Document:

EXECUTION
      VERSION

     

    LICENSE
      AGREEMENT

     

    This
      LICENSE AGREEMENT (this “Agreement”),
      dated
      as of June 28, 2006 (the “Effective
      Date”),
      is
      entered into by and between Innovative Card Technologies, Inc., a Delaware
      corporation (“Licensee”),
      and
      nCryptone, S.A. (formerly known as AudioSmartCard, S.A.), a corporation
      organized under the laws of France (“Licensor”).
      Terms
      used but not otherwise defined in this Agreement shall have the meanings
      assigned to them in that certain Asset Contribution Agreement, dated as of
      June 28, 2006 (the “Asset
      Contribution Agreement”),
      by
      and among Licensee, Licensor, and Prosodie, S.A.

     

    RECITALS

     

    A. Licensor
      and Licensee have entered into the Asset Contribution Agreement whereby Licensor
      has transferred the Contributed Assets to Licensee.

     

    B. In
      addition to the Contributed Assets, Licensor owns certain intellectual property
      rights including, but not limited to, the Licensed Patents (as defined below),
      that relate to a microchip capable of emitting monophonic pre-recorded musical
      tones and that is embedded in Licensee’s financial transaction and similar cards
      that Licensee markets presently under the brand name “MusicCard” (including any
      future upgrades thereto or improvements thereon, the “MusicCard”).

     

    C. As
      a
      condition to its entering into the Asset Contribution Agreement, Licensee has
      required that Licensor enter into this Agreement and license the Licensed
      Patents to Licensee pursuant to the terms hereof.

     

    AGREEMENT

     

    In
      consideration of the mutual covenants and promises contained in this Agreement
      and for good and valuable consideration, the receipt and adequacy of which
      are
      hereby acknowledged, the parties to this Agreement agree as
      follows:

     

    ARTICLE
      I.

    DEFINED
      TERMS

     

    1.1 “dollars”
or
      “$”
means
      United States dollars.

     

    1.2 “Intellectual
      Property Right”
means
      any right relating to any Intellectual Property.

     

    1.3 “Know-How”
means
      confidential or proprietary information related to the MusicCard or any
      components thereof that is known by Licensor as of the Effective Date and is
      not
      generally known to the public, including without limitation, designs,
      manufacturing and operating specifications and processes, know-how, formulae,
      customer and supplier lists, shop rights, designs, drawings, patterns, trade
      secrets, confidential information, technical data, databases, data compilations
      and collections developed by employees or independent contractors of Licensor
      and useful in connection with the development, manufacture, use or sale of
      the
      MusicCard, which is owned or controlled by Licensor as of the Effective
      Date.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    1.4 “Licensed
      Patents”
means
      any and all patents and patent applications listed on Schedule 1
      attached
      hereto and incorporated herein by reference and all foreign counterpart patents,
      reissues, continuations, continuations-in-part, revisions, extensions, divisions
      and reexaminations thereof.

     

    1.5 “Patent
      Expiration”
means,
      with respect to a particular patent, that patent’s expiration, abandonment,
      cancellation, award to a party other than Licensor in an interference
      proceeding, or a final declaration of invalidity or unenforceability by a court
      or other authority of competent jurisdiction (including final rejection in
      a
      re-examination or re-issue proceeding) from which no further appeal has or
      can
      be taken, or being rendered unenforceable for any other reason.

     

    1.6 “Valid
      Claim”
means
      (a) an issued claim affecting a Licensed Patent that has not
      (i) expired or been canceled, (ii) been declared invalid by an
      unreversed and unappealable decision of a court or other appropriate body of
      competent jurisdiction, (iii) been admitted to be invalid or unenforceable
      through reissue, disclaimer or otherwise, and/or (iv) been abandoned in
      accordance with or as permitted by the terms of this Agreement or by mutual
      written consent; or (b) a claim included in a pending patent application
      within the Licensed Patents that is being actively prosecuted in accordance
      with
      this Agreement and that has not been (i) canceled, (ii) withdrawn from
      consideration, (iii) finally determined to be unallowable by the applicable
      governmental authority for whatever reason (and from which no appeal is or
      can
      be taken), and/or (iv) abandoned in accordance with or as permitted by the
      terms of this Agreement or by mutual written consent.

     

    ARTICLE
      II.

    GRANT
      OF LICENSE

     

    2.1 Initial
      Grant of License.
      Subject
      to the terms and conditions of this Agreement, Licensor hereby grants to
      Licensee, and Licensee accepts, a non-exclusive, non-transferable,
      non-assignable, non-sublicenseable object code-only right and license to (i)
      make, have made, use, sell and have sold products and services which but for
      this license would infringe the Licensed Patents, solely for use in the
      MusicCard and (ii) use the Know-How internally solely for the purpose of
      exercising its rights under clause (i) above with respect to the MusicCard
      (the
“Licensed
      Rights”).
      Notwithstanding anything herein to the contrary, Licensor shall only be required
      to deliver such Know-How as it determines, in its commercially reasonable
      judgment, is required for Licensee to fully exploit the MusicCard. Nothing
      contained in this Agreement shall be interpreted as to obligate Licensor to
      provide Licensee with any support services or manpower.

     

    2.2 Conversion
      of License upon Receipt of Licensed Patents Additional
      Consideration.
      Following the receipt by Licensor of the Licensed Patents Additional
      Consideration (as defined below) pursuant to Section 3.2,
      the
      license granted pursuant to Section 2.1
      shall
      convert, subject to the terms and conditions of this Agreement, to a fully
      paid-up, royalty-free, transferable, assignable, sublicenseable license (all
      other terms remaining as set forth in Section 2.1).
      If the
      Licensed Patents Additional Consideration is not paid to Licensor under the
      terms hereof on or before the License Payment Date, this Agreement, all licenses
      hereunder and the Licensed Rights shall immediately become void and of no
      further force or effect, except with respect to provisions of this Agreement
      which survive termination.

     

    
      
         

      

      
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    2.3 Term
      and Termination.
      

     

    (a) The
      term
      of this Agreement shall be for a term commencing on the Effective Date and,
      unless sooner terminated, extending until the Patent Expiration of the last
      to
      expire of all patents included in the Licensed Patents or until there remains
      no
      Valid Claim under the Licensed Patents, whichever occurs earlier.

     

    (b) Prior
      to
      the payment of the Licensed Patents Additional Consideration pursuant to
Section 3.2
      and the
      conversion of the license pursuant to Section 2.2,
      if:

     

    (i) either
      party breaches any of the material terms, conditions or agreements of this
      Agreement, then except where this Agreement provides for a different
      consequence, the other party may terminate this Agreement, at its option and
      without prejudice to any of its other legal and equitable rights and remedies,
      by giving the breaching party thirty (30) days notice in writing, particularly
      specifying the breach. Such notice of termination shall not be effective if
      the
      other party cures the specified breach within such thirty (30) day period,
      or,
      in the case of breaches not reasonably curable within such thirty (30) days,
      if
      such party commences the cure thereof within such thirty (30) day
      period
      and cures the specified breach within ninety (90) days of receipt of such
      written notice; and

     

    (ii) notwithstanding
      the foregoing, if either party becomes the subject of a voluntary or involuntary
      bankruptcy proceeding that is not dismissed within forty-five (45) days of
      its
      commencement, the other party shall have the right to terminate this
      Agreement.

     

    (c) Following
      the payment of the additional consideration pursuant to Section 3.2
      and the
      conversion of the license pursuant to Section 2.2,
      this
      Agreement may only be terminated by Licensee, with or without cause, on such
      date as is indicated in a written notice delivered to Licensor pursuant to
      Section 5.2
      (such
      date to be determined in Licensee’s sole and absolute discretion).

     

    (d) Upon
      any
      termination pursuant to this Section 2.3,
      Licensee shall have ninety (90) days in which to sell-off existing inventories
      of products including one or more components covered by the Licensed Patents.
      All sublicenses granted pursuant to this Agreement shall terminate
      immediately.

     

    (e) The
      parties agree that this Agreement is intended to be and shall be deemed to
      be an
      intellectual property license within the meaning of Section 365(n) of the United
      States Bankruptcy Code, as amended, for purposes of the protections afforded
      to
      licensees thereunder.

     

    ARTICLE
      III.

    LICENSE
      FEES

     

    3.1 Initial
      License Fee.
      On the
      Effective Date, Licensee shall pay Licensor an upfront licensing fee of ten
      dollars ($10) for the Licensed Rights.

     

    
      
         

      

      
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    3.2 Additional
      License Fee.
      On the
      first anniversary of the Closing Date (the “License
      Payment Date”),
      Licensee shall deliver to Licensor, by wire transfer of immediately available
      funds to a bank account designated by Licensor at least three Business Days
      prior to the License Payment Date or by certified check or other means
      acceptable to Licensee and Licensor, an amount equal to $1,000,000 (the
“Licensed
      Patents Additional Consideration”);
      provided that
      Licensee, in its sole discretion, may pay the Licensed Patents Additional
      Consideration to Licensor in advance of the License Payment Date less
      a
      discount equal to the product of (i) 5% of the Licensed Patents Additional
      Consideration and (ii) a fraction (A) the numerator of which is the number
      of
      days prior to the License Payment Date that such payment is made and (B) the
      denominator of which is 365 days. The Licensed Patents Additional Consideration
      is nonrefundable, in whole or in part, notwithstanding any termination of this
      Agreement or claim hereunder.

     

    3.3 Withholding
      Taxes.
      Licensee shall be entitled to deduct and withhold from the consideration
      otherwise payable pursuant to this Agreement to Licensor such amounts as may
      be
      required to be deducted and withheld with respect to the making of such payment
      under the Code, or under any provision of state, local or foreign Tax law.
      To
      the extent that amounts are so withheld and paid over to the appropriate taxing
      authority, such withheld amounts shall be treated for all purposes of this
      Agreement as having been paid to such person in respect of which such deduction
      and withholding was made.

     

    ARTICLE
      IV.

    LICENSED
      PATENTS

     

    4.1 Prosecution.
      Licensor shall continue the prosecution of all pending applications for patents
      included within the Licensed Patents in those jurisdictions where such pending
      applications have been filed as of the Effective Date through (i) appeal, (ii)
      issuance or (iii) if commercially reasonable, abandonment. Licensor notify
      Licensee in writing of any actual change in the status or any decision to change
      the status thereof prior to any decision to change the status.

     

    4.2 Maintenance.
      Licensor shall timely make all maintenance fee and annuity payments on all
      the
      Licensed Patents and shall maintain the Licensed Patents in good
      standing.

     

    4.3 Enforcement.
      Licensor shall, at its election and expense, have the right, but not the
      obligation, to prosecute any and all claims against third parties for
      infringement of any Licensed Patent. If Licensor finds it necessary or
      desirable, it may join Licensee as a party in any suit or proceeding against
      third parties alleging infringement of any Licensed Patent.

     

    ARTICLE
      V.

    MISCELLANEOUS

     

    5.1 Confidentiality.
      Any
      information acquired by one of the respective parties from another of the
      respective parties concerning existing or contemplated products, services,
      Intellectual Property Rights (including, without limitation, the Licensed
      Patents and the Know-How) processes, techniques, Know-How or data owned by
      and
      confidential to the disclosing party, (herein referred to as “Confidential
      Information”),
      unless provided for elsewhere in this Agreement, is and shall be the property
      of
      the disclosing party and shall be maintained in confidence and not used by
      the
      receiving party except as necessary to perform the duties set forth in this
      Agreement. The obligation of confidentiality under this Section 5.1
      shall
      not apply to Confidential Information that:

     

    
      
         

      

      
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    (a) is
      now or
      comes to be in the public domain through no fault of the receiving
      party;

     

    (b) is
      released expressly stating that it is without restriction to the receiving
      party
      by the disclosing party in writing;

     

    (c) is
      lawfully obtained by the receiving party from third parties under no duty of
      confidentiality to the disclosing party; or

     

    (d) can
      be
      demonstrated by competent proof to have been known or hereafter developed by
      the
      receiving party independently of any disclosure of Confidential Information
      by
      the disclosing party.

     

    The
      receiving party agrees to treat Confidential Information with the same degree
      of
      care to avoid disclosure as it employs with respect to its own Confidential
      Information and in no event less than commercially reasonable care.

     

    5.2 Notices.
      All
      notices, requests, demands, Third Party Claims and other communications which
      are required or may be given under this Agreement shall be in writing and shall
      be deemed to have been duly given when received if personally delivered; when
      transmitted if transmitted by confirmed facsimile with a copy sent by another
      means specified herein; the Business Day after it is sent if sent for next
      day
      delivery to a domestic address by recognized overnight delivery service (e.g.
      Federal Express); and five Business Days after the date mailed by certified
      or
      registered mail, postage prepaid, if sent by certified or registered mail,
      return receipt requested. In each case notice shall be sent to:

     

    
      	 	
              If
                to Licensor, addressed to:

            
	 	 
	 	
              nCryptone
                S.A.

            
	 	
              150,
                rue Galliéni

            
	 	
              92641
                Boulogne Cedex

            
	 	
              France

            
	 	
              Attn:      
                André Saint-Mleux

            
	 	
              Phone:   
                +33 (0) 1 46 84 11 64

            
	 	
              Fax:        
                +33 (0) 1 46 84 02 26

            
	 	 
	 	
              With
                a copy to:

            
	 	 
	 	
              Baker
                & McKenzie

            
	 	
              32,
                avenue Kléber

            
	 	
              BP
                2112

            
	 	
              75771
                Paris Cedex 16

            
	 	
              France

            
	 	
              Attn:       Alyssa
                Gallot

            
	 	
              Phone:   
                +33 (0) 1 44 17 53 61

            
	 	
              Fax:        
                +33 (0) 1 44 17 75 03

            

    

    
      
         

      

      
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              If
                to Licensee, addressed to:

            
	 	 
	 	
              Innovative
                Card Technologies, Inc.

              11601
                Wilshire Blvd., Suite 2150

            
	 	
              Los
                Angeles, California 90025

              Attn:            Bennet
                Tchaikovsky, CPA, Esq.

            
	 	
              Telephone: 
                (310) 312-1122

            
	 	
              Fax:              
                (310) 496-2693

            
	 	 
	 	
              With
                a copy to:

            
	 	 
	 	
              Latham
                & Watkins LLP

            
	 	
              633
                West Fifth Street, Suite 4000

            
	 	
              Los
                Angeles, California 90071

            
	 	
              Attn:
                David M. Hernand, Esq.

            
	 	
              Telephone:
                (213) 485-1234

            
	 	
              Fax:
                (213) 891-8763

            

    

     

    or
      to
      such other place and with such other copies as either party may designate as
      to
      itself by written notice to the others.

     

    5.3 Recordation
      of this Agreement.
      Where
      required or otherwise as reasonably recommended by Licensee’s counsel, Licensor
      shall file this Agreement with any relevant governmental or quasi-governmental
      offices and registers. Licensor agrees to give or obtain any document or
      signature which may be required for such filings. If Licensor fails to make
      any
      such filings in a timely manner, Licensor appoints Licensee as its
      attorney-in-fact for the purpose of making such filings. The costs resulting
      from these formalities shall be borne exclusively by Licensor and, in the event
      that Licensee incurs any expenses in connection with any filings pursuant to
      this Section 5.3,
      Licensor will promptly reimburse Licensee for all such reasonable
      expenses.

     

    5.4 Representations
      and Warranties.

     

    (a) Each
      of
      the parties represents and warrants that that it is authorized to enter into
      this Agreement, and that it has secured such authorizations and approvals from
      its board of directors or as otherwise appropriate in furtherance of entering
      into this Agreement.

     

    (b) Licensor
      represents and warrants that it has the right and authority to grant the license
      granted hereunder and perform its other obligations contained
      herein.

     

    5.5 Rules
      of Construction.
      The
      parties agree that they have been represented by counsel during the negotiation
      and execution of this Agreement and, therefore, waive the application of any
      law, regulation, holding or rule of construction providing that ambiguities
      in
      any agreement or other document will be construed against the party drafting
      such agreement or document.

     

    
      
         

      

      
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    5.6 Titles.
      The
      titles, captions or headings of the Articles and Sections herein are inserted
      for convenience of reference only and are not intended to be a part of or to
      affect the meaning or interpretation of this Agreement.

     

    5.7 Entire
      Agreement.
      This
      Agreement, including the schedules attached hereto, and any other agreements,
      documents and written understandings referred to herein or otherwise entered
      into or delivered by the parties hereto on the date of this Agreement,
      constitute the entire agreement and understanding and supersede all other prior
      covenants, agreements, undertakings, obligations, promises, arrangements,
      communications, representations and warranties, whether oral or written, by
      any
      party hereto or by any director, officer, employee, agent, Affiliate or
      Representative of any party hereto. There are no covenants, agreements,
      undertakings or obligations with respect to the subject matter of this Agreement
      other than those expressly set forth or referred to herein or in other
      agreements, documents and written understandings entered into or delivered
      by
      the parties hereto on the date of this Agreement, and no representations or
      warranties of any kind or nature whatsoever, express or implied, including
      any
      implied warranties of merchantability or fitness for a particular purpose,
      are
      made or shall be deemed to be made herein by the parties hereto except those
      expressly made herein.

     

    5.8 Assignment
      and
      Sublicense.

     

    (a) Neither
      this Agreement nor any of the rights or obligations hereunder may be assigned
      by
      Licensor without the prior written consent of Licensee.

     

    (b) Prior
      to
      the payment of the Licensed Patents Additional Consideration pursuant to
Section 3.2
      and the
      conversion of the license pursuant to Section 2.2,
      Licensee shall not assign or sublicense any of its rights or obligations
      hereunder. Following the payment of the additional consideration pursuant to
      Section 3.2
      and the
      conversion of the license pursuant to Section 2.2,
      Licensee may, upon written notice to Licensor indicating the identity of any
      proposed assignee or sublicensee, freely assign and sublicense its rights and
      obligations hereunder; provided,
      however,
      that
      Licensee shall not assign this Agreement or grant any sublicense hereunder
      to
      any person that produces or distributes products or provides services in direct
      competition with the products and services of Licensor; provided further
      that any
      sublicense granted by Licensee under this Agreement shall contain terms and
      conditions at least as restrictive as those contained in this Agreement and
      shall contain no rights to further sublicense; provided further
      that any
      permitted assignee or transferee must expressly consent in writing to be bound
      by the terms and conditions of this Agreement.

     

    (c) Notwithstanding
      anything herein to the contrary, either party may, with written notice to the
      other party, assign this Agreement (i) to the survivor in a merger involving
      such party, (ii) to the acquirer of all or substantially all of such party’s
      assets, stock, or a business unit related to this license agreement or (iii)
      an
      Affiliate of such party.

     

    (d) Any
      sublicense granted or assignment or transfer in violation of this Section 5.8
      shall be
      void and without effect.

     

    
      
         

      

      
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    5.9 Amendment
      or Modification.
      This
      Agreement may not be amended except in an instrument in writing signed on behalf
      of each of the parties hereto. No amendment, supplement, modification or waiver
      of this Agreement shall be binding unless executed in writing by the party
      to be
      bound thereby.

     

    5.10 No
      Other Representations or Warranties.
      EXCEPT
      AS EXPRESSLY SET FORTH HEREIN, LICENSOR EXPRESSLY DISCLAIMS ANY REPRESENTATIONS,
      WARRANTIES OR CONDITIONS, EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, WITH
      RESPECT TO THE LICENSED PATENTS, KNOW-HOW, LICENSED RIGHTS AND ANY OTHER MATTERS
      CONTEMPLATED BY THIS AGREEMENT, INCLUDING ANY IMPLIED WARRANTIES OF
      MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR VALIDITY OF TECHNOLOGY
      (PATENTED OR UNPATENTED), OR NONINFRINGEMENT.

     

    5.11 Waiver.
      Except
      where a specific period for action or inaction is provided herein, neither
      the
      failure nor any delay on the part of any party in exercising any right, power
      or
      privilege under this Agreement or the documents referred to in this Agreement
      shall operate as a waiver thereof, nor shall any waiver on the part of any
      party
      of any such right, power or privilege, nor any single or partial exercise of
      any
      such right, power or privilege, preclude any other or further exercise thereof
      or the exercise of any other such right, power or privilege. The failure of
      a
      party to exercise any right conferred herein within the time required shall
      cause such right to terminate with respect to the transaction or circumstances
      giving rise to such right, but not to any such right arising as a result of
      any
      other transactions or circumstances.

     

    5.12 Severability.
      If any
      term or other provision of this Agreement is invalid, illegal or incapable
      of
      being enforced as a result of any rule of law or public policy, all other terms
      and other provisions of this Agreement shall nevertheless remain in full force
      and effect so long as the economic or legal substance of the transactions
      contemplated by this Agreement is not affected in any manner materially adverse
      to any party. Upon such determination that any term or other provision is
      invalid, illegal or incapable of being enforced, the parties hereto shall
      negotiate in good faith to modify this Agreement so as to effect the original
      intent of the parties as closely as possible in an acceptable manner to the
      end
      that the transactions contemplated by this Agreement are fulfilled to the
      greatest extent possible.

     

    5.13 Burden
      and Benefit.
      This
      Agreement shall be binding upon and shall inure to the benefit of, the parties
      hereto and their respective successors and permitted assigns. This Agreement
      and
      all of its conditions and provisions are for the sole and exclusive benefit
      of
      the parties hereto and their respective successors and permitted assigns, and
      nothing in this Agreement, express or implied, is intended to confer upon any
      Person other than the parties hereto any rights or remedies of any nature
      whatsoever under or by reason of this Agreement or any provision
      hereof.

     

    5.14 Governing
      Law.
      This
      Agreement (and any claim or controversy arising out of or relating to this
      Agreement) shall be governed by the law of the State of New York without regard
      to conflict of law principles that would result in the application of any law
      other than the law of the State of New York.

     

    
      
         

      

      
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    5.15 Consent
      to Jurisdiction.
      Subject
      to Section 5.18
      hereof,
      each party to this Agreement hereby irrevocably and unconditionally submits,
      for
      itself and its property, to the exclusive jurisdiction of any New York State
      court, or Federal court of the United States of America, sitting in New York,
      and any appellate court from any thereof, (i) should emergency relief be
      required, (ii) for the purposes of enforcing any judgment rendered pursuant
      to
      the foregoing, (iii) for the purposes of enforcing any arbitration award under
      Section 5.18
      hereof
      or (iv) in the event a Dispute is determined to be unarbitrable pursuant to
      an
      arbitration decision rendered in application of Section 5.18
      hereof,
      and each of the parties hereby irrevocably and unconditionally (a) agrees
      not to commence any such action or proceeding except in such courts,
      (b) agrees that any claim in respect of any such action or proceeding may
      be heard and determined in such New York State court or, to the extent permitted
      by law, in such Federal court, (c) waives, to the fullest extent it may
      legally and effectively do so, any objection which it may now or hereafter
      have
      to the laying of venue of any such action or proceeding in any such New York
      State or Federal court, and (d) waives, to the fullest extent permitted by
      law, the defense of an inconvenient forum to the maintenance of such action
      or
      proceeding in any such New York State or Federal court. Each of the parties
      hereto agrees that a final judgment in any such action or proceeding shall
      be
      conclusive and may be enforced in other jurisdictions by suit on the judgment
      or
      in any other manner provided by law. Each party to this Agreement irrevocably
      consents to service of process in the manner provided for notices in
Section 5.2.
      Nothing
      in this Agreement will affect the right of any party to this Agreement to serve
      process in any other manner permitted by law.

     

    5.16 Waiver
      of Trial by Jury.
      EACH
      PARTY TO THIS AGREEMENT ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH
      MAY
      ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT
      ISSUES, AND THEREFORE IT HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY
      RIGHT
      IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR
      INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT AND ANY OF THE
      AGREEMENTS DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED
      HEREBY OR THEREBY. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (A) NO
      REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
      OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION,
      SEEK
      TO ENFORCE EITHER OF SUCH WAIVERS, (B) IT UNDERSTANDS AND HAS CONSIDERED
      THE IMPLICATIONS OF SUCH WAIVERS, (C) IT MAKES SUCH WAIVERS VOLUNTARILY,
      AND (D) IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER
      THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 5.16.

     

    5.17 Legal
      Fees.
      If any
      party to this Agreement brings an action to enforce its rights under this
      Agreement, the prevailing party shall be entitled to recover its costs and
      expenses, including without limitation reasonable legal fees, incurred in
      connection with such action, including any appeal of such action.

     

    5.18 Arbitration.
      It is
      understood and agreed between the parties hereto that if the transactions
      contemplated by the Asset Contribution Agreement are consummated, from and
      after
      the Closing Date, any and all claims, grievances, demands, controversies, causes
      of action or disputes of any nature whatsoever (including, but not limited
      to,
      tort and contract claims, and claims upon any law, statute, order, or
      regulation) (hereinafter “Disputes”),
      arising out of, in connection with, or in relation to this Agreement or
      questions of arbitrability under this Agreement, shall be resolved pursuant
      to
      the following procedures:

     

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

    (a) Any
      party
      may send another party or parties written notice identifying the matter in
      dispute and invoking the procedures of this Section (the “Dispute
      Notice”).
      Within 14 days from delivery of the Dispute Notice, each party involved in
      the
      dispute shall meet at a mutually agreed location in New York City, New York,
      for
      the purpose of determining whether they can resolve the dispute themselves
      by
      written agreement.

     

    (b) All
      Disputes arising under this Agreement which are not settled amicably as
      specified above shall be referred to and finally determined by arbitration
      in
      accordance with the Rules of Arbitration of the International Chamber of
      Commerce as in force at the time when initiating the arbitration. The
      arbitration panel shall consist of three arbitrators. Licensor shall select
      one
      arbitrator and Licensee shall select one arbitrator. The two arbitrators
      selected by the parties shall mutually agree upon the third arbitrator. The
      place of arbitration shall be New York, New York. The language to be used in
      the
      arbitration proceedings shall be English. The arbitration decision shall be
      final and binding upon the parties and the parties agree that any award granted
      pursuant to such decision may be entered forthwith in any court of competent
      jurisdiction.

     

    5.19 Specific
      Performance.
      Each of
      the parties hereto acknowledges and agrees that the other parties would be
      damaged irreparably, and in a manner for which monetary damages would not be
      an
      adequate remedy, in the event any of the provisions of this Agreement are not
      performed in accordance with its specific terms or otherwise are breached.
      Accordingly, each of the parties hereto agrees that the other parties shall
      be
      entitled to an injunction or injunctions to prevent breaches of the provisions
      of this Agreement and to enforce specifically this Agreement and the terms
      and
      provisions hereof in any action instituted in any court of the United States
      or
      any state thereof having jurisdiction over the parties and the matter, in
      addition to any other remedy to which they may be entitled, at law or in
      equity.

     

    5.20 Cumulative
      Remedies.
      All
      rights and remedies of either party hereto are cumulative of each other and
      of
      every other right or remedy such party may otherwise have at law or in equity,
      and the exercise of one or more rights or remedies shall not prejudice or impair
      the concurrent or subsequent exercise of other rights or remedies.

     

    5.21 Expenses.
      Except
      as otherwise expressly provided herein, all costs and expenses incurred in
      connection with this Agreement and the transactions contemplated herein shall
      be
      paid by the party incurring such expenses.

     

    5.22 Representation
      by Counsel.
      Each
      party hereto represents and agrees with each other that it has been represented
      by or had the opportunity to be represented by, independent counsel of its
      own
      choosing, and that it has had the full right and opportunity to consult with
      its
      respective attorney(s), that to the extent, if any, that it desired, it availed
      itself of this right and opportunity, that it or its authorized officers (as
      the
      case may be) have carefully read and fully understand this Agreement in its
      entirety and have had it fully explained to them by such party’s respective
      counsel, that each is fully aware of the contents thereof and its meaning,
      intent and legal effect, and that it or its authorized officer (as the case
      may
      be) is competent to execute this Agreement and has executed this Agreement
      free
      from coercion, duress or undue influence.

     

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

    5.23 Execution
      and Counterparts.
      This
      Agreement may be executed in one or more counterparts, each of which when
      executed shall be deemed an original and all of which together shall constitute
      one and the same instrument. The parties agree that this Agreement shall be
      legally binding upon the electronic transmission, including by facsimile or
      email, by each party of a signed signature page to this Agreement to the other
      party.

     

    5.24 Survival.
      Article V
      and
Sections 5.10,
      5.15,
      5.16
      and
5.18
      shall
      survive the expiration or termination of this Agreement for any reason;
provided,
      however,
      that
      termination pursuant to Section 2.3(b)
      shall
      not relieve a defaulting or breaching party from any liability to the other
      party hereto.

     

    5.25 LIMITATION
      OF LIABILITY.
      IN NO
      EVENT WILL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR (1) ANY INDIRECT,
      INCIDENTAL, SPECIAL, EXEMPLARY, CONSEQUENTIAL (INCLUDING BUT NOT LIMITED TO,
      LOSS OF INCOME, PROFIT, OR SAVINGS) OR PUNITIVE DAMAGES ARISING OUT OF OR IN
      CONNECTION WITH THE AGREEMENT, EVEN IF THE RESPONSIBLE PARTY HAD BEEN ADVISED
      OF
      THE POSSIBILITY OF SUCH DAMAGES OR EVEN IF SUCH DAMAGES WERE REASONABLY
      FORESEEABLE OR (2) AN AMOUNT IN EXCESS OF THE LICENSED PATENTS ADDITIONAL
      CONSIDERATION ACTUALLY PAID TO LICENSOR.

     

    [Signature
      Page Follows]

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

    IN
      WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
      executed on their respective behalf, by their respective officers thereunto
      duly
      authorized, all as of the day and year first set forth above.

     

    
      	 	
              INNOVATIVE
                CARD TECHNOLOGIES, INC.

            
	 	 
	 	
              By:                                                                          
                

            
	 	
              Name:

            
	 	
              Title:

            
	 	 
	 	 
	 	
              nCRYPTONE,
                S.A.

            
	 	 
	 	 
	 	 
	 	
              
                By:                                                                          
                  

              

            
	 	
              Name:

            
	 	
              Title:

            

    

    

     

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

    SCHEDULE
      1

    LICENSED
      PATENTS

     

    1) #EP
      1 031
      229

     

    2) U.S.
      #6,748,359 - Method for transmitting acoustic signals from a memory or chip
      card, and card for implementing said method.

     

    3) App.
      #519539/00

     

    

    
      
         

      

      
        S-1Exhibit
        10.1

    

     

    EMPLOYMENT
      AGREEMENT

    

    This
      Agreement (the “Agreement”)
      is
      entered into as of July
      7,
      2006 (the “Effective
      Date”)
      by and
      between MANHATTAN PHARMACEUTICALS, INC., a Delaware corporation with an office
      at 810 Seventh Avenue, 4th
      Floor,
      New York, NY 10019 (the “Company”),
      and
Michael
      G. McGuinness,
      residing
      36 Aldom Circle, West Caldwell, NJ 07006 (the
      “Executive”).

     

    W
      I T N E S S E T H:

     

    WHEREAS,
      the Company desires to employ the Executive as Chief Financial Officer of the
      Company and the Executive desires to serve the Company in that capacity, all
      upon the terms and subject to the conditions contained in this
      Agreement.

     

    NOW,
      THEREFORE, in consideration of the mutual covenants and agreements herein
      contained, the parties hereto hereby agree as follows:

     

    1. Employment.

     

    (a) Services.
      The
      Executive will be employed by the Company and shall serve as Chief Financial
      Officer of the Company and shall perform, subject to the direction of the Chief
      Executive Officer of the Company, such services and duties as are customarily
      performed by the Chief Financial Officer (the “Services”).
      The
      Executive shall also have such other powers and duties as may be from time
      to
      time prescribed by the Chief Executive Officer or the Board of Directors of
      the
      Company (the “Board”),
      provided that the nature of the Executive’s powers and duties so prescribed
      shall not be inconsistent with the Executive’s position and duties
      hereunder.

    

    (b) Acceptance.
      The
      Executive hereby accepts such employment and agrees to render the
      Services.

     

    2. Term.
      The
      Executive's employment under this Agreement shall commence as of July 10, 2006
      (the “Commencement
      Date”)
      and
      shall continue for a term of three (3) years (the “Initial
      Term”),
      unless sooner terminated pursuant to Section 8 of this Agreement.
      Notwithstanding anything to the contrary contained herein, the provisions of
      this Agreement governing protection of the Company’s Confidential and
      Proprietary Information (as defined in Section 5(a) hereof) shall continue
      in
      effect as specified in Section 5 hereof and survive the expiration or
      termination hereof. This Agreement may be renewed for one or more additional
      one
      year periods (each, an “Additional
      Term”
and,
      together with the Initial Term, the “Term”)
      if
      the
      Company and the Executive agree in writing on the terms of such renewal not
      less
      than 30 days prior to the end of the then current Term. If the Company and
      the
      Executive have not agreed on the terms of such renewal prior to such date,
      this
      Agreement shall terminate at the end of the then current term (a “Non-Renewal
      Event”).

    

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

    3. Best
      Efforts; Place of Performance.

     

    (a) During
      the Term, the Executive shall devote substantially all of his business time,
      attention and energies to the business and affairs of the Company and
      shall
      use his best efforts to advance the best interests of the Company and shall
      not
      during the Term be actively engaged in any other business activity, whether
      or
      not such business activity is pursued for gain, profit or other pecuniary
      advantage. Notwithstanding the foregoing, Executive may fulfill his obligation
      to provide consulting services pursuant to that certain Separation Agreement
      dated March 16, 2006 between Executive and Vyteris Holdings (Nevada) Inc.,
      and
      with the prior written consent of the Company, Executive may serve as a member
      of boards of directors of other organizations not affiliated with the Company
      or
      serve as an adjunct professor or similar position at an academic institution;
      provided, however, that the business or activities of any organization on which
      Executive proposes to serve as a director shall not compete with, or be likely
      to compete with, the Company’s business and activities; and provided further,
      however, that such service by Executive shall not interfere, or be likely to
      interfere, with the performance by Executive of the Services to be performed
      hereunder.

     

    (b) The
      duties to be performed by the Executive hereunder shall be performed primarily
      at the principal office of the Company in New York, New York, subject to
      reasonable travel requirements on behalf of the Company, or such other place
      as
      the Board may reasonably designate. Notwithstanding the foregoing, Executive
      acknowledges that the Company may be relocated to another city within the United
      States with the consent and approval of the Board. 

     

    4. Compensation.
      As full
      compensation for the performance by the Executive of his duties under this
      Agreement, the Company shall pay the Executive as follows:

     

    (a) Base
      Salary.
      During
      the Term, the Company shall pay the Executive an annual base salary (the
“Base
      Salary”),
      which
      shall initially be equal to $205,000 per year. The Base Salary shall be paid
      in
      accordance with the Company’s normal payroll practices. The Base Salary will be
      reviewed by the Board no less frequently than annually and may be increased
      (but
      not decreased).

    

    (b) Discretionary
      Bonus.
      At
      the
      sole discretion of the Board, the Executive may receive an additional annual
      bonus (the “Discretionary
      Bonus”)
      in an
      amount up to 30% of his then current Base Salary, based upon his performance
      on
      behalf of the Company during the prior year. The Discretionary Bonus shall
      be
      payable either as a lump-sum payment or installments as determined by the Board
      in its sole discretion. In addition, the
      Board
      shall annually review the Discretionary Bonus to determine whether an increase
      in the amount thereof is warranted.

    

    (c) Withholding.
      The
      Company shall withhold all applicable federal, state and local taxes and social
      security and such other amounts as may be required by law from all amounts
      payable to the Executive under this Section 4. 

    

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    (d) Equity
      Compensation.

    

    (i) Options.
      The
      Company shall grant the Executive a stock option to purchase 220,000 shares
      of
      the common stock, par value $0.001 per share (the “Common
      Stock”)
      of the
      Company at a price per share equal to the last closing sale price of the Common
      Stock as reported on the American Stock Exchange on the last trading day
      immediately preceding the Commencement Date (the “First Option”).
      The
      Company shall also grant the Executive a stock option to purchase 60,000 shares
      of Common Stock at a price equal to the greater of (i) $1.35 per share or (ii)
      the last closing sale price of the Common Stock as reported on the American
      Stock Exchange on the last trading day immediately preceding the Commencement
      Date (the “Second
      Option,”
and
      together with the First Option, the “Options”).
      The
      Options
      shall be governed by the Company’s 2003 Stock Option Plan (the “Plan”).
      For
      so long as the Executive is an employee of the Company, the Options shall vest,
      if at all, in three equal and annual installments on the first, second and
      third
      anniversaries of the Commencement Date, respectively. The Options shall have
      a
      term of 10 years from date of grant and, subject to the provisions of Section
      9
      hereof, the vested Options shall remain exercisable for 90 days from the date
      that the Executive is no longer an employee of the Company. In connection with
      such grant, the Executive shall enter into the Company’s standard stock option
      agreement which will incorporate the foregoing vesting schedule and the
      provisions contained in Section 9 hereof.
      The
      Board shall review the aggregate number of stock options granted to the
      Executive not less frequently than annually in order to determine whether an
      increase in the number thereof is warranted. 

    

    (e) Expenses.
      The
      Company shall reimburse the Executive for all normal, usual and necessary
      expenses incurred by the Executive in furtherance of the business and affairs
      of
      the Company, including reasonable travel and entertainment, upon timely receipt
      by the Company of appropriate vouchers or other proof of the Executive’s
      expenditures and otherwise in accordance with any expense reimbursement policy
      as may from time to time be adopted by the Company.

    

    (f) Other
      Benefits.
      The
      Executive shall be entitled to all rights and benefits for which he shall be
      eligible under any benefit or other plans (including, without limitation,
      dental, medical, medical reimbursement and hospital plans, pension plans,
      employee stock purchase plans, profit sharing plans, bonus plans and other
      so-called “fringe” benefits) as the Company shall make available to its senior
      executives from time to time (collectively, the “Fringe
      Benefits”).

    

    (g) Vacation.
      The
      Executive shall, during the Term, be entitled to vacation of three
      non-consecutive weeks per annum,
      in
      addition to public holidays observed by the Company.
      The
      Executive shall not be entitled to carry any vacation forward to the next year
      of employment.

    

    (h) Indemnification.
      The
      Company will indemnify the Executive to the extent permitted by its charter
      and
      by-laws and by applicable law against all costs, charges and expenses,
      including, without limitation, attorneys’ fees, incurred or sustained by the
      Executive in connection with any action, suit or proceeding to which the
      Executive may be made a party by reason of being an officer, director or
      employee of the Company. In connection with the foregoing, the Executive will
      be
      covered under any liability insurance policy that protects other officers of
      the
      Company.

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

    5. Confidential
      Information and Inventions.

     

    (a) The
      Executive recognizes and acknowledges that in the course of his duties he is
      likely to receive confidential or proprietary information owned by the Company,
      its affiliates or third parties with whom the Company or any such affiliates
      has
      an obligation of confidentiality. Accordingly, during and after the Term, the
      Executive agrees to keep confidential and not disclose or make accessible to
      any
      other person or use for any other purpose other than in connection with the
      fulfillment of his duties under this Agreement, any Confidential and Proprietary
      Information (as defined below) owned by, or received by or on behalf of, the
      Company or any of its affiliates. “Confidential
      and Proprietary Information”
shall
      include, but shall not be limited to, confidential or proprietary scientific
      or
      technical information, data, formulas and related concepts, business plans
      (both
      current and under development), client lists, promotion and marketing programs,
      trade secrets, or any other confidential or proprietary business information
      relating to development programs, costs, revenues, marketing, investments,
      sales
      activities, promotions, credit and financial data, manufacturing processes,
      financing methods, plans or the business and affairs of the Company or of any
      affiliate or client of the Company. The Executive expressly acknowledges the
      trade secret status of the Confidential and Proprietary Information and that
      the
      Confidential and Proprietary Information constitutes a protectable business
      interest of the Company. The Executive agrees (i) not to use any such
      Confidential and Proprietary Information for himself or others and (ii) not
      to
      take any Company material or reproductions (including but not limited to
      writings, correspondence, notes, drafts, records, invoices, technical and
      business policies, computer programs or disks) thereof from the Company’s
      offices at any time during his employment by the Company, except as required
      in
      the execution of the Executive’s duties to the Company. The Executive agrees to
      return immediately all Company material and reproductions (including but not
      limited, to writings, correspondence, notes, drafts, records, invoices,
      technical and business policies, computer programs or disks) thereof in his
      possession to the Company upon request and in any event immediately upon
      termination of employment.

    

    (b) Except
      with prior written authorization by the Company, the Executive agrees not to
      disclose or publish any of the Confidential and Proprietary Information, or
      any
      confidential, scientific, technical or business information of any other party
      to whom the Company or any of its affiliates owes an obligation of confidence,
      at any time during or after his employment with the Company.

    

    (c) The
      Executive agrees that all inventions, discoveries, improvements and patentable
      or copyrightable works (“Inventions”)
      initiated, conceived or made by him, either alone or in conjunction with others,
      during the Term
      shall be
      the sole property of the Company to the maximum extent permitted by applicable
      law and, to the extent permitted by law, shall be “works made for hire” as that
      term is defined in the United States Copyright Act (17 U.S.C.A., Section 101).
      The Company shall be the sole owner of all patents, copyrights, trade secret
      rights, and other intellectual property or other rights in connection therewith.
      The Executive hereby assigns to the Company all right, title and interest he
      may
      have or acquire in all such Inventions; provided, however, that the Chief
      Executive Officer may in its sole discretion agree to waive the Company’s rights
      pursuant to this Section 5(c) with respect to any Invention that is not directly
      or indirectly related to the Company’s business. The Executive further agrees to
      assist the Company in every proper way (but at the Company’s expense) to obtain
      and from time to time enforce patents, copyrights or other rights on such
      Inventions in any and all countries, and to that end the Executive will execute
      all documents necessary:

     

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

    (i) To
      apply
      for, obtain and vest in the name of the Company alone (unless the Company
      otherwise directs) letters patent, copyrights or other analogous protection
      in
      any country throughout the world and when so obtained or vested to renew and
      restore the same; and

    (ii) To
      defend
      any opposition proceedings in respect of such applications and any opposition
      proceedings or petitions or applications for revocation of such letters patent,
      copyright or other analogous protection.

     

    (d) The
      Executive acknowledges that while performing the services under this Agreement
      the Executive may locate, identify and/or evaluate patented or patentable
      inventions having commercial potential in the fields of pharmacy,
      pharmaceutical, biotechnology, healthcare, technology and other fields which
      may
      be of potential interest to the Company or one of its affiliates (the
“Third
      Party Inventions”).
      The
      Executive understands, acknowledges and agrees that all rights to, interests
      in
      or opportunities regarding, all Third-Party Inventions identified by the
      Company, any of its affiliates or either of the foregoing persons’ officers,
      directors, employees (including the Executive), agents or consultants during
      the
      Employment Term shall be and remain the sole and exclusive property of the
      Company or such affiliate and the Executive shall have no rights whatsoever
      to
      such Third-Party Inventions and will not pursue for himself or for others any
      transaction relating to the Third-Party Inventions which is not on behalf of
      the
      Company.

    

    (e) Executive
      agrees that he will promptly disclose to the Company, or any persons designated
      by the Company, all improvements, Inventions made or conceived or reduced to
      practice or learned by him, either alone or jointly with others, during the
      Term.

     

    (f) The
      provisions of this Section 5 shall survive any termination of this
      Agreement.

     

    6. Non-Competition,
      Non-Solicitation and Non-Disparagement.

     

    (a) The
      Executive understands and recognizes that his services to the Company are
      special and unique and that in the course of performing such services the
      Executive will have access to and knowledge of Confidential and Proprietary
      Information (as defined in Section 5) and the Executive agrees that, during
      the
      Term and for a period of 12 months
      thereafter, he shall not in any manner, directly or indirectly, on behalf of
      himself or any person, firm, partnership, joint venture, corporation or other
      business entity (“Person”),
      enter
      into or engage in any business which is engaged in any business directly or
      indirectly competitive with the Company in the Business (as defined below)
      (each, a “Restricted
      Activity”)
      within
      the geographic area of the Company’s business, which is deemed by the parties
      hereto to be worldwide. The Executive acknowledges that, due to the unique
      nature of the Business, the loss of any of its clients or business flow or
      the
      improper use of its Confidential and Proprietary Information could create
      significant instability and cause substantial damage to the Company and its
      affiliates and therefore the Company has a strong legitimate business interest
      in protecting the continuity of its business interests and the restriction
      herein agreed to by the Executive narrowly and fairly serves such an important
      and critical business interest of the Company. For purposes of this Agreement,
      the “Business”
means
      the development and commercialization of drugs and other biomedical technologies
      in which the Company is actively engaged (1) for the treatment, detection or
      prevention of dermatologic diseases, disorders, and conditions and (2) the
      treatment, detection or prevention of any other diseases, disorders, and
      conditions. Notwithstanding the foregoing, nothing contained in this Section
      6(a) shall be deemed to prohibit the Executive from (i) engaging in a Restricted
      Activity for or with respect to any subsidiary, division or affiliate or unit
      (each, a “Unit”)
      of a
      Person if that Unit is not engaged in any business which is competitive with
      the
      Business of the Company, irrespective of whether some other Unit of such Person
      engages in such competition (as long as the Executive does not engage in a
      Restricted Activity for such other Unit), or (ii) acquiring or holding, solely
      for investment, publicly traded securities of any corporation, some or all
      of
      the activities of which are competitive with the business of the Company so
      long
      as such securities do not, in the aggregate, constitute more than 4% of any
      class or series of outstanding securities of such corporation.

    

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

    (b) During
      the Term and for a period of 12 months thereafter, the Executive shall not,
      directly or indirectly, without the prior written consent of the
      Company:

     

    (i) Solicit
      or induce any employee of the Company or any of its affiliates to leave the
      employ of the Company or any such affiliate; or hire for any purpose any
      employee of the Company or any affiliate or any employee who has left the
      employment of the Company or any affiliate within one year of the termination
      of
      such employee’s employment with the Company or any such affiliate or at any time
      in violation of such employee’s non-competition agreement with the Company or
      any such affiliate;

    

    (ii) Solicit
      or accept employment or be retained by any Person who, at any time during the
      term of this Agreement, was an agent, client or customer of the Company or
      any
      of its affiliates where his position will be related to the business of the
      Company or any such affiliate; or

    

    (iii) Solicit
      or accept the business of any agent, client or customer of the Company or any
      of
      its affiliates with respect to products, services or investments similar to
      those provided or supplied by the Company or any of its affiliates.

     

    (c) The
      Company and the Executive each agree that both prior to and during the Term
      and
      at all times thereafter, neither party shall willfully or intentionally,
      directly or indirectly disparage, whether or not true, the name or reputation
      of
      the other party or any of its affiliates, including but not limited to, any
      officer, director, employee or shareholder of the Company or any of its
      affiliates.

    

    (d) The
      Executive hereby acknowledges that any breach or threatened breach of any of
      the
      terms of Section 5 or 6 of hereof will result in substantial, continuing and
      irreparable injury to the Company. Therefore, in addition to any other remedy
      that may be available to the Company, the Company will be entitled to seek
      injunctive or other equitable relief by a court of appropriate jurisdiction,
      without posting of a bond, in the event of any breach or threatened breach
      of
      the terms of Section 5 or 6 hereof.
      The
      Company and the Executive agree that any such action for injunctive or equitable
      relief shall be heard in a state or federal court located in the State of New
      York and
      each
      of the parties hereto agrees to accept service of process by registered or
      certified mail and to otherwise consent to the jurisdiction of such
      courts.

    

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

    (e) The
      rights and remedies of the Company enumerated in Section 6(d) shall be in
      addition to and not in lieu of any other rights and remedies available to the
      Company at law or in equity. If any of the covenants contained in this Section
      6, or any part of any of them, is hereafter construed or adjudicated to be
      invalid or unenforceable, the same shall not affect the remainder of the
      covenant or covenants or rights or remedies which shall be given full effect
      without regard to the invalid portions. If any of the covenants contained in
      this Section 6 is held to be invalid or unenforceable because of the duration
      of
      such provision or the area covered thereby, the parties agree that the court
      making such determination shall have the power to reduce the duration and/or
      area of such provision and in its reduced form such provision shall then be
      enforceable. No such holding of invalidity or unenforceability in one
      jurisdiction shall bar or in any way affect the Company’s right to the relief
      provided in this Section 6 or otherwise in the courts of any other state or
      jurisdiction within the geographical scope of such covenants as to breaches
      of
      such covenants in such other respective states or jurisdictions, such covenants
      being, for this purpose, severable into diverse and independent
      covenants.

    

    (f) In
      the
      event that an actual proceeding is brought in equity to enforce the provisions
      of Section 5 or this Section 6, the Executive shall not urge as a defense that
      there is an adequate remedy at law nor shall the Company be prevented from
      seeking any other remedies which may be available. 

    

    (g) The
      provisions of this Section 6 shall survive any termination of this
      Agreement.

     

    7. Representations
      and Warranties.

    

    (a) The
      Executive hereby represents and warrants to the Company as follows:

     

    (i) Neither
      the execution or delivery of this Agreement nor the performance by the Executive
      of his duties and other obligations hereunder violate or will violate any
      statute, law, determination or award, or conflict with or constitute a default
      or breach of any covenant or obligation under (whether immediately, upon the
      giving of notice or lapse of time or both) any prior employment agreement,
      contract, or other instrument to which the Executive is a party or by which
      he
      is bound;
      and

    

    (ii) The
      Executive has the full right, power and legal capacity to enter and deliver
      this
      Agreement and to perform his duties and other obligations hereunder. This
      Agreement constitutes the legal, valid and binding obligation of the Executive
      enforceable against him in accordance with its terms. No approvals or consents
      of any persons or entities are required for the Executive to execute and deliver
      this Agreement or perform his duties and other obligations
      hereunder.

    

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

    (b) The
      Company hereby represents and warrants to the Executive that this Agreement,
      the
      employment of the Executive hereunder and the grant of the Options have been
      duly authorized by and on behalf of the Company, including, without limitation,
      by all required action by the Board.

     

    8. Termination.
      The Executive’s employment hereunder shall be terminated upon the Executive’s
      death and may also be terminated as follows:

     

    (a) The
      Executive’s employment hereunder may be terminated by written notice to the
      Executive from the Chief Executive Officer or the Board for Cause, effective
      the
      date of delivery of such notice. Any of the following actions by the Executive
      shall constitute “Cause”:

     

    (i) The
      willful and repeated failure, disregard or refusal by the Executive to perform
      his duties hereunder;

     

    (ii) Any
      willful, intentional or grossly negligent act by the Executive having the effect
      of injuring, in a material way (whether financial or otherwise), the business
      or
      reputation of the Company or any of its affiliates, including but not limited
      to, any officer, director, executive or shareholder of the Company or any of
      its
      affiliates;

     

    (iii) Willful
      misconduct by the Executive
      in
      respect of the duties or obligations of the Executive under this
      Agreement,
      including, without limitation, insubordination with respect to directions
      received by the Executive from the Chief
      Executive Officer, unless such direction was contrary to directions given by
      the
      Board;

     

    (iv) The
      Executive’s conviction of any felony or a misdemeanor involving moral turpitude
      (including entry of a nolo contendere plea);

     

    (v) The
      determination by the Company based upon clear and convincing evidence, after
      a
      reasonable and good-faith investigation by the Company following a written
      allegation by another employee of the Company, that the Executive engaged in
      material harassment prohibited
      by law
      (including, without limitation, age, sex or race discrimination);

     

    (vi) Any
      misappropriation or embezzlement of the property of the Company or its
      affiliates (whether or not a misdemeanor or felony);

     

    (vii) A
      breach
      by the Executive of any of the provisions of Sections
      5
      or
      6
      hereof;
      or

     

    (viii) A
      material breach by the Executive of any material provision of this Agreement
      (other than those contained in Sections
      5
      or
      6 hereof,
      which are governed by clause (viii) above) that is not cured by the Executive
      within 30 days after written notice thereof is given to the Executive by the
      Company.

    

    Any
      determination of Cause under this Section 8(a) will be made by the Board. With
      respect to any such determination, the Board will act fairly and in utmost
      good
      faith and will give the Executive and his counsel an opportunity to appear
      and
      be heard at a meeting with the Board and present evidence on the Executive’s
      behalf. 

     

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

    (b) The
      Executive’s employment hereunder may be terminated by the Chief Executive
      Officer as a result of the Executive’s Disability. For purposes of this
      Agreement, a termination for “Disability”
shall
      occur (i) when the Chief Executive Officer has provided a written termination
      notice to the Executive supported by a written statement from a reputable
      independent physician to the effect that the Executive shall have become so
      physically or mentally incapacitated as to be unable to resume, within the
      ensuing 6 months, his employment hereunder by reason of physical or mental
      illness or injury, or (ii) upon delivery of a written termination notice to
      the
      Executive by the Chief Executive Officer after the Executive has been unable
      to
      substantially perform his duties hereunder for 60 or more consecutive days,
      or
      more than 90 days in any consecutive 12 month period, by reason of any physical
      or mental illness or injury. For purposes of this Section 8(b), the Executive
      agrees to make himself available and to cooperate in any reasonable examination
      by a reputable independent physician selected by the Company and reasonably
      satisfactory to the Executive. 

    

    (c) The
      Executive’s employment hereunder may be terminated by the Company (or an entity
      that is a successor to the Company) by written notice to the Executive upon
      the
      occurrence of a Change of Control. For purposes of this Agreement, “Change
      of Control”
means
      (i) the acquisition, directly or indirectly, following the date hereof by any
      person (as such term is defined in Section 13(d) and 14(d)(2) of the Securities
      Exchange Act of 1934, as amended), in one transaction or a series of related
      transactions, of securities of the Company representing in excess of fifty
      percent (50%) of the combined voting power of the Company’s then outstanding
      securities if such person or his or its affiliate(s) do not own in excess of
      50%
      of such voting power on the date of this Agreement, or (ii) the sale or transfer
      by the Company (whether direct or indirect, by sale of assets or stock, merger,
      consolidation or otherwise) of all or substantially all of its business and/or
      assets in one transaction or series of related transactions (other than a merger
      effected exclusively for the purpose of changing the domicile of the
      Company).

    

    (d) The
      Executive’s employment hereunder may be terminated by the Executive by written
      notice to the Company for Good Reason, effective the date of delivery of such
      notice. For purposes of this Agreement, “Good
      Reason”
shall
      mean the occurrence of any of the following:

    

    (i) A
      material breach by the Company of Section 4, Section 6(c) or Section 7b) of
      this
      Agreement which is not cured by the Company within 30 days after written notice
      thereof is given to the Company by the Executive; 

    

    (ii) A
      change
      in the lines of reporting such that the Executive no longer reports to either
      the Chief Executive Officer or to the Board;

    

    (iii) A
      reduction in the Executive’s compensation or other benefits except such a
      reduction in connection with a general reduction in compensation or other
      benefits of all senior executives of the Company; or

    

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

    (e) The
      Executive’s employment may be terminated by the Company for any reason or no
      reason by delivery of written notice to the Executive effective thirty (30)
      days
      after the date of delivery of such notice.

    

    (f) The
      Executive’s employment may be terminated by the Executive in the absence of a
      Good Reason by delivery of written notice to the Company effective thirty (30)
      days after the date of delivery of such notice.

     

    9. Compensation
      Following Termination.

     

    (a) If
      the
      Executive’s employment is terminated during the Term as a result of his death or
      Disability, the Company shall promptly pay to the Executive or to the
      Executive’s
      estate, as applicable, his
      then
      current Base Salary and any accrued but unpaid Discretionary Bonus, the value
      of
      his accrued unused vacation days and expense reimbursement amounts through
      the
      date of death or Disability. Any portion of the Options that are
      scheduled to vest by the end of the calendar year in which such termination
      occurs shall be accelerated and vested as of the termination date. All Options
      that have
      not
      vested
      (or been
      vested pursuant to the immediately preceding sentence to have
      vested)
      as of
      the date of termination shall be deemed to have expired as of such date.

    

    (b) If
      the
      Executive’s employment is terminated during the Term (i) by the Company for
      Cause or (ii) by the Executive in the absence of a Good Reason, the Company
      shall continue paying to the Executive through the date of termination his
      then
      current Base Salary, the value of his accrued unused vacation days and expense
      reimbursement amounts (collectively, the “Accrued
      Compensation”),
      and
      the Executive shall have no further entitlement to any other compensation or
      benefits from the Company. Any portion of
      the
      Options that
      have
      not
      vested as
      of the
      date of termination shall be deemed to have expired as of such date. Any
      portion of Options
      that have vested as of the date of termination shall remain exercisable for
      a
      period of 90 days following the date of such termination.

    

    (c) If
      the
      Executive’s employment is terminated during the Term by the Company (or its
      successor) upon the occurrence of a Change of Control and on the date of
      termination pursuant to this Section 9(c) the Fair Market Value (as defined
      herein) of the Company’s outstanding Common Stock, in the aggregate, is less
      than $80,000,000, then the Company (or its successor, as applicable) shall
      (i)
      pay the Executive the Accrued Compensation through the date of such termination
      and (ii) continue to pay to the Executive his then current annualized Base
      Salary and provide him with the Fringe Benefits for a period of six months
      following the date of such termination. All Options that are
      scheduled to vest by the end of the calendar year in which such termination
      occurs shall be accelerated and deemed to have vested as of the termination
      date. Any Options that have vested (or been deemed pursuant to the immediately
      preceding sentence to have vested) as
      of the
      date of the Executive’s termination shall remain exercisable for a period of 90
      days following the date of such termination. All Options that have
      not
      vested
      (or been
      deemed pursuant to the immediately preceding sentence to have
      vested)
      as of
      the date of termination shall be deemed to have expired as of such date. “Fair
      Market Value” shall mean the average closing sale price of the Common Stock for
      the ten (10) business days preceding the Change of Control, as quoted on a
      national securities exchange, the Nasdaq Stock Market or the Over-the-Counter
      Bulletin Board, as applicable, or if the Common Stock is not then traded or
      quoted on any such stock exchange or stock market, then such price as determined
      in good faith by the Board on the date of such Change of Control.

    

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

    (d) If
      the
      Executive’s employment is terminated during the Term either (1) by the Company
      other than as a result of the Executive’s death or Disability and other than for
      one of the reasons specified in Sections 9(a), 9(b) or 9(c), or (2) by the
      Executive for a Good Reason, then the Company shall (i) pay the Executive the
      Accrued Compensation through the date of such termination, and (ii) continue
      to
      pay to the Executive his then current annualized Base Salary and provide him
      with the Fringe Benefits for a period of six (6) months following the date
      of
      such termination. The Company’s obligation under clause (ii) in the preceding
      sentence shall be subject to offset by any amounts otherwise received by the
      Executive from any employment during the 6-month period following the
      termination of his employment. All Options shall
      be
      accelerated and deemed to have vested as of the termination date. Any
      Options that have vested (or been deemed pursuant to the immediately preceding
      sentence to have vested) as
      of the
      date of the Executive’s termination shall remain exercisable for a period of 90
      days following the date of such termination.

     

    (e) This
      Section 9 sets forth the only obligations of the Company with respect to the
      termination of the Executive’s employment with the Company, and the Executive
      acknowledges that, upon the termination of his employment, he shall not be
      entitled to any payments or benefits which are not explicitly provided in this
      Section 9.

    

    (f) Unless
      otherwise expressly agreed to in writing by the Company and Executive, upon
      termination of the Executive’s employment with the Company for any reason, the
      Executive shall be deemed to have resigned as an officer of the Company and,
      if
      applicable, as a director and officer of any subsidiary of the Company,
      effective as of the date of such termination.

    

    (g) Notwithstanding
      anything to the contrary contained in this Section 9, other than the Accrued
      Compensation, the Company shall have no obligation to pay, and Executive shall
      have no obligation to receive, any compensation or other consideration
      (including without limitation the acceleration of any unvested Options) upon
      termination of Executive’s employment unless Executive executes a separate
      agreement releasing the Company from any and all liability in connection with
      the termination of Executive’s employment. 

    

    (h) The
      provisions of this Section 9 shall survive any termination of this
      Agreement.

     

    10. Miscellaneous.

     

    (a) This
      Agreement shall be governed by, and construed and interpreted in accordance
      with, the laws of the State of New York, without giving effect to its principles
      of conflicts of laws.

    

    (b) Any
      dispute arising out of, or relating to, this Agreement or the breach thereof
      (other than Sections 5 or 6 hereof), or regarding the interpretation thereof,
      shall be finally settled by arbitration conducted in New York, New York in
      accordance with the commercial arbitration rules of the American Arbitration
      Association then in effect before a single arbitrator appointed in accordance
      with such rules. Judgment upon any award rendered therein may be entered and
      enforcement obtained thereon in any court having jurisdiction. The arbitrator
      shall have authority to grant any form of appropriate relief, whether legal
      or
      equitable in nature, including specific performance. For the purpose of any
      judicial proceeding to enforce such award or incidental to such arbitration
      or
      to compel arbitration and for purposes of Sections 5 and 6 hereof, the parties
      hereby submit to the exclusive jurisdiction of the courts of the State of New
      York or the United States District Court for the Southern District of New York
      and agree that service of process in such arbitration or court proceedings
      shall
      be satisfactorily made upon it if sent by registered mail addressed to it at
      the
      address referred to in paragraph (g) below. The
      costs
      of such arbitration shall be borne proportionate to the finding of fault as
      determined by the arbitrator. Judgment on the arbitration award may be entered
      by any court of competent jurisdiction.

    

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

    (c) This
      Agreement shall be binding upon and inure to the benefit of the parties hereto,
      and their respective heirs, legal representatives, successors and permitted
      assigns.

    

    (d) This
      Agreement, and the Executive’s rights and obligations hereunder, may not be
      assigned by the Executive. The Company may assign its rights, together with
      its
      obligations, hereunder in connection with any sale, transfer or other
      disposition of all or substantially all of its business or assets.

    

    (e) This
      Agreement cannot be amended orally, or by any course of conduct or dealing,
      but
      only by a written agreement signed by the parties hereto.

    

    (f) The
      failure of either party to insist upon the strict performance of any of the
      terms, conditions and provisions of this Agreement shall not be construed as
      a
      waiver or relinquishment of future compliance therewith, and such terms,
      conditions and provisions shall remain in full force and effect. No waiver
      of
      any term or condition of this Agreement on the part of either party shall be
      effective for any purpose whatsoever unless such waiver is in writing and signed
      by such party.

    

    (g) All
      notices, requests, consents and other communications, required or permitted
      to
      be given hereunder, shall be in writing and shall be delivered personally or
      by
      an overnight courier service or sent by registered or certified mail, postage
      prepaid, return receipt requested, to the parties at the addresses set forth
      on
      the first page of this Agreement, and shall be deemed given when so delivered
      personally or by overnight courier, or, if mailed, five days after the date
      of
      deposit in the United States mail. Either party may designate another address,
      for receipt of notices hereunder by giving notice to the other party in
      accordance with this paragraph (g).

    

    (h) This
      Agreement, together with the stock option agreements evidencing the Options,
      sets forth the entire agreement and understanding of the parties relating to
      the
      subject matter hereof, and supersedes all prior agreements, arrangements and
      understandings, written or oral, relating to the subject matter hereof. No
      representation, promise or inducement has been made by either party that is
      not
      embodied in this Agreement, and neither party shall be bound by or liable for
      any alleged representation, promise or inducement not so set forth.

    

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

    (i) As
      used
      in this Agreement, “affiliate” of a specified Person shall mean and include any
      Person controlling, controlled by or under common control with the specified
      Person.

    

    (j) The
      section headings contained herein are for reference purposes only and shall
      not
      in any way affect the meaning or interpretation of this Agreement.

    

    (k) This
      Agreement may be executed in any number of counterparts, each of which shall
      constitute an original, but all of which together shall constitute one and
      the
      same instrument.

    

    

    IN
      WITNESS WHEREOF, the parties hereto have executed this Agreement as an
      instrument under seal as of the date first above written.

     

    
      
        	 	
                MANHATTAN
                  PHARMACEUTICALS, INC..

                

                

                By:
                  /s/
                  Douglas
                  Abel                                        
                  

                Name:
                  Douglas Abel

                Title:
                  President & Chief Executive Officer

                

                EXECUTIVE

                

                

                /s/
                  Michael G.
                  McGuinness                             
                  

                Michael
                  G. McGuinness

              

      

    

     

    
      
         

      

      
        13

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