EXHIBIT
      10.12

    


    SERVICES
      AND CO-MARKETING AGREEMENT 

    


    This
      Services and Co-Marketing Agreement (“Agreement”)
      is
      entered into this 1st day of March, 2004 (the “Effective
      Date”),
      by
      and between VirtualScopics LLC, a New York limited liability company with its
      principal place of business at 140 Office Park Way, Pittsford, New York 14534
      (“VirtualScopics”),
      and
      Chondrometrics GmbH (“Chondrometrics”),
      a
      German limited liability company, with its current principal place of business
      at Munich, Germany. This
      Agreement, together with those certain Consulting Agreements between
      VirtualScopics and Dr. Felix Eckstein, dated January 1, 2004 and March 1, 2004,
      respectively, supercede, and replace entirely, that certain Preliminary Service
      Agreement between VirtualScopics and Chondrometrics, dated January 30, 2004
      (the
“Preliminary
      Agreement”). 

    


    RECITALS:

    


    A.    Chondrometrics
      conducts and commercializes medical research with particular emphasis on
      cartilage degeneration as it relates to the development of Osteoarthritis.
      Chondrometrics has existing relationships with entities in need of research
      services to assist in understanding human disease progressions of
      Osteoarthritis, and/or the efficacy of disease modifying osteoarthritic
      drugs.

    


    B.    Chondrometrics
      currently distinguishes itself from its competitors due to Chondrometrics’
      status in its industry as the sole provider of cartilage degeneration medical
      research services validating its findings with highly regarded peer reviews
      and
      industry publications.

     

    C.    VirtualScopics
      is in the business of developing image-based biomarkers and image analysis
      software tools (such software and tools, together with any documentation, and
      modifications, updates, and enhancements to the foregoing, the “VirtualScopics
      Technology”)
      as
      well as providing customers regulatory compliant image analysis services and
      field operations to accelerate both drug efficacy testing and drug discovery.
      VirtualScopics has existing relationships covering a broad range of disease
      areas including Osteoarthritis. 

    


    D.    VirtualScopics
      and Chondrometrics desire to leverage their research and commercial capabilities
      by co-marketing each other’s services and abilities, with the goal of expanding
      each party’s customer base and visibility in the industry, and gaining economic
      benefits resulting therefrom. 

    


    E.    In
      consideration of and relying upon the covenants and obligations herein,
      including VirtualScopics’ obligation to make certain payments to Chondrometrics
      as further set forth in this Agreement, Chondrometrics
      (1) has permitted, and is permitting, as the case may be, Dr. Felix Eckstein
      (CEO and CSO of Chondrometrics) to execute two consulting agreements with
      VirtualScopics relating to services that were provided by Dr. Eckstein from
      January 1, 2004 through February 29, 2004, and services that will be provided
      from March 1, 2004 through December 31, 2006 (collectively, the “Consulting
      Agreements”),
      thereby releasing Dr. Eckstein from certain of his obligations to Chondrometrics
      so that Dr. Eckstein may perform his obligations under the Consulting
      Agreements, (2) temporarily is replacing Dr. Eckstein Chondrometrics with
      outside expert personnel in connection with certain of Dr. Eckstein’s
      obligations as CEO/CSO of, (3) is permitting Dr. Eckstein to use certain of
      Chondrometrics’ resources in his work under the Consulting Agreements, and (4)
      is losing its distinction as the sole provider in its industry of cartilage
      degeneration medical research services capable of validating its technology
      and
      findings through peer reviews and publications, thereby diminishing
      Chondrometrics’ potential revenue stream to the extent such revenues are derived
      by such distinction. 

    


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


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

    


    1. Definitions.
      Capitalized
      terms not defined elsewhere in this Agreement shall have the meanings ascribed
      to them in this Section 1.

     

    1.1.
      “Cartilage
      Analysis”
      means a
      manual, semi-automated or automated process for segmenting MR images to quantify
      the volume or other morphological parameters of total cartilage or cartilage
      sub-regions in Research Trials and Clinical Trials for
      Osteoarthritis.

     

    1.2.
      “Non-Cartilage
      Analysis”
      means a
      manual, semi-automated or automated process for segmenting MR images to quantify
      characteristics of tissues related to Osteoarthritis other than cartilage,
      including, but not limited to, Bone Marrow Edema, Meniscus, and
      Fluid.

     

    1.3.
      “Clinical
      Trial”
      means
      Cartilage Analysis and Non-Cartilage Analysis that is performed for the purpose
      of understanding the efficacy of a disease modifying osteoarthritic drug in
      humans, intended and/or required to be submitted to a regulatory body as part
      of
      a drug approval submission. The paying entity for a Clinical Trial can be a
      pharmaceutical, biotechnology, or medical device company, or a governmental
      or
      non-governmental research agency. 

     

    1.4.
      “Research
      Trial”
      means
      Cartilage Analysis and Non-Cartilage Analysis that is performed for the purpose
      of understanding human cartilage physiology or disease progressions of
      Osteoarthritis. The paying entity for a Research Trial can be a pharmaceutical,
      biotechnology, or medical device company, or a governmental or non-governmental
      research agency. Results from a Research Trial are not intended or required
      to
      be submitted to a government regulatory body as part of a drug approval
      submission. 

     

    1.5.
      “Trial
      Commitment”
      means
      each contract or agreement with respect to which Research Trial or Clinical
      Trial services are being by provided by VirtualScopics or Chondrometrics, as
      the
      case may be. 

     

    (a) “Gross
      Revenues”
      means
      all amounts actually collected by VirtualScopics, net of any discounts or other
      sales incentives, and any sales tax collected, for each Research Trial
      Commitment and each Clinical Trial Commitment during the term of the Commitment.
      However, Gross Revenues shall not include (a) amounts collected for any Clinical
      Trial Commitment pursuant to which (i) solely Non-Cartilage Analysis is being
      provided, or (ii) Cartilage Analysis is being provided by a third party, or
      (b)
      amounts collected under the following Clinical Trial Commitment or Research
      Trial Commitment entered into by VirtualScopics prior to January 1, 2004: (1)
      the Pfizer
      GARP Study commencing in 2002, (2) the Pfizer BOIS Study commencing in 2002,
      (3)
      the Pfizer KANON Study commencing in 2002, and (4) the DePuy Meniscus Study
      started in 2003). All other amounts collected under Trial Commitments
      (net
      of
      any discounts or other sales incentives, any sales tax collected,
      and
      subject to the exclusions specified in clause (a) above), including all amounts
      collected from January 2005 onwards, will be included in Gross Revenues,
      irrespective of the date of commencement.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


    1.6.
      “Intellectual
      Property Rights”
      means
      any and all rights in and to all patents, patent applications, copyrights,
      trademarks, trade secrets, know-how and any other proprietary
      rights.

     

    1.7.
      “Marketing
      Materials”
      of a
      party means those materials being used by such party to promote itself and
      its
      business, and which are delivered to the other party for marketing purposes
      as
      contemplated in Sections 2.4 and 3 hereof. Marketing Materials include, without
      limitation (a) marketing brochures or other printed materials generally
      promoting such party, its staff and resources, and the research and other
      service capabilities of such party, (b) publications, if any, relating to work
      performed by such party, its owners, employees, or agents, pertaining to
      Osteoarthritic research as well as any other research that may be relevant
      in
      sales pitches to prospects in the Osteoarthritis field, (c) web site materials,
      and (d) any other documentation or information that may be useful in promoting
      such party to third parties. 

     

    1.8.
      “Osteoarthritic
      Initiative”
      means
      the government and industry sponsored study using imaging and image analysis
      to
      determine end-points for detecting progression of Osteoarthritis.

     

    2. Collaborative
      Work for Research Trials.
      

     

    2.1.
      Proposals.
      Throughout the Term (as defined in Section 11.1 hereof), VirtualScopics and
      Chondrometrics intend to submit separate Research Trial proposals to third
      parties for project contracts and grant proposals (each, a “Project”).
      Unless otherwise agreed to by the parties, VirtualScopics will provide
      Non-Cartilage Analysis and/or Cartilage Analysis, and Chondrometrics will
      provide solely Cartilage Analysis for each Project. Each party will solicit
      and
      separately negotiate client Projects; provided, however, (a) in no event will
      a
      party provide services to a third party if such party, to the best of such
      party’s knowledge, should have reason to believe that the third party already is
      receiving, or is contracting to receive, the same or similar services from
      the
      other party, and (b) each party will consult with the other party as necessary
      to prevent providing overlapping or conflicting services to the other party’s
      clients. 

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


    2.2.
      Osteoarthritis
      Initiative.
      Each
      party intends to submit a proposal for a Project to the Osteoarthritis
      Initiative. In this instance, VirtualScopics’ Project will specify that
      VirtualScopics is to provide Non-Cartilage Analysis, including end-points of
      interest, and Chondrometrics’ Project will specify that Chondrometrics is to
      provide Cartilage Analysis. Further, if Chondrometrics is unable to finalize
      a
      Project with the Osteoarthritic Initiative that meets Chondrometrics’ financial
      expectations, Cartilage Analysis may alternatively be provided by VirtualScopics
      under a separate Project upon the parties’ mutual written agreement. Thereafter,
      from time to VirtualScopics and Chondrometrics may each submit additional
      separate proposals to the Osteoarthritic Initiative based on the parties’ mutual
      agreement and under the same conditions formulated above. 

     

    2.3.
      Generally.
      Each of
      VirtualScopics and Chondrometrics agrees not submit a Research Trial proposal
      to, or otherwise solicit Research Trial business from, the Osteoarthritic
      Initiative, without giving written notice to each other. VirtualScopics
      maintains the right to analyze the cartilage images of the Osteoarthritic
      Initiative analyzed by Chondrometrics for comparative and publication purposes,
      including a collaborative publication with Dr. Felix Eckstein.

     

    2.4.
      Co-Marketing
      Efforts.
      Each of
      VirtualScopics and Chondrometrics agrees to exercise commercially reasonable
      best efforts to market and promote the other party’s Research Trial capabilities
      with the goal of establishing numerous Projects throughout the Term.


     

    2.5.
      Other
      Commitments.
      Nothing
      herein shall restrict either party’s ability to continue providing Research
      Trial services. 

     

    3. Marketing
      for Clinical Trials and Research Trials. 

     

    3.1.
      Throughout the Term each party will exercise commercially reasonable best
      efforts to market and promote VirtualScopics’ Non-Cartilage Analysis and
      Cartilage Analysis services for Clinical Trials and Research Trials, and the
      collaborative efforts of VirtualScopics and Chondrometrics. VirtualScopics
      will
      perform any such Cartilage Analysis using a Clinical Trial or Research Trial
      approach, as the case may be, that has been cross-validated in accordance with
      a
      methodology designed by Dr. Eckstein pursuant to the Consulting Agreements.
      

     

    3.2.
      At a
      minimum, Chondrometrics’ obligations hereunder require that it:

     

    (a) distribute
      VirtualScopics’ Marketing Materials to existing clients and prospects, when
      clients and prospects actively demand services for quantitative analysis of
      cartilage in the context of Clinical Trials and Research Trials;

     

    (b) distribute
      VirtualScopics’ Marketing Materials to existing clients and prospects, when
      clients and prospects show interest in services for quantitative analysis of
      non-cartilage parameters in the context of Research Trials or Clinical Trials;
      and

     

    (c) assist
      VirtualScopics in preparing and distributing joint press releases promoting
      VirtualScopics and the collaborative efforts of VirtualScopics and
      Chondrometrics.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


    3.3.
      Chondrometrics shall be prohibited from marketing or otherwise promoting any
      third party’s Non-Cartilage Analysis or Cartilage Analysis services for Clinical
      Trials. Further, Chondrometrics will not provide any Clinical Trial services,
      and will refer all such potential business to VirtualScopics. 

     

    4. Payments.
      In
      consideration of the successful performance of all mutual covenants contained
      in
      this Agreement, including the consideration described in Recital E, the parties
      agree to the following:

     

    4.1.
      VirtualScopics shall pay Chondrometrics an upfront guaranteed payment (each
      a
“Guaranteed
      Payment”)
      during
      the first three (3) years of the Term as follows: 

     

    (a) First
      Year Guaranteed Payment:
      $110,700, payable (i) $55,350 on the Effective Date, and (ii) $55,350 within
      six
      months thereafter;

     

    (b) Second
      Year Guaranteed Payment:
      $75,000, payable on the first anniversary of the Effective Date;

     

    (c) Third
      Year Guaranteed Payment:
      $60,000, payable on the second anniversary of the Effective Date. 

     

    Notwithstanding
      the foregoing, Chondrometrics acknowledges its receipt of $27,675 as partial
      payment of the $55,350 payment obligation in clause (a)(i) above, which amount
      was paid to Chondrometrics by VirtualScopics on March 10th, 2004 pursuant to
      the
      Preliminary Service Agreement. 

     

    4.2.
      VirtualScopics shall pay Chondrometrics seven percent (7%) of Gross Revenues
      generated by VirtualScopics (the “Marketing
      Fee”),
      which
      amounts during the first three years of the Term shall not be payable unless
      and
      until the Guaranteed Payment for such year has been recouped fully. During
      the
      first three years of the Term, the Marketing Fee for each year will be deducted
      from the Guaranteed Payment for such year, and the balance remaining, if any,
      will be payable within thirty (30) days after the end of such year. The
      Marketing Fee for the fourth and fifth year of the Term will be calculated
      at
      the end of each year, and will be payable within thirty (30) days after the
      end
      of each such yearly period. 

     

    4.3.
      For
      so long as amounts are owed under this Section 4, and for a period of one year
      thereafter, VirtualScopics shall maintain and make available to Chondrometrics,
      no more than once per year, and upon ten calendar days written request, such
      records as are required to establish accurate payments due under this Agreement.
      Chondrometrics shall, at its expense, have the right to have an auditor inspect
      such records on a confidential basis during normal business hours. Such
      inspection is solely for the purpose of verifying the accuracy of payments
      due
      under this Section 4. 

     

    4.4.
      The
      above payments and fees have been established in U.S. Dollars based on a U.S.
      Dollar to Euro exchange rate band of $1.10 to $1.30 per Euro. If the U.S. Dollar
      to Euro exchange rate deviates from this band, the parties agree in good faith
      to renegotiate such payments and fees to establish the appropriate U.S. Dollar
      value of this Agreement. 

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


    4.5.
      Each
      payment hereunder shall be due notwithstanding termination of this Agreement,
      except that the foregoing shall not apply if the Agreement is terminated (a)
      by
      VirtualScopics or its successors under Section 11.3 hereof, (b) due to the
      termination of the March 2004 Consulting Agreement by VirtualScopics pursuant
      to
      Sections 3(b), (d), or (e) of that agreement, or (c) due to the termination
      by
      Dr. Eckstein of the March 2004 Consulting Agreement (other than pursuant to
      Section 3(b) thereunder). If after termination of this Agreement VirtualScopics
      is obligated to make any payment by virtue of this Section 4.5, then Section
      3.4
      hereof shall survive termination of this Agreement, and Chondrometrics shall
      comply with such provision for the duration of each twelve month period
      corresponding with any such payment. 

     

    5. Ownership;
      Publicity.
      Except
      as
      set forth in the Consulting Agreements, nothing in this Agreement shall confer
      on either party any right, title, license or other interest in or to the
      Intellectual Property Rights of the other party. Each party hereby consents
      to
      the other party’s use of such party’s Marketing Materials, and to the other
      party’s use of such party’s trademarks; provided, that all uses shall be solely
      as contemplated by this Agreement. 

     

    6. Confidentiality.

     

    6.1.
      Confidential
      Information.
      With
      respect to each party, “Confidential
      Information”
      of such
      party means any and all information existing as of the date of this Agreement
      or
      thereafter developed in which such party (and its affiliates or subsidiaries)
      has a proprietary interest or a business reason for guarding against
      unauthorized disclosure, including but not limited to, all facts, opinions,
      conclusions, projections, software, technical data, trade secrets, know-how,
      and
      other information relating to research and development, methods of distribution,
      customer information activities, work in process, marketing, financial or
      personnel matters related to such party, its present or future products,
      services, technology, customers, employees, investors, prospects, markets or
      business, whether communicated orally, electronically or in writing, or obtained
      by the other party through observation or examination of such party’s business.
      VirtualScopics’ Confidential Information shall include, without limitation, the
      VirtualScopics Technology.

     

    6.2.
      Exclusions.
      Confidential Information does not include any information that at the time
      of
      disclosure (a) is or becomes generally available to the public through no fault
      of the receiving party or a third party with a duty not to disclose; (b) is
      already known to the receiving party as evidenced by its written records; or
      (c)
      is disclosed to the receiving party by a third party not known by the receiving
      party to be bound by a confidentiality agreement with the disclosing
      party.

     

    6.3.
      Obligations.
      Chondrometrics and VirtualScopics each agree that it shall,
      indefinitely:

     

    (a) hold
      the
      other party’s Confidential Information in strictest confidence; 

     

    (b) use
      the
      other party’s Confidential Information only for purposes permitted under this
      Agreement, and for no other purpose whatsoever; 

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


    (c) disclose
      the other party’s Confidential Information only to those of such party’s
      employees, agents or contractors with a need to know, and permit such employees,
      agents or contractors to use the other party’s Confidential Information only in
      connection with the purposes referred to above; 

     

    (d) take,
      and
      require such party’s employees, agents and contractors to take, all precautions
      reasonably necessary to keep the other party’s Confidential Information
      confidential and protect the other party’s Confidential Information from theft,
      unauthorized duplication or discovery; 

     

    (e) advise
      such party’s employees and agents who receive the other party’s Confidential
      Information that they may only use, and are required to protect, such other
      party’s Confidential Information as set forth above, and require any and all
      contractors to sign a non-disclosure agreement in a form substantially
      equivalent to the form of non-disclosure agreement attached hereto as
Exhibit
      A.
      Chondrometrics and VirtualScopics are responsible for the safe-keeping of the
      Confidential Information disclosed by it to their employees, agents and
      contractors; 

     

    (f) notify
      the receiving party immediately upon discovery of any use or disclosure of
      the
      disclosing party’s Confidential Information in violation of this Agreement, or
      any other breach of the confidentiality obligations herein, and cooperate fully
      with the disclosing party to assist it in regaining possession of the
      Confidential Information and to prevent further disclosure or use of the
      Confidential Information in violation of this Agreement; and

     

    (g) in
      the
      event that the receiving party is required by law to disclose any part or all
      of
      the disclosing party’s Confidential Information, immediately notify the
      disclosing party in writing, and fully cooperate with the disclosing party
      in
      its efforts to protect from or limit the disclosure of the Confidential
      Information.

     

    6.4.
      Return
      of Confidential Information.
      At any
      time upon request by the disclosing party or immediately on the termination
      of
      this Agreement (whichever event occurs first), the non-disclosing party shall
      return to the disclosing party all of the disclosing party’s Confidential
      Information, whether in written, electronic or other form. 

     

    7. Non-Solicitation.
      

     

    7.1.
      Except as agreed by VirtualScopics and Chondrometrics, VirtualScopics and
      Chondrometrics agree that, during the Term and for a period of six months
      thereafter, neither shall directly or indirectly, by itself or with any other
      person, persons, partnership, company or any other entity, whether as owner,
      shareholder, partner, employee or independent contractor, solicit,
      recruit or hire, or in any manner attempt to solicit, recruit or hire, any
      person employed by the other or any parent, subsidiary or affiliate of the
      other
      to leave such employment or to induce any such person to breach his or her
      employment agreement.

     

    7.2.
      VirtualScopics and Chondrometrics agree that the covenant in Section 7.1 hereof
      constitutes an independent covenant, which shall be enforceable by the other
      notwithstanding any other right or remedy that the other party may have under
      any other provision of this Agreement or otherwise. 

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


    8. Representations
      and Warranties.
      

     

    8.1.
      Chondrometrics represents and warrants to VirtualScopics that:

     

    (a) Chondrometrics
      is a corporation, duly organized and validly existing in Germany; 

     

    (b) Chondrometrics
      is not subject to any agreement, order, decree, security interest, whether
      or
      not perfected, or other document that would affect, prohibit or restrict the
      execution or delivery of this Agreement or the performance by Chondrometrics
      of
      its obligations under the terms and conditions of this Agreement; 

     

    (c) this
      Agreement constitutes Chondrometrics’ valid and binding obligation and is
      enforceable in accordance with its terms, subject only to the laws affecting
      creditors’ rights;

     

    (d) there
      are
      no known suits or proceedings or other litigation of any kind pending or
      threatened against Chondrometrics that could adversely affect Chondrometrics’
      ability to perform its obligations under this Agreement; 

     

    (e) there
      are
      no known violations of any laws, rules or regulations of any governmental agency
      that could affect Chondrometrics’ ability to perform its obligations under this
      Agreement;

     

    (f) in
      performing hereunder, Chondrometrics will comply materially with German and
      applicable international laws, rules, and regulations, and, if advised by
      VirtualScopics of Chondrometrics’ failure to comply materially with applicable
      U.S. law, such that VirtualScopics has a good faith reason to believe that
      VirtualScopics, its business, or the continuation of this Agreement will be
      impaired, Chondrometrics will take reasonable steps (taking into account
      Chondrometrics’ available resources) to comply materially with such U.S. law;


     

    (g) Chondrometrics
      will not misrepresent to third parties the relationship between Chondrometrics
      and VirtualScopics created hereunder, and will not make any statement or omit
      to
      make any statements or otherwise act or fail to act in any manner that may
      (i)
      portray VirtualScopics in a negative light, or (ii) result in a misstatement
      of
      fact regarding VirtualScopics or any services provided or to be provided by
      VirtualScopics; 

     

    (h) all
      services provided by Chondrometrics to third parties as contemplated hereunder
      will be performed by Chondrometrics in a diligent and conscientious manner,
      using reasonable care; and 

     

    (i) Chondrometrics
      has no knowledge of any facts that if true would have a material adverse affect
      upon the business currently conducted by Chondrometrics or its ability to
      perform its obligations under this Agreement.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


    8.2.
      VirtualScopics represents and warrants to Chondrometrics that:

     

    (a) VirtualScopics
      is a corporation, duly organized and validly existing in the State of New York;
      

     

    (b) VirtualScopics
      is not subject to any agreement, order, decree, security interest, whether
      or
      not perfected, or other document that would affect, prohibit or restrict the
      execution or delivery of this Agreement or the performance by VirtualScopics
      of
      its obligations under the terms and conditions of this Agreement;

     

    (c) this
      Agreement constitutes VirtualScopics’ valid and binding obligation and is
      enforceable in accordance with its terms, subject only to the laws affecting
      creditors’ rights;

     

    (d) there
      are
      no known suits or proceedings or other litigation of any kind pending or
      threatened against VirtualScopics that could adversely affect VirtualScopics’
      ability to perform its obligations under this Agreement; 

     

    (e) there
      are
      no known violations of any laws, rules or regulations of any governmental agency
      that could affect VirtualScopics’ ability to perform its obligations under this
      Agreement;

     

    (f) in
      performing hereunder, VirtualScopics will comply materially with all applicable
      U.S. laws, rules, and regulations, and, if advised by Chondrometrics of
      VirtualScopics’ failure to comply materially with applicable German and/or other
      international laws, such that Chondrometrics has a good faith reason to believe
      that Chondrometrics, its business, or the continuation of this Agreement will
      be
      impaired, VirtualScopics will take reasonable steps (taking into account
      VirtualScopics’ available resources) to comply materially with such German
      and/or other international laws; 

     

    (g) VirtualScopics
      will not misrepresent to third parties the relationship between Chondrometrics
      and VirtualScopics created hereunder, and will not make any statement or omit
      to
      make any statements or otherwise act or fail to act in any manner that may
      (i)
      portray Chondrometrics in a negative light, or (ii) result in a misstatement
      of
      fact regarding Chondrometrics or any services provided or to be provided by
      Chondrometrics; 

     

    (h) all
      services provided by VirtualScopics to third parties as contemplated hereunder
      will be performed by VirtualScopics in a diligent and conscientious manner,
      using reasonable care; and

     

    (i) VirtualScopics
      has no knowledge of any facts that if true would have a material adverse affect
      upon the business currently conducted by VirtualScopics or its ability to
      perform its obligations under this Agreement.

     

    9. Disclaimer,
      Limitation of Liability.
      

     

    9.1.
      Disclaimer.
      EXCEPT
      AS OTHERWISE EXPRESSLY SET FORTH ELSEWHERE IN THIS AGREEMENT, EACH PARTY HEREBY
      DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED, ORAL OR WRITTEN, INCLUDING,
      WITHOUT LIMITATION (a) ANY WARRANTY OF NON-INFRINGEMENT OR THAT THE SERVICES
      BEING PROVIDED BY SUCH PARTY WILL BE ERROR-FREE; OR (b) ANY AND ALL
      WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. 

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


    9.2.
      Limitation
      of Liability.
      EXCEPT
      FOR BREACHES OF CONFIDENTIALITY, NEITHER PARTY SHALL BE LIABLE FOR ANY INDIRECT,
      INCIDENTAL, SPECIAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES, INCLUDING THE LOSS
      OF
      PROFITS, REVENUE, DATA, OR USE OR COST OF PROCUREMENT OF SUBSTITUTE GOODS
      INCURRED BY THE OTHER PARTY OR ANY THIRD PARTY, WHETHER IN AN ACTION IN CONTRACT
      OR TORT OR BASED ON A WARRANTY, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE
      POSSIBILITY OF SUCH DAMAGES. 

     

    10. Indemnification.
      

     

    10.1.
      Each party agrees to indemnify and hold harmless the other party, and such
      other
      party’s officers, members, agents, employees, successors, and assigns harmless
      from and against any claims, actions, demands, liabilities, losses, damages,
      judgments, settlements, costs and expenses (including reasonable attorneys'
      fees) arising from or relating to (a) a material breach of the indemnifying
      party’s representations and warranties hereunder, (b) the indemnified party’s
      use of the indemnifying party’s Marketing Materials (provided the indemnified
      party’s use was in accordance with this Agreement), and (c) the acts or
      omissions of the indemnifying party, including without limitation, the
      indemnifying party’s provision of image analysis services. Each party warrants
      that it will incur only reasonable and necessary attorney’s fees and will apply
      only reasonable and necessary resources to cure or prevent damages that may
      have
      been caused by the other party, with the intention of keeping indemnification
      amounts within reasonable limits. 

     

    10.2.
      The
      indemnifying party shall defend and hold harmless the indemnified party with
      counsel chosen and paid for by the indemnifying party upon receipt of prompt
      written notice of the claim from the indemnified party (provided, that failure
      to provide prompt notice shall not relieve the indemnifying party of its
      indemnification obligations, except to the extent it has been damaged thereby),
      and the indemnified party will reasonably cooperate in the defense of the action
      or proceeding at the indemnifying party’s expense. Upon the indemnifying party
      assuming the defense of any such claim, the indemnified party’s counsel may
      thereafter participate in an advisory capacity at the indemnified party’s sole
      cost. Neither party may enter into any settlement or compromise that may require
      the other party to admit liability, pay any monies out-of-pocket, or assume
      any
      other material obligation or relinquish any material right, without the prior
      written consent of the other party, not to be unreasonably withheld or
      delayed.

     

    11. Term
      and Termination.

     

    11.1.
      Term
      of Agreement. This
      Agreement shall take effect on the Effective Date and shall remain in effect
      until December 31st,
      2008,
      unless and until terminated in accordance with this Section (the “Term”).

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


    11.2.
      Termination
      Upon Mutual Agreement.
      This
      Agreement may be terminated upon the mutual agreement of VirtualScopics and
      Chondrometrics.

     

    11.3.
      Termination
      for Cause by Either Party.
      Either
      party, as applicable, shall have the right, in addition to and without prejudice
      to any other rights or remedies, to terminate this Agreement:

     

    (a) for
      a
      material breach of this Agreement by the other party, which is not cured within
      thirty (30) days of receipt by the party in default of a notice specifying
      the
      breach and requiring its cure; or

     

    (b) effective
      immediately upon written notice if (i) all or a substantial portion of the
      assets of the other party are transferred to an assignee for the benefit of
      creditors to a receiver or to a trustee in bankruptcy, (ii) a proceeding is
      commenced by or against the other party for relief under the bankruptcy or
      similar laws, and such proceeding is not dismissed within thirty (30) days,
      (iii) the other party is adjudged bankrupt, (iv) the other party dissolves
      or
      otherwise ceases to operate its business, or (iv) the other party materially
      breaches its obligations under Section 6 hereof.

     

    11.4.
      Termination
      upon Termination of a Consulting Agreement.
      This
      Agreement shall terminate upon the termination of the March 2004 Consulting
      Agreement if such agreement is terminated prior to its scheduled expiration
      date, including the expiration date of any renewal term. However, this Agreement
      will continue if the March 2004 Consulting Agreement expires on December 31,
      2006, and is not thereafter renewed. Notwithstanding the foregoing, the parties
      may mutually agree in writing to continue this Agreement notwithstanding such
      early termination of the Consulting Agreement. 

     

    11.5.
      Obligations
      on Termination.
      Upon
      termination of this Agreement, each party shall promptly return to the other
      party all marketing materials of such party, and any and all Confidential
      Information in its possession, in any form. The parties shall have no further
      obligations under terms this Agreement, but Sections 6, 7, 9, 10, and 13 hereof,
      and any other provision that by its nature survives termination, shall survive
      termination of this Agreement.

     

    12. Insurance.
      Each
      party will obtain and maintain throughout the Term and thereafter, insurance
      coverages of the types and in the amounts as are customary in such party’s
      industry (within the primary territory within which such party operates), and
      otherwise as necessary to cover its obligations and potential liabilities
      hereunder.

     

    13. General.
      

     

    13.1.
      Assignment.
      Neither
      party may assign or transfer its rights or delegate its obligations under this
      Agreement without the other party’s prior written consent, which will not be
      unreasonably withheld, except that VirtualScopics shall be permitted to assign
      any of its rights and obligations under this Agreement in connection with any
      merger, consolidation, or sale of all or substantially all of VirtualScopics’
      assets. Any attempted assignment contrary to the foregoing shall be null and
      void. 

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


    13.2.
      Entire
      Agreement.
      This
      Agreement, together with any Exhibits attached hereto, and that certain
      Ancillary Agreement between VirtualScopics and Chondrometrics dated as of the
      date hereof, constitutes the final, complete, and exclusive understanding
      between the parties, and replaces and supersedes all previous oral or written
      agreements, understandings, or arrangements between the parties with respect
      to
      the subject matter of this Agreement. This Agreement may not be modified or
      amended except by a writing signed by an authorized officer of each party to
      this Agreement. 

     

    13.3.
      Notices.
      Except
      as otherwise provided in this Agreement, notices required to be given pursuant
      to this Agreement shall be effective when received, and shall be sufficient
      if
      given in writing, hand delivered, sent by facsimile with confirmation of
      receipt, sent by First Class Mail, return receipt requested (for all types
      of
      correspondence), postage prepaid, or sent by overnight courier service and
      addressed as follows: 

     

    
      	 	
              To:

            	
              VirtualScopics
                LLC

            
	 	 	
              140
                Office Park Way

            
	 	 	
              Pittsford,
                New York 14534

            
	 	 	
              Attn:
                Mikael Totterman, Chief Operating Officer

            
	 	 	
              Fax
                No.: 585 218-7350

            
	 	 	 
	 	
              To:

            	
              Chondrometrics
                GmbH

            
	 	 	
              Jahnstr.
                48

            
	 	 	
              80469
                München

            
	 	 	
              Attn:
                Dr. Felix Eckstein

            
	 	 	
              Fax
                No.: ++
                49 89 5160 4802

            


    

    


    13.4.
      Independent
      Contractor.
      The
      parties shall, and at all times will be independent contractors of one another.
      Nothing in this Agreement shall be deemed to create an employer/employee,
      principal/agent, or joint venture relationship. Neither party has the authority
      to enter into any contracts on behalf of the other party or otherwise act on
      behalf of the other party. 

     

    13.5.
      Governing
      Law; Jurisdiction; No Trial by Jury.
      

     

    (a) With
      respect to matters pertaining to (i) Section 1 hereof (Definitions), (ii)
      Sections 2.4, 3.1, and 3.3 hereof (marketing provisions), as well as the
      provision of marketing-related services and Trial-related services within the
      United States, (iii) issues relating to intellectual property, including without
      limitation, Section 5 hereof (Ownership; Publicity), and the existence,
      validity, or enforcement of a party’s rights in any existing or future
      intellectual property, including any issues regarding interpretation of the
      relevant provisions herein, (iv) Section 6 hereof (Confidentiality), (v) Section
      7 hereof (Non-Solicitation), (vi) Section 9 hereof (Disclaimer; Limitation
      of
      Liability), (vii) Section 10 hereof (Indemnification), and (viii) any
      intentional material breach of this Agreement by Chondrometrics, this Agreement
      shall be governed by New York law, without regard to conflicts of law
      principles. The federal and state courts located in Monroe County, New York
      shall have exclusive jurisdiction over any such claim brought under this
      Agreement, and the parties hereby consent to the personal jurisdiction of such
      courts. 

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


    (b) With
      respect to matters pertaining to (i) Sections 2.1, 2.2, 2.3 and 2.5 hereof
      (Research Trials), (ii) Section 3.2 hereof, including the provision of
      marketing-related services and Trial-related services outside of the United
      States, (iii) Section 4 hereof (Payments), (iv) Section 8 hereof
      (Representations and Warranties), (v) Section 11 hereof (Term and Termination),
      including any intentional material breach of this Agreement by VirtualScopics,
      but excluding any intentional material breach of this Agreement by
      Chondrometrics, (vi) Section 12 hereof (Insurance), and (vii) Sections 13.1,
      13.2, 13.3, 13.4, 13.6, 13.7, 13.8, 13.9, and 13.10 hereof, German law shall
      apply. The courts located in Munich, Germany shall have exclusive jurisdiction
      over any such claim brought under this Agreement, and the parties hereby consent
      to the personal jurisdiction of such courts. 

     

    13.6.
      Severability.
      In case
      any provision of this Agreement is held to be invalid, unenforceable, or
      illegal, that provision shall be severed from this Agreement, and such
      invalidity, unenforceability, or illegality will not affect any other provisions
      of this Agreement.

     

    13.7.
      Waiver.
      The
      failure of either party to enforce any provisions of this Agreement is not
      a
      waiver of the provisions or of the right of that party to subsequently enforce
      that, or any other, provision of this Agreement. 

     

    13.8.
      Injunctive
      Relief.
      VirtualScopics
      and Chondrometrics acknowledge that the financial hardship to the non-breaching
      party as a result of a breach of this Agreement may be difficult or impossible
      to measure in dollars and that no remedy at law will be adequate to compensate
      the non-breaching party for such violation; therefore, the non-breaching party
      shall be entitled to injunctive relief as well as any other applicable remedies
      at law or in equity, and the breaching party waives the defense of adequate
      remedy at law, acknowledging that no such remedy exists. Should a court of
      competent jurisdiction declare any of the covenants set forth in this
      Agreement unenforceable
      due to an unreasonable restriction, duration, geographical area or otherwise,
      the parties agree that such court shall be empowered and shall grant the
      non-breaching party injunctive relief to the extent reasonably necessary to
      protect its interests. The parties further agree that the breaching party will
      not require the non-breaching party to post a bond in such situations as the
      posting of a bond is unnecessary. 

     

    13.9.
      Attorneys’
      Fees.
      In
      the
      event of any dispute between the parties arising out of this Agreement, the
      substantially prevailing party shall be entitled to recover its reasonable
      attorneys’ fees and costs from the non-substantially prevailing
      party

     

    13.10.
      Force
      Majeure.
      Neither
      Chondrometrics nor VirtualScopics shall be responsible for any failure or delay
      in the performance of its obligations under this Agreement which is caused
      by
      acts of God, flood, fire, war or public enemy.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


    IN
      WITNESS WHEREOF, the
      undersigned have executed and delivered this Agreement on the date set forth
      above. 

    
 

    
      
        	CHONDROMETRICS
                GMBH	 	VIRTUALSCOPICS
                LLC
	 	 	 	 	 
	By:	/s/ Felix
                Eckstein	 	By:	/s/ Mikael
                Totterman
	 	
                
                  
[Signature]

              	 	 	
                
                  
[Signature]

              
	Title:	Chief Executive Officer	 	Title:	Chief
                Operating Officer
	 	
                

                  	 	 	
                

                 
	By:	Felix Eckstein	 	By:	 Mikael Totterman
	 	
                

                 	 	 	
                

                 


      



    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    



    Exhibit
      A

    


    Form
      of Non-Disclosure Agreement