            	
               

            	
              (4)

            	
               

            	
              (5)

            	
               

            	
              (6)

            
	
              Buyer

            	
               

            	
              Address
                and

              Facsimile
                Number

            	
               

            	
              Aggregate

              Stated
                Value of Preferred Stock Being Purchased

            	
               

            	
              Aggregate

              Number
                of

              Warrant

              Shares1 

            	
               

            	
              Purchase

              Price

            	
               

            	
              Legal
                Representative’s

              Address
                and

              Facsimile
                Number

            
	
               

            	
               

            	
               

            	
               

            	
               

            	
               

            	
               

            	
               

            	
               

            	
               

            	
               

            
	
              BridgePointe
                Master Fund Ltd.

            	 	
              1125
                Sanctuary Parkway

              Suite
                275

              Alpharetta,
                GA 30004

              Facsimile:
                770.777.5844

            	 	
              $2,000,000

              (2,000
                Shares)

            	 	 	 	
              $2,000,000

            	 	
              P.
                Bradford Hathorn, Esq.

              Roswell
                Capital Partners, LLC

              1120
                Sanctuary Parkway, Suite 325

              Alpharetta,
                GA 30004

              Facsimile:
                (770) 777-5844

            
	 	 	 	 	 	 	 	 	 	 	 
	
              BayStar
                Capital III Investment Fund, L.P..

            	 	
              80
                E. Sir Francis Drake Blvd.

              Suite
                2B

              Larkspur,
                CA 94939

              Facsimile:
                415.834.4601

            	 	
              $500,000

              (500
                Shares)

            	 	 	 	
              $
                500,000

            	 	
              John
                O’Neill, Esq.

              Collette,
                Erickson, Farmer & O’Neill

              235
                Pine Stree

              Suite
                1300

              San
                Francisco, CA 94104

              Facsimile:
                415-788-6929

            
	 	 	 	 	 	 	 	 	 	 	 
	
              Crescent
                International, Ltd.

            	 	
              c/o
                Cantara (Switzerland) S.A.

              84
                Avenue Louis-Casal

              CH-1216
                Cointrin/Geneva

              Switzerland

              Facsimile:
                +41 22 7917171

            	 	
              $400,000

              (400
                Shares)

            	 	 	 	
              $
                400,000

            	 	
              Feldman
                Weinstein & Smith LLP

              The
                Graybar Building

              420
                Lexington Avenue

              New
                York, New York

              10170-0002

              Facsimile:
                (212) 401-4741

            
	 	 	 	 	 	 	 	 	 	 	 
	
              Gemini
                Master Fund, Ltd.

            	 	
              c/o
                Gemini Strategies, LLC

              12220
                El Camino Real

              Suite
                400

              San
                Diego, CA 92130

              Facsimile:
                (858) 505-8808

            	 	
              $400,000

              (400
                Shares)

            	 	 	 	
              $
                400,000

            	 	
              Steven
                Winters

              c/o
                Gemini Strategies, LLC

              12220
                El Camino Real

              Suite
                400

              San
                Diego, CA 92130

              Facsimile:
                (858) 505-8808

            
	 	 	 	 	 	 	 	 	 	 	 
	
              Bristol
                Investment Fund, Ltd.

            	 	
              c/o
                Bristol Capital Advisors, LLC

              10990
                Wilshire Boulevard, Suite 1410

              Los
                Angeles, CA 90024

              Facsimile:
                (310) 696.0334

            	 	
              $350,000

              (350
                Shares)

            	 	 	 	
              $
                350,000

            	 	
              Amy
                Wang, Esq.

              c/o
                Bristol Capital Advisors, LLC

              10990
                Wilshire Boulevard, Suite 1410

              Los
                Angeles, CA 90024

              Facsimile:
                (310) 696.0334

            
	 	 	 	 	 	 	 	 	 	 	 
	
              Robert
                G. Klimasewski

            	 	
              19
                Junction Road

              Honeoye
                Falls, NY 14472

            	 	
              $100,000

              (100
                Shares)

            	 	 	 	
              $
                100,000

            	 	
              19
                Junction Road

              Honeoye
                Falls, NY 14472

            
	 	 	 	 	 	 	 	 	 	 	 
	
              SRK
                Management Co.

            	 	
              810
                Seventh Avenue 

              41st
                Floor

              New
                York, New York 10019

            	 	
              $500,000

              (500
                Shares)

            	 	 	 	
              $
                500,000

            	 	
              810
                Seventh Avenue 

              41st
                Floor

              New
                York, New York 10019

            
	 	 	 	 	 	 	 	 	 	 	 

    

    

    
      	
              EGATNIV,
                LLC

            	 	
              150
                West 46th
                Street

              6th
                Floor

              New
                York, New York 10036

              Facsimile:
                (212) 730-4306

            	 	
              $100,000

              (100
                Shares)

            	 	 	 	
              $
                100,000

            	 	
              Joshua
                Greenberg

              150
                West 46th
                Street

              6th
                Floor

              New
                York, New York 10036

              Facsimile:
                (212) 730-4306

            
	 	 	 	 	 	 	 	 	 	 	 
	
              Total:

            	 	 	 	
              4,350

            	 	 	 	
              $4,350,000

            	 	 

    

    
      
         

        
          

        

        1
          To be
          calculated pursuant to Section 1(b)(iv) and completed at the
          Closing.

      

       

      
        
        

      

      
        46

        
          

        

      

      
        
        

      

    

    VirtualScopics,
      Inc. 

    Exhibits
      and Schedule List to the 

    SECURITIES
      PURCHASE AGREEMENT

    

      
        	
                Exhibit

              	
                A

              	
                Certificate
                  of Designation

              
	
                Exhibit

              	
                B

              	
                Registration
                  Rights Agreement

              
	
                Exhibit

              	
                C

              	
                Escrow
                  Agreement

              
	
                Exhibit

              	
                D

              	
                Warrants

              
	
                Exhibit

              	
                E

              	
                Legal
                  Opinion (dated Closing Date)

              
	
                Exhibit

              	
                F

              	
                Limited
                  Standstill Agreement

              
	 	 	 
	
                Schedule

              	
                3(a)

              	
                Organization
                  & Qualification, Subsidiaries

              
	
                Schedule

              	
                3(b)

              	
                Authorization;
                  Enforcement

              
	
                Schedule

              	
                3(c-1)

              	
                Capitalization

              
	
                Schedule

              	
                3(c-2)

              	
                Outstanding
                  Warrants, Options, Etc.

              
	
                Schedule

              	
                3(f)

              	
                No
                  Conflicts

              
	
                Schedule

              	
                3(h)

              	
                Absence
                  of Certain Changes/ Material Adverse Changes

              
	
                Schedule

              	
                3(j-1)

              	
                Patents;
                  Intellectual Property

              
	
                Schedule

              	
                3(j-2)

              	
                Liens,
                  Licenses on any Patents

              
	
                Schedule

              	
                3(m)

              	
                Transactions
                  with and Obligations to Affiliates

              
	
                Schedule

              	
                3(r)

              	
                Conduct
                  of Business; Regulatory Permits; Compliance

              
	
                Schedule

              	
                3(dd)

              	
                Accountant
                  and Lawyer Letters

              
	
                Schedule

              	
                3(hh)

              	
                DTC
                  Status

              
	
                Schedule

              	
                3(jj)

              	
                Registration
                  Rights

              
	
                Schedule

              	
                3(kk)

              	
                Obligations
                  to Issue Additional Securities

              
	
                Schedule

              	
                4(r)

              	
                Designated
                  Insiders

              

      

      
         

        
          
          

        

        
          47Exhibit
        10.2

       
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

              	 	 
	
                ___,000,000
                  shares

              	 	
                Warrant
                  Number WA-____

              

      

    

    
    

     

    Warrant
      to Purchase Common Stock

    of

    VirtualScopics,
      Inc.

    

    THIS
      CERTIFIES that BRIDGEPOINTE MASTER FUND LTD., a Cayman Islands Exempted Company
      or any subsequent holder hereof (“Holder”)
      has the
      right to purchase from
      Virtualscopics, Inc.
      a
      Delaware corporation, (the “Company”),
      up to
      _____ Million (___,000,000) 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 13, 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 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 (“Securities
      Purchase Agreement”)
      dated
      September ___, 2007, and 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. 

    

    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.

    

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

       

    

    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.

    

    (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.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    (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. If the Company fails for any reason to deliver to the Holder
      certificates evidencing the Warrant Shares subject to a Notice of Exercise
      by
      the Warrant Share Delivery Deadline (a “Warrant
      Share Delivery Failure”).
      

    

    (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, except that the liquidated damages described above shall be payable
      through the date notice of revocation or rescission is given to the
      Company.

    

    (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 (the “Unlegended
      Shares Delivery Deadline”)
      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) (such
      third Trading Day, the “Legend
      Removal Date”),
      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 Share Delivery Date (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 $____ 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 being Exercised.

    

    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 Sock 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. 

    

    (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,
      Market Price or any Redemption Price, or the determination of whether or not
      a
      Dilutive Issuance or a Milestone Failure has occurred, 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, Market Price or any Redemption Price to the Company’s independent,
      outside accountant or (iii) the disputed facts regarding the occurrence of
      a
      Dilutive Issuance or Milestone Failure (or 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 (collectively,
      the
“Dispute
      Resolution Procedures”).

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    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 even herewith.

    

    5. Anti-Dilution
      Adjustments; Additional Adjustments; Purchase Rights.
      

    

    (a) (Omitted). 

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    (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)
      Adjustments to Conversion Price Due to Subsequent Equity Sales.
      If at
      any time after the Date of Issuance for so long as any Warrants are outstanding,
      the Company or any Subsidiary, as applicable, 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 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 (each, a“Dilutive
      Issuance Adjustment”)
      to equal
      the Base Conversion Price. Such adjustment shall be made whenever such Common
      Stock or Common Stock Equivalents are issued. Notwithstanding the foregoing,
      no
      adjustment will be made under this Section 5(e) in respect of an Exempt Issuance
      (as defined in the Securities Purchase Agreement) or
      in
      respect of Adjustment Exceptions (as defined below).
      If the
      Company issues Prohibited Equity Securities, despite the prohibition set forth
      in the Securities Purchase Agreement, the Company shall be deemed to have issued
      Common Stock or Common Stock Equivalents at the lowest possible conversion
      price
      at which such securities may be converted or exercised. The Company shall notify
      the Holder in writing, no later than 5 Business Days following the issuance
      of
      any Common Stock or Common Stock Equivalents subject to this Section 5(e),
      indicating therein the applicable issuance price, or applicable reset price,
      exchange price, conversion price and other pricing terms (such notice, the
      “Dilutive
      Issuance Notice”).
      For
      purposes of clarification, whether or not the Company provides a Dilutive
      Issuance Notice pursuant to this Section 5(e), upon the occurrence of any
      Dilutive Issuance, the Holder is entitled to receive a number of Conversion
      Shares based upon the Base Conversion Price on or after the date of such
      Dilutive Issuance, regardless of whether the Holder accurately refers to the
      Base Conversion Price in the Notice of Conversion. No adjustment shall be made
      hereunder if such adjustment would result in an increase of the Conversion
      Price
      then in effect.

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    For
      purposes hereof:

    

    “Adjustment
      Exceptions” shall
      mean all shares of Common Stock or Common Stock Equivalents issued (A) pursuant
      to any Approved Stock Plan (as
      defined in the Securities Purchase Agreement),
      (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 connection with the Offering, or to a Placement Agent in connection with
      the Offering (as
      defined in the Securities Purchase Agreement),
      (C)
      upon the exercise, exchange, conversion, or redemption of Common Stock
      Equivalents issued and outstanding on the Date of Issuance, provided that the
      terms of such Common Stock Equivalents are not amended after the Date of
      Issuance, (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,
      and (E)
      in connection with an adjustment previously made pursuant to Section 5 (b),
      (f)
      or (i).

    

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

    

    “Common
      Stock Equivalents,” “Exempt
      Issuance” and
      “Prohibited
      Equity Securities”
      shall
      each have the meanings ascribed to them in the Securities Purchase Agreement.
      

    

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

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

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

    

    (f) Subsequent
      Rights Offerings.
      If the
      Company, at anytime prior to the date that all of the Warrants have been
      Exercised, redeemed or otherwise satisfied in accordance with their terms,
      shall
      issue rights, options or warrants to all holders of Common Stock (and not to
      Holders) entitling them to subscribe for or purchase shares of Common Stock
      at a
      price per share (the “Base
      Rights Offering Price”)
      that is
      lower than the Exercise Price then in effect, then the Exercise Price then
      in
      effect shall be reduced (but not increased) to the Base Rights Offering Price
      (a
“Subsequent
      Rights Offering Adjustment”).
      Such
      adjustment shall be made whenever such rights or warrants are issued, and shall
      become effective immediately after the record date for the determination of
      stockholders entitled to receive such rights, options or warrants. No adjustment
      shall be made hereunder if such adjustment would result in an increase of the
      Exercise Price then in effect.

    

    (g)
      Milestone Adjustments
      to Exercise Price.
      The
      Company has provided to the Holder pro forma financial projections and a list
      of
      milestone events that are evidenced on Schedule
      5(g)
      attached
      hereto (the “Projections”).
      If the
      Company shall have failed (each a “Milestone
      Failure”)
      to meet
      or exceed such Projections for any one or more of the following periods (each
      a
“Milestone
      Period”)
      (i) the
      twelve (12) month period ending December 31, 2007 and (ii) the twelve (12)
      month
      period ending December 31, 2008, respectively (each a “Milestone
      Date”),
      in
      each case as reported in the Company’s Form 10-K for such fiscal year, then the
      Exercise Price shall be reduced (but not increased) (a “Milestone
      Adjustment”)
      to
      equal the lesser of (a) the Exercise Price then in effect, (b) the Market Price
      as determined on the date that is five (5) Trading Days after the applicable
      Milestone Date, or (c) the Market Price (as defined below) as determined on
      the
      date that is five (5) Trading Days after the date that Company files its next
      Form 10-K with the Commission following the end of the applicable Milestone
      Period (the “Milestone
      Adjustment Price”).

    

    Each
      such
      adjustment shall be effective as of the first day following each Milestone
      Date
      (by way of example, if the Projections are not met for the Milestone Period
      ending December 31, 2007, the reduction is effective immediately on January
      1,
      2008). As to any Exercises by the Holder that occurred following the end of
      a
      Milestone Period but prior to the date the Company’s periodic report was filed
      (“Interim
      Period”),
      the
      Company shall retroactively send the Holder additional Warrant Shares within
      3
      Trading Days of the date of the applicable filing if an adjustment is required
      hereunder (provided that to the extent any such shares would cause the
      Beneficial Ownership Limitation to be exceeded, such excess shares shall not
      be
      issued and delivered until such time as such shares may be so issued without
      exceeding the Beneficial Ownership Limitation). The number of additional Warrant
      Shares issued shall be equal to the number of Warrant Shares receivable from
      such Exercises based on the adjusted Exercise Price less any Warrant Shares
      previously received on account of such Exercises. Any subsequent restatements
      of
      the Company’s financials shall require similar retroactive issuances if the
      aforementioned events are subsequently deemed to have occurred. The Company
      shall provide written notice to the Holder no later than 5 Business Day
      following the Company’s filing of the applicable periodic report with the
      Commission, indicating therein the new Exercise Price and the Revenue for the
      applicable quarter. In the event that there is an adjustment to the Exercise
      Price pursuant to any other provision under this Certificate of Designation
      during the Interim Period, the Exercise Price shall be the lower of (i) the
      Exercise Price as adjusted pursuant to the other provisions of this Certificate
      of Designation and (ii) the new Exercise Price as determined hereunder.
      Notwithstanding anything herein to the contrary, (i) the provision shall only
      have the effect of reducing the Exercise Price and (ii) each adjustment shall
      be
      permanent notwithstanding future Revenue or the achievement of any other
      milestones and cumulative with any other adjustments hereunder. 

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    (h)
      Adjustments to Exercise Price During Major Announcements.
      Notwithstanding anything contained in this Warrant to the contrary, in the
      event
      the Company makes any public announcement (the date of such announcement is
      hereinafter referred to as the “Announcement
      Date”)
      anytime
      during the period beginning five (5) Business Days before any Milestone
      Adjustment Date and ending five (5) Business Days after such Milestone
      Adjustment Date (the “Protected
      Period”),
      then
      the “Milestone
      Adjustment Price”
      for such
      Milestone Adjustment shall equal the lesser of (X) the Milestone Adjustment
      Price as determined pursuant to Section 5(g) above, (Y) the Market Price as
      determined on the Trading Day immediately preceding the Announcement Date and
      (Z) the Market Price as determined on the date that is ten (10) Trading Days
      after the Announcement Date. 

    

    (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.

    

    (j) 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”).
      

    

    (k) Adjustment
      to Number of Shares.
      In the
      event of any adjustment to the Exercise Price pursuant to the terms of this
      Warrant, including but not limited to any Milestone Adjustment, any Dilutive
      Issuance Adjustment any Subsequent Rights Offering Adjustment, or any Voluntary
      Adjustment, the number of Warrant Shares issuable upon Exercise of this Warrant
      shall be increased (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 increased accordingly. 

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

    (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. 

    

    (i)
      Adjustment
      to Exercise Price.
      Whenever
      the Exercise Price is adjusted pursuant to any provision of this Section 5,
      the
      Company shall promptly mail to the Holder a notice setting forth the Exercise
      Price after such adjustment and setting forth a brief statement of the facts
      requiring such adjustment. If the Company issues Prohibited Equity Securities
      (as defined in the Purchase Agreement), despite the prohibition thereon in
      the
      Purchase Agreement, the Company shall be deemed to have issued Common Stock
      or
      Common Stock Equivalents at the lowest possible conversion or exercise price
      at
      which such securities may be converted or exercised. 

    

    (ii)
      Notice
      to Allow Exercise by 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.

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

    (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 (a “Share
      Authorization Failure”)(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.

    

    (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.

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

    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) Definitions.
      For
      purposes hereof, 

    

    “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 which is not a “Reporting Issuer” under the 1934
      Act.

    

    “Sufficient
      Trading Characteristics”
      shall
      mean that the average daily dollar trading volume of the common stock of such
      entity on its primary exchange or market is equal to or in excess of $100,000
      for the 90th through the 31st day prior to the public announcement of such
      transaction.

    

    “Permissible
      Change of Entity Transaction” shall
      mean a Change of Entity Transaction where the Successor Entity (as defined
      below) (A) is a publicly traded Company whose common stock is quoted on or
      listed for trading on an Eligible Market, (B) has Sufficient Trading
      Characteristics (as defined below) and (C) meets the Assumption Requirements
      (as
      required in Section 10(b) below).

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

     

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

    

    “Impermissible
      Change of Entity Transaction”
      shall
      mean a Change of Entity Transaction which does not qualify as a Permissible
      Change of Entity Transaction.

    

    “Major
      Transaction” means
      

    

    (i) an
      Impermissible Change of Entity Transaction; and

    

    (ii) the
      sale
      or transfer of all or substantially all, of the assets of the Company to another
      Person or Persons in one or a series of related transactions (an “Asset
      Sale”);
      and

    

    (iii) 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.

    

    (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 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, having similar exercise rights as this Warrant (including
      but not limited to similar exercise price adjustment provisions), and
      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 or redemption 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.”

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

     

    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) Notice
      of Major Transaction; Redemption Right Upon Major Transaction.
      At
      least thirty (30) days prior to the consummation of a Major Transaction, but
      not
      prior to the public announcement of such transaction, the Company shall deliver
      written notice thereof via facsimile and overnight courier to the Holder (a
      “Major
      Transaction Notice”),
      which
      notice shall specify the nature and terms of the proposed transaction and nature
      of the Successor Entity (if any). 

    

    (d) Redemption
      Right Upon Major Transaction.
      At any
      time during the period beginning after the Holder’s receipt of a Major
      Transaction Notice and ending on the Trading Day immediately prior to the
      consummation of such Major Transaction, the Holder may require the Company
      to
      redeem all or any portion of the Holder’s Warrant by delivering written notice
      thereof (“Major
      Transaction Redemption Notice”)
      to the
      Company, which Major Transaction Redemption Notice shall indicate the number
      of
      Warrant Shares of its Warrant (the “Redemption
      Warrant Amount”)
      that
      the Holder is electing to be redeemed. 

    

    The
      portion of this Warrant subject to redemption pursuant to this Section 10(d)
      shall be redeemed by the Company in cash at a price equal to 110%,
      multiplied by the number of warrant shares being redeemed, multiplied by the
      difference of (i) the Market Price as of the date of such redemption, or as
      of
      the date that such redemption price is paid, whichever yields the higher Market
      Price, minus (ii) the Exercise Price in effect at the time of payment
(the
      “Major
      Transaction Redemption Price”).
      

    

    (e) Escrow;
      Payment of Major Transaction Redemption Price.
      Following the receipt of a Major Transaction Redemption Notice from the Holder,
      the Company shall not effect a Major Transaction unless it shall first place,
      or
      shall cause the Successor Entity to place, into an escrow account with an
      independent escrow agent, at least three (3) Business Days prior to the closing
      date of the Major Transaction (the “Major Transaction Escrow Deadline”), an
      amount equal to the Major Transaction Redemption Price. Concurrently upon
      closing of any Major Transaction, the Company shall pay or shall instruct the
      escrow agent to pay the Major Transaction Redemption Price to the Holder, which
      payment shall constitute a Redemption Upon Major Transaction of the Preferred
      Stock. 

    

    (f) Injunction.
      Following the receipt of a Major Transaction Redemption Notice from the Holder,
      in the event that the Company attempts to consummate a Major Transaction without
      placing the Major Transaction Redemption Price in escrow in accordance with
      subsection (e) above or without payment of the Major Transaction Redemption
      Price to the Holder upon consummation of such Major Transaction, the Buyer
      shall
      have the right to apply for an injunction in any state or federal courts sitting
      in the City of New York, borough of Manhattan to prevent the closing of such
      Major Transaction until the Major Transaction Redemption Price is paid to the
      Holder, in full.

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

     

    (g) Mechanics
      of Redemptions Upon Major Transactions.
      

    

    Redemptions
      required by this Section 10 shall be made in accordance with the provisions
      of
      Section 12. Notwithstanding anything to the contrary in this Section 10, until
      the Major Transaction Redemption Price is paid in full, the portion of the
      Warrant submitted for redemption under this Section may be converted, in whole
      or in part, by the Holder into shares of Common Stock, or in the event the
      Conversion Date is after the consummation of a Major Transaction, into shares
      of
      common stock (or their equivalent) of the Successor Entity pursuant to Section
      10(b). Unless otherwise indicated by the Holder in the applicable Notice of
      Exercise, any amount of this Warrant exercised during the period from the date
      of the Major Transaction Redemption Notice until the date the Major Transaction
      Redemption Price is paid in full shall be considered to be an exercise (instead
      of a Redemption) of a portion of the Warrant that would have been subject to
      such Redemption, and any amounts of this Warrant exercised from time to time
      during such period shall exercised in full into Common Stock at the Exercise
      Price then in effect, and the number of shares of this Warrant so exercised
      into
      Common Stock shall be deducted from the number of Warrants that are subject
      to
      redemption hereunder. The parties hereto agree that in the event of the
      Company’s redemption of any portion of the Warrant under this Section 10(d), the
      Holder’s damages would be uncertain and difficult to estimate because of the
      parties’ inability to predict future interest rates and the uncertainty of the
      availability of a suitable substitute investment opportunity for the Holder.
      

    

    11. Default
      and Redemption.
      

     

    (a)
      Events Of Default.
      Each of
      the following events which occur between the Date of Issuance and the fourth
      (4th)
      anniversary thereof, shall be considered to be an “Event
      Of Default,”
      unless
      waived by the Holder: 

    

    (i)
      Failure
      To File and Maintain Registration. 
      An Event
      of Default occurs under Section 13(c) with respect to any Warrant Shares (a
      “Registration
      Default”)
      of the
      Certificate of Designation;

    

    (ii)
      Failure
      To Authorize And Reserve Common Stock. An
      Event
      of Default occurs under Section 13(i) with respect to any Warrant Shares (a
      “Share
      Reservation Default”)
      of the
      Certificate of Designation;

    

    (iii)
      Failure
      To Deliver Common Stock.
      A
      Warrant Share Delivery Failure (as defined above) occurs and remains uncured
      for
      a period of more than twenty (20) days. 

    

    (iv)
      Legend
      Removal Failure. A
      Legend
      Removal Failure occurs and remains uncured for a period of twenty (20) days,
      where a “Legend Removal Failure” shall be deemed to have occurred if the Company
      fails to issue Exercise Shares without a restrictive legend, when and as
      required under Section 2(g)(ii) hereof.

     

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

     

    (v)
      (Omitted)
      

    

    (vi)
      Corporate
      Existence; Major Transaction.
      The
      Company has effected a Major Transaction without paying the Major Transaction
      Redemption Price to the Holder pursuant to Section 10(d) or, if the Holder
      did
      not elect a Redemption Upon Major Transaction, the Company has failed to meet
      the Assumption Requirements of Section 10(b) prior to effecting a Major
      Transaction. 

    

    (vii) Failure
      to Adjust Exercise Price; Failure to Comply With Dispute Resolution
      Procedures.
      The
      Company shall have failed to use commercially reasonable efforts to comply
      in
      good faith with the Dispute Resolution Procedures (as defined herein) or shall
      have failed to adjust the Exercise Price as required under Section 5(l)
      following a Dilutive Issuance, a Milestone Event, or otherwise (after any
      applicable Dispute Resolution Procedure required herein), and such failure
      continues for ten (10) Business Days after the Holder provides written notice
      to
      the Company that such performance by the Company is past due.

    

    (b) Mandatory
      Redemption; Certain Adjustments on Default. 

    

    (i)
      Mandatory
      Redemption Amount.
      If any
      Events of Default shall occur and any such Event of Default continues for an
      additional ten (10) Business Days after the Holder provides written notice
      to
      the Company that an Event of Default has occurred and specifying the factual
      basis therefor then thereafter, unless waived by the Holder, during the
      continuation of any Event of Default, at the option of the Holder, such option
      exercisable through the delivery of written notice to the Company by such Holder
      (the “Default
      Notice”),
      the
      outstanding amount of this Warrant shall be immediately redeemed by the Company
      and the Company shall pay to the Holder (a “Mandatory
      Redemption”)
      an
      amount (the “Mandatory
      Redemption Amount”
      or the
“Default
      Amount”)
      equal
      to 110%, multiplied by the number of warrant shares being redeemed, multiplied
      by the difference of (i) the Market Price as of the date of such redemption,
      or
      as of the date that such redemption price is paid, whichever yields the higher
      Market Price, minus (ii) the Exercise Price in effect at the time of payment
      The
      Mandatory Redemption Amount shall be payable, in cash or cash equivalent, within
      five (5) business days of the Date of the applicable Default Notice.

    

    If
      the
      Company fails to pay the Default Amount within sixty (60) days of written notice
      that such amount is due and payable (the “Default
      Amount Due Date”),
      then
      the Holder shall have the right at any time, so long as the Company remains
      in
      default (and so long and to the extent that there are sufficient authorized
      shares), to require the Company, upon written notice (“Default
      Exercise Notice”)
      (which
      may be given one or more times, from time to time anytime after the Default
      Amount Due Date), to immediately issue (a “Default
      Exercise”),
      in
      lieu of all or any specified portion (the “Specified
      Portion”)
      of the
      unpaid portion (the “Unpaid
      Portion”)
      of the
      Default Amount, a number (the “Default
      Share Amount”)
      of
      shares (the “Default
      Shares”)
      of
      Common Stock, subject to the Beneficial Ownership Limitation, equal to the
      Specified Portion of the Default Amount divided by the Exercise
      Price
      in
      effect on the date such shares are issued to the Holder, PROVIDED THAT, the
      Holder may require that such payment of shares be made in one or more
      installments at such time and in such amounts as Holder chooses. The Default
      shares are due within five (5) Business Days of the date that the Holder
      delivers a Default Exercise Notice to the Company with the original Warrant
      (the
“Default
      Share Delivery Deadline”).
      The
      parties expressly agree and understand that, if an Event of Default results
      from
      the Company’s failure to pay any amounts when due hereunder and such failure
      occurs because funds are legally unavailable for such payment pursuant to a
      Payment Restriction Law (as defined below), the Company shall not be required
      to
      pay the Default Amount in cash, provided that in such event the Holder shall
      be
      entitled to all other remedies which would be available upon an Event of
      Default, including but not limited to the following: the Exercise Price shall
      be
      subject to Default Adjustments as described above. 

     

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

     

    Upon
      a
      Default Exercise occurring after the Shareholder Issuance Approval Deadline
      (as
      defined in the Securities Purchase Agreement), the Company shall be required
      deliver a number of Common Shares to the Holder equal to the applicable Default
      Share Amount (as described above), up to any Exchange
      Cap Limitations (as defined below).

    

    For
      purposes hereof, 

    

    “Payment
      Restriction Law”
      shall
      mean any applicable state law that prohibits the Company from paying all amounts
      due hereunder and under the Transaction Documents, including but not limited
      to
      any state law that prohibits the Company from paying certain dividends,
      redemption amounts, or other payments unless such payments are made out
      surplus.

    

    “Exchange
      Cap Limitations”
      shall
      mean any prohibitions under 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 number of shares which may
      be
      issued without violating such rules and regulations (such number of shares
      shall
      be referred to as the “Exchange
      Cap Amount”).
      

    

    If
      the
      Company is unable to redeem all of the Warrants submitted for redemption, the
      Company shall redeem a pro rata amount from each Holder based on the number
      of
      Warrants submitted for redemption by such Holder relative to the total number
      of
      Warrants submitted for redemption by all Holders. 

    

    The
      Holder shall not be entitled to receive Default Shares on a given date if and
      to
      the extent that such issuance would cause the Beneficial Ownership Limitation
      then in effect to be exceeded. If and to the extent that the issuance of Default
      Shares with respect to a given Specified Portion would result in the a violation
      of the Beneficial Ownership Limitation, then that particular Specified Portion
      shall be automatically reduced to a value that would cause the number of Default
      Shares to be issued to equal the Maximum Percentage, and the amount of such
      reduction shall be added back to the Unpaid Portion of the Default
      Amount.

    

    (ii)
      Adjustment Upon Certain Events of Default.
      If any
      Event of Default occurs under Section 11(a)(i), (ii), (iii), (iv) or (vii),
      and
      any such Event of Default continues for an additional ten (10) Business Days
      after the Holder provides written notice to the Company that an Event of Default
      has occurred and specifying the factual basis therefor, the Exercise Price
      shall
      be permanently decreased (but not increased) on the first Trading Day of each
      calendar month thereafter (each a “Default
      Adjustment Date”)
      until
      the Default Amount is paid in full, to a price equal to the lesser of (i) the
      Exercise Price then in effect, or (ii) the lowest Market Price that has occurred
      on any Default Adjustment Date since the date that the Event of Default began.
      

     

    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

     

    (c) Redemption
      by Other Holders.
      Upon the
      Company’s receipt of notice from any of the holders for redemption or repayment
      of other Warrants that were issued pursuant to the Securities Purchase Agreement
      (the “Other
      Warrants”)
      as a
      result of an event or occurrence of an Event of Default or a Major Transaction
      (each, an “Other
      Redemption Notice”),
      the
      Company shall immediately, but no later than five (5) Business Days of its
      receipt thereof, forward to the Holder by facsimile a copy of such notice.
      If
      the Company receives a Redemption Notice and one or more Other Redemption
      Notices, during the seven (7) Business Day period beginning on and including
      the
      date which is three (3) Business Days prior to the Company’s receipt of the
      Holder’s Redemption Notice and ending on and including the date which is three
      (3) Business Days after the Company’s receipt of the Holder’s Redemption Notice
      and the Company is unable to redeem all amounts designated in such Redemption
      Notice and such Other Redemption Notices received during such seven (7) Business
      Day period, then the Company shall redeem a pro rata amount from each holder
      of
      the Warrants (including the Holder) based on the number of Warrants submitted
      for redemption pursuant to such Redemption Notice and such Other Redemption
      Notices received by the Company during such seven (7) Business Day
      period.

    

    (d) Posting
      Of Bond. In
      the
      event that any Event of Default occurs hereunder or any Event of Default occurs
      under any of the Transaction Documents, the Company may not raise as a legal
      defense (in any Lawsuit, as defined below, or otherwise) or justification to
      such Event of Default any claim that such Holder or any one associated or
      affiliated with such Holder has been engaged in any violation of law, unless
      the
      Company has posted a surety bond (a “Surety
      Bond”)
      for the
      benefit of such Holder in the amount of 130% of the aggregate Surety Bond Value
      (as defined below) of all of the Holder’s Preferred Stock and Warrants (the
“Bond
      Amount”),
      which
      Surety Bond shall remain in effect until the completion of litigation of the
      dispute and the proceeds of which shall be payable to such Holder to the extent
      Holder obtains judgment. 

    

    For
      purposes hereof, a “Lawsuit”
      shall
      mean any lawsuit, arbitration or other dispute resolution filed by either party
      herein pertaining to any of the Transaction Documents. 

    

    “Surety
      Bond Value,”
      for the
      Warrants shall mean 130% of the of the Black-Scholes value of the remaining
      unexercised portion of this Warrant on the Trading Day immediately preceding
      the
      date that such bond goes into effect) and “Surety
      Bond Value”
      for the
      Preferred Stock shall have the meaning ascribed to it in the Certificate of
      Designation. For
      purposes hereof, the “Black-Scholes”
      value of
      a Warrant shall be determined by use of the Black Scholes Option Pricing Model
      reflecting (A) a risk-free interest rate corresponding to the U.S. Treasury
      rate
      for a period equal to the remaining term of this Warrant as of such date of
      request and (B) an expected volatility equal to the greater of 100% and the
      100
      day volatility obtained from the HVT function on Bloomberg. 

    

    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

    

     

    (e)
      Injunction And Posting Of Bond.
      In the
      event that the Event of Default referred to in subsection (c) above pertains
      to
      the Company’s failure to deliver unlegended shares of Common Stock to the Holder
      pursuant to a Warrant Exercise, legend removal request, the Company may not
      refuse such unlegended share delivery based on any claim that such Holder or
      any
      one associated or affiliated with such Holder has been engaged in any violation
      of law, unless an injunction from a court, on prior notice to Holder,
      restraining and or enjoining Exercise of all or part of said Warrant shall
      have
      been sought and obtained by the Company and the Company has posted a Surety
      Bond
      for the benefit of such Holder in the amount of the Bond Amount (as described
      above), which Surety Bond shall remain in effect until the completion of
      litigation of the dispute and the proceeds of which shall be payable to such
      Holder to the extent Holder obtains judgment. 

    

    (f)
      (Omitted).
      

    

    12. Holder’s
      Redemptions.
      

    

    (a)
      Mechanics of Holder’s Redemptions.
      In the
      event that the Holder has sent a Major Transaction Redemption Notice to the
      Company pursuant to Section 10(d) or a Default Notice pursuant to Section
      11(b)(i), respectively (each, a “Redemption
      Notice”),
      the
      Holder shall promptly submit this Warrant to the Company. In the event of a
      redemption of less than all of the outstanding portion of this Warrant, the
      Company shall promptly cause to be issued and delivered to the Holder a new
      Warrant representing the outstanding number of underlying Warrant Shares which
      have not been redeemed. In the event that the Company does not pay the
      applicable Redemption Price to the Holder within the time period required,
      at
      any time thereafter and until the Company pays such unpaid Redemption Price
      in
      full, the Holder shall have the option, in lieu of redemption, to require the
      Company to promptly return to the Holder all or any portion of this Warrant
      that
      was submitted for redemption and for which the applicable Major Transaction
      Redemption Price (together with any late charges thereon) has not been paid.
      Upon the Company’s receipt of such notice, (x) the applicable Redemption Notice
      shall be null and void with respect to such Redemption Share Amount, (y) the
      Company shall immediately return this Warrant, or issue a new Warrant to the
      Holder representing the portion of this Warrant that was submitted for
      redemption The Holder’s delivery of a notice voiding a Redemption Notice and
      exercise of its rights following such notice shall not affect the Company’s
      obligations to make any payments of Failure Payments which have accrued prior
      to
      the date of such notice with respect to the Warrant subject to such
      notice.

    

    (b)
      Warrants Detachable.
      The
      Warrants constitute a separate, detachable security from the Preferred Stock.
      In
      the event of any redemption of the Preferred Stock, in whole or in part, by
      the
      Company, the Holder shall retain any of its Warrants that have not been
      exercised or redeemed in accordance with their terms and in the event of any
      redemption of the Warrants, in whole or in part, by the Company, the Holder
      shall retain any of its Warrants that have not been exercised or redeemed in
      accordance with their terms.

    

    
      
        
        

      

      
        23

        
          

        

      

      
        
        

      

    

     

    13. Partial
      Return of Warrants Upon Approval Failure Redemption.
      In the
      event that the initial Approval Failure Redemption (as defined in the
Certificate
      of Designation)
      of the
      Preferred Stock is completed within ten (10) Business Days after the Shareholder
      Issuance Approval Deadline (as defined in the Securities Purchase Agreement),
      the Holder shall return to the Company for cancellation a pro-rata number of
      its
      Warrants (equally distributed between the two Warrant Exercise Prices) based
      upon the Warrant Amount (as defined in the Securities Purchase Agreement)
      corresponding to the number of shares of Preferred Stock being redeemed in
      such
      Approval Failure Redemption. It is expressly agreed and understood that the
      Holder shall not be required to tender or return any Warrants in connection
      with
      an Exchange Cap Redemption (as defined in the Certificate of Designation) of
      the
      Preferred Stock, other than the initial Approval Failure Redemption, and the
      Company shall not be entitled to redeem any of the Warrants in connection with
      any Exchange Cap Redemption of the Preferred Stock.

    

    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. 

     

    
      
        
        

      

      
        24

        
          

        

      

      
        
        

      

    

     

    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.

    

    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.

    

    
      
        
        

      

      
        25

        
          

        

      

      
        
        

      

    

     

    IN
      WITNESS WHEREOF, the undersigned has executed this Warrant as of the
      13th
      day of
      September, 2007.

     

    
      
        	 	 	 
	 	VirtualScopics,
                Inc.
	 
 	 
 	 
 
	
              	By:  	
              
	 	
                
                  

                

                Print
                  Name: Molly Henderson

              
	 	
                Title:
                  Chief Financial Officer

              
	 	
              

      

       

    

    
      
        
        

      

      
        26

        
          

        

      

      
        
        

      

    

     

    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.

     

    
      
 

    
      
        
        

      

      
        27

        
          

        

      

      
        
        

      

    

     

    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.

     

    
      
 

    
      
        
        

      

      
        28

        
          

        

      

      
        
        

      

    

     

    SCHEDULE
      5(g)

    

    MILESTONES

    

    
      	
              Milestone
                Date

            	 	
              Milestone
                Goals

            
	
               

              December
                31, 2007

            	 	
               

              $5,000,000
                in Revenues for the 12 month period ending on the Milestone
                Date

            
	
               

              December
                31, 2008

            	 	
               

              $7,000,000
                in Revenues for the 12 month period ending on the Milestone Date
                and
                negative (loss) Consolidated EBITDA of not greater than
                $3,800,000

            

    

     

    For
      purposes of the above, the following definitions shall apply:

    

    “Consolidated
      EBITDA”
      means,
      with respect to any Person for any period, the Consolidated Net Income of such
      Person and its Subsidiaries for such period, plus (i) without duplication,
      the
      sum of the following amounts of such Person and its Subsidiaries for such period
      and to the extent deducted in determining Consolidated Net Income of such Person
      for such period: (A) Consolidated Net Interest Expense, (B) income tax expense,
      (C) depreciation expense, (D) amortization expense, (E) stock compensation
      expense, (F) all rental expense determined on a consolidated basis in accordance
      with GAAP, less cash rents due under operating lease obligations, minus (ii)
      the
      aggregate amount of cash lease payments paid or payable during such period
      in
      respect of the capitalized leases.

    

    “Consolidated
      Net Income”
      means,
      with respect to any Person for any period, the net income (loss) of such Person
      and its Subsidiaries for such period, determined on a consolidated basis and
      in
      accordance with GAAP, but excluding from the determination of Consolidated
      Net
      Income (without duplication) (a) any extraordinary or non recurring gains or
      losses or gains or losses from dispositions, (b) restructuring charges, (c)
      any
      tax refunds, net operating losses or other net tax benefits and (d) effects
      of
      discontinued operations.

    

    “Consolidated
      Net Interest Expense”
      means,
      with respect to any Person, for any period, gross interest expense of such
      Person and its Subsidiaries for such period determined on a consolidated basis
      and in accordance with GAAP (excluding the interest component of any capitalized
      lease obligations), less interest income determined on a consolidated basis
      and
      in accordance with GAAP. 

    

    

    
      
        
        

      

      
        29

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00129-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00129-of-00352.parquet"}]]