Emisphere Technologies, Inc.
EMISPHERE TECHNOLOGIES INC (Form: 10-Q, Received: 08/16/2010 09:44:25)
Table of Contents

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2010
OR
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number 000-17758
EMISPHERE TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
     
DELAWARE   13-3306985
     
(State or jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification Number)
     
240 Cedar Knolls Rd, Suite 200
Cedar Knolls, NJ
  07927
     
(Address of principal executive offices)   (Zip Code)
(973) 532-8000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
             
Large accelerated filer o   Accelerated filer o   Non-accelerated filer o (Do not check if a smaller reporting company)   Smaller reporting company þ
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes o No þ
The number of shares of the Registrant’s common stock, $.01 par value, outstanding as of August 1, 2010 was 44,894,046.
 
 

 


 

EMISPHERE TECHNOLOGIES, INC.
Index
       
       
   
     
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  EX-10.4
  EX-31.1
  EX-31.2
  EX-32.1
     All other items called for by the instructions to Form 10-Q have been omitted because the items are not applicable or the relevant information is not material.

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PART I
ITEM 1. FINANCIAL STATEMENTS
EMISPHERE TECHNOLOGIES, INC.
CONDENSED BALANCE SHEETS
June 30, 2010 and December 31, 2009

(in thousands, except share and per share data)
                 
    June 30, 2010     December 31,  
    (unaudited)     2009  
Assets:
               
Current assets:
               
Cash and cash equivalents
  $ 418     $ 3,566  
Accounts receivable, net
    38       158  
Inventories
    261       20  
Prepaid expenses and other current assets
    683       369  
 
       
Total current assets
    1,400       4,113  
Equipment and leasehold improvements, net
    107       138  
Purchased technology, net
    957       1,077  
Restricted cash
    259       259  
Deferred financing cost
    382       346  
 
       
Total assets
  $ 3,105     $ 5,933  
 
       
Liabilities and Stockholders’ Deficit:
               
Current liabilities:
               
Notes payable, including accrued interest and net of related discount
  $     $ 12,588  
Accounts payable and accrued expenses
    5,852       4,975  
Derivative instruments
               
Related party
    12,952       3,205  
Others
    4,183       2,984  
Restructuring accrual, current
    600       750  
Other current liabilities
    31       52  
 
       
Total current liabilities
    23,618       24,554  
Notes payable, including accrued interest and net of related discount, related party
    14,322       13,076  
Deferred revenue
    26,475       11,494  
Derivative instrument related party
    12,031       4,591  
Deferred lease liability and other liabilities
    65       82  
 
       
Total liabilities
    76,511       53,797  
 
       
Commitments and Contingencies
               
 
       
Stockholders’ deficit:
               
 
       
Preferred stock, $.01 par value; authorized 1,000,000 shares; none issued and outstanding
           
Common stock, $.01 par value; authorized 100,000,000 shares; issued 44,222,054 shares (43,932,322 outstanding) as of June 30, 2010 and issued 42,360,133 shares (42,070,401 outstanding) as December 31, 2009
    442       424  
Additional paid-in-capital
    398,945       392,335  
Accumulated deficit
    (468,841 )     (436,671 )
Common stock held in treasury, at cost; 289,732 shares
    (3,952 )     (3,952 )
 
       
Total stockholders’ deficit
    (73,406 )     (47,864 )
 
       
Total liabilities and stockholders’ deficit
  $ 3,105     $ 5,933  
 
       
The accompanying notes are an integral part of the financial statements.

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EMISPHERE TECHNOLOGIES, INC.
CONDENSED STATEMENT OF OPERATIONS
For the three months ended June 30, 2010 and 2009

(in thousands, except share and per share data)
(unaudited)
                                 
    For the three months ended     For the six months ended  
    June 30,     June 30,  
    2010     2009     2010     2009  
Net Sales
  $ 39     $     $ 51     $  
 
           
Costs and expenses:
                               
Research and development
    732       748       1,294       2,670  
General and administrative expenses
    2,129       2,933       4,463       5,855  
Restructuring costs
                50       (353 )
Gain on disposal of fixed assets
          (779 )     (1 )     (822 )
Expense from settlement of lawsuit
    220             220        
Depreciation and amortization
    75       96       150       307  
 
           
Total costs and expenses
    3,156       2,998       6,176       7,657  
 
           
Operating loss
    (3,117 )     (2,998 )     (6,125 )     (7,657 )
 
           
Other non-operating income (expense):
                               
Other income
    2       27       5       68  
Sublease income
                      232  
Sale of patents
            500             500  
Change in fair value of derivative instruments
                               
Related party
    (6,208 )     (193 )     (15,328 )     (80 )
Other
    (2,424 )     (289 )     (7,271 )     (254 )
Interest expense
                               
Related party
    (1,797 )     (1,097 )     (3,069 )     (2,140 )
Other
    (160 )     (137 )     (382 )     (273 )
 
           
Total other non-operating expense
    (10,587 )     (1,189 )     (26,045 )     (1,947 )
 
           
Net loss
  $ (13,704 )   $ (4,187 )   $ (32,170 )   $ (9,604 )
 
           
Net loss per share, basic and diluted
  $ (0.32 )   $ (0.14 )   $ (0.75 )   $ (0.32 )
Weighted average shares outstanding, basic and diluted
    43,338,432       30,341,078       42,711,367       30,341,078  
The accompanying notes are an integral part of the financial statements.

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EMISPHERE TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
For the six months ended June 30, 2010 and 2009

(in thousands)
(unaudited)
                 
    For the six months ended
    June 30,
    2010   2009
Cash flows from operating activities:
               
Net loss
  $ (32,170 )   $ (9,604 )
Adjustments to reconcile net loss to net cash used in operating activities:
               
Depreciation
    30       187  
Amortization
    120       120  
Change in fair value of derivative instruments
    22,599       334  
Non-cash interest expense
    3,450       2,413  
Non-cash compensation expense
    547       1,007  
Gain on disposal of fixed assets
    (1 )     (822 )
Changes in assets and liabilities excluding non-cash transactions:
               
Decrease in accounts receivable
    120       160  
Increase in inventory
    (24 )      
Increase (decrease) in prepaid expenses and other current assets
    (531 )     (129 )
Increase in deferred revenue
    2,012       133  
Increase in accounts payable and accrued expenses
    887       1,042  
Increase (decrease) in other current liabilities
    (21 )     28  
Decrease in deferred lease liability
    (17 )     (33 )
Decrease in restructuring accrual
    (150 )     (1,627 )
Total adjustments
    29,021       2,813  
Net cash used in operating activities
    (3,149 )     (6,791 )
Net cash provided by investing activities — proceeds from sale of fixed assets
    1       856  
Net decrease in cash and cash equivalents
    (3,148 )     (5,935 )
Cash and cash equivalents, beginning of period
    3,566       7,214  
Cash and cash equivalents, end of period
  $ 418     $ 1,279  
Schedule of non-cash financing activities
               
Common stock issued to settle accrued Directors compensation
  $ 11     $  
Exchange of debt as deferred revenue (Note 8)
  $ 13,000     $  
The accompanying notes are an integral part of the financial statements.

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EMISPHERE TECHNOLOGIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. Nature of Operations and Liquidity
Nature of Operations. Emisphere Technologies, Inc. (“Emisphere”, “our”, “us”, the “Company” or “we”) is a biopharmaceutical company that focuses on our improved delivery of therapeutic molecules and pharmaceutical compounds using its Eligen ® Technology. These molecules and compounds could be currently available or are in pre-clinical or clinical development.
     Our core business strategy is to develop oral forms of drugs that are not currently available or have poor bioavailability in oral form, either alone or with corporate partners, by applying the Eligen ® Technology to those drugs. Typically, the drugs that we target have received regulatory approval, have demonstrated safety and efficacy, and are currently available on the market. Since inception, we have no product sales from these product candidates. However, in November 2009 the Company launched its first commercially available product, oral Eligen ® B12 (100mcg), which had been specifically developed to help improve Vitamin B12 absorption and bioavailability with a patented formulation.
Liquidity. As of June 30, 2010, we had approximately $0.7 million in cash and restricted cash, approximately $22.2 million in working capital deficiency, a stockholders’ deficit of approximately $73.4 million and an accumulated deficit of approximately $468.8 million. Our net loss and operating loss for the three months ended June 30, 2010 were approximately $13.7 million and $3.1 million, respectively and $32.2 million and $6.1 million, respectively for the six months ended June 30, 2010.
     On July 29, 2010, we issued a promissory note (the “July 2010 MHR Note”) to MHR Institutional Partners IIA LP and MHR Institutional Partners II LP (together, “MHR”) in the principal amount of $525,000. The July 2010 MHR Note provides for an interest rate of 15% per annum, with the entire principal amount due and payable on October 27, 2010 (the “Maturity Date”). The Maturity Date will be accelerated, in certain circumstances, to the date that is two business days following the receipt by the Issuer of at least $1,000,000 aggregate cash proceeds from third parties, whether in connection with certain financing transactions, commercial transactions or otherwise. The obligations under the July 2010 MHR Note are secured in accordance with the terms of the Amendment (the “Amendment”) to the Pledge and Security Agreement whereby Emisphere and MHR amended that certain Pledge and Security Agreement, dated as of September 26, 2005 (the “Security Agreement”) to extend the terms of the Security Agreement other than the intellectual property licensed to Novartis Pharma AG (“Novartis”) pursuant to the Master Agreement and Amendment dated June 4, 2010 by and between Emisphere and Novartis, as further described below, to include the principal, interest and other obligations provided under the July 2010 MHR Note. In accordance with the terms of that certain 11.00% Senior Secured Convertible Note issued by the Emisphere to MHR and due September 26, 2012, MHR also provided a written consent to allow for the issuance of the Note and related obligations provided under the Amendment.
     In April 2005, the Company entered into an amended and restated employment agreement with its then Chief Executive Officer, Dr. Michael M. Goldberg, for services through July 31, 2007. On January 16, 2007, the Board of Directors terminated Dr. Goldberg’s services. On April 26, 2007, the Board of Directors held a special hearing at which it determined that Dr. Goldberg’s termination was for cause. On March 22, 2007, Dr. Goldberg, through his counsel, filed a demand for arbitration asserting that his termination was without cause and seeking $1,048,000 plus attorney’s fees, interest, arbitration costs and other relief alleged to be owed to him in connection with his employment agreement with the Company. During the arbitration, Dr. Goldberg sought a total damage amount of at least $9,223,646 plus interest. On February 11, 2010, the arbitrator issued the final award in favor of Dr. Goldberg for a total amount of approximately $2,333,115 as full and final payment for all claims, defenses, counterclaims, fees and related matters. The Company opposed Dr. Goldberg’s petition to confirm the arbitration award. On July 12, 2010 the award was confirmed by the court. As of August 10, 2010, the Company adjusted its estimate of costs to settle this matter to approximately $2.6 million to account for potential additional interest costs on the settlement amount and additional legal fees. Dr. Goldberg has proposed an order of settlement in the amount of approximately $2.6 million and seeks to have a final order entered August 16, 2010.

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     On June 4, 2010, we entered into a Master Agreement and Amendment with Novartis (the “Novartis Agreement”). Pursuant to the Novartis Agreement, the Company was released and discharged from its obligations under the Novartis Note in exchange for (1) the reduction of future royalty and milestone payments up to an aggregate amount of $11.0 million due the Company under the Research Collaboration and Option Agreement, dated as of December 3, 1997, as amended on October 20, 2000, and the License Agreement, date as of March 8, 2000, for the development of an oral salmon calcitonin product for the treatment of osteoarthritis and osteoporosis.; (2) the right for Novartis to evaluate the feasibility of using Emisphere’s Eligen ® Technology with two new compounds to assess the potential for new product development opportunities; and (3) other amendments to the Research Collaboration and Option Agreement and License Agreement. As of the date of the Novartis Agreement, the outstanding principal balance and accrued interest of the Novartis Note was approximately $13.0 million .
     We anticipate that we will continue to generate significant losses from operations for the foreseeable future, and that our business will require substantial additional investment that we have not yet secured. As such, we anticipate that our existing cash resources, including the amounts provided by MHR in connection with the July 2010 MHR Note but not accounting for an approximately $2.6 million arbitration award in favor of the Company’s former CEO, will enable us to continue operations through approximately August 31, 2010 or earlier if unforeseen events arise that negatively affect our liquidity. Further, we have significant future commitments and obligations. These conditions raise substantial doubt about our ability to continue as a going concern. Consequently, the audit opinion issued by our independent registered public accounting firm relating to our financial statements for the year ended December 31, 2009 contained a going concern explanatory paragraph. We are pursuing new as well as enhanced collaborations and exploring other financing options, with the objective of minimizing dilution and disruption.
     Our plan is to raise capital when needed and/or to pursue product partnering opportunities. We expect to continue to spend substantial amounts on research and development, including amounts spent on conducting clinical trials for our product candidates. Expenses will be partially offset with income-generating license agreements or operating revenue, if possible. Further, we will not have sufficient resources to develop fully any new products or technologies unless we are able to raise substantial additional financing on acceptable terms or secure funds from new or existing partners. We cannot assure that financing will be available when needed, or on favorable terms or at all. If additional capital is raised through the sale of equity or convertible debt securities, the issuance of such securities would result in dilution to our existing stockholders. Our failure to raise capital before August 31, 2010 will adversely affect our business, financial condition and results of operations, and could force us to reduce or cease our operations. No adjustment has been made in the accompanying financial statements to the carrying amount and classification of recorded assets and liabilities should we be unable to continue operations.
2. Basis of Presentation
     The condensed balance sheet at December 31, 2009 was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. The other information in these condensed financial statements is unaudited but, in the opinion of management, reflects all adjustments necessary for a fair presentation of the results for the periods covered. All such adjustments are of a normal recurring nature unless disclosed otherwise. These condensed financial statements, including notes, have been prepared in accordance with the applicable rules of the Securities and Exchange Commission and do not include all of the information and disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. These condensed financial statements should be read in conjunction with the financial statements and additional information as contained in our Annual Report on Form 10-K for the year ended December 31, 2009.
3. Stock-Based Compensation Plans
     On April 20, 2007, the stockholders of the Company approved the 2007 Stock Award and Incentive Plan (the “2007 Plan”). The 2007 Plan provides for grants of options, stock appreciation rights, restricted stock, deferred stock, bonus stock and awards in lieu of obligations, dividend equivalents, other stock-based awards and performance awards to executive officers and other employees of the Company, and non-employee directors, consultants and others who provide substantial service to us. The 2007 Plan provides for the issuance of an aggregate 3,275,334 shares as follows: 2,500,000 new shares, 374,264 shares remaining and transferred from the Company’s 2000 Stock Option Plan (the “2000 Plan”) (which was then replaced by the 2007 Plan) and 401,070 shares remaining and transferred from the Company’s Stock Option Plan for Outside Directors (the “Directors Stock

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Plan”). In addition, shares canceled, expired, forfeited, settled in cash, settled by delivery of fewer shares than the number underlying the award, or otherwise terminated under the 2000 Plan will become available for issuance under the 2007 Plan.
     Prior to the adoption of the 2007 Plan, the Company granted stock-based compensation to employees under the 2000 Plan and the 2002 Broad Based Plan (the “2002 Plan”), and to non-employee directors under the Directors Stock Plan. The Company also has grants outstanding under various expired and terminated stock plans, including the 1991 Stock Option Plan, the 1995 Non-Qualified Stock Option Plan, the Deferred Directors Compensation Stock Plan and Non-Plan Options. In January 2007, the Directors Stock Plan expired.
     As of June 30, 2010, shares available for future grants under the Plans amounted to 1,533,398.
     Total compensation expense recorded during the six months ended June 30, 2010 for share-based payment awards was $0.55 million, of which $0.06 million is included in research and development and $0.49 million is included in general and administrative expenses in the condensed statement of operations for the six months ended June 30, 2010. Total compensation expense recorded during the six months ended June 30, 2009 for share-based payment awards was $1.01 million, of which $0.06 million is included in research and development and $0.95 million is included in general and administrative expenses in the condensed statement of operations for the six months ended June 30, 2009. At June 30, 2010, total unrecognized estimated compensation expense related to non-vested stock options granted prior to that date was $0.7 million, which is expected to be recognized over a weighted-average period of approximately two years. No options were exercised in the six months ended June 30, 2010 or 2009. No tax benefit was realized due to a continued pattern of operating losses.
     During the six months ended June 30, 2010, the Company granted options for 502,750 shares with a weighted average exercise price of $1.48.
4. Inventories
     Inventories are stated at the lower of cost or market determined by the first in, first out method. Inventories consist principally of finished goods at June 30, 2010 and December 31, 2009.
5. Fixed Assets
     Equipment and leasehold improvements, net, consists of the following:
                         
    Useful Lives     June 30,     December 31,  
    in Years     2010     2009  
            (in thousands)  
Equipment
    3-7     $ 1,370     $ 1,370  
Leasehold improvements
  Term of lease     61       61  
             
 
            1,431       1,431  
Less, accumulated depreciation and amortization
            1,324       1,293  
             
Equipment and leasehold improvements, net
          $ 107     $ 138  
             
6. Purchased Technology
     Purchased technology represents the value assigned to patents and the rights to utilize, sell or license certain technology in conjunction with our proprietary carrier technology. These assets are utilized in various research and development projects. Purchased technology is amortized over a period of 15 years, which represents the average life of the patents.
                 
    June 30,     December 31,  
    2010     2009  
    (in thousands)  
Gross carrying amount
  $ 4,533     $ 4,533  
Less, accumulated amortization
    3,576       3,456  
     
Net book value
  $ 957     $ 1,077  
     

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     Amortization expense for the purchased technology is approximately $60 thousand per quarter in 2010 and in the remaining years through 2014.
7. Accounts Payable and Accrued Expenses
     Accounts payable and accrued expenses consist of the following:
                 
    June 30,     December 31,  
    2010     2009  
    (In thousands)  
Accounts payable and other accrued expenses
  $ 2,133     $ 1,979  
Accrued cost of lawsuit
    2,553       2,333  
Accrued bonus
    575       150  
Accrued legal, professional fees and other
    433       302  
Accrued vacation
    150       81  
Clinical trial expenses and contract research
    8       130  
 
           
 
  $ 5,852     $ 4,975  
 
           
8. Notes Payable
     Notes payable consist of the following:
                 
    June 30,     December 31,  
    2010     2009  
    (in thousands)  
MHR Convertible Notes
  $ 13,826     $ 13,076  
MHR Promissory Notes
    496        
Novartis Note
          12,588  
     
 
  $ 14,322     $ 25,664  
     
MHR Convertible Notes. The MHR Convertible Notes are due on September 26, 2012, bear interest at 11% and are secured by a first priority lien in favor of MHR Institutional Partners IIA L.P. (together with its affiliates, “MHR”) on substantially all of our assets (the “MHR Notes”). Interest is payable in the form of additional Convertible Notes issued monthly through March 31, 2007 and then semi-annually beginning June 30, 2008, rather than in cash and we would have the right to call the MHR Notes after September 26, 2010 if certain conditions are satisfied. If those conditions are not satisfied; the Company will forfeit the right to call the MHR Notes after September 26, 2010. The MHR Notes are convertible, at the sole discretion of MHR or any assignee thereof through September 25, 2010, into shares of our common stock at a price per share of $3.78. If certain conditions are not met and the Company subsequently forfeits its right to call the MHR Notes after September 26, 2010, the MHR Notes will continue to be convertible, at the sole discretion of MHR or any assignee thereof through September 25, 2012. At June 30, 2010, the MHR Notes were convertible into 6,319,856 shares of our common stock. In connection with the convertible note transaction, we amended MHR’s then existing warrants to purchase 387,374 shares of our common stock to provide for additional anti-dilution protection. MHR was also granted the option to purchase warrants for up to an additional 617,211 shares of our common stock (the “Warrant Purchase Option”) at a price per warrant equal to $0.01 per warrant for each of the first 67,084 warrants and $1.00 per warrant for each additional warrant. This option was exercised by MHR in April 2006. See Note 8 for a further discussion of the liability related to these warrants.
     The book value of the MHR Notes is comprised of the following:
                 
    June 30,     December 31,  
    2010     2009  
    (in thousands)  
Face Value of the notes
  $ 23,889     $ 22,616  
Discount (related to the embedded conversion feature)
    (686 )     (793 )
Discount (related to the warrant purchase option)
    (6,791 )     (7,848 )
Discount (related to 2010 debt modification)
    (1,808 )      
Lender’s financing costs
    (778 )     (899 )
     
 
  $ 13,826     $ 13,076  
     

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The debt discount, lenders finance costs, deferred financing costs and amounts attributed to derivative instruments are being amortized to interest expense over the life of the MHR Notes using an interest method to yield an effective interest rate of 43.5%.
In connection with the MHR financing, the Company agreed to appoint a representative of MHR (the “MHR Nominee”) and another person (the “Mutual Director”) to its Board of Directors. Further, the Company amended its certificate of incorporation to provide for continuity of the MHR Nominee and the Mutual Nominee on the Board, as described therein, so long as MHR holds at least 2% of the outstanding common stock of the Company.
The MHR Notes provide for various events of default. On May 5, 2006, we received an executed waiver from MHR providing for a temporary waiver of defaults, which were not payment-related, under the Loan Agreement. We have received extensions of such waiver from time to time, the latest being received August 12, 2010 and is in effect through August 17, 2011; as such the MHR Notes have been classified as long-term. Effective January 1, 2009, the Company adopted the provisions of the Financial Accounting Standards Board Accounting Codification Topic 815-40-15-5, “Evaluating Whether an Instrument Involving a Contingency is Considered Indexed to an Entity’s Own Stock” (“FASB ASC 815-40-15-5”). Under FASB ASC 85-40-15-5, the conversion feature embedded in the MHR notes have been bifurcated from the host contract and accounted for separately as a derivative. The bifurcation of the embedded derivative increased the amount of debt discount thereby reducing the book value of the MHR Notes and increasing prospectively the amount of interest expense to be recognized over the life of the MHR Notes.
Novartis Note. The Convertible Promissory Note due originally on December 1, 2009, was issued by us to Novartis on December 1, 2004 (the “Novartis Note”), in accordance with and pursuant to the terms and conditions therein. The Novartis Note was issued in a private placement transaction pursuant to Section 4(2) of the Securities Act in connection with a new research collaboration option relating to the development of PTH-1-34. The Novartis Note accrued interest at a rate of 7%. The Novartis Note was originally due December 1, 2009. On November 30, 2009, Novartis agreed to extend the maturity date to February 26, 2010. On February 23, 2010, Novartis agreed to extend the maturity date to May 26, 2010. And on May 27, 2010, Novartis agreed to a further extension through June 4, 2010. On June 4, 2010, the Company and Novartis entered into a Master Agreement and Amendment (the “Novartis Agreement”). Pursuant to the Novartis Agreement, the Company was released and discharged from its obligations under the Novartis Note in exchange for (1) the reduction of future royalty and milestone payments up to an aggregate amount of $11.0 million due the Company under the Research Collaboration and Option Agreement, dated as of December 3, 1997, as amended on October 20, 2000, and the License Agreement, date as of March 8, 2000, for the development of an oral salmon calcitonin product for the treatment of osteoarthritis and osteoporosis.; (2) the right for Novartis to evaluate the feasibility of using Emisphere’s Eligen ® Technology with two new compounds to assess the potential for new product development opportunities; and (3) other amendments to the Research Collaboration and Option Agreement and License Agreement. As of the date of the Novartis Agreement, the outstanding principal balance and accrued interest of the Novartis Note was approximately $13.0 million. The Company recognized the full value of the debt released as consideration for the transfer of the rights and other intangibles to Novartis and deferred the related revenue in accordance with applicable accounting guidance for the sale of rights to future revenue until the earnings process has been completed based on achievement of certain milestones or other deliverables.
June 2010 MHR Promissory Notes. In connection with the Novartis Agreement, the Company and MHR Institutional Partners IIA, LP (together with its affiliates, as applicable, “MHR”) entered into a Letter Agreement (the “MHR Letter Agreement”) and MHR, the Company and Novartis entered into an agreement (the “Non-Disturbance Agreement”), which Non-Disturbance Agreement was a condition to Novartis’ execution of the Novartis Agreement. Pursuant to the MHR Letter Agreement, MHR agreed to the limit certain rights and courses of action that it would have available to it as a secured party under the Senior Secured Term Loan Agreement and Pledge and Security Agreement (“Loan and Security Agreement” between MHR and the Company. MHR also consented to the Novartis Agreement, which consent is required under the Loan and Security Agreement, and MHR also agreed to enter into a comparable agreement at some point in the future in connection with another potential Company transaction (the “Future Transaction Agreement”). The MHR Letter Agreement also provides for the Company to reimburse MHR for its legal fess incurred in connection with the Non-Disturbance Agreement for up to $500,000 and up to $100,000 in legal expenses incurred by MHR in connection the Future Transaction Agreement. The reimbursements are to be paid in the form of non-interest bearing promissory notes issued on the effective date of the MHR Letter Agreement. As such, the Company issued to MHR non-interest promissory notes for $500,000 and $100,000 on June 8, 2010. The Company received documentation that MHR expended more than the $500,000

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of legal fees in connection with the Non-Disturbance Agreement and consequently recorded the issuance of the $500,000 promissory note and a corresponding charge to financing expenses. The Company has not yet received any documentation or communication that indicates MHR has spent any legal fees in connection with the Future Transaction Agreement. Therefore, the issuance of the $100,000 promissory note was recorded as a prepaid expense. The promissory notes are due June 4, 2012. The Company imputed interest at its incremental borrowing rate of 10%, and discounted the face amounts of the $500,000 and $100,000 promissory notes by $87,000 and $18,000, respectively.
Additionally, as consideration for its consent, limitation of rights, and pledge to enter into the Future Transaction Agreement, the Company granted MHR warrants to purchase 865,000 shares of its Common Stock. See Note 9 for more information on the MHR – “Novartis Note” Warrants. The Company determined that the modification of the MHR Convertible Debt agreement was not a substantial modification in accordance with ASC 470-50, “Modifications and Extinguishments”. As such, the warrants issued to MHR were recorded as a debt discount to the MHR Convertible Debt and are being amortized to interest expense over the remaining term of the debt.
9. Derivative Instruments
     Derivative instruments consist of the following:
                 
    June 30,     December 31,  
    2010     2009  
    (in thousands)  
Elan Warrants
  $     $ 394  
MHR Convertible Note
    12,031       4,591  
MHR warrants
    761       213  
August 2007 Equity financing warrants
    666       141  
August 2009 equity financing warrants
    13,857       5,092  
August 2009 equity financing warrants to placement agent
          349  
June 2010 MHR Warrants
    1,851        
 
           
 
  $ 29,166     $ 10,780  
 
           
Elan Warrant . In connection with a restructuring of debt in March 2005, we issued to Elan Corporation, plc (“Elan”) a warrant to purchase up to 600,000 shares of our common stock at an exercise price of $3.88 (the “Elan Warrant”). The Elan Warrant provides for adjustment of the exercise price upon the occurrence of certain events, including the issuance by Emisphere of common stock or common stock equivalents that have an effective price that is less than the exercise price of the warrant. The anti-dilution feature of the Elan Warrant was triggered in connection with the August 2007 financing, resulting in an adjustment to the exercise price to $3.76. The anti-dilution feature of the Elan Warrant was triggered again in connection with the August 2009 financing, resulting in an adjustment to the exercise price to $0.4635. The Company adopted the provisions of FASB ASC 815-40-15-5 effective January 1, 2009. Under FASB ASC 815-40-15-5, the Elan Warrant is not considered indexed to the Company’s own stock and, therefore, does not meet the scope exception in FASB ASC 815-10-15 and thus needs to be accounted for as a derivative liability. On April 20, 2010, Elan notified the Company of its intention to exercise the Elan Warrant using the “cashless exercise” provision. The Company issued 518,206 shares of common stock to Elan in accordance with the terms of the cashless exercise provision on April 21, 2010. After the cashless exercise, the Elan Warrant is no longer outstanding. The Company calculated the fair value of the Elan warrants on April 21, 2010 using the Black-Scholes option pricing model. The assumptions used in computing the fair value as of April 21, 2010 are a closing stock price of $3.40, expected volatility of 89.91% over the remaining contractual life of four months and a risk-free rate of 0.16%. The fair value of the Elan warrants increased by $0.6 million and $1.4 million during the three and six months ended June 30, 2010, respectively, which has been recognized in the accompanying statements of operations. The fair value of the derivative liability at April 21, 2010 of $1.8 million was reclassified to additional paid-in-capital.
Embedded Conversion Feature of MHR Convertible Notes. The MHR Convertible Notes contain a provision whereby, the conversion price is adjustable upon the occurrence of certain events, including the issuance by Emisphere of common stock or common stock equivalents at a price which is lower than the current conversion price of the MHR Notes and lower than the current market price. However, the adjustment provision does not

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become effective until after the Company raises $10 million through the issuance of common stock or common stock equivalents at a price which is lower than the current conversion price of the MHR Notes and lower than the current market price during any consecutive 24 month period. The Company adopted the provisions of FASB ASC 815-40-15-5 effective January 1, 2009. Under FASB ASC 815-40-15-5, the embedded conversion feature is not considered indexed to the Company’s own stock and, therefore, does not meet the scope exception in FASB ASC 815-10-15 and thus needs to be accounted for as a derivative liability. The liability has been presented as a non-current liability to correspond with its host contract, the MHR Notes. The fair value of the embedded conversion feature is estimated, at the end of each quarterly reporting period, using the Black-Scholes option pricing model. The assumptions used in computing the fair value as of June 30, 2010 are a closing stock price of $3.14, expected volatility 107.56% over the remaining term of two years and three months and a risk-free rate of 0.61%. The fair value of the embedded conversion feature increased by $3.4 million and $7.4 million during the three and six months ended June 30, 2010, respectively, which has been recognized in the accompanying statements of operations. The embedded conversion feature will be adjusted to fair value for each future period it remains outstanding.
MHR Warrants. In connection with the exercise in April 2006 of the Warrant Purchase Option discussed in Note 8 above, the Company issued warrants for 617,211 shares to MHR for proceeds of $0.6 million. The MHR 2006 Warrants have an original exercise price of $4.00 and are exercisable through September 26, 2011. The MHR 2006 Warrants have the same terms as the August 2007 equity financing warrants (see below), with no limit upon adjustments to the exercise price. The anti-dilution feature of the MHR 2006 Warrants was triggered in connection with the August 2007 equity financing, resulting in an adjusted exercise price of $3.76. Based on the provisions of FASB ASC 815, “Derivatives and Hedging”, the MHR 2006 Warrants have been determined to be an embedded derivative instrument which must be separated from the host contract. The MHR 2006 Warrants contain the same potential cash settlement provisions as the August 2007 equity financing warrants and therefore they have been accounted for as a separate liability. The fair value of the warrants is estimated, at the end of each quarterly period, using the Black-Scholes option pricing model. The assumptions used in computing the fair value as of June 30, 2010 are a closing stock price of $3.14, expected volatility of 100% over the remaining term of one year and three months and a risk-free rate of 0.32%. The fair value of the MHR warrants increased by $0.1 million and $0.5 million during the three and six months ended June 30, 2010, respectively, which has been recognized in the accompanying statements of operations. The MHR warrants will be adjusted to estimated fair value for each future period they remain outstanding. See Note 8 for a further discussion of the MHR Note.
August 2007 Equity Financing Warrants. In connection with the August 2007 offering, Emisphere sold warrants to purchase up to 400,000 shares of common stock (the “2007 Warrants”). Of these 400,000 warrants, 91,073 were sold to MHR. Each of the 2007 Warrants were issued with an exercise price of $3.948 and expire on August 21, 2012. The 2007 Warrants provide for certain anti-dilution protection as provided therein. Under the terms of the 2007 Warrants, we have an obligation to make a cash payment to the holders of the warrants for any gain that could have been realized if the holders exercise the warrants and we subsequently fail to deliver a certificate representing the shares to be issued upon such exercise by the third trading day after such warrants have been exercised. Accordingly, the 2007 Warrants have been accounted for as a liability. The fair value of the 2007 Warrants is estimated, at the end of each quarterly reporting period, using the Black-Scholes option pricing model. The warrants were accounted for with an initial value of $1.0 million on August 22, 2007. The assumptions used in computing the fair value as of June 30, 2010 are a closing stock price of $3.14, expected volatility of 108.88% over the remaining term of two years and two months and a risk-free rate of 1.02%. The fair value of the 2007 Warrants increased by $0.2 million and $0.5 million during the three and six months ended June 30, 2010, respectively, and the fluctuations have been recorded in the statements of operations. The 2007 Warrants will be adjusted to estimated fair value for each future period they remain outstanding.
August 2009 Equity Financing Investors Warrants . In connection with the August 2009 offering, Emisphere sold warrants to purchase 6.4 million shares of common stock (the “2009 Warrants”), consisting of warrants to purchase 3.7 million shares of common stock to MHR and warrants to purchase 2.7 million shares of common stock to other unaffiliated investors (the “2009 Investor Warrants”). The 2009 Warrants were issued with an exercise price of $0.70 and expire on August 21, 2014. Under the terms of the 2009 Warrants, we have an obligation to make a cash payment to the holders of the warrants for any gain that could have been realized if the holders exercise the warrants and we subsequently fail to deliver a certificate representing the shares to be issued upon such exercise by the third trading day after such warrants have been exercised. Accordingly, the 2009 Warrants have been accounted for as a liability. The fair value of the 2009 Warrants is estimated, at the end of each quarterly reporting period, using the

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Black-Scholes option pricing model. The assumptions used in computing the fair value as of June 30, 2010 are a closing stock price of $3.14, expected volatility of 94.03% over the remaining term of four years and two months and a risk-free rate of 1.79%. The fair value of the 2009 Warrants increased by $3.7 million and $9.8 million for the three and six months ended June 30, 2010, respectively and the fluctuation has been recorded in the statements of operations. The 2009 Warrants will be adjusted to estimated fair value for each future period they remain outstanding. On May 13, 2010, the BAM Opportunity Fund LP (“BAM”) notified the Company of its intention to exercise its 2009 Investor Warrant to purchase up to 1,342,857 shares of the Company’s common stock at an exercise price of $0.70, using the “cashless exercise” provision. The Company issued 1,005,213 shares of common stock to BAM in accordance with the terms of the cashless exercise provision on May 18, 2010. The Company calculated the fair value of the 1,342,857 million exercised warrants on May 13, 2010 using the Black-Scholes option pricing model. The assumptions used in computing the fair value as of May 13, 2010 are a closing stock price of $2.88, expected volatility of 93.1% over the remaining contractual life of four years and four months and a risk-free rate of 2.27%. The fair value of the 1.3 exercised warrants increased by $0.6 million and $2.3 million during the three and six months ended June 30, 2010, respectively, which has been recognized in the accompanying statements of operations. The fair value of the derivative liability at May 13, 2010 of $3.3 million was reclassified to additional paid-in-capital. The fair value calculation for the 2009 Investor Warrants was adjusted to reflect the 2009 Investor Warrants outstanding as of June 30, 2010. Subsequent to the quarter ended June 30, 2010, MOG Capital, LLC (“MOG Capital”) notified the Company of its intention to exercise its 2009 Investor Warrant to purchase up to 1,342,857 shares of the Company’s common stock at an exercise price of $0.70, using the “cashless exercise” provision. The Company issued an aggregate 961,724 shares to MOG Capital in accordance with the terms of the cashless exercise provision. After this cashless exercise, 2009 Investor Warrants to purchase up to 3,729,323 shares of common stock, in the aggregate, remain outstanding.
August 2009 Equity Financing Placement Agent Warrants . In connection with the August 2009 offering, Emisphere issued to Rodman & Renshaw, LLC (the “Placement Agent”), as part of the compensation for acting as placement agent for the August 2009 financing, warrants to purchase 504,000 shares of common stock (the “Placement Agent Warrants”). The Placement Agent Warrants were issued with an exercise price of $0.875 and expire on October 1, 2012. Under the terms of the warrants, we have an obligation to make a cash payment to the holders of the warrants for any gain that could have been realized if the holders exercise the warrants and we subsequently fail to deliver a certificate representing the shares to be issued upon such exercise by the third trading day after such warrants have been exercised. Accordingly, the Placement Agent Warrants have been accounted for as a liability. On April 1, 2010, the Placement Agent notified the Company of its intention to exercise a portion of the Placement Agent Warrants using the “cashless exercise” provision. The Company issued 297,636 shares of common stock to the Placement Agent in accordance with the terms of the cashless exercise provision on April 5, 2010. After this cashless exercise, Placement Agent Warrants to purchase 37,800 share of common stock remained outstanding. On April 28, 2010, the Placement Agent notified the Company of its intention to exercise the remaining outstanding portion of the Placement Agent Warrants using the “cashless exercise” provision. The Company issued an additional 27,192 shares of common stock to the purchase agent on April 30, 2010. After this cashless exercise, the Placement Agent Warrants are no longer outstanding. The Company calculated the fair value of the 466,200 Placement Agent Warrants on April 2, 2010 using the Black-Scholes option pricing model. The assumptions used in computing the fair value as of April 2, 2010 are a closing stock price of $2.40, expected volatility of 104.70% over the remaining contractual life of two years and six months and a risk-free rate of 1.11%. The fair value of the 466,200 Placement Agent Warrants increased by $32 thousand and $0.6 million during the three and six months ended June 30, 2010, respectively, which has been recognized in the accompanying statements of operations. The fair value of the derivative liability from the 466,200 Placement Agent Warrants at April 2, 2010 of $0.9 million was reclassified to additional paid-in-capital. The Company calculated the fair value of the 37,800 Placement Agent Warrants on April 29, 2010 using the Black-Scholes option pricing model. The assumptions used in computing the fair value as of April 29, 2010 are a closing stock price of $3.05, expected volatility of 107.10% over the remaining contractual life of two years and five months and a risk-free rate of 1.11%. The fair value of the 37,800 Placement Agent Warrants increased by $3 thousand and $46 thousand during the three and six months June 30, 2010, respectively, which has been recognized in the accompany statements of operations. The fair value of the derivative liability from the 37,800 Placement Agent Warrants at April 29, 2010 of $0.1 million was reclassified to additional paid-in-capital.
June 2010 MHR Warrants. In connection with the Novartis Agreement, the Company and MHR entered into the MHR Letter Agreement and MHR, the Company and Novartis entered into the Non-Disturbance Agreement, which agreement was a condition to Novartis’ execution of the Novartis Agreement. Pursuant to the MHR Letter

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Agreement, MHR agreed to the limit certain rights and courses of action that it would have available to it as a secured party under the Loan and Security Agreement. MHR also consented to the Novartis Agreement, which consent is required under the Loan and Security Agreement, as well as MHR’s agreement to enter into the Future Transaction Agreement in connection with another potential Company transaction. As consideration for its consent and limitation of rights, the Company granted MHR warrants to purchase 865,000 shares of its Common Stock. The warrants are exercisable at $2.90 per share and will expire on August 21, 2014. The “Novartis Note” warrants provide for certain anti-dilution protection as provided therein. We have an obligation to make a cash payment to the holders of the warrants for any gain that could have been realized if the holders exercise the warrants and we subsequently fail to deliver a certificate representing the shares to be issued upon such exercise by the third trading day after such warrants have been exercised. Accordingly, the “Novartis Note” warrants have been accounted for as a liability. Their fair value is estimated, at the end of each quarterly reporting period, using the Black-Scholes option pricing model. The Company estimated the fair value of the warrants on the date of grant using the Black-Scholes option pricing model to be $1.9 million which was recorded as a debt discount to the MHR Convertible Notes (see Note 8).. The assumptions used in computing the fair value of the warrants were a closing stock price of $3.15, expected volatility of 93.22% over the term of 4.2 years and a risk free rate of 1.02%. The assumptions used in computing the fair value as of June 30, 2010 are a closing stock price of $3.14, expected volatility of 93.95% over the remaining term of 4.2 years and a risk-free rate of 1.02%. The three and six months change in fair value of the MHR warrants was insignificant.
10. Net loss per share
     The following table sets forth the information needed to compute basic earnings per share:
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2010     2009     2010     2009  
    (in thousands except per share data)     (in thousands except per share data)  
Basic net loss
  $ (13,704 )   $ (4,187 )   $ (32,170 )   $ (9,604 )
 
         
Weighted average common shares outstanding
    43,338,432       30,341,078       42,711,367       30,341,078  
 
         
Basic net loss per share
  $ (0.32 )   $ (0.14 )   $ (0.75 )   $ (0.32 )
     For the six months ended June 30, 2010 and 2009, certain potential shares of common stock have been excluded from diluted loss per share because the exercise price was greater than the average market price of our common stock, and therefore, the effect on diluted loss per share would have been anti-dilutive. The following table sets forth the number of potential shares of common stock that have been excluded from diluted net loss per share because their effect was anti-dilutive:
                 
    As of June 30,  
    2010     2009  
Options to purchase common shares
    3,187,116       3,962,139  
 
               
Outstanding warrants
    6,954,391       2,972,049  
Novartis convertible note payable
          7,537,921  
MHR note payable
    6,319,856       5,664,381  
 
           
 
    16,461,363       20,136,490  
 
           
11. Commitments and Contingencies
      Commitments. At the beginning of 2009 we had leased approximately 80,000 square feet of office space at 765 Old Saw Mill River Road, Tarrytown, NY for use as administrative offices and laboratories. The lease for our administrative and laboratory facilities had been set to expire on August 31, 2012. However, on April 29, 2009, the Company entered into a Lease Termination Agreement (the “Agreement”) with BMR-Landmark at Eastview, LLC, a Delaware limited liability company (“BMR”) pursuant to which the Company and BMR terminated the lease of space at 765 Old Saw Mill River Road in Tarrytown, NY. Pursuant to the Agreement, the Lease was terminated effective as of April 1, 2009. The Agreement provided that the Company make the following payments to BMR: (a) $1 million, paid upon execution of the Agreement, (b) $0.5 million, paid six months after the execution date of the Agreement, and (c) $0.75 million, payable twelve months after the execution date of the Agreement. Initial and six months payments were made on schedule. Although the final payment was due originally on April 29, 2010, on

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March 17, 2010 the Company and BMR agreed to amend the Agreement (the “Amendment”). According to the Amendment, the final payment was modified as follows: the Company will pay Eight Hundred Thousand Dollars ($800,000), as follows: (i) Two Hundred Thousand Dollars ($200,000) within five (5) days after the Execution Date and (ii) One Hundred Thousand Dollars ($100,000) on each of the following dates: July 15, 2010, August 15, 2010, September 15, 2010, October 15, 2010, November 15, 2010, and December 15, 2010.
     We continue to lease office space at 240 Cedar Knolls Road, Cedar Knolls, NJ under a non-cancellable operating lease expiring in 2013.
     On April 6, 2007, the Board of Directors appointed Michael V. Novinski to the position of President and Chief Executive Officer. Pursuant to his appointment, the Company has entered into a three year employment agreement with Mr. Novinski. Mr. Novinski’s employment agreement renews automatically in one year increments unless either party notifies the other at least 60 days prior to the date of expiration of their intention to terminate. If Mr. Novinski’s contract is terminated without cause by the Board of Directors or at any time by the executive for good reason as defined in his contract, we are obligated to make severance payments to Mr. Novinski.
     In April 2005, the Company entered into an amended and restated employment agreement with its then Chief Executive Officer, Dr. Michael M. Goldberg, for services through July 31, 2007. On January 16, 2007, the Board of Directors terminated Dr. Goldberg’s services. On April 26, 2007, the Board of Directors held a special hearing at which it determined that Dr. Goldberg’s termination was for cause. On March 22, 2007, Dr. Goldberg, through his counsel, filed a demand for arbitration asserting that his termination was without cause and seeking $1,048,000 plus attorney’s fees, interest, arbitration costs and other relief alleged to be owed to him in connection with his employment agreement with the Company. During the arbitration, Dr. Goldberg sought a total damage amount of at least $9,223,646 plus interest. On February 11, 2010, the arbitrator issued the final award in favor of Dr. Goldberg for a total amount of approximately $2,333,115 as full and final payment for all claims, defenses, counterclaims, fees and related matters. The Company opposed Dr. Goldberg’s petition to confirm the arbitration award. On July 12, 2010 the award was confirmed by the court. As of August 10, 2010, the Company adjusted its estimate of costs to settle this matter to $2.6 million to account for potential additional interest costs on the settlement amount and additional legal fees. Dr. Goldberg has proposed an order of settlement in the amount of approximately $2.6 million and seeks to have a final order entered August 16, 2010.
     The Company evaluates the financial consequences of legal actions periodically or as facts present themselves and books accruals to account for its best estimate of future costs accordingly.
      Contingencies. In the ordinary course of business, we enter into agreements with third parties that include indemnification provisions which, in our judgment, are normal and customary for companies in our industry sector. These agreements are typically with business partners, clinical sites, and suppliers. Pursuant to these agreements, we generally agree to indemnify, hold harmless, and reimburse indemnified parties for losses suffered or incurred by the indemnified parties with respect to our product candidates, use of such product candidates, or other actions taken or omitted by us. The maximum potential amount of future payments we could be required to make under these indemnification provisions is unlimited. We have not incurred material costs to defend lawsuits or settle claims related to these indemnification provisions. As a result, the estimated fair value of liabilities relating to these provisions is minimal. Accordingly, we have no liabilities recorded for these provisions as of June 30, 2010.
     In the normal course of business, we may be confronted with issues or events that may result in a contingent liability. These generally relate to lawsuits, claims, environmental actions or the action of various regulatory agencies. If necessary, management consults with counsel and other appropriate experts to assess any matters that arise. If, in our opinion, we have incurred a probable loss as set forth by accounting principles generally accepted in the U.S., an estimate is made of the loss and the appropriate accounting entries are reflected in our financial statements. After consultation with legal counsel, we do not anticipate that liabilities arising out of currently pending or threatened lawsuits and claims will have a material adverse effect on our financial position, results of operations or cash flows.
Restructuring Expense
     On December 8, 2008, as part of our efforts to improve operational efficiency we decided to close our research and development facilities in Tarrytown to reduce costs and improve operating efficiency which resulted in a

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restructuring charge of approximately $3.8 million in the fourth quarter, 2008. On April 29, 2009, the Company entered into the Lease Termination Agreement with BMR, and credited the restructuring charge $0.35 million in accordance with the terms of the Agreement. On March 17, 2010 the Company and BMR amended the Agreement as described in this Note (above). Consequently, the restructuring liability was readjusted to reflect the terms of the Amendment accordingly.
     Adjustments to the restructuring liability are as follows ($ thousands):
                                 
    Liability at     Cash     Adjustment to     Liability at  
    December 31, 2009     Payments     the Liability     June 30, 2010  
Lease restructuring expense
  $ 750     $ (200 )   $ 50     $ 600  
12. Income Taxes
     The Company is primarily subject to United States federal and New Jersey state income tax. The Company’s policy is to recognize interest and penalties related to income tax matters in income tax expense. As of December 31, 2009 and June 30, 2010, the Company had no accruals for interest or penalties related to income tax matters. For the three months ended June 30, 2010 and 2009, the effective income tax rate was 0%. The difference between the Company’s effective income tax rate and the Federal statutory rate of 35% is attributable to state tax benefits and tax credits offset by changes in the deferred tax valuation allowance.
13. New Accounting Pronouncements
     In October 2009, the FASB issued ASU 2009-13, Multiple-Deliverable Revenue Arrangements, (amendments to FASB ASC Topic 605, Revenue Recognition ) (“ASU 2009-13”). ASU 2009-13 requires entities to allocate revenue in an arrangement using estimated selling prices of the delivered goods and services based on a selling price hierarchy. The amendments eliminate the residual method of revenue allocation and require revenue to be allocated using the relative selling price method. ASU 2009-13 should be applied on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with early adoption permitted. The adoption of ASU 2009-13 did not have a material impact on the Company’s results of operations or financial condition.
     In April 2010, the FASB issue ASU 2010-17, Revenue Recognition – Milestone Method (“ASU 2010-17”). ASU 2010-17 provides guidance on the criteria that should be met for determining whether the milestone method of revenue recognition is appropriate. A vendor can recognize consideration that is contingent upon achievement of a milestone in its entirety as revenue in the period in which the milestone is achieved only if the milestone meets all criteria to be considered substantive. The following criteria must be met for a milestone to be considered substantive. The consideration earned by achieving the milestone should 1. be commensurate with either the level of effort required to achieve the milestone or the enhancement of the value of the item delivered as a result of a specific outcome resulting from the vendor’s performance to achieve the milestone; 2. be related solely to past performance; and 3. be reasonable relative to all deliverables and payment terms in the arrangement. No bifurcation of an individual milestone is allowed and there can be more than one milestone in an arrangement. Accordingly, an arrangement may contain both substantive and nonsubstantive milestones. ASU 2010-17 is effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010. The adoption of ASU 2010-17 did not have a material impact on the Company’s results of operations or financial condition.
     Management does not believe there would have been a material effect on the accompanying financial statements had any other recently issued, but not yet effective, accounting standards been adopted in the current period.
14. Fair Value
     In accordance with FASB ASC 820, “Fair Value Measurements and Disclosures”, the following table represents the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2010 and December 31, 2009:

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    Level 2     Level 2  
    June 30, 2010     December 31, 2009  
    ($ thousands)     ($ thousands)  
Derivative instruments (short term)
  $ 17,135     $ 6,189  
Derivative instruments (long term)
    12,031       4,591  
 
           
Total
  $ 29,166     $ 10,780  
 
           
Some of the Company’s financial instruments are not measured at fair value on a recurring basis but are recorded at amounts that approximate fair value due to their liquid or short-term nature, such as cash and cash equivalents, receivables and payables.
     We have determined that it is not practical to estimate the fair value of our notes payable because of their unique nature and the costs that would be incurred to obtain an independent valuation. We do not have comparable outstanding debt on which to base an estimated current borrowing rate or other discount rate for purposes of estimating the fair value of the notes payable and we have not been able to develop a valuation model that can be applied consistently in a cost efficient manner. These factors all contribute to the impracticability of estimating the fair value of the notes payable. At June 30, 2010, the carrying value of the notes payable and accrued interest was $13.8 million. The MHR Convertible Notes, which are due on September 26, 2012, yield an effective interest rate of 43.5%. Refer to Note 8 of these financial statements for more information about the Company’s notes payable.
15. Sale of Patents
     On February 8, 2008, the Company sold to MannKind Corporation (“MannKind”) certain patents and a patent application relating to diketopiperazine technology for a total purchase price of $2.5 million. An initial payment of $1.5 million was received in February 2008 and recognized as other income. An additional $0.5 million was paid in May 2009 with the remaining $0.5 million payment to be made no later than October 5, 2010. We will recognize as revenue the additional amounts due from MannKind when payment becomes reasonably assured.
16. Subsequent Events
July 2010 MHR Promissory Note. On July 29, 2010, we issued a promissory note (the “July 2010 MHR Note”) to MHR Institutional Partners IIA LP and MHR Institutional Partners II LP (together, “MHR”) in the principal amount of $525,000. The July 2010 MHR Note provides for an interest rate of 15% per annum, with the entire principal amount due and payable on October 27, 2010 (the “Maturity Date”). The Maturity Date will be accelerated, in certain circumstances, to the date that is two business days following the receipt by the Issuer of at least $1,000,000 aggregate cash proceeds from third parties, whether in connection with certain financing transactions, commercial transactions or otherwise. MHR may, at its option, apply the amount of any payment of principal or interest on account of this July 2010 MHR Note as consideration for the purchase of any securities that may, from time to time, be issued by the Company to the MHR for value. The obligations under the July 2010 MHR Note are secured in accordance with the terms of the Amendment (the “Amendment”) to the Pledge and Security Agreement whereby Emisphere and MHR amended that certain Pledge and Security Agreement, dated as of September 26, 2005 (the “Security Agreement”) to extend the terms of the Security Agreement other than the intellectual property licensed to Novartis pursuant to the Master Agreement and Amendment dated June 4, 2010 by and between Emisphere and Novartis, to include the principal, interest and other obligations provided under the July 2010 MHR Note. In accordance with the terms of that certain 11.00% Senior Secured Convertible Note issued by the Emisphere to MHR and due September 26, 2012, MHR also provided a written consent to allow for the issuance of the Note and related obligations provided under the Amendment.
Subsequent to the quarter ended June 30, 2010, MOG Capital, LLC (“MOG Capital”) notified the Company of its intention to exercise its 2009 Investor Warrant to purchase up to 1,342,857 shares of the Company’s common stock at an exercise price of $0.70, using the “cashless exercise” provision. The Company issued an aggregate 961,724 shares to MOG Capital in accordance with the terms of the cashless exercise provision. After this cashless exercise, 2009 Investor Warrants to purchase up to 3,729,323 shares of common stock, in the aggregate, remain outstanding.

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ITEM 2.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SAFE HARBOR CAUTIONARY STATEMENT
     Certain statements in this Management’s Discussion and Analysis of Financial Conditions and Results of Operations and elsewhere in this report as well as statements made from time to time by our representatives may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward looking statements include (without limitation) statements regarding planned or expected studies and trials of oral formulations that utilize our Eligen ® Technology; the timing of the development and commercialization of our product candidates or potential products that may be developed using our Eligen ® Technology; the potential market size, advantages or therapeutic uses of our potential products; variation in actual savings and operational improvements resulting from restructurings; and the sufficiency of our available capital resources to meet our funding needs. We do not undertake any obligation to publicly update any forward-looking statement, whether as a result of new information, future events, or otherwise, except as required by law. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results or achievements expressed or implied by such forward-looking statements. Such factors include the factors described under Part II, Item 1A. “Risk Factors” and other factors discussed in connection with any forward looking statements.
General
     Emisphere Technologies, Inc. is a biopharmaceutical company that focuses on a unique and improved delivery of therapeutic molecules or nutritional supplements using its Eligen ® Technology. These molecules could be currently available or are under development. Such molecules are usually delivered by injection; in many cases, their benefits are limited due to poor bioavailability, slow on-set of action or variable absorption. In those cases, our technology may increase the benefit of the therapy by improving bioavailability or absorption or by increasing the onset of action. The Eligen ® Technology can be applied to the oral route of administration as well other delivery pathways, such as buccal, rectal, inhalation, intra-vaginal or transdermal. The Eligen ® Technology can make it possible to orally deliver certain therapeutic molecules without altering their chemical form or biological integrity. Eligen ® delivery agents, or “carriers”, facilitate or enable the transport of therapeutic molecules across the mucous membranes of the gastrointestinal tract, to reach the tissues of the body where they can exert their intended pharmacological effect.
     Since our inception in 1986, substantial efforts and resources have been devoted to understanding the Eligen ® Technology and establishing a product development pipeline that incorporated this technology with selected molecules. Since 2007, Emisphere has undergone many positive changes. A new senior management team, led by Michael V. Novinski, was hired; the Eligen ® Technology was reevaluated and our corporate strategy was refocused on commercializing the Eligen ® Technology as quickly as possible, building high-value partnerships and reprioritizing the product pipeline. Spending was redirected and aggressive cost control initiatives were implemented. These changes resulted in redeployment of resources to programs, one of which, yielded the introduction of our first commercial product during 2009. We continue to develop potential product candidates in-house and we demonstrated and enhanced the value of the Eligen ® Technology as evident in the progress made by our development partners Novo Nordisk A/S (“Novo Nordisk”) and Novartis Pharma AG (“Novartis”) on their respective product development programs. Further development, exploration and commercialization of the technology entail risk and operational expenses. However, we have made significant progress on refocusing our efforts on strategic development initiatives and cost control and continue to aggressively seek to reduce non-strategic spending.
     The application of the Eligen ® Technology is potentially broad and may provide for a number of opportunities across a spectrum of therapeutic modalities or nutritional supplements. During the second quarter 2010, we continued to develop our product pipeline utilizing the Eligen ® Technology with prescription and nonprescription product candidates. We prioritized our development efforts based on overall potential returns on investment, likelihood of success, and market and medical need. Our goal is to implement our Eligen ® Technology to enhance overall healthcare, including patient accessibility and compliance, while benefiting the commercial pharmaceutical marketplace and driving company valuation. Investments required to continue developing our product pipeline may be partially paid by income-generating license arrangements whose value tends to increase as product candidates move from pre-clinical into clinical development. It is our intention that incremental investments that may be required to fund our research and development will be approached incrementally in order to minimize disruption or dilution.

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     We plan to attempt to expand our current collaborative relationships to take advantage of the critical knowledge that others have gained by working with our technology. We will also continue to pursue product candidates for internal development and commercialization. We believe that these internal candidates must be capable of development with reasonable investments in an acceptable time period and with a reasonable risk-benefit profile.
     Our product pipeline includes prescription and medical foods candidates. We reported progress on our planned second product, a higher dose, medical food formulation of Eligen ® B12 for use by B12 deficient individuals. Our recently completed clinical trial showed that high dose Eligen ® B12 1000mcg can efficiently and quickly restore Vitamin B12 levels in deficient individuals compared to the current standard of care. During July 2010, we announced that we are engaged in ongoing discussions with a potential licensee for our high dose oral Eligen ® B12 1000mcg as a Medical Food for individuals with B12 deficiency. In addition, we are evaluating other potential licensees as well as the possibility of marketing the product without a partner. As a medical food, Emisphere’s Eligen ® B12 (1000 mcg) is designed as a specially formulated and processed oral formulation for the specific dietary management of patients under medical supervision who, because of a limited or impaired capacity to absorb Vitamin B12 , have a diagnosed Vitamin B12 deficiency. It is planned to be available early in 2011. It is estimated that as many as 10 million people in the U.S. and over 100 million people worldwide may be B12 deficient. Oral Eligen ® B12 and the foregoing statements have not been evaluated by the Food and Drug Administration. Oral Eligen ® B12 is not intended to diagnose, treat, cure, or prevent any disease.
     Previously, the Company had announced interim data from the recently completed study demonstrated that its high-dose oral Eligen ® B12 (1000mcg) given to individuals with low B12 levels restores normal B12 serum concentrations. Normal levels of serum B12 were achieved by all study participants who had taken Eligen ® B12 (1000mcg) 15 days into the 90-day study when the first blood samples were taken. These data, in Abstract Number 8370, were presented at the Experimental Biology 2010 Conference in Anaheim, California. In this open-label, randomized, 90-day study, serum cobalamin (B12) and holotranscobalamin (active B12) were collected and measured at Baseline, Day 15, Day 31, Day 61 and Day 91. A total of 49 study participants were enrolled (26 on IM injection and 23 on oral) and received either nine 1000mcg intramuscular injections of Vitamin B12 or once daily tablets of oral Eligen ® B12 (1000 mcg). The results from the interim analysis showed that serum cobalamin and active B12 returned to the normal range with both products and normalization was maintained. With participants in the oral Eligen ® B12 (1000mcg) group showing the ability to rapidly achieve normalized serum and active B12 levels, the study illustrates the potential of the Eligen ® Technology and of the high dose, oral Eligen ® B12 (1000mcg) formulation to offer a much needed medical food alternative to painful and inconvenient IM injections.
     On the prescription side, our licensees include Novartis, which is using our drug delivery technology in combination with salmon calcitonin, parathyroid hormone, and human growth hormone. During June 2010, we announced that we entered into an expanded relationship with Novartis pursuant to which Novartis has cancelled the Company’s Convertible Promissory Note (the “Novartis Note”). The Novartis Note was originally issued to Novartis on December 1, 2004 in connection with the Research Collaboration and Option License Agreement between the parties of that date and was originally due December 1, 2009. Previously, Novartis had agreed to extend the maturity date to June 4, 2010. In connection with the cancellation of the Novartis Note, the parties agreed to modify the royalty and milestone payment schedule for the Research Collaboration and Option Agreement and License Agreement between the parties for the development of an oral salmon calcitonin product for the treatment of osteoarthritis and osteoporosis. Additionally, we have granted Novartis the right to evaluate the feasibility of using Emisphere’s Eligen ® Technology with two new compounds to assess the potential for new product development opportunities. If Novartis chooses to develop oral formulations of these new compounds using the Eligen ® Technology, the parties will negotiate additional agreements. In that case, Emisphere could be entitled to receive development milestone and royalty payments in connection with the development and commercialization of these potentially new products.
     Novartis’ most advanced program is testing an oral formulation of calcitonin to treat osteoarthritis and osteoporosis. Novartis is conducting two Phase III clinical studies for osteoarthritis and one Phase III clinical study for osteoporosis. Now that these Phase III studies are fully enrolled, over 5,500 clinical study patients used the Eligen ® Technology during 2009 and continue to use it during 2010. During July 2010, we announced that Novartis Pharma AG and its license partner Nordic Bioscience a/s (the “Sponsor”) reported the following in connection with their Phase III Study 2302 in osteoarthritis assessing the safety and efficacy of oral calcitonin in the treatment of osteoarthritis of the knee. This study incorporates Emisphere’s unique and proprietary Eligen ® Drug Delivery Technology for the improved oral absorption of salmon calcitonin. An independent Data Monitoring Committee

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(“DMC”) conducted a futility analysis of one-year data for all patients enrolled in this two-year study, including assessments of safety and efficacy parameters. The DMC concluded that although there is no reason to stop Study 2302 because of safety concerns, there is no reason to continue the study for efficacy. The DMC also concluded that the final decision whether to continue Study 2302 rests with the Sponsor. A parallel two-year Phase III Study 2301 in osteoarthritis assessing the safety and efficacy of oral calcitonin in the treatment of osteoarthritis of the knee is still in progress. In December 2009, the DMC conducted a futility analysis of one-year data for all patients enrolled in this two-year study, including assessments of safety and efficacy parameters, and recommended to continue with such Study. The Sponsor currently intends to continue the clinical program of oral calcitonin in osteoarthritis, including both Phase III Study 2301 and Phase III Study 2302. Novartis and Nordic Bioscience will continue to work together to assess next steps once the final data of Study 2301 is available. This data is expected to be available in the fourth quarter, 2010. Additionally, the Sponsor currently intends to continue the clinical program of oral calcitonin in osteoporosis. Previously, in its quarterly earnings report for the period ended June 30, 2010, Novartis stated that oral calcitonin for the treatment of osteoporosis is planned to file with the regulatory authorities during 2011.
     During April 2010, we announced the publication of a research study entitled, “Investigation of the Direct Effect of Salmon Calcitonin on Human Osteoarthritic Chondrocytes,” by Nordic Bioscience in the April 5, 2010 edition of the publication BMC Musculoskeletal Disorders. Oral salmon calcitonin, which uses Emisphere’s proprietary Eligen ® Technology, is currently being studied in osteoarthritis and osteoporosis by Novartis Pharma AG and Nordic Bioscience. The study was conducted in vitro on cartilage samples obtained from female patients undergoing total knee arthroplasty surgery for the treatment of osteoarthritis. The article describes the growth promoting effects of salmon calcitonin on these cartilage samples. The study shows that treatment with pharmacological concentrations of calcitonin increases synthesis of both proteoglycan (proteins and sugars which interweave with collagen) and collagen type II — the key components of articular cartilage. This research is unique and significant as it represents the first work to look chiefly at the ability of salmon calcitonin to stimulate cartilage synthesis. These findings provide evidence to substantiate the theory that calcitonin may exert a positive effect on joint health through its dual action of promoting both bone and cartilage formation.
     During December 2009, we announced a meta-analysis published in the December 2009 edition of Rheumatology Reports examining independent evidence of the analgesic action of the hormone calcitonin. This publication restated the potential of calcitonin in filling a significant unmet need for alternative treatments for persistent musculoskeletal pain. Scientists from Nordic Bioscience were involved in the preparation of this meta-analysis. Non-malignant musculoskeletal pain is the most common clinical symptom that causes patients to seek medical attention and is a major cause of disability in the world. Musculoskeletal pain can arise from a variety of common conditions including osteoarthritis, rheumatoid arthritis, osteoporosis, surgery, low back pain and bone fracture. The meta-analysis, conducted by researchers at the Center for Sensory-Motor Interaction in the Department of Health Science and Technology at Aalborg University in Denmark, examined independent pre-clinical and clinical studies spanning nearly 45 years of the possible intrinsic analgesic properties of calcitonin, with special focus on the challenges in the musculoskeletal system. The authors concluded that well-designed clinical trials should be conducted to further validate evidence of calcitonin’s analgesic action and its promising potential role in the management of musculoskeletal pain. The effects of calcitonin on clinical pain conditions have received increasing attention in the past decades, although a consensus on mechanism-of-action and potential indications has not been reached. The analgesic activity of oral salmon calcitonin has been shown in several controlled prospective double-blind studies; besides pain management in osteoporosis, calcitonin has shown analgesic action in painful conditions such as phantom limb pain, diabetic neuropathy, complex regional pain syndrome, adhesive capsulitis, rheumatoid arthritis, vertebral crush fractures, spondylitis, tumor metastasis, cancer pain, migraine, Paget’s disease of bone as well as post-operative pain. An ideal treatment with an optimal efficacy, safety and convenience profile is not available for the musculoskeletal pain associated with such conditions as osteoporosis and osteoarthritis. This review of the literature highlights the clear unmet medical need that could be addressed by Emisphere’s oral salmon calcitonin product.
     Novartis is also engaged in research using the Eligen ® Technology and PTH-1-34 to develop a safe and effective oral formulation of PTH for the treatment of postmenopausal osteoporosis, PTH is produced by the parathyroid glands to regulate the amount of calcium and phosphorus in the body. When used therapeutically, it increases bone density and bone strength to help prevent fractures. It is approved to treat osteoporosis, a disease associated with a gradual thinning and weakening of the bones that occurs most frequently in women after menopause. Untreated postmenopausal osteoporosis can lead to chronic back pain, disabling fractures, and lost mobility. Novartis

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conducted a Phase I study in postmenopausal women to determine the safety and tolerability of oral PTH-1-34, a combination of human PTH-1-34 and Emisphere’s delivery agent 5-CNAC, for the treatment of postmenopausal osteoporosis. The study was designed to assess the bioavailability profile of increasing doses of PTH-1-34 combined with different amounts of 5-CNAC administered orally. The results, from the single-center, partially-blinded, incomplete cross-over study were presented October 19, 2009 in a poster session at the 73rd Annual Scientific Meeting of the American College of Rheumatology in Philadelphia. Study results demonstrated that a single dose of the novel oral parathyroid hormone PTH-1-34, which utilizes Emisphere’s proprietary Eligen ® Drug Delivery Technology and absorption-enhancing carrier molecule 5-CNAC, achieved potentially therapeutically relevant exposure and safety profiles similar to those of the currently available injectable formulation in healthy postmenopausal women.
     During April 2010, we announced that Novartis Pharma AG initiated a second Phase I trial for an oral PTH-1-34 which uses Emisphere’s Eligen ® Technology, and is in development for the treatment of postmenopausal osteoporosis. The study is a partially blinded, placebo controlled, active comparator study to explore the safety, tolerability, pharmacokinetics and pharmacodynamics in postmenopausal women after daily oral doses of PTH-1-34. The study has two parts (A and B) and will enroll a total of approximately up to 120 postmenopausal women. In Part A of the trial, ascending doses of oral PTH-1-34 using the Eligen ® Technology will be tested for safety, tolerability and pharmacokinetics and compared to Forsteo ® . In Part B, in addition to safety and tolerability of oral PTH-1-34 using the Eligen ® Technology, pharmacodynamic responses will be measured by bone biomarker levels and bone mineral density, and compared to Forsteo ® . The first patient was enrolled in April.
     Research using the Eligen ® Technology and GLP-1, a potential treatment for Type 2 Diabetes is being conducted by Novo Nordisk A/S (“Novo Nordisk”) and by Dr. Christoph Beglinger, M.D., of the Clinical Research Center, Department of Biomedicine Division of Gastroenterology, and Department of Clinical Pharmacology and Toxicology at University Hospital in Basel, Switzerland. We had previously conducted extensive tests on oral insulin for Type 1 Diabetes and concluded that a more productive pathway is to move forward with GLP-1 and its analogs, an oral form of which might be used to treat Type 2 Diabetes and related conditions. Consequently, on June 21, 2008 we entered into an exclusive Development and License Agreement with Novo Nordisk focused on the development of oral formulations of Novo Nordisk’s proprietary GLP-1 receptor agonists.
     During January 2010, we announced that Novo Nordisk had initiated its first Phase I clinical trial with a long-acting oral GLP-1 analogue (NN9924). This milestone released a $2 million payment to Emisphere, whose proprietary Eligen ® Technology is used in the formulation of NN9924. GLP-1 (Glucagon-Like Peptide-1) is a natural hormone involved in controlling blood sugar levels. It stimulates the release of insulin only when blood sugar levels become too high. GLP-1 secretion is often impaired in people with Type 2 Diabetes. The aim of this trial, which is being conducted in the UK, is to investigate the safety, tolerability and bioavailability of NN9924 in healthy volunteers. The trial will enroll approximately 155 individuals and results from the trial are expected in 2011. There are many challenges in developing an oral formulation of GLP-1, in particular obtaining adequate bioavailability. NN9924 addresses some of these key challenges by utilizing Emisphere’s Eligen ® Technology to facilitate absorption from the gastrointestinal tract.
     Our other product candidates in development are in earlier or preclinical research phases, and we continue to assess them for their compatibility with our technology and market need. Our intent is to seek partnerships with pharmaceutical and biotechnology companies for certain of these products. We plan to expand our pipeline with product candidates that demonstrate significant opportunities for growth. During March 2010, Emisphere and Alchemia Ltd. (ASX:ACL) announced that they would join efforts to develop an oral formulation of the anti-coagulant drug fondaparinux with Emisphere’s Eligen ® Technology. Fondaparinux, an anti-coagulant used for the prevention of deep vein thrombosis, is marketed in injectable form as Arixtra ® by GlaxoSmithKline. Arixtra ® has been off patent since 2002 but, due to the complexity of its synthesis, there is currently no approved generic or alternative source of commercial scale active pharmaceutical ingredient (“API”). Alchemia has developed a novel, patent protected, synthesis for the manufacture of fondaparinux at commercial scale. In March 2009, Alchemia’s manufacturing and U.S. marketing partner, Dr Reddy’s Laboratories (NYSE: RDY) submitted an ANDA to the U.S. FDA for a generic version of the injectable form of fondaparinux. We believe an oral formulation of fondaparinux could dramatically increase the market potential for fondaparinux. Based on what we know from our experience with other chemically-related anti-coagulants, the profile of fondaparinux should fit very well with the Eligen ® Technology given its half life and safety profile. Although developing an oral formulation of an injectable compound is always challenging, this project could produce substantial benefits for the medical community. The

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combination of Emisphere’s delivery technology and Alchemia’s fondaparinux may ultimately allow us to bring an oral anti-coagulant to market in an accelerated fashion. Alchemia has already seen preclinical data suggesting that enhanced levels of oral absorption can be achieved for fondaparinux. If the dose formulated with the Eligen ® Technology can be successfully optimized, it could open up a host of medically and commercially compelling opportunities for fondaparinux, Alchemia plans to evaluate a number of different formulations initially in order to optimize oral bioavailability and pharmacokinetics, with the aim of then rapidly moving into human clinical studies.
     By expanding our relationship with Novartis and settling the Novartis Note on non-dilutive terms (see Note 8 to the Financial Statements contained in this quarterly report) the Company strengthened its Balance Sheet and enhanced the potential future value of its Eligen ® Technology through the potential future additional development and commercialization of potentially new products by Novartis. By focusing on improving operational efficiency, we have strengthened our financial foundation while maintaining our focus on advancing and commercializing the Eligen ® Technology. By closing our research and development facility in Tarrytown, NY and utilizing independent contractors to conduct essential research and development, we reduced our annual cash burn from operating activities to approximately $8 million per year. Additionally, we have accelerated the commercialization of the Eligen ® Technology in a cost effective way and gained operational efficiencies by tapping into more advanced scientific processes independent contractors can provide.
Results of Operations
Three Months Ended June 30, 2010 Compared to Three Months Ended June 30, 2009:
                         
            Three Months Ended        
            June 30,        
    2010     2009     Change  
    (in thousands)  
Revenue
  $ 39     $     $ 39  
Operating expenses
  $ 3,156     $ 2,998     $ 158  
Operating loss
  $ (3,117 )   $ (2,998 )   $ (119 )
Other income (expense)
  $ (10,587 )   $ (1,189 )   $ (9,398 )
Net loss
  $ (13,704 )   $ (4,187 )   $ (9,517 )
     Revenue increased $0.04 million for the three months ended June 30, 2010 compared to the same period last year due to commercial sales of low dose Eligen ® B-12.
     Operating expenses increased $0.16 million or 5% for the three months ended June 30, 2010 in comparison to the same period last year. Details of these changes are highlighted in the table below:
         
    (in thousands)  
Decrease in human resources costs
  $ (673 )
Decrease in professional fees
    (13 )
Increase in occupancy costs
    2  
Decrease in clinical costs
    (72 )
Decrease in depreciation and amortization
    (21 )
Increase in other costs
    935  
 
     
 
  $ 158  
 
     
Human resource costs decreased $673 thousand, or 37%, due primarily to a $70 thousand decrease from a reduction in personnel in 2010 and a $631 thousand reduction in non-cash compensation, partially offset by the receipt of a refund in workers compensation insurance during 2009.
Professional fees decreased $13 thousand, or 1%, due primarily to a net decrease in legal fees.
Occupancy costs increased $2 thousand, or 2%, due to higher common area maintenance costs.
Clinical costs decreased $72 thousand, or 22%, due primarily to a decrease in clinical trial costs related to B-12 as the trial nears completion.

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Depreciation and amortization costs decreased $21 thousand, or 22%, due to the write off of certain equipment in connection with the closure of the Tarrytown facility as a result of our fixed asset audit in the fourth quarter of 2009.
Other costs increased $935 thousand, or 174%, due primarily to the receipt of $779 thousand proceeds from the sale of fixed asset equipment in 2009 and an increase of $220 thousand in estimated costs to settle outstanding lawsuits during 2010; partially offset by a $63 thousand reduction in expenses associated with the abandonment of the Tarrytown NY facility during 2009.
     Our principal operating costs include the following items as a percentage of total operating expenses:
                 
    Three Months Ended
    June 30,
    2010   2009
Human resource costs, including benefits
    36 %     61 %
Professional fees for legal, intellectual property, accounting and consulting
    38 %     40 %
Occupancy for our laboratory and operating space
    3 %     3 %
Clinical costs
    8 %     11 %
Depreciation and amortization
    2 %     3 %
Other
    13 %     -18 %
     Other expense increased $9.4 million for the three months ended June 30, 2010 in comparison to the same period last year primarily due to a $8.2 million increase in the fair value of derivative instruments due to relative changes in stock price during the three months ended June 30, 2010 compared to the three months period ended June 30, 2009; an increase of $0.7 million in interest expense and a decrease of $0.5 million in other income due to the receipt of a $0.5 million installment payment on the sale of a patent to MannKind during the three months ended June 30, 2009.
     As a result of the above factors, we had a net loss of $13.7 million for the three months ended June 30, 2010, compared to a net loss of $4.2 million for the three months ended June 30, 2009.
Six Months Ended June 30, 2010 Compared to Six Months Ended June 30, 2009:
                         
    Six Months Ended
            June 30,    
    2010   2009   Change
    (in thousands)
Revenue
  $ 51     $     $ 51  
Operating expenses
  $ 6,176     $ 7,657     $ (1,481 )
Operating loss
  $ (6,125 )   $ (7,657 )   $ 1,532  
Other income (expense)
  $ (26,045 )   $ (1,947 )   $ (24,098 )
Net loss
  $ (32,170 )   $ (9,604 )   $ (22,566 )
     Revenue increased $0.05 million for the six months ended June 30, 2010 compared to the same period last year due to commercial sales of low dose Eligen ® B-12.
     Operating expenses decreased $1.6 million or 21% for the six months ended June 30, 2010 in comparison to the same period last year. Details of these changes are highlighted in the table below:
         
    (in thousands)  
Decrease in human resources costs
  $ (374 )
Decrease in professional fees
    (908 )
Decrease in occupancy costs
    (822 )
Decrease in clinical costs
    (522 )
Decrease in depreciation and amortization
    (157 )
Increase in other costs
    1,302  
 
     
 
  $ (1,481 )
 
     
Human resource costs decreased $374 thousand, or 12%, due primarily to a $460 thousand decrease in non-cash compensation and a $79 thousand decrease from reduction in personnel, offset by the award of a $150 thousand special bonus to the Company’s CEO and a $15 thousand increase in employee benefits.

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Professional fees decreased $908 thousand, or 30%, due primarily to a $597 thousand decrease in legal fees primarily in connection with the completion of the arbitration with the Company’s former CEO; a $252 thousand decrease in consulting costs and $59 thousand decrease from other professional fees.
Occupancy costs decreased $822 thousand, or 82%, due to the closure of our laboratory facilities in Tarrytown, NY.
Clinical costs decreased $522 thousand, or 57%, due primarily to a $247 thousand decrease in clinical trial costs and a $132 thousand decrease in outside lab fees associated with the completion of analytical testing programs related to the B-12 program; a $103 thousand decrease in lab supplies and a $57 thousand decrease in repairs and maintenance of laboratory equipment as a result of closure of the Tarrytown NY facility in 2009.
Depreciation and amortization costs decreased $157 thousand, or 51%, due to the sales of laboratory equipment and the write off of certain equipment in connection with the closure of the Tarrytown facility.
Other costs increased $1.3 million, or 194%, due primarily to the receipt of $822 thousand proceeds from the sale of fixed asset equipment in 2009, an increase of $220 thousand in estimated costs to settle outstanding lawsuit and a $353 thousand credit adjustment to restructuring expense taken during the first quarter 2009 in connection with the closure of the Tarrytown facility.
     Our principal operating costs include the following items as a percentage of total operating expenses:
                 
    Six Months Ended
    June 30,
    2010   2009
Human resource costs, including benefits
    44 %     41 %
Professional fees for legal, intellectual property, accounting and consulting
    34 %     39 %
Occupancy for our laboratory and operating space
    3 %     13 %
Clinical costs
    6 %     12 %
Depreciation and amortization
    3 %     4 %
Other
    10 %     -9 %
     Other expense increased $24.1 million for the six months ended June 30, 2010 in comparison to the same period last year primarily due to a $22.3 million increase in the fair value of derivative instruments due to the issuance of new warrants which are required to be accounted for as a derivative instruments and to relative changes in stock price during the six months ended June 30, 2010 and June 30, 2009 respectively; an increase of $1.1 million in interest expense and a decrease of $0.7 million in other income due primarily from a $0.5 installment payment on the sale of patent to MannKind and $0.2 million decrease in sublease income in connection with the closure of our Tarrytown facility during 2009.
     As a result of the above factors, we had a net loss of $32.2 million for the six months ended June 30, 2010, compared to a net loss of $9.6 million for the six months ended June 30, 2009.
Liquidity and Capital Resources
     Since our inception in 1986, we have generated significant losses from operations and we anticipate that we will continue to generate significant losses from operations for the foreseeable future. As of June 30, 2010, our accumulated deficit was approximately $468.8 million and our stockholders deficit was approximately $73.4 million. Our net loss and operating loss was $13.7 million and $3.1 million, respectively for the three months ended June 30, 2010 compared to a net loss and net operating loss of $4.2 million and $3.0 million, respectively for the three months ended June 30, 2009. Our net loss and net operating loss for the six months ended June 30, 2010 were $32.2 million and $6.1 million respectively compared to $9.6 million and $7.7 million, respectively for the six months ended June 30, 2009.
     On July 29, 2010, we issued a promissory note (the “Note”) to MHR Institutional Partners IIA LP and MHR Institutional Partners II LP (together, “MHR”) in the principal amount of $525,000. The Note provides for an interest rate of 15% per annum, with the entire principal amount due and payable on October 27, 2010 (the “Maturity Date”). The Maturity Date will be accelerated, in certain circumstances, to the date that is two business

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days following the receipt by the Issuer of at least $1,000,000 aggregate cash proceeds from third parties, whether in connection with certain financing transactions, commercial transactions or otherwise. The obligations under the Note are secured in accordance with the terms of the Amendment (the “Amendment”) to the Pledge and Security Agreement whereby Emisphere and MHR amended that certain Pledge and Security Agreement, dated as of September 26, 2005 (the “Security Agreement”) to extend the terms of the Security Agreement other than the intellectual property licensed to Novartis pursuant to the Master Agreement and Amendment dated June 4, 2010 by and between Emisphere and Novartis, to include the principal, interest and other obligations provided under the Note. In accordance with the terms of that certain 11.00% Senior Secured Convertible Note issued by the Emisphere to MHR and due September 26, 2012, MHR also provided a written consent (the “Consent”) to allow for the issuance of the Note and related obligations provided under the Amendment.
     In April 2005, the Company entered into an amended and restated employment agreement with its then Chief Executive Officer, Dr. Michael M. Goldberg, for services through July 31, 2007. On January 16, 2007, the Board of Directors terminated Dr. Goldberg’s services. On April 26, 2007, the Board of Directors held a special hearing at which it determined that Dr. Goldberg’s termination was for cause. On March 22, 2007, Dr. Goldberg, through his counsel, filed a demand for arbitration asserting that his termination was without cause and seeking $1,048,000 plus attorney’s fees, interest, arbitration costs and other relief alleged to be owed to him in connection with his employment agreement with the Company. During the arbitration, Dr. Goldberg sought a total damage amount of at least $9,223,646 plus interest. On February 11, 2010, the arbitrator issued the final award in favor of Dr. Goldberg for a total amount of approximately $2,333,115 as full and final payment for all claims, defenses, counterclaims, fees and related matters. The Company opposed Dr. Goldberg’s petition to confirm the arbitration award. On July 12, 2010 the award was confirmed by the court. As of August 10, 2010, the Company adjusted its estimate of costs to settle this matter to $2.6 million to account for potential additional interest costs on the settlement amount and additional legal fees. Dr. Goldberg has proposed an order of settlement in the amount of approximately $2.6 million and seeks to have a final order entered August 16, 2010.
     On June 4, 2010, we entered into a Master Agreement and Amendment with Novartis (the “Novartis Agreement”). Pursuant to the Novartis Agreement, we were released and discharged from its obligations under the Novartis Note in exchange for (1) the reduction of future royalty and milestone payments up to an aggregate amount of $11.0 million due the Company under the Research Collaboration and Option Agreement, dated as of December 3, 1997, as amended on October 20, 2000, and the License Agreement, date as of March 8, 2000, for the development of an oral salmon calcitonin product for the treatment of osteoarthritis and osteoporosis.; (2) the right for Novartis to evaluate the feasibility of using Emisphere’s Eligen ® Technology with two new compounds to assess the potential for new product development opportunities; and (3) other amendments to the Research Collaboration and Option Agreement and License Agreement. As of the date of the Novartis Agreement, the outstanding principal balance and accrued interest of the Novartis Note was approximately $13.0 million.
     We have limited capital resources and operations to date have been funded primarily with the proceeds from collaborative research agreements, public and private equity and debt financings and income earned on investments. As of June 30, 2010 total cash was $0.7 million including restricted cash of $0.26 million. The change in cash relates to the net loss offset by changes in accounts payable and non-cash items. We anticipate that we will continue to generate significant losses from operations for the foreseeable future, and that our business will require substantial additional investment that we have not yet secured. As such, we anticipate that our existing cash resources, including the amounts provided by MHR in connection with the July 2010 MHR Note but not accounting for an approximately $2.6 million arbitration award in favor of the Company’s former CEO, will enable us to continue operations through approximately August 31, 2010 or earlier if unforeseen events arise that negatively affect our liquidity. However, this expectation is based on the current operating plan that could change as a result of many factors and additional funding may be required sooner than anticipated. These conditions raise substantial doubt about our ability to continue as a going concern. The audit reports prepared by our independent registered public accounting firms relating to our financial statements for the years ended December 31, 2009, 2008 and 2007 include an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern.
     Our business will require substantial additional investment that has not yet been secured. While our plan is to raise capital when needed and/or to pursue partnering opportunities, we cannot be sure how much we will need to spend in order to develop, market and manufacture new products and technologies in the future. We expect to continue to spend substantial amounts on research and development, including amounts spent on conducting clinical trials for our product candidates. Further, we will not have sufficient resources to develop fully any new products or

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technologies unless we are able to raise substantial additional financing on acceptable terms or secure funds from new or existing partners. We cannot assure that financing will be available on favorable terms or at all. Additionally, these conditions may increase the cost to raise capital and/or result in further dilution. Our failure to raise capital when needed would adversely affect our business, financial condition and results of operations, and could force us to reduce or cease our operations.
     However, we have implemented aggressive cost control initiatives and management processes to extend our cash runway. The Company realized a critical milestone in its cost control plan which will contribute to meeting its cash burn target of between $7 and $8 million per year. We are also pursing new as well as enhanced collaborations and exploring other financing options, with the objective of minimizing dilution and disruption.
Off-Balance Sheet Arrangements
     As of June 30, 2010, we had no off-balance sheet arrangements, other than operating leases. There were no changes in significant contractual obligations during the three months ended June 30, 2010.
Critical Accounting Estimates
     Please refer to the Company’s Annual Report on Form 10-K filed with the SEC on March 25, 2010 for detailed explanations of its critical accounting estimates which have not changed significantly during the period ended June 30, 2010.
New Accounting Pronouncements
     In October 2009, the FASB issued ASU 2009-13, Multiple-Deliverable Revenue Arrangements, (amendments to FASB ASC Topic 605, Revenue Recognition ) (“ASU 2009-13”). ASU 2009-13 requires entities to allocate revenue in an arrangement using estimated selling prices of the delivered goods and services based on a selling price hierarchy. The amendments eliminate the residual method of revenue allocation and require revenue to be allocated using the relative selling price method. ASU 2009-13 should be applied on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with early adoption permitted. The adoption of ASU 2009-13 did not have a material impact on the Company’s results of operations or financial condition.
     In April 2010, the FASB issue ASU 2010-17, Revenue Recognition — Milestone Method (“ASU 2010-17”). ASU 2010-17 provides guidance on the criteria that should be met for determining whether the milestone method of revenue recognition is appropriate. A vendor can recognize consideration that is contingent upon achievement of a milestone in its entirety as revenue in the period in which the milestone is achieved only if the milestone meets all criteria to be considered substantive. The following criteria must be met for a milestone to be considered substantive. The consideration earned by achieving the milestone should 1. Be commensurate with either the level of effort required to achieve the milestone or the enhancement of the value of the item delivered as a result of a specific outcome resulting from the vendor’s performance to achieve the milestone. 2, Related solely to past performance. 3. Be reasonable relative to all deliverables and payment terms in the arrangement. No bifurcation of an individual milestone is allowed and there can be more than one milestone in an arrangement. Accordingly, an arrangement may contain both substantive and nonsubstantive milestones. ASU 2010-17 is effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010. The adoptions of ASU 2010-17 did not have a material impact on the Company’s results of operations or financial condition.
     Management does not believe there would have been a material effect on the accompanying financial statements had any other recently issued, but not yet effective, accounting standards been adopted in the current period.
ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
      Fair Value of Warrants and Derivative Liabilities. At June 30, 2010, the estimated fair value of derivative instruments was $29.2 million. We estimate the fair values of these instruments using the Black-Scholes option pricing model which takes into account a variety of factors, including historical stock price volatility, risk-free interest rates, remaining maturity and the closing price of our common stock. We believe that the assumption that

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has the greatest impact on the determination of fair value is the closing price of our common stock. The following table illustrates the potential effect of changes in the assumptions used to calculate fair value:
         
    Derivatives
    (in thousands)
25% increase in stock price
  $ 9,282  
50% increase in stock price
    18,827  
5% increase in assumed volatility
    739  
25% decrease in stock price
    (8,419 )
50% decrease in stock price
    (16,448 )
5% decrease in assumed volatility
    (760 )
ITEM 4T.   CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
     The Company’s senior management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rule 13a-15 and 15d-15 under the Securities Exchange Act of 1934 (the “Exchange Act”)) designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
     The Company has evaluated the effectiveness of the design and operation of its disclosure controls and procedures under the supervision of and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective.
Changes in Internal Control over Financial Reporting
     There have been no changes in our internal control over financial reporting during the three month period ended June 30, 2010 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II
ITEM 1.   LEGAL PROCEEDINGS
     In April 2005, the Company entered into an amended and restated employment agreement with its then Chief Executive Officer, Dr. Michael M. Goldberg, for services through July 31, 2007. On January 16, 2007, the Board of Directors terminated Dr. Goldberg’s services. On April 26, 2007, the Board of Directors held a special hearing at which it determined that Dr. Goldberg’s termination was for cause. On March 22, 2007, Dr. Goldberg, through his counsel, filed a demand for arbitration asserting that his termination was without cause and seeking $1,048,000 plus attorney’s fees, interest, arbitration costs and other relief alleged to be owed to him in connection with his employment agreement with the Company. During the arbitration, Dr. Goldberg sought a total damage amount of at least $9,223,646 plus interest. On February 11, 2010, the arbitrator issued the final award in favor of Dr. Goldberg for a total amount of approximately $2,333,115 as full and final payment for all claims, defenses, counterclaims, fees and related matters. The Company opposed Dr. Goldberg’s petition to confirm the arbitration award. On July 12, 2010 the award was confirmed by the court. As of August 10, 2010, the Company adjusted its estimate of costs to settle this matter to $2.6 million to account for potential additional interest costs on the settlement amount and additional legal fees. Dr. Goldberg has proposed an order of settlement in the amount of approximately $2.6 million and seeks to have a final order entered August 16, 2010.

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ITEM 1A.   RISK FACTORS
      The following risk factors should be read carefully in connection with evaluating our business and the forward-looking statements that we make in this Report and elsewhere (including oral statements) from time to time. Any of the following risks could materially and adversely affect our business, our operating results, our financial condition and the actual outcome of matters as to which forward-looking statements are made in this Report. Our business is subject to many risks, which are detailed further in our Annual Report on Form 10-K , including:
Financial Risks
    We have a history of operating losses and we may never achieve profitability. If we continue to incur losses or we fail to raise additional capital or receive substantial cash inflows from our partners by June 2010, we may be forced to cease operations.
      As of June 30, 2010, we had approximately $0.7 million in cash and restricted cash, approximately $22.2 million in working capital deficiency, a stockholders’ deficit of approximately $73.4 million and an accumulated deficit of approximately $468.8 million. Our net loss and operating loss for the three months ended June 30, 2010 were approximately $13.7 million and $3.1 million, respectively and $32.2 million and $6.1 million, respectively for the six months ended June 30, 2010. Since our inception in 1986, we have generated significant losses from operations. We anticipate that we will continue to generate significant losses from operations for the foreseeable future, and that our business will require substantial additional investment that we have not yet secured. These conditions raise substantial doubt about our ability to continue as a going concern. The audit reports prepared by our independent registered public accounting firms relating to our financial statements for the years ended December 31, 2007, 2008 and 2009, respectively included an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern.
      On July 29, 2010, we issued a promissory note (the “Note”) to MHR in the principal amount of $525,000. The Note provides for an interest rate of 15% per annum, with the entire principal amount due and payable on October 27, 2010.We anticipate that our existing capital resources, including the amounts provided by MHR in connection with the Note will enable us to continue operations through approximately August 31, 2010, or earlier if unforeseen events or circumstances arise that negatively affect our liquidity. If we fail to raise additional capital or obtain substantial cash inflows from existing partners prior to August 31, 2010, we will be forced to cease operations.
      We anticipate that we will continue to generate significant losses from operations for the foreseeable future, and that our business will require substantial additional investment that we have not yet secured. As such, we anticipate that our existing cash resources, including the amounts provided by MHR in connection with the July 2010 MHR Note but not accounting for an approximately $2.6 million arbitration award in favor of the Company’s former CEO, will enable us to continue operations through approximately August 31, 2010 or earlier if unforeseen events arise that negatively affect our liquidity. Further, we have significant future commitments and obligations. These conditions raise substantial doubt about our ability to continue as a going concern. Consequently, the audit opinion issued by our independent registered public accounting firm relating to our financial statements for the year ended December 31, 2009 contained a going concern explanatory paragraph. We are pursuing new as well as enhanced collaborations and exploring other financing options, with the objective of minimizing dilution and disruption.
      While our plan is to raise capital when needed and/or to pursue product partnering opportunities, we cannot be sure how much we will need to spend in order to develop, market, and manufacture new products and technologies in the future. We expect to continue to spend substantial amounts on research and development, including amounts spent on conducting clinical trials for our product candidates. Further, we will not have sufficient resources to develop fully any new products or technologies unless we are able to raise substantial additional financing or to secure funds from new or existing partners. We cannot assure you that financing will be available when needed, or on favorable terms or at all. The current economic environment combined with a number of other factors pose additional challenges to the Company in securing adequate financing under acceptable terms. If additional capital is raised through the sale of equity or convertible debt securities, the issuance of such securities would result in dilution to our existing stockholders. Additionally, these conditions may increase the costs to raise capital. Our failure to raise capital when needed would adversely

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      affect our business, financial condition, and results of operations, and could force us to reduce or discontinue operations.
    The audit opinion issued by our independent registered public accounting firm relating to our financial statements for the year ended December 31, 2009 contained a going concern explanatory paragraph.
    We may not be able to meet the covenants detailed in the Convertible Notes with MHR Institutional Partners IIA LP, which could result in an increase in the interest rate on the Convertible Notes and/or accelerated maturity of the Convertible Notes, which we would not be able to satisfy.
    Our stock was de-listed from NASDAQ.
Risks Related to our Business
    Our business will suffer if we fail or are delayed in developing and commercializing an improved oral form of Vitamin B12.
    We are highly dependent on the clinical success of our product candidates.
    We are highly dependent upon collaborative partners to develop and commercialize compounds using our delivery agents.
    Our collaborative partners control the clinical development of certain of our drug candidates and may terminate their efforts at will.
    Our product candidates are in various stages of development, and we cannot be certain that any will be suitable for commercial purposes.
    Our collaborative partners are free to develop competing products.
    Our business will suffer if we cannot adequately protect our patent and proprietary rights.
    We may be at risk of having to obtain a license from third parties making proprietary improvements to our technology.
    We are dependent on third parties to manufacture and, in some cases, test our products.
    We are dependent on our key personnel and if we cannot recruit and retain leaders in our research, development, manufacturing, and commercial organizations, our business will be harmed.
Risks Related to our Industry
    Our future business success depends heavily upon regulatory approvals, which can be difficult to obtain for a variety of reasons, including cost.
    We may face product liability claims related to participation in clinical trials for future products.
    We are subject to environmental, health and safety laws and regulations for which we incur costs to comply.
    We face rapid technological change and intense competition.
Other Risks
    Provisions of our corporate charter documents, Delaware law, our financing documents and our stockholder rights plan may dissuade potential acquirers, prevent the replacement or removal of our current management and members of our Board of Directors and may thereby affect the price of our common stock.

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    Our stock price has been and may continue to be volatile.
    Future sales of common stock or warrants, or the prospect of future sales, may depress our stock price.
     For a more complete listing and description of these and other risks that the Company faces, please see our Annual Report for 2009 on Form 10-K as filed with the SEC on March 25, 2010.
ITEM 2.   UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
     On April 5, 2010, Rodman & Renshaw, LLC (“Rodman”) notified the Company of its intention to exercise part of its warrants to purchase 504,000 shares of common stock at an exercise price of $0.875, using the “cashless exercise” provision. The Company issued 297,636 shares of common stock to Rodman on April 5, 2010. On April 30, 2010, Rodman notified the Company of its intention to exercise the remaining outstanding portion of the Warrant using the “cashless exercise” provision. The Company issued an additional 27,192 shares of common stock to the purchase agent on April 30, 2010. After this cashless exercise, the August 2009 Equity Financing Placement Agent Warrants are no longer outstanding.
     On April 20, 2010, Elan Corporation, plc (“Elan”) notified the Company of its intention to exercise its Warrant to purchase up to 600,000 shares of the Company’s common stock at an exercise price of $0.4635 (as adjusted pursuant to the terms of the warrant) using the “cashless exercise” provision. On April 21, 2010, the Company issued 518,206 shares of common stock to Elan. After the cashless exercise, the Elan Warrant is no longer outstanding.
     On May 13, 2010, the BAM Opportunity Fund LP (“BAM”) notified the Company of its intention to exercise its warrant to purchase up to 1,342,857 shares of the Company’s common stock, originally issued in August 2009 at an exercise price of $0.70, using the “cashless exercise” provision. The Company issued 1,005,213 shares of common stock to BAM on May 18, 2010.
     On July 21, 2010, MOG Capital, LLC (“MOG Capital”) notified the Company of its intention to exercise part of its warrant to purchase up to 1,342,857 shares of the Company’s common stock originally issued in August 2009 at an exercise price of $0.70. using the “cashless exercise” provision. The Company issued 6,000 shares to MOG Capital on July 26, 2010. On July 23, 2010, MOG notified the Company of its intention to exercise the remaining outstanding portion of its warrant using the “cashless exercise” provision. The Company issued an additional 955,724 shares of common stock to MOG on July 28, 2010. After such cashless exercises, August 2009 Warrants originally issued in August 2009 to purchase 3,729,323 shares of common stock, in the aggregate, remained outstanding.
     For these issuances, the Company is relying on the exemption from federal registration under Section 4(2) of the Securities Act of 1933, as amended.
ITEM 5.   OTHER EVENTS
ITEM 6.   EXHIBITS
     
Exhibit    
Number   Description of Exhibit
 
3.1
  Amended and Restated Certificate of Incorporation of Emisphere Technologies, Inc., as amended by the Certificate of Amendment of Amended and Restated Certificate of Incorporation of Emisphere Technologies, Inc., dated April 20, 2007 (filed as Exhibit 3.1 to the Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2007 and incorporated herein by reference).
 
   
3.2
  By-Laws of Emisphere Technologies, Inc., as amended December 7, 1998 (filed as Exhibit 3(ii) to the Quarterly Report on Form 10-Q for the quarterly period ended January 31, 1999) and as further amended on September 23, 2005 (filed as Exhibit 3.1 to the Current Report on Form 8-K filed on September 30, 2005 and incorporated herein by reference).
 
   
3.3
  Amendment, effective as of September 11, 2007, to the Amended By-Laws of Emisphere Technologies, Inc. (filed as Exhibit 3.1 to the Current Report on Form 8-K filed on September 14, 2007 and incorporated herein by reference).

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Exhibit    
Number   Description of Exhibit
 
4.1
  Restated Rights Agreement dated as of April 7, 2006 between Emisphere Technologies, Inc. and Mellon Investor Services, LLC (filed as Exhibit 1.1 to the Current Report on Form 8-K filed on April 10, 2006 and incorporated herein by reference.
 
   
4.2
  Form of Emisphere Technologies, Inc. Warrant (filed as Exhibit 4.1 to the Current Report on Form 8-K, filed on June 8, 2010 and incorporated herein by reference).
 
   
10.1
  Letter Agreement by and between Emisphere Technologies, Inc. and MHR Institutional Partners IIA LP, dated June 8, 2010 (filed as Exhibit 10.1 to the Current Report on Form 8-K, filed on June 8, 2010 and incorporated herein by reference).*
 
   
10.2
  Form of Emisphere Technologies, Inc. Reimbursement Note (filed as Exhibit 10.2 to the Current Report on Form 8-K, filed on June 8, 2010 and incorporated herein by reference).
 
   
10.3
  Form of Emisphere Technologies, Inc. Second Reimbursement Note (filed as Exhibit 10.3 to the Current Report on Form 8-K, filed on June 8, 2010 and incorporated herein by reference).
 
   
10.4
  Research Master Agreement and Amendment by and between Emisphere Technologies, Inc. and Novartis Pharma AG, effective as of June 4, 2010 (filed herewith).**
 
   
31.1
  Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to section 302 of the Sarbanes- Oxley Act of 2002 (filed herewith).
 
   
31.2
  Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
 
   
32.1
  Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
 
*   Confidential treatment has been granted for the redacted portions of this agreement. A complete copy of this agreement, including the redacted portions, has been filed separately with the Securities and Exchange Commission.
 
**   Confidential treatment has been requested for the redacted portions of this agreement. A complete copy of this agreement, including the redacted portions, has been filed separately with the Securities and Exchange Commission.

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SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
         
  Emisphere Technologies, Inc.
 
 
Date: August 16, 2010  /s/ Michael V. Novinski    
  Michael V. Novinski   
  President and Chief Executive Officer
(Principal Executive Officer) 
 
 
     
Date: August 16, 2010  /s/ Michael R. Garone    
  Michael R. Garone   
  Chief Financial Officer
(Principal Financial and Accounting Officer) 
 
 

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EXHIBIT INDEX
     
Exhibit    
Number   Description of Exhibit
 
3.1
  Amended and Restated Certificate of Incorporation of Emisphere Technologies, Inc., as amended by the Certificate of Amendment of Amended and Restated Certificate of Incorporation of Emisphere Technologies, Inc., dated April 20, 2007 (filed as Exhibit 3.1 to the Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2007 and incorporated herein by reference).
 
   
3.2
  By-Laws of Emisphere Technologies, Inc., as amended December 7, 1998 (filed as Exhibit 3(ii) to the Quarterly Report on Form 10-Q for the quarterly period ended January 31, 1999) and as further amended on September 23, 2005 (filed as Exhibit 3.1 to the Current Report on Form 8-K filed on September 30, 2005 and incorporated herein by reference).
 
   
3.3
  Amendment, effective as of September 11, 2007, to the Amended By-Laws of Emisphere Technologies, Inc. (filed as Exhibit 3.1 to the Current Report on Form 8-K, filed on September 14, 2007 and incorporated herein by reference).
 
   
4.1
  Restated Rights Agreement dated as of April 7, 2006 between Emisphere Technologies, Inc. and Mellon Investor Services, LLC (filed as Exhibit 1.1 to the Current Report on Form 8-K filed April 10, 2006 and incorporated herein by reference.
 
   
4.2
  Form of Emisphere Technologies, Inc. Warrant (filed as Exhibit 4.1 to the Current Report on Form 8-K, filed on June 8, 2010 and incorporated herein by reference).
 
   
10.1
  Letter Agreement by and between Emisphere Technologies, Inc. and MHR Institutional Partners IIA LP, dated June 8, 2010 (filed as Exhibit 10.1 to the Current Report on Form 8-K, filed on June 8, 2010 and incorporated herein by reference).*
 
   
10.2
  Form of Emisphere Technologies, Inc. Reimbursement Note (filed as Exhibit 10.2 to the Current Report on Form 8-K, filed on June 8, 2010 and incorporated herein by reference).
 
   
10.3
  Form of Emisphere Technologies, Inc. Second Reimbursement Note (filed as Exhibit 10.3 to the Current Report on Form 8-K, filed on June 8, 2010 and incorporated herein by reference).
 
   
10.4
  Research Master Agreement and Amendment by and between Emisphere Technologies, Inc. and Novartis Pharma AG, effective as of June 4, 2010 (filed herewith).**
 
   
31.1
  Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to section 302 of the Sarbanes- Oxley Act of 2002 (filed herewith).
 
   
31.2
  Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
 
   
32.1
  Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes- Oxley Act of 2002 (furnished herewith).
 
*   Confidential treatment has been granted for the redacted portions of this agreement. A complete copy of this agreement, including the redacted portions, has been filed separately with the Securities and Exchange Commission.
 
**   Confidential treatment has been requested for the redacted portions of this agreement. A complete copy of this agreement, including the redacted portions, has been filed separately with the Securities and Exchange Commission.

33

Exhibit 10.4
CONFIDENTIAL TREATMENT REQUESTED: Certain portions of this document have been omitted pursuant to a request for confidential treatment and, where applicable, have been marked with an asterisk (“[*****]”) to denote where omissions have been made. The confidential material has been filed separately with the Securities and Exchange Commission.
MASTER AGREEMENT AND AMENDMENT
EMISPHERE TECHNOLOGIES, INC.
NOVARTIS PHARMA AG

 


 

CONFIDENTIAL TREATMENT REQUESTED: Certain portions of this document have been omitted pursuant to a request for confidential treatment and, where applicable, have been marked with an asterisk (“[*****]”) to denote where omissions have been made. The confidential material has been filed separately with the Securities and Exchange Commission.
MASTER AGREEMENT AND AMENDMENT
DATE June 4, 2010 (“ Execution Date ”)
PARTIES
1.   Emisphere Technologies, Inc. , a Delaware corporation with offices at 240 Cedar Knolls Road, Suite 200, Cedar Knolls, NJ 07927 USA (“ Emisphere ”).
2.   Novartis Pharma AG , a company registered in Switzerland with offices at Lichtstrasse 35, CH-4056 Basel, Switzerland (“ Novartis ”).
(with each of Novartis and Emisphere referred to herein individually as a “ Party ” and collectively as the “ Parties ”)
BACKGROUND
A.   Emisphere produces or is engaged in development to produce proprietary synthetic chemical compounds that enable the delivery of therapeutic macromolecules and other compounds that are not currently deliverable by oral means or that are otherwise poorly absorbed.
B.   Novartis produces or is engaged in development to produce therapeutic compounds some of which are not currently deliverable by oral means.
C.   The Parties previously entered into the Oral CT Agreements, the Oral hGH Agreement and the Oral PTH Agreement (each as defined below and together “ Previous Agreements ”).
D.   Emisphere previously issued a Convertible Promissory Note Due December 1, 2009 (“ Note ”) to Novartis, the Maturity Date of which has been extended in letters from Novartis to Emisphere dated November 25, 2009 and February 23, 2010.
E.   Emisphere and MHR Institutional Partners IIA LP (“ MHR ”) are parties to a Senior Secured Term Loan Agreement and a Pledge and Security Agreement, each dated as of 26 September 2005, and Emisphere, MHR and certain of MHR’s Affiliates (as defined in the Pledge and Security Agreement) are parties to an Investment and Exchange Agreement (“the Investment Agreement”) of the same date and MHR and certain of its Affiliates are holders of Emisphere’s senior secured Convertible Promissory Notes issued in accordance with the Investment Agreement (collectively and together with any related documents, the “ MHR Loan Documents ”).
F.   The Parties wish to modify and expand upon the Previous Agreements as set forth in this Agreement.

 


 

CONFIDENTIAL TREATMENT REQUESTED: Certain portions of this document have been omitted pursuant to a request for confidential treatment and, where applicable, have been marked with an asterisk (“[*****]”) to denote where omissions have been made. The confidential material has been filed separately with the Securities and Exchange Commission.
G.   Concurrent with the execution of this Agreement, the Parties and MHR are also executing an agreement (the “ Non-Disturbance Agreement ”) and attached license agreement (the “ MHR License Agreement ”) (which MHR License Agreement is not effective under the satisfaction of certain conditions as provided in the Non-Disturbance Agreement) dated on or around the Execution Date, pursuant to which MHR consents to this Agreement and agrees not to disturb Novartis’ rights under this Agreement or the Previous Agreements.
THE PARTIES AGREE
ARTICLE 1 DEFINITIONS AND INTERPRETATION
1.1   Defined Terms
    “[*****] Carrier ” means any chemical compound which contains the following structure:
    [*****]
    [*****].
    Additional Compound ” means any Compound or combination of Compounds designated by Novartis under Section 3.3, subject to Section 3.2, including any Compound in combination with [*****] or any other Compound but, in no case (i) an Emisphere Exclusive Compound or (ii) [*****] or any combination of them not in combination with another Compound.
    Affiliate ” means, relating to a Person, another Person who directly or indirectly controls, is controlled by, or is under common control with that Person. In this definition, “ control ” means direct or indirect ownership of fifty percent (50%) or more of the shares of stock entitled to vote for the election of directors in the case of a corporation, or fifty percent (50%) or more of the equity interest in the case of any other type of legal entity, status as a general partner in any partnership, or any other arrangement where the Person controls or has the right to control the board of directors or equivalent governing body of a corporation or other entity, or the ability to set the direction of management or policies of a corporation or other entity.
    Amendment Effective Date ” means the date this Agreement becomes effective in accordance with Section 10.14.
    Business Day ” means a day which is not a Saturday, Sunday or a day in which commercial banks located in Basel, Switzerland or New York, USA are authorized or required by law to remain closed.

 


 

CONFIDENTIAL TREATMENT REQUESTED: Certain portions of this document have been omitted pursuant to a request for confidential treatment and, where applicable, have been marked with an asterisk (“[*****]”) to denote where omissions have been made. The confidential material has been filed separately with the Securities and Exchange Commission.
    Carrier Data ” means:
  (a)   all preclinical data (including toxicology data) generated using any [*****] Carrier alone (and, for clarity, excluding any data generated using combinations of excipients with active pharmaceutical ingredient or drug product); and
 
  (b)   all data generated using any [*****] Carrier alone which constitutes the quality/CMC section of the Common Technical Document (as defined by the International Conference on Harmonisation of Technical Requirements for the Registration of Pharmaceuticals for Human Use).
    Compound ” means synthetic, natural or recombinant active pharmaceutical ingredient, or any of its [*****] or other variants.
    Confidential Information ” has the meaning set out in Section 9.1.
    Control ” in the context of intellectual property, means possession of the ability to grant the license, sublicense or other access provided for under this Agreement without breaching any Agreement or other arrangement with a Third Party.
    CT ”, also referred to as “calcitonin”, means synthetic, natural or recombinant calcitonin, or any of its active fragments, analogues, salts, polymorphs, mimetics, derivatives or other variants .
    CT Product ” means a “Product” as defined in the Oral CT License Agreement as amended by this Agreement.
    Emisphere Exclusive Compound ” means each Compound designated by Emisphere under Section 3.2, but only for so long as Emisphere is continuing = to pursue the development and commercialization of such Compound in combination with any Emisphere carrier (including any [*****] Carrier) as evidenced by Emisphere’s contemporaneous written documentation.
    Emisphere Know How ” means, to the extent Controlled by Emisphere on the date of this Agreement or thereafter, all Know How that is necessary for the development, manufacture, commercialization or other use of a [*****] Carrier or Product, and inventions relating to [*****] Carrier or Product owned by or licensed to Emisphere solely or Emisphere and any Third Party jointly, and including the Emisphere Process and all Know How Controlled by Emisphere relating to a Product .
    Emisphere Patents ” means, to the extent Controlled by Emisphere on the date of this Agreement or thereafter, all Patent Rights that claim the development, manufacture, commercialization or other use of a [*****] Carrier or Product and inventions relating to [*****] Carrier or Product owned by or licensed to Emisphere solely or Emisphere and any Third Party jointly.

 


 

CONFIDENTIAL TREATMENT REQUESTED: Certain portions of this document have been omitted pursuant to a request for confidential treatment and, where applicable, have been marked with an asterisk (“[*****]”) to denote where omissions have been made. The confidential material has been filed separately with the Securities and Exchange Commission.
    Emisphere Process ” means, to the extent Controlled by Emisphere on the date of this Agreement or thereafter, the production process for a [*****] Carrier or Product, consisting of those [*****] procedures, that have been identified, designed, used, Developed, made or invented by Emisphere or Emisphere and any Third Party jointly, which can be used to produce a [*****] Carrier or its various [*****].
    Emisphere Technology ” means the Emisphere Patents and the Emisphere Know How.
    Encumbrance ” means any claim, charge, equitable interest, hypothecation, lien, mortgage, pledge, assignment, power of sale, retention of title, right of pre-emption, right of first refusal or security interest of any kind.
    Execution Date ” has the meaning set forth in the preamble.
    Feasibility Studies ” means such studies as may be reasonably required in accordance with Novartis’ standard operating procedures to advance a Product through to the end of Phase I clinical studies, subject to the payment by Novartis of the applicable milestone payment.
    Field ” means all indications and uses in the treatment or prevention of human and animal diseases.
    hGH ” means synthetic, natural or recombinant human growth hormone, or its [*****] other variants.
    hGH Product ” means a “Product” as defined in the Oral hGH Agreement as amended by this Agreement.
    Know How ” means all proprietary unpatented technical information, data, ideas, test results, inventions, instructions, processes, knowledge, techniques, discoveries, trade secrets, formulae, specifications, compositions, designs, regulatory filings, and biological or other materials (including biological, chemical, toxicological, physical and analytical, safety, manufacturing and quality control data and information) and other information (in each case whether or not patentable) which are now, or are during the Term, owned, licensed (with the right to sublicense) or otherwise held by a Party or its Affiliates related to a [*****] Carrier or Product, or the development, manufacture, commercialization or use of any of the above, and includes:
  (a)   methods of assaying or testing, manufacture processes, formulations, or compositions incorporating, comprising or relating to any of the above;
 
  (b)   biological, chemical, pharmacological, biochemical, toxicological, pharmaceutical, physical, analytical, safety, quality control, manufacturing, preclinical and clinical data, instructions, processes, formulae, expertise and information, regulatory filings and copies,

 


 

CONFIDENTIAL TREATMENT REQUESTED: Certain portions of this document have been omitted pursuant to a request for confidential treatment and, where applicable, have been marked with an asterisk (“[*****]”) to denote where omissions have been made. The confidential material has been filed separately with the Securities and Exchange Commission.
    relevant to their development, manufacture, commercialization or use, or which may be useful in studying, testing, development or production of a [*****] Carrier or a Product, or intermediates for the synthesis.
    Licensed IP ” means:
  (a)   the Emisphere Technology;
 
  (b)   Emisphere’s interest in any inventions owned jointly by the Parties; and
 
  (c)   Emisphere’s interest in any patent rights owned jointly by the Parties.
    Major Markets ” means the United States, Germany, France, Italy, Spain, Great Britain and Japan.
    MHR Loan Documents ” has the meaning set forth in the recitals.
    Oral CT Agreements ” means the Research Collaboration and Option Agreement between Emisphere and Novartis dated as of 3 December 1997, the Oral CT License Agreement and the Amendment to Research Collaboration and Option Agreement between Emisphere and Novartis dated as of 20 October 2000.
    Oral CT License Agreement ” means the License Agreement between Emisphere and Novartis dated as of 8 March 2000.
    Oral hGH Agreement ” means the Research Collaboration License Agreement between Emisphere and Novartis dated as of 22 September 2004, as extended and amended by the letter agreement between Emisphere and Novartis dated as of 2 November 2005.
    Oral PTH Agreement ” means the Research Collaboration Option and License Agreement between Emisphere and Novartis dated as of 1 December 2004, which came into effect by Novartis’s exercise of its option on 7 March 2006.
    Patent Rights ” means all patents and patent applications, including all divisionals, continuations, substitutions, continuations-in-part, re-examinations, reissues, additions, renewals, extensions, registrations, and supplemental protection certificates and the like of any of the foregoing; and any U.S. or foreign issued patents resulting therefrom.
    Previous Agreements ” means the Oral CT Agreements, the Oral hGH Agreement and the Oral PTH Agreement.
    Product ” means: (a) a pharmaceutical composition containing an Additional Compound in combination with a [*****] Carrier, including all [*****] and the like in combination with a [*****] Carrier, or (b) a [*****].

 


 

CONFIDENTIAL TREATMENT REQUESTED: Certain portions of this document have been omitted pursuant to a request for confidential treatment and, where applicable, have been marked with an asterisk (“[*****]”) to denote where omissions have been made. The confidential material has been filed separately with the Securities and Exchange Commission.
    PTH ” means synthetic, natural or recombinant parathyroid hormone or any of its [*****] or other variants, including [*****].
    PTH Product ” means a “Product” as defined in the Oral PTH Agreement as amended by this Agreement.
    Regulatory Approval ” means:
  (a)   in the United States: final approval of a new drug application under the United States code as published at the 21 CFR §§ 314, allowing marketing of the relevant Product in interstate commerce in the United States;
 
  (b)   in the EU: the final approval of the marketing authorization application under Council Directive 75/319/EEC, as amended, or Council Regulation 2309/93/EEC or the approval as granted by a relevant national Regulatory Authority, as amended; and
 
  (c)   for any other country: all authorizations by the appropriate Governmental Authority necessary for the commercial sale of a Product in that country including where relevant, approval of labeling, price, reimbursement and manufacturing.
    Territory ” means all the countries in the world.
    Third Party ” means a person or entity other than Novartis or Emisphere or an Affiliate of a Party.
1.2   Interpretation
    In this Agreement headings are for convenience only and do not affect interpretation, and unless the context indicates a contrary intention:
  (a)   if a word or phrase is given a defined meaning, any other part of speech or grammatical form of that word or phrase has a corresponding meaning;
 
  (b)   a word in the singular includes the plural (and vice versa), and a word in a gender includes every other gender;
 
  (c)   a reference to a Party, article, schedule, attachment or annexure is a reference to a Party, article, schedule, attachment or annexure to this Agreement;
 
  (d)   an article, schedule, attachment or annexure to this Agreement forms a part of this Agreement, but if there is inconsistency between this Agreement and any document referred to, this Agreement will prevail;
 
  (e)   a reference to a document (including this Agreement) is to that document as varied, novated, ratified or replaced from time to time;

 


 

CONFIDENTIAL TREATMENT REQUESTED: Certain portions of this document have been omitted pursuant to a request for confidential treatment and, where applicable, have been marked with an asterisk (“[*****]”) to denote where omissions have been made. The confidential material has been filed separately with the Securities and Exchange Commission.
  (f)   a reference to a statute includes its delegated legislation, and a reference to a statute or delegated legislation or a provision of either includes consolidations, amendments, reenactments and replacements; and
 
  (g)   a reference to “ includes ” in any form is not a word of limitation.
ARTICLE 2 AMENDMENT OF PREVIOUS AGREEMENTS; CONFIRMATION OF PATENT OWNERSHIP
2.1   Amendment of Previous Agreements
    With effect from the Amendment Effective Date:
  (a)   the Previous Agreements are each amended as set forth on Exhibit A to this Agreement;
 
  (b)   the Oral CT License Agreement is further amended as set forth on Exhibit B to this Agreement;
 
  (c)   the Oral hGH Agreement is further amended as set forth on Exhibit C to this Agreement; and
 
  (d)   the Oral PTH Agreement is further amended as set forth on Exhibit D to this Agreement.
2.2   Confirmation of Patent Ownership
  (a)   The Parties acknowledge and agree that:
  (i)   each of the Patent Rights listed on Exhibit E , and any corresponding Patent Rights in other countries in the Territory, are owned by the Parties jointly; and
 
  (ii)   each of the Patent Rights listed on Exhibit F , and any corresponding Patent Rights in other countries in the Territory, are owned by Novartis solely.
  (b)   Each Party agrees to execute and deliver such additional documents as may be reasonably required to give effect to the provisions of Section 2.2(a).
ARTICLE 3 FEASIBILITY STUDIES ON ADDITIONAL COMPOUNDS
3.1   Grant of Rights and License for Feasibility Studies for Additional Compounds
  (a)   Emisphere grants Novartis the right, and the license under the Licensed IP, to carry out (or have carried out) two (2) Feasibility Studies, each for one (1) Additional Compound, [*****], which Additional Compounds shall be selected according to the process set forth in Sections 3.2 and 3.3 below.

 


 

CONFIDENTIAL TREATMENT REQUESTED: Certain portions of this document have been omitted pursuant to a request for confidential treatment and, where applicable, have been marked with an asterisk (“[*****]”) to denote where omissions have been made. The confidential material has been filed separately with the Securities and Exchange Commission.
  (b)   All rights and licenses granted under Article 3 are, and will otherwise be deemed to be, for purpose of Section 365(n) of the US Bankruptcy Code (and similar laws in other countries in the Territory), licenses of rights to “ intellectual property ” as defined under Section 101 of the Code. All Licensed IP, including patents or patent applications for Licensed IP in every country in the Territory, are part of the “intellectual property” as defined under Section 101 of the Code subject to the protections afforded the non terminating party under Section 365(n) of the Code (and similar Laws in other countries).
3.2   Emisphere Exclusive Compounds .
  (a)   If Emisphere (itself or through any Affiliate, licensee, sublicensee, subcontractor or collaborator) wishes to develop, manufacture, commercialize or otherwise use a Compound, or combination of Compounds (other than [*****] or any designated Additional Compound) which it owns, or has a license or other right to develop with any [*****] Carrier on an exclusive basis, and wishes to designate such Compound as an Emisphere Exclusive Compound, it will give written notice of the designation to Novartis. For clarity, the issuance of, and all information included in, any such notice (including the identity of any Emisphere Exclusive Compound) shall be deemed Confidential Information of Emisphere, and Novartis shall have no right to use or disclose any such information for any purpose whatsoever and such compounds will become Emisphere Exclusive Compounds.
 
  (b)   Nothing in this Section 3.2 is intended to grant Emisphere any license or other right: (i) to any Compound owned or otherwise Controlled by Novartis; or (ii) under any intellectual property right, owned or otherwise controlled by Novartis.
3.3   Selection of Additional Compounds
  (a)   If Novartis wishes to exercise its rights under Section 3.1 with respect to a given Additional Compound, it will give written notice to Emisphere of the identity of the Additional Compound for which it wishes to exercise such rights (such notice an “ Additional Compound Election Notice ”). For clarity, the issuance of, and all information included in, any such Additional Compound Election Notice (including the identity of any Additional Compound) shall be deemed Confidential Information of Novartis, and Emisphere shall have no right to use or disclose any such information for any purpose whatsoever.
 
  (b)   Emisphere shall provide notice in writing to Novartis, within thirty (30) days of receipt of an Additional Compound Election Notice, as to whether or not it objects to Novartis’ exercise of its rights under Section 3.1 with respect to the applicable designated Additional Compound. Notwithstanding the foregoing, the Parties agree that Emisphere may only object to Novartis’ exercise of its rights under Section 3.1 with respect to the applicable designated Additional Compound in the event that either (i) Emisphere is unable to grant the license contemplated in

 


 

CONFIDENTIAL TREATMENT REQUESTED: Certain portions of this document have been omitted pursuant to a request for confidential treatment and, where applicable, have been marked with an asterisk (“[*****]”) to denote where omissions have been made. The confidential material has been filed separately with the Securities and Exchange Commission.
      Section 3.5 below with respect to such Additional Compound or (ii) such Additional Compound comprises or includes an Emisphere Exclusive Compound [*****] or other variant of an Emisphere Exclusive Compound. For the avoidance of doubt, Emisphere may designate a compound as an Emisphere Exclusive Compound any time prior to notice by Novartis under Section 3.3(a); however Emisphere may also designate a Compound as an Emisphere Exclusive Compound within thirty (30) days after its receipt of an Additional Compound Election Notice, but, in that case, only upon the presentation to Novartis of written records indicating that Emisphere had taken steps to develop, manufacture, commercialize, license, or otherwise use such Compound prior to its receipt of the applicable Additional Compound Election Notice from Novartis.
  (c)   Unless Novartis receives notice of a valid objection from Emisphere in accordance with Section 3.3(b), Novartis shall be free to exercise its rights under Section 3.1 with respect to the designated Additional Compound.
3.4   Feasibility Studies; Exclusivity
  (a)   Unless and until the Parties execute a separate Research/Feasibility Agreement, any Feasibility Studies under Section 3.1 shall be carried out in accordance with the terms and conditions of Exhibit G . In addition, for each such Feasibility Study, Novartis shall pay Emisphere a one-time milestone payment of [*****].
 
  (b)   With effect from the date Emisphere receives an Additional Compound Election Notice which has not been timely rejected by Emisphere under Section 3.3(b), and for so long as Novartis, or any of its Affiliates, sublicenses, subcontractors or collaborators is using commercially reasonable efforts to pursue the development and commercialization of the applicable [*****] Carrier, Emisphere (itself or through any Affiliate, sublicense, subcontractor or collaborator) will not anywhere in the Territory directly or indirectly research, develop, manufacture, commercialize or otherwise use such Additional Compound or any product which contains such Additional Compound.
 
  (c)   Following completion of Feasibility Study for each Additional Compound, Novartis will provide Emisphere with a written report summarizing the results of such Feasibility Study (each such report, an “ Additional Compound Feasibility Report ”). For clarity, the existence of, and all information included in, such Additional Compound Feasibility Report (including the identity of any Additional Compound or combination) shall be deemed Confidential Information of Novartis, and Emisphere shall have no right to use or disclose any such information for any purpose whatsoever.

 


 

CONFIDENTIAL TREATMENT REQUESTED: Certain portions of this document have been omitted pursuant to a request for confidential treatment and, where applicable, have been marked with an asterisk (“[*****]”) to denote where omissions have been made. The confidential material has been filed separately with the Securities and Exchange Commission.
3.5   License Agreements for Additional Compounds
  (a)   Novartis shall have the right, exercisable on an Additional Compound-by-Additional Compound basis by notice in writing to Emisphere within ninety (90) days following issuance of the applicable Additional Compound Feasibility Report under Section 3.3(a), to negotiate a license with respect to Products incorporating such Additional Compound on the terms and conditions set forth on Exhibit H and such further terms and conditions as may be negotiated in good faith between the Parties (each such license, an “ Additional Compound License ”). Notwithstanding the foregoing, if, despite reasonable efforts, the Parties are unable to agree on the terms of such license, then Emisphere shall be free to negotiate a license, with respect to Emisphere’s intellectual property, with any third party on terms in the aggregate no less favorable to Emisphere than the terms last offered by Novartis, for such Additional Compounds.
 
  (b)   In the event that Novartis selects an Additional Compound under Section 3.3 in combination with any of [*****], Novartis shall pay royalties and milestone payments negotiated under the license specified in this Section 3.5 under the conditions set forth in Exhibit H; and in such event shall not be required to pay the royalty under the Oral hGH Agreement, Oral PTH Agreement, or Oral CT Agreements, as applicable. For the avoidance of doubt, this Section shall not apply to Novartis’ use of [*****] if such compounds are not part of a combination selected as an Additional Compound under Section 3.3.
 
  (c)   Emisphere will execute all documents and give all declarations regarding any Additional Compound License and will reasonably cooperate with Novartis, to the extent that documents, declarations or cooperation is required for the filing, recording or registration of any Additional Compound License with any governmental authority. Novartis will bear Emisphere’s reasonable out-of-pocket costs arising from Novartis’ request.
ARTICLE 4 CARRIER DATA, INCLUDING TOXICOLOGY STUDIES
4.1   Carrier Data
  (a)   As part of its regulatory activities with respect to Products to which it has rights under any written agreement between the Parties, Novartis will compile and maintain with all applicable regulatory authorities a dossier (as part of the Common Technical Document marketing authorization dossier) that includes all Carrier Data in its possession.
 
  (b)   As part of its regulatory activities with respect to any product being developed by Emisphere (itself, or through any of its Affiliates, licensees (other than Novartis), subcontractors or collaborators), Emisphere (itself, or through its applicable Affiliate, licensee, subcontractor or collaborator) will compile and maintain with

 


 

CONFIDENTIAL TREATMENT REQUESTED: Certain portions of this document have been omitted pursuant to a request for confidential treatment and, where applicable, have been marked with an asterisk (“[*****]”) to denote where omissions have been made. The confidential material has been filed separately with the Securities and Exchange Commission.
      all applicable regulatory authorities a dossier (as part of the Common Technical Document marketing authorization dossier) that includes all Carrier Data in its possession.
4.2   Emisphere Access to Novartis Carrier Data
  (a)   Attached as Exhibit I is a list of all studies included in the Carrier Data for Novartis applications for Regulatory Approval for the CT Product.
 
  (b)   Emisphere shall have the right, following the date on which [*****], to request that Novartis provide it with a copy of any or all of the Carrier Data listed on Exhibit I . Upon payment to Novartis of the corresponding amount set forth on Exhibit I for each study for which Emisphere has requested a copy of the data, and subject to terms and conditions to be agreed between the Parties, Novartis shall provide Emisphere with a copy of the requested data and the right to use such data (itself, or through any of its Affiliates, licensees, subcontractors or collaborators) for purposes of submission to health authorities with respect to one (1) product incorporating an Emisphere Exclusive Compound and a [*****] Carrier.
 
  (c)   If Emisphere wishes to use any such Carrier Data with respect to any further product(s), it shall again request access to the applicable data, and upon payment to Novartis of the corresponding amount set forth on Exhibit I for each study for which Emisphere has requested a copy of the data, and subject to terms and conditions to be agreed between the Parties, Novartis shall again provide Emisphere with a copy of the requested data and the right to use such data (itself, or through any of its Affiliates, licensees, subcontractors or collaborators) for purposes of submission to health authorities with respect to such additional product incorporating an Emisphere Exclusive Compound and a [*****] Carrier.
 
  (d)   Emisphere shall provide written notice to Novartis not less than ten (10) Business Days after it (or any of its Affiliates, licensees, subcontractors or collaborators) has made any submission to any regulatory authority which includes any Carrier Data provided by Novartis hereunder.
 
  (e)   For clarity, nothing in this Section 4.2: (i) allows Emisphere any right to reference any filing with any regulatory authority, or any Regulatory Approval, of Novartis or any of its Affiliates or sublicensees; or (ii) grants Emisphere any right under any patent right of Novartis or any of its Affiliates or sublicensees.
4.3   Novartis Access to Emisphere Carrier Data
  (a)   On a product-by-product basis, within thirty (30) days after the date on which Emisphere (itself, or through any of its Affiliates, licensees, subcontractors or collaborators) has submitted its first application for Regulatory Approval of any product (other than a Product to which Novartis has rights under any written

 


 

CONFIDENTIAL TREATMENT REQUESTED: Certain portions of this document have been omitted pursuant to a request for confidential treatment and, where applicable, have been marked with an asterisk (“[*****]”) to denote where omissions have been made. The confidential material has been filed separately with the Securities and Exchange Commission.
      agreement between the Parties), Emisphere will provide to Novartis a list of all studies included in the Carrier Data for such submission, together with the price for access to data for each such study (such price being equal [*****]).
 
  (b)   Novartis shall have the right to request that Emisphere provide it with a copy of any or all of the Carrier Data listed on the corresponding notice provided under Section 4.3(a). Upon payment to Emisphere of the corresponding amount set forth on the notice provided under Section 4.3(a) for each study for which Novartis has requested a copy of the data, and subject to terms and conditions to be agreed between the Parties, Emisphere shall provide Novartis with a copy of the requested data and the right to use such data (itself, or through any of its Affiliates or sublicensees) for purposes of submission to health authorities with respect to [*****] for which Novartis has rights under any written agreement between the Parties.
 
  (c)   If Novartis wishes to use any such Carrier Data with respect to any further Product(s), it shall again request access to the applicable data, and upon payment to Emisphere of the corresponding amount set forth on the notice provided under Section 4.3(a) for each study for which Novartis has requested a copy of the data, and subject to terms and conditions to be agreed between the Parties, Emisphere shall again provide Novartis with a copy of the requested data and the right to use such data (itself, or through any of its Affiliates or licensees) for purposes of submission to health authorities with respect to such additional Product.
 
  (d)   Novartis shall provide written notice to Emisphere not less than ten (10) Business Days after it (or any of its Affiliates, licensees, subcontractors or collaborators) has made any submission to any regulatory authority which includes any Carrier Data provided by Emisphere hereunder.
 
  (e)   For clarity, nothing in this Section 4.3 allows Novartis any right to reference any filing with any regulatory authority, or any Regulatory Approval, of Emisphere or any of its Affiliates, licensees, subcontractors or collaborators.
4.4   Toxicology Studies
  (a)   If Emisphere (itself or through any Affiliate, licensee, subcontractor or collaborator) wishes to perform or have performed any animal toxicology study using any [*****] Carrier or any product which contains any [*****] Carrier, it shall provide Novartis with written notice of such intent, which notice shall also set forth the proposed strategy for any planned toxicology testing and, to the extent available, the protocol for any proposed animal toxicology studies.
 
  (b)   With respect to any notice issued under Section 4.4(a) prior to the date on which [*****], the Parties will discuss in good faith Emisphere’s strategy (and, to the extent available, the protocol) for any proposed animal toxicology studies, it being

 


 

CONFIDENTIAL TREATMENT REQUESTED: Certain portions of this document have been omitted pursuant to a request for confidential treatment and, where applicable, have been marked with an asterisk (“[*****]”) to denote where omissions have been made. The confidential material has been filed separately with the Securities and Exchange Commission.
      understood and agreed that Emisphere will not undertake, or permit to be undertaken by any other Person, any toxicology testing with any [*****] Carrier without Novartis’ prior written consent, such consent not to be unreasonably withheld.
 
  (c)   With respect to any notice issued under Section 4.4(a) after the date on which [*****], within sixty (60) days of receipt of such notice, Novartis shall provide written notice to Emisphere as to whether Novartis either:
  (i)   agrees to the proposed animal toxicology study, in which case Emisphere (itself or through any Affiliate, licensee, subcontractor or collaborator) shall have the right to perform or have performed the applicable animal toxicology study in accordance with the protocol provided to Novartis, subject to any reasonable comments Novartis may have with respect to any such protocol. To the extent that any protocol is not available at the time of Emisphere’s notice under Section 4.4(b), Emisphere will submit such protocol to Novartis in advance of commencing the subject study and Emisphere’s right to perform or have performed the applicable animal toxicology study shall be subject to any reasonable comments Novartis may have with respect to such protocol; or
 
  (ii)   does not agree to the proposed animal toxicology strategy (or one or more of the studies included therein), in which case: (A) Emisphere may require that Novartis allow it to obtain access to and use data from one or more studies listed on Exhibit I for the specific program which was the subject of Emisphere’s notice; (b) in consideration of such access and use right, Emisphere will pay Novartis the corresponding amount set forth on Exhibit I ; and (C) Emisphere (itself or through any Affiliate, sublicense, subcontractor or collaborator) will not anywhere in the Territory directly or indirectly carry out the applicable animal toxicology strategy or study, as applicable.
      In the event that Emisphere wishes to pursue additional testing of any [*****] Carrier beyond that described in Exhibit I , the Parties will first discuss and agree in good faith the strategy and protocol(s) for any such testing and Emisphere will not undertake, or permit to be undertaken by any other Person, any toxicology testing with any [*****] Carrier without Novartis’ prior written consent, such consent not to be unreasonably withheld.
 
  (d)   Emisphere will not undertake, or permit to be undertaken by any other Person, any toxicology testing with any [*****] Carrier, or any product which contains any [*****] Carrier, other than in accordance with this Section 4.4.
 
  (e)   For clarity, nothing in this Section 4.4: (i) allows Emisphere any right to reference any filing with any regulatory authority, or any Regulatory Approval, of Novartis or any of its Affiliates or sublicensees; or (ii) grants Emisphere any right under any patent right of Novartis or any of its Affiliates or sublicensees.

 


 

CONFIDENTIAL TREATMENT REQUESTED: Certain portions of this document have been omitted pursuant to a request for confidential treatment and, where applicable, have been marked with an asterisk (“[*****]”) to denote where omissions have been made. The confidential material has been filed separately with the Securities and Exchange Commission.
ARTICLE 5 AFFILIATES, SUB-LICENSEES AND SUBCONTRACTORS
5.1   Novartis
 
    Novartis may exercise its rights and perform its obligations under the Agreement itself or through any of its Affiliates and may subcontract its development, regulatory, manufacturing and commercialization activities as it deems appropriate subject to the approval of Emisphere not to be unreasonably withheld.
 
5.2   Emisphere
 
    Emisphere may exercise its rights and perform its obligations under the Agreement itself or through any of its Affiliates and may subcontract its development, regulatory, manufacturing and commercialization activities as it deems appropriate subject to the approval of Novartis not to be unreasonably withheld.
ARTICLE 6 RELEASE OF THE NOTE
6.1   Release of the Note
 
    In consideration of the terms and conditions of this Master Agreement and Amendment (including the provisions of Part B of Exhibit B), effective on the Amendment Effective Date, Novartis hereby releases and discharges Emisphere from its obligations under the Note. For the avoidance of doubt, the release and discharge set forth in this Article 6 will not become effective unless and until this Agreement becomes effective in accordance with Section 10.14.
ARTICLE 7 REPRESENTATIONS AND WARRANTIES
7.1   Due Incorporation
 
    Each Party 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.
 
7.2   Due Authorization
 
    Each Party represents and warrants to the other that this Agreement has been fully authorized, executed and delivered by it; that it has full legal right, power and authority to enter into and perform this Agreement; that this Agreement constitutes a valid and binding agreement between the Parties; and that this Agreement does not conflict with or result in a breach of its existing contractual obligations to a Third Party.

 


 

CONFIDENTIAL TREATMENT REQUESTED: Certain portions of this document have been omitted pursuant to a request for confidential treatment and, where applicable, have been marked with an asterisk (“[*****]”) to denote where omissions have been made. The confidential material has been filed separately with the Securities and Exchange Commission.
7.3   Effectiveness
 
    Each Party represents and warrants that:
  (a)   the execution, delivery and performance of this Agreement by it does not breach a material law, regulation, orders, judgments or decrees of a court, governmental authority or other material agreement or arrangement, whether written or oral, by which it is bound;
 
  (b)   it and its Affiliates are not engaged in administrative action, litigation or arbitration, or in a dispute or controversy reasonably likely to lead to litigation, arbitration or other proceeding, which would materially affect the validity of this Agreement or its ability to fulfill its obligations under this Agreement;
 
  (c)   the performance of this Agreement by it does not breach a material law, regulation, orders, judgments or decrees of a court, governmental authority or other material agreement or arrangement, whether written or oral, by which it is bound;
 
  (d)   this Agreement is, and will continue to be, its legal, valid and binding obligation, enforceable according to the terms of this Agreement (subject to relevant laws of bankruptcy and moratorium); and
 
  (e)   the rights granted to the other Party and its Affiliates under this Agreement do not conflict with rights granted by it to a Third Party.
7.4   Emisphere Representations, Warranties and Covenants
  (a)   Emisphere represents and warrants that:
  (i)   Except for and subject to the MHR Loan Documents, and the Non-Disturbance Agreement (including the MHR License Agreement attached thereto) as at the date of this Agreement, Emisphere Controls the entire right, title and interest in the Licensed IP; and
 
  (ii)   Except for and subject to the MHR Loan Documents and the Non-Disturbance Agreement (including the MHR License Agreement attached thereto) as at the date of this Agreement, the Licensed IP is free and clear of Encumbrances relating to, affecting, or limiting its rights or the rights of Novartis to Licensed IP under this Agreement or any of the Previous Agreements.
  (b)   Emisphere covenants and agrees that, for so long as any of the Previous Agreements remain in effect and Emisphere owns title to the Licensed IP, it will not voluntarily and consensually grant any security interest, lien or collateral

 


 

CONFIDENTIAL TREATMENT REQUESTED: Certain portions of this document have been omitted pursuant to a request for confidential treatment and, where applicable, have been marked with an asterisk (“[*****]”) to denote where omissions have been made. The confidential material has been filed separately with the Securities and Exchange Commission.
      assignment (other than as provided in the MHR Loan Documents) over any or all of the Licensed IP unless:
  (i)   such security interest, lien or collateral assignment is expressly made subject to and subordinate to the rights of MHR and Novartis to the Licensed IP under the Non-Disturbance Agreement (including the MHR License Agreement attached thereto), this Agreement and the Previous Agreements; and
 
  (ii)   Emisphere provides Novartis with prior written notice of its intention to grant such security interest, lien or collateral assignment, and upon written request by Novartis, requires that the party for whose benefit the security interest, lien or collateral assignment is made has entered into (or will enter into concurrently with the granting of such security interest, lien or collateral assignment) an agreement with Novartis and Emisphere on terms no less favorable to Novartis than the terms of the Non-Disturbance Agreement (including the MHR License Agreement attached thereto), provided that such agreement shall expressly provide that it is subject to and subordinate to the Non-Disturbance Agreement (including the MHR License Agreement attached thereto). For the avoidance of doubt, Novartis hereby acknowledge and agree, including for the benefit of MHR, that nothing in this Section 7.4(b)(ii) shall affect, limit or change in any way MHR’s rights under the MHR Loan Documents and the Non-Disturbance Agreement (including the MHR License Agreement attached thereto).
7.5   DISCLAIMER
 
    EXCEPT AS EXPRESSLY PROVIDED UNDER THIS AGREEMENT, NO PARTY MAKES EXPRESS OR IMPLIED WARRANTIES, STATUTORY OR OTHERWISE, CONCERNING THE VALUE, ADEQUACY, FREEDOM FROM INFRINGEMENT 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, A PRODUCT. ALL WARRANTIES MADE HEREUNDER ARE EXPRESSLY SUBJECT TO THE SECURITY INTEREST SET FORTH IN THE MHR LOAN DOCUMENTS, IT BEING ACKNOWLEDGED THAT, AS SET FORTH IN SECTION 3 OF THE NON-DISTURBANCE AGREEMENT, MHR CONSENTS TO EMISPHERE ENTERING INTO THIS AGREEMENT SUBJECT TO THE TERMS AND CONDITIONS SET FORTH IN THE NON-DISTURBANCE AGREEMENT.
ARTICLE 8 DISPUTE RESOLUTION
8.1   Resolution of Disputes
 
    The Parties agree that no dispute, controversy or claim arising under this Agreement will be the subject of private litigation between the Parties. Instead, any dispute, controversy

 


 

CONFIDENTIAL TREATMENT REQUESTED: Certain portions of this document have been omitted pursuant to a request for confidential treatment and, where applicable, have been marked with an asterisk (“[*****]”) to denote where omissions have been made. The confidential material has been filed separately with the Securities and Exchange Commission.
    or claim arising under this Agreement will be resolved in accordance with the process set forth in Article 12 of the Oral hGH Agreement and the provisions of Article 12 of the Oral hGH Agreement shall apply to this Agreement as if set forth in full in this Agreement.
ARTICLE 9 CONFIDENTIALITY
9.1   Definition
 
    Confidential Information ” means all Know How and proprietary information of a financial, commercial, clinical, regulatory or technical nature, and other information regarding the business operations of a Party, or relating to development, manufacture, commercialization or other use of any Product, which has been or is given or made available by a Party to the other orally, in writing or electronic form, or by observation. Confidential Information includes information on concepts, materials, discoveries, inventions, substances, formulations, technology, equipment, data, clinical or non clinical trials, studies, reports, sources for supply, patent position, inventions, discoveries, improvements and methods, business or marketing plans and techniques, manufacturing and other plant designs, and location of operations.
 
9.2   Duty
 
    Each Party will;
  (a)   maintain Confidential Information of the other Party in strictest confidence, and will ensure that its Affiliates, sublicensees, subcontractors, collaborators, consultants and agents, and their employees maintain in strictest confidence, and not publish, use or disclose the Confidential Information for a purpose other than allowed in this Agreement;
 
  (b)   ensure that its and its Affiliates, sublicensees, subcontractors, collaborators, consultants or agents, and their employees only receive the Confidential Information of the other Party under restrictions of confidentiality at least as strict as those contained within this Agreement;
 
  (c)   use Confidential Information of the other Party only for a purpose contemplated by this Agreement;
 
  (d)   not publish, disseminate, or disclose Confidential Information of the other Party, to a Person not subject to restrictions of confidentiality in respect of the Confidential Information that is at least as strict as those in this Agreement.
9.3   Exceptions
 
    A Party may disclose only that portion of the Confidential Information of the other Party that that Party:

 


 

CONFIDENTIAL TREATMENT REQUESTED: Certain portions of this document have been omitted pursuant to a request for confidential treatment and, where applicable, have been marked with an asterisk (“[*****]”) to denote where omissions have been made. The confidential material has been filed separately with the Securities and Exchange Commission.
  (a)   is required to be disclosed under law or court order;
 
  (b)   can demonstrate by competent evidence that that portion of the Confidential Information has entered or enters the public domain through no fault of that Party;
 
  (c)   can demonstrate by competent evidence of contemporaneous written records that that portion of the Confidential Information 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; or
 
  (d)   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.
9.4   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 unauthorized use of the Confidential Information, and will be no less than reasonable care.
 
9.5   Notice of Breach
 
    Each Party will notify the other promptly on discovering of an unauthorized disclosure or use of the Confidential Information.
 
9.6   Injunctive Relief
 
    The Parties agree that monetary damages may not be sufficient remedy for breach of this article and that the Party whose Confidential Information it is will be entitled to seek equitable relief, including injunction and specific performance, for any breach. This Article does not limit the rights of that Party to any other remedies it may have at law, including the recovery of damages for breach of this Article.
 
9.7   Survival
 
    This Article will survive for ten (10) years after the termination or expiry of this Agreement.
ARTICLE 10 GENERAL PROVISIONS
10.1   Publicity
  (a)   On the signing of this Agreement, each Party may issue its own press release on the nature and scope of this Agreement in a form reasonably approved in writing

 


 

CONFIDENTIAL TREATMENT REQUESTED: Certain portions of this document have been omitted pursuant to a request for confidential treatment and, where applicable, have been marked with an asterisk (“[*****]”) to denote where omissions have been made. The confidential material has been filed separately with the Securities and Exchange Commission.
      in advance by the other Party. The Parties will use commercially reasonable efforts to agree to both Parties’ proposed press release so that both Parties’ press releases are available for the Parties’ internal approval committees at the time this Agreement is presented to them for their approval.
 
  (b)   Subject to paragraphs (c) and (d), a Party will only issue a press release or other public statement or announcement where that press release or other statement or announcement has been approved in writing in advance by the other Party. A Party will give the other at least ten (10) Business Days prior notice of its intended press release, or other public statement or announcement.
 
  (c)   Novartis or its Affiliates may, without the need for consent from Emisphere:
  (i)   issue press releases and other public statement or announcement as it deems appropriate in connection with the development, manufacture commercialization and other use of Products; and
 
  (ii)   publish or have published information and results about clinical trials related to any Product.
  (d)   Notwithstanding the foregoing, a Party may make any disclosures required of it to comply with any duty of disclosure it may have pursuant to laws or to the rules of any recognized stock exchange. The Parties will use commercially reasonable efforts to coordinate with each other relating to the timing, form and content of the required disclosure. A Party will consult with the other Party on the provisions of this Agreement, including schedules and attachments, to be redacted in any filings made by a Party with the Securities and Exchange Commission (or other regulatory body) or as otherwise required by law. If requested by the other Party, the Party subject to the disclosure obligation will use commercially reasonable efforts to obtain an order protecting to the maximum extent possible the confidentiality of the provisions of this Agreement as reasonably requested by the other Party. If the Parties are unable to agree on the form or content of any required disclosure, the disclosure will be limited to the minimum reasonably required as determined by the disclosing Party in consultation with its attorney.
10.2   Amendment
 
    This Agreement may be altered or supplemented only by a written agreement signed by the authorized representatives of each Party.
 
10.3   Assignment
  (a)   Neither this Agreement nor the rights or obligations under this Agreement 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, which shall not be

 


 

CONFIDENTIAL TREATMENT REQUESTED: Certain portions of this document have been omitted pursuant to a request for confidential treatment and, where applicable, have been marked with an asterisk (“[*****]”) to denote where omissions have been made. The confidential material has been filed separately with the Securities and Exchange Commission.
      unreasonably withheld; provided that Emisphere may assign this Agreement and its rights and obligations under this Agreement without Novartis’ consent in connection with the transfer or sale of all or substantially all of Emisphere’s business to a Third Party, whether by merger, sale of stock, sale of assets or otherwise. A purported assignment in contravention of this paragraph (a) will be null and void and of no effect at the option of Novartis. An assignment will not release a Party from responsibility for the performance of accrued obligations of that Party under this Agreement before the assignment. This Agreement will be binding on and enforceable against the successor to or allowed assignee of Emisphere.
 
  (b)   Novartis may assign this Agreement without the consent of Emisphere but will consult with Emisphere before assignment except where the assignment is:
  (i)   to a Party which is an Affiliate of Novartis; or
 
  (ii)   in connection with the transfer or sale of or including Novartis’ business relating to the Agreement to a Third Party, whether by merger, sale of stock, sale of assets or otherwise.
      Novartis will give Emisphere written notice within five (5) Business Days of any assignment.
 
  (c)   If an Affiliate to which a Party has assigned this Agreement ceases to be an Affiliate of that Party, the Affiliate will assign back to that Party all the rights and obligations before it ceases to be an Affiliate.
 
  (d)   An assignment will not release a Party from responsibility for the performance of accrued obligations of that Party under this Agreement before assignment. This Agreement will be binding on and enforceable against the successor to or allowed assignee of a Party.
10.4   Entire Agreement
 
    With effect from the Amendment Effective Date, this Agreement, together with the Previous Agreements as amended hereby, constitutes the entire agreement of the Parties relating to the [*****] Carriers and supersedes all prior negotiations, correspondence and understandings between the Parties relating to the subject matter, whether oral or written.
 
10.5   Governing Law
 
    This Agreement will be governed by, and construed and enforced according to the laws of the State of New York without regard to its conflicts of laws principles.

 


 

CONFIDENTIAL TREATMENT REQUESTED: Certain portions of this document have been omitted pursuant to a request for confidential treatment and, where applicable, have been marked with an asterisk (“[*****]”) to denote where omissions have been made. The confidential material has been filed separately with the Securities and Exchange Commission.
10.6   Notices
 
    All notices and other communications under this Agreement will be in writing, will be effective when received, and will be deemed to have been received:
  (a)   on the date of delivery, if delivered personally to one of the office holders of the other Party set out in paragraph (b); or
 
  (b)   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 the case, addressed as follows (until the address is changed by notice duly given):
 
      To Emisphere :
Emisphere Technologies, Inc.
240 Cedar Knolls Road, Suite 200
Cedar Knolls, NJ 07927
USA
Attention: President and CEO
Fax: + 1 973 532 8115
 
      With copy to :
Emisphere Technologies, Inc.
240 Cedar Knolls Road, Suite 200
Cedar Knolls, NJ 07927
USA
Attention: General Counsel
Fax: + 1 973 532 8115
 
      To Novartis :
Novartis Pharma AG
Forum 1
Novartis Campus
CH-4056 Basel
Switzerland
Attention: Global Head of Business Development & Licensing
Fax: + 41 61 324 2100
 
      With copy to :
Novartis Pharma AG
Lichtstrasse 35
CH-4056 Basel
Switzerland
Attention: General Counsel Pharma Legal
Fax: + 41 61 324 2100

 


 

CONFIDENTIAL TREATMENT REQUESTED: Certain portions of this document have been omitted pursuant to a request for confidential treatment and, where applicable, have been marked with an asterisk (“[*****]”) to denote where omissions have been made. The confidential material has been filed separately with the Securities and Exchange Commission.
10.7   Counterparts
 
    This Agreement may be executed in two or more counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument.
 
10.8   Independent Contractors
 
    The Parties are independent contractors under this Agreement. Nothing in this Agreement is intended or is to be construed so as to constitute Emisphere and Novartis as agents, partners, joint ventures or other enterprise relating to this Agreement. A Party does not have any express or implied right or authority to assume or create any obligations on behalf of or in the name of the other Party or to bind the other Party to any other contract, agreement, or undertaking with any Third Party.
 
10.9   Severability
 
    If any part of this Agreement will be held invalid or unenforceable, the remainder of the Agreement will nevertheless remain in full force and effect provided that the provisions will allow the transaction contemplated by this Agreement to take place in substantially the same manner as originally contemplated by the Parties.
 
10.10   Waiver
 
    A waiver must be in writing signed by the Party waiving its right. A waiver of any term, provision or condition of this Agreement by conduct or otherwise in one or more instances will not be deemed to be or construed as a further or continuing waiver of any the term, provision or condition, or of any other term, provision or condition of this Agreement.
 
10.11   Third Party Beneficiaries
 
    This Agreement is not made for the benefit of any party other than those executing it.
 
10.12   Expenses
 
    Each Party will bear its own out of pocket costs incurred in performing its obligations and exercising its rights under this Agreement, unless expressly agreed otherwise in this Agreement.
 
10.13   Further Assurances
 
    Each Party agrees to sign, acknowledge and deliver further documents, and to do all other reasonable acts, as may be necessary or appropriate in order to carry out the purposes and intent of this Agreement.

 


 

CONFIDENTIAL TREATMENT REQUESTED: Certain portions of this document have been omitted pursuant to a request for confidential treatment and, where applicable, have been marked with an asterisk (“[*****]”) to denote where omissions have been made. The confidential material has been filed separately with the Securities and Exchange Commission.
10.14   Amendment Effective Date
 
    Other than the provisions of this Section, Articles 8 and 9, and Sections 10.1 10.2, 10.5, 10.7, 10.10, 10.12 and 10.13, the rights and obligations of the Parties under this Agreement shall not become effective unless and until the later of: (i) the execution of this Agreement by both Emisphere and Novartis; and (ii) both the execution of the Non-Disturbance Agreement by MHR, Emisphere and Novartis and the execution of the MHR License Agreement by MHR and Novartis (the date upon which such later condition is satisfied being the “ Amendment Effective Date ” of this Agreement). Upon the occurrence of the Amendment Effective Date, all provisions of this Agreement shall become effective automatically without the need for further action by the Parties.
[Next Page is Signature Page]

 


 

CONFIDENTIAL TREATMENT REQUESTED: Certain portions of this document have been omitted pursuant to a request for confidential treatment and, where applicable, have been marked with an asterisk (“[*****]”) to denote where omissions have been made. The confidential material has been filed separately with the Securities and Exchange Commission.
SIGNED BY THE PARTIES’ AUTHORIZED REPRESENTATIVES
EMISPHERE TECHNOLOGIES, INC.
         
     
  By:      
    Name:      
    Title:      
 
  NOVARTIS PHARMA AG
 
 
  By:      
    Name:      
    Title:      
    Date:      
 
     
  By:      
    Name:      
    Title:      
    Date:      

 


 

         
CONFIDENTIAL TREATMENT REQUESTED: Certain portions of this document have been omitted pursuant to a request for confidential treatment and, where applicable, have been marked with an asterisk (“[*****]”) to denote where omissions have been made. The confidential material has been filed separately with the Securities and Exchange Commission.
EXHIBIT A
AMENDMENTS TO ALL PREVIOUS AGREEMENTS
Each of the Previous Agreements is hereby amended as follows:
(A)   CARRIERS
  (I)   The following new definition is inserted into each of the Oral CT License Agreement, the Oral hGH Agreement and the Oral PTH Agreement:
 
      “[*****] Carrier ” means any chemical compound which contains the following structure features:
 
      [*****]
 
      [*****].
 
  (II)   [*****]
 
  (III)   The definitions “Back-Up Carrier,” “Commercial Carrier,” “Lead Carrier” and “Programme Carriers” are hereby deleted from the Oral hGH Agreement, and all references therein to “Back-Up Carrier,” “Commercial Carrier,” “Lead Carrier” and “Programme Carriers” shall be amended to references to “ [*****] Carrier.”
 
  (IV)   The definitions “Back-Up Carrier,” “Commercial Carrier,” “Lead Carrier” and “Programme Carriers” are hereby deleted from the Oral PTH Agreement, and all references therein to “Back-Up Carrier,” “Commercial Carrier,” “Lead Carrier” and “Programme Carriers” shall be amended to references to “ [*****] Carrier.”
(B)   PRODUCTS
 
    In each of the Oral CT License Agreement, the Oral hGH Agreement and the Oral PTH Agreement:
  (I)   the definition of “Product” is deleted and replaced with the following:

 


 

CONFIDENTIAL TREATMENT REQUESTED: Certain portions of this document have been omitted pursuant to a request for confidential treatment and, where applicable, have been marked with an asterisk (“[*****]”) to denote where omissions have been made. The confidential material has been filed separately with the Securities and Exchange Commission.
      Product ” means a pharmaceutical composition containing the Compound (alone or in combination with one or more other Licensed Compounds) in combination with a [*****] Carrier, and all [*****] and the like of a Compound (alone or in combination with one or more other Licensed Compounds) in combination with a [*****] Carrier.
    and
  (II)   the following definition is inserted:
 
      Licensed Compounds means one or more Compound as defined in any of the Oral HGH Agreement, Oral PTH Agreement, or Oral CT License Agreement, each as defined in the Master Agreement and Amendment between the Parties dated June 4, 2010 (“ Master Agreement ”).
(C)   LICENSE GRANTS
  (I)   The first sentence of Section 2.1 of the Oral CT License Agreement is amended to read:
 
      “an exclusive license in the Territory to develop, have developed, make, have made, use and sell Products (and to develop, have developed, make and have made [*****] Carriers for use in Products) under the Emisphere Technology and Emisphere Program Technology.”
 
  (II)   The final passage of Section 2.1 of the Oral hGH Agreement is amended to read:
 
      “... to Develop or have Developed, Commercialize, have Commercialized, make, have made use or have used Products (and to develop, have developed, make and have made [*****] Carriers for use in Products) (the “ License ”).”
 
  (III)   The final passage of the first sentence of Section 2.1 of the Oral PTH Agreement is amended to read:
 
      “... to Develop or have Developed, Commercialize, have Commercialized, make, have made use or have used Products (and to develop, have developed, make and have made [*****] Carriers for use in Products) (the “ License ”).”
(D)   MANUFACTURING
 
    Each of:
  (I)   Articles 4 and 6 of the Oral CT License Agreement;

 


 

CONFIDENTIAL TREATMENT REQUESTED: Certain portions of this document have been omitted pursuant to a request for confidential treatment and, where applicable, have been marked with an asterisk (“[*****]”) to denote where omissions have been made. The confidential material has been filed separately with the Securities and Exchange Commission.
  (II)   Article 5 of the Oral hGH Agreement; and
 
  (III)   Article 5 of the Oral PTH Agreement,
    is deleted in its entirety and replaced with the following (where “X” shall be the number of the replaced Article in the applicable agreement):
  “X.   MANUFACTURING
 
  X.1   Manufacture and Supply of Product .
 
      Novartis shall have the right to manufacture (or have manufactured as set forth below) any [*****] Carrier during Development and Commercialization of any Product. The Compound, [*****] Carriers and Product will be manufactured by Novartis or a third party manufacturer of Novartis’ choice, except that Emisphere may, at its discretion, prevent Novartis from selecting a third party manufacturer to manufacture the final form of the [*****] Carrier with which Emisphere has an existing contractual relationship for the manufacture of the final form of the [*****] Carrier (for clarity, excluding any supplier of raw materials or intermediates). Any chemical or formulation components required by Novartis for its own manufacture of the Product, [*****] Carriers or Compound for the purposes of this Agreement shall be procured by Novartis at its own expense. Novartis shall ensure that supplies of the Product(s) are produced as diligently as any of its products of similar commercial importance. Novartis 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.
 
  X.2   Back-Up Site for Manufacture and Supply of Product .
 
  (a)   Emisphere shall have the right, itself or through a third party sub-contractor reasonably acceptable to Novartis, to be qualified as a secondary source for [*****] Carriers to be used in the Product, including by obtaining all necessary regulatory approvals to supply [*****] Carriers to be used in the Product. If requested by Emisphere, Novartis shall use commercially reasonable efforts to provide such technology transfer as is customary in the pharmaceutical industry in support of Emisphere’s (or its designee’s) qualification as a secondary source for [*****] Carriers to be used in the Product. Any such technology transfer shall be provided at Emisphere’s cost and expense, including [*****]. If requested by Emisphere, Novartis will also include information regarding Emisphere’s (or its designee’s) manufacture of [*****] Carriers for use in Products in Novartis’ applications for regulatory approval for the Products.

 


 

CONFIDENTIAL TREATMENT REQUESTED: Certain portions of this document have been omitted pursuant to a request for confidential treatment and, where applicable, have been marked with an asterisk (“[*****]”) to denote where omissions have been made. The confidential material has been filed separately with the Securities and Exchange Commission.
  (b)   Novartis reserves the right to audit the facility of Emisphere and/or any third party sub-contractor of Emisphere, including, in each case, its processes, records, and other facets of the operation once per year (or more often as necessary in the event of quality issues, regulations, deficiencies identified in a previous audit or other reasonable causes) to assure that all applicable relevant regulatory authority or similar government regulations have been met. Emisphere shall permit duly authorized representatives of Novartis to audit all research, development and manufacturing areas and operations as they apply to [*****] Carriers for Novartis at reasonable times with a prior appointment. These audits will be conducted to assure compliance with all pertinent acts, regulations and guidelines promulgated by the relevant regulatory authority. Such audits will be permitted during normal business hours and will be performed with a minimum of disruption. Novartis shall furnish to Emisphere summaries of all reports prepared as a result of these audits. Novartis agrees to notify Emisphere within thirty (30) days of any concerns it may have regarding the [*****] Carrier(s). Novartis will also have the right to audit Emisphere’s financial manufacturing records in accordance with the financial audit provisions of this Agreement.
 
  (c)   In the event that Novartis wishes to source [*****] Carriers for use in the Product from Emisphere, it will provide written notice to Emisphere and the Parties will negotiate in good faith the terms and conditions upon which Emisphere will manufacture and supply such [*****] Carriers, itself or through a third party sub-contractor reasonably acceptable to Novartis, it being understood and agreed that, if either: (i) Emisphere is unable or unwilling to product the [*****] Carriers to the same standards and consistency as Novartis; or (ii) the Parties are unable to agree such terms and conditions within three (3) months of Novartis’ notice to Emisphere, Novartis shall have the right to nominate and qualify an alternate secondary source of such [*****] Carriers.
(E)   MILESTONES AND ROYALTIES
  (I)   The definition of Net Sales in each of the Previous Agreements is amended by adding the following paragraph to the end of the definition:
 
      “In the event the Product comprises the Compound in combination with one or more other Licensed Compounds (other than Additional Compounds as that term is defined in the Master Agreement) (such Product, a “ Combination Product ”), the Net Sales of the Combination Product, for the purposes of determining royalty payments due under this Agreement (as opposed to the agreement governing Product containing the other Licensed Compound(s)), shall be determined by multiplying the [*****]. In the event that such average sale price cannot be determined for both the Product and such other product(s), Net Sales for purposes

 


 

CONFIDENTIAL TREATMENT REQUESTED: Certain portions of this document have been omitted pursuant to a request for confidential treatment and, where applicable, have been marked with an asterisk (“[*****]”) to denote where omissions have been made. The confidential material has been filed separately with the Securities and Exchange Commission.
      of determining royalty payments shall be agreed by the Parties based on the relative value contributed by each component, such agreement not to be unreasonably withheld. For clarity, royalties shall also be payable on sales of the applicable Combination Product, based on the same average sales process or relative values, as applicable, under the applicable written agreement between the Parties related to the other Licensed Compounds included in the Combination Product. For clarity, royalties for combination products including any Additional Compound (as that term is defined in the Master Agreement) in combination with the Compound shall be determined in the applicable license to be negotiated under the Master Agreement.”
    and
  (II)   each of Section 8.2 of the Oral CT License Agreement, Section 6. 1(d) of the Oral hGH Agreement and Section 6. 1(d) of the Oral PTH Agreement shall be amended by adding the following new paragraph to the end of the applicable Section:
 
      “Notwithstanding the foregoing, if the applicable Product is a Combination Product, then the milestones payable with respect to such Combination Product shall be agreed upon in good faith between the Parties. For the avoidance of doubt, such milestones shall be payable only once and any payment of any such milestone under this Agreement shall also satisfy any obligation to make the corresponding milestone payment under the applicable written agreement between the Parties related to the other Licensed Compounds included in the Combination Product.”
(F)   MISCELLANEOUS
 
    The following new definition is inserted into each of each of the Oral CT License Agreement, the Oral hGH Agreement and the Oral PTH Agreement:
      Amendment Effective Date ” has the meaning set forth in the Master Agreement and Amendment between the Parties dated as of June 4, 2010.”

 


 

CONFIDENTIAL TREATMENT REQUESTED: Certain portions of this document have been omitted pursuant to a request for confidential treatment and, where applicable, have been marked with an asterisk (“[*****]”) to denote where omissions have been made. The confidential material has been filed separately with the Securities and Exchange Commission.
EXHIBIT B
FURTHER AMENDMENTS TO ORAL CT LICENSE AGREEMENT
The Oral CT License Agreement is hereby further amended as follows:
(A)   FURTHER DEVELOPMENT
Article 5 is deleted in its entirety and replaced with the following:
“5. RESEARCH AND DEVELOPMENT
Notwithstanding any other provision of this Agreement, with effect from the Amendment Effective Date, Novartis will be responsible for conducting, at its sole expense, all further research, preclinical, clinical and other development of the Products (and the [*****] Carriers used therein).”
(B)   MILESTONES AND ROYALTIES
Section 8.2 is deleted in its entirety and replaced with the following:
“In consideration of the granting of a license for the Emisphere Technology and Program Technology to Novartis, Novartis will make royalty payments to Emisphere on aggregate Net Sales of all Products in the Territory by Novartis, its Affiliates and sub-licensees at the applicable rates set forth below:
         
Aggregate Annual Net Sales of Products throughout the Territory      
in a Calendar Year by Novartis, its Affiliates and Sublicensees   Royalty Rate  
Portion of annual Net Sales of Products which is [*****]
    [*****]  
 
       
Portion of annual Net Sales of Products which is [*****]
    [*****]  
 
       
Portion of annual Net Sales of Products which is [*****]
    [*****]  
 
       
Portion of annual Net Sales of Products which is [*****]
    [*****]  
Provided that, the royalty rate for the portion of annual Net Sales of Products which is [*****] shall be equal to [*****] until such time as the difference between (X) the

 


 

CONFIDENTIAL TREATMENT REQUESTED: Certain portions of this document have been omitted pursuant to a request for confidential treatment and, where applicable, have been marked with an asterisk (“[*****]”) to denote where omissions have been made. The confidential material has been filed separately with the Securities and Exchange Commission.
aggregate amount of royalties that Novartis would have paid to Emisphere on such portion of annual Net Sales of Products if it had been paying royalties at a rate equal to [*****], and (Y) the aggregate amount of royalties that Novartis has paid to Emisphere on such portion of annual Net Sales of Products (applying such [*****] rate), is equal to [*****].
For clarity, no milestone payments shall be payable by Novartis with respect to any Product, and Emisphere hereby releases Novartis from any and all claims it may have now or at any time in the future for any payment of milestones with respect to any Product. ”
(C)   PROSECUTION OF EMISPHERE PATENTS
Section 10.2 is amended by adding a new sub-Section 10.2.3 as follows:
“Without limiting Section 10.2.2 above, in the event that Emisphere fails to make any filing or payment related to the preparing, filing, prosecuting or maintaining of any Emisphere Patent or Emisphere Program Patent, Novartis shall have the right, exercisable in its sole discretion and expense, to file or continue the prosecution or maintenance of such Emisphere Patent or Emisphere Program Patent in Emisphere’s name; provided , however , that Novartis shall (1) be entitled to deduct from any royalty payments due to Emisphere hereunder [*****] and (2) keep Emisphere informed of the prosecution of such patents and provide Emisphere with the right to [*****] prior to the relevant filing date.”
(D)   CONFIDENTIALITY
Article 11 is amended by adding a new Section 11.4 as follows:
“Each party acknowledges that damages resulting from disclosure of the confidential information would be an inadequate remedy and that, notwithstanding the provisions of Clause 17.1(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.”

 


 

CONFIDENTIAL TREATMENT REQUESTED: Certain portions of this document have been omitted pursuant to a request for confidential treatment and, where applicable, have been marked with an asterisk (“[*****]”) to denote where omissions have been made. The confidential material has been filed separately with the Securities and Exchange Commission.
(E)   DISPUTE RESOLUTION
Sections 17.1 and 17.2 are replaced by the following:
“17.1 Resolution of Disputes
(a) The Parties agree that except as specified in Clauses 17.2(f), 17.2(i) and 11.4 in no event shall any dispute, controversy or claim arising under this Agreement be the subject of private litigation between the Parties.
(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 Clause 1.2 of the Option Agreement. 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 Clause 17.1(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 Clause 17.2.
17.2 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 Clause 17.1(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;

 


 

CONFIDENTIAL TREATMENT REQUESTED: Certain portions of this document have been omitted pursuant to a request for confidential treatment and, where applicable, have been marked with an asterisk (“[*****]”) to denote where omissions have been made. The confidential material has been filed separately with the Securities and Exchange Commission.
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.
(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 Clause 17.2.
(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.

 


 

CONFIDENTIAL TREATMENT REQUESTED: Certain portions of this document have been omitted pursuant to a request for confidential treatment and, where applicable, have been marked with an asterisk (“[*****]”) to denote where omissions have been made. The confidential material has been filed separately with the Securities and Exchange Commission.
(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.
17.3 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.”

 


 

CONFIDENTIAL TREATMENT REQUESTED: Certain portions of this document have been omitted pursuant to a request for confidential treatment and, where applicable, have been marked with an asterisk (“[*****]”) to denote where omissions have been made. The confidential material has been filed separately with the Securities and Exchange Commission.
EXHIBIT C
FURTHER AMENDMENTS TO ORAL HGH AGREEMENT
(A)   PROGRAMME
Sections 3.1, 3.2. 3.3 and 3.4 are deleted in their entirety.
(B)   FURTHER DEVELOPMENT
Sections 4.1, 4.3 and 4.4 are deleted in their entirety and Section 4.1 is replaced with the following:
“4.1. Research and Development . Notwithstanding any other provision of this Agreement, with effect from the Amendment Effective Date, Novartis will be responsible for conducting, at its sole expense, all further research, preclinical, clinical and other development of the Products (and the [*****] Carriers used therein).”
(C)   PROSECUTION OF EMISPHERE PATENTS
Section 8. 2(c) is amended by adding the following to the end of the Section:
“Without limiting the foregoing, in the event that Emisphere fails to make any filing or payment related to the preparing, filing, prosecuting or maintaining of any Emisphere Patent Right, Novartis shall have the right, exercisable in its sole discretion and expense, to file or continue the prosecution or maintenance of such Emisphere Patent Right in Emisphere’s name; provided , however , that Novartis shall (1) be entitled to deduct from any royalty payments due to Emisphere hereunder [*****] and (2) keep Emisphere informed of the prosecution of such patents and provide Emisphere with the right to comment on any proposed substantive filing prior at least two (2) weeks prior to the relevant filing date.”

 


 

CONFIDENTIAL TREATMENT REQUESTED: Certain portions of this document have been omitted pursuant to a request for confidential treatment and, where applicable, have been marked with an asterisk (“[*****]”) to denote where omissions have been made. The confidential material has been filed separately with the Securities and Exchange Commission.
EXHIBIT D
FURTHER AMENDMENTS TO ORAL PTH AGREEMENT
(A)   FURTHER DEVELOPMENT
The first sentence of Section 3.1 is deleted and replaced with the following:
“Notwithstanding any other provision of this Agreement, with effect from the Amendment Effective Date, Novartis will be responsible for conducting, at its sole expense, all further research, preclinical, clinical and other development of the Products (and the [*****] Carriers used therein).”
(B)   CARRIERS
Section 3.2 is deleted in its entirety.
(C)   PROSECUTION OF EMISPHERE PATENTS
Section 8. 2(c) is amended by adding the following to the end of the Section:
“Without limiting the foregoing, in the event that Emisphere fails to make any filing or payment related to the preparing, filing, prosecuting or maintaining of any Emisphere Patent Right, Novartis shall have the right, exercisable in its sole discretion and expense, to file or continue the prosecution or maintenance of such Emisphere Patent Right in Emisphere’s name; provided , however , that Novartis shall (1) be entitled to deduct from any royalty payments due to Emisphere hereunder [*****] and (2) keep Emisphere informed of the prosecution of such patents and provide Emisphere with the right to comment on any proposed substantive filing prior at least two (2) weeks prior to the relevant filing date.”

 


 

CONFIDENTIAL TREATMENT REQUESTED: Certain portions of this document have been omitted pursuant to a request for confidential treatment and, where applicable, have been marked with an asterisk (“[*****]”) to denote where omissions have been made. The confidential material has been filed separately with the Securities and Exchange Commission.
EXHIBIT E
JOINT PATENTS
Disodium Salt Patents and Patent Applications
         
Country   Application No.   Patent No.
AT
  [*****]   [*****]
 
       
AU
  [*****]    
 
       
AU
  [*****]   [*****]
 
       
AU
  [*****]   [*****]
 
       
CA
  [*****]    
 
       
CA
  [*****]    
 
       
CH
  [*****]   [*****]
 
       
DE
  [*****]   [*****]
 
       
EP
  [*****]   [*****]
 
       
EP
  [*****]    
 
       
ES
  [*****]   [*****]
 
       
FR
  [*****]   [*****]
 
       
GB
  [*****]   [*****]
 
       
HK
  [*****]   [*****]
 
       
IE
  [*****]   [*****]

 


 

CONFIDENTIAL TREATMENT REQUESTED: Certain portions of this document have been omitted pursuant to a request for confidential treatment and, where applicable, have been marked with an asterisk (“[*****]”) to denote where omissions have been made. The confidential material has been filed separately with the Securities and Exchange Commission.
         
Country   Application No.   Patent No.
IL
  [*****]   [*****]
 
       
IL
  [*****]    
 
       
IL
  [*****]    
 
       
IT
  [*****]   [*****]
 
       
JP
  [*****]    
 
       
JP
  [*****]    
 
       
NL
  [*****]   [*****]
 
       
NZ
  [*****]    
 
       
NZ
  [*****]   [*****]
 
       
NZ
  [*****]   [*****]
 
       
SE
  [*****]   [*****]
 
       
WO
  [*****]    
 
       
ZA
  [*****]    
 
       
ZA
  [*****]   [*****]
 
       
ZA
  [*****]   [*****]
 
       
VE
  [*****]    
 
       
CL
  [*****]   [*****]
 
       
PE
  [*****]    

 


 

CONFIDENTIAL TREATMENT REQUESTED: Certain portions of this document have been omitted pursuant to a request for confidential treatment and, where applicable, have been marked with an asterisk (“[*****]”) to denote where omissions have been made. The confidential material has been filed separately with the Securities and Exchange Commission.
         
Country   Application No.   Patent No.
TH
  [*****]    
 
       
UY
  [*****]    
 
       
TW
  [*****]   [*****]
 
       
AR
  [*****]    
 
       
AR
  [*****]    
 
       
US
  [*****]    
 
       
US
  [*****]    
 
       
US
  [*****]    
 
       
US
  [*****]    
 
       
US
  [*****]    
 
       
US
  [*****]   [*****]
 
       
US
  [*****]   [*****]
 
       
US
  [*****]    

 


 

CONFIDENTIAL TREATMENT REQUESTED: Certain portions of this document have been omitted pursuant to a request for confidential treatment and, where applicable, have been marked with an asterisk (“[*****]”) to denote where omissions have been made. The confidential material has been filed separately with the Securities and Exchange Commission.
Micronized Delivery Agent Patents and Patent Applications — Emisphere Filed
Applications
         
Country   Application No.   Patent No.
EP
  [*****]    
 
       
HK
  [*****]    
 
       
JP
  [*****]    
 
       
WO
  [*****]    
 
       
US
  [*****]    
 
       
US
  [*****]    
 
       
US
  [*****]    
 
       
US
  [*****]    
 
       
US
  [*****]    
Micronized Delivery Agent Patents and Patent Applications — Novartis Filed Applications
         
Country   Application No.   Patent No.
US
  [*****]    
 
       
US
  [*****]    
 
       
WO
  [*****]    
 
       
EP
  [*****]   [*****]
 
       
AT
  [*****]   [*****]
 
       
AU
  [*****]   [*****]

 


 

CONFIDENTIAL TREATMENT REQUESTED: Certain portions of this document have been omitted pursuant to a request for confidential treatment and, where applicable, have been marked with an asterisk (“[*****]”) to denote where omissions have been made. The confidential material has been filed separately with the Securities and Exchange Commission.
         
Country   Application No.   Patent No.
BE
  [*****]   [*****]
 
       
BR
  [*****]    
 
       
CA
  [*****]    
 
       
CH
  [*****]   [*****]
 
       
CN
  [*****]    
 
       
DE
  [*****]   [*****]
 
       
ES
  [*****]   [*****]
 
       
FR
  [*****]   [*****]
 
       
GB
  [*****]   [*****]
 
       
HK
  [*****]   [*****]
 
       
IN
  [*****]    
 
       
IN
  [*****]    
 
       
IT
  [*****]   [*****]
 
       
JP
  [*****]    
 
       
MX
  [*****]   [*****]
 
       
NL
  [*****]   [*****]
 
       
PL
  [*****]   [*****]
 
       
PT
  [*****]   [*****]

 


 

CONFIDENTIAL TREATMENT REQUESTED: Certain portions of this document have been omitted pursuant to a request for confidential treatment and, where applicable, have been marked with an asterisk (“[*****]”) to denote where omissions have been made. The confidential material has been filed separately with the Securities and Exchange Commission.
         
Country   Application No.   Patent No.
TR
  [*****]   [*****]

 


 

CONFIDENTIAL TREATMENT REQUESTED: Certain portions of this document have been omitted pursuant to a request for confidential treatment and, where applicable, have been marked with an asterisk (“[*****]”) to denote where omissions have been made. The confidential material has been filed separately with the Securities and Exchange Commission.
[*****] Polymorph Patents and Patent Applications
         
Country   Application No.   Patent No.
US
  [*****]    
 
       
US
  [*****]    
 
       
CL
  [*****]    
 
       
TH
  [*****]    
 
       
AR
  [*****]    
 
       
AU
  [*****]    
 
       
BR
  [*****]    
 
       
CA
  [*****]    
 
       
CN
  [*****]    
 
       
EP
  [*****]    
 
       
GC
  [*****]    
 
       
IL
  [*****]    
 
       
IN
  [*****]    
 
       
JP
  [*****]    
 
       
KE
  [*****]    
 
       
KR
  [*****]    
 
       
MX
  [*****]    


 

CONFIDENTIAL TREATMENT REQUESTED: Certain portions of this document have been omitted pursuant to a request for confidential treatment and, where applicable, have been marked with an asterisk (“[*****]”) to denote where omissions have been made. The confidential material has been filed separately with the Securities and Exchange Commission.
         
Country   Application No.   Patent No.
NZ
  [*****]    
 
       
PE
  [*****]    
 
       
PK
  [*****]    
 
       
RU
  [*****]    
 
       
SG
  [*****]    
 
       
TW
  [*****]    
 
       
VE
  [*****]    
 
       
WO
  [*****]    
 
       
ZA
  [*****]   [*****]
 
       
GT
  [*****]    
 
       
JO
  [*****]    
 
       
LB
  [*****]   [*****]
 
       
MT
  [*****]   [*****]

 


 

CONFIDENTIAL TREATMENT REQUESTED: Certain portions of this document have been omitted pursuant to a request for confidential treatment and, where applicable, have been marked with an asterisk (“[*****]”) to denote where omissions have been made. The confidential material has been filed separately with the Securities and Exchange Commission.
EXHIBIT F
NOVARTIS PATENTS
pTH/Calcitonin Patent Applications — Emisphere Filed Applications
         
Country   Application No.   Patent No.
US
  [*****]    
 
       
US
  [*****]    
 
       
US
  [*****]    
 
       
US
  [*****]    
 
       
US
  [*****]    
pTH/Calcitonin Patent Applications — Novartis Filed Applications
         
Country   Application No.   Patent No.
AT
  [*****]   [*****]
 
       
AU
  [*****]   [*****]
 
       
AU
  [*****]   [*****]
 
       
BE
  [*****]   [*****]
 
       
BR
  [*****]    
 
       
CA
  [*****]    
 
       
CH
  [*****]   [*****]
 
       
CN
  [*****]    
 
       


 

CONFIDENTIAL TREATMENT REQUESTED: Certain portions of this document have been omitted pursuant to a request for confidential treatment and, where applicable, have been marked with an asterisk (“[*****]”) to denote where omissions have been made. The confidential material has been filed separately with the Securities and Exchange Commission.
         
Country   Application No.   Patent No.
CZ
  [*****]    
 
       
DE
  [*****]   [*****]
 
       
EC
  [*****]    
 
       
EP
  [*****]   [*****]
 
       
ES
  [*****]   [*****]
 
       
FR
  [*****]   [*****]
 
       
GB
  [*****]   [*****]
 
       
GR
  [*****]   [*****]
 
       
HU
  [*****]    
 
       
ID
  [*****]   [*****]
 
       
IL
  [*****]    
 
       
IN
  [*****]    
 
       
IT
  [*****]   [*****]
 
       
JP
  [*****]    
 
       
JP
  [*****]    
 
       
KR
  [*****]    
 
       
KR
  [*****]    
 
       
MX
  [*****]    


 

CONFIDENTIAL TREATMENT REQUESTED: Certain portions of this document have been omitted pursuant to a request for confidential treatment and, where applicable, have been marked with an asterisk (“[*****]”) to denote where omissions have been made. The confidential material has been filed separately with the Securities and Exchange Commission.
         
Country   Application No.   Patent No.
NL
  [*****]   [*****]
 
       
NO
  [*****]    
 
       
NZ
  [*****]   [*****]
 
       
PH
  [*****]   [*****]
 
       
PL
  [*****]    
 
       
PT
  [*****]   [*****]
 
       
RU
  [*****]   [*****]
 
       
SG
  [*****]   [*****]
 
       
SK
  [*****]    
 
       
TR
  [*****]   [*****]
 
       
US
  [*****]    
 
       
US
  [*****]    
 
       
WO
  [*****]    
 
       
VN
  [*****]   [*****]
 
       
ZA
  [*****]   [*****]
hGH Formulation — Emisphere Filed Applications
         
Country   Application No.   Patent No.
US
  [*****]    


 

CONFIDENTIAL TREATMENT REQUESTED: Certain portions of this document have been omitted pursuant to a request for confidential treatment and, where applicable, have been marked with an asterisk (“[*****]”) to denote where omissions have been made. The confidential material has been filed separately with the Securities and Exchange Commission.
         
Country   Application No.   Patent No.
US
  [*****]    
hGH Formulation — Novartis Filed Applications
         
Country   Application No.   Patent No.
AU
  [*****]    
 
       
BR
  [*****]    
 
       
CA
  [*****]    
 
       
CN
  [*****]    
 
       
EP
  [*****]    
 
       
IN
  [*****]    
 
       
JP
  [*****]    
 
       
KR
  [*****]    
 
       
MX
  [*****]    
 
       
RU
  [*****]    
 
       
US
  [*****]    
 
       
WO
  [*****]    


 

CONFIDENTIAL TREATMENT REQUESTED: Certain portions of this document have been omitted pursuant to a request for confidential treatment and, where applicable, have been marked with an asterisk (“[*****]”) to denote where omissions have been made. The confidential material has been filed separately with the Securities and Exchange Commission.
EXHIBIT G

FORM OF RESEARCH /FEASIBILITY AGREEMENT


 

CONFIDENTIAL TREATMENT REQUESTED: Certain portions of this document have been omitted pursuant to a request for confidential treatment and, where applicable, have been marked with an asterisk (“[*****]”) to denote where omissions have been made. The confidential material has been filed separately with the Securities and Exchange Commission.
EXHIBIT H

TERMS FOR LICENSES FOR ADDITIONAL COMPOUNDS
GENERAL TERMS
     
License
  Emisphere grants Novartis an exclusive license (with the ability to sublicense, subcontract or collaborate without Emisphere’s prior consent) to apply Licensed IP to develop, make, commercialize and otherwise use:
 
   
 
  (a) [*****] Carriers with such Additional Compound to form Products; and
 
   
 
  (b) Products,
 
   
 
  (and to have any of the above done), in the Field in the Territory, it being understood and agreed that any such license shall also include the right to Develop, make, Commercialize and otherwise use [*****] Carriers in the course of exercising such license.
 
   
Rights and Obligations
  Novartis may exercise its rights and perform its obligations itself or through any of its affiliates and may subcontract its development, regulatory, manufacturing and commercialization activities as it deems appropriate subject to the approval of Emisphere not to be unreasonably withheld.
 
   
 
  Emisphere may exercise its rights and perform its obligations itself or through any of its affiliates and may subcontract its manufacturing activities as it deems appropriate subject to the approval of Novartis not to be unreasonably withheld.
 
   
Development
  Novartis will be responsible for conducting, at its sole expense, all further research, preclinical, clinical and other development of the Products (and the [*****] Carrier used therein).
 
   
Regulatory
  Novartis will be responsible for conducting, at its sole expense, all further regulatory activities with respect to Products (including any [*****] Carrier used therein).
 
   
Reports and
  Subject to Third Party confidentiality obligations, each party shall:
Communications
  (a) provide the other party with regular, quarterly updates of its development, regulatory, and commercialization programs and plans concerning [*****] Carrier and [*****] Carrier with products or Products; and (b) promptly inform the other party of any material changes in any such program or plan.
 
   
Commercialization
  Novartis will be responsible for worldwide commercialization of the Products, including all marketing and sales activities.
 
   
Manufacturing
  Novartis will be responsible for the manufacture and supply of all of its requirements for the [*****] Carrier and the Products. Novartis will include Emisphere and/or its designee(s) as a back-up manufacturer of [*****] Carrier in all Drug Master Files and such other similar regulatory filings. The manufacture of [*****] Carrier will meet the quality specifications in Novartis’ applicable NDA.
 
   
Intellectual Property
  All inventions related to any [*****] Carrier alone which are generated by Novartis alone or Emisphere and Novartis jointly under the license agreement will be jointly-owned by Novartis and Emisphere, and Emisphere’s interest in any such inventions will be subject to the licenses to Novartis as set forth above and royalty and milestone provisions set forth below.

 


 

CONFIDENTIAL TREATMENT REQUESTED: Certain portions of this document have been omitted pursuant to a request for confidential treatment and, where applicable, have been marked with an asterisk (“[*****]”) to denote where omissions have been made. The confidential material has been filed separately with the Securities and Exchange Commission.
     
 
  Emisphere will grant power of attorney to Novartis to allow it to prosecute, maintain and enforce all Emisphere licensed patents in the event that Emisphere fails to do so. The license agreement shall include a process for cooperation, coordination, and resolution of IP developments and issues.
 
   
 
  Each party shall use commercially reasonable efforts to provide Know-How to the other party. Novartis shall also use commercially reasonable efforts to provide technology support to Emisphere or its designated manufacturer to manufacture [*****] Carrier at an agreed upon FTE cost rate.
 
   
FINANCIAL PROVISIONS
 
   
Milestone Payments
  Milestone payments shall be paid by Novartis to Emisphere at the achievement of the following milestones with respect to each Product comprising [*****] Carrier in combination with the applicable Additional Compound:
 
   
 
  Clinical Milestones
 
   
 
  [*****]
 
   
 
  [*****]
 
   
 
  Regulatory Approval Milestones
 
   
 
  [*****]
 
   
 
  [*****]
 
   
 
  [*****]
 
   
 
  [*****]
 
   
 
  The amount of such payments shall be agreed upon in good faith by the parties in discussions to be completed no later than [*****].
 
   
Royalties
  Royalty payments with respect to any Product incorporating an Additional Compound shall be agreed upon in good faith by the parties in discussions to be initiated by Novartis no later than [*****].
 
   
 
  All royalties will be net of expenses incurred by Novartis in prosecuting its rights under the license agreement in the event of the application of applicable bankruptcy laws due to Emisphere’s bankruptcy.
 
   
Royalty Step-Down
  In any country in which there is a third party product containing a [*****] Carrier and the same Compound, the royalties payable by Novartis shall be equal to [*****] of the royalties set forth above on the net sales of such Product in such country for the remainder of the royalty term (as set forth below).
 
   
Third Party License
Fees
  Provisions consistent with provisions in Previous Agreements.
 
   
Royalty Term
  Royalties will be payable on a Product-by-Product and country-by-country basis until the later of (a) the expiration of the last to expire valid claim of an existing patent of the Emisphere Technology claiming the [*****] Carrier or Product or the use for which it is being sold in such country and (b) [*****] from the first

 


 

CONFIDENTIAL TREATMENT REQUESTED: Certain portions of this document have been omitted pursuant to a request for confidential treatment and, where applicable, have been marked with an asterisk (“[*****]”) to denote where omissions have been made. The confidential material has been filed separately with the Securities and Exchange Commission.
     
 
  commercial sale of the Product. Following the royalty term on a country-by-country basis, the licenses granted to Novartis with respect to the Product shall become fully paid-up, royalty-free, transferable, perpetual and irrevocable licenses.
 
   
TERM AND TERMINATION
 
   
Term
  The term of the license agreement will commence upon execution and continue, on a Product-by-Product basis, until the expiration of the royalty obligations of Novartis with respect to the applicable Product, unless earlier terminated as permitted by the license agreement.
 
   
Termination
  The license agreement will include customary rights of termination and provisions dealing with the effects of any such termination. Jointly owned intellectual property shall remain jointly owned following termination.
 
   
MISCELLANEOUS
   
 
   
Governing Law
  New York

 


 

CONFIDENTIAL TREATMENT REQUESTED: Certain portions of this document have been omitted pursuant to a request for confidential treatment and, where applicable, have been marked with an asterisk (“[*****]”) to denote where omissions have been made. The confidential material has been filed separately with the Securities and Exchange Commission.
EXHIBIT I
TOXICOLOGY STUDIES
                 
Study no.   Study title     Amount of payment for use  
Acute toxicity studies
007012
    [*****]       [*****]  
007013
    [*****]       [*****]  
007014
    [*****]       [*****]  
007015
    [*****]       [*****]  
Repeated dose toxicity studies
987119
    [*****]       [*****]  
987146
    [*****]       [*****]  
987120
    [*****]       [*****]  
997166
    [*****]       [*****]  
017045
    [*****]       [*****]  
Carcinogenicity studies
0170090
    [*****]       [*****]  
0370005
    [*****]       [*****]  
Safety pharmacology studies
994114
    [*****]       [*****]  
994115
    [*****]       [*****]  

 


 

CONFIDENTIAL TREATMENT REQUESTED: Certain portions of this document have been omitted pursuant to a request for confidential treatment and, where applicable, have been marked with an asterisk (“[*****]”) to denote where omissions have been made. The confidential material has been filed separately with the Securities and Exchange Commission.
                 
Study no.   Study title     Amount of payment for use  
0419085
    [*****]       [*****]  
Other toxicity studies
0570300
    [*****]       [*****]  

 

EXHIBIT 31.1
CERTIFICATION PURSUANT TO
RULE 13a-14(a) AND 15d-14(a),
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Michael V. Novinski, certify that:
  1.   I have reviewed this Quarterly Report on Form 10-Q of Emisphere Technologies, Inc;
 
  2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
  3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
  4.   The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
  a.   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
  b.   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
  c.   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
  d.   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
  5.   The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
  a.   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
  b.   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 16, 2010
         
     
  /s/ Michael V. Novinski    
  Michael V. Novinski   
  President and Chief Executive Officer   

 

         
EXHIBIT 31.2
CERTIFICATION PURSUANT TO
RULE 13a-14(a) AND 15d-14(a),
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Michael R. Garone, certify that:
  1.   I have reviewed this Quarterly Report on Form 10-Q of Emisphere Technologies, Inc;
 
  2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
  3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
  4.   The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d- 15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
  a.   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
  b.   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
  c.   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
  d.   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
  5.   The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
  a.   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
  b.   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 16, 2010
         
     
  /s/ Michael R. Garone    
  Michael R. Garone   
  Chief Financial Officer   

 

         
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Emisphere Technologies, Inc. (the “Company”) on Form 10-Q for the quarterly period ending March 31, 2010 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Michael V. Novinski, as President and Chief Executive Officer, and Michael R. Garone, as Chief Financial Officer, of the Company certify, pursuant to and for the purpose of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
     (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
     (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: August 16, 2010
         
     
  /s/ Michael V. Novinski    
  Michael V. Novinski   
  President and Chief Executive Officer   
 
     
  /s/ Michael R. Garone    
  Michael R. Garone   
  Chief Financial Officer   
 
A signed original of this written statement required by Section 906 has been provided to Emisphere Technologies, Inc. and will be retained by Emisphere Technologies, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.