Exhibit
10.1





Confidential
treatment has been requested for portions of this Exhibit.  The copy
filed herewith omits the information subject to the confidentiality
request.  Omissions are marked by brackets with asterisks, such as
[***].  A complete version of this Exhibit has been filed separately
with the Securities and Exchange Commission.





STRATEGIC
ALLIANCE AGREEMENT




THIS STRATEGIC ALLIANCE
AGREEMENT (“Agreement”), entered into as of October 22, 2010 (the
“Effective Date”) by and between PPD Development, LP, a Texas
limited partnership, with its principal executive offices located at 929 North
Front Street, Wilmington, North Carolina 28401 (“PPD”) and VirtualScopics, Inc., with an
address of 500 Linden Oaks, Second Floor, Rochester, New York 14625(“VS”).




WHEREAS, PPD is a clinical
research organization engaged in the business of managing clinical research
programs and providing services regarding the development of pharmaceuticals,
chemicals, biotechnology and other products through clinical
testing;




WHEREAS, VS is in the business
of providing imaging services to the medical, pharmaceutical and related
industries;




WHEREAS, PPD and VS desire to
enter into a mutually beneficial relationship with a mission to deliver a
comprehensive set of clinical and medical imaging services that will enable
biopharmaceutical companies to make faster, more confident decisions on the
development of their compounds, creating time and cost efficiencies;
and




WHEREAS, the parties desire to
develop, market, sell, and deliver those joint service offerings pursuant to the
terms and conditions set forth herein.




NOW, THEREFORE, in
consideration of the promises and mutual covenants contained herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:




1.           
Term.  The term of this
Agreement shall begin on the Effective Date and shall continue for a period of
two (2) years (“Initial Term”) unless terminated earlier in accordance with
Section 11 of this Agreement.  Upon expiration of the Initial Term,
unless written notice to the contrary is provided by one party to the other
party at least 30 days prior to the expiration of the then-current term, this
Agreement shall be renewed for additional, successive periods of one (1) year
each (each a “Renewal” and together with the Initial Term, collectively, the
“Term”).  In connection with any Renewal, the parties shall mutually
agree upon and set forth in a written amendment signed by the parties (i) any
changes to the Services constituting Preferred Services and (ii) any changes to
the [***], VS Preferred Pricing, percentage Discount (defined in Section 4
below) or Bookings thresholds for all such Preferred Services.  Upon
any expiration or termination of this Agreement, all active Work Orders issued
prior to such expiration or termination shall remain subject to the terms and
conditions contained herein so long as such Work Order remains active.




2.           
Services.  PPD or any of its
subsidiaries or affiliates may engage VS to perform imaging services (the
“Services”) for a specific sponsor’s clinical research study (“Sponsor”) or for
a particular project.  The Services may be amended, supplemented, or
replaced from time to time upon mutual agreement of VS and PPD.





[***]
Represents material which has been redacted and filed separately with the
Commission pursuant to a request for confidential treatment pursuant to Rule
24b-2 under the Securities Exchange Act of 1934, as amended.





1


3.           
Services
Commitment.“Preferred
Services” shall be defined as those imaging services included within the service
offerings of VS at the time of final execution of this Agreement which are
specifically provided by VS in the therapeutic areas of hematology and oncology
(“Designated Therapeutic Areas”) to the extent such imaging services are subject
to the commitments of VS set forth in this Section 3 (the
“Commitments”).  “PPD Services” shall be defined as clinical research
organization services regarding the management of clinical trials for the
development of pharmaceuticals, chemicals, biotechnology and other products
through clinical testing.  Preferred Services and PPD Services shall
be subject to all of the rights and obligations otherwise set forth in this
Agreement.  Nothing contained herein shall be construed to limit the
provision of non-Preferred Services hereunder, however, such non-Preferred
Services shall not be subject to the Commitments set forth in this Section
3.




a.           Joint
Commitments




(i)
            The
      parties acknowledge and agree that it is their intent and commitment to
      expand the Joint Solution (as defined below) to therapeutic areas beyond
      the Designated Therapeutic Areas.  Upon mutual agreement
      regarding such expansion, it is the parties’ further intent to make such
      additional Joint Solution services subject to substantially the same
      commitments as those set forth
herein.




(ii)
            The
      parties acknowledge and agree that each party has in place, or will
      develop, processes and procedures applicable to their performance
      hereunder as specified on Exhibit A (“Integration
      Services”).  The Integration Services shall be reviewed and
      assessed by the parties from time to time and may be amended or updated
      from time to time.  Exhibit A shall be used as a guide for
      developing integrated service offerings to meet the needs of each party’s
      clients, as applicable (in each instance, a “Joint Solution” or
      collectively, the “Joint
Solution”).




(iii)
            Where
      either party determines that an opportunity exists and is appropriate for
      the offering of the Joint Solution to that party’s customer or client, it
      is the parties’ mutual intent and commitment to collaborate, as needed, to
      propose the Joint Solution to that customer or client.  Each
      party agrees to make a good faith effort to promote a Joint Solution for a
      Sponsor seeking services that could reasonably be addressed by the Joint
      Solution.  In connection with PPD’s response to a request for
      proposal (an “RFP”) in which a Joint Solution is proposed, PPD shall be
      responsible for the preparation and submission of such RFP response;
      provided, however, that PPD shall provide VS an opportunity to review and
      provide approval on the Joint Solution framework, including, the scope of
      the Preferred Services and the pricing thereof.  VS shall
      provide such review within two (2) business days following receipt by VS
      of such RFP response from PPD.  Where reasonably appropriate for
      the proper defense of an RFP, PPD will use its reasonable efforts to
      provide VS an opportunity to participate in a call or bid defense meeting
      to the extent related to the Joint Solution.  In the event PPD
      is awarded a clinical research study and such award includes selection by
      Sponsor of the Joint Solution, the parties shall mutually agree upon an
      applicable Work Order in accordance with Section 4
  below.


2


A.
            However,
      nothing contained herein shall be construed to impose upon PPD an
      obligation to offer the Joint Solution or to use VS for Preferred Services
      where:  (1) Sponsor is not in agreement, (2) VS’s pricing is not
      competitive, or (3) there have been advances in technology not offered by
      VS.




B.
            Further,
      nothing contained herein shall enable either party to utilize the Joint
      Solution where the client has rejected the involvement of either
      party.  For the avoidance of doubt, the Joint Solution shall
      only be utilized where both parties’ services in furtherance of the Joint
      Solution have been retained by the client.  Nonetheless, a
      client’s selection or rejection of either party for services outside the
      Joint Solution shall in no way impact or impede a party from performing
      such services, regardless of the other party’s selection or rejection by
      the client.




C.
            In
      the event either party discovers, directly or indirectly, technology not
      currently in use by the other party but which could improve the Preferred
      Services, PPD Services or the Joint Solution, the discovering party may
      elect to share such technology with the other party with the intent of
      integration by the other party.  However, to the extent such
      other party elects not to integrate or otherwise use such technology, the
      discovering party shall not be prohibited from using that technology
      without the other party’s
involvement.




(iv)
            During
      the Term, VS acknowledges and agrees that, to the extent it is aware of an
      opportunity for clinical research services, it will refer such opportunity
      to PPD as soon as possible.  VS shall not refer that opportunity
      to any other third party provider unless PPD declines to bid on such
      opportunity or does not offer the service in question.  During
      the Term, PPD acknowledges and agrees that, to the extent it is aware of
      an opportunity for imaging services outside of the Joint Solution, it will
      refer such opportunity to VS as soon as possible.  Unless
      otherwise required by a particular Sponsor, PPD shall not refer that
      opportunity to any other third party provider unless VS declines to bid on
      such opportunity or does not offer the service in
  question.


3


(v)
            During
      the Term of this Agreement, except as otherwise permitted by this Section
      3(a)(v), VS agrees that it shall not enter into the same or substantially
      similar Commitments with any other company or entity which performs
      clinical research services the same or similar to those provided by PPD or
      any PPD affiliate (collectively, “PPD Competitor”), nor shall VS provide
      preferred pricing to a PPD Competitor which is better than that provided
      by VS hereunder to PPD.  Further, during the Term of this
      Agreement, PPD agrees that it shall not enter into commitments which are
      the same or substantially similar to the PPD commitments set forth in
      Section 3 with any other imaging vendor for the performance of Preferred
      Services.  In the event that, during the Term of this Agreement,
      VS desires to enter into the same or substantially similar Commitments
      with a PPD Competitor for imaging services outside of the Designated
      Therapeutic Areas (defined herein or in any amendment hereto), VS shall
      first notify PPD regarding the same and PPD shall have a right, for a
      period of 45 days following receipt of such notice (the “Election
      Period”), to elect to include such imaging services as “Preferred
      Services” hereunder (the “Right of First Refusal”).  In the
      event PPD either (i) fails to respond within the Election Period or (ii)
      declines to include such imaging services as “Preferred Services” prior to
      termination of the Election Period, then in either such event, VS shall be
      permitted to pursue such relationship without being considered in
      violation of the Commitments or this Agreement.  Additionally,
      in the event that PPD enters into a relationship with a VS competitor
      which provides for commitments which are the same or substantially similar
      to the Commitments in a therapeutic area outside the Designated
      Therapeutic Areas (defined herein or in any amendment hereto), VS shall
      have the right, without violating the Commitments or this Agreement
      (including the Right of First Refusal), to enter into a relationship with
      a PPD Competitor which provides for commitments which are the same or
      substantially similar to the Commitments outside the Designated
      Therapeutic Areas (defined herein or in any amendment
    hereto).




(vi)
            The
      parties shall form a Steering Committee comprised of high level personnel
      from each party which shall meet quarterly during the Term of this
      Agreement to oversee the implementation of this preferred relationship and
      the obligations set forth herein.




The
Steering Committee shall be comprised of an equal number of representatives from
each party.  PPD’s Steering Committee representatives shall be
comprised of:  Director, Finance; Therapeutic Head; Relationship
Manager; Executive Director, Business Development; Executive Director,
Information Technology; Medical Director, Global Drug
Development.  VS’s Steering Committee representatives shall be
comprised of:  Chief Financial Officer; Chief Executive
Officer/President; Director of Operations and Director of Project
Management.  Each party shall provide prior written notice to the
other party of any desired change in Steering Committee
representatives.  Each party’s Steering Committee representatives
shall hold a position of sufficient level within its respective company to be
able to obtain timely resolution of disputes submitted to the Steering
Committee.


4


In the
event a Sponsor shall raise concerns or issues with respect to any Preferred
Services performed by VS in conjunction with




Sponsor’s
selection of the Joint Solution, which Preferred Services are agreed upon by the
parties in an executed Work Order, VS and PPD shall mutually evaluate such
concerns or issues prior to any communication with Sponsor and shall mutually
agree upon an appropriate response to Sponsor related to such concerns or
issues.  The resolution of any such matters shall be submitted first
to the parties’ respective Project Manager for the study, and in the event such
persons are unable to agree upon resolution, then to each parties’ Relationship
Manager/Senior Director and finally to the Therapeutic Head or equivalent
position.  The foregoing paragraph shall not be deemed to restrict a
PPD project manager from ordinary course discussions with a Sponsor in order to
collect information related to the nature of any such concerns or issues raised
by Sponsor.




b.           VS Commitment. VS
agrees to continue to make investments in and improvements to those processes,
technologies, techniques, software, hardware and methods which are integral or
beneficial to the Services provided by VS, specifically but without limitation,
to the Preferred Services.




c.           PPD
Commitment.  Where PPD is in a position to make a
recommendation to Sponsor with regard to imaging services, and VS is able to
provide such imaging services in accordance with Sponsor’s specifications, PPD
agrees to recommend VS to Sponsor.  PPD also agrees to maintain, when
present, VS’s name and logo on all VS generated deliverables to the
Sponsor.




4.           
Compensation.




a.           Each
time VS is requested to perform Services, PPD shall provide VS with a work order
or other similar written document mutually agreed upon by VS and PPD which shall
set forth the specific services being requested, the compensation therefore and
such other terms, conditions and specifications as VS and PPD may mutually agree
(referred to herein as a “Work Order”).  The parties acknowledge that no
services shall be conducted by VS and no compensation shall be due and payable
to VS without a Work Order.  In the event PPD receives a change
order from a Sponsor which includes changes to VS’s Services as set forth in an
executed Work Order or may otherwise impact the provision by VS of Services to
PPD hereunder, PPD shall promptly notify VS.  Thereafter, the parties
shall negotiate, in good faith, for an amendment to the applicable Work Order,
as appropriate, as a result of such Sponsor change order.




b.           VS
shall be compensated for the Services in accordance with the Work
Order.  All pricing and rates used to establish the budget for
Services set forth in each Work Order shall be in accordance with the pricing
structures agreed upon by the parties herein and set forth in Exhibit B attached
hereto and incorporated herein by reference.  PPD acknowledges that VS
customarily receives an advance payment in connection with the provision of
imaging services to its clients.  PPD agrees that, where appropriate and
permitted by the Sponsor, PPD will provide for an advance payment mutually
determined by PPD and VS (and acceptable to Sponsor) in connection with the
provision of Preferred Services to such Sponsor.




5




c.           Exhibit
B sets forth the pricing and rates for Preferred Services [***].  The
prices and rates set forth in Exhibit B and the Discount and Booking thresholds
set forth in Exhibit C shall remain in effect, without adjustment, during the
Initial Term of this Agreement and may thereafter be updated to reflect changes
in connection with any Renewal of this Agreement, as specified in Section 1
herein.




[*** 2.5
paragraphs omitted]




Upon the
termination of this Agreement for any reason, VS shall no longer have any
obligation to provide PPD with any Discount with respect to Preferred Services
nor shall VS be required to offer VS Preferred Pricing [***].  The
parties acknowledge and agree that the VS Preferred Pricing [***] shall apply
to, and remain in effect for, all active Work Orders issued hereunder,
regardless of the expiration or termination of this Agreement, as well as for
any timeline extensions to an active Work Order, provided that in the case of a
timeline extension, the parties may mutually agree to apply an inflation rate
for the extension period.  In the event a Work Order shall be amended
in any respect (including with respect to the scope of the Preferred Services,
the timing for the delivery thereof, or otherwise), the VS Preferred Pricing
[***] applicable to any Preferred Services included in such amendment and the
Discount shall be the VS Preferred Pricing [***] and the Discount in effect on
the date of the original Work Order.  The parties further acknowledge
and agree that VS Preferred Pricing [***] shall be applicable to any agreed upon
expansion of the Preferred Services.  With respect to any Services
provided to PPD hereunder, PPD shall charge each Sponsor the actual invoiced
amounts charged by VS to PPD for such Services without any mark-up or
administrative or other fee, unless VS has agreed otherwise in writing in the
applicable Work Order.




d.           Additionally,
PPD shall reimburse VS for all reasonable expenses incurred in the course of
performing the Services which are set forth in the Work Order.  VS
shall maintain a complete accounting of all expenses incurred and shall include
such accounting with VS’s invoice submitted to PPD.  Expenses incurred
must be invoiced separately and must include an expense report along with
original receipts for such expenses.




e.           VS
shall submit monthly invoices to PPD detailing its activities and fees in
accordance with Section 5 of this Agreement.  Notwithstanding the
foregoing, invoices must be submitted to PPD within thirty (30) days of
performing the Service or incurring the expense.  PPD shall have no
obligation to issue payment to VS for Services performed or expenses incurred
which were not invoiced to PPD in accordance with this Agreement.




f.           VS
acknowledges and agrees that where VS’s Services relate to a specific Sponsor’s
clinical research study, all payments under a Work Order are pass through
payments from Sponsor and PPD shall not have any payment obligations until such
payments are received from Sponsor.  PPD shall use all reasonable
diligence to obtain timely payment from Sponsor in order to make payment to VS
within 45 days following the date of invoice receipt.  In furtherance
thereof, PPD shall ensure that Sponsor is invoiced no later than ten (10) days
following PPD’s receipt of VS’s invoice, assuming such invoice was provided to
PPD by VS in accordance herewith and provided that Sponsor’s invoice
requirements do not preclude the same.  PPD shall ensure that VS is
aware of any such Sponsor restrictions as soon as possible.  Further,
PPD shall ensure that payment is made to VS either by wire transfer or PPD check
in accordance with PPD’s applicable payment processes no later than ten (10)
days following PPD’s receipt of applicable funds from Sponsor; provided,
however, that in the event such payment occurs more than 45 days following the
date of PPD’s receipt of VS’ invoice, such payment shall be made by wire
transfer.  Notwithstanding the foregoing, where a Sponsor fails to
issue payment to PPD, affecting PPD’s ability to pay VS, the parties shall
communicate with the other to jointly pursue communication with the Sponsor to
address the non-payment.





[***]
Represents material which has been redacted and filed separately with the
Commission pursuant to a request for confidential treatment pursuant to Rule
24b-2 under the Securities Exchange Act of 1934, as amended.


6


g.           Where
PPD and Sponsor have agreed upon and captured in a fully executed contract any
bonus/penalty or other similar, milestone based incentive provisions, and PPD’s
ability to meet the terms of such provisions will be impacted by VS’s Services,
PPD and VS may mutually agree, case by case, to flow through to the applicable
Work Order all or agreed upon portions of such bonuses, penalties or
incentives.




5.           
Invoices
and Billing Account Number.PPD shall assign
a billing account number (“Purchase Order Number”) to VS for the Services in
each Work Order.  All VS invoices must reference the Purchase Order
Number, Service fees, any PPD pre-approved expenses incurred by VS, the
remittance address, and the total amount of compensation owed to VS. These
invoices must be sent to the following address:  PPD, 929 North Front
Street, Wilmington, NC 28401, Attention: Accounts Payable.




6.           
Independent
Contractor.  VS shall perform
all Services under this Agreement as an independent contractor and not as an
employee, partner or agent of PPD.  As such, VS shall be solely
responsible for the payment of all taxes, payroll deductions and similar items
associated with compensation for its services under this Agreement as may be
required by applicable law.  VS acknowledges that as an independent
contractor it will not be entitled to insurance or other benefits made available
to employees of PPD.




7.           
Additional
Personnel.  VS shall have the
authority to utilize a third party vendor as may be required to perform the
Services (“Subcontractors”); provided, however, that:




a.           Subcontractors
must be approved in advance by PPD, such approval not to be unreasonably
withheld, conditioned or delayed.




b.           VS
shall be responsible for all taxes, payroll deductions and similar items which
may result from the retention of such Subcontractors to assist in the
performance of VS’s obligations under this Agreement.




c.           Compensation
for the services of said Subcontractor shall be paid to VS by PPD on a
pass-through basis and at no profit to VS.




d.           Any
such Subcontractor and its employees or other personnel shall be bound by the
terms and conditions of this Agreement with respect to representations and
warranties, privacy, confidential information, intellectual property,
indemnification, debarment, record keeping and audit (see Sections 8, 9, 10, 12,
14 and 15), which provisions shall be incorporated into a written agreement
between VS and such Subcontractor.




e.           Notwithstanding
the foregoing, VS shall remain responsible for the actions of all of the
Subcontractors retained by VS.


7


8.           
Representation
and Warranties.VS represents and
warrants that it shall utilize independent discretion and judgment in
discharging its responsibilities in a timely, professional and workmanlike
manner in accordance with internationally accepted standards, and shall, at all
times:  (i) use individuals of suitable training and skill to perform
its duties and responsibilities under this Agreement, if applicable; (ii) be in
possession of all the necessary facilities, resources and personnel required to
perform its duties and responsibilities under this Agreement; and (iii) comply
with all applicable laws, rules, regulations and guidelines.




Further,
VS represents and warrants that it has all of the necessary licenses, permits
and/or registrations to perform the Services in accordance with the terms and
conditions of this Agreement and that during the Term of this Agreement, all
such licenses, permits and/or registrations are and shall remain current and in
good standing.




[*** 1
paragraph omitted]




9.           
Confidential
Information.  It is understood
and agreed that any and all information which may be made available to, learned
by or generated by either party during the Term of this Agreement, including
without limitation, information relating to the other party’s businesses, its
affiliates or the Sponsor, Sponsor’s protocol, and this Agreement (collectively,
“Confidential Information”), is to be treated as strictly confidential (the
party disclosing such Confidential Information, the “Disclosing Party” and the
party receiving such Confidential Information, the “Receiving Party”, with the
understanding that either term may include, as applicable, an affiliate of
either party).  Confidential Information shall be used solely in
connection with performance hereunder or as otherwise may be necessary for a
party to fulfill its obligations to a customer or client and shall not to be
published or disclosed to any third parties other than the Receiving Party’s
employees on a strict need-to-know basis and provided that such employee is
under a similar written and enforceable obligation to keep such information
strictly confidential.  Further, nothing contained herein shall
prevent PPD from disclosing VS Confidential Information to PPD’s customers and
clients solely to the extent directly related to the provision of Services to
such customer or client.  The nondisclosure obligations set forth in
this Section 9 shall not apply to any portion of Confidential Information (i)
which is, or subsequently may, become within the knowledge of the general public
other than as a result of a breach of this Agreement by the Receiving Party;
(ii) which is known to the Receiving Party on a non-confidential basis at the
time of receipt thereof from the Disclosing Party; (iii) which may subsequently
be rightfully obtained from a third party not bound by an obligation of
confidentiality to the Disclosing Party, or (iv) which is required by any law,
rule, regulation, order, decision, decree, subpoena or other judicial,
administrative or legal process to be disclosed, provided that the Disclosing
Party receives prior written notice of such disclosure and that the Receiving
Party takes all reasonable and lawful actions to obtain confidential treatment
for such disclosure and, if possible, to minimize the extent of such
disclosure.




Receiving
Party shall take reasonable care of all Confidential Information entrusted to it
by or on behalf of the Disclosing Party or Sponsor, and shall return such
materials to the Disclosing Party or Sponsor (as the case may be) immediately
upon expiration or termination of this Agreement.




Both
parties agree to handle all information containing personal data in accordance
with all applicable privacy laws, rules, and regulations.





[***]
Represents material which has been redacted and filed separately with the
Commission pursuant to a request for confidential treatment pursuant to Rule
24b-2 under the Securities Exchange Act of 1934, as amended.


8


10.         
Intellectual
Property.Nothing contained
herein, nor the delivery of any information to either party hereunder, shall be
deemed to grant the other party a right or license under any patent or patent
application or to any know-how, technology, invention or other intellectual
property of the other party or of the Sponsor.




All
inventions, patents, know-how, trademarks, copyrights, information, data,
software, methodologies, writings and other property in any form whatsoever,
which are provided to either party and which were owned or controlled by the
providing party (“Originator”) shall remain the sole property of the
Originator.




The
parties’ ownership rights in any inventions, patents, trademarks, copyrights,
software, methodologies, writings and other property in any form whatsoever that
results out of the development of a Joint Solution shall be addressed by the
parties by separate written agreement which may include, an applicable Work
Order and/or an amendment to this Agreement (“Intellectual Property Amendment”)
..




Unless
otherwise addressed in an Intellectual Property Amendment, VS hereby assigns to
PPD (or Sponsor as the case may be) all rights that VS may have in any
invention, technology, know-how or other intellectual property which is
developed with use of Confidential Information provided to VS by
PPD.  Additionally, VS shall assist PPD (or Sponsor), at PPD’s (or
Sponsor’s) sole cost and expense, in obtaining or extending protection
therefor.




Unless
otherwise addressed in an Intellectual Property Amendment, PPD hereby assigns to
VS all rights that PPD may have in any invention, technology, know-how or other
intellectual property which is developed with use of Confidential Information
provided to PPD by VS.  Additionally, PPD shall assist VS, at the sole
cost and expense of VS, in obtaining or extending protection
therefor.




11.         
Termination.Either party may
terminate this Agreement, without cause, upon ninety (90) days prior written
notice to the other party, provided, however, that all outstanding Work Orders
shall continue to be governed by the terms and conditions
hereof.  Either party may terminate this Agreement, or a relevant Work
Order, immediately, upon the occurrence of any of the following for cause
events:  (a) either party’s material breach of the commitments set
forth in Section 3; (b) either party commences a voluntary proceeding under any
bankruptcy, insolvency or other similar law or an involuntary case or proceeding
is commenced against a party under any bankruptcy, insolvency or other similar
law; (c) significant audit findings are identified by the other party, a
Sponsor, or an applicable regulatory authority; or (d) significant operational
deficiencies that are not resolved in accordance with the Steering Committee
determinations following escalation.  PPD shall further be permitted
to terminate this Agreement or a relevant Work Order, immediately, for cause,
upon the occurrence of any of the following: (a) VS’s failure to meet the agreed
upon timelines, provided that such failure is due to circumstances within VS’s
reasonable control; (b) VS’s failure to provide pricing which is reasonably
competitive; (c) a change of ownership equal to fifty percent (50%) or more in
the outstanding voting securities of VS; (d) the acquisition of a number of VS’s
outstanding voting securities by a PPD Competitor that would require disclosure
by such PPD Competitor pursuant to Rule 13d-1 of the Securities Exchange Act of
1934 (a “Significant Ownership Position”); (e) a change in any VS Key Leadership
Position.




In the
event Sponsor, with or without cause, terminates, or requests that PPD
terminate, VS’s involvement in a project, PPD shall have the right to
immediately terminate the Work Order to which such project
relates.  Additionally, in the event the services requested of PPD by
Sponsor are cancelled or put on hold or the services agreement between PPD and
Sponsor is terminated, PPD may terminate any relevant Work Order immediately
upon notice to VS.  In the event any Work Order is terminated, PPD
shall pay VS for all Services performed in accordance with the Work Order
through the date of termination plus any agreed upon costs necessary to
close-out the Work Order (which costs shall be documented in a Work Order
amendment if not included in the Work Order) and any non-cancelable expenses
incurred prior to the termination of such Work Order, provided VS makes all
reasonable attempts to mitigate such non-cancelable expenses.


9


12.         
Indemnification.  VS shall
indemnify, defend and hold harmless PPD, its affiliates, directors, officers and
employees thereof for any and all damages, costs, expenses and other
liabilities, including reasonable attorney’s fees and court costs, incurred by
any such party as a result of any claim, action or proceeding by a third party
(a “Third Party Claim”) arising from VS’s negligence, intentional misconduct, or
breach of this Agreement.




PPD shall
indemnify, defend and hold harmless VS, its directors, officers and employees
thereof for any and all damages, costs, expenses and other liabilities,
including reasonable attorney’s fees and court costs, incurred by any such party
as a result of any Third Party Claim arising from PPD’s negligence, intentional
misconduct, or breach of this Agreement.




Either
indemnified party shall give the indemnifying party prompt notice of any Third
Party Claim for which indemnification is sought hereunder.  The
indemnifying party shall have the right to control the defense and settlement of
such Third Party Claim, provided the indemnifying party shall act reasonably and
in good faith with respect to all matters relating to the settlement or
disposition of the claim, and the indemnified party shall reasonably cooperate
in the investigation, defense and settlement of such claim.  The
indemnified party shall have the right to participate in, but not control, the
defense and settlement of a claim and to employ separate legal counsel of its
own choice; provided, however, that such employment shall be at the indemnified
party’s own expense, unless (i) the employment thereof has been specifically
authorized by the indemnifying party, or (ii) the indemnifying party has failed
to assume the defense and employ counsel (in which case the indemnified party
shall control the defense and settlement of such claim).




13.         
Limitation
of Liability.EXCEPT WITH
REGARD TO A PARTY’S BREACH OF SECTION 9, GROSS NEGLIGENCE, WILLFUL MISCONDUCT
AND INDEMNIFICATION OBLIGATIONS RELATED TO THIRD PARTY CLAIMS PURSUANT TO
SECTION 12, EACH PARTY'S ENTIRE LIABILITY UNDER THIS AGREEMENT  WILL
IN NO EVENT EXCEED THREE TIMES (3X) THE TOTAL VALUE OF THE WORK ORDER UNDER
WHICH THE CLAIM AROSE.  NOTWITHSTANDING ANYTHING TO THE CONTRARY
CONTAINED IN THIS AGREEMENT, NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY
FOR INCIDENTAL, INDIRECT, CONSEQUENTIAL OR SPECIAL DAMAGES OR FOR ANY DAMAGES
ARISING OUT OF OR IN CONNECTION WITH ANY LOSS OF PROFIT, INTERRUPTION OF SERVICE
OR LOSS OF BUSINESS OR ANTICIPATORY PROFITS, EVEN IF A PARTY OR ITS AFFILIATES
HAVE BEEN APPRISED OF THE LIKELIHOOD OF SUCH DAMAGES OCCURRING, IN EACH CASE
ARISING IN CONNECTION WITH ANY DEFAULT OR BREACH OF OBLIGATIONS UNDER THIS
AGREEMENT OR ANY ATTACHMENTS HERETO.




IN THE EVENT OF A BREACH OR DEFAULT BY VS UNDER THIS
AGREEMENT OR ANY WORK ORDER, VS AGREES, AT PPD’S OPTION, TO EITHER REPEAT THE
SERVICES AT ISSUE OR REFUND THE PORTION OF THE CONSIDERATION ATTRIBUTABLE
THERETO.


10


THE
WARRANTIES PROVIDED IN SECTION 8 AND ANY WORK ORDER ARE IN LIEU OF ALL OTHER
CONDITIONS OR WARRANTIES, EXPRESS OR IMPLIED, WHETHER ARISING BY STATUTE, COURSE
OF DEALING OR PERFORMANCE, CUSTOM, USAGE IN THE TRADE OR PROFESSION OR
OTHERWISE, INCLUDING BUT NOT LIMITED TO, MERCHANTABILITY, AND FITNESS FOR A
PARTICULAR PURPOSE, AND ARE IN LIEU OF ALL OTHER OBLIGATIONS RELATING TO THE
QUALITY OR ADEQUACY OF THE SERVICES IMPOSED BY LAW, ALL OF WHICH ARE EXPRESSLY
DISCLAIMED TO THE EXTENT PERMITTED BY APPLICABLE LAW.





14.         
Debarment.  VS hereby
certifies that it has not been debarred, and has not been convicted of a crime
which could lead to debarment, under the Generic Drug Enforcement Act of
1992.  If VS or any of its employees or agents who perform Services
hereunder is debarred or receives notice of an action or threat of action of
debarment, VS shall immediately notify PPD.




15.         
Record
Keeping and Audit. During the Term of this
Agreement, VS shall maintain all materials and all other data obtained or
generated by VS in the course of providing the Services hereunder, including all
computerized records and files.  VS shall cooperate with any internal
reviews or audits by PPD or Sponsor (or its and their representatives) and shall
make available for examination and duplication, during normal business hours and
at mutually agreeable times, all documentation, data and information relating to
this Agreement or any Work Order.




Further,
VS shall inform PPD within one (1) business day of being notified of an audit by
any regulatory authority or by any Sponsor to the extent such audit relates to
the Preferred Services, the Joint Solution or a Work Order
hereunder.  PPD or its representatives shall be permitted to be
present at and directly communicate with such regulatory authority or Sponsor
representatives (as the case may be) concerning any matters related to the
Preferred Services, the Joint Solution or a Work Order hereunder arising in
connection with such audit.  To the extent permitted by the auditing
entity, VS shall ensure that PPD is provided with copies of any written
communications, reports and findings resulting from any inspection of VS by that
regulatory authority or Sponsor to the extent related to the Preferred Services,
the Joint Solution or a Work Order.  To the extent any such
communications, reports or findings require action by VS, VS shall include with
such copies its remedial plan of action, including timelines for completion of
the same.  To the extent such remedial plan of action impacts the
Preferred Services or Joint Solution, and, where applicable, to the extent
permitted by the relevant regulatory authority, VS shall collaborate with PPD
prior to developing or implementing any changes to the Preferred Services or
Joint Solution as a result of the audit findings.




16.         
Insurance.VS represents and
warrants that it has and will maintain during the Term of this Agreement and,
additionally, where applicable, during the term of any active Work Order, and
for a period of two (2) years following expiration or termination of either,
insurance in the types and limits generally accepted in the
industry.  Upon request, VS shall provide PPD with a copy of its
certificate of insurance.




17.         
Governing
Law.This Agreement
shall be construed in accordance with the laws of the State of Delaware without
regard to its conflict of laws provisions.




18.         
Assignment.  This Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
successors and assigns.  Neither party shall have the right to assign
this Agreement or any Work Order or to assign any rights thereunder without the
prior written consent of the other party.  Notwithstanding the
foregoing, PPD may assign a Work Order to an affiliate or to Sponsor upon
written notice to VS.  In the event PPD assigns a Work Order to a
Sponsor, VS agrees to release and forever discharge PPD from any and all claims
that may arise out of the relevant Work Order after the effective date of such
assignment.  Unless otherwise agreed in writing by VS, PPD shall not
be released from any liability or obligation under this Agreement upon
assignment of any Work Order to an affiliate of PPD.  VS may
subcontract all or a portion of the Services to be provided hereunder in
accordance with Section 7 above.  Any unauthorized attempt to assign
or delegate any portion of this Agreement or any Work Order shall be
void.


11


19.         
Publicity.  Except as
otherwise specifically set forth herein, neither party shall use the name,
insignia, symbol, trademark, trade name, logo, logotype, or any abbreviation or
adaptation thereof, of the other party or any affiliate of the other party, in
any publication, press release, promotional material or other form of publicity,
nor will either party use the same as verbal endorsement of its services,
without the prior written approval of the other party in each
instance.  Further, VS shall be similarly restricted as it pertains to
Sponsor and any Sponsor affiliate.  The restrictions imposed by this
Section shall not prohibit the parties from making any disclosure identifying
the other party that is required by any applicable law, rule or
regulation.  Additionally, following final execution of this
Agreement, the parties acknowledge and agree that a joint press release
statement regarding the parties’ preferred relationship and its impact on the
parties’ ability to provide Services hereunder shall be prepared and mutually
agreed upon prior to its release or use by either party.




20.         
Force
Majeure.  The parties shall
be excused from performing their obligations under this Agreement if its
performance is delayed or prevented by any event beyond such party’s reasonable
control, including, but not limited to, acts of God, fire, explosion, weather,
disease, war, insurrection, civil strife, riots, government action, or power
failure, provided that such performance shall be excused only to the extent of
and during such disability.




21.         
Covenant
Not to Interfere.  Neither party
will solicit for employment any employee of the other party during the active
term of this Agreement and further, where applicable, the term of any active
Work Order.  As used in this section “solicit” means the initiation by
a party or its agent or representative of a contact with any of the other
party’s then current employees who are performing services under this Agreement
for the purpose of offering employment to such employees, but shall not include
the circumstance where any such employee initiates a contact with the other
party for the purpose of obtaining employment whether in response to a general
advertisement of employment or where such contact is initiated by a third party
who was not instructed to contact such employee by the hiring
party.




22.         
Miscellaneous.




a.           By
agreeing to the terms and conditions of this Agreement and performing the
Services for PPD, VS is representing that it is not in violation of any terms
and conditions of any agreement with any other individual or
entity.




b.           This
Agreement constitutes the entire agreement between the parties and supersedes
all prior agreements, whether written or oral.  This Agreement shall
be construed according to its fair meaning and not strictly for or against any
party.




c.           This
Agreement may be modified only by a writing signed by the parties
hereto.




d.           If
any provision of this Agreement conflicts with the law under which this
Agreement is to be construed or if any such provision is held invalid by a
court, such provision shall be deemed to be restated to reflect as nearly as
possible the original intentions of the parties in accordance with applicable
law and the remainder of this Agreement shall remain in full force and
effect.


12


e.           Waiver
or forbearance by either party with respect to a breach of any provision of this
Agreement or any applicable law shall not be deemed to constitute a waiver with
respect to any subsequent breach of any provision hereof.




f.           Any
notice required or permitted to be given hereunder by either party hereto shall
be in writing and shall be deemed given on the date received if delivered
personally, by recognized overnight courier, by facsimile or by electronic
delivery, or five (5) days after the date postmarked if sent by registered or
certified U.S. mail, return receipt requested postage prepaid, to the following
address:




If
      to PPD:
            PPD
      Development, LP


929 North
Front Street


Wilmington,
NC 28401


Telephone:
(910) 251-0081


Facsimile:
(910) 343-5920


Attn.:
Chief Executive Officer


With a
Copy to:  General Counsel





If
      to VS:
            VirtualScopics,
      Inc.


500
Linden Oaks, Second Floor


Rochester,
New York 14625


Telephone:
(585) 249-6231


Facsimile:
(585) 218-7350


Attn:
Molly Henderson





Either
party may change its notice address and contact person by giving notice of same
in the manner herein provided.




g.           This
Agreement may be executed in one or more counterparts, each of which for all
purposes shall be deemed to be an original, and all of which when taken together
shall constitute but one and the same instrument.  This Agreement and
any amendments hereto, to the extent signed and delivered by means of a
facsimile machine or by electronic mail, shall be considered to have the same
binding legal effect as if it were the original signed version thereof delivered
in person.




23.         
Survival.The obligations
of the parties contained in Sections 4 (provided that any payments due upon
termination shall be governed in accordance with Section 11), 5, 9, 10, 12, 13,
15, 19 and 23 hereof and herein shall survive termination of this Agreement or
any Work Order.




24.         
Conflict.Any and all
Services provided during the Term of this Agreement, including all Services
provided pursuant to a Work Order, shall be subject to the terms and conditions
contained herein.  To the extent any terms contained in this Agreement
conflict with a Work Order, the terms of this Agreement shall govern and control
unless the Work Order specifically states otherwise.  To the extent
any terms contained in this Agreement or a Work Order conflict with a Purchase
Order, the terms of this Agreement shall govern and control first, followed by
the terms of the applicable Work Order.


13


[signatures
appear on following page]


14


IN WITNESS WHEREOF, the
parties have caused their duly authorized representatives to execute this
Agreement as of the Effective Date.





VirtualScopics,
      Inc.By:Name:  
      Molly J. HendersonTitle:    
      Chief Business and Financial Officer,Sr. Vice PresidentPPD
      Development, LPBy:   PPD
      GP, LLCIts
      General PartnerBy:Name:Title:





[Signature
Page to Strategic Alliance Agreement]





Exhibit
A





Integration
Services





[*** 2
pages omitted]





[***]
Represents material which has been redacted and filed separately with the
Commission pursuant to a request for confidential treatment pursuant to Rule
24b-2 under the Securities Exchange Act of 1934, as amended.





Exhibit
B





[***]Pricing





[*** 3
pages omitted]





[***]
Represents material which has been redacted and filed separately with the
Commission pursuant to a request for confidential treatment pursuant to Rule
24b-2 under the Securities Exchange Act of 1934, as amended.





Exhibit
C





Discounts
and Bookings Thresholds





The
percentage Discount applicable to Bookings in any given Measurement Period shall
be determined in accordance with the discount structure set forth in the table
below:





[*** .5
pages omitted]





[***]
Represents material which has been redacted and filed separately with the
Commission pursuant to a request for confidential treatment pursuant to Rule
24b-2 under the Securities Exchange Act of 1934, as amended.