Exhibit 10.2


 


INVESTOR RIGHTS AGREEMENT


 


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


 


RECITALS


 


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


 


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


 


NOW, THEREFORE,
the parties hereby agree as follows:


 


1.            Definitions.
For purposes of this Agreement:


 


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


 


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


 


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


 


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


 



    	 



    	 



    

 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 



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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 



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


 


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


 


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


 


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


 


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


 


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


 


2.1.         Demand
Registration.


 


(a)          Form
S-1 Demand. If at any time the Company receives a request from Holders that the Company file
a Form S-1 registration statement with
respect to Registrable Securities then outstanding (including a shelf registration of such Registrable securities to be offered
on a continuous or delayed basis), that would have an anticipated aggregate offering price, net of Selling Expenses, in excess
of $1,000,000, then the Company shall (i) within ten (10) days after the date such request is given, give notice thereof (the “Demand
Notice”) to all Holders other than the Initiating Holders; and (ii) as soon as reasonably practicable, and in any event
within seventy-five (75) days after the date such request is given by the Initiating Holders, file a
Form S-1 registration statement under the Securities Act covering all Registrable Securities that the Initiating
Holders requested to be registered and any
additional Registrable Securities requested to be included in such registration by any other Holders, as specified by notice given
by each such Holder to the Company within twenty (20) days of the date the Demand Notice is given, and in each case, subject
to the limitations of Subsection 2.1(c) and Subsection 2.3.


 


(b)          Form
S-3 Demand. If at any time when it is eligible to use a Form S-3 registration statement, the Company receives a request from
Holders of the Registrable Securities then outstanding that the Company file a Form S-3 registration statement with respect to
outstanding Registrable Securities of such Holders having an anticipated aggregate offering price, net of Selling Expenses, of
at least $1,000,000, then the Company shall (i) within ten (10) days after the date such
request is given, give a Demand Notice to all Holders other than the Initiating Holders; and (ii) as soon as reasonably practicable,
and in any event within sixty (60) days after the date such request is given by the Initiating Holders, file
a Form S-3 registration statement under the Securities Act covering all Registrable Securities requested to be included in such
registration by any other Holders, as specified by notice given by each such Holder to the Company within twenty (20) days of the
date the Demand Notice is given, and in each case, subject to the limitations of Subsection 2.1(c) and Subsection 2.3.



 



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


 


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


 



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


 


2.3.         Underwriting
Requirements.


 


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


 


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


 



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


 


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


 


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


 


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


 


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


 



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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 



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


 


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


 


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


 


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


 



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


 


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


 



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


 


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


 


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


 


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


 


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


 


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


 



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


 


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


 


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


 


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


 


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


 


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


 


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


 



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


 


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


 


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


 


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


 



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


 


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


 


4.           Rights
to Future Stock Issuances. 


 


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


 


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


 



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


 


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


 


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


 


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


 


5.          Miscellaneous.


 


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


 



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


 


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


 


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


 


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


 


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

        Attn: Gregory W. Gribben,
        Esq.

        Facsimile:585-987-2975



  



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


 


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


 


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


 


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


 


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


 



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


 


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


 


[SIGNATURE PAGE FOLLOWS]


 



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


 


	 	 	VIRTUALSCOPICS, INC.
	 	 	 
	By:	 	/s/ Molly Henderson
	 Name:	 	Molly Henderson
	Title:	 	Chief Business and Financial Officer
	 	 	 
	 	 	MERCK GLOBAL HEALTH
	 	 	INNOVATION FUND, LLC
	 	 	 
	By:	 	/s/ William J. Taranto
	Name:	 	William J. Taranto
	Title:	 	Managing Director


 


[SIGNATURE PAGE TO
INVESTOR RIGHTS AGREEMENT]


 








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