SCHEDULE 14A INFORMATION

   Proxy Statement Pursuant to Section 14(a) of the Securities
                      Exchange Act of 1934
                      (Amendment No.     )


Filed by the Registrant  [x]

Filed by a Party other than the Registrant  [  ]

Check the appropriate box:

 [ ]     Preliminary Proxy Statement

 [ ]     Confidential, for Use of the Commission Only (as permitted
                    by Rule 14a-6(e)(2))

 [x]     Definitive Proxy Statement

 [ ]     Definitive Additional Materials

 [ ]     Soliciting Material Pursuant to Section 240.14a-11(c) or Section
                    240.14a-12


                  EMISPHERE TECHNOLOGIES, INC.
        (Name of Registrant as Specified In Its Charter)


 (Name of Person(s) Filing Proxy Statement if other than the Registrant)


Payment of Filing Fee (Check the appropriate box):

 [x] No fee required

 [ ]  Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
      1)  Title of each class of securities to which transaction applies: 

      2)  Aggregate number of securities to which transaction applies: 

      3)  Per unit price or other underlying value of transaction computed
      pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
      filing fee is calculated and state how it was determined): 

         4)  Proposed aggregate value of transaction:

         5)  Total fee paid:

 [ ]  Fee paid previously with preliminary materials.

 [ ]  Check box  if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing  for which the offsetting  fee was  paid
previously.  Identify the previous  filing by  registration statement number, or
the Form or Schedule and the date of its filing.

     1)  Amount Previously Paid:                 

     2)  Form, Schedule or Registration Statement No.:

     3)  Filing Party:                 

     4)  Date Filed:                 

                         EMISPHERE TECHNOLOGIES, INC.
                          765 Old Saw Mill River Road
                          Tarrytown, New York  10591


                                                              December 18, 1998



Dear Stockholder:

          You are  cordially invited  to attend the Company's Annual Meeting of
Stockholders to  be held  on  Monday, January 25, 1999 at 10:00 a.m. local time
at the Westchester Marriott Hotel, 670 White Plains Road, Tarrytown, New York.

          At this  meeting, you  will be  asked to  consider and  vote upon the
election of  directors of  the Company,  to approve and adopt amendments to the
Company's Restated  Certificate of  Incorporation providing  among other things
for an  increase in  the number of authorized shares, the classification of the
Board of  Directors and  the taking  of stockholder  action only by meeting, to
approve and  adopt amendments  to the Company's 1991 Stock Option Plan and 1995
Non-Qualified Stock Option Plan and to ratify the Board of Directors' selection
of PricewaterhouseCoopers LLP to serve as the Company's independent accountants
for the fiscal year ending July 31, 1999.

          The  Board   of  Directors  appreciates  and  encourages  stockholder
participation in  the Company's affairs and cordially invites you to attend the
meeting in  person.   It  is  in  any  event  important  that  your  shares  be
represented and  we ask  that you sign, date and mail the enclosed proxy in the
envelope provided at your earliest convenience.

          Thank you for your cooperation.

                                   Very truly yours,

                                   MICHAEL M. GOLDBERG, M.D.
                                   Chairman of the Board of Directors




                         EMISPHERE TECHNOLOGIES, INC.
                          765 Old Saw Mill River Road
                          Tarrytown, New York  10591

                       ________________________________

                   NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
                       ________________________________

                                                            Hawthorne, New York
                                                              December 18, 1998

          NOTICE IS  HEREBY GIVEN  that the  Annual Meeting  of Stockholders of
EMISPHERE TECHNOLOGIES,  INC. (the  "Company"), a Delaware corporation, will be
held at  the Westchester  Marriott Hotel, 670 White Plains Road, Tarrytown, New
York on  Monday, January 25, 1998 at 10:00 a.m. local time, for the purposes of
considering and  voting upon  the following matters, as more fully described in
the attached Proxy Statement:

          1.   To elect eight directors;

          2.   To approve  and adopt  an amendment  to the  Company's  Restated
     Certificate of  Incorporation providing  for an  increase in the number of
     shares of  the Common  Stock the  Company  is  authorized  to  issue  from
     20,000,000 to 40,000,000;

          3.   To approve  and  adopt  amendments  to  the  Company's  Restated
     Certificate of  Incorporation providing  for (i) the classification of the
     Board of Directors into three classes to serve staggered three-year terms,
     (ii) the  fixing of  the number of directors constituting the entire Board
     of Directors  at a  maximum of  twelve and  a minimum  of three, (iii) the
     removal of directors only for cause and (iv) related matters;

          4.   To approve  and  adopt  amendments  to  the  Company's  Restated
     Certificate of Incorporation providing for the taking of any action by the
     stockholders of  the Corporation only at a meeting of stockholders and not
     by written consent without a meeting and related matters;

          5.   To approve  and adopt  an amendment  to the Company's 1991 Stock
     Option Plan  providing among  other things  for an increase in the maximum
     number of  shares of  the Company's  Common Stock  available for  issuance
     thereunder by 300,000;

          6.   To approve  and adopt  an amendment  to the  Company's 1995 Non-
     Qualified Stock  Option Plan  providing among other things for an increase
     in the  maximum number  of shares  of the Company's Common Stock available
     for issuance thereunder by 250,000;

          7.   To   ratify    the   Board    of   Directors'    selection    of
     PricewaterhouseCoopers  LLP   to  serve   as  the   Company's  independent
     accountants for the fiscal year ending July 31, 1999; and

          8.   To transact  such other business as may properly come before the
     meeting or any adjournment thereof.

          Only those  stockholders of  record  at  the  close  of  business  on
November 27,  1998 will  be entitled  to receive  notice of,  and vote at, said
meeting.   A list  of stockholders  entitled to  vote at the meeting is open to
examination by any stockholder at the principal offices of the Company, 765 Old
Saw Mill River Road, Tarrytown, New York  10591.

          All stockholders  are cordially  invited to  attend  the  meeting  in
person.   In any  event, please mark your votes, then date, sign and return the
accompanying form  of proxy in the envelope enclosed for that purpose (to which
no postage  need be  affixed if mailed in the United States) whether or not you
expect to attend the meeting in person.  Please note that the accompanying form
of proxy  must be  returned to record your vote.  The proxy is revocable by you
at any  time prior  to its exercise.  The prompt return of the proxy will be of
assistance in  preparing for  the meeting  and your cooperation in this respect
will be appreciated.

                                   By order of the Board of Directors

                                   SAM J. MILSTEIN, PH.D.
                                   Secretary

                         EMISPHERE TECHNOLOGIES, INC.
                          765 Old Saw Mill River Road
                          Tarrytown, New York  10591

                       ________________________________

                                PROXY STATEMENT
                       ________________________________


          This Proxy  Statement is  furnished to  holders of  the Common Stock,
$.01 par  value per share (the "Common Stock"), of Emisphere Technologies, Inc.
(the "Company")  in  connection  with  the  solicitation  of  proxies,  in  the
accompanying form,  by the  Board of  Directors of  the Company, for use at the
Annual Meeting  of Stockholders  to be  held at the Westchester Marriott Hotel,
670 White  Plains Road,  Tarrytown, New  York on  Monday,  January 25, 1999, at
10:00 a.m.  local time,  and at any and all adjournments thereof.  Stockholders
may revoke  the authority  granted by  their execution  of proxies  at any time
prior to  their use  by filing  with the  Secretary of  the Company  a  written
revocation or  duly executed  proxy bearing  a later  date or  by attending the
meeting and  voting in  person.   The Company  has  retained  the  services  of
Georgeson & Company Inc. to assist in  the  solicitation of proxies, for  which
the  Company  will  pay  a  fee  of  $8,000   and  certain  expenses  incurred.
Solicitation of proxies will be made chiefly  through the mails, but additional
solicitation may be made by telephone  or  telegram  by the officers or regular
employees of the Company.  The Company  may also  enlist the  aid of  brokerage
houses  or  the  Company's  transfer   agent   in   soliciting   proxies.   All
solicitation  expenses, including costs of preparing,  assembling  and  mailing
proxy material, will be  borne  by  the  Company.   This  proxy  statement  and
accompanying form of proxy  are  being  mailed  to  stockholders  on  or  about
December 18, 1998.

          Shares of  the Common  Stock represented  by executed  and  unrevoked
proxies will  be voted  in accordance with the choice or instructions specified
thereon.   It is  the intention  of the  persons named  in  the  proxy,  unless
otherwise specifically instructed in the proxy, to vote all proxies received by
them FOR  the election  of the eight nominees named herein, FOR the adoption of
the amendments  to the Company's Restated Certificate of Incorporation, FOR the
approval of  the amendments  to the  1991 Stock  Option Plan  and the 1995 Non-
Qualified Stock  Option Plan  and FOR  ratification of  the Board of Directors'
selection of  PricewaterhouseCoopers LLP  to serve as the Company's independent
accountants for the fiscal year ending July 31, 1999.

          If a  quorum is  present at  the meeting,  those nominees receiving a
plurality of the votes cast will be elected as directors.  The affirmative vote
of a majority of the shares of the Common Stock outstanding will be required to
approve the adoption of the amendments to the Company's Restated Certificate of
Incorporation.   A majority of the votes cast (excluding abstentions and broker
non-votes) will  be required  for the  approval of the amendments to the to the
1991 Stock  Option Plan  and the  1995 Non-Qualified  Stock Option Plan and the
ratification of  the Board's  selection of  PricewaterhouseCoopers LLP  as  the
Company's independent accountants.


                                    VOTING

          Only stockholders  of record at the close of business on November 27,
1998 will  be entitled  to vote  at the  meeting or  any and  all  adjournments
thereof.  As of November 27, 1998 the Company had outstanding 11,024,808 shares
of the Common Stock, the Company's only class of voting securities outstanding.
Each stockholder  of the Company will be entitled to one vote for each share of
the Common  Stock registered in his or her name on the record date.  A majority
of all  shares of  the Common  Stock outstanding  constitutes a  quorum and  is
required to  be present  in person  or by  proxy to  conduct  business  at  the
meeting.

                BENEFICIAL OWNERSHIP OF COMMON STOCK BY CERTAIN
                          STOCKHOLDERS AND MANAGEMENT

          The following table sets forth certain information, as of October 16,
1998, except  as noted,  regarding the beneficial ownership of the Common Stock
by (i)  each person or group known to the Company to be the beneficial owner of
more than  5% of  the outstanding  Common Stock, (ii) each director and nominee
for director  of the Company, (iii) each executive officer of the Company named
below and  (iv) all directors and executive officers of the Company as a group.
Except as  otherwise specified,  the named beneficial owner has sole voting and
investment power over the shares listed.

                                             Amount and Nature of      Percent
Name and Address of Beneficial Owner(1)     Beneficial Ownership(2)    of Class
- -----------------------------------------   -----------------------    --------
Amerindo Investment Advisors Inc. and
 affiliates (3)..........................       1,162,300                10.5%
  One Embarcardero Center, Suite 2300
  San Francisco, California  94111-3162

Elan International Services Ltd..........         940,000                 8.5%
  102 St James Court
  Flatts Smiths FL04
  Bermuda

INVESCO PLC and affiliates (4)...........         962,450                 8.7%
  11 Devonshire Square
  London EC2M 4YR
  England

Michael M. Goldberg, M.D.................       1,248,516(5)             10.2%
Sam J. Milstein, Ph.D....................         768,844                 6.5%
Howard M. Pack...........................         168,363(6)              1.5%
Jere E. Goyan, Ph.D......................          77,000                   *
Peter Barton Hutt, Esq...................          77,000                   *
Mark I. Greene, M.D., Ph.D...............          57,000                   *
Joseph R. Robinson, Ph.D.................           9,000                   *
Robert J. Levenson (7)...................           8,000                   *
Robert A. Baughman, Jr., Pharm.D., Ph.D..         139,088                 1.2%
Lewis H. Bender..........................          57,884                   *
Barry B. Kanarek, M.D., Ph.D.............             700                   *
All directors and executive officers
  as a group.............................       2,611,395(5)(6)(7)       19.4%
_______________________________
* Less than 1%
(1) Unless otherwise specified, the address of each beneficial owner is c/o the
    Company, 765 Old Saw Mill River Road, Tarrytown, New York  10591.
(2) The number  of shares  set forth for each director and executive officer of
    the Company  includes the  following number of shares with respect to which
    such individual  has the  right, exercisable  within 60  days,  to  acquire
    beneficial ownership upon exercise of options granted by the Company:

                                               Number of Shares
                                               ----------------
       Dr. Goldberg.......................       1,207,497
       Dr. Milstein.......................         767,757
       Mr. Pack...........................          77,000
       Dr. Goyan..........................          77,000
       Mr. Hutt...........................          77,000
       Dr. Greene.........................          57,000
       Dr. Robinson.......................           9,000
       Dr. Baughman.......................         135,268
       Mr. Bender.........................          53,176
       All directors and executive
       officers as a group................       2,460,698


                                      -2-

(3) Based on  a Schedule  13G/A filed  February 13,  1998, Amerindo  Investment
    Advisors Inc.,  a California  corporation,  Amerindo  Investment  Advisors,
    Inc., a  Panama corporation,  Alberto W.  Vilar and  Gary A.  Tanaka  share
    voting and dispositive power with respect to 1,162,300 shares.

(4) Based on  a Schedule  13G/A filed  February 12, 1998, INVESCO PLC, AMVESCAP
    PLC, AVZ,  Inc., AIM  Management Group Inc., AMVESCAP Group Services, Inc.,
    INVESCO, Inc.,  INVESCO North  American  Holdings,  Inc.,  INVESCO  Capital
    Management, Inc., INVESCO Funds Group, Inc., INVESCO Management & Research,
    Inc.  and   INVESCO  Realty  Advisers,  Inc.,  all  of  which  are  English
    corporations, share  voting and  dispositive power  with respect to 962,450
    shares.

(5) Does not  include 130,000  shares with  respect to  which  members  of  Dr.
    Goldberg's family  have the  right to  acquire  beneficial  ownership  upon
    exercise of  options and  with respect  to  which  Dr.  Goldberg  disclaims
    beneficial ownership.

(6) Does not  include 331,519  shares beneficially  owned by various members of
    Mr. Pack's  family, with  respect to  which Mr.  Pack disclaims  beneficial
    ownership.

(7) Includes 1,000  shares held  by the  Robert J.  and  Mira  Levenson  Family
    Foundation, with  respect to which shares Mr. Levenson disclaims beneficial
    ownership


                      PROPOSAL I:  ELECTION OF DIRECTORS

          At the  meeting, eight  directors (constituting  the entire  Board of
Directors) are  to be  elected.   If the  proposed amendments  to the Company's
Restated Certificate  of Incorporation  (as set forth in Proposal III) relating
to the  classification of  the Board  of  Directors  into  three  classes  with
staggered three-year  terms are adopted by the stockholders of the Company, the
proxies given  pursuant to this solicitation will be voted, unless authority is
withheld, in  favor of  the eight  nominees listed below to serve for the terms
indicated.

        Class I                   Class II                    Class III
- -----------------------  ---------------------------  -------------------------
(Term expiring in 2000)    (Term expiring in 2001)     (Term expiring in 2002)
Sam J. Milstein, Ph.D.   Mark I. Greene, M.D., Ph.D.  Michael M. Goldberg, M.D.
 Jere E. Goyan, Ph.D.      Peter Barton Hutt, Esq.       Robert J. Levenson
                               Howard M. Pack         Joseph R. Robinson, Ph.D.


          If such  amendments are  not adopted,  the  eight  nominees  will  be
elected to  serve until the next annual meeting of stockholders and until their
respective successors  are elected  and qualified.   Should  a  nominee  become
unavailable to  serve for  any  reason,  the  proxies  will  be  voted  for  an
alternative nominee  to be  determined by  the persons named in the proxy.  The
Board of  Directors  has  no  reason  to  believe  that  any  nominee  will  be
unavailable.   Proxies cannot be voted for a greater number of persons than the
number of  nominees named.  The election of directors requires a plurality vote
of those shares voted at the meeting with respect to the election of directors.

Information Concerning Nominees

          The persons  nominated as  directors of  the Company (all of whom are
currently directors  of the  Company), their respective ages, the year in which
each first  became a director of the Company and their principal occupations or
employment during the past five years are as follows:


                                      -3-

                                     Year
                                    First
                                   Elected
      Name                    Age  Director  Position with the Company  
- ----------------------------  ---  --------  --------------------------------
Michael M. Goldberg, M.D....   39    1990     Chairman of the Board of
                                              Directors and Chief Executive
                                              Officer
Jere E. Goyan, Ph.D.........   68    1992     Director
Mark I. Greene, M.D., Ph.D..   50    1995     Director
Peter Barton Hutt, Esq......   64    1992     Director
Robert J. Levenson..........   57    1998     Director

Sam J. Milstein, Ph.D.......   49    1991     Director,President, Chief
                                              Scientific Officer and Secretary
Howard M. Pack..............   80    1985     Director
Joseph R. Robinson, Ph.D....   59    1997     Director

          Michael M.  Goldberg, M.D.  has served  as Chairman  of the  Board of
Directors since November 1991 and Chief Executive Officer and a director of the
Company since  August 1990.  In addition, Dr. Goldberg served as President from
August 1990  to October  1995.   In February 1990, Dr. Goldberg founded Montaur
Capital Corporation,  a health  care investment banking firm.  Prior thereto he
was a vice president of The First Boston Corporation, and was a founding member
of the firm's healthcare banking group.

          Jere E.  Goyan, Ph.D.,  is President,  Chief Operating Officer, and a
director of  Alteon, Inc., a development stage pharmaceutical company, where he
started as  Senior Vice  President Research  and Development  in January  1993.
Prior thereto  he was  a Professor of Pharmacy and Pharmaceutical Chemistry and
the Dean  of the  School of  Pharmacy at  the  University  of  California,  San
Francisco, and  has  served  in  various  other  academic,  administrative  and
advisory positions,  including that  of  Commissioner  of  the  Food  and  Drug
Administration.   He currently  serves as  a  director  of  Atrix  Corporation,
SciClone Pharmaceuticals and Boeringer Ingelheim.

          Mark I. Greene, M.D., Ph.D. has been John Eckman Professor of Medical
Science, School of Medicine at the University of Pennsylvania for more than the
past five  years.   He currently  serves  as  a  director  of  Ribi  ImmunoChem
Research, Inc., a biopharmaceutical company.

          Peter Barton Hutt, Esq., has for more than the past five years been a
partner at  the law  firm of  Covington & Burling in Washington, D.C., where he
specializes in  the practice  of food  and drug  law.  He currently serves as a
director of Interneuron Pharmaceuticals, Inc. and Sparta Pharmaceuticals, Inc.

          Robert J.  Levenson has  been Executive  Vice President of First Data
Corporation for more than the past five years.  He previously held positions as
a director,  Senior Executive  Vice President,  member of  the  Office  of  the
President and  Chief Operating  Officer of Medco Containment Services, Inc. and
as a  director and  Group President  of Automatic  Data Processing,  Inc.    He
currently serves as a director of First Data Corporation, Superior Telecom Inc.
and Vestcom International, Inc.

          Sam J.  Milstein, Ph.D.  has been  with the  Company since  September
1990, as  a director  and Chief  Scientific Officer  since  November  1991,  as
President since  October 1995,  as Secretary  since December  1990 and  as  Co-

Director of  Science and  Research and  Development prior to November 1991.  In
addition, Dr. Milstein served as Executive Vice President from November 1990 to
October 1995.   Prior  to September  1990, Dr.  Milstein served as President of
Mortar & Pestle Consulting, Inc., a consulting firm.

          Howard M.  Pack has  served as  a director  of the  Company since its
inception in  April 1985 and served as Executive Vice President of Finance from
the Company's inception until October 1988.

          Joseph  R.  Robinson,  Ph.D.  has  been  Professor  of  Pharmacy  and
Ophthalmology at the University of Wisconsin for more than the past five years.
He currently serves as a director of Cima Laboratories, Inc.


                                      -4-

Meetings and Committees of the Board of Directors

          During the fiscal year ended July 31, 1998, the Board of Directors of
the Company  held four meetings.  Each of the incumbent directors attended more
than 75%  of the  aggregate number  of meetings  held  by  the  Board  and  the
Committees thereof on which he served.

          The Company  has an  Audit Committee  and a Compensation Committee of
the Board of Directors.  Dr. Goyan and Messrs. Hutt and Pack serve on the Audit
Committee and  Mr. Pack  and Drs. Greene and Robinson serve on the Compensation
Committee.   The  Audit  Committee  consults  with  the  Company's  independent
accountants, reviews  the services provided by such independent accountants and
oversees the  internal  accounting  procedures  of  the  Company.    The  Audit
Committee held no meetings during the fiscal year ended July 31, 1998.

          The Compensation  Committee makes  recommendations to  the  Board  of
Directors regarding  compensation of  executive officers  of  the  Company  and
administers the  Company's stock option plans.  The Compensation Committee took
all action  by unanimous consent during the fiscal year ended July 31, 1998 and
held no meetings.

          The Company  has no  standing nominating  committee and  no committee
performing a similar function.

Compensation of Directors

          Directors  receive   no  cash   compensation  in  their  capacity  as
directors.  Directors who are not employees of the Company receive, pursuant to
the Company's  Stock Option  Plan for Outside Directors (the "Directors Plan"),
options to purchase shares of the Common Stock.  Messrs. Hutt and Pack and Drs.
Goyan and Greene have each received an initial option to purchase 70,000 shares
under the  Directors Plan  in effect  prior to  January 29,  1997.   Under  the
Directors Plan  as currently in effect, Dr. Robinson and Mr. Levenson have each
received an  initial option to purchase 35,000 shares and Messrs. Hutt and Pack
and Dr.  Goyan have  each received  an additional  option  to  purchase  21,000
shares.   The exercise  prices are  $13.00 per  share for  the initial  options
granted to  Dr. Goyan  and Messrs. Hutt and Pack, $8.625 for the initial option
granted to  Dr. Greene,  $23.50 for the initial option granted to Dr. Robinson,
$6.125 for  the initial  option granted  to Mr.  Levenson and  $13.75  for  the
additional options  granted to  Messrs. Hutt  and Pack  and Dr.  Goyan.  In the
event the holder of an option ceases to serve as a director of the Company, the
option may  be exercised  with respect  to the  fully vested  shares within six
months thereafter  and will  terminate immediately with respect to all unvested
shares.

          In addition,  for each  meeting of  the Board  or a committee thereof
attended, directors have a right to receive, pursuant to the Directors Deferred
Compensation Stock  Plan, a  number of shares of the Common Stock, based on the
closing price  of the  Common Stock  on the  date of  the meeting and an amount
determined by the Board as compensation for the meeting.  For meetings attended
during the  1997 fiscal  year, Drs. Goyan, Greene and Robinson and Messrs. Hutt
and Pack each earned the right to receive 114 shares.

Voting

          Those nominees  receiving a  plurality of  the  votes  cast  will  be
elected directors.   Abstentions  and broker  non-votes  will  not  affect  the
outcome of the election.

          The Board of Directors of the Company deems the election of the eight
nominees listed  above as  directors to  be in the best interest of the Company
and its stockholders and recommends a vote "FOR" their election.


                                      -5-

                            EXECUTIVE COMPENSATION

     The  following  table  sets  forth  information  regarding  the  aggregate
compensation paid by the Company for the three fiscal years ended July 31, 1997
to the  Company's Chief  Executive Officer  and other  executive officers whose
total compensation exceeded $100,000 during the last fiscal year:

                          SUMMARY COMPENSATION TABLE

                             Fiscal      Annual            Stock
Name and Principal Position   Year   Compensation(1)   Option Grants   Other(2)
- ---------------------------- ------  --------------- ----------------- --------
Michael M. Goldberg.........  1998      $388,506       6,687            $9,792
 Chairman of the Board and    1997       359,880       4,985 shares(3)   4,750
 Chief Executive Officer      1996       335,349     756,749 shares      4,620

Sam J. Milstein.............  1998      $280,900       4,662            $9,792
 President, Chief Scientific  1997       312,904       4,253 shares(3)   4,750
 Officer and Secretary        1996       287,683     555,903 shares      3,850

Robert A. Baughman, Jr......  1998      $175,000       2,844            $7,000
 Senior Vice President and    1997       195,337      22,724 shares      4,750
 Director of Development      1996       180,154       3,664 shares      3,175

Lewis H. Bender.............  1998      $180,096       3,052            $7,000
 Senior Vice President,       1997       144,479      51,843 shares      2,748
 Business Development         1996       120,125      77,396 shares      2,032

Barry B. Kanarek............  1998      $ 65,625     126,611 shares     $  -  
 Senior Vice President,
 Clinical Affairs and
 Chief Medical Officer (4)
_______________________________
(1) Annual  compensation consists  solely  of  base  salary  except  that  Drs.
    Goldberg, Milstein  and Baughman  and Mr.  Bender were also paid in lieu of
    earned vacations $40,190, $0, $0 and $10,096, respectively, during the 1998
    fiscal year,  $31,280, $38,231,  $22,212 and  $0, respectively,  during the
    1997 fiscal year and $25,349, $33,873, $20,154 and $0, respectively, during
    the 1996  fiscal year.   As to each individual named, the aggregate amounts
    of all perquisites and other personal benefits, securities and property not
    included in  the summary compensation table above or described below do not
    exceed the lesser of $50,000 or 10% of the annual compensation.

(2) Other  compensation consists  solely of  matching contributions made by the
    Company under  a defined  contribution plan  available to substantially all
    employees.

(3) Does  not include  options with  respect to 562,315 shares for Dr. Goldberg
    and  346,716  shares  for  Dr.  Milstein  originally  granted  in  1992  in
    connection with  each  of  their  respective  employment  agreements.    By
    resolution of  the Company's  Board of  Directors adopted  during the  1997
    fiscal year, such options were deemed for all purposes to have been granted
    under the  Company's 1991  Stock Option Plan with respect to 262,315 shares
    for Dr.  Goldberg and  146,716  shares  for  Dr.  Milstein  and  under  the
    Company's 1995  Non-Qualified Stock  Option Plan  with respect  to  300,000
    shares for  Dr. Goldberg  and 200,000  shares for  Dr. Milstein.  The Board
    also extended  from July 31, 1997 to July 31, 2002 the expiration dates for
    such options.

(4) Dr. Kanarek became an executive officer of the Company in June of 1998.


                                      -6-

     The following  table sets  forth certain  information  relating  to  stock
option grants  to the  executive officers  named above  during the  fiscal year
ended July 31, 1998:

        STOCK OPTION GRANTS DURING THE FISCAL YEAR ENDED JULY 31, 1998

Percent Potential Realizable of Total Value at Assumed Number Option Annual Rates of Stock of Shares Shares Exercise Price Appreciation Underlying Granted Price Expir- for Option Term Options to Em- per ation ---------------------- Name Granted ployees Share Date 5% 10% - ----------------------- ----------- ----------- -------- -------- ---------- ---------- Michael M. Goldberg.... 975 $13.76 2/1/98 $ 2,368 $ 2,368 920 14.025 5/1/98 2,277 2,277 2,161 7.44 8/1/98 2,837 2,837 2,631 6.27 11/1/98 2,837 2,837 Sam J. Milstein........ 786 $13.76 2/1/98 $ 1,909 $ 1,909 751 14.025 5/1/98 1,859 1,859 1,416 7.44 8/1/98 1,859 1,859 1,709 6.27 11/1/98 1,859 1,859 Robert A. Baughman, Jr. 490 $13.76 2/1/98 $ 1,190 $ 1,190 468 14.025 5/1/98 1,158 1,158 822 7.44 8/1/98 1,079 1,079 1,064 6.27 11/1/98 1,158 1,158 Lewis H. Bender........ 462 $13.76 2/1/98 $ 1,122 $ 1.122 441 14.025 5/1/98 1,091 1,091 1,085 7.44 8/1/98 1,425 1,425 1,064 6.27 11/1/98 1,158 1,158 Barry B. Kanarek....... 125,000 30.1% $14.50 6/4/08 $1,139,872 $2,888,658 1,611 6.27 11/1/98 1,737 1,737 ____________________________ Options that expired in 1998 were all granted under the Company's Employee Stock Purchase Plan or Non-Qualified Employee Stock Purchase Plan at exercise prices equal to the lower of the fair market value on the date of grant or 85% of the fair market value on the date of exercise. Options expiring in 2008 were all granted under the Company's 1991 Stock Option Plan at prices equal to the fair market value on the date of grant. The total number of option shares granted during the 1998 fiscal year to employees includes 75,174 shares under the Company's Employee Stock Purchase Plan or Non-Qualified Employee Stock Purchase Plan and 340,272 shares under the Company's 1991 Stock Option Plan. Less than 1.0%
-7- The following table sets forth information as to the exercises of options during the fiscal year ended July 31, 1998 and the number and value of unexercised options held by the executive officers named above as of July 31, 1998: AGGREGATED OPTION EXERCISES AND YEAR-END OPTION VALUES
Exercises During the Fiscal Year Number of --------------------- Shares Underlying Value of Unexercised Number Unexercised Options In-the-Money Options of ----------------------- ------------------------ Shares Value Exer- Unexer- Exer- Unexer- Name Acquired Realized cisable cisable cisable cisable - ----------------------- -------- ----------- ------------- -------- ------------ ---------- Michael M. Goldberg.... 748 $ 2,051 1,337,497 300,000 $1,554,833 $600,000 850 2,544 975 40,298 920 2,323 Sam J. Milstein........ 603 $ 1,653 767,757 220,000 $ 921,058 $440,000 844 2,050 786 31,860 751 2,134 Robert A. Baughman, Jr. 398 $ 1,058 135,268 - $ 31,222 - 592 1,313 490 20,199 468 1,237 Lewis H. Bender........ 351 $ 827 53,176 88,800 $ 133,117 $122,175 427 1,026 462 11,104 441 946 Barry B. Kanarek....... - - 125,000 - - - _______________________________ Based on a closing price of $10.625 on July 31, 1998 on the Nasdaq National Market. Based on a closing price of $19.00 on August 1, 1997, the date of exercise, on the Nasdaq National Market. Based on a closing price of $19.375 on November 1, 1997, the date of exercise, on the Nasdaq National Market. Based on a closing price of $16.188 on February 2, 1998, the date of exercise, on the Nasdaq National Market. Based on a closing price of $16.50 on May 1, 1998, the date of exercise, on the Nasdaq National Market. Includes 130,000 shares with respect to which Dr. Goldberg has transferred options to members of his family and with respect to which Dr. Goldberg disclaims beneficial interest.
Employment Agreements The Company has entered into employment agreements with Michael M. Goldberg, M.D. and Sam J. Milstein, Ph.D., expiring on July 31, 2001. Pursuant to the agreements, Dr. Goldberg is to serve as Chairman and Chief Executive Officer of the Company at an annual salary of $369,215 for the 1998 fiscal year to increase at 6% per year, Dr. Milstein is to serve as President and Chief Scientific Officer at an annual salary of $297,754 for the 1998 fiscal year to increase at 6% per year and both are to be nominated to serve as members of the Board of Directors. Also pursuant to the agreements, Dr. Goldberg was granted an option to purchase 750,000 shares of the Common Stock and Dr. Milstein was granted an option to purchase 550,000 shares. The options have an exercise price of $8.625 per share and they expire on October 5, 2005 except that they become earlier exercisable if the Company achieves certain milestones, with the rate in no event being greater than either 25% of the shares for each milestone achieved or 20% of the shares in any employment year. The Company milestones required for exercisability of the options are (i) execution of a collaboration agreement providing for the commercialization of a product utilizing the Company's drug delivery technology and the payment of a royalty to the Company, (ii) one or more financings by the Company that provide aggregate net proceeds of at least $15,000,000 and (iii) any subsequent such collaboration agreement or such financings. -8- The agreements provide that, upon (i) termination by the Company either without cause or for any reason following a Change of Control (as defined in the agreements) or (ii) termination by Dr. Goldberg or Dr. Milstein, as the case may be, following an uncured breach or bankruptcy by the Company, the Company will make severance payments equal to the greater of (i) the compensation payable under the agreements from the date of termination to July 31, 2001 or (ii) one year's compensation under the agreements. Compensation Committee Report on Executive Compensation The Compensation Committee's policies applicable to the compensation of the Company's executive officers are based on the principle that total compensation should be set to attract and retain those executives critical to the overall success of the Company and should reward executives for their contributions to the enhancement of shareholder value. The key elements of the executive compensation package are base salary, employee benefits applicable to all employees and long-term incentive compensation in the form of stock options. In general, the Compensation Committee has adopted the policy that compensation for executive officers should be competitive with that paid by leading biotechnology companies for corresponding senior executives. The Compensation Committee also believes that it is important to have stock options constitute a substantial portion of executive compensation in order to help executives align their interests with those of the stockholders. The Compensation Committee's policy with respect to stock options is that their exercise prices should be equal to or above the fair market value of the Common Stock on the date of grant, that employee stock options should generally involve a five-year vesting period and that options previously granted at exercise prices higher than the current fair market value should not be repriced. In determining the compensation for each executive officer, the Compensation Committee generally considers (i) data from outside studies and proxy materials regarding compensation of executive officers at comparable companies, (ii) the input of other directors regarding individual performance of each executive officer and (iii) qualitative measures of Company performance such as progress in the development of the Company's technology, the engagement of corporate partners for the commercial development and marketing of products and the success of the Company in raising the funds necessary to conduct research and development and the fact that the Company successfully completed a preliminary human safety and tolerance trial. The Compensation Committee's consideration of such factors is subjective and informal. The compensation of Michael M. Goldberg, the Chief Executive Officer of the Company, for the 1998 fiscal year was as called for by his employment agreement with the Company entered into during the 1996 fiscal year and the Compensation Committee did not consider any amendments to the compensation thereunder. In approving the five-year employment agreement negotiated with Dr. Goldberg for the period ending July 31, 2001, the Compensation Committee concluded that Dr. Goldberg's leadership contributed significantly to the Company's achievements and progress in the past and that Dr. Goldberg will continue to make significant contributions to the Company's performance in the future. Howard M. Pack Mark I. Greene Joseph R. Robinson Comparative Stock Performance Graph The graph below compares the cumulative total stockholder return on the Company's Common Stock with the cumulative total stockholder return of (i) the Nasdaq Stock Market (U.S.) Index and (ii) the Nasdaq Pharmaceutical Index, assuming an investment of $100 on July 31, 1993 in each of the Company's Common Stock, the stocks comprising the Nasdaq Market Index and the stocks comprising the Nasdaq Pharmaceutical Index. -9- Emisphere Nasdaq Market Nasdaq Pharm. --------- ------------- ------------- 7/31/93 100 100 100 7/31/94 275 103 88 7/31/95 45 145 125 7/31/96 50 157 150 7/31/97 129 232 177 7/31/98 71 274 178 Section 16(a) Beneficial Ownership Reporting and Compliance Based solely on a review of the reports under Section 16(a) of the Exchange Act and representations furnished to the Company during the last fiscal year, the Company believes that each of the persons required to file such reports is in compliance with all applicable filing requirements. PROPOSALS II, III AND IV: APPROVAL OF AMENDMENTS TO THE COMPANY'S RESTATED CERTIFICATE OF INCORPORATION The Board of Directors deems it advisable that the Company's Restated Certificate of Incorporation be amended, subject to stockholder approval, to provide for (i) an increase in the number of shares of the Common Stock the Company is authorized to issue from 20,000,000 to 40,000,000, (ii) the classification of the Board of Directors into three classes with staggered three-year terms, (iii) the fixing of the number of directors constituting the entire Board of Directors at a maximum of twelve and a minimum of three, (iii) the removal of directors only for cause, (iv) the taking of any action by the stockholders of the Corporation only at a meeting of stockholders and not by written consent without a meeting and (v) related matters. Summary of the Proposed Amendments The proposed amendments to the Company's Restated Certificate of Incorporation, which are set forth in Appendix A hereto, are summarized briefly as follows: Increase in the Number of Authorized Shares. The proposed amendment to Article FOURTH of the Company's Restated Certificate of Incorporation increases the number of shares of the Common Stock the Company has the authority to issue from 20,000,000 to 40,000,000. Based on the number of shares issued and outstanding and reserved for issuance under the Company's benefit plans, the proposed amendment if adopted will increase the number of unreserved shares of the Common Stock available for issuance from approximately 2,364,466 to approximately 22,364,466. Classification of the Board of Directors. The Company's directors are currently elected annually and hold office until the next annual meeting of stockholders and until their respective successors are duly elected and qualified. The proposed amendments to Article TENTH to the Company's Restated Certificate of Incorporation provide for the classification of the Board of Directors into three classes with staggered terms, designated as Class I, Class II and Class III. Class I will initially consist of two directors, each to hold office until the Annual Meeting of Stockholders in 2000; Class II will initially consist of three directors, each to hold office until the Annual Meeting of Stockholders in 2001; Class III will initially consist of three directors, each to hold office until the Annual Meeting of Stockholders in 2002. Starting with the Annual Meeting of Stockholders following the 1999 fiscal year, one class of directors will be elected for a three-year term at each annual meeting, with the remaining classes continuing in office. -10- Number of Directors. The Company's Board of Directors is currently composed of eight persons. The proposed amendments will fix the number of directors constituting the entire Board of Directors at a maximum of twelve and a minimum of three. Removal of Directors. Members of the Company's Board of Directors can currently be removed, with or without cause, by the holders of a majority of the Common Stock outstanding. The proposed amendments provide that such removal can be effected only for cause. Vacancy of Directors. Any vacancies occurring on the Board of Directors can currently be filled by a majority of the remaining directors, although less than a quorum, to serve until the next annual meeting of stockholders and until a successor is duly elected and qualified. With the proposed amendments, any director so chosen will serve for the remaining term of the class for which such director was chosen. Stockholder Action only by Meeting. Under the Company's Restated Certificate of Incorporation as currently in effect, any requisite or permitted action of stockholders may be taken without a meeting, without prior notice and without a vote if written consent is signed by stockholders having the minimum number of votes necessary to authorize the action. The proposed amendments provide that action by stockholders can be taken only at an annual or special meeting of stockholders and may not be taken by written consent without a meeting. Two Thirds Majority to Amend Article TENTH. Under the Company's Restated Certificate of Incorporation as currently in effect, any amendment thereto requires the affirmative vote of a majority of the Common Stock outstanding and entitled to vote. The proposed amendments provide that any amendment to Article TENTH (relating to the classification of the Board, the removal of directors only for cause and the taking of stockholder action only by meeting) will require either (i) the affirmative vote of a two-thirds majority of the stock outstanding and entitled to vote or (ii) the unanimous approval of the Board of Directors of the Corporation and a majority of the stock outstanding and entitled to vote. Purposes and Effects of the Proposed Amendments Increase in the Number of Authorized Shares. While the Company has no present plans, agreements or understandings regarding the issuance of additional shares of the Common Stock, the Board of Directors believes that the adoption of the amendment to increase the number of authorized shares is advisable because it will provide the Company with greater flexibility in connection with possible future financing transactions, acquisitions of other companies or business properties, stock dividends or splits, employee benefit plans and other proper corporate purposes. Moreover, having such additional authorized shares available will give the Company the ability to issue shares without the expense and delay of a special meeting of stockholders. Such a delay might deprive the Company of the flexibility the Board views as important in facilitating the effective use of the Company's shares. Except as otherwise required by applicable law or rules, authorized but unissued shares of the Common Stock may be issued at such time, for such purposes and for such consideration as the Board of Directors may determine to be appropriate, without further authorization by stockholders. Since the issuance of additional shares of the Common Stock, other than on a pro rata basis to all current stockholders, would dilute the ownership interest of a person seeking to obtain control of the Company, such issuance could be used to discourage a change in control of the Company by making it more difficult or more costly. The Company is not aware of any third party seeking to accumulate shares of the Common Stock or to obtain control of the Company and the Company has no present intention to use the additional authorized shares to deter such a change in control. -11- Classification of the Board of Directors and Related Matters. As more fully discussed below, the Board of Directors believes that the proposed amendments providing for the classification of the Board of Directors and related matters will, if adopted, effectively reduce the possibility that a third party could effect a sudden or surprise change in majority control of the Board without the support of the incumbent Board. Although neither the Board of Directors nor the management of the Company is aware of any actual or threatened change in control of the Company, the purpose of the proposed amendments is to discourage certain types of activity that in the future might involve an actual or threatened change in control. The proposed amendments are designed to make it more difficult and time consuming to change majority control of the Board of Directors and thus reduce the vulnerability of the Company to an unsolicited proposal for the takeover of the Company that does not contemplate the acquisition of all of the Company's outstanding shares at a fair price, or an unsolicited proposal for the restructuring or sale of all or part of the Company. Third parties sometimes accumulate substantial stock positions in public companies with a view toward using a control block of stock to force a restructuring, merger or consolidation or to force a corporation to repurchase the control block at a premium. Such actions are often taken without advance notice to or consultation with the board of directors or management of the corporation. In many cases, such third parties seek representation on the corporation's board of directors in order to increase the likelihood that their proposals will be implemented by the corporation. If the corporation resists the efforts to obtain representation on the corporation's board, such parties may commence proxy contests to have themselves or their nominees elected to the board of directors in place of certain directors or the entire board. In some cases, such third party may be interested not in taking over the corporation, but in using the threat of a proxy fight or takeover bid as a means of forcing the corporation to repurchase its holdings at a substantial premium over market price. The Board of Directors of the Company believes that the threat of removal of the Company's directors in such situations would curtail the Board's ability to negotiate effectively with such persons. Management would be deprived of the time and information necessary to evaluate the takeover proposal, to study alternative proposals and to help ensure that the best price is obtained in any transaction involving the Company that may ultimately be undertaken. The proposed amendments to Article TENTH of the Company's Restated Certificate of Incorporation will, if adopted, have the effect of making it more difficult to change the composition of the Board of Directors and therefore help to assure the continuity and stability of the Company's management and policies. A classified Board of Directors upon which Directors serve three-year terms requires at least two annual stockholder meetings in order to effect a change in the control of the Board. Currently, a change in control of the Board of Directors could be effected in one stockholder meeting. The provision prohibiting removal of Directors except for cause further stabilizes the composition of the Board of Directors. By stabilizing the composition of the Board of Directors, the proposed amendment is designed to encourage any person who might seek to acquire control of the Company to consult first with the Company's Board of Directors and to negotiate the terms of any proposed business combination or tender offer. The Board of Directors believes that any takeover attempt or business combination in which the Company is involved should be thoroughly studied by the Board of Directors to assure that all of the Company's stockholders are treated fairly. -12- Takeovers or changes in the directors of the Company that are proposed and effected without prior consultation and negotiation with the Company's Board of Directors may not necessarily be detrimental to the Company and its stockholders; the adoption of the proposed amendments could discourage or frustrate future attempts to acquire control of the Company that are not approved by the incumbent Board of Directors, but which a majority of stockholders might deem to be in their best interests. One of the effects of proposed amendments to Article TENTH may be to discourage prospective acquirors from making tender offers for, or open market purchases of, shares of the Common Stock without the approval of the Company's Board of Directors. The proposed amendments, if adopted, could also delay or frustrate the assumption of control by a holder of a large block of shares of the Common Stock or the removal of incumbent directors, even if stockholders considered such events to be beneficial. The Board of Directors feels, however, that the benefits of seeking to protect its ability to negotiate with the proponent of an unfriendly or unsolicited proposal to take over or restructure the Company outweigh the disadvantages of discouraging such proposals. Stockholder Action Only by Meeting and Related Matters. The provision for stockholder action only by meeting in the proposed amendments to Article TENTH of the Company's Restated Certificate of Incorporation will, if adopted, have the effect of delaying any stockholder action until a meeting of stockholders can be called. Since the Company's By-Laws, as amended, bar stockholders from calling a special meeting of stockholders, the presentation of stockholder actions that have not received approval of the Board of Directors may be delayed until the next annual meeting of stockholders. Furthermore, since the Company's By-Laws set notice requirements for the presentation of stockholder actions at an annual meeting of stockholders, action on stockholder proposals may be further delayed. Set forth as Appendix B hereto are the relevant provisions in the Company's By-Laws, as amended, relating to the procedure to be followed for the presentation of stockholder proposals. Certain Other Provisions and Factors Having Possible Anti-Takeover Effects Preferred Stock and Preferred Stock Purchase Rights. Article FOURTH of the Company's Restated Certificate of Incorporation authorizes the issuance of 1,000,000 shares of Preferred Stock by the Company without requiring any further action by the Company's stockholders and authorizes the Board of Directors to issue Preferred Stock in one or more series, with such powers, designations, preferences and rights as determined by the Board. On March 5, 1996, the Board of Directors designated the Series A Junior Participating Cumulative Preferred Stock, par value $.01 per share (the "Series A Preferred Stock"), and declared a dividend distribution of one right (a "Right") to purchase shares of the Series A Preferred Stock for each share of the Common Stock outstanding to stockholders of record at the close of business on March 15, 1996. The description and terms of the Rights are set forth in a Rights Agreement, dated as of February 23, 1996 (the "Rights Agreement"), between the Company and Continental Stock Transfer & Trust Company, as Rights Agent. The Rights are non-exercisable and non-separable from the Common Stock until the earlier of (i) ten days following a public announcement that a person or group of affiliates or associated persons (an "Acquiring Person") has acquired, or obtained the right to acquire, beneficial ownership of 20% or more of the shares of the Common Stock outstanding or (ii) ten business days following the commencement of a tender offer or exchange offer that would result in a person or group beneficially owning 20% or more of the shares of the Common Stock outstanding,. Thereafter, upon the occurrence of certain events specified in the Rights Agreement and unless the Rights are redeemed by the Board of Directors, the holders of the Rights other than an Acquiring Person can exercise the Rights in accordance with the terms thereof. -13- The Rights may have certain anti-takeover effects in that they may deter a third party from acquiring control of the Company in a manner or on terms not approved by the Board of Directors. In light of recent rulings in Delaware courts with respect to shareholder rights plans generally, the Board of Directors may consider the adoption of certain amendments to the Rights Agreement and the notification of the Company's stockholders of such amendments. The Board presently has no plans to issue shares of Preferred Stock other than as may be required by the Rights Agreement. Collaboration Agreements. In connection with certain collaboration agreements the Company has entered into with Elan Corporation plc, Eli Lilly and Company and Novartis Pharma AG, each of those companies has agreed not to acquire shares of the Common Stock above certain specified levels. Furthermore, the agreement with Elan Corporation plc provides that a change of control of the Company would constitute an event of default thereunder with potential adverse effects on the Company. Delaware Law. Section 203 of the Delaware General Corporation Law prohibits publicly held Delaware corporations from engaging in a "business combination" with an "interested stockholder" for a period of three years following the time of the transaction in which the person or entity became an interested stockholder unless (i) prior to such time either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder is approved by the board of directors of the corporation, (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the outstanding voting stock of the corporation (excluding for this purpose certain shares owned by persons who are directors and also officers of the corporation and by certain employee benefit plans) or (iii) at or subsequent to such time the business combination is approved by the board of directors of the corporation and by the affirmative vote (and not by written consent) of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. For the purposes of Section 203, a "business combination" is broadly defined to include mergers, asset sales and other transactions resulting in a financial benefit to the interested stockholder. An "interested stockholder" is person who, together with affiliates and associates, owns (or within the immediately preceding three years did own) 15% or more of the corporation's voting stock. Voting The amendments to the Company's Restated Certificate of Incorporation must be approved by the affirmative vote of a majority of the shares of the Common Stock outstanding. Abstentions from voting and broker non-votes will have the effect of "no" votes. The Board of Directors of the Company deems the adoption of the amendments to the Company's Restated Certificate of Incorporation to be in the best interest of the Company and its stockholders and recommends that holders of the Common Stock vote FOR Proposal II, FOR Proposal III and FOR Proposal IV. -14- PROPOSALS V AND VI: APPROVAL OF AMENDMENTS TO THE COMPANY'S 1991 STOCK OPTION PLAN AND 1995 NON-QUALIFIED STOCK OPTION PLAN The Company's Board of Directors has determined that additional shares of the Common Stock should be made available for grants of stock options to the Company's officers and other employees and consultants who will be responsible for the profitability and long-term future growth of the Company. Accordingly, the Board has approved an amendment to the Company's 1991 Stock Option Plan (as amended, the "1991 Plan") to increase the maximum number of shares of the Common Stock available for the grant of options thereunder from 1,700,000 shares to 2,000,000 and an amendment to the Company's 1995 Non- Qualified Stock Option Plan (as amended, the "1995 Plan" and, collectively with the 1991 Plan, the "Plans") to increase the maximum number of shares of the Common Stock available for the grant of options thereunder from 2,100,000 shares to 2,350,000. As of October 31, 1998, options with respect to 1,697,244 shares were outstanding under the 1991 Plan and options with respect to 1,875,000 shares were outstanding under the 1995 Plan. The Board has also approved, subject to approval of the Company's stockholders, an amendment with respect to the provision for amending the Plans. The 1991 Plan currently calls for shareholder approval of any amendment that would increase the aggregate number of shares that could be issued thereunder, materially increase the benefits thereunder or modify the class of persons eligible to receive options thereunder. The 1995 Plan calls for shareholder approval of any material amendment thereof. As amended, the Plans will call for shareholder approval if such approval is required to ensure that the grant and exercise of options thereunder are exempt transactions under Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended, to comply with any rule or regulation of a governmental authority, applicable securities exchange or the Nasdaq National Market or, with respect to the 1991 Plan, to ensure that options intended to qualify as incentive stock options under the Internal Revenue Code of 1986, as amended, meet all requirements for such qualification. If the amendments are not approved by the stockholders, the Company will have to reevaluate how it will provide incentives to the Company's existing and future officers and other employees and consultants. Summary of the Plans The following is a brief summary of the Plans. Purpose The purpose of the Plans is to foster the Company's ability to attract, retain and motivate those individuals who will be largely responsible for the profitability and long-term future growth of the Company. Eligible Employees The eligible participants in the 1991 Plan are the Company's officers and other key employees and consultants other than directors, as determined and designated from time to time by the Company's Compensation Committee in its sole discretion. The eligible participants in the 1995 Plan are the Company's officers and other key executive employees, as determined and designated from time to time by the Company's Compensation Committee in its sole discretion. Grants Under the Plan The 1991 Plan provides for the grant of options to purchase shares of the Common Stock, including options intended to qualify as incentive stock options under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). The 1995 Plan provides for the grant of options to purchase shares of the Common Stock, such options not intending to qualify as such incentive stock options. -15- Administration The Plans are administered by the Compensation Committee of the Board of Directors of the Company, each member of which is intended to be a "Non-Employee Director" within the meaning of Rule 16b-3 under the Exchange Act. Subject to the provisions of the Plans, the Compensation Committee has the authority and discretion to grant options under the Plans, to interpret the provisions of the Plans and option agreements made thereunder and to take such other action as may be necessary or desirable in order to carry out the provisions of the Plans. Maximum Shares to be Issued The maximum number of shares that may be issued pursuant to the grant of options under the Plans is 2,000,000 in the aggregate with respect to the 1991 Plan and 2,350,000 in the aggregate with respect to the 1995 Plan (subject to anti-dilution adjustments). In the event a stock option granted under the Plans expires or terminates prior to exercise, the shares subject thereto will thereafter be available for further option grants. Terms of Stock Option Grants The Compensation Committee specifies the terms and conditions of stock options granted under the Plans including without limitation the number of shares covered by each option, the exercise price, the option period, any vesting restrictions with respect to the exercise of the option and, with respect to the 1991 Plan, whether the option is intended to qualify as an incentive stock option. No option under the 1991 Plan may have an exercise price of less than the par value of the Common Stock or an option exercise period of more than ten years. Options intending to qualify as incentive stock options under the 1991 Plan and all options under the 1995 Plan must have an exercise price per share of not less than the fair market value of the Common Stock on the date of grant and an option exercise period of not more than ten years. Furthermore, an option intending to qualify as an incentive stock option and granted to a person who at the time of the grant holds more than 10% of the total combined voting power of all classes of stock of the Company must have an exercise price per share of not less than 110% of the fair market value of the Common Stock on the date of grant and an option exercise period of not more than five years. Restrictions on Transfer Options under the Plans may not be transferred by an optionee other than by will or by the laws of descent and distribution and may be exercised during the optionee's lifetime only by the optionee, except that an option under the 1995 Plan may be transferred to members of the optionee's family or trusts for their benefit. Federal Income Tax Consequences The grant of options under the Plans will have no federal income tax consequences to either the Company or the option grantee. The exercise of incentive stock options will generally have no federal tax consequences to either the Company or the optionee, although the excess of the value of the stock over the exercise price is potentially subject to the alternative minimum tax under Section 55 of the Code. Upon exercise of options other than incentive stock options, the optionee is subject to federal income tax on the excess of the value of the stock over the exercise price and the Company is entitled to take a corresponding federal income tax deduction (subject to the limitation on deductibility of executive compensation). The foregoing is a general description of the federal income tax consequences relating to the grant and exercise of options under the Plans. It does not purport to cover the special rules under the Code, administrative and judicial interpretations, possible changes in the law or state and local income tax consequences. Amendment The Board of Directors of the Company may at any time amend or terminate the Plans, provided that no such amendment may be made without the approval of the stockholders of the Company to the extent approval is required by applicable laws, rules or regulations and provided further that no amendment or termination may adversely affect the rights of an optionee with respect to an outstanding option. -16- Grant Information It is not possible to determine the stock option grants that will be made pursuant to the Plans in the future. The table below sets forth information regarding the option grants that have been made under the Plans since their inception. Number of Shares Underlying Options Dollar ---------------------- Name and Position Value(1) 1991 Plan 1995 Plan - ---------------------------------- -------- --------- ---------- Michael M. Goldberg............... - 266,954 1,050,000 Chairman of the Board and Chief Executive Officer Sam J. Milstein................... - 150,478 750,000 President, Chief Scientific Officer and Secretary Robert A. Baughman, Jr............ - 90,268 - Senior Vice President and Director of Development Lewis H. Bender................... - 141,976 - Senior Vice President, Business Development Barry B. Kanarek.................. - 125,000 - Senior Vice President, Clinical Affairs and Chief Medical Officer All current executive officers as a group......................... - 774,676 1,800,000 All current directors who are not executive officers as a group (2) - - - All employees, including all current officers who are not executive officers, as a group... - 1,269,824 75,000 _______________________________ (1) Based upon the excess of the fair market value of the Common Stock on the date of grant over the exercise price. (2) Directors of the Company who are not also either employees of or consultants to the Company are not eligible to participate in the Plans. Voting The amendments to the Plans must be approved by a majority of the total votes cast on each proposal. An abstention from voting on either proposal will have the effect of a "no" vote. Broker non-votes are considered not cast and therefore will not affect the outcome of the vote. The Board of Directors of the Company deems the approval of the amendments to the 1991 Stock Option Plan and the 1995 Non-Qualified Stock Option Plan to be in the best interest of the Company and its stockholders and recommends that holders of the Common Stock vote FOR Proposal V and FOR Proposal VI. -17- PROPOSAL VII: RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS The Board of Directors has selected PricewaterhouseCoopers LLP to serve as independent accountants for the fiscal year ending July 31, 1999. PricewaterhouseCoopers LLP has served as the Company's independent accountants since November 1991. A representative of PricewaterhouseCoopers LLP is expected to be present at the meeting with the opportunity to make a statement if he desires to do so and is expected to be available to respond to appropriate questions. Although it is not required to do so, the Board of Directors is submitting the selection of independent accountants for ratification at the meeting. If this selection is not ratified, the Board of Directors will reconsider its choice. On October 1, 1998 Emisphere Technologies, Inc. (the "Company") engaged PricewaterhouseCoopers LLP as the independent accountants to audit the financial statements of Ebbisham Limited ("Ebbisham"), the joint venture company owned equally by the Company and Elan Corporation plc. KPMG, Ebbisham's independent chartered accountants upon whose opinion PricewaterhouseCoopers LLP relied for the period from the commencement of its operations on September 26, 1996 to July 31, 1997, will continue as Ebbisham's independent chartered accountants but was dismissed by the Company with respect to an opinion upon which PricewaterhouseCoopers LLP relied for the fiscal year ended July 31, 1998. Neither PricewaterhouseCoopers LLP's report on the Company's financial statements for the 1996 and 1997 fiscal years nor KPMG's report on Ebbisham for the period from the commencement of its operations to July 31, 1997 contained an adverse opinion or disclaimer of opinion and neither report was qualified or modified as to uncertainty, audit scope or accounting principles. During the Company's 1996 and 1997 fiscal years and the subsequent period preceding the dismissal of KPMG, there were neither (i) disagreements with KPMG on any matter of accounting principles or practice, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of KPMG, would have caused it to make reference to the subject matter thereof in connection with its report nor (ii) any of the reportable events listed in paragraphs (a)(1)(v)(A) through (D) of Item 304 of Regulation S-K promulgated under the Securities Exchange Act of 1934, as amended. Prior to the engagement of PricewaterhouseCoopers LLP as the independent accountant to audit Ebbisham's financial statements, neither the Company nor Ebbisham consulted with PricewaterhouseCoopers LLP regarding the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company's financial statements. The Company's decision to change accountants with respect to the audit of Ebbisham's financial statements was not recommended or approved by the audit committee of the Company's Board of Directors. A majority of the votes cast (excluding abstentions and broker non- votes) at the meeting in person or by proxy is necessary for ratification of the selection of PricewaterhouseCoopers LLP as independent accountants of the Company. The Board of Directors of the Company deems the ratification of the selection of PricewaterhouseCoopers LLP as independent accountants of the Company to be in the best interest of the Company and its stockholders and recommends that holders of the Common Stock vote FOR Proposal VII. -18- FORM 10-K Stockholders may obtain without charge a copy of the Company's Annual Report on Form 10-K for the fiscal year ended July 31, 1998 by directing written requests to Investor Relations, Emisphere Technologies, Inc., 765 Old Saw Mill River Road, Tarrytown, New York 10591. STOCKHOLDER PROPOSALS All stockholder proposals which are intended to be presented at the Annual Meeting of Stockholders of the Company contemplated to be held in January 2000 must be received by the Company no later than July 31, 1999, for inclusion in the Board of Directors' proxy statement and form of proxy relating to the meeting. OTHER BUSINESS The Board of Directors knows of no other business to be acted upon at the meeting. However, if any other business properly comes before the meeting, it is the intention of the persons named in the enclosed proxy to vote on such matters in accordance with their best judgment. The prompt return of your proxy will be appreciated and helpful in obtaining the necessary vote. Therefore, whether or not you expect to attend the meeting, please sign the proxy and return it in the enclosed envelope. By order of the Board of Directors SAM J. MILSTEIN, PH.D. Secretary Hawthorne, New York December 18, 1998 -19- Appendix A EMISPHERE TECHNOLOGIES, INC. PROPOSED AMENDMENT to the RESTATED CERTIFICATE OF INCORPORATION RESOLVED that Article FOURTH and Article TENTH of the Corporation's Certificate of Incorporation be amended to read in full as follows: * * * * FOURTH: The total number of shares of stock which the Corporation shall have the authority to issue is forty-one million (41,000,000), consisting of 40,000,000 shares of common stock, $.01 par value per share ("Common Stock"), and 1,000,000 shares of preferred stock, $.01 par value per share ("Preferred Stock"). * * * * TENTH: For the management of the business and for the conduct of the affairs of the Corporation, and in further definition, limitation and regulation of the powers of the corporation and of its directors and of its stockholders or any class thereof, as the case may be, it is further provided: (a) Number, Election and Terms of Office of Board of Directors. The business of the Corporation shall be managed by a Board of Directors consisting of not less than three nor more than twelve members, the exact number of directors within such minimum and maximum limitations to be fixed from time to time by resolution adopted by a majority of the entire Board of Directors then in office, whether or not present at a meeting. Directors need not be stockholders of the Corporation. The directors shall be divided into three classes with the term of office of the first class to expire at the first annual meeting of stockholders of the Corporation next following the end of the Corporation's fiscal year ending July 31, 1999, the term of office of the second class to expire at the first annual meeting of stockholders of the Corporation next following the end of the Corporation's fiscal year ending July 31, 2000 and the term of office of the third class to expire at the annual meeting of stockholders of the Corporation next following the end of the Corporation's fiscal year ending July 31, 2001. At each annual meeting of stockholders following such initial election as specified above, directors elected to succeed those directors whose terms expire shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders after their election. (b) Adoption, Amendment and Repeal of By-Laws. The power to adopt, amend or repeal by-laws of the Corporation shall be vested in the Board of Directors; provided, however, that the stockholders of the Corporation may adopt, amend or repeal by-laws of the Corporation upon the affirmative vote of a majority of the stock outstanding and entitled to vote thereon. A-1 (c) Newly Created Directorships and Vacancies. Subject to the rights of the holders of any series of Preferred Stock then outstanding, newly created directorships resulting from any increase in the authorized number of directors or any vacancies in the Board of Directors resulting from death, resignation, retirement, disqualification, removal from office or other cause shall be filled by a majority vote of the remaining directors then in office, although less than a quorum, or by a sole remaining director and any director so chosen shall hold office for a term expiring at the annual meeting of stockholders at which the term of the class to which he or she has been elected expires or, in each case, until his or her successor is duly elected and qualified. Except as may otherwise be specified in the designations of rights of any series of Preferred Stock then outstanding, no decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. (d) Removal of Directors. The removal of a director may be effected only for cause and only upon the affirmative vote of a majority of the stock outstanding and entitled to vote for the election of directors. (e) Action by Stockholders. Notwithstanding the provisions of Section 228 of the General Corporation Law of the State of Delaware (or any successor statute), any action required or permitted by such General Corporation Law to be taken at any annual or special meeting of stockholders of the Corporation shall be taken only at such an annual or special meeting of stockholders and may not be taken by written consent without a meeting. At any annual meeting or special meeting of stockholders of the Corporation, only such business as has been brought before such meeting in the manner provided by the by-laws of the Corporation shall be conducted. (f) Special Meetings of Stockholders. Special meetings of stockholders of the Corporation may be called only by the Board of Directors, the Chairman of the Board of Directors or the Chief Executive Officer of the Corporation and shall be held at such place or places within or without the State of Delaware as may be designated by the Board of Directors or the person calling such meeting and stated in the notice thereof. (g) Amendments to this Article TENTH. Notwithstanding anything in this Restated Certificate of Incorporation to the contrary, the amendment of this Article TENTH shall require either (i) the affirmative vote of a two-thirds majority of the stock outstanding and entitled to vote or (ii) the unanimous approval of the Board of Directors of the Corporation and a majority of the stock outstanding and entitled to vote. A-2 Appendix B EMISPHERE TECHNOLOGIES, INC. BY-LAWS * * * * SECTION 1.2. Special Meetings. A special meeting of stockholders may be called at any time by the Board of Directors, the Chairman of the Board or the Chief Executive Officer. Any such meeting shall be held at such time and at such place, within or without the State of Delaware, as shall be determined by the body or person calling such meeting and as shall be stated in the notice of such meeting. At any special meeting of stockholders, no business may be transacted other than (i) such business stated in the notice thereof given pursuant to Section 1.3 hereof or (ii) such business as is related to the purpose or purposes of such meeting and which is properly brought before the meeting by or at the direction of the Board. * * * * SECTION 1.5. Conduct of the Meeting. (a) At each meeting of stockholders the Chairman of the Board, or in his absence the President, or in his absence the person designated in writing by the Chairman of the Board, or if no person is so designated, then a person designated by the Board of Directors, shall preside as chairman of the meeting; if no person is so designated, then the meeting shall choose a chairman by plurality vote. The Secretary, or in his absence a person designated by the chairman of the meeting, shall act as secretary of the meeting. (b) No person shall be eligible for election to the Board of Directors at an annual or special meeting of stockholders of the Corporation unless such person has been nominated (i) by or at the direction of the Board, (ii) by a nominating committee or person appointed by the Board or (iii) by a stockholder of record of the Corporation who is entitled to vote for the election of directors and who has given the Corporation timely written notice (the "Notice of Nomination") in accordance with the provisions hereof. The Notice of Nomination shall set forth (i) the name and record address of the stockholder proposing to make the nominations, (ii) the class and number of shares of capital stock held of record, held beneficially and represented by proxy held by such person as of the record date for the meeting and as of the date of the Notice of Nomination, (iii) all information regarding each nominee proposed by such stockholder that would be required to be set forth in a definitive proxy statement filed with the Securities and Exchange Commission pursuant to Section 14 of the Securities Exchange Act of 1934, as amended, or any successor statute thereto (the "Exchange Act"), and the written consent of each such nominee to serve if elected and (iv) all other information that would be required to be filed with the Securities and Exchange Commission if the person proposing such nominations were a participant in a solicitation subject to Section 14 of the Exchange Act. (c) No business shall be conducted at any annual meeting of Stockholders unless such business is properly brought before the meeting and no business shall be properly brought before a meeting unless such business is (i) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board, (ii) otherwise properly brought before the meeting by or at the direction of the Board or (iii) specified in a timely written notice (the "Notice of Business") given by or on behalf of a stockholder of record of the Corporation in accordance with the provisions hereof. The Notice of Business shall set forth (i) the name and record address of the stockholder proposing such business, (ii) the class and number of shares of capital stock held of record, held beneficially and represented by proxy held by such stockholder as of the record date for the meeting and as of the date of such Notice of Business, (iii) a brief description of the business such stockholder desires to bring before the annual meeting and the reasons for conducting such business at the annual meeting, (iv) any material interest such stockholder has in such business and (v) all other information that would be required to be filed with the Securities and Exchange Commission if the person proposing such Stockholder business were a participant in a solicitation subject to Section 14 of the Exchange Act. B-1 (d) The Notice of Nomination and the Notice of Business shall, in order to meet the requirement of timeliness, be delivered to the Corporation in person or, if mailed, received at the principal executive offices of the Corporation addressed to the attention of the Secretary not less than 30 days nor more than 60 days prior to the annual meeting or special meeting of stockholders; provided, however, that, in the event that notice of the meeting is first given or made to the stockholders of the Corporation less than 40 days prior to the date of the meeting, the Notice of Nomination or the Notice of Business, as the case may be, shall, in order to meet the requirement of timeliness, be received no later than the close of business on the tenth day following the earlier of (i) the date on which such notice of the meeting is mailed or (ii) the date public disclosure of the date of the meeting is first made. For purposes of the foregoing, public disclosure shall be deemed to include any press release reported by the Dow Jones News Services, Associated Press or comparable national news service and any document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Sections 13, 14 or 15(d) of the Exchange Act. (e) The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that any proposals by a stockholder for a nomination to the Board or for business to be conducted at the meeting were not made in accordance with the foregoing procedures and, if he should so determine, any such defective nomination shall be discarded and any such defective proposal for business to be conducted shall be stricken from the agenda for the meeting. * * * * B-2 EMISPHERE TECHNOLOGIES, INC. 765 Old Saw Mill River Road Tarrytown, New York 10591 THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints Michael M. Goldberg, M.D. and Sam J. Milstein, Ph.D., and each of them, as Proxies each with the power to appoint his substitute and hereby authorizes them to represent and to vote, as designated below, all of the shares of Common Stock of Emsiphere Technologies, Inc. held of record by the undersigned on November 27, 1998 at the Annual Meeting of Stockholders to be held on January 25, 1999 or any adjournments or postponements thereof. 1. ELECTION OF DIRECTORS Nominees: Michael M. Goldberg, M.D. STOCKHOLDERS MAY WITHHOLD AUTHORITY TO VOTE Jere E. Goyan, Ph.D FOR ANY NOMINEE BY DRAWING A LINE THROUGH Mark I. Greene, M.D., Ph.D. OR OTHERWISE STRIKING OUT THE NAME OF SUCH Peter Barton Hutt NOMINEE. ANY PROXY EXECUTED IN SUCH MANNER Robert J. Levenson AS NOT TO WITHHOLD AUTHORITY TO VOTE FOR Sam J. Milstein, Ph.D. THE ELECTION OF ANY NOMINEE SHALL BE DEEMED Howard M. Pack TO GRANT SUCH AUTHORITY. Joseph R. Robinson, Ph.D. __ GRANT authority to vote for __ WITHOLD authority to the eight nominees as a vote for the eight group nominees as a group 2. Approval and adoption of the amendments to the Company's Restated Certificate of Incorporation to increase the number of authorized share __ FOR __ AGAINST __ ABSTAIN 3. Approval and adoption of the amendments to the Company's Restated Certificate of Incorporation to provide for a staggered Board and related matters __ FOR __ AGAINST __ ABSTAIN 4. Approval and adoption of the amendments to the Company's Restated Certificate of Incorporation to provide for stockholder action only by meeting and related matters __ FOR __ AGAINST __ ABSTAIN 5. Approval and adoption of the amendments to the Company's 1991 Stock Option Plan __ FOR __ AGAINST __ ABSTAIN 6. Approval and adoption of the amendments to the Company's 1995 Non- Qualified Stock Option Plan __ FOR __ AGAINST __ ABSTAIN 7. Ratification of the Board of Directors' selection of PricewaterhouseCoopers LLP to serve as the Company's independent accountants for the fiscal year ending July 31, 1999 __ FOR __ AGAINST __ ABSTAIN 8. Authority to vote in their discretion on such other business as may properly come before the meeting __ FOR __ AGAINST __ ABSTAIN This proxy, when properly executed, will be voted in the manner directed herein by the undersigned stockholder. If no direction is made, this proxy will be voted for each of the proposals named above. PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY, USING THE ENCLOSED ENVELOPE. Dated _______________________, 199_ _________________________________________ (Signature) _________________________________________ (Signature if held jointly) Please sign exactly as name appears hereon. When shares are held by joint tenants, both should sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign in full corporate name by president or other authorized officer. If a partnership, please sign in partnership name by authorized person.