Document:

EXECUTION COPY
                            STOCK PURCHASE AGREEMENT

      AGREEMENT dated as of January 1, 2004, by and among Gilman + Ciocia, Inc.,
a Delaware corporation with a principal office at 11 Raymond Avenue,
Poughkeepsie, NY 12603 ("Seller"), and Daniel R. Levy ("Levy"), and Joseph H.
Clinard ("Clinard"). individuals with an address at 1895 Walt Whitman Road,
Melville, New York 11747 (collectively the "Purchasers").

                              W I T N E S S E T H :

      WHEREAS, Seller desire to sell to Purchaser, and Purchaser desires to
purchase from Seller, all of the authorized, issued and outstanding capital
stock of North Shore Capital Management Corp., a New York corporation ("North
Shore"), and North Ridge Securities Corp., a New York Corporation ("North
Ridge") (collectively, North Shore and North Ridge will be referred to herein as
the "Company"), upon the terms hereinafter set forth;

      NOW, THEREFORE, in consideration of the covenants set forth herein and in
reliance on the representations and warranties contained herein, the parties
hereto hereby agree as follows:

      Section 1. Purchase and Sale of Stock.

      On the Closing Date (hereinafter defined), Seller shall sell, assign,
transfer and deliver, unto Purchaser, and their successors and assigns forever,
free and clear of all Liens (as defined in Section 5.5 hereof) all right, title,
interest and claims in or to all of the authorized, issued and outstanding
capital stock (the "Shares") of the Company. Levy shall purchase eighty (80%)
percent of the Shares and Clinard shall purchase twenty (20%) percent of the
Shares.

      Section 2. Status of Assets and Liabilities.

      2.1. Acquired Assets. Seller represents and warrants to Purchaser and
acknowledges and confirms that each such representation and warranty shall be
deemed to be material and that Purchaser is relying upon such representations
and warranties in connection with the execution, delivery and performance of
this Agreement, any investigation made by Purchaser or on its behalf
notwithstanding, except as otherwise specifically set forth herein and in the
Schedules hereto: the Company owns free and clear of Liens (as defined in
Section 5.5 hereof) or is using, pursuant to a valid and effective license or
lease described in the Schedules hereto, all of the business, properties,

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contracts and assets of the Company or used by the Company in its business as
conducted through the Closing Date, real, personal or mixed, tangible or
intangible, together with the goodwill of the Company, all as the same exist on
the Closing Date, and as are located at the business premises on the Closing
Date, except for those assets disposed of in the ordinary course of business
consistent with past practice in arms-length transactions with unaffiliated
parties, together with any additions thereto after such date, (hereinafter,
other than the Excluded Assets (as defined in Section 2.2 below) sometimes
together referred to as the "Acquired Assets").

      2.2. Excluded Assets. The Acquired Assets do not include the assets
(herein collectively referred to as the "Excluded Assets") of the Company as
follows:

            (a) counterclaims and cross claims to the extent relating to any
liability against which the Seller indemnify Purchaser hereunder; and

            (b) insurance claims and rights under insurance policies to the
extent relating to any liability against which the Seller indemnify Purchaser
hereunder; and

in each case, to the extent not reflected as an asset on any balance sheet of
the Company.

      Section 3. Consideration. The purchase price (the "Purchase Price") for
the Shares shall be total consideration of $1,100,000 to be allocated as
follows: $1,050,000 to the Shares of North Ridge and $50,000 to the Shares of
North Shore.

      3.1 Payment of the Purchase Price. The Purchase Price shall be paid as
follows:

            (a) $200,000 shall be wired to the Seller by Clinard on the Closing
      Date.

            (b) $862,500 shall be paid to the Seller by the Purchaser in
      accordance with the terms of the Promissory Note (the "Note") annexed
      hereto as Schedule 3.2(b).

            (c) $37,500 shall be paid to the Seller by Clinard in accordance
      with Section 3.2.

            (d) The Note shall be secured by the Stock Pledge Agreement annexed
      hereto as Schedule 3.2(d).

      3.2 Payment of $37,500. On the Closing Date, Purchaser shall deposit the
sum of $37,500 in the attorney escrow account of Steinberg, Fineo, Berger &
Fischoff (the "Escrow Agrent"). The Escrow Agent shall wire the $37,500 to the
Seller when the following three contingencies are met:

            (a)   The Seller's subsidiary, Prime Capital Services, Inc.
                  ("Prime"), implements a commission payment system for North
                  Ridge registered representatives similar to the system in
                  existence at the Closing Date.

            (b)   The customer accounts presently at Prime for the registered
                  representatives listed in Schedule 3.2(b) are moved over to
                  North Ridge.

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            (c)   Prime updates its Win-Ops Computer System to reflect proper
                  commissions and product information for all North Ridge
                  registered representatives.

If the parties do not agree that the $37,500 should be paid to the Seller on or
before sixty (60) days from the Closing Date, the disputes concerning the
release of the $37,500 shall be submitted to arbitration as provided in Section
25 of this agreement.

      Section 4. Closing. The consummation of the purchase and sale of the
Shares contemplated by this Agreement (the "Closing") shall take place when all
parties execute this Agreement (the "Closing Date").

      Section 5. Representations and Warranties of Seller. Seller, represents
and warrants to Purchaser as follows, and acknowledges and confirms the accuracy
of, and that each such representation and warranty shall be deemed to be
material, and a precondition of Purchaser's obligation to close, and that
Purchaser is relying upon such representations and warranties in connection with
the execution, delivery and performance of this Agreement, notwithstanding any
investigation made by Purchaser or on its behalf.

      5.1. Proper Authority and Structure.

      (a) The Company has the power and authority to own, lease and operate its
properties and to carry on its business as now conducted. The Company has no
subsidiaries or equity investments in any entities.

      (b) The Seller is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, and has all requisite
power and authority to carry on its business as now conducted, and is duly
qualified to do business and is in good standing in each other jurisdiction in
which the ownership or operation of it's properties or assets or the conduct of
its business requires such qualifications. The Seller has all requisite
corporate power and lawful authority and all necessary licenses and permits to
own, lease and operate the Business and properties related to the Business and
to carry on the business of Company in the manner in which the Business is now
being conducted.

      5.2. Consents, Authorizations and Binding Effect.

            (a) Seller may execute, deliver and perform this Agreement without
the necessity of obtaining any consent, approval, authorization or waiver or
giving any notice or otherwise, except that: (i) the Seller's board of directors
must pass a resolution authorizing the sale; and (ii) the Seller must obtain the
consent to the sale of Wachovia Bank National Association which is the Seller's
senior lender.

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            (b) This Agreement has been duly authorized, executed and delivered
by Seller and constitutes the legal, valid and binding obligation of Seller,
enforceable in accordance with its terms. The execution, delivery and
performance of this Agreement will not:

            (i) conflict with, result in the breach of, constitute a default,
with or without notice and/or lapse of time, under, result in being declared
void or voidable any provision of, or result in any right to terminate or cancel
any contract, lease, agreement, license, commitment or purchase order to which
the Company or the Seller or any of their properties is bound;

            (ii) conflict with the Seller's or either Company's Certificates of
Incorporation or By-Laws, together with all amendments thereto;

            (iii) constitute a violation of any statute, judgment, order, decree
or regulation or rule of any court, governmental authority or arbitrator
applicable or relating to any of Seller, the Company's assets or the business
and operations of either of North Ridge or North Shore (collectively, the
"Business"), excluding, however, the following: any consent, approval,
authorization or similar action that may be required by any federal, state,
and/or municipal agency, the National Association of Securities Dealers, Inc.,
or any other regulatory body with regard to securities or anti-trust laws
governing Purchaser, Purchaser's business, or Purchaser's involvement in the
transaction contemplated hereby; or

            (iv) result in the acceleration of any debt or other obligation of
Seller or the Company or the creation of any Lien (as defined in Section 5.5)
upon any of the Company's assets.

      (c) To the extent that any consent, approval, authorization or similar
action may be required by any federal, state, and/or municipal agency, the
National Association of Securities Dealers, Inc., or any other regulatory body
with regard to securities or anti-trust laws governing Purchaser, Purchaser's
business, or Purchaser's involvement in the transaction contemplated hereby, the
parties shall cooperate with each other to obtain such consents, approvals and
authorizations.

      5.3. Owner of Company. Seller is the only beneficial or registered owner
of the Company, and the true and correct address of its principal office is set
forth on the first page of this Agreement.

      5.4. Financial Representations.

            (a) The Seller has caused to be maintained the Company's books of
account in accordance with applicable laws, rules and regulations, and such
books and records are and, during the periods covered by the Financial
Statements (hereinafter defined), were correct and complete in all respects, and
completely and accurately reflect the transactions of the Business and the

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income, expenses, assets and liabilities of the Business, including the nature
thereof and the transactions giving rise thereto.

            (b) The Financial Statements have been prepared from the books of
account of the Seller, in conformity with generally accepted accounting
principles consistently applied ("GAAP"), and present fairly the financial
position of the Business as of the date of such statements and the results of
operations of the Business for the periods covered thereby. The Financial
Statements reflect all necessary adjustments and reserves for losses and
contingencies.

            (c) Except as indicated on Schedule 5.9(a) hereto, the Business and
the Company have no liabilities (including, without limitation, unasserted
claims, whether known or unknown, matured or unmatured, absolute, contingent or
otherwise) that, in accordance with GAAP, are required to be reflected, and are
not reflected or are in excess of the amount reflected, in the Financial
Statements or notes thereto except those incurred since the date of the
Financial Statements in the ordinary course of business, consistent with past
practice, in arms' length transactions with unrelated parties, and which do not
have and cannot reasonably be expected to have, in the aggregate, a material
adverse effect on the business, financial condition or prospects of the Business
(a "Material Adverse Effect").

      5.5. Title and Condition of Assets.

            (a) The Seller at the Closing Date will transfer to the Purchaser
good and marketable title to the Shares, free and clear of liens, encumbrances,
claims of third parties, security interests, mortgages, pledges, agreements,
options and rights of others of any kind whatsoever, whether or not filed,
recorded or perfected, and including, without limitation, any conditional sale
or title retention agreement or lease in the nature thereof or any financing
statements filed in any jurisdiction or any agreement to give any such financing
statements (hereinafter collectively referred to as "Liens")

            (b) North Ridge and North Shore at the Closing Date will have good
and marketable title to the Acquired Assets free and clear of Liens or are using
them pursuant to a valid and effective license or lease described in the
Schedules hereto.

            (c) The equipment and the other tangible assets included in the
Acquired Assets are in good operating condition, order and repair, are suitable
for the purposes for which they are being used and constitute all of the assets
used in the operations of, and necessary to operate, the Business as conducted
during the two years prior to the date hereof. None of the Acquired Assets has
been affected by any fire, accident, act of God or any other casualty that
materially and adversely impairs its function in the Business. The Business is
not conducted under any restriction imposed upon the company (but not imposed
upon other similar businesses in the locality where its business is located).

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      5.6. Insurance.

            (a) All insurance policies maintained by the Company are
underwritten by financially sound and reputable insurers.

            (b) No claims are pending or, to the knowledge of the Seller,
threatened under any of the Company's casualty or liability insurance policies.
All premiums due and payable thereon have been paid, and all such policies are
in full force and effect in accordance with their respective terms. No
outstanding claims or liabilities, exist, whether fixed or contingent, under any
medical reimbursement plan or any other plan or policy under which the Company
acts as a self-insured.

      5.7 and 5.8 are Intentionally Omitted.

      5.9. Litigation and Compliance.

            (a) Except as disclosed on Schedule 5.9 (a) annexed hereto, there
are no actions, suits, arbitrations, claims, judgments or proceedings or
governmental or administrative investigations pending or, to the knowledge of
Seller, threatened, nor, to the knowledge of Seller, is there any reasonable
basis for any such action, suit, claim or proceeding (i) by, against or
otherwise involving the Company, or any of Company's officers, directors,
employees or agents, any of the Acquired Assets or any asset or property of
others leased or used by the Company pursuant to an agreement or (ii) which
questions or challenges the validity of this Agreement or any action taken or to
be taken pursuant to this Agreement.

            (b) Except as described on Schedule 5.9(b), the Company is in
substantial compliance with, is not in default or violation in any material
respect under, and has not been charged with or received any notice at any tine
of any violation by it of, any statute, law, ordinance, regulation, rule, decree
or order applicable to the business or operations of the Company. North Ridge is
registered with the National Association of Securities Dealers (the 'NASD') as a
registered Broker/Dealer and such registration is current in all respects.
Neither the Company nor to the best knowledge of the Company any of its
employees is the subject of any disciplinary proceedings before, or under
investigation by, the NASD, the United States Securities and Exchange Commission
(the 'SEC'), any securities exchanges or markets, any state securities division
or other regulatory bodies, except as provided on Schedule 5.9(b). Except as
provided in Schedule 5.9(b), neither the Company nor the Seller have received
during the two years prior to the date hereof any written complaints or requests
for refunds of commissions paid.

            (c) The Forms U-4 for all registered representatives and principals
of the Company and all Forms BD and amendments thereto filed with the SEC during
the three years prior to the date hereof were to the best knowledge of the
Company true and accurate in all material respects when filed and no further
amendment thereof is currently (until the execution hereof) required.

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            (d) None of the Company, nor any of the Acquired Assets or
transactions contemplated under this Agreement, is subject to any judgment,
order or decree entered in any lawsuit or proceeding applicable to the Business
and operations of the Company.

            (e) The Company has duly filed all reports and returns required to
be filed by it with governmental authorities and has obtained all governmental
permits and licenses and other governmental consents, except as may be required
after the execution of and closing under this Agreement. All of such material
permits, licenses and consents are in full force and effect, and no proceedings
for the suspension or cancellation of any of them, and no investigation relating
to any of them, is pending or, to the best knowledge of Seller, threatened, and
none of them will be affected by the consummation of the transactions
contemplated hereby.

            (f) The Company has operated, and will through the Closing Date
operate, in material compliance with all laws, rules, statutes, ordinances,
orders and regulations, including, without limitation, those applicable to the
Company under the Occupational Safety and Health Act of 1970, as amended, or any
equivalent state law. The Company has received no notice of any violation
thereof nor are Seller or the Company aware of any basis therefor.

      5.10. Taxes.

            (a) The Company has, or on or before the Closing Date will have,
duly filed all tax reports and returns required to be filed in respect of its
business and operations and the Acquired Assets as of December 31, 2003, or will
have duly filed extension for such returns and reports. All taxes and required
estimated tax payments have been paid through the Closing Date. All such tax
reports and returns are or will be complete, accurate and in compliance with all
relevant laws and regulations in all material respects, and, none has been
audited by any governmental authority. The Company has, or on or before the
Closing Date will have, paid and discharged all federal, state, local and
foreign taxes, interest, penalties or other payments required, as the case nay
be, to be paid and then currently due as shown on such tax reports and returns
or otherwise in respect of the Acquired Assets and the business, operations and
employees of the Company as of December 31, 2003. To the knowledge of Company,
no audit of the Company is planned or threatened. The Company has withheld
proper and accurate amounts from its employees' compensation in substantial
compliance with all withholding and similar provisions of the IRS Code of 1986,
as amended and any other applicable law.

            (b) The Company has received no notice of any tax deficiency
outstanding, proposed or assessed against it, nor does the Company have any
knowledge of any basis for any tax deficiency or assessment, nor has the company
executed any waiver of any statute of limitations on the assessment or
collection of any tax. No tax liens are upon, pending against or, to the
knowledge of the Seller or the Company, threatened against any Acquired Assets.

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      5.11. Intangible Assets.

            (a) "Intellectual Property" means and includes:

                  (i) trademarks, trademark registrations, service marks,
service mark registrations, applications for trademark and service mark
registrations, trade names, copyrights and copyright registration;

                  (ii) license agreements with respect to any of the foregoing
intellectual property;

                  (iii) all printed or other written material and all other
copyrightable property;

                  (iv) all material trade secrets; and

                  (v) all computer software, programs, and applications.

            (b) No material Intellectual Property other than that included in
the Acquired Assets ("Company Intellectual Property") is used or necessary in
connection with the conduct of the Business. No claim is pending or to the best
knowledge of the Company threatened against Seller or the Company by any person
or entity relating to (i) any of the Company Intellectual Property, or its use
included in the Acquired Assets; (ii) infringement by the Company on the
Intellectual Property rights of any person or entity; or (iii) infringement by
any person or entity on the Company Intellectual Property rights included in the
Acquired Assets. To the knowledge of the Company and Seller, no valid basis
exists for any claims referred to in this Section 5.11(b).

            (c) The current computer software, programming and applications used
by the Company, or held by it for use in the operation of the Business (the
"Software") , to the extent they have been designed or developed by Seller or by
consultants on Seller's behalf or on behalf of the Company, are original and are
protected by the copyright laws of the United States, and Seller or the Company
have complete rights to and ownership of such Software. All work performed in
connection therewith was "work-for-hire" under the United States Copyright Act,
or the product thereof has been assigned in full to Seller or the Company. To
the best knowledge of the Company, no part of such Software or the use thereof
infringes upon the rights of any other person or entity, or violates or
infringes upon any common law or statutory rights of any other person or entity,
including, without limitation, rights relating to defamation, contractual
rights, copyrights, patents, trade secrets and rights of privacy or publicity.
Neither the Seller nor the Company has sold, assigned, licensed, distributed or
in any other way disposed of or encumbered the Software.

            (d) The Software, to the extent it is licensed from any third party
licensor or constitutes "off-the-shelf" software, is held by the Company
legitimately and is fully and freely transferable without any third party

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consent and is not limited to use on any hardware and/or any site or sites. All
of the Company's computer hardware, and all computer hardware of the Seller used
or dedicated to use in the Business, has, and has had, only
legitimately-licensed software installed therein.

            (e) To the best knowledge of the Company, the Software is free from
any significant software defect or programming or documentation error, operates
and runs in a reasonable and efficient business manner, conforms to the
specifications thereof, and, with respect to owned Software, the applications
can be recreated from their associated source code, which is in the Company's
sole custody and control.

            (f) Neither of the Seller nor the Company nor any employee or agent
of either of the Seller or the Company has knowingly altered the data, or any
Software or supporting software that may in turn damage the integrity of the
data, stored in electronic, optical or magnetic form. Seller has no knowledge of
the existence of any bugs or viruses with respect to the Software.

            (g) Seller and the Company shall, to the maximum possible extent,
pass through to Purchaser all manufacturer's and supplier's warranties and
support contracts for the Software that is not owned by Seller or the Company,
and Seller shall upon Purchaser's reasonable request, execute each and every
document that is necessary or appropriate to effectuate Purchaser's obtaining
and enjoying the benefits of any such pass-through warranty.

            (h) Seller has furnished all documentation relating to the use,
maintenance and operation of the Software, all of which, to the knowledge off
Seller, is true and accurate.

            (i) Schedule 5.11(i) includes a list of all trademarks, service
marks and copyrights included in the Acquired Assets and indicating those which
are subject to the filing of an affidavit of use or renewal.

      5.12. Employees. The Company has good relations with its current and
former employees and current and former independent contractors and has not
received any material complaint from, and has not engaged in any material
dispute with, any of such employees and independent contractors and affiliated
brokers during the twelve (12) months prior to the date hereof except for
terminations set forth on Schedule 5.12. Any provision in this Section 5.12 to
the contrary notwithstanding, Seller gives no assurance or guarantee that any
one or more employees and/or independent contractors will not terminate his or
her relationship with the Company upon or at any time after the execution
hereof, although neither the Company nor the Seller has received any notice that
any such termination is planned.

      5.13. ERISA. Apart from a health plan that is not unusual in the Company's
industry, the Company has no employee benefit plan (within the meaning of
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")), written or oral employment or consulting agreement, severance pay
plan, employee relations policy, practice or arrangement, agreements with

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respect to leased or temporary employees, vacation plan or arrangement, sick
plan, stock purchase plan, stock option plan, fringe benefit plan, bonus plan
and any deferred compensation agreement, plan or program covering any present or
former employee of the company including any plan which is, or at any time was,
sponsored or maintained by (or to which contributions are, were, or at any time
were required to have been, made by) the Company or any other organization which
is a member of a controlled group of organizations (within the meaning of
Sections 414(b), (c), (in) or (o) of the Internal Revenue Code of 1986, as
amended) of which the Company is a member (the "Controlled Group").

      5.14. Labor Relations.

            (a) No employee of the Company is covered by any collective
bargaining agreement.

            (b) The Company has complied, and is currently in compliance, in all
material respects with applicable laws (including, without limitation, ERISA) ,
rules and regulations relating to the employment of labor, including without
limitation those relating to wages, hours, unfair labor practices,
discrimination and payment of social security and similar taxes.

      5.15. Contracts, Etc..

            All contracts, leases, agreements, licenses, commitments and orders
to which the Seller in connection with the Business or the Company is a party or
by which the Company or any of its assets is bound ("Contracts") are listed on
Schedule 5.15 and are valid and in full force and effect and constitute the
legal, valid and binding obligations of the Company and the other parties
thereto, and there are no existing defaults by the Company, or, to the knowledge
of the Company, by any other party thereto, and, to the knowledge of the
Company, no event, act or omission has occurred that (with or without notice,
lapse of time and/or the happening or occurrence of any other event) would
result in a material default thereunder. No option exists or will arise as a
result of the closing to amend or terminate any Contract. No party to any
Contract is paying liquidated damages in lieu of performance.

      5.16. Customers and Suppliers.

            (a) The Company is unaware of any loss or threatened loss of any
business from any customer. The Company has not received any material complaint
from, and is not engaged in any material dispute with, any customer or supplier.

            (b) Nothing has come to the attention of either the Seller or the
Company that should reasonably lead them to believe that any customers or
suppliers of the Company will terminate or curtail its business relationship
with the Company as a result of the closing hereunder.

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      5.17. Absence of Certain Changes. Etc. No event or other development has
occurred that would indicate that a material loss or decline in business will
occur in the future; no compensation increase for any employee in excess of 10%
on an annual basis has been granted or promised; the Company has not established
or made any bonus, profit sharing, retirement or other similar payment, plan or
arrangement, nor has the Company entered into any union contract or any
employment agreement, or agreement with any preparer or sales agent or any
franchise agreement, independent dealer/distributor agreement or other contract
or arrangement with respect to the performance of services for the Company; no
new employee has been retained; nothing has come to the attention of the Company
that would lead it to believe that any material adverse change in the business,
operations, or prospects of the Business or in the condition of any of the
Acquired Assets, or the assets or properties of others leased or used by
Company, has occurred or is likely to occur; the Company has not suffered any
material damage, destruction or loss to any of its material assets; the company
has not entered into any transaction or contract, or amended any contract, which
might have a Material Adverse Effect on the business, financial condition or
prospects of the Company; the Company has not canceled or waived any claim or
right of material value; neither the Company nor the Seller has leased or
allowed any Lien to arise upon any of the Acquired Assets, or acquired or
committed to acquire any material capital assets except for fair market price,
in the ordinary course of business, consistent with prior practice, in
arms-length transaction with unaffiliated parties; the Company has not delayed
or accelerated collection of any note or receivable beyond the usual and
customary period therefor or the legal maturity thereof; the Company has not
entered into any contract for the purchase of real property or exercised any
option to extend or terminate any lease of real property; the company has not
declared or paid any dividend or distributed any asset in respect of any
security, whether as a distribution, repurchase, redemption or otherwise; Seller
has operated the Business diligently and only in the usual, ordinary manner and,
to the extent consistent with such operation, (i) preserved its current business
organization intact, (ii) preserved its current relationships with employees,
customers, suppliers and all other persons having business dealings with them
and (iii) maintained in force the insurance policies referred to in Section 5.8
hereof; Seller has caused the Company to maintain its books, accounts and
records in the usual and ordinary manner, and in a manner that fairly and
correctly reflects its income, expenses, assets and liabilities in accordance
with GAAP; Seller has not modified or changed any existing right, concession,
license, lease, contract, commitment or agreement, and no sale or other
disposition of any right or privilege accruing to the Seller relating to the
Business has occurred, except as otherwise provided herein; the Company has not
delayed in the payment of any account payable or indebtedness beyond the usual
and customary period therefor or the legal maturity thereof; neither the Company
nor the Seller has incurred any indebtedness other than that (i) incurred in the
usual and ordinary course of business, or (ii) incurred pursuant to existing
contracts disclosed in the Schedules hereto, in all cases not exceeding $5,000
in the aggregate; and the Company has not made any agreement, commitment or
arrangement to take any action inconsistent with the obligations under, or
prohibited by, this Section 5.17.

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      5.18. Fraudulent Conveyances; Bankruptcy. Seller is not entering into this
Agreement with the intent to hinder, delay or defraud present or future
creditors of Seller or of the Company. Seller is now solvent and is not involved
as debtor in any bankruptcy or similar proceeding.

      5.19. Related Party Transactions. The Company has not engaged in any
transactions, or entered into any contracts with, in the last year, any other
person, corporation or entity, directly or indirectly, affiliated with any of
Seller or the Company.

      Section 6. Representations and Warranties of Purchaser. Purchaser
represents and warrants to Seller as follows, and acknowledges that Seller is
relying upon such representations and warranties in connection with the
execution, delivery and performance of this Agreement, notwithstanding any
investigation made by Seller or on its behalf.

      6.1. Authorizations and Binding Effect. This Agreement has been duly
executed and delivered by Purchaser and constitutes the legal, valid and binding
obligation of Purchaser, enforceable in accordance with its terms. The
execution, delivery and performance of this Agreement does not and will not:

            (i) conflict with, result in the breach of, constitute a default,
with or without notice and/or lapse of time, under, result in being declared
void or voidable any provision of, or result in any right to terminate or cancel
any contract, lease or agreement to which Purchaser or any of his properties is
bound;

            (ii) constitute a violation of any statute, judgment, order, decree
or regulation or rule of any court, governmental authority or arbitrator
applicable or relating to Purchaser;

            (iii) result in the acceleration of any debt or other obligation of
Purchaser;

            (iv) render Purchaser insolvent as that term is defined under 11
U.S.C. Section 101(32).

      6.2. Judgments. No judgments exist against Purchaser or any of Purchaser's
assets.

      6.3. Litigation. No actions, suits, claims, proceedings or investigations
(whether or not purportedly on behalf of or against Purchaser) , are pending or
threatened against Purchaser at law or in equity that relate to the transactions
contemplated by this Agreement or that will prohibit purchaser from performing
the obligations to be performed by it hereunder.

      6.4. Nonreliance. Purchaser has not relied in entering into this Agreement
on any representation or warranty of Seller regarding the revenues of the
Company, except indirectly as specifically set forth herein.

                                       12
<PAGE>

      6.5. Financing. Purchaser has sufficient liquid assets or available credit
to complete the terms of the transaction contemplated by this Agreement.

      6.6. Execution. Purchaser may execute, deliver and perform this Agreement
without the necessity of obtaining any consent, approval, authorization or
waiver or giving any notice or otherwise.

      Section 7. Covenants.

      7.1. Taxes. Seller shall pay all of the sales taxes or transfer taxes or
fees payable as a direct result of the consummation of the transactions
contemplated hereby, including the New York State stock transfer tax, and
provide proof of such payment at the Closing.

      7.2. Performance of Contracts. Purchaser shall cause the Company to
perform its obligations under each of the contracts listed on Schedule 5.15 to
the extent arising from and after the Closing, except to the extent that the
Company asserts defenses in good faith to such performance.

      Section 8. Survival of Representations and Warranties; Indemnifications

      8.1. Survival. The representations, warranties and agreements made in
Sections 5 and 6 hereof and in the Schedules hereto by Seller, Purchaser and the
Company shall remain operative and in full force for a period of twenty four
(24) months after the Closing Date, except with respect to Sections 5.3, 5.5 and
with respect to tax matters, as to which such representations and warranties
shall continue to survive for a period of any applicable statutes of limitation,
regardless of any investigation made by or on behalf of any party.

      8.2. Indemnification by Seller. Seller shall defend and indemnify
Purchaser from any and all losses, liabilities, proceedings, claims,
settlements, judgments, fines, assessments, damages and expenses (including
reasonable attorneys' fees and litigation expenses, whether arising out of a
third party claim or relating to recovering indemnifiable damages from Company
(collectively, the "Indemnifiable Damages") that Purchaser may suffer or incur
in whole or in part by reason of, or which may arise out of: (i) the inaccuracy
of any of the representations or warranties of the Company or of the Seller in
this agreement subject to the time periods as set forth in 8.1; (ii) the breach
by Company or of the Seller of any of the representations, covenants, warranties
or obligations herein subject to the time periods as set forth in 8.1; (iii) any
and all liabilities (including, without limitation, unasserted claims, whether
known or unknown, matured or unmatured, absolute, contingent or otherwise) that
are not reflected or are in excess of the amount reflected, in the Balance Sheet
or notes thereto except those incurred since the date of the Balance Sheet in
the ordinary course of business, consistent with past practice, in arms' length
transactions with unrelated parties so long as Purchaser's claim under this

                                       13
<PAGE>

clause is made in writing to Seller prior to 36 months after Closing; and (iv)
any fine or claim concerning the calculation of the net capital of North Ridge
Securities Corp. prior to the Closing Date. However, the Seller's
indemnification shall not extend to any action or inaction by Purchaser or by
any person who was supervised by Purchaser, either prior to or after the Closing
Date (the "Indemnification Exclusion"). The Indemnification Exclusion shall not
apply to any actions performed or taken by Seller or Prime, or to any actions
which were required to be taken by Seller or Prime and which were not.

      8.3. Indemnification by Purchaser. Purchaser shall defend, hold harmless
and indemnity Seller from any and all Indemnifiable Damages that Seller may
suffer or incur by reason of: (i) the inaccuracy of any of the representations
and warranties of Purchaser herein; (ii) the breach by Purchaser of any of the
representations, covenants, warranties or obligations herein; (iii) any claim
for breach of Purchaser's obligation to perform contracts under Section 7.2
above; (iv) failure of Purchaser to comply with any rule or regulation of the
Securities and Exchange Commission or the National Association of Securities
Dealers, Inc.; (v) the operation of the Business after the Closing Date; and
(vi) any action or inaction by Purchaser, or by any person who was supervised by
Purchaser, either before or after the Closing Date. However, Purchaser's
indemnification shall not extend to any actions performed or taken by Seller or
Prime, or to any actions which were required to be taken by Seller or Prime and
which were not.

      8.4. Notice and Right to Defend Third Party Claims and Perform
Remediation.

            (a) Promptly upon receipt of notice of any third party claim, demand
or assessment or the commencement of any suit, action or proceeding in respect
of which indemnity may be sought on account of an indemnity agreement contained
in this Section 8, the party seeking indemnification (the "lndemnitee") shall
notify in writing, within sufficient time to respond to such claim or answer or
otherwise plead in such action, the party from whom indemnification is sought
(the "Indemnitor") thereof; provided, however, that failure or delay to supply
such notice shall not relieve Indemnitor of their indemnification obligation
hereunder except to the extent that Indemnitor is actually prejudiced by such
failure or delay, and only to the extent of such prejudice.

            (b) In case any claim, demand or assessment is asserted or suit,
action or proceeding commenced against an Indemnitee (collectively a "Claim")
and it notifies the Indemnitor of the commencement thereof, if the Indemnitor
acknowledges its indemnification obligations therefor hereunder, then, the
Indemnitor shall be entitled to participate therein, and, to the extant that it
may wish, to assume the defense, conduct or settlement thereof, with counsel
satisfactory to the Indemnitee, whose consent to the election of counsel shall
not unreasonably be withheld. After notice from the Indemnitor to the Indemnitee
of its election so to assume the defense, conduct or settlement thereof, the
Indemnitor shall not be liable to the Indemnitee for any legal or other expenses
subsequently incurred by the Indemnitee in connection with the defense, conduct
or settlement thereof; provided, however, that if the Indemnitee has any
separate defense from those of the Indemnitor, or if a conflict of interest

                                       14
<PAGE>

exists, the Indemnitee shall have the right to be represented by its own counsel
at the lndemnitor's expense. The Indemnitee shall have the right in any event to
participate in any such defense with its own counsel at its own expense. The
Indemnitee will cooperate with the indemnitor in connection with any such Claim
and make personnel, books and records relevant to the Claim available to the
Indemnitor at Indemnitor's expense. In the event that the Indemnitor fails
timely to defend, contest or otherwise protect against any such Claim, the
Indemnitee shall have the right to defend, contest or otherwise protect against
the same and may make any compromise or settlement thereof and recover the
entire cost thereof from the Indemnitor, including, without limitation,
reasonable attorneys' fees, disbursements and all amounts paid as result of such
Claim or compromise or settlement thereat.

            (a) Anything to the contrary herein notwithstanding, prior to
finally settling any such Claim, the Indemnitor shall give to the Indemnitee
prompt notice of its intention to settle same arid the terms of such proposed
settlement and acknowledging its indemnification responsibility therefor
hereunder. If the lndemnitee shall object to such proposed settlement within 10
days, then the Indemnitee shall thereafter, at its sole expense, assume the
control and defense of such claim, suit, action, investigation or proceeding and
in such event the liability at the Indemnitor shall be limited to the amount for
which the same could have been settled as proposed by the Indemnitor. If the
Indennitee does not object to the terms of the proposed settlement within the
aforesaid 10-day period, then the indemnitor shall have the right to consummate
such proposed settlement upon the terms set forth in the aforesaid notice.

      Section 9. Further Actions. From time to time, as and when requested by
Purchaser, Seller shall execute and deliver such documents and instruments and
shall take such further or other actions as Purchaser reasonably may deem
necessary or desirable to carry out the intent and purposes of this Agreement,
to convey, transfer, assign and deliver to Purchaser, and its successors and
assigns, the Shares, to vest in the Company the Acquired Assets (or to evidence
any of the foregoing) and to consummate and give effect to the other
transactions contemplated hereby.

      Section 10. Broker's Fees. Each of the Company, Seller and Purchaser
represents that it has not used or retained any broker or finder in connection
with the transactions contemplated hereby.

      Section 11. Expenses. Except as otherwise specifically provided herein,
Seller and Purchaser shall bear their own, legal fees and other costs and
expenses with respect to the negotiation, execution and the delivery of this
Agreement and the consummation of the transactions hereunder, and the Acquired
Assets shall not be reduced or impaired by the payment or accrual of any such
costs and expenses by Company.

      Section 12. Entire Agreement. This Agreement, which includes the Schedules
and Exhibits hereto and the other documents, agreements and instruments executed
and delivered pursuant to or in connection with this Agreement, contains the
entire agreement between Seller and Purchaser with respect to the transactions
contemplated by this Agreement and supersedes all prior arrangements or
understandings with respect thereto.

                                       15
<PAGE>

      Section 13. Construction.

            (a) The descriptive headings of this Agreement are for convenience
only and shall not control or affect the meaning or construction of any
provision of this Agreement.

            (b) Any pronoun herein shall include all genders and/or the plural
or singular as appropriate from the context. Section 14. Notices. All notices or
other communications which are required or permitted hereunder shall be in
writing and sufficient when delivered personally or telecopied by confirmed
facsimile, or three (3) business days after mailing by registered or certified
mail, return receipt requested, or the next business day if sent by nationally
recognized overnight courier providing for a return receipt, in each case
postage prepaid, addressed as follows:

      If to Seller:
            Gilman + Ciocia, Inc.
            11 Raymond Avenue
            Poughkeepsie, NY 12603
            Attn: Chief Executive Officer
            Facsimile: (845)622-3665

      If to Purchaser:
            Daniel R. Levy
            Joseph H. Clinard
            1895 Walt Whitman Road
            Melville, New York 11747

      With a copy to:
            Steinberg, Fineo, Berger & Fischoff
            Stuart Steinberg, Esq.
            401 Broadhollow Road
            4th Floor
            Melville, NY 11747
            Facsimile: (631) 715-4186

      Any party may by notice change the address to which notice or other
communications to it are to be delivered or mailed, effective ten (10) days
after such notice.

      Section 15. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts entered into, executed and to be performed wholly in such state.

                                       16
<PAGE>

      Section 16. Assignability. This Agreement shall not be assignable by any
party hereto without the prior written consent of the other party, and any
purported assignment without such prior written consent shall be void, except
that Purchaser may assign this agreement to a corporation controlling,
controlled by or under common control with the Purchaser, provided that in such
case Purchaser individually shall retain responsibility for the performance
hereunder of all terms and provisions, including but not limited to, the
indemnification and non-compete provisions.

      Section 17. Waivers and Amendments. Any waiver of any term or condition of
this Agreement, or any amendment or supplementation of this Agreement, shall be
effective only if in writing executed by the party against whom such waiver,
amendment or supplementation is sought to be charged. A waiver of any breach or
failure to enforce any of the terms or conditions of this Agreement shall not in
any way affect, limit or waive a party's rights hereunder at any time to enforce
strict compliance thereafter with every term or condition of this Agreement.

      Section 18. Third Party Rights. Any other provision of this Agreement to
the contrary notwithstanding, this Agreement shall not create benefits for any
third party.

      Section 19. Illegalities. In the event that any provision contained in
this Agreement shall be determined to be invalid, illegal or unenforceable in
any respect for any reason, the validity, legality and enforceability of any
such provision in every other respect and the remaining provisions of this
Agreement shall not, at the election of the party for whose benefit the
provision exists, be in any way impaired.

      Section 20. Cancellation of Stock Options. On the Closing Date, the 83,000
options granted to Purchaser to purchase common stock in Seller contained in
Section 4(a) of his Employment Agreement dated November 19, 1998, shall be
cancelled and no longer binding against the Seller.

      Section 21.1 Non-Solicitation of Employees and Registered Representatives.

      (a) Each of Seller, including Prime and all subsidiary corporations wholly
owned by Seller, Purchaser and the Company agree that until December 31, 2005
(the "Time Period"), they, nor any affiliates controlled by them, shall directly
or indirectly, (i) solicit, employ or otherwise engage, as an employee,
registered representative, independent consultant or otherwise, any employee or
registered representative who is, or prior to January 1, 2004 was, employed by
Seller, by Prime or by the Company; or (ii) in any manner, induce or attempt to
induce any employee or registered representative to terminate such person's
employment, engagement or business dealings with the other party.

      (b) Should Seller, Prime, Purchaser, or the Company, or any of their
affiliates or employees, directly or indirectly benefit from the separation of
service of a registered representative, tax or accounting professional during
the Time Period, Seller, Prime, Purchaser and the Company respectively agree to

                                       17
<PAGE>

pay to the other 50% of the trailing 12 months gross dealer concession and tax
and accounting billing generated by said registered representative or employee.
Said payments to be in cash with half due within 30 days after the severance of
the individual's employment with the respective entity, and the balance due
within one year.

      Section 21.2 Non-Solicitation of Customers.

      (a) Each of Seller, including Prime and all subsidiary corporations wholly
owned by Seller, Purchaser and the Company agree that until December 31, 2005
(the "Time Period"), they, nor any affiliates controlled by them, shall directly
or indirectly, (i) solicit in any manner, induce or attempt to induce any
customer to terminate or transfer any of the customer's accounts (the "Customer
Accounts") with the other party. In addition, neither Seller, any subsidiary
corporations wholly owned by Seller, Purchaser or Company will permit any
Customer Accounts to be transferred from the other party's broker dealer to its
broker dealer.

      (b) Should Seller, Prime, Purchaser or the Company, or any of their
affiliates or employees, directly or indirectly benefit from the transfer of a
Customer Account during the Time Period, Seller, Prime, Purchaser and the
Company respectively agree to pay to the other 50% of the trailing 12 months
gross dealer concession and tax and accounting billing generated by said
customer. Said payments to be in cash with half due within 30 days after the
transfer of the Customer Account and the balance due within one year.

      Section 22. Non-Disparagement and Non-Interference. Each of Seller, Prime,
Purchaser and the Company agree that they will not make, or cause to be made,
any statement or observation, or articulate any opinion, or communicate any
information (whether oral or written) that disparages or reflects negatively on
the reputation or business of the other party or any of its officers, directors
or employees. Each agree that they will not take any action which would
interfere with or cause confusion with the other party's name, logo or
trademarks, including the names: "GTAX", "GC", and "Gilman + Ciocia", "Prime
Capital Services", "Prime" and "Prime Financial Services", "North Ridge
Securities", "North Ridge", "North Shore Capital Management", or "North Shore".

      Section 23. Injunctive Relief and Reasonable Scope. The parties
acknowledge and agree that, in the event of an actual or threatened breach of
Section 22 above, the non-breaching party will suffer irreparable damages and,
in addition to any other remedies which are available to such non-breaching
party, the non-breaching party shall be entitled to injunctive or other
equitable relief without the necessity of posting a bond or other security. Each
party acknowledges that the provisions of Sections 21.1, 21.2 and 22 are
necessary for the protection of each party, are reasonable in scope and content
and that such provisions are a material inducement to the parties to enter into
this Agreement.

      Section 24. Jurisdiction. The parties hereby irrevocably submit to the
exclusive jurisdiction and venue of Kings County, New York in any action, suit,
or proceeding (i) for injunctive relief relating to or in connection with this

                                       18
<PAGE>

Agreement or any transaction contemplated hereby, or (ii) to enforce the terms
of any arbitration award relating to or in connection with this Agreement or any
transaction contemplated hereby. To the extent permitted by applicable law, each
party hereby waives and agrees not to assert by way of motion, as a defense or
otherwise, in any such suit, action or proceeding, any claim that either it is
not personally subject to the jurisdiction of such courts, that the suit,
action, or proceeding is brought in an inconvenient forum, that the venue of the
suit, action, or proceeding is improper, or that this Agreement or any
instrument, agreement, or document referred to herein or the subject matter
hereof may not be litigated in or by such courts.

      Section 25. Arbitration. In the event of any dispute, controversy, or
claim related to or arising from the terms of this Agreement, other than
injunctive relief, the parties hereto agree that any such dispute, controversy
or claim shall be settled by arbitration in accordance with the Rules of the
NASD and judgment upon the award rendered by the arbitrators may be entered in
any court having jurisdiction thereof. If possible, said arbitration shall be
conducted in New York City by a single arbitrator. Such dispute resolution shall
be in accordance with the applicable substantive laws of the State of New York.
The parties hereby agree to share equally in the costs of said arbitration

      Section 26. Miscellaneous Agreement Terms.

      Section 26.1 Processing of Commissions At Purchaser's option, Seller
agrees that Prime will process North Ridge's commissions and commission checks
on securities' business until December 31, 2006 as an independent contractor.
North Ridge will pay to Prime $2,000 per month for such services commencing on
January 1, 2005. The parties agree that the services will be provided for no
charge through December 31, 2004. After December 31, 2006, the monthly fee will
be changed as mutually agreed to.

      Section 26.2 NFS Clearing Agreement. If North Ridge registered
representatives desire, they may continue to use NFS to clear trades by North
Ridge "piggy backing" on PCS's Clearing Agreement with NFS.

      Section 26.3 Haenel and Huggins. Registered representatives Alan Haenel
and Bruce Huggins will become registered with North Ridge effective January 1,
2004. All reasonable efforts will be made to accommodate a transfer of their
customer accounts to North Ridge as quickly as possible after the Closing Date.

      Section 26.4 Joint Cooperation with Vendors. The Seller, North Ridge and
PCS will cooperate to get the lowest prices from vendors such as Statement One.

      Section 26.5 Procedural and Compliance Memos. As permitted by the NASD and
other regulatory agencies, all PCS and NFS procedural and compliance memos will
be sent directly to Purchaser who will distribute them to North Ridge registered
representatives and employees as required.

                                       19
<PAGE>

      Section 26.6 12b-1 Ticket Charges. Seller and PCS will drop the $10 per
fund family 12b-1 ticket charges to North Ridge registered representatives.

      Section 26.7 Access to PCS Website. North Ridge registered representatives
will continue to have access to the PCS website for commission review purposes,
statements, etc. They will also continue to have access to the Streetscape
trading system at the same rates as PCS registered representatives pay.

      Section 26.8. Mutual Cooperation. North Ridge will be permitted to consult
with PCS employees, its Chief Operating and Chief Executive Officers to discuss
NASD and other procedural matters. North Ridge and PCS will cooperate with each
other on past, present and future NASD audit requests, customer complaints and
Focus data.

      Section 26.9 Platinum Sponsor Program. Until December 31, 2006, Purchaser
and North Ridge agree that all of North Ridge's business will continue to be
included in Prime's business for the calculation of basis points to be paid to
Prime in its Platinum Sponsor Program. If North Ridge is not using Prime to
process its commissions, North Ridge will send to Prime its quarterly reports so
that Prime can include North Ridge's business in Prime's calculation of Prime's
basis points. The parties agree that Prime is entitled to include North Ridge's
business only for the calculation of basis points in its Platinum Sponsor
Program, and that North Ridge will receive from wholesaler's payments for trips,
luncheons and dinners. The parties hereby acknowledge and agree that the
intention of the parties is to continue the practices and the computations in
existence prior to the Closing Date.

      Section 27. Counterparts. This Agreement may be executed in multiple
counterparts all of which taken together shall constitute one and the same
instrument.

                                       20
<PAGE>

      IN WITNESS WHEREOF, Purchaser has signed, and Seller has caused this
Agreement to be executed by its duly authorized officer, as of the date first
above written.

      GILMAN + CIOCIA, INC.

      By:
          ---------------------------                ---------------------------
          Name:  Michael P. Ryan                        DANIEL R. LEVY
          Title: President

                                                     ---------------------------
                                                        JOSEPH H. CLINARD

      NORTH RIDGE SECURITIES CORP.

      By:
          ---------------------------
          Name:  Daniel R. Levy
          Title: President

      PRIME CAPITAL SERVICES, INC.

      By:
          ---------------------------
          Name:  Michael P. Ryan
          Title: President

      NORTH SHORE CAPTIAL MANAGEMENT CORP.

      By:
          ---------------------------
          Name:  Daniel R. Levy
          Title: President

                                       21
<PAGE>

                      LIST OF SCHEDULES AND OTHER DOCUMENTS

Schedule                Description
--------                -----------

3.2(b)                  Promissory Note

3.2(d)                  Stock Pledge Agreement

5.9(a)                  Pending Actions, Suits, Arbitrations

5.9(b)                  NASD Notices

5.12                    Employee and Registered Representative Terminations

5.15                    Contracts

                                       22
<PAGE>

                                 Schedule 3.2(b)

U.S. $862,500
                                                              Melville, New York
                                                              January 29, 2004

                                 PROMISSORY NOTE

      This note (the "Note") is issued pursuant to that certain Stock Purchase
Agreement dated as of January 1, 2004 (the "Purchase Agreement") between GILMAN
+ CIOCIA, INC. (the "Payee") and DANIEL R. LEVY (the "Payor"), to which Purchase
Agreement reference is hereby made for a statement of the terms and provisions
under which this Note may or must be paid. Capitalized terms used and not
otherwise defined herein shall have the meanings given to them in the Purchase
Agreement.

      For value received, the Payor hereby unconditionally promises to pay to
the order of the Payee the principal amount of $862,500.00 (the "Principal"),
together with accrued and unpaid interest thereon. The Payor further agrees to
pay interest equal to the Prime rate of Chase Bank plus two (2%) on the
outstanding Principal (the "Interest Rate") commencing on February 1, 2004 and
on the first day of each month thereafter (the "Interest Payment Date") until
the Principal is paid in full. The Interest Rate shall be adjusted monthly ten
(10) days prior to each Interest Payment Date. The Interest Rate may not exceed
eight (8%) until January 1, 2009.

      All amounts payable hereunder shall be payable to Payee in United States
dollars at such bank account as shall be designated by the Payee in immediately
available funds or as otherwise specified to Payor in writing. Payment on this
note shall be applied first to any expenses of collection, then to accrued
interest, and thereafter to the outstanding principal balance hereof.

      The Principal shall be paid as follows:

      The sum of $5,989.58 on the first day of each month commencing on May 1,
2004 and continuing through and including April 1, 2016.

      The following events shall each be an "Event of Default" under this Note
under the Purchase Agreement and under the Stock Pledge and Security Agreement:

            (a)   The Payor becomes insolvent or generally fails to pay, or
                  admits in writing its inability or refusal to pay, debts as
                  they become due; or Payor applies for, consents to or
                  acquiesces in the appointment of a trustee, receiver or other
                  custodian for the Payor or any substantial part of its
                  property, or makes a general assignment for the benefit of
                  creditors; or, in the absence of such application, consent or
                  acquiescence, a trustee, receiver or other custodian is
                  appointed for the Payor, or for a substantial part of its or
                  his property, and is not discharged within 60 days; or any
                  bankruptcy, reorganization, debt arrangement or other case or
                  proceeding under any bankruptcy or insolvency law, or any
                  dissolution or liquidation proceeding, is commenced in respect
                  of the Payor, and if such case or proceeding is not commenced
                  by the Payor, it is consented to or acquiesced in by the
                  Payor, or remains for 60 days undismissed; and

<PAGE>

            (b)   Payor's failure to pay any of the Principal due under this
                  Note on the date the same become due and payable, or any
                  accrued Interest or other amounts due under this Note within
                  five (5) days after the same becomes due and payable.

            (c)   Failure to comply, after applicable notice and failure to
                  cure, with any term in that certain Stock Pledge and Security
                  Agreement dated as of January 23, 2004.

            (d)   The Payor sells or transfers any of the Shares, except as
                  provided in Section 16 of the Purchase Agreement.

            (e)   The Company cumulatively sells more than twenty (20%) percent
                  of the Acquired Assets, or issues additional capital stock so
                  that the Payor does not own 80% or more of the authorized
                  issued and outstanding capital stock of both North Shore
                  Capital Management Corp. and North Ridge Securities Corp.

            (f)   The Payor fails to acquire by April 1, 2004, or fails to
                  maintain until this Note is paid in full, a term life
                  insurance policy in an amount not less than the outstanding
                  Principal. The policy must be collaterally assigned to the
                  Payee with notice of cancellation sent to the Payee by the
                  insurance company.

      Upon the occurrence of an Event of Default, the unpaid Principal, all
unpaid accrued Interest thereon and all other amounts owing hereunder shall
automatically become immediately due and payable. Effective upon an Event of
Default, the interest rate on this Note shall increase to16%, or to such lesser
interest rate as is permitted by applicable law.

      This Note is made with full recourse to the Payor including without
limitation with full recourse to all assets of the Payor and pursuant to and
upon all warranties, representations, covenants and agreements on the part of
the Payor as contained herein.

      Payor waives presentment and written demand for payment, notice of
dishonor, protest and notice of protest of this Note, and shall pay all costs of
collection when incurred, including, without limitation, reasonable attorneys'
fees, costs and other expenses. Payor waives his rights to a jury trial in
connection with any claims arising under this Note to the fullest extent
permitted by law. If there has been an Event of Default by Payor hereunder,
Payee shall be entitled to receive and Payor agrees to pay all costs of
enforcement and collection incurred by Payee, including, without limitation,
reasonable attorneys' fees relating thereto.

                                       2
<PAGE>

      The provisions of this Note shall inure to the benefit of and be binding
on any successor to Payor and shall extend to any holder hereof.

      This Note may not be changed, modified or terminated orally.

      This note shall be governed by and construed in accordance with the laws
of the State of New York without regard to any principles of conflicts of law.
The Payor submits to the jurisdiction of the New York State Supreme Court, Kings
County, for any collection lawsuits.

      This Note shall be non-negotiable until January 1, 2006, at which date it
shall become a fully negotiable promissory note.

                                                     ---------------------------
                                                        Daniel R. Levy

                                       3
<PAGE>

                                 Schedule 3.2(d)

                       STOCK PLEDGE AND SECURITY AGREEMENT

      Stock Pledge and Security Agreement (this "Pledge Agreement"), dated as of
the 23rd day of January, 2004, by DANIEL R. LEVY ("Levy") and JOSEPH H. CLINARD
("Clinard") individuals having an address at 1895 Walt Whitman Road, Melville,
New York 11747 (collectively the "Pledgor"), to and in favor of GILMAN + CIOCIA,
INC., having an office at 11 Raymond Avenue, Poughkeepsie, New York 12603 (the
"P1edgee").

      WHEREAS, Levy has executed a Promissory Note dated as of January 23, 2004
(the "Note") to Pledgee containing payments and other obligations (the
"Obligations") which has been delivered by Levy pursuant to a Stock Purchase
Agreement dated as of January 1, 2004 (the "Purchase Agreement") and;

      WHEREAS, Clinard is a Co-Purchaser under the Stock Purchase Agreement and
has agreed to join in this Stock Pledge and Security Agreement; and

      WHEREAS, Pledgor is now the direct and beneficial owner of all of the
authorized issued and outstanding shares of capital stock of North Shore Capital
Management Corp. and North Ridge Securities Corp. (the "Pledged Securities");
and

      WHEREAS, Pledgor has agreed to secure the payment and performance of
Levy's obligations under the Note by (i) executing and delivering to Stuart
Steinberg, Esq.(the "Escrow Agent") this Pledge Agreement, (ii) delivering to
the Escrow Agent the Pledged Securities which are registered in the name of
Pledgor, together with appropriate powers duly executed in blank by Pledgor, and
(iii) delivering to the Escrow Agent any and all other documents which Pledgee
deems necessary to protect Pledgee's interests hereunder;

      NOW, THEREFORE, in consideration of the shares identified in the Purchase
Agreement and for other good and valuable consideration, receipt of which is
hereby acknowledged, Pledgor hereby agrees as follows:

      1. CERTAIN DEFINITIONS

      As used above and elsewhere in this Pledge Agreement the following terms
shall have the following meanings (all terms defined in the Uniform Commercial
Code which are not otherwise defined herein or in the Purchase Agreement, shall
have the meanings set forth therein):

            (a) "Issuer" shall mean, individually and collectively, and include
each and every issuer of the Pledged Securities.

            (b) "Pledged Property" shall mean the (i) Pledged Securities
together with all cash dividends, stock dividends, redemptions, stock,
securities options, substitutions, exchanges and other distributions now or
hereafter distributed by the Issuer with respect to the Pledged Securities and
which hereinafter shall be delivered into the possession of Pledge; (ii)
Pledgor's records with to the foregoing, and (iii) the proceeds of all of the
foregoing.

<PAGE>

            (c) Purchase Agreement Terms. Terms used herein which are defined in
the Purchase Agreement and are not otherwise defined herein shall have the
meanings set forth in the Purchase Agreement

      2. PLEDGE AND GRANT OF SECURITY INTEREST

      As security for the prompt and unconditional payment and performance when
due of Levy's Obligations under the Note, Pledgor hereby pledges, hypothecates,
assigns, transfers and sets over to Pledgee, the Pledged Property, and grants to
Pledgee a continuing security interest in the Pledged Property and the proceeds
thereof.

      3. REPRESENTATIONS, COVENANTS AND WARRANTS

      Pledgor hereby covenants, represents and warrants, that:

            (a) The Pledged Securities are authorized, validly issued, fully
paid and non-assessable capital stock of the Issuer;

            (b) The Pledged Property is directly, legally and beneficially owned
by Pledgor free and clear of all claims, liens, pledges and encumbrances or any
kind, nature or description, except in favor of Pledgee;

            (c) Other than under applicable securities laws and subject to
Section 5(c) hereof, the Pledged Property is not subject to any restrictions
relative to the transfer and Pledgor has the might to transfer and hypothecate
the Pledged Property free and clear of any liens, encumbrances or restrictions,
except as otherwise provided herein;

            (d) The Pledged Property is duly and validly pledged to Pledgee and
no consent or approval of any governmental or regulatory authority or of any
securities exchange or the like, nor any consent or approval of any other third
parry is necessary to the validity of this Pledge Agreement which has not been
obtained and a copy of which has not been furnished to Pledgee;

            (e) During the term of this Pledge Agreement, if Pledgor shall
receive, have registered in its name or become entitled to receive or acquire,
or have registered in its name any stock certificate, option, or right with
respect to the Pledged Property (including without limitation, any certificate
representing a dividend or a distribution or exchange of or in connection with
any reclassification of the Pledged Securities) whether as an addition to, in
substitution of, or in exchange for any of the Pledged Property or otherwise,
Pledgor agrees to accept same as Pledgee's agent, to hold same in trust for
Pledgee and to deliver same forthwith to Pledgee or Pledgee's agent or bailee in
the form received, with the endorsement(s) of Pledgor where necessary and/or
appropriate powers and/or assignments duly executed to be held by Pledgee or
Pledgee's agent or bailee subject to the terms hereof or if any of the foregoing
is uncertificated, register same with the Pledgee's security interest; noted
therein as further security for the Obligations to Pledgee;

            (f) Except as provided in Paragraph 3(g), during the term of this
Pledge Agreement, Pledgor shall not directly or indirectly sell, assign,
transfer, or otherwise dispose of, or grant any option with respect to the
Pledged Property, nor shall Pledgor create, incur or permit any further pledge,
hypothecation, encumbrance, lien, mortgage or security interest with respect to
thc Pledged Property ("Transfer"); and

<PAGE>

            (g) Notwithstanding, the provisions of 3(f) above, the Pledgor shall
have the right to Transfer up to 10% of the Pledged Property to an employee or
employees of the Company after written notice to the Pledgee; and

            (h) So long as no default hereunder has occurred and is continuing,
Pledgor shall have the right to vote and exercise all corporate rights and to
receive cash dividends or real or personal property distributed by Issuer with
respect to the Pledged Securities, provided that any stock of the Issuer, or any
options with respect to stock of the Issuer, so distributed shall be subject to
the security interest therein of Pledgee, as provided in subparagraph (e) above.

      4. EVENTS OF DEFAULT

      An Event of Default under the Note shall constitute a default under this
Pledge Agreement and under the Purchase Agreement.

      5. REMEDIES AFTER DEFAULT

      Immediately upon the occurrence of a default hereunder, and during the
continuance thereof, in addition to all other rights and remedies of Pledgee,
whether provided under law, the Note, the Purchase Agreement or otherwise,
Pledgee shall have the following rights amid remedies which may be exercised
without notice to, or consent by, the Pledgor, except as such notice or consent
is expressly provided for hereunder:

            (a) Pledgee, at its option, shall be empowered to exercise its
continuing right to instruct appropriate transfer agent of the Pledged
Securities to register any or all of the Pledged Property in the name of Pledgee
or in the name of Pledgee's nominee and Pledgee may complete, in any manner
Pledgee may deem expedient, any and all stock powers, assignments or other
documents heretofore or hereafter executed in blank by Pledgor and delivered to
Pledgee and, in furtherance of the foregoing, Pledgor shall execute and deliver
to Pledgee together herewith a Special Power of Attorney in the form of EXHIBIT
1 hereto. After said instruction and without further notice, Pledgee may
exercise all voting and corporate rights with respect to the Pledged Securities
and may exercise any and all rights of conversion, redemption, exchange,
subscription or any other rights, privileges, or options pertaining to any
shares of the Pledged Securities as if Pledgee were the absolute owner thereof
including without limitation, the right to exchange, at its discretion, any and
all of the Pledged Securities upon any merger, consolidation, reorganization,
recapitalization or other readjustment with respect thereto. Upon the exercise
of any such rights, privileges or options by Pledgee. Pledgee shall have the
right to deposit and deliver any amid all of the Pledged Securities to any
committee, depository, transfer agent, registrar or other designated agency upon
such terms amid conditions as Pledgee may determine, all without liability,
except (i) for the gross negligence or willful misconduct of Pledgee, and (ii)
to account for property actually received by Pledgee. However, Pledgee shall
have no duty to exercise any of the aforesaid rights, privileges or options and
shall not be responsible for any failure to do so or delay in doing so.

<PAGE>

            (b) Subject to Paragraph (c) below, in addition, to all of the
rights and remedies of a secured party under the Uniform Commercial Code or
other applicable law, after the occurrence of a default hereunder and during its
continuation, Pledgee shall have the right, at any time and without demand of
performance or other demand, advertisement or notice of any kind (except the
notice specified below of time and place of public or private sale) to or upon
Pledgor, or any other Person (all and each of which demands, advertisements
and/or notices are hereby expressly waived to the extent permitted by law), to
proceed forthwith to collect, redeem, receive, appropriate, sell, or otherwise
dispose of and deliver the Pledged Property or any part thereof in one or more
lots at public or private sale or sales at any exchange, brokers board or at any
of Pledgee's offices or elsewhere at such prices and on such terms as Pledgee
may deem best. The foregoing disposition(s) may be for cash or on credit or for
future delivery, without assumption of any credit risk by Pledgee, with Pledgee
having the right to purchase all or any part of said Pledged Property so sold at
any such sale or sales, public or private, free of any right or equity of
redemption in Pledgor, which right or equity is hereby expressly waived or
released by Pledger. The proceeds of any such collection, redemption, recovery,
receipt, appropriation, realization or sale, after deducting all costs and
expenses of every kind incurred relative thereto or incidental to the care,
safekeeping or otherwise of any and all Pledged Property or in any way relating
to the rights of Pledgee hereunder (including, without limitation, appraisal,
accountants, and attorneys' fees and legal expenses whether or not due) shall be
applied to the Obligations in such order and manner as determined by Pledgee in
its sole discretion. Pledgor agrees that five (5) days prior notice by Pledgee,
sent by certified mail, postage prepaid, designating the date after which a
private sale may take place or a public auction may be held, is reasonable
notification of such matters.

            (c) Pledgor recognizes that Pledgee may be unable to effect a public
sale of all or part of the Pledged Property by reason of certain prohibitions
contained in the Securities Act of 1933, as amended, as now or hereafter in
effect or in applicable Blue Sky or other state securities law, as now or
hereafter in effect, but may be compelled to resort to one or more private sales
to a restricted group of purchasers who will be obliged to agree, among other
things, to acquire such Pledged Property for their own account (or investment
and nor with a view to the distribution or resale thereof. If at the time of any
sale of the Pledged Property or any part thereof the same shall not be
effectively registered (if required) under the Securities Act of 1933 (or other
applicable state securities law), as then in effect, Pledgee in its sole and
absolute discretion is authorized to sell the Pledged Property, or such part
thereof by private sale in such manner and under such circumstances as Pledgee
or its counsel may deem necessary or advisable in order that such sale may
legally be effected without registration. Pledgor acknowledges and agrees that
private sales so made may be at prices and other terms less favorable to the
seller than if the Pledged Property were sold at public sale, and that Pledgee
has no obligation to delay the sale of any Pledged Property for the period of
time necessary to permit the Issuer of the Pledged Property, even if such Issuer
would agree, to register the Pledged Property for public sale under such
applicable securities laws. Pledgor acknowledges and agrees that any private
sales made under the foregoing circumstances shall be deemed to have been in a
commercially reasonable manner.

<PAGE>

            (d) All of the Pledgee's rights and remedies, including but not
limited to the foregoing amid those otherwise arising under this Pledge
Agreement, the Note, the Purchase Agreement, the instruments and securities
comprising the Pledged Property, applicable law or otherwise, shall be
cumulative and not exclusive and shall be enforceable alternatively,
successively or concurrently as Pledgee may deem expedient. No failure or delay
on the part of Pledgee in exercising any of its options, powers or rights or
partial or single exercise thereof, shall constitute a waiver of such option,
power or right.

      6. FURTHER ASSURANCES

      Pledgor agrees that at any time, and from time to time, upon the request
of Pledgee, Pledgor will execute and deliver such further documents, including
but not limited to stock powers, or other appropriate instruments of transfer in
form reasonably satisfactory to counsel for Pledgee, and will take or cause to
be taken such further acts as Pledged may reasonably request in order to effect
the purposes of this Pledge Agreement and perfect or continue the perfection of
the security interest in the Pledged Property granted to Pledgee hereunder, in
conformity with applicable law.

      7. MISCELLANEOUS

            (a) Beyond the exercise of reasonable care to assure the safe
custody of the Pledged Property while held by Pledgee hereunder, Pledgee or
Pledgee's agent or bailee shall have no duty or liability to protect or preserve
any rights pertaining thereto and shall be relieved of all responsibility for
the Pledged Property upon surrendering it to Pledgor.

            (b) Upon payment in full of all principal and interest due under the
Note this Agreement shall terminate and Pledgee shall execute and deliver all
instruments as may be necessary or proper to return or release its security
interest in the Pledged Property.

            (c) No course of dealing between Pledgor and Pledgee, nor any
failure or delay by Pledgee to exercise any right, power or privilege under this
Pledge Agreement, the Note, the Purchase Agreement or under any of the other
documents or agreements between Pledgor and Pledged, shall operate as a waiver
hereof or thereof; nor shall any single or partial exercise of any right, power
or privilege hereunder or thereunder preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. No waiver of any
provision of this Pledge Agreement shall be effective unless the same shall be
in writing and signed by Pledgee, and then such waiver shall be effective only
in the specific instance and for the purpose for which given.

            (d) This Pledge Agreement may not be changed, modified or amended,
in whole or in part, except by a writing signed by Pledgor and Pledgee.

            (e) The provisions of this Pledge Agreement are severable, and if
any clause or provision hereof shall be held invalid or unenforceable in whole
or in part in any jurisdiction, then such invalidity or unenforceability shall
attach only to such clause or provision in any such jurisdiction or part thereof
and shall not in any manner affect such clause or provision in any other
jurisdiction or any other clause or provision in this Pledge Agreement in any
jurisdiction.

<PAGE>

            (f) THE PARTIES HERETO WAIVE TRIAL BY JURY IN ANY ACTION OR
PROCEEDINIG OF ANY KIND OR NATURE IN ANY COURT WHETHER ARISING OUT OF, UNDER OR
ANY REASON OF THIS PLEDGE AGREEMENT OR THE PLEDGED PROPERTY.

            (g) This Pledge Agreement shall inure to the benefit of Pledgor and
Pledgee and their respective successors, assigns, executors, administrators and
personal representatives, and shall be binding upon Pledgor and its successors,
assigns, executors, administrators and personal representatives until all of
Levy's obligations under the Note to Pledgee have been indefeasibly paid in
full.

      8. GOVERNING LAW

      This Pledge Agreement and the obligations of the parties hereunder shall
be governed by, and construed and interpreted in accordance with, the internal
laws of thc State of New York, without regard to the conflicts of law principles
of said State.

      9. JURISDICTION

      Pledgor hereby expressly submits and irrevocably consents in advance to
the exclusive jurisdiction of the Supreme Court of the State of New York for the
County of Kings and of the United States District Court of the Southern District
of New York to hear and determine any claims or disputes pertaining directly or
indirectly to this Pledge Agreement or to any matter arising therefrom in any
such action or proceeding and Pledgor waives any objection based on forum non
conveniens and any objection to venue in connection therewith. In any such
litigation, Pledgor waives personal service of the summons and complaint, or
other process or notice of motion or other application or papers issued herein,
and agrees that service of such summons and complaint, or other process or
papers shall be made inside or outside the State of New York by registered or
certified mail, return receipt requested, addressed to Pledgor at its address
set forth above, together with simultaneous delivery of a copy thereof to
Pledgor's counsel, or in such other manner as may be permissible under the rules
of said Courts.

      10. ESCROW PROVISIONS

The Escrow Agent shall hold the Pledged Securities in escrow until all of Levy's
obligations under the Note to Pledgee have been indefeasibly paid in full. At
such time, the Escrow Agent shall deliver the Pledged Securities to the Pledgor.
Either party may make a written demand to the Escrow Agent for delivery of the
Pledged Securities at any time stating the reasons why such delivery should be
made. The Escrow Agent shall give written notice to the other party of such
demand. If the Escrow Agent does not receive a written objection from the other
party to the proposed delivery within 14 business days after giving of such
notice, the Escrow Agent is hereby authorized to make such delivery. If the
Escrow Agent does receive such written objection within such 14-day period, or
if for any other reason the Escrow Agent in good faith shall elect not to make
such delivery, the Escrow Agent shall continue to hold the Pledged Securities
until otherwise directed by written instructions from the parties to this
Agreement or a final judgment of a court. However, the Escrow Agent shall have
the right at any time to deposit the Pledged Securities with the Clerk of the
Supreme Court of Kings County of which the Escrow Agent shall give written

<PAGE>

notice of such deposit to Pledgor and Pledgee. Upon such deposit, Escrow Agent
shall be relieved and discharged of all further obligations and responsibilities
hereunder.

      (b)   The parties acknowledge that the Escrow Agent is acting solely as a
            stakeholder at their request and for their convenience, that the
            Escrow Agent shall not be deemed to be the agent of either of the
            parties, and that the Escrow Agent shall not be liable to either of
            the parties for any act or omission on its part unless taken or
            suffered in bad faith, in willful disregard of this Agreement or
            involving gross negligence. The parties shall jointly and severally
            indemnify and hold the Escrow Agent harmless from and against all
            costs, claims and expenses, including reasonable attorneys' fees,
            incurred in connection with the performance of the Escrow Agent's
            duties hereunder, except with respect to actions or omissions taken
            or suffered by the Escrow Agent in bad faith, in willful disregard
            of this Agreement or involving gross negligence on the part of the
            Escrow Agent. The Escrow Agent has acknowledged agreement to these
            provisions by signing in the place indicated on the signature page
            of this Agreement.

<PAGE>

      IN WITNESS WHEREOF, the undersigned has caused these presents to be duly
executed and delivered on the day and year first above written.

                                                PLEDGOR:

                                                --------------------------------
                                                DANIEL R. LEVY, individually

                                                --------------------------------
                                                JOSEPTH H. CLINARD, individually

                                                PLEDGEE:

                                                GILMAN + CIOCIA, INC.

                                                By:
                                                    ----------------------------
                                                    MICHAEL P. RYAN, President

                                                ESCROW AGENT:

                                                --------------------------------
                                                    STUART STEINBERG, ESQ.

<PAGE>

                                   SCHEDULE A

                               PLEDGED SECURITIES

<TABLE>
<CAPTION>
                                                                                        Certificate        Number
Holder               Issuer                                       Class of Stock        Number Stock       of Shares
------               ------                                       --------------        ------------       ---------
<S>                  <C>                                             <C>                    <C>               <C>
Daniel R. Levy       North Ridge Securities Corp.                    Common

Daniel R. Levy       North Shore Capital Management Corp.            Common

Joseph H. Clinard    North Ridge Securities Corp.                    Common

Joseph H. Clinard    North Shore Capital Management Corp.            Common
</TABLE>

<PAGE>

                                    EXHIBIT 1
                            SPECIAL POWER OF ATTORNEY

STATE OF NEW YORK               )
                                ) ss.:
COUNTY OF SUFFOLK               )

      KNOW ALL MEN BY THESE PRESENTS, that DANIEL R. LEVY and JOSEPH H. CLINARD
(hereinafter collectively the "Pledgor"), hereby appoint and constitute GILMAN +
CIOCIA, INC., (hereinafter "Pledgee") and each officer thereof, its true and
lawful attorney, with full power of substitution and with full power and
authority to perform the following acts on behalf of Pledgor at any time after
the occurrence and during the continuance or a default under the Pledge
Agreement (as hereinafter defined):

      1. Execution and delivery of any and all agreements, documents,
instruments of assignment, or other papers which Pledgee in its reasonable
discretion, deems necessary or advisable for the purpose of assigning, selling,
or otherwise disposing of all of the right, title, and interest of Pledgor in
and to the Pledged Securities, as deemed in the Pledge Agreement, together with
all cash dividends, stock dividends, redemptions, securities or substitutions,
exchanges or other distributions now or hereafter pledged, assigned or otherwise
transferred to Pledged by Pledgor in, respect of the Pledged Securities and all
registrations, recordings, reissues, extensions, and renewals thereof, or for
the purpose of recording, registering and filing of, or accomplishing any other
formality with respect to the foregoing.

      2. Execution and delivery of any and all documents, statements,
certificates or other papers which Pledgee in its sole discretion, deems
necessary or advisable to further the purposes described in paragraph 1 hereof.

      3. Capitalized terms used herein and not otherwise defined herein shall
have the meanings ascribed thereto or referenced in the Pledge Agreement.

      This Power of Attorney, being a power coupled with an interest, is made
pursuant to a Stock Pledge and Security Agreement between Pledgor and Pledgee
dated of even date herewith (the "Pledge Agreement") and may not be revoked
until the termination of the Pledge Agreement.

Dated as of January 29, 2004.

                                                PLEDGOR:

                                                --------------------------------
                                                DANIEL R. LEVY

                                                --------------------------------
                                                JOSEPH H. CLINARD

<PAGE>

State of New York               )
                                ) SS:
County of Suffolk               )

On the 29th day of January, 2004 before me personally appeared Daniel R. Levy
and Joseph H. Clinard personally known to me or proved to me on the basis of
satisfactory evidence to be the individuals whose names are subscribed to the
within instrument and acknowledged to me that they executed the same in the
capacity as individuals and that by their signatures on the instrument they
executed the instruments.

-------------------------------
Notary Public

<PAGE>

                                 SCHEDULE 5.9(a)

                     PENDING ACTIONS, SUITS AND ARBITRATIONS

Description

Anne Chulli vs. Jeffrey Lewis and North Ridge Securities Corp.

NASD Arbitration Pending in the Dispute Resolution Provision seeking $15,000
damages plus $30,000 in punitive damages.

                                 SCHEDULE 5.9(b)

                                  NASD NOTICES

Description

Anne Chulli vs. Jeffrey Lewis and North Ridge Securities Corp.

NASD Arbitration Pending in the Dispute Resolution Division seeking $15,000
damages plus $30,000 in punitive damages.

                                  SCHEDULE 5.12

               EMPLOYEE AND REGISTERED REPRESENTATIVE TERMINATIONS

Name of Employee or Registered Representative

Debra Serating (employee)

Michael Murray, Jim Tinnelly, James Watson, Seymour Williams, Debra Serating,
Michael Gorman, Michael Kelly, Eric Lerner, Basil Kohilakis, Steven Russo
(died), Paul Fogarty, Michael Guttman, Andre McDonnaugh (Registered
Representatives).

<PAGE>

                                  SCHEDULE 5.15

                                    CONTRACTS

Contract Description

Office lease extension agreement between North Shore
and 1895 Walt Whitman Associates, LLC

Copier lease with Delange Financial

Postage machine lease with Pitney Bowes

E&O insurance premium financing with AFCO

Jaguar automobile leases for Levy and Clinard

North Ridge contract with Statement One for computer services

Insurance contracts including casualty, general liability, E&O and NASD surety
bond

Cablevision Lightpath contract for phone service and T-1 internet connection

Oral rental agreements with JJ Burns and Associates and PFF for office space

Utility contracts with AT&T wireless, Verizon and LILCO

Amex credit cardRESEARCH COLLABORATION LICENSE AGREEMENT

BY AND BETWEEN

EMISPHERE TECHNOLOGIES, INC.

AND

NOVARTIS PHARMA AG

This Research Collaboration License Agreement (the “Agreement”), dated and effective as of September __, 2004 (the “Effective Date”) is between Emisphere Technologies, Inc., a Delaware corporation with offices at 765 Old Saw Mill River Road, Tarrytown, New York 10591, USA (“Emisphere”), and Novartis Pharma AG, a company registered in Switzerland with offices at Lichtstrasse 35, CH 4056 Basel, Switzerland (“Novartis”) and Novartis and Emisphere shall each be a “Party” and together the “Parties”.

WHEREAS, Emisphere is engaged in the research and development of proprietary synthetic chemical compounds that enable the delivery of therapeutic macromolecules and other compounds that are not currently deliverable by oral means; and

WHEREAS, Novartis produces, or is engaged in research to produce, therapeutic macromolecules and other compounds some of which are not currently deliverable by oral means; and

WHEREAS, Emisphere and Novartis desire to collaborate in research regarding the applicability and development of the Emisphere Technology (as defined below) to a Novartis development project, and to provide for certain rights and obligations of Emisphere and Novartis in the event that such research produces a commercially viable product; and

WHEREAS, Emisphere desires to grant certain license rights to Novartis to develop and commercialize Novartis’ products using the Emisphere Technology.

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

ARTICLE 1 DEFINED TERMS

1.1          “Acceptance” shall mean the receipt by the relevant Regulatory Authority of an appropriate application seeking a Regulatory Approval from any Regulatory Authority. 

1.2          “Accounting Standards” with respect to Emisphere shall mean that Emisphere shall maintain records and books of accounts in accordance with United States Generally Accepted Accounting Principles (“US GAAP”) and with respect to Novartis, shall mean that Novartis shall maintain records and books of accounts in accordance with International Financial Reporting Standards (“IFRS”).

1.3          “Affiliate” shall mean, with respect to any Person, any other Person which directly or indirectly controls, is controlled by or is under common control with such Person.  A Person shall be deemed to control another Person if such Person possesses the power to direct or cause the direction of the management, business and policies of such Person, whether through the ownership of fifty percent (50%) or more of the voting securities of such Person, voting capacity at management meetings, by contract or otherwise. 

2.

1.4          “Alliance Manager” shall have the meaning set forth in Article 3.4(a). 

1.5          “Approval” shall mean any approval (including Price Approvals), registration, license or authorization from any Governmental Authority required for the manufacture, Development, Commercialization, distribution, sale, storage or transport of the Product in any country of the Territory, and shall include, without limitation, an approval, registration, license or authorization granted in connection with any Approval Application.

1.6          “Approval Application” shall mean the submission to the relevant Governmental Authority of an appropriate application seeking any approval (including Price Approval), registration, license or authorization from any Governmental Authority required for the manufacture, Development, Commercialization, distribution, sale, storage or transport of the Product in any country of the Territory, and shall include, without limitation, a marketing authorization application, supplementary application or variation thereof, NDA, or any equivalent applications in any country of the Territory.

1.7          “Back-up Carrier” has the meaning provided in Article 3.1.

1.8          “Business Day” shall mean a day which is not a Saturday, Sunday or public holiday in Basel, Switzerland or New York.

1.9          “Carrier” means any synthetic chemical compound that allows a drug molecule to be transported within the body ***

1.10        “Carrier Improvement” shall mean *** 

1.11        “Clinical Trials” shall mean those clinical trials carried out by the Parties in support of the application for Regulatory Approval.

1.12        “Commercial Carrier” has the meaning provided in Article 3.5.

1.13        “Commercialize” or “Commercialization” shall mean activities conducted by a Party either by itself or through a Third Party and directed to marketing, promoting, distributing, importing, exporting, offering for sale and selling a Product, which may include pre-launch market preparation, sampling and conducting Phase IIIB clinical trials or Phase IV clinical trials, whether undertaken by a Party alone or with a partner or a sub-licensee.  When used as a verb, “Commercialize” means to engage in Commercialization.

3.

1.14        “Commercially Reasonable Efforts” shall mean the efforts and resources customarily used in the pharmaceutical industry for a compound which is of similar market potential and at a similar stage in its product life.

1.15        “Compound” shall mean synthetic, natural or recombinant human growth hormone ***

1.16        “Confidential Information” shall have the meaning set out in Article 13.1(a). 

1.17        “Control” in the context of intellectual property, shall mean possession of the ability to grant the license or other access provided for herein without violating the terms of any agreement or other arrangement with a Third Party. 

1.18        “Develop” shall mean to engage in research or development activities (including, without limitation, clinical trials) for the Product or to have any of those activities performed, and “Development” shall have a corresponding meaning. 

1.19        “Development Budget” shall  mean the budget(s) included in the Development Plan drafted by Novartis for the Development of the Back-up Carrier and approved by the Steering Committee, excluding any and all expenses incurred by either Party during the Programme.

1.20        “Development Commencement Fee” shall have the meaning set out in Article 4.1.

1.21        “Development Costs” shall mean the direct and indirect costs actually incurred by Emisphere or its Affiliates after payment of the Development Commencement Fee by Novartis and in accordance with the applicable approved Development Plan and Development Budget, with respect to the Back-up Carrier and including:

	
  
***
  
	
  
 
  
	
  
in each case   incurred by either Party in accordance with the Development Plan or otherwise   approved by the Steering Committee and supported by invoices and actual   payments or other appropriate documentation.
  

4.

1.22        “Development Plan” shall mean after payment of the Development Commencement Fee, each development plan including the related Development Budget developed by ***

1.23        “Effective Date” shall mean the earliest date on which this Agreement has been executed by both Parties.

1.24        “EMEA” shall mean the European Agency for the Evaluation of Medicines or any successor agency thereto. 

1.25        “Emisphere Change of Control” shall mean any of the following events:  (i) the acquisition by a Third Party (other than a Third Party controlling Emisphere as of the Effective Date) of more than fifty percent (50%) of the shares of Emisphere’s capital stock the holders of which have general voting power under ordinary circumstances to elect at least a majority of Emisphere’s board of directors (the “Voting Stock”), but excluding any such acquisition that is a bona fide equity financing of Emisphere with arm’s-length financial investors where such an investor is not within the top 20 globally ranked pharmaceutical companies (as ranked by annual sales); (ii) the approval by Emisphere’s stockholders of a merger, share exchange, reorganization, consolidation or similar transaction of Emisphere (a “Transaction”), other than a
Transaction which would result in the Voting Stock of Emisphere outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than fifty percent (50%) of the Voting Stock of Emisphere or such surviving entity immediately after such Transaction; or (iii) approval by Emisphere’s stockholders of a complete liquidation of Emisphere or a sale or disposition of all or substantially all of the assets of Emisphere.  

1.26        “Emisphere Know-How” shall mean***

1.27        “Emisphere Patents” shall mean, to the extent Controlled by Emisphere as of the Effective Date or during the term of this Agreement, all Patent Rights that claim the manufacture, use, Development, sale, offer for sale or import of Product, including, without limitation, Inventions owned solely by Emisphere or jointly by Emisphere and a Third Party. 

1.28        “Emisphere Process” has the meaning provided in the definition of Emisphere Know-How. 

1.29        “Emisphere Technology” shall mean the Emisphere Patents and Emisphere Know-How.

5.

1.30        “EU” shall mean the then current member states of the European Union. 

1.31        “FDA” shall mean the United States Food and Drug Administration and any successor agency thereto. 

1.32        “Field” shall mean *** 

1.33        “Final Approval” shall mean, (i) in relation to the United States, receipt by Novartis of the official approval letter from the FDA approving the marketing and sale of the Product in the United States under an NDA or supplemental NDA, as applicable, or (ii) in relation to the EU, receipt by Novartis of the EMEA’s or relevant national regulatory authority’s written decision granting marketing authorization for the Product in one or more countries in the EU, or (iii) in relation to any other countries in the Territory, receipt of an equivalent approval to distribute, market and sell the Product in such country(ies) by Novartis. 

1.34        “Formulation” shall mean ***

1.35        “FTE” shall mean a full-time equivalent scientific person year directly related to the Programme.

1.36        “FTE Rate” shall mean ***

1.37        “Fully Burdened Manufacturing Costs” shall mean the total of Material Costs and Processing Costs.

1.38        “Good Clinical Practices” or “GCP” shall mean the then current Good Clinical Practices as such term is defined from time to time by the FDA or other relevant Governmental Authority having jurisdiction over the development, manufacture or sale of the Product in the Territory pursuant to its regulations, guidelines or otherwise. 

1.39        “Good Laboratory Practices” or “GLP” shall mean the then current Good Laboratory Practices as such term is defined from time to time by the FDA or other relevant Governmental Authority having jurisdiction over the development, manufacture or sale of the Product in the Territory pursuant to its regulations, guidelines or otherwise.

1.40        “Good Manufacturing Practices” or “GMP” shall mean the then current Good Manufacturing Practices as such term is defined from time to time by the FDA or other relevant Governmental Authority having jurisdiction over the development, manufacture or sale of the Product in the Territory pursuant to its regulations, guidelines or otherwise. 

6.

1.41        “Governmental Authority” shall mean any court, agency, authority, department, regulatory body or other instrumentality of any government or country or of any national, federal, state, provincial, regional, county, city or other political subdivision of any such government or any supranational organization of which any such country is a member.

1.42        ***.

1.43        “Independent Research” means: (a) research by employees or licensees of Novartis who have had no access to Emisphere Know-How; and/or (b) research by employees or licensees of Novartis based on information corresponding to Emisphere Know-How, but only to the extent Novartis can demonstrate that such Emisphere Know-How: (i) is now, or hereafter becomes, through no act or failure to act on the part of Novartis, generally known or available to the public; (ii) is known by Novartis at the time of receiving such information from Emisphere, as evidenced by its records; or (iii) is hereafter furnished to Novartis, as a matter of right and without restriction on disclosure, by a Third Party who is under no obligation of non disclosure to Emisphere.  

1.44        “Interest Rate” shall mean *** 

1.45        “Invention” shall mean any invention, whether or not patentable, or other Know-How, conceived in the course and as part of the Programme or Development, together with all Patent Rights and other intellectual property rights therein. 

1.46        “Joint Patent Rights” shall mean all patents and patent applications which, for the purposes of this Agreement, shall include without limitation, continuations, divisionals, continuations-in-part, re-examinations, reissues, substitutions, confirmations, re-registrations, re-validations, patents of addition, patent term extensions, supplementary protection certificates, and the like, which are licensed jointly to, or owned jointly by, Novartis or its Affiliates and Emisphere or its Affiliates on the Effective Date or during the Term and that contain at least one claim that encompasses a Formulation or any Product Improvement. 

1.47        “Know-How” shall mean *** 

1.48        “Launch” shall mean, with respect to any country in the Territory, the first date of commercial sale of a Product to unaffiliated Third Parties in such country.

1.49        “Laws” shall mean all laws, statutes, rules, regulations, orders, judgments, injunctions and/or ordinances of any Governmental Authority in the Territory.

7.

1.50        “Lead Carrier” has the meaning provided in Article 3.1.

1.51        “License” has the meaning provided in Article 2.1.

1.52        “Litigation Expenses” shall mean those expenses incurred by Novartis in prosecuting its rights under this Agreement in the event of the application of applicable bankruptcy Laws due to Emisphere’s bankruptcy.

1.53        “Loss” or “Losses” shall mean all losses, obligations, liabilities, penalties and damages (including but not limited to compensatory damages), settlements, costs and expenses, including, without limitation, reasonable attorneys’ fees, of whatever kind or nature, in each case incurred by a Novartis Indemnitee or Emisphere Indemnitee, as the case may be, and paid to a Third Party, before and without giving effect to any insurance proceeds.

1.54        “Major Market Country” shall mean ***  

1.55        “Material Costs” shall mean those costs of raw materials and intermediates needed for the manufacturing process of the Commercial Carrier and costs of packaging material for these raw materials and intermediates.

1.56        “NDA” shall mean a new drug application and all amendments and supplements thereto filed with the EMEA, the FDA or an equivalent Governmental Authority, requiring such filing, and including all documents, data and other information concerning a pharmaceutical product which are necessary for the gaining of Approval seeking permission to market and sell the applicable Product in a country.

1.57        “Net Sales” with respect to any Product shall mean the gross amount invoiced by or on behalf of Novartis and any Novartis Affiliate, licensee or sublicensee for that Product sold to Third Parties other than licensees or sublicensees in bona fide, arms-length transactions, less the following deductions, determined in accordance with Novartis’ standard accounting methods as generally and consistently applied by Novartis, to the extent included in the gross invoiced sales price of any Product or otherwise directly paid or incurred by Novartis, its Affiliates or Distributors with respect to the sale of such Product:

***  

1.58        “Novartis Know-How” shall mean, ***

1.59        “Novartis Patents” shall mean, to the extent Controlled by Novartis as of the Effective Date or during the term of this Agreement, any and all Patent Rights that claim the manufacture, use, sale, offer for sale or import of the Compound or the Product, including, without limitation, Inventions owned solely by Novartis and Product Improvements of Novartis and shall include, without limitation, *** 

8.

1.60        “Out-of-Pocket Costs” shall mean in accordance with the Accounting Standards, with respect to any Party or any of its Affiliates, recognized costs and expenses paid or accrued as owing by such Party or any such Affiliate to Third Parties, other than Affiliates, or employees and related to the conduct of the Development Plan or the grant of the License pursuant to article 2.1(a) and for the avoidance of doubt, not including ***

1.61        “Patent Rights” shall mean (a) United States patents and patents of other countries, including, without limitation, re-examinations, reissues, renewals, extensions, term restorations, confirmations, registrations, re-validations, patents of addition, supplementary protection certificates and the like, and (b) pending applications for United States and patents of other countries, including, without limitation, provisional applications, continuations, continuations-in-part, divisional and substitute applications, including, without limitation, inventors’ certificates.

1.62        “Person” shall mean any individual, partnership, joint venture, limited liability company, corporation, firm, trust, association, unincorporated organization, governmental authority or agency, or any other entity not specifically listed herein. 

1.63        “Phase II” means any study conducted in any country to determine, among other things, dose response, duration of effect, preliminary efficacy and safety of a Product in a target patient population.

1.64        “Phase III” means any study conducted in any country to confirm, with statistical significance, the efficacy and safety of a Product in a large, targeted population, performed to obtain Regulatory Approval of such Product.

1.65        “Price Approval” shall mean, in countries in the Territory where Governmental Authorities may approve or determine pricing or pricing reimbursement for pharmaceutical products, such approval or determination. 

1.66        “Processing Costs” shall mean ***

1.67        “Product” shall mean a pharmaceutical product, for oral administration only ***, containing Compound as the sole pharmaceutical active in combination with the Commercial Carrier, ***  

9.

1.68        “Product Improvement” shall mean any enhancement to the Compound in combination with the Commercial Carrier, *** 

1.69        “Product-Specific Emisphere Patent” means an Emisphere Patent that claims the composition of matter of, or a method of use or method of manufacture of, a Programme Carrier or Emisphere’s Carrier technology generally.  For purposes of clarification, the Product-Specific Emisphere Patents shall exclude any Emisphere Patent that claims the composition of matter of, or a method of use or method of manufacture of, any Carrier other than a Programme Carrier or which does not claim any aspect of Emisphere’s Carrier technology generally.

1.70        “Product Trademark” shall mean such trademark(s) as may be approved by the Steering Committee for use in connection with the distribution, marketing, promotion and sale of the Product in the Territory and/or accompanying logos, trade dress and/or indicia of origin. 

1.71        “Programme” has the meaning provided in Article 3.1. 

1.72        “Programme Carriers” has the meaning provided in Article 3.1.

1.73        “Programme Fee” shall have the meaning provided in Article 2.2.

1.74        “Regulatory Approval” in the United States shall mean Final Approval of a new drug application pursuant to United States code as published at 21 CFR ss.  314, permitting marketing of the applicable Product in interstate commerce in the United States, in the European Union shall mean Final Approval of the marketing authorization application pursuant to Council Directive 75/319/EEC, as amended, or Council Regulation 2309/93/EEC or such approval as granted by a relevant national Regulatory Authority, as amended, or with respect to any other country not included in the foregoing, all authorizations by the appropriate Governmental Authority necessary for the commercial sale of a Product in that country including, without limitation and where applicable, approval of labeling, price, reimbursement and manufacturing.

1.75        “Regulatory Authority” shall mean the FDA, EMEA or any other counterpart or additional governmental or regulatory agencies responsible for applicable Regulatory Approvals. 

1.76        “Regulatory Status Update” shall mean Novartis’ updates of the regulatory status of the Product in the countries of the Territory.

1.77        “Steering Committee” has the meaning provided in Article 3.4(a).

10.

1.78        “Territory” shall mean ***

1.79        “Third Party” shall mean any Person other than Novartis or Emisphere or any Affiliate of either Party.

ARTICLE 2 LICENSE GRANT

2.1          The Grant.  As of the Effective Date   Emisphere hereby grants to Novartis the exclusive worldwide license with the ability to sublicense without Emisphere’s prior consent, under the Emisphere Technology and Emisphere’s interest in any Inventions owned jointly by the Parties and Joint Patent Rights, to Develop or have Developed, Commercialize, have Commercialized, make, have made, use, or have used Products (the “License”).   

(a)                    Emisphere shall execute all documents and give all declarations regarding the License granted hereunder and reasonably co-operate with Novartis, at the cost of Novartis with respect to Emisphere’s documented Out-Of-Pocket Costs  to the extent that such documents, declarations and/or co-operation are required for the recording or registration of the License granted hereunder at the various government offices, including but not limited to, relevant regulatory agencies and patent offices for the benefit of Novartis, its Affiliates, its marketing or co-marketing partner(s), or any of its sublicensee(s).

(b)                    Novartis may sublicense the License or any part of either of the foregoing in accordance with the terms and conditions of this Agreement, and provided, however, that the terms and conditions of any such sublicense agreement shall not be in conflict with the terms of this Agreement. Novartis shall use Commercially Reasonable Efforts to enforce the provisions of such sublicense agreement and shall remain responsible to Emisphere for the performance of the sublicensee’s obligations. Novartis shall cause each sublicensee to execute any and all additional documents to reflect the conditions set forth in this Agreement and Emisphere shall execute any and all additional documents reasonably requested by Novartis or a sublicensee to reflect the conditions set forth in this Agreement.

2.2          The Programme Fee.  In consideration of the grant of the Licence, Novartis shall pay Emisphere a non creditable  fee of *** by wire transfer within thirty (30) Business Days of the Effective Date upon receipt by Novartis of an invoice from Emisphere (the “Programme Fee”).  Emisphere shall issue to Novartis an invoice for such amount on the Effective Date. 

ARTICLE 3  RESEARCH PROGRAMME

3.1          Programme.  *** Novartis shall conduct Development on the Compound in combination with the Programme Carriers in the form of the Development programme described

11.

in Annex A hereto, which is an integral part of this Agreement, to research the use of the Emisphere Technology for the oral delivery of Compound (the “Programme”).  Emisphere will make fully available to Novartis all of the Emisphere Technology  consistent with this Agreement for use in connection with the Programme.  This shall include all information and Know-how with respect to one lead Carrier (the “Lead Carrier”) and one back-up Carrier (the “Back-Up Carrier”) that may be used to facilitate transport of the Compound through membranes (collectively, with the Commercial Carrier, the “Programme Carriers”).  The *** Carrier and *** Carrier as of the Effective Date are identified in Annex B hereto, and the Parties may amend Annex B by mutual written agreement from time to time  to substitute for the Lead Carrier or the Back-Up Carrier one or more different Carriers. 

At any time during the term of this Agreement, Novartis may, by written notice to Emisphere, designate the then-current Back-Up Carrier as the Lead Carrier (or Commercial Carrier), in which event the replaced Lead Carrier (or Commercial Carrier, as applicable) shall be deemed the Back-Up Carrier, ***  In the event of any conflict between the operative terms of this Agreement and Annex A, the operative terms of this Agreement shall prevail.

3.2          Responsibilities of the Parties during the Programme.  During the Programme, Emisphere and Novartis shall make Commercially Reasonable Efforts to conduct the Programme in accordance with Annex A hereto, and all such work of Emisphere under the Programme, if any, shall be carried out by Emisphere solely at Novartis’ invitation and direction.  Novartis shall reimburse Emisphere for the Out of Pocket Costs paid by Emisphere to Third Parties used in the Programme, the amount of which shall have been previously agreed to by Novartis prior to such Out of Pocket Costs being incurred by Emisphere (such approval not to be unreasonably withheld). 

3.3          Duration.  Novartis in its sole discretion shall determine prior to the first anniversary of the Effective Date whether the objectives of the Programme have been achieved.  

               (a)     In the event that in Novartis’ sole discretion, the objectives of the Programme have been achieved by ***, Novartis shall deliver to Emisphere written notice of Novartis’ intention to continue Development within thirty (30) Business days of *** (the “Continuation Letter”). 

               (b)     If in Novartis’ sole discretion, the objectives of the Programme have not been or will not be achieved before ***, then the Parties may, upon mutual written agreement, extend the duration of the Programme for such time and upon such other terms as may be mutually agreed by the Parties.  

                (c)     If
  Novartis has not delivered to Emisphere written notice of Novartis’ intention
  to continue Development within thirty (30) Business days of ***, and the Parties
  have not extended the Programme, then the Programme and this Agreement (including
  without limitation the License granted hereunder shall terminate.

12.

3.4          Management of Development Activities.  

(a)                    Within *** Days of the Effective Date, Novartis and Emisphere shall establish a steering committee (the “Steering Committee”) for the purpose of keeping each other informed of the progress of the Programme.  The Steering Committee shall ensure that the Programme proceeds in a timely, coordinated, and well-planned fashion.  It shall be made up of up to a maximum of six (6) members including one member from Novartis acting as chairman, with an equal number appointed by each of Novartis and Emisphere. Each Party shall appoint a central contact person (the “Alliance Manager”).  In the event of deadlock on a vote of the Steering Committee, the *** shall have the deciding vote; provided, however, that in no event shall Novartis have the right, without Emisphere’s prior written consent to
determine any such issue in a manner that would require Emisphere to incur expenses or assume obligations not contemplated by this Agreement.  Novartis shall be responsible for the drafting of a detailed work plan within *** Business Days from the execution of this Agreement to assure the timely completion of the Programme.  

(b)                    Every *** during the conduct of the Programme, the Steering Committee shall meet or conduct a telephone or video conference to review the results of the Programme and to modify the work plan as necessary.  The presence of at least two (2) Steering Committee members representing each Party shall constitute a quorum.  The Steering Committee shall cease to meet after cessation of the Programme. The Steering Committee shall keep minutes of its meetings, and the minutes shall be reviewed and approved by the chairman of the Steering Committee.  The minutes shall include, without limitation, a review of the status of the Programme, a summary of the results and the progress to date, the issues requiring resolution, and the agreed resolution of previously reported issues.  Novartis shall be solely responsible for the
administration, setting of the agenda and production of minutes for each meeting of the Steering Committee.  Emisphere shall have the right to comment on such minutes, and said comments shall be recorded with such minutes.  The Steering Committee shall be responsible only for the review of work carried out under the work plan. Novartis shall be solely responsible for the implementation of the Programe and the monitoring of the progress of the Programme. 

(c)                    Meetings of the Steering Committee will alternate between Emisphere’s designated facility and Novartis’ designated facility.  Each Party will bear all expenses associated with attendance of its own employees at face to face meetings held at the other Party’s designated facility where such face to face meetings are necessary. 

13.

(d)                    Alliance Management Representatives.  Each of Novartis and Emisphere shall appoint a senior representative having a general understanding of development, regulatory, and manufacturing issues to act as its Alliance Manager.  During the conduct of the Programme and Development by Novartis, each Alliance Manager shall be primarily responsible for facilitating the flow of information and otherwise promoting communications and collaboration within and among the Steering Committee, between the Parties and internally within the Parties.  

(e)                    The Alliance Managers shall be entitled to attend all meetings of the Steering Committee, but shall not be deemed, or have any rights or responsibilities of, a member of the Steering Committee, unless an Alliance Manager has been named by its company to the Steering Committee.  Subject to appropriate confidentiality undertakings where applicable, additional participants may be invited by any member of the Steering Committee to attend meetings where appropriate (e.g., representatives of regulatory affairs, intellectual property, technical development, technical operations or Third Party consultants).  Such additional participants shall not be deemed, or have any rights or responsibilities of, a member of the Steering Committee. In the event that such an additional participant is a Third Party engaged by either Novartis or
Emisphere, such Third Party may only attend after its execution of a confidentiality agreement in a form as agreed by the non-engaging Party. 

(f)                    In order to facilitate the Programme or Development, either Party may provide to the other Party certain biological materials or chemical compounds controlled by a supplying Party for use by the other Party in furtherance of the Programme.  Except as otherwise provided under this Agreement, all such materials delivered to the other party will remain the sole property of the supplying party, will be used only in furtherance of the Programme in accordance with this Agreement, will not be used or delivered to or for the benefit of any third party without the prior written consent of the supplying party, and will be used in compliance with all applicable laws, rules and regulations.  The materials supplied under this Agreement must be used with prudence and appropriate caution in any experimental work because not all of their
characteristics may be known.  Except as expressly set forth herein, THE MATERIALS ARE PROVIDED “AS IS” AND WITHOUT ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTY  OF MERCHANTABILITY OR OF FITNESS FOR ANY PARTICULAR PURPOSE.  

3.5          Carrier Characterization.  

As part of the Programme, and in the event of a decision by Novartis in its sole discretion not to proceed with the Development of the Lead Carrier or Back-up Carrier, *** shall be responsible for characterizing in its sole discretion each replacement Programme Carrier at such time as it

14.

requests including conducting polymorph identification, salt form selection and synthesis.   *** shall be solely responsible for selecting which Programme Carrier (whether the Lead Carrier or Back-up Carrier or a replacement Programme Carrier as selected by *** in its sole discretion ***) is to be Developed for commercial use in Products after the performance by Novartis of proof of concept clinical trials in humans (the “Commercial Carrier”). *** shall promptly notify *** of its selection of the Commercial Carrier. *** shall be solely responsible for the profiling of impurities and the separation, identification and characterization of impurities present in the Commercial Carrier, including *** of the Commercial Carrier in combination with the Compound (the “***”).   

3.6          Carrier Process Development.  

(a)                    As part of the Programme, as identified in attached Annex A, *** may at its sole discretion be solely responsible for the process research, Development and manufacture of the Programme Carriers, including the final quality of any required salts.  *** shall be solely responsible for Developing and implementing manufacturing processes, which shall yield materials of appropriate purity, morphology and stability as required by Novartis to commercialize the Product. In the event that *** does not elect to be responsible for such activities pursuant to this Article 3.6(a), it shall notify *** within thirty (30) Business Days of taking such a decision and request that *** shall be responsible for all such activities pursuant to this Article 3.6(a).  In the event that *** elects to assume responsibility for such activities and
provided that *** has received such technical information deemed necessary by both Parties, *** shall provide to *** within thirty (30) Business Days of receiving the *** request and technical information, a non-binding budget and plan for the conduct of such activities, such budget to be fully paid if agreed to by *** on the basis of invoices or reasonable estimates received (the “***l”).  *** shall provide all reasonably available information necessary for *** to prepare such budget.  *** shall have thirty (30) Business Days after receipt of such plan to consider the *** Proposal and in the event that *** does not accept the terms of the *** Proposal, *** may enter into an agreement with a Third Party for the conduct of such activities.

(b)                    *** shall be responsible for scale-up engineering and optimization of the Development of the *** Process in *** facilities. *** will assist in the physical transfer of the *** Process from *** facilities to ***’ facilities.  *** shall provide fully detailed written documentation on the *** Process to *** and will make its staff fully available to assist in the physical  transfer of the *** Process as *** reasonably requires.  *** may conduct reactions using all steps of the *** Process (including the *** selected by ***) to validate the technical feasibility of scale-up of the *** Process solely for the manufacture of the Lead Carrier and Commercial Carrier.  *** shall be responsible for process development of the *** Process in large scale equipment ***. *** shall make commercially reasonable efforts to
minimize the changes to the *** Process wherever

15.

possible during process scale-up.  However, *** recognizes that in order to develop an economically viable process on the large scale in *** equipment, process development efforts by *** may include, without limitation, making changes in ***  In no event shall *** use or modify the *** Process for the purpose of manufacturing any Carrier other than a Programme Carrier, except with the prior written approval of ***, nor shall *** use the *** Process for any purpose other than the Development and Commercialization of Products in accordance with this Agreement.  The Parties shall share equally the costs incurred in transferring the *** Process from *** facilities to ***’ facilities.

(c)                    Emisphere agrees that the *** may need to be changed should scale-up problems arise using the solvents specified by the Emisphere Process. If such *** or *** issues should arise, *** agrees to discuss proposed changes with *** in advance of any process development effort. If possible, all proposed changes to the *** Process are to be discussed with *** in advance of the experimentation. When such discussion is not possible, then all changes, improvements and process development efforts made by *** will be communicated in a written report to *** in a timely manner. *** shall make Commercially Reasonable Efforts to avoid changes that may negatively impact the *** of the *** Process. Each quarter, *** agrees to provide *** with a detailed summary of activities involving process development and a schedule of the process optimization and
scale-up efforts or production planned for the next calendar quarter. *** shall grant to *** a royalty-free perpetual non-exclusive license with right to sublicense to all Inventions generated by *** in respect of the *** Process for the purpose of manufacturing Carriers.

(d)                    Further, it is recognized that in order to achieve scale-up in a timely manner, *** may generate batches of Lead Carrier or Commercial Carrier or its salt forms containing new impurities.  Samples from batches of Lead Carrier or Commercial Carrier or its salt forms will be sent within *** Business Days to a designated person at Emisphere for analysis.  However, *** will be permitted to also test for impurities in these batches and will communicate with *** the results of its impurity analysis.  *** 

ARTICLE 4  DEVELOPMENT AND PRODUCT IMPROVEMENTS

4.1          In the event that Novartis delivers the Continuation Letter pursuant to either of Articles 3.3(a) or 3.3(c) an upfront payment (the “Development Commencement Fee”) shall be payable by Novartis pursuant to Article 6. Novartis shall be solely responsible for all Development of the Compound in combination with the Commercial Carrier, including without limitation all pre-clinical and clinical Development activities.  Novartis (and its local Affiliates where appropriate) shall retain authority and responsibility for ensuring and maintaining compliance with applicable Laws.  Emisphere and its Affiliates shall co-operate and provide to

16.

Novartis and its Affiliates any assistance reasonably required by Novartis for the purposes of obtaining Regulatory Approvals for the Product without further compensation, but with the understanding that reasonable expenses that are incurred by Emisphere and as are previously agreed by Emisphere and Novartis in connection therewith will be reimbursed by Novartis.

(a)                    In the event that the Development Commencement Fee is paid by Novartis to Emisphere, Novartis may invite Emisphere, to participate at Emisphere’s own election in the conduct of further Development on the Back-up Carrier. In such an event, Novartis shall deliver to Emisphere a Development Plan within *** Business Days of such invitation. Any changes to the approved Development Plan for the Development of the Back-up Carrier that would require a change in the approved Development Cost must be reviewed and approved by Emisphere. The Development Budget shall set forth the estimated Development Costs that are likely to be incurred in the applicable calendar year for the Back-up Carrier.  ***  

(b)                    The Development Plan for the Back-up Carrier shall include time lines, key decision points and priorities for the various Development activities, associated costs and shall designate which Party, or whether a Third Party contractor, is to be responsible for each activity.  In addition to the detailed Development Plan and Development Budget for a given calendar year, each such Development Plan and Development Budget shall include an outline of the projected plan and estimated budget for the next calendar year.  In the case of Development activities to be performed by a Third Party for the Back-up Carrier, the Steering Committee will recommend which Party shall supervise the Third Party’s activities.  

4.2          Reporting Obligations.  Novartis shall use Commercially Reasonable Efforts to keep Emisphere informed about all relevant studies, investigations, or tests to the extent related to the Development of the Programme Carrier or the Product, on a quarterly basis.

4.3          Development Costs – Lead Carrier.  Novartis shall be responsible for all of the development costs incurred by it in respect of the Formulation including the Lead Carrier after the payment of the Development Commencement Fee.  

4.4          Reimbursement.  In the event that Emisphere participates in the Development of a  Back-up Carrier, Novartis shall reimburse Emisphere for Development Costs incurred by Emisphere in connection therewith at the FTE Rate within thirty (30) Business Days of the receipt by Novartis of an invoice for such Development Costs as previously agreed by the Parties.  

17.

4.5          Regulatory

(a)                    Ownership of Approvals.  All Approval Applications, Approvals, supporting documentation and data relating to the Product shall be the solely owned property of *** and shall be treated by the Parties as Confidential Information.

(b)                    Regulatory Status Updates.  *** shall be responsible for preparation of the registration dossier (including without limitation the expert reports, as well as any foreign language translations of the dossier) to be used for Approval Applications in the Territory.  On a semi-annual basis following the Effective Date, *** shall prepare a Regulatory Status Update which shall set forth the status of all Approval Applications to be submitted to Regulatory Authorities in connection with the Commercialization of the Product, including time lines for such submissions.  Each such Regulatory Status Update shall be treated by the Parties as Confidential Information in accordance with Article 13.1(a). 

(c)                    *** shall have the sole authority and responsibility for (i) submitting Approval Applications for the Product, (ii) obtaining and maintaining Approvals for the Product, and (iii) complying with all regulatory requirements and reporting obligations to Governmental Authorities relating to the Approvals for and commercialization of the Product in each country.  

(d)                    *** shall co-operate and provide to *** any assistance reasonably required for the purposes of obtaining Regulatory Approvals for the Product.

4.6          Co-operation between the Parties

(a)                    Data Sharing.  Emisphere shall provide to Novartis within one month of its generation or sooner if reasonably requested by Novartis, copies of all data generated by Emisphere relating to or intended to support any Approval Application for the Product or any Product Improvement in the Territory (including information related to GMP, GLP and/or GCP compliance, and health, safety and environmental data concerning manufacturing plants, in each case to the extent related to the Product).  Such data, filings and other information in respect of a Programme Carrier, Product and the Formulations as provided by Emisphere pursuant to this Article shall be treated by the Parties as Confidential Information belonging to Emisphere in accordance with Article 13.

(b)                    Safety Issues.   Emisphere shall provide to Novartis within 48 hours of first receipt, any information concerning the safety profile of any of the Programme Carriers which may indicate a risk to patients. This shall include any adverse event reports suspected to be related to the Programme Carrier used in connection with any other active substance. In such an instance, Emisphere shall endeavor to promptly obtain any additional supporting information reasonably requested by Novartis.

18.

ARTICLE 5  MANUFACTURE AND SUPPLY

5.1          Manufacture and Supply of Product.  

	
  (a)
  	
  The   Compound, Programme Carriers and Product will be manufactured by *** or a   Third Party manufacturer of *** sole choice, the selection of which shall not   be unreasonably withheld by *** unless *** can reasonably demonstrate that   the selected Third Party manufacturer is considered a technological   competitor of *** and *** would suffer commercially from such selection for   such reason alone. *** may raise objection to a maximum of one Third Party   manufacturer as proposed by ***.
  
	
   
  	
   
  
	
  (b)
  	
  Any chemical   (not including the Commercial Carrier) or formulation components required by   *** for its own manufacture of the Product, Programme Carriers or Compound   for the purposes of this Agreement shall be procured by *** at its own   expense.  *** shall ensure that supplies   of the Product(s) are produced as diligently as any of its products of   similar commercial importance.  ***   shall be responsible for the packaging, labeling, distribution and sale of   the Product. The manufacture and distribution of supplies of Product for use   in clinical studies or as samples in a country shall be carried out in the   same manner.  *** shall have the right   to manufacture any Programme Carrier during Development and   Commercialization.
  
	
   
  	
   
  
	
  (c)
  	
  From the   fifth anniversary of the Launch of the Product, Emisphere may itself   manufacture up to a maximum of *** for the Commercial Carrier only if *** is   able to produce the Commercial Carrier to the same standards of quality and   consistency as *** and at a cost acceptable to ***.  If Emisphere quotes a verifiable price that is *** with the   same standard of quality and consistency as ***, then *** shall be permitted   to manufacture up to *** Commercial Carrier needs.
  

5.2          Quality Assurance.  

*** shall ensure that all supplies of the Compound and the Commercial Carrier used in the manufacture of the Product meet all applicable specifications and GMP standards, and that it has complied with all proper quality assurance and quality control procedures.  *** and any Third Party manufacturer or supplier acting on its behalf shall retain batch data records and quality control certificates for each batch of the Compound, the Commercial Carrier or the Product, as applicable, and such records shall be retained for the longest period required by applicable law.  All such manufacturing facilities, including those of Third Parties, must comply with all applicable Laws, including without limitation local health, safety and environmental Laws and regulations.

19.

ARTICLE 6  PAYMENT

6.1          Payments.  

(a)                    Responsibilities of the Parties.  As part of the Programme as presented by Novartis to the Steering Committee and in the event that Novartis invites Emisphere to participate in the Programme and Emisphere accepts, Novartis shall define the number of FTEs of Emisphere (“Emisphere FTEs”) for Emisphere to complete Emisphere’s obligations pursuant to the Programme according to a set time schedule, provided that Emisphere shall not be required to dedicate more Emisphere FTEs to the Programme than Novartis agrees to fund, and Emisphere shall dedicate the FTEs funded to the Programme.  For the avoidance of doubt, scientific work on or directly related to the Programme to be performed by Emisphere shall consist of experimental laboratory work, recording and writing up results, reviewing literature and references,

holding scientific discussions, managing and leading scientific staff, and carrying out Programme management duties or such other activities as may be appropriate to the conduct of the Programme.  Novartis shall pay to Emisphere on a quarterly basis the FTE Rate  per Emisphere FTE required by the Programme within thirty (30) Business Days of the receipt of an invoice from Emisphere for such amount as agreed by Novartis.  Emisphere will only invoice Novartis upon the start of the work under the Programme and once every three (3) months thereafter.

(b)                    Payment of Development Costs.  Commencing from the date of payment of the Development Commencement Fee and within thirty (30) Business Days following the end of each calendar quarter during the Term, Emisphere shall deliver to Novartis a written report (each, a “Development Costs Report”) setting forth in detail with supporting documentation the Development Costs incurred by Emisphere (or its Affiliates) in such calendar quarter and any Development Costs incurred by Emisphere in a previous calendar quarter which were not previously included and accounted for in a prior Development Costs Report, each subject to reasonable verification and approval by Novartis (such approval not to be unreasonably withheld. In the event that Novartis in good faith does not approve such Development Costs, the Parties shall
negotiate in good faith the amount to be paid by Novartis.  All amounts payable by Novartis shall be payable within thirty (30) Business Days of receipt by Novartis of an invoice for the amount as agreed by the Parties.

(c)                    All payments by Novartis under this Article 6.1 will be made pursuant to the receipt of an invoice from Emisphere in the form attached as Annex C.

(d)                    Novartis shall provide Emisphere with written notice of the achievement of each of the milestone events listed below promptly (and in any event within ten (10) Business Days)

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following such achievement.  In consideration of the grant of the License, Novartis shall make the following payments on the achievement of the milestone events listed below, where “Initiation” is defined as the first dose given to the first subject or patient, within thirty (30) days of the receipt by Novartis of the invoice from Emisphere:

	
  
1
  	
  
Development   Commencement Fee
  	
  
***
  
	
  
 
  	
  
 
  	
  
 
  
	
  
2
  	
  
Upon I***
  	
  
***
  
	
  
 
  	
  
 
  	
  
 
  
	
  
3
  	
  
Upon ***
  	
  
***
  
	
  
 
  	
  
 
  	
  
 
  
	
  
4
  	
  
***
  	
  
***
  
	
  
 
  	
  
 
  	
  
 
  
	
  
5
  	
  
***
  	
  
***
  

Should Novartis not be required to *** shall be deemed to have been achieved and shall be paid to Emisphere at the time of the Acceptance of Approval Application for Regulatory Approval in the *** Countries ***

(e)                    All amounts payable pursuant to Article 6.1(d) above shall be payable only once and if paid by Novartis in respect of the Lead Carrier shall be creditable against payments due in respect of a Back-up Carrier.

(f)                    Royalties.  Royalties will be paid to Emisphere on a quarterly basis  within thirty (30) Business Days of the receipt by Novartis of an invoice from Emisphere based on the reports of the annual Net Sales of Product (as provided pursuant to article 6.1(g) below) and will be calculated according to the following.  Rates apply to each increment of Net Sales in a given year and are cumulative throughout the Territory.  Royalty payments under this Article shall be payable on a Product-by-Product and country-by-country basis until the later of: ***, and (b) the expiration of the last to expire of the Emisphere Patents claiming the manufacture, use, sale, offer for sale or import of such Product in such country.

21.

	
  
Annual Net   Sales of Product(s)
  	
  
Royalty Rate
  
	
  
  
  	
  
  
  
	
  
US ***
  	
  
***
  
	
  
  
  	
  
  
  
	
  
US ***
  	
  
***
  
	
  
  
  	
  
  
  
	
  
Above ***
  	
  
***
  

The above royalty rates shall be *** on a country-by-country basis in the event that all of the Emisphere Patents  in such country are deemed invalid, or at the Launch of a generic product. For the avoidance of doubt, all royalty amounts payable by Novartis to Emisphere shall be *** In the event that *** in a quarter exceed the amounts payable by Novartis in royalties for that quarter, such excess shall be carried forward by Novartis to the next quarter and deducted from royalties payable by Novartis for that quarter, 

(g)                    Reporting of Net Sales.  Novartis shall provide to Emisphere quarterly reports detailing its Net Sales (and adjustments thereto) with respect to the Product.

(h)                    Currency Denomination.  With respect to amounts invoiced in United States Dollars, all such amounts shall be expressed in United States Dollars.  With respect to amounts invoiced in a currency other than United States Dollars, all such amounts shall be expressed both in the currency in which the amount was invoiced and in the United States Dollar equivalent.  The United States Dollar equivalent shall be calculated using Novartis’ then-current standard exchange rate methodology applied in its external reporting for the conversion of foreign currency sales into United States Dollars.

(i)                    Royalty Deductions. Anti-stacking provisions will not apply to the calculation of royalties as noted above, unless it is necessary or useful for Novartis to acquire a royalty-bearing license from a Third Party to patented intellectual property of such Third Party, in order to use the Emisphere Technology.  In such event, Novartis may deduct from the royalties payable to Emisphere pursuant to Article 6.1(f) above no more than *** of such royalties payable to such Third Party, however the royalty payable to Emisphere shall not be lower than *** of the amounts as outlined in the table in Article 6.1(f).

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ARTICLE 7  BOOKS, RECORDS AND INSPECTIONS; AUDITS AND ADJUSTMENTS

7.1          Books and Records.

Each Party shall, and shall cause each of its respective Affiliates to, keep proper books of record and account in which full, true and correct entries (in conformity with the Accounting Standards and all requirements of Law) shall be made of all dealings and transactions in relation to this Agreement.  The Parties shall keep complete, true and accurate books and records in accordance with the defined. The Parties will keep such books and records for at least three (3) years following the end of the calendar quarter to which they pertain.  Such books of accounts shall be kept at their principal place of business. 

7.2          Audit.

Each Party shall, and shall cause each of its respective Affiliates to, permit independent auditors, to visit and inspect, during regular business hours and under the guidance of officers of the Party being inspected, and to examine the books of account of such Party or such Affiliate and discuss the affairs, finances and accounts of such Party or such Affiliate with, and be advised as to the same by, its and their officers and independent accountants.  In addition each Party shall comply (and shall ensure that all Third Party suppliers comply) with current Good Laboratory Practices, Good Clinical Practices and Good Manufacturing Practices as required by Governmental Authorities in the Territory and shall make (and shall ensure that all Third Party suppliers make) all facilities, books and records available to audit by the other Party or Regulatory Authorities.

7.3          Audit Rights.

(a)                    For the purpose of the audit rights described herein, the individual Party subject to an audit in any given year will be referred to as the “Auditee” and the other Party who has certain and respective rights to audit the books and records of the Auditee pursuant to this Article 7.3 will be referred to as the “Audit Rights Holder” . 

(b)                    Each Party may, upon request and at its expense (except as provided for herein), cause an internationally-recognized independent  accounting firm selected by it (except one to whom the Auditee has some reasonable objection) (“Audit Team”) to audit the books and records of the other Party during ordinary business hours the correctness of any payment made or required to be made to or by such Party, and any report underlying such payment (or lack thereof), pursuant to the terms of this Agreement.  The Audit Team shall execute an appropriate and customary confidentiality agreement with the Auditee.

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(c)                    In respect of each audit of an Auditee’s books and records, the Audit Rights Holder must exercise its audit right such that all of the following conditions are met: (i) each Auditee is audited only once per year by  a single Audit Team  appointed by the Audit Rights Holder, (ii) no records for any given year for an Auditee may be audited more than once and (iii) an Audit Rights Holder shall only be entitled to audit books and records of the Auditee from the *** calendar years prior to the calendar year in which the audit request is made.

(d)                    In order to initiate an audit for a particular calendar year, an Audit Right Holder must provide written notice to the Auditee.  The Audit Rights Holder exercising its audit rights shall provide the Auditee with notice of one or more proposed dates of the audit not less than ***days prior to the first proposed date.  The Auditee will reasonably accommodate the scheduling of such audit.  The Auditee shall provide such audit team with full and complete access to the applicable books and records and otherwise reasonably co-operate with such audit. 

(e)                    The audit report and basis for any determination by an Audit Team under this Article 7.3 shall be made available for review and comment by the Auditee, and the Auditee shall have the right, at its expense, to request a further determination by such Audit Team as to matters which the Auditee disputes (to be completed no more than thirty (30) days after the first determination is provided to such Auditee and to be limited to the disputed matters).  If the Parties disagree as to such further determination, the Audit Right Holder and the Auditee shall mutually select an internationally-recognized independent accounting firm that shall make a final determination as to the remaining matters in dispute that shall be binding upon the Parties.  Such accountants shall not disclose to the Audit Rights Holder any information relating to
the business of the Auditee except that which should properly have been contained in any report required hereunder or otherwise required to be disclosed to it to the extent necessary to verify the payments required to be made pursuant to the terms of this Agreement.

(f)                    If the audit shows any under-reporting or underpayment, or overcharging by any Party, that under-reporting, underpayment or overcharging shall be reported to the Steering Committee and the underpaying or overcharging Party shall remit such underpayment or reimburse such overcompensation (together with interest as provided below with respect to any underpayment or overcharge) to the underpaid or overcharged Party(s) within 15 days of receiving the audit report.  Further, if the audit for an annual period shows an under-reporting or underpayment or an overcharge by any Party for that period of (i) in excess of *** of the amounts properly determined, the underpaying or overcharging Party, as the case may be, shall reimburse the applicable underpaid or overcharged Audit Rights Holder conducting the audit for its respective audit
fees and reasonable out-of-pocket expenses in connection with said audit, which reimbursement shall be made within fifteen (15) days of receiving appropriate invoices and other support for such audit-related costs.    

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ARTICLE 8  INTELLECTUAL PROPERTY

8.1          Ownership of Intellectual Property

(a)                    All Inventions by Novartis, whether or not patentable, that are (i) generated, identified, discovered, created or made or reduced to practice solely by its Affiliates, employees and agents or others acting on its or their behalf (other than Emisphere) during the term in connection with Novartis’ activities under this Agreement or (ii) owned or controlled by Novartis or its Affiliates and that are necessary to use, research, develop, seek regulatory approval, manufacture or sell, including, without limitation, various chemical and physical forms, formulations, combinations, back-ups, modes of delivery and methods of use for the Carriers, Compound or Product developed pursuant to this Agreement (collectively, “Novartis Inventions”) and all Patents Rights claiming such Novartis Inventions shall be the property of Novartis,
and Novartis shall be the sole owner of such Novartis Patents.

(b)                    Novartis will bear all expenses incurred in preparing, filing, prosecuting and maintaining all Novartis Patents.

(c)                    All Inventions by Emisphere, whether or not patentable, that are (i) generated, identified, discovered, created or made or reduced to practice solely by its Affiliates, employees and agents or others acting on its or their behalf (other than Novartis) during the term in connection with Emisphere’s activities under this Agreement or (ii) owned or controlled by Emisphere or its Affiliates and that are necessary to use, research, develop, seek regulatory approval, manufacture or sell, including, without limitation, various chemical and physical forms, formulations, combinations, back-ups, modes of delivery and methods of use for the Carriers, developed pursuant to this Agreement (collectively, “Emisphere Inventions”) and all Patents Rights claiming such Emisphere Inventions shall be the property of Emisphere, and Emisphere
shall be the sole owner of such Emisphere Patents.

(d)                    Emisphere will bear all expenses incurred in preparing, filing, prosecuting and maintaining the Emisphere Patents. 

(e)                    In the event of inventions, discoveries and Joint Patent Rights and Know-How, information and the like (including, without limitation, data, discoveries, technical information, patents, patent applications, proprietary information, trade secrets and inventions) regarding the Carriers being conceived of, and reduced to practice, during the term of, and as result of this Agreement, jointly by employees or agents of Emisphere and employees or agents

25.

of Novartis, resulting from Development activities directed towards the Carriers and which are specifically related to the Formulations shall be jointly owned by the Parties (“Joint IP”), and each Party shall have a co-exclusive, worldwide, royalty-free, perpetual license under the interests of the other Party in such Joint IP to use such intellectual property and the Parties will decide at such point in time on the responsibility for filing, maintenance, defense and prosecution of such Joint Patent Rights. Inventorship and ownership of patents and patent applications shall be determined according to the patent Laws of the United States of America, 35 U.S.C. § 101 et seq. and the Parties shall agree on which Party shall be responsible for such Joint IP (the “Controlling Party”).  The Controlling Party provided it agrees to do so, shall undertake such filings, prosecutions and maintenance and the Parties shall share equally all
reasonable out of pocket expenses and legal fees.  The Controlling Party shall have the following obligations with respect to the filing, prosecution and maintenance of patent applications and patents on any such Joint IP:  

          (i) the Controlling Party shall permit the non-Controlling Party or Parties to review and comment at least two weeks prior to the filing of any priority patent application by the Controlling Party; 

          (ii) the Controlling Party shall notify the non-Controlling Party within 30 days after the filing of a patent application by the Controlling Party; 

          (iii) the Controlling Party shall notify the non-Controlling Party or Parties within nine (9) months from the filing of the priority application whether and in which countries it intends to file convention applications; 

          (iv) the Controlling Party shall provide the non-Controlling Party promptly with copies of all communications received from or filed in patent offices with respect to such filings; and 

          (v) the Controlling Party shall provide the non-Controlling Party, a reasonable time prior to taking or failing to take action that would affect the scope or validity of rights under any patent applications or patents (including but not limited to substantially narrowing or canceling any claim without reserving the right to file a continuing or divisional application, abandoning any patent or not filing or perfecting the filing of any patent application in any country), with notice of such proposed action or inaction so that the non-Controlling Party has a reasonable opportunity to review and make comments, and take such actions as may be appropriate in the circumstances.  In the event that the Controlling Party materially breaches the foregoing obligations and such breach is not cured within thirty (30) days of a written notice from the non-Controlling Party to the Controlling Party describing
such breach, or in the event that the Controlling Party fails to undertake the filing of a patent application within ninety (90) days of a written request by the non-Controlling Party to do so the non-Controlling Party may assume the Controlling Party’s responsibility for filing, prosecution and maintenance of any such patent

26.

application or patent at the non-Controlling Party’s sole expense, and will thereafter be deemed the Controlling Party for purposes hereof.  Notwithstanding the foregoing, either Party may withdraw from or abandon any jointly-owned patent application or patent hereunder on thirty (30) days prior notice to the other Party providing a free-of-charge option to assume the prosecution or maintenance thereof at its sole expense.

(f)                    In the event that Emisphere obtains  Patent Rights on either

	
   
  	
  
(A) an   impurity arising from work conducted by Novartis pursuant to Article 3.5 of   which ownership of such impurity has been assigned to Emisphere by Novartis,   or
  
	
  
 
  	
  
 
  
	
  
 
  	
  
(B) a   process or polymorph arising from work conducted by Novartis pursuant to   Article 3.6 of which ownership of such process or polymorph has been assigned   to Emisphere by Novartis,
  

then Emisphere shall grant to Novartis a royalty-free non-exclusive irrevocable perpetual license to use, manufacture, develop, commercialize (or have such activities done for it) such Patent Rights in respect of compounds or products which are the subject of this or other agreements between Novartis and Emisphere. *** 

(g)                    Emisphere grants to Novartis the right of last negotiation for the assignment or acquisition of the Programme or Commercial Carriers in the event that during the term of this Agreement, Emisphere elects to assign or otherwise dispose of its Programme or Commercial Carriers solely.  

(h)                    Novartis shall not use the Emisphere Technology for any purpose other than i) with Compound as expressly permitted by this Agreement and (ii) with salmon calcitonin as expressly permitted by valid, separate written agreements between the Parties or (iii) pursuant to any other written agreements that may be entered into by the Parties.  ***

8.2          Prosecution and Maintenance of Patent Rights

***

8.3          Enforcement of Patent Rights

(a)                    Third Party Infringement.  If either Party becomes aware of any activity that such Party believes represents an infringement of the claims of the Emisphere Patent Rights relating to the Carriers or any Joint Patent, the Party obtaining such knowledge shall promptly advise the other of all relevant facts and circumstances pertaining to the potential infringement. Novartis and Emisphere shall thereafter consult and co-operate fully to determine a course of action, including but not limited to, the commencement of legal action to terminate any infringement of the Emisphere Patent Rights pursuant to the following. 

27.

(b)                    Emisphere shall have the first right, but no obligation, to initiate and prosecute such legal proceedings, at its own expense and in the name of Emisphere, and to control the defense of any declaratory judgment action relating to the Emisphere Patent Rights; provided, however, that no settlement shall be entered into by Emisphere without the written consent of Novartis if such settlement would materially affect Novartis’ interests.  Emisphere shall co-operate with Novartis in such effort, including being joined as a Party to such action if necessary.  In deciding whether to pursue, and in the pursuit of such defense Novartis will use Commercially Reasonable Efforts.  

(c)                    If Emisphere which is entitled to firstly pursue the defense, does not succeed, within ninety (90) days after receiving notice from Novartis of a potential infringement of the claims of Emisphere Patent Rights relating to the Programme Carriers or within sixty (60) days after providing Novartis with notice of such infringement, either in terminating such infringement or, in instituting an action to prevent continuation thereof, or if Emisphere notifies Novartis that it does not plan to defend against or terminate the infringement or to institute any such action, then Novartis shall have the right to do so at Novartis’ own cost and expense.  In such case, Emisphere shall reasonably co-operate with Novartis in such effort, including being joined as a Party to such action if necessary.

(d)                    In addition, each Party shall have the right to join in any action against infringement brought in accordance with this Article 8 if necessary in order to assert the damages incurred by such Party as a result of the alleged infringement, provided, that, (i) the foregoing shall not limit or restrict in any way the rights of the Party controlling such action as determined in accordance with this Article from exercising such control in its discretion, (ii) notwithstanding the foregoing, any monetary recovery in connection with such infringement action shall be allocated in accordance with Article 8.5, (iii) in the event Novartis joins Emisphere in the defence of an infringement action with respect to an Emisphere Patent Right, Novartis may elect to participate up to ***of Emisphere and Novartis shall consequently share to the same
proportion in any award. 

(e)                    The costs and expenses (including attorneys’ fees) of any action against an infringement brought in accordance with this Section shall be borne by the Party controlling the infringement action, unless stated otherwise in this Article 8.  

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8.4          Updating.  Each Party shall keep the other reasonably informed of developments in any action or proceeding relating to the potential infringement of the claims of a Patent Right relating to the Lead Carrier, the Commercial Carrier or the Back-Up Carrier including, to the extent permissible by law, the state of any settlement negotiations and the terms of any offer related thereto.  

8.5          Damage Award or Settlement Payments.  Any damage award or settlement payments made in connection with any action relating to infringement of Emisphere Patent Rights, whether obtained by judgment, settlement or otherwise shall be allocated between the Parties on a pro rata basis with each Party receiving a proportion based on their participation of such defense as determined according to Article 8.3 above.

8.6          Defense and Settlement of Third Party Claims.

(a)                    If a Third Party asserts that a patent, trademark or other intellectual properties owned by it is infringed by the importation, manufacture, use or sale of the Lead Carrier, the Commercial Carrier or the Back-Up Carrier or if either Party learns of a claim or assertion that the development, manufacture, use, marketing, promotion, importation, exportation, offer for sale, sale or distribution of the Lead Carrier, the Commercial Carrier or the Back-Up Carrier infringes or otherwise violates the intellectual property rights of any Third Party, then such Party will promptly notify the other Party in writing. *** solely responsible for defending against any such assertions and controlling any related litigation at its own cost and expense.  *** will have the first right, but not the obligation, to defend against any such claim at its
own expense.  If *** does not assume control of such defense, then *** will have the right to control such defense at its own expense.  In any event, the Party not controlling such defense will have the right to be represented in any such action at its own expense.  The Party controlling such defense shall keep the other Party advised of the status of such action and shall consider recommendations made by the other Party in respect thereto.  The Party not controlling such defense will assist and cooperate in any such infringement litigation at the defending Party’s reasonable request.  If the Party controlling such defense is not the Party against whom such action was originally brought, then the Party controlling such defense will not agree to the settlement of any such action without the prior written consent of the other Party.  

(b)                    If *** conducts the defense, *** will use Commercially Reasonable Efforts as to how and whether to defend against such charge of infringement.  

(c)                    Such application and deduction shall not apply to infringement caused by ***’ use of its name, trade name, logo or *** Patent Rights or *** Know-How.  

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8.7          Licenses from Third Parties.  Each Party shall use commercially reasonable efforts to ensure that any licenses or other rights obtained from Third Parties existing as of the Effective Date and necessary or material to the manufacture, Development, promotion or sale of Products may be licensed or sublicensed to the other Party under the licenses granted in Article 2.1 and to each Party’s Affiliates or Third Parties engaged to manufacture, Develop, promote or sell Products or Product Improvements to the extent necessary hereunder.  During the Term, the Parties agree to coordinate as reasonably necessary to determine the necessity and availability of any new material Third Party licenses related to the manufacture, Development, promotion or sale of Products or Product Improvements. The Parties shall share equitably in the costs associated with obtaining and maintaining any
such approved licenses. 

ARTICLE 9  REPRESENTATIONS AND WARRANTIES

9.1          Due Incorporation.  Each of the Parties hereto hereby represents and warrants to the other that it is duly incorporated under the relevant Laws of incorporation and each has full corporate authority to enter into and to perform its obligations under this Agreement.

9.2          Due Authorization.  Each of the Parties hereto hereby represents and warrants to the other that this Agreement has been fully authorized, executed and delivered by it and it has full legal right, power and authority to enter into and perform this Agreement, which constitutes a valid and binding agreement between the Parties and that it does not conflict with or result in a breach of the terms of any agreement to which such Party is a party. 

9.3          Emisphere Representations and Warranties

     ***

9.4          DISCLAIMER.  EXCEPT AS EXPRESSLY SET FORTH HEREIN, NO PARTY MAKES ANY EXPRESS OR IMPLIED WARRANTIES, STATUTORY OR OTHERWISE, CONCERNING THE VALUE, ADEQUACY, FREEDOM FROM INRINGEMENT OF THIRD PARTY PATENTS, FREEDOM FROM FAULT OF, OTHER QUALITY, EFFICIENCY, STABILITY, CHARACTERISTICS OR USEFULNESS OF, OR MERCHANTABILITY, OR FITNESS FOR A PARTICULAR PURPOSE OF, ANY PRODUCT.

ARTICLE 10 TERMINATION

10.1         Term.  The Agreement shall be effective from the Effective Date and expire pursuant to Article 10.2 below, unless sooner terminated as permitted herein.  This Agreement may not be terminated except as specifically provided in this Agreement.

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10.2         Expiration.  The Term of this Agreement shall expire upon the expiration of all royalty payment obligations pursuant to Article 6.1(f). In the event of expiration of the Agreement, Novartis shall have an irrevocable, perpetual, non-exclusive royalty-free fully paid license under Emisphere Technology to Develop, have developed, Commercialize, have Commercialized make, have made, use or have used Products.

10.3         Termination.  

       (a)    Novartis may terminate this Agreement at any time immediately in its sole discretion within sixty (60) calendar days of the fully-analyzed results of preclinical safety studies or Clinical Trial results becoming available to the Parties if in Novartis’ sole judgment, the results from such trial do not warrant further Development by Novartis. This sixty (60) day period will be suspended if Novartis determines in its sole discretion that further clinical or non-clinical trials are required, in which case Novartis will be obligated to perform such further trials.  In such case, Novartis will have a further 90 days following the availability to the Parties of the fully analysed results in respect of such further trials to inform Emisphere of its decision to terminate this Agreement;

       (b)    This Agreement may be terminated at any time on mutual written agreement between the Parties. 

       (c)    This Agreement may be terminated pursuant to Article 3.3(c). 

       (d)    Novartis may terminate this Agreement pursuant to a decision of Novartis senior management to terminate this Agreement, at any time with respect to the Compound or Products upon provision of ninety (90) calendar days prior written notice.

       (e)    Emisphere may terminate this Agreement, in the event that  Novartis has not used Commercially Reasonable Efforts to Develop and Commercialize Products (other than as a result of a material safety, efficacy, regulatory, manufacturing, legal or medical issue or technical or commercial reasons beyond the reasonable control of Novartis) and provides Novartis with written notice thereof, and Novartis fails to reasonably demonstrate, within ninety (90) days of such written notice from Emisphere, that Novartis is or has begun using such Commercially Reasonable Efforts; provided, that prior to such termination, at the request of either Emisphere or Novartis, representatives of Novartis and Emisphere will meet to discuss the status of Novartis’ efforts with respect to the Compound and Products.  In the event that the Parties are unable to agree on whether Novartis has been exercising

its Commercially Reasonable Efforts within the time schedule allowed, the Parties shall take the matter resolve the matter in accordance with article 12 of this Agreement.

10.4         Either Party shall have the right to terminate upon ninety (90) days written notice if the other Party commits a material breach of this Agreement that is material to the

31.

transactions contemplated by this Agreement taken as a whole.  Any such notice of breach shall set forth the details of the alleged breach and the breaching Party shall have the opportunity to cure the breach during the ninety (90) days notice period, or with respect to matters not capable of being cured with ninety (90) days, to initiate steps reasonably expected to cure the breach during such ninety (90) days period. The non-breaching Party may terminate the Agreement forthwith in the event that a material breach is incurable.

10.5         Either Party shall have the right to terminate this Agreement if, at any time, 

                (a)     the other Party shall file in any court or agency pursuant to any statute or regulation of any state or country, a petition in bankruptcy or insolvency or for reorganization or for an arrangement or for the appointment of a receiver or trustee of the Party or of its assets, or 

                (b)     if the other Party proposes a written agreement of composition or extension of its debts, or 

                (c)     if the other Party shall be served with an involuntary petition against it, filed in any insolvency proceeding, and such petition shall not be dismissed within sixty (60) days after the filing thereof, or 

                (d)     if the other Party shall propose or be a party to any dissolution or liquidation, or 

                (e)     if the other Party shall make an assignment for the benefit of creditors.  

10.6         Bankruptcy.  

                (a)     In the event that this Agreement is terminated or rejected by Emisphere or its receiver or trustee under applicable bankruptcy Laws due to Emisphere’s bankruptcy, then all rights and licenses granted under or pursuant to this Agreement by Emisphere to the Novartis are, and shall otherwise be deemed to be, for purposes of Section 365(n) of the U.S. Bankruptcy Code and any similar Laws in any other country in the Territory, licenses of rights to “intellectual property” as defined under Section 101(52) of the U.S. Bankruptcy Code.  The Parties agree that all intellectual property rights licensed hereunder, including, without limitation, any patents or patent applications in any country of a party covered by the license grants under this Agreement, are part of the “intellectual property” as defined under
Section 101(52) of the Bankruptcy Code subject to the protections afforded the non-terminating Party under Section 365(n) of the Bankruptcy Code, and any similar law or regulation in any other country. 

                (b)     For the avoidance of doubt, in the event of Emisphere being subject to the operation of Section 365(n) of the U.S. Bankruptcy Code and any similar Laws in any other country in the Territory, Novartis shall have the right to continue to use the  Emisphere Technology as provided in this Agreement and under any agreements supplementary to this Agreement, access  Confidential Information of Emisphere and prosecute and maintain all Emisphere Patents and Product-Specific Emisphere Patents as necessary.

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                (c)     In the event that Emisphere is subject to the operation of Section 365(n) of the U.S. Bankruptcy Code and any similar Laws in any other country in the Territory then Emisphere shall grant to Novartis the right to commence action against Third Party infringers of the Emisphere Patents and Product-Specific Emisphere Patents  which Novartis may exercise in the event that Emisphere fails to commence such action within seven (7) Business Days of becoming aware of such a Third Party infringer of the Emisphere Patents and Product-Specific Emisphere Patents.

10.7         Announcement Regarding Termination.  If Novartis terminates this Agreement for reasons other than safety of the Carriers or technical problems specific to Emisphere Technology efficiency, then Emisphere may issue a press release stating that the termination was not due to the Emisphere Technology and such release may contain a statement from Novartis. The publication of such press release shall remain subject to Novartis review.

10.8         Change of Control.  Upon any occurrence of an Emisphere Change of Control, Novartis shall have the right to terminate this Agreement upon written notice to Emisphere given within 30 days of the first public announcement of such Emisphere Change of Control. In the event that Novartis does not exercise its right to terminate the Agreement pursuant to this Article, the Agreement may continue in force except that all reporting obligations of Novartis to Emisphere other than those in respect of Net Sales and Emisphere’s royalty entitlement shall terminate.  

10.9         Survival of Obligations.  Notwithstanding the expiration or earlier termination of this Agreement, neither Novartis nor Emisphere shall be relieved of any obligations incurred by such Party prior to such termination, and all other provisions which by their nature are intended to survive any such termination, shall survive and continue to be enforceable (including, without limitation, Articles 6.1(g), 6.1(h), 7, 8, 10.6, 10.7, 10.9, 10.10, 12, 13 and 14).  Upon any termination of this Agreement, Novartis and Emisphere shall, and shall ensure that their respective Affiliates, promptly return or destroy (subject to written certification of the latter) to the other Party all written Confidential Information, and all copies thereof, belonging to such other Party; provided that such Party may retain one (1) copy of the Confidential Information in a secure location for record-keeping
purposes only.

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10.10       Effect of Termination.  

                (a)     Notice of termination served by a Party upon the other Party shall be binding on the Parties’ Affiliates.

                (b)     Survival of Liability.  Termination or expiration of this Agreement shall not relieve the Parties of any obligation accruing prior thereto and shall be without prejudice to the rights and remedies of a Party with respect to any antecedent breach of any of the provisions of this Agreement.

                (c)     Return of Rights.  Notwithstanding the above, 

                          (i)     Novartis shall upon early termination by Novartis pursuant to Article 10.3(a) or 10.3(d) or termination by Emisphere for unremedied material breach by Novartis pursuant to Article 10.4, promptly provide Emisphere, at Emisphere’s request with all Novartis data for the Programme or Commercial Carriers as is necessary for Emisphere to continue with Development and Commercialisation. 

                          (ii)     Emisphere shall upon early termination by Novartis for unremedied material breach by Emisphere pursuant to Article 10.4, promptly provide Novartis, at Novartis’ request with all Emisphere data for the Programme or Commercial Carriers as is necessary for Novartis to continue with Development and Commercialization. 

Effective upon termination for material breach as per this section, each Party shall, and it hereby does, grant to the other a non-exclusive, *** with the right to sub-license under the granting Party’s interest in the Patent Rights, Know-how, Joint IP and Carrier Improvements to make, have made, use, sell, have sold, offer for sale or import Products.

                (d)     Upon and after termination by Novartis or by failure of Novartis to send the Continuation Letter, Emisphere may continue to Develop and/or Commercialize the Product.  Should Novartis be in Control of Commercial Carrier manufacturing, then Emisphere shall be entitled to continue purchasing supplies of the Commercial or Lead Carrier, as the case may be, from Novartis for a period of ***

                (e)     In all other cases, both Parties and their respective Affiliates shall immediately cease their activities under this Agreement and shall pay all sums due and owing to one another and to Third Parties.

ARTICLE 11 INDEMNITY

11.1         Novartis shall indemnify, defend and hold harmless Emisphere, its affiliates, agents, directors, officers and employees from and against any loss, damage, action, proceeding, expense or liability (including attorney’s fees) (“Loss”) arising from or in connection with (i) the practice by Novartis of any license granted hereunder, (ii) the development, manufacture, use, handling, storage, sale or other disposition of any Product by Novartis,

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its Affiliates or sublicensees, (iii) Novartis’ gross negligence or willful misconduct, or (iv) the breach by Novartis of any warranty, representation, covenant or agreement made by Novartis in this Agreement, except, in each case, to the extent such Losses result from the gross negligence or willful misconduct of any Emisphere Indemnitee or the breach by Emisphere of any warranty, representation, covenant or agreement made by Emisphere in this Agreement.

11.2         Emisphere shall indemnify, defend and hold harmless Novartis, its affiliates, agents directors, officers and employees from and against any Loss arising from or in connections with (i) the practice by Emisphere of any license granted hereunder, (ii) Emisphere’s failure to manufacture Commercial Carrier supplied to Novartis hereunder in accordance with applicable law and specifications, (iii) Emisphere’s gross negligence or willful misconduct, or (iv) the breach by Emisphere of any warranty, representation, covenant or agreement made by Emisphere in this Agreement, except, in each case, to the extent such Losses result from the gross negligence or willful misconduct of any Novartis Indemnitee or the breach by Novartis of any warranty, representation, covenant or agreement made by Novartis in this Agreement.

11.3         In the event a party seeks indemnification under this Article, it shall inform the other party (the “Indemnifying Party”) of a claim as soon as reasonably practicable after it receives notice of the claim, shall permit the Indemnifying Party to assume direction and control of the defense of the claim (including the right to settle the claim solely for monetary consideration), and shall cooperate as requested (at the expense of the Indemnifying Party) in the defense of the claim.

11.4         Prior to initiation of any clinical activities, each Party agrees to obtain and maintain insurance, including product liability insurance with respect to its activities; such insurance shall be in the amount sufficient to meet all liabilities arising under this Agreement which are the responsibility of or caused by an act or omission of such Party and subject to such deductibles based upon standards prevailing in the industry at the time.

11.5         NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT AND UNDER NO CIRCUMSTANCES WILL EITHER PARTY BE LIABLE TO THE OTHER FOR ANY INDIRECT, CONSEQUENTIAL, SPECIAL OR PUNITIVE DAMAGES OR LOSS OF PROFITS, WHETHER BASED ON CONTRACT OR TORT, OR ARISING UNDER APPLICABLE LAW OR OTHERWISE.

11.6         All claims for indemnification (“Indemnity Claims”) by any indemnified party with respect to this Agreement (the “Indemnified Party”) hereunder shall be asserted and resolved as set forth in this Article 11.  In the event that any written claim or demand for which a party (the “Indemnifying Party”)

35.

would be liable to any Indemnified Party hereunder is asserted against or sought to be collected from any Indemnified Party by a third party, such Indemnified Party shall promptly, but in no event more than ten (10) days following such Indemnified Party’s receipt of such claim or demand, notify the Indemnifying Party of such claim or demand and the amount or the estimated amount thereof to the extent then feasible (the “Claim Notice”).  All indemnity claims by any Indemnified Party which do not involve third party claims shall be communicated via a Claim Notice to the other party promptly following discovery of such claim. The failure to provide such notice will not affect any rights under this Agreement except to the extent that the Indemnifying Party is materially prejudiced by such failure.

11.7         The Indemnifying Party shall have twenty (20) days from the delivery or mailing of the Claim Notice (the “Notice Period”) to notify the Indemnified Party whether or not it desires to defend the Indemnified Party against such claim or demand.  An election to assume the defense of such claim or demand shall not be deemed to be an admission that the Indemnifying Party is liable to the Indemnified Party in respect of such claim or demand.  All costs and expenses incurred by the Indemnifying Party in defending such claim or demand shall be a liability of, and shall be paid by, the Indemnifying Party; provided, however, that the amount of such expenses shall be subject to the limitations set forth in this Article 11.

11.8         In the event that it is ultimately determined that the Indemnifying Party is not obligated to indemnify, defend or hold the Indemnified Party harmless from and against any third party claim, the Indemnified Party shall reimburse the Indemnifying Party for any and all costs and expenses (including without limitation, attorney’s fees and court costs) incurred by the Indemnifying Party in its defense of the third party claim.  In the event that the Indemnifying Party notifies the Indemnified Party within the Notice Period that it desires to defend the Indemnified Party against such claim or demand, the Indemnifying Party shall have the right to defend the Indemnified Party by appropriate proceedings.  If any Indemnified Party desires to participate in, but not control, any such defense or settlement, it may do so at its sole cost and expense.

11.9         The Indemnified Party shall not settle a claim or demand without the consent of the Indemnifying Party, which shall not be unreasonably withheld.  The Indemnifying Party may settle any claim or demand for monetary damages; it being understood that the Indemnifying Party shall not, without the prior written consent of the Indemnified Party, which shall not be unreasonably withheld, settle, compromise or offer to settle or compromise any such claim or demand on a basis which would result in the imposition of a consent order, injunction or decree that would restrict the future activity or conduct of the Indemnified Party or any subsidiary or Affiliate thereof.

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11.10       To the extent the Indemnifying Party shall control or participate in the defence or settlement of any Third Party claim or demand, the Indemnified Party will give the Indemnifying Party and its counsel access to, during normal business hours, the relevant business records and other documents, and shall permit them to consult with the employees and counsel of the Indemnified Party.  The Indemnified Party shall use its commercially reasonable efforts to assist in the defence of all such claims.

11.11       If the Indemnifying Party shall fail to undertake in a timely manner the defence of any Third-Party claim or it is reasonably determined that representation by the Indemnifying Party’s counsel of both the Indemnifying Party and the Indemnified Party may present a conflict of interest, the Indemnified Party shall have the right to undertake the defense or settlement thereof at the Indemnifying Party’s expense.  If the Indemnified Party assumes the defense of any such claim or proceeding pursuant to this Article 11.11 and proposes to settle such claim or proceeding prior to a final judgment thereon or to forgo any appeal with respect thereto, then the Indemnified Party shall give the Indemnifying Party timely written notice and the Indemnifying Party shall have the right to participate in the settlement or assume or reassume the defence of such claim or proceeding.  No settlement that the
Indemnifying Party is responsible for paying may be entered into without the approval of the Indemnifying Party.

11.12       Any notice of a claim by reason of any of the warranties contained in this Agreement shall state specifically the warranty with respect to which the claim is made, the facts giving rise to an alleged basis for the claim, and the amount of the liability asserted against the Indemnifying Party by reason of the claim.

11.13       The Indemnifying Party shall not have liability with respect to any breach of any of its representations and warranties under this Agreement for any individual item where the Loss relating thereto is less than US$5,000.  The Indemnified Party shall take and shall cause its Affiliates to take all reasonable steps to mitigate any Loss upon becoming aware of any event which would reasonably be expected to, or does, give rise thereto, including incurring costs only to the minimum extent necessary to remedy a breach that gives rise to the Loss.

ARTICLE 12  DISPUTE RESOLUTION

12.1         Resolution of Disputes

(a)     The Parties agree that except as specified in Articles 12.2(f), 12.2(i) and 13.1(c) in no event shall any dispute, controversy or claim arising under this Agreement be the subject of private litigation between the Parties.

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(b)     Disputes, controversies and claims related to matters within the powers and authority of the Steering Committee shall be resolved by the Parties in accordance with the procedures set forth in Article 3.2.  To the extent that a dispute, controversy or claim is related to compliance with the terms of this Agreement, or the validity, breach, termination or interpretation of this Agreement, such dispute, controversy or claim shall be resolved in accordance with Article 12.1(c). 

(c)     Each Party shall have the right to refer any dispute, controversy or claim related to compliance with the terms of this Agreement, or the validity, breach, termination or interpretation of this Agreement, to the senior management within each Party for resolution.  The senior management shall have thirty (30) days in which to meet in good faith to resolve the dispute, controversy or claim.  In the event that the senior management of both Parties are unable to resolve the matter within such thirty (30) days, the dispute, controversy or claim, shall be promptly submitted to the to the Chief Executive Officer of Emisphere or its designee and the Global Head of Pharma Development of Novartis or its designee (together, the “Senior Officers”) for resolution.  In the event the Senior Officers are unable to resolve the dispute, controversy or claim within fifteen (15) days, such dispute, controversy or claim shall
be resolved through binding arbitration pursuant to Article 12.2.

12.2         Arbitration

(a)     In the event that the Senior Officers are unable to resolve any dispute, controversy or claim between the Parties referred to them pursuant to Article 12.1(c) arising out of or in connection with compliance with this Agreement, or the validity, breach, termination or interpretation of this Agreement, the dispute, controversy or claim (other than a dispute, controversy or claim relating to patent scope, validity or infringement) shall, at the request of either Party be finally settled by binding arbitration in accordance with the then current Rules of Arbitration of the International Chamber of Commerce. 

(b)     The arbitration panel shall consist of three (3) arbitrators, each of whom must have legal or business experience in pharmaceutical licensing matters.  The arbitrators are to be selected as follows: Novartis shall nominate one (1) such qualified arbitrator; Emisphere shall nominate one (1) such qualified arbitrator; and the two arbitrators so nominated shall nominate a third such qualified arbitrator, who shall be the presiding arbitrator, in each case subject to confirmation by the International Court of Arbitration of the International Chamber of Commerce (the “ICC Court”).  In the event either Novartis or Emisphere shall have failed to nominate a qualified arbitrator as provided above within fifteen (15) days after the other Party shall have nominated its arbitrator, or the two arbitrators so nominated shall fail to agree on a third arbitrator as provided above within thirty (30) days, the presiding
arbitrator shall be appointed by the ICC Court.

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(c)     The place of arbitration shall be New York and the language of the arbitration shall be English.

(d)     Except as otherwise provided in this Agreement, the arbitration procedure set forth in this Article 12.2 shall be the sole and exclusive means of settling or resolving any dispute referred to in this Article 12.2.

(e)     Within sixty (60) days after the third and presiding arbitrator has been confirmed by the ICC Court, the Parties shall exchange all documents in their respective possession that are relevant to the issues in dispute and not protected from disclosure by attorney-client privilege or other immunity.  Each Party shall also be permitted to take sworn oral deposition of individuals, such depositions to be scheduled by mutual agreement and concluded within forty-five (45) days after the exchange of documents described above.  At least fifteen (15) days prior to the first scheduled hearing date, the Parties shall identify the witnesses that they intend to present at the arbitration hearing and the documentation on which they intend to rely.  The Parties shall use their commercially reasonable efforts to conclude the arbitration hearings within ten (10) months following the confirmation of the third and presiding
arbitrator.  The arbitrators shall issue their decision (including grounds and reasoning) in writing no later than sixty (60) days following the conclusion of the last arbitration hearing.

(f)     The award of the arbitrators shall be final and binding on the Parties and may be presented by either of the Parties for enforcement in any court of competent jurisdiction, and the Parties hereby consent to the jurisdiction of such court solely for purposes of enforcement of this arbitration agreement and any order or award entered therein.  

(g)     Each Party shall bear its own attorney’s fees, costs, and disbursements arising out of the arbitration, and shall pay an equal share of the fees and costs of the arbitrators; provided, however, the arbitrators shall be authorized to determine whether a Party is the prevailing party, and if so, to award to that prevailing Party reimbursement for its reasonable attorneys’ fees, costs and disbursements and/or the fees and costs of the arbitrators.  

(h)     Provided the Agreement has not terminated, the Parties covenant to continue the performance under the Agreement in accordance with the terms thereof, pending the final resolution of the dispute.

(i)     Notwithstanding the foregoing, either Party shall have the right to pursue an action in a court of competent jurisdiction to obtain injunctive or other equitable remedy.

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ARTICLE 13 CONFIDENTIALITY

13.1         Confidentiality

(a)                    Each Party will maintain in strictest confidence, and will ensure that its Affiliates and its and their consultants, employees, agents and representatives maintain in strictest confidence, and not publish, use or disclose for any purpose other than as set forth in this Agreement, all proprietary and confidential information or materials possessed or developed which has been or is provided by each Party to the other and whether developed before or after the Effective Date (“Confidential Information”). For the avoidance of doubt, Confidential Information shall include, but not be limited to, information or materials on substances, formulations, technology, equipment, data, reports, know-how, sources for supply, patent position and business plans inventions, discoveries, improvements and methods, business plans, marketing
techniques or plans, manufacturing and other plant designs, location of operations, and any other information regarding the business operations of a Party or in relation to Development, manufacture or Commercialization of any Product hereunder. Each Party agrees that it will not use for any purpose other than the completion of the Agreement, and will not publish, disseminate, or disclose, in any manner, to any person not subject to restrictions of confidentiality at least as strict as those contained within this Agreement, any Confidential Information, except that a Party may disclose any portion of the Confidential Information that: (i) that Party is legally required to disclose, (ii) that Party can demonstrate by competent evidence has entered or enters the public domain through no fault of that Party, (iii) that Party can demonstrate by competent evidence was already known by that Party before receipt from the disclosing Party, or is the result of Independent Research by that Party without breach
of this Agreement, in either case as shown by contemporaneous written records, or (iv) that Party can demonstrate by competent evidence was received by that Party, without restriction on disclosure, from a Third Party under no confidentiality obligation to the other Party. 

(b)                    Standard of Care.  Each party will use at least the same standard of care as it uses to protect proprietary or confidential information of its own to ensure that its employees, agents, consultants and other representatives do not disclose or make any unauthorized use of the Confidential Information but in no event less than reasonable care.  Each Party will promptly notify the other upon discovery of any unauthorized use or disclosure of the Confidential Information.  Each Party shall ensure that any agent, consultant or representative shall only receive such Confidential Information under restrictions of confidentiality at least as strict as those contained within this Agreement.

(c)                    Injunctive Relief.  Each Party acknowledges that damages resulting from disclosure of the Confidential Information would be an inadequate remedy and that,

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notwithstanding the provisions of Article 12.1(a), in the event of any such disclosure or any indication of an intent to disclose such information, a Party (or its Affiliates) owning such information shall be entitled to seek, by way of private litigation, injunctive relief or other equitable relief in addition to any and all remedies available at law or in equity. 

(d)                    Survival.  The provisions of this Article 13 will survive for *** years after the termination or expiration of this Agreement.

ARTICLE 14 MISCELLANEOUS

14.1           Public Disclosure.  The Parties agree that they may disclose publicly through press releases, upon signing this Agreement, the nature and scope of this Agreement in the form as mutually agreed by the Parties.  Thereafter, the Parties may make such public disclosures regarding this Agreement as are reasonably necessary to comply with Laws or regulations or for appropriate market disclosure, and based on the advice of external securities law counsel.  All press releases shall be approved in writing in advance by both Parties, except for such disclosures permitted pursuant to the preceding sentence, such approval not to be unreasonably withheld or delayed.  Upon the occurrence of significant events in the
Programme or Development, Emisphere and Novartis may each issue their own press release in a form as agreed by the other Party, pursuant to the terms of Article 14.2 below.

14.2         Publications.  Each Party shall have the right to review and comment on any material proposed for disclosure or publication by the other Party, such as by oral presentation, manuscript or abstract, which utilizes data generated from the Programme and/or includes Confidential Information of a Party.  Before any such material is submitted for publication, the Party proposing publication shall deliver a complete copy to the reviewing Party at least *** days prior to submitting the material to a publisher or initiating any other disclosure.  Such reviewing Party shall review any such material and give its comments to the Party proposing publication within *** days of the delivery of such material to the reviewing
Party.  With respect to oral presentation materials and abstracts, the reviewing Party shall make reasonable efforts to expedite review of such materials and abstracts, and shall return such items as soon as practicable to the Party proposing publication with appropriate comments, if any, but in no event later than *** days from the date of delivery to the reviewing Party.  The publishing Party shall comply with the reviewing Party’s request to delete references to the reviewing Party’s Confidential Information in any such material and agrees to delay any submission for publication or other public disclosure for a period of up to an additional *** days for the purpose of preparing and filing appropriate patent applications.

14.3           Amendment.  No amendment, waiver or consent to this Agreement shall be effective unless in writing and signed by both Parties hereto.

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14.4           Assignment.  

	
  
14.4.1
  	
  
Subject to   Article 10.8, neither this Agreement nor any rights or obligations hereunder   may be assigned or otherwise transferred by Emisphere to a Party which is not   an Affiliate of Emisphere without the prior written consent of Novartis;   provided, however, that Emisphere may assign this Agreement and its rights   and obligations hereunder without Novartis’ consent in connection with the   transfer or sale of all or substantially all of the business of Emisphere to   a Third Party, whether by merger, sale of stock, sale of assets or otherwise.  Any purported assignment in contravention   of this Article 14.4.1 shall, at the option of Novartis, be null and void and   of no effect.  No assignment shall   release either Party from responsibility for the performance of any accrued   obligation of such Party hereunder.    This Agreement shall be binding upon and enforceable against the   successor to or any permitted assignees of
Emisphere.
  
	
   
 	
  
 
  
	
  14.4.2
  	
  
Subject to   Article 10.8, Novartis shall consult with Emisphere prior to an assignment by   it of the rights or obligations hereunder to a Party which is not an   Affiliate of Novartis, however Novartis may assign this Agreement without the   consent of Emisphere. Novartis shall give Emisphere written notice within   five Business Days of such assignment.    No assignment shall release either Party from responsibility for the   performance of any accrued obligation of such Party hereunder.  This Agreement shall be binding upon and   enforceable against the successor to or any permitted assignees of Novartis.
  
	
   
 	
  
 
  
	
  
14.4.3
  	
  
In the event   that an Affiliate to which a Party has assigned any of its rights or   obligations under this Agreement ceases to be an Affiliate of that Party, the   Affiliate shall assign back to that Party all such rights and obligations   prior to it ceasing to be an Affiliate.
  

14.5         Entire Agreement.  This Agreement (including the Annexes hereto) constitutes the entire agreement of the Parties with respect to the Compound and supersedes any and all prior negotiations, correspondence and understandings between the Parties with respect to the subject matter hereof, whether oral or in writing.  Notwithstanding the foregoing, the Prior Agreement shall remain in full force and effect in accordance with its terms.

14.6         Governing Law.  This Agreement shall be governed by, construed and enforced in accordance with the Laws of the State of New York without regard to the conflicts of Laws principles thereof.  

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14.7         Notices.  All notices and other communications pursuant to this Agreement shall be in writing, shall be effective when received, and shall be deemed to have been received on the date of delivery if delivered personally; or on the second business day after the business day of deposit with Federal Express or other similar courier for overnight delivery, freight prepaid; in each such case, addressed as follows (until any such address is changed by notice duly given): 

to Novartis:
 Novartis Pharma AG
 Lichtstrasse 35
 CH-4056 Basel, 
 Switzerland
 Attention: ***
 Telecopy: 41 61 324 2100

with copy to:
Novartis Pharma AG
 Lichtstrasse 35
 CH-4056 Basel, 
Switzerland
 Attention: ***
 Telecopy: 41 61 324 2100

to Emisphere:
 Emisphere Technologies, Inc.
 765 Old Saw Mill River Road
 Tarrytown, NY 10591
 Attention: ***
 Telecopy: (914) 347-2498

with copy to:
 ***
 Proskauer Rose LLP
 1585 Broadway,
 New York, NY 10036
 Telecopy: 212 969 2900

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14.8         Counterparts.  This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

14.9         Diligence.  Each Party will use Commercially Reasonable Efforts to conduct the tasks assigned to it hereunder.  Each Party, further, agrees to conduct such tasks as diligently as the Party conducts research and development for other projects of similar commercial potential and at similar stages of development.  Neither Party will be responsible for delays due to factors beyond its reasonable control.

14.10       No Agency.  It is understood and agreed that Emisphere and Novartis each shall have the status of independent contractors under this Agreement and that nothing in this Agreement shall be construed as authorization for either Party to act as agent for the other.  Members of the Steering Committee who are employees of Emisphere shall be and shall remain employees of Emisphere and Novartis shall not incur any liability for any act or failure to act by such employees.  Members of the Steering Committee who are employees of Novartis shall be and shall remain employees of Novartis and Emisphere shall not incur any liability for any act or failure to act by such employees.

14.11       Force Majeure.  Each Party hereto shall be relieved of its obligations hereunder to the extent that fulfillment of such obligations shall be prevented by acts beyond its reasonable control.

14.12       Titles.  The titles of the Articles of this Agreement are for general information and reference only, and this Agreement shall not be construed by reference to such titles.

14.13       Severability.  Each Party agrees that, should any provision of this Agreement be determined by a court of competent jurisdiction to violate or contravene any applicable law or policy, such provision will be severed or modified by the court to the extent necessary to comply with the applicable law or policy, and such modified provision and the remainder of the provisions hereof will continue in full force and effect.

14.14       Waiver.  Failure by either Party to enforce any rights under this Agreement shall not be construed as a waiver of such rights nor shall a waiver by either Party in one or more instances be construed as constituting a continuing waiver or as a waiver in other instances.

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14.15       Third Party Beneficiaries.  This Agreement is neither expressly nor impliedly made for the benefit of any party other than those executing it.

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IN WITNESS WHEREOF, the undersigned have executed this Agreement on the day and year first above written.

	
  
EMISPHERE TECHNOLOGIES, INC.
  	
  
 
  
	
  
 
  	
  
 
  	
  
 
  
	
  
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