Document:

exv10w3

 

EXHIBIT 10.3

INVESTMENT AND EXCHANGE AGREEMENT

     
THIS AGREEMENT (this “Agreement”) is made as of
September 26, 2005, by and between Emisphere Technologies,
Inc., a Delaware corporation (the “Company”),
and (i) MHR Capital Partners (500) LP, a Delaware
limited partnership, (ii) MHR Capital Partners
(100) LP, a Delaware limited partnership, (iii) MHR
Institutional Partners II LP, a Delaware limited
partnership and (iv) MHR Institutional Partners IIA
LP, a Delaware limited partnership (collectively, and including
any of their respective Affiliates (as defined below), the
“Investor”).

     
WHEREAS, the Investor has agreed to make a loan (the
“Secured Loan”) to the Company in principal
amount of $15,000,000 (the “Loan Amount”)
on the date hereof pursuant to a Senior Secured Term Loan
Agreement, dated as of September 26, 2005 (the
“Loan Agreement”);

     
WHEREAS, if the Company obtains the requisite approvals of its
stockholders, the Investor shall have the right to exchange the
Secured Loan into a 11.00% Senior Secured Convertible Note
of the Company (the “Convertible Note”), upon
the terms and conditions hereafter provided;

     
WHEREAS, the parties agree that the Investor shall have the
right to designate, at its option, up to two directors and/or
board observers to the Board of Directors of the Company upon
the terms and conditions hereafter provided; and

     
WHEREAS, contemporaneously with entering into this Agreement,
the parties are entering into a Registration Rights Agreement
providing for registration rights with respect to various
securities of the Company owned by the Investor and its
Affiliates on the date hereof or that may be held by the
Investor or issued by the Company at any time after the date
hereof in accordance with and pursuant to the terms of the
Registration Rights Agreement.

     
NOW THEREFORE, in consideration of the mutual covenants and
conditions set forth herein, the sufficiency of which is hereby
acknowledged, the parties hereby agree as follows:

     
1.     Definitions. The
following terms shall have the meanings ascribed to them below:

		
	 	     
    “Affiliate” means, as to any Person, any other
    Person (i) that, directly or indirectly through one or more
    intermediaries, controls, is controlled by, or is under common
    control with, such Person, (ii) who is a director or
    officer (A) of such Person, (B) of any Subsidiary of
    such Person, or (C) of any Person described in
    clause (i) above with respect to such Person, or
    (iii) which, directly or indirectly through one or more
    intermediaries, is the beneficial or record owner (as defined in
    Rule 13d-3 of the Exchange Act, as is in effect on the date
    hereof) of ten percent (10%) or more of any class of the
    outstanding voting stock, securities or other equity or
    ownership interests of such Person. For purposes of this
    definition, the term “control” (and the correlative
    terms, “controlled by” and “under common control
    with”) shall mean the possession, directly or indirectly,
    of the power to direct or cause the direction of the management
    or policies, whether through ownership of securities or other
    interests, by contract or otherwise.
	 
	 	     
    “Board of Directors” means the board of
    directors of the Company.
	 
	 	     
    “Business Day” means any day that is not a
    Saturday, a Sunday or a day on which banks are required or
    permitted to be closed in the State of New York.
	 
	 	     
    “Commission” means the United States Securities
    and Exchange Commission.
	 
	 	     
    “Common Stock” means the Company’s common
    stock, par value $0.01 per share.
	 
	 	     
    “Contract” means any agreement, lease,
    contract, note, mortgage, indenture, arrangement or other
    obligation.
	 
	 	     
    “DGCL” means Title 8, Chapter 1 of
    the Delaware Code, as amended.
	 
	 	     
    “Exchange Act” means the Securities Exchange
    Act of 1934.

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    “GAAP” means generally accepted accounting
    principles in the United States of America in effect from time
    to time as applied by nationally recognized accounting firms.
	 
	 	     
    “Material Adverse Effect” means, individually
    or together with other adverse effects, any material adverse
    effect on the liabilities, operations, financial condition,
    tangible or intangible properties, business or results of
    operations of the Company and its Subsidiaries taken as a whole
    or the ability of the Company to consummate the transactions
    contemplated hereby; provided, however, that any
    such effects resulting from (i) any change affecting the
    pharmaceutical industry generally, (ii) any change in
    general United States economic conditions, (iii) any change
    in law, rule or regulation or GAAP; except, in the case of each
    of (i), (ii) and (iii), to the extent that such effects
    affect the Company disproportionately to the pharmaceutical
    industry taken as a whole; (iv) any change, event,
    occurrence or state of facts directly arising out of or
    resulting from any action taken, or the failure to take an
    action, by the Company with the Investor’s express written
    consent or in accordance with the express written instructions
    of the Investor or as otherwise expressly required or explicitly
    and specifically permitted to be taken by the Company pursuant
    to the terms of this Agreement or the Loan Agreement; or
    (v) any change in the Company’s stock price or any
    failure by the Company to meet revenue or earnings projections
    published by industry analysts (provided that this
    clause (v) shall not be construed as providing, or be used
    or relied upon for any determination, that the change, event,
    occurrence or state of facts giving rise to such change or
    failure does not constitute, cause, contribute to or result in a
    Material Adverse Effect), shall in each case not be considered
    when determining if a Material Adverse Effect has occurred.
	 
	 	     
    “NASD” means the National Association of
    Securities Dealers.
	 
	 	     
    “Note” means the $15,000,000 Senior Secured
    Note issued by the Company and payable to the order of the
    Investor, dated the Closing Date (as defined in the Loan
    Agreement) and substantially in the form of Exhibit A to
    the Loan Agreement.
	 
	 	     
    “Novartis” means Novartis Pharma AG, a company
    registered in Switzerland.
	 
	 	     
    “Novartis Agreement” means the Research
    Collaboration Option and License Agreement by and between the
    Company and Novartis, dated as of December 1, 2004, a true
    and complete copy of which is attached hereto as
    Exhibit M.
	 
	 	     
    “Person” means any corporation, limited
    liability company, natural person, firm, joint venture,
    partnership, trust, unincorporated association or government, or
    any political subdivision, department or agency of the
    government.
	 
	 	     
    “Securities Act” means the Securities Act of
    1933, as amended, and the rules and regulations promulgated
    thereunder.
	 
	 	     
    “Security Agreement” means the Pledge and
    Security Agreement, dated as of the Closing Date, between the
    Company and the Investor.
	 
	 	     
    “Stockholders” means, with respect to any
    Person, each holder of Equity Interests (as defined in the Loan
    Agreement) of such person.
	 
	 	     
    “Subsidiary” means, (i) as to the Company,
    any Person in which more than 25% of all equity, membership,
    partnership or other ownership interests is owned directly or
    indirectly by the Company or one or more of its Subsidiaries,
    and (ii) as to any other Person, any Person in which more
    than 25% of all equity, membership, partnership or other
    ownership interests is owned directly or indirectly by such
    Person or by one or more of such Person’s Subsidiaries.
    Unless otherwise specified in this Agreement or any Loan
    Document, references to a Subsidiary refer to a Subsidiary of
    the Company.
	 
	 	     
    “Takeover Statute” means any “fair
    price,” “moratorium,” “control share
    acquisition” or other similar anti-takeover statute or
    regulation.
	 
	 	     
    “Trading Day” shall mean any day on which the
    principal United States securities exchange or trading market
    where the Common Stock is then listed or traded, is open for
    trading.

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    “Transaction Documents” means this Agreement,
    the Loan Agreement, the Note, the Convertible Note, the
    Registration Rights Agreement, the Security Agreement and any
    other documents that are executed and delivered in connection
    with the transactions contemplated thereby.
	 
	 	     
    “Warrants” means Warrant No. A3, dated
    March 31, 2005, issued by the Company to MHR Capital
    Partners (100) LP and Warrant No. A4, dated
    March 31, 2005, issued by the Company to MHR Capital
    Partners (500) LP.

     
2.     The Transactions

     
(a) The Secured Loan. Subject to the terms and
conditions set forth in this Agreement and the Loan Agreement
attached hereto as Exhibit A, the Investor agrees to
lend the Company the Loan Amount on the date hereof
pursuant to the Loan Agreement.

     
(b) Stockholders’ Meeting. (i) As soon as
practicable, but no later than 90 days after the date
hereof, the Company shall hold a special meeting of its
Stockholders (the “Special Meeting”) for the
purpose of obtaining Stockholder approval (the
“Stockholder Approval”) of (A) the
issuance and sale to the Investor of the Convertible Note in
exchange for the Secured Loan (including interest) pursuant to
the terms and conditions of the Transaction Documents,
(B) the issuance to the Investor of the Common Stock into
which the Convertible Note (including interest) is exchangeable
pursuant to the terms and conditions of the Transaction
Documents, (C) the amendment of the Company’s Restated
Certificate of Incorporation, in form and substance satisfactory
to the Investor, the form of which is attached hereto as
Exhibit G, (D) the election of the Investor
Nominee and any other directors to the Board of Directors in
accordance with Section 3 hereof, and (E) any other
proposal required for the consummation of all the transactions
contemplated by the Transaction Documents (collectively, the
“Proposals”).

     
(ii) The Company shall (A) use its best efforts to
solicit from its Stockholders proxies in favor of the approval
of the Proposals, including recommendation by the Board to the
Stockholders to vote in favor of all the Proposals;
provided, however, that the Company shall not be
obligated to make a payment to any of its stockholders for the
purpose of obtaining such stockholder’s proxy in favor of
the approval of the Proposals, and (B) take any and all
other action reasonably necessary or advisable to secure the
affirmative vote of its Stockholders required by the DGCL, the
Transaction Documents and the rules and regulations of the NASD
to obtain such approvals.

     
(iii) The Investor shall, and shall cause its Affiliates
to, vote all shares of Common Stock held by it, or for which it
holds proxies, in favor of the Proposals. Thereafter, the
Investor shall have no further obligation pursuant to this
Agreement to vote any shares of Common Stock held by it, or for
which it holds proxies, in favor of any other proposals of the
Board of Directors.

     
(c) Preparation of Proxy Statement and Board and
Stockholder Action. (i) Not later than the fifteenth
Business Day after the date hereof, the Company shall, in
cooperation with the Investor and its advisors, prepare and,
unless the Investor objects in writing, file with the Commission
preliminary proxy materials (together with any amendments
thereof and any supplements thereto, the “Proxy
Statement”), seeking the Stockholder Approval of the
Proposals. The Proxy Statement shall comply as to form and
substance in all material respects with the applicable
provisions of the Exchange Act. The Company shall use its best
efforts to respond as promptly as practicable to any comments of
the Commission with respect to the Proxy Statement and to cause
the definitive Proxy Statement to be filed with the Commission
and to be mailed to its Stockholders as promptly as practicable
following the date of this Agreement. The Company shall promptly
notify the Investor upon the receipt of any written or oral
comments from the Commission or its staff or any written or oral
request from the Commission or its staff for amendments or
supplements to the Proxy Statement and shall provide the
Investor with copies of all correspondence between the Company
and its representatives, on the one hand, and the Commission and
its staff, on the other hand, with respect thereto. The Investor
shall reasonably and promptly provide any information or
responses to comments, or other assistance, reasonably requested
in connection with the foregoing. Prior to filing or mailing the
Proxy Statement (or any amendment or supplement thereto) or
responding to any comments of the Commission with respect
thereto (orally or in writing), the Company (A) shall
provide the Investor and its counsel an

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opportunity to review and comment on such document or response
and (B) shall give reasonable consideration to all comments
proposed by the Investor or its counsel. The Company shall also
(A) notify the Investor promptly of any communications
(written or oral) from and give the Investor advance notice of
any communications it initiates with the NASD or its staff in
connection with the Special Meeting or the transactions
contemplated hereby and by the other Transaction Documents,
(B) provide the Investor and its counsel opportunity to
review and consider all such communications and responses
thereto and (C) give reasonable consideration to all such
comments proposed by the Investor or its counsel.

     
(ii) The Company shall promptly and duly call, give notice
of, convene and hold, the Special Meeting and take all other
necessary actions so that, as promptly as practicable following
the mailing of the Proxy Statement, the Special Meeting for the
purpose of obtaining the Stockholder Approval is held. The Board
of Directors shall recommend the Stockholder Approval and
include in the Proxy Statement such recommendation.

     
(iii) The information supplied by the Investor for
inclusion in the Proxy Statement shall not, at (A) the time
the Proxy Statement (or any amendment thereof or supplement
thereto) is first mailed to the Stockholders and (B) the
time of the Special Meeting, contain any untrue statement of a
material fact or fail to state any material fact required to be
stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were
made, not misleading. If, at any time prior to the Special
Meeting, any event or circumstance relating to the Investor, or
its officers or directors, should be discovered by the Investor
which should be set forth in an amendment or a supplement to the
Proxy Statement, the Investor shall promptly inform the Company.

     
(iv) The information supplied by the Company for inclusion
in the Proxy Statement shall not, at (A) the time the Proxy
Statement (or any amendment thereof or supplement thereto) is
first mailed to the Stockholders and (B) the time of the
Special Meeting contain any untrue statement of a material fact
or fail to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading.
If, at any time prior to the Special Meeting, any event or
circumstance relating to the Company, or its officers or
directors, should be discovered by the Company which should be
set forth in an amendment or a supplement to the Proxy
Statement, the Company shall promptly inform the Investor.

     
(d) Exchange of Secured Loan for Convertible Note.
(i) At any time on or after the date the Stockholder
Approval of the Proposals is obtained, the Investor shall have
the right, but not the obligation, to exchange the Secured Loan,
in whole but not in part, into the Convertible Note in the form
attached hereto as Exhibit B (the
“Exchange”). Prior to the Exchange, the
Investor shall provide written notice to the Company (the
“Exchange Notice”) indicating the date on which
the Exchange shall occur (the “Exchange Date”),
which date shall be no less than 10 Business Days after delivery
of the Exchange Notice. Upon receipt of the Exchange Notice, the
Company may deliver the Convertible Note to the Investor at any
time on or before the proposed Exchange Date; provided,
however, that if the Company delivers the Convertible
Note less than five Business Days before the proposed Exchange
Date, the Investor shall have five Business Days after its
receipt of the Convertible Note to consummate the Exchange. If
the Investor determines that the conditions precedent to the
Exchange have not been met, the Exchange Notice shall be deemed
to be null and void. The Convertible Note shall have a principal
amount equal to (A) the Loan Amount plus (B) an
amount equal to all accrued but unpaid interest thereon at the
Interest Rate (as defined in the Loan Agreement), compounded
monthly, from the date hereof through the Exchange Date.

     
(ii) The Exchange shall be consummated only upon the
satisfaction or waiver by the Investor on or prior to the
Exchange Date of the following conditions:

		
	 	     
    (A) Representations and Warranties of the Company.
    Each of the representations and warranties of the Company set
    forth in the Investment Agreement and in all certificates and
    documents delivered by the Company or any of its Subsidiaries in
    connection with the Investment Agreement that are qualified as
    to “materiality,” “Material Adverse Effect”
    or “Material Adverse Event” shall be true and correct
    in all respects, and those not so qualified shall be true and
    correct in all material respects, in each case as of the
    Exchange Date as though made on and as of the Exchange Date
    (except to the extent any such

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    representation or warranty expressly relates to an earlier date,
    in which case such representation or warranty shall have been
    accurate as of such earlier date).
	 
	 	     
    (B) Performance of Obligations of the Company. The
    Company shall have performed in all material respects each of
    the obligations required to be performed by it under the
    Transaction Documents on or prior to the Exchange Date.
	 
	 	     
    (C) Consents. The Company shall have obtained all
    the consents or approvals of each Person whose consent or
    approval shall be required under any Contract to which the
    Company or any of its Subsidiaries is a party in connection with
    the due authorization, issuance and execution of the Convertible
    Note.
	 
	 	     
    (D) Regulatory Consents. All actions by or in
    respect of, or filings with, any court or governmental entity
    required to permit the consummation of the issuance and
    execution of the Convertible Note shall have been taken, made or
    obtained.
	 
	 	     
    (E) Litigation. No court or governmental entity of
    competent jurisdiction shall have enacted, issued, promulgated,
    enforced or entered any order (whether temporary, preliminary or
    permanent) that is in effect and restrains, enjoins or otherwise
    prohibits consummation of the issuance and execution of the
    Convertible Note or would have the effect of requiring the
    Investor to agree to pay or pay at any time any material amounts
    and no governmental entity shall have instituted any proceeding
    seeking any such order.
	 
	 	     
    (F) No Breach Under Other Indebtedness of the
    Company. There shall not be (either immediately prior to, or
    after giving effect to, the Exchange and the issuance of the
    Convertible Note) any breach or violation of, or a default under
    (with or without notice, lapse of time or both), any
    Indebtedness (as defined in the Convertible Note) of the Company.
	 
	 	     
    (G) Closing Deliveries. The Company shall have
    (i) executed and delivered to the Investor the Convertible
    Note, (ii) executed and delivered to the Investor a
    certificate, dated as of the Exchange Date, from the Chief
    Executive Officer or the Chief Financial Officer of the Company
    confirming that (x) the representations and warranties of
    the Company contained in the Transaction Documents are true and
    correct on and as of the Exchange Date with the same force and
    effect as though such representations and warranties had been
    made on and as of the Exchange Date, other than those
    representations and warranties that are made as of another date,
    in which case such representations and warranties shall be true
    and correct as of such other date, and (y) all agreements,
    covenants, obligations and conditions required by this Agreement
    and the other Transaction Documents to be performed or complied
    with by the Company at or prior to the Exchange Date have been
    performed and complied with; and (iii) caused to be
    delivered to the Investor an opinion of Brown Rudnick Berlack
    Israels LLP, outside counsel to the Company, dated as of the
    Exchange Date and substantially in the form attached hereto as
    Exhibit J.
	 
	 	     
    (H) Blue Sky. The Company shall have received any
    and all material state securities and “blue sky”
    permits and approvals necessary to permit the issuance and
    execution of the Convertible Note.
	 
	 	     
    (I) Material Adverse Effect. Since the date of this
    Agreement, there shall not have been any event, occurrence,
    development or state of circumstances which, individually or in
    the aggregate, has had or would reasonably be expected to have a
    Material Adverse Effect on the Company.

     
(iii) The obligation of the Company to effect the Exchange
shall be subject to the satisfaction or waiver on or prior to
the Exchange Date of the following conditions:

		
	 	     
    (A) Representations and Warranties of the Investor.
    Each of the representations and warranties of the Investor set
    forth in the Transaction Documents and in all certificates and
    documents delivered by the Investor in connection with the
    Transaction Documents that are qualified as to
    “materiality,” “Material Adverse Effect” or
    “Material Adverse Event” shall be true and correct in
    all respects, and those not so qualified shall be true and
    correct in all material respects, in each case as of the
    Exchange Date as though made on and as of the Exchange Date
    (except to the extent any such representation or

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    warranty expressly relates to an earlier date, in which case
    such representation or warranty shall have been accurate as of
    such earlier date).
	 
	 	     
    (B) Performance of Obligations of the Investor. The
    Investor shall have performed in all material respects each of
    the obligations required to be performed by it under this
    Agreement on or prior to the Exchange Date.
	 
	 	     
    (C) Closing Deliveries. The Investor shall have
    delivered to the Company the Convertible Note to the order of
    the Company.

     
3.     Board Representation
Rights. (a) The Investor shall have the right as of the
date hereof to designate, at its option, by notice to the
Company prior to or after the date hereof, (i) one director
(the “Investor Nominee”) and (ii) one
observer (the “Investor Observer”) to the Board
of Directors and as of the date hereof the Board of Directors
has elected one Investor Nominee and appointed one Investor
Observer, as previously requested in writing by the Investor,
pursuant to a valid resolution that has not been amended or
revoked, a true and complete copy of which is attached hereto as
Exhibit H. In addition, the Investor and the Board
of Directors shall promptly select an independent director
mutually agreed upon by the Company and the Investor (the
“Mutual Director”) to serve on the Board of
Directors. In the event that the Mutual Director has not been
selected on or prior to the date hereof, then the Board of
Directors and the Investor shall use their best efforts to agree
to appoint a Mutual Director as soon as practicable after the
date hereof. Except as provided in the Company’s
Certificate of Incorporation on the date hereof (a true and
complete copy of which has been provided to the Investor prior
to the execution of this Agreement), any Investor Nominee or the
Mutual Director, as the case may be, may be removed, with or
without cause, by the affirmative vote of the holders of at
least 85% of the shares of common stock outstanding and entitled
to vote at the election of directors; provided,
however; that any vacancy on the Board of Directors
created as a result of the resignation, removal or other
discontinuation of service as a member of the Board of Directors
of any Investor Nominee shall be filled by an individual who
shall have been (i) designated by the Investor Nominee
prior to the effectiveness of such vacancy, other than in the
case of removal of the Investor Nominee for cause, or
(ii) nominated or approved in writing by both a majority of
the Board of Directors and the Investor, in the case of removal
of the Investor Nominee for cause; provided,
further, that the foregoing vote requirement shall be of
no further force and effect on or after the date that the
Investor’s aggregate shares of Common Stock, warrants to
purchase shares of Common Stock, or any other equity securities
convertible into, or exchangeable for, any Common Stock, shall
be less than two (2) percent of the outstanding Common
Stock of the Corporation (the “Outstanding
Stock”), which Outstanding Stock shall include all
shares of Common Stock, warrants to purchase shares of Common
Stock whose exercise price is equal to or less than the closing
price per share of Common Stock on the trading date immediately
prior to such calculation, or any other equity securities
convertible into, or exchangeable for, any Common Stock at a
conversion price or exchange rate, respectively, that is equal
to or less than the closing price per share of Common Stock on
the trading date immediately prior to such calculation;
provided, further, that the Mutual Director shall
only be replaced by an individual who shall have been nominated
or approved in writing by both a majority of the Board of
Directors and the Investor. Notwithstanding anything contained
herein to the contrary, the Investor’s right to nominate an
Investor Nominee or Mutual Director, or designate an Investor
Observer, shall terminate after the date that the
Investor’s aggregate shares of Common Stock, warrants to
purchase shares of Common Stock, or any other equity securities
convertible into, or exchangeable for, any Common Stock, shall
be less than two (2) percent of the Outstanding Stock.

     
(b) The Company shall use its best efforts to fulfill its
obligations under this Section 3, and shall take all
necessary and desirable actions to cause the nomination and
election of any Investor Nominee and the Mutual Director as a
director at the Special Meeting and at any subsequent
Stockholders’ meeting, including, without limitation, to
(i) call a special meeting of the Board of Directors,
(ii) call a special meeting of the Stockholders and
(iii) recommend to the Stockholders to vote in favor of the
election of the Investor Nominee(s) and the Mutual Director at
the Special Meeting, or any other meetings of the Stockholders,
to the class of directors that was most recently elected by the
Stockholders or appointed by the Board of Directors, as the case
may be, to the Board of Directors; provided,
however, that the Company shall not be

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obligated to make a payment to any of its stockholders for the
purpose of obtaining such stockholder’s proxy in favor of
the approval of the Proposals.

     
(c) The Investor Observer shall be permitted to attend all
meetings of the Board of Directors, including all committees
thereof, solely in a non-voting capacity and, in connection
therewith, the Company shall give such Investor Observer copies
of all notices, written materials and other information
(including, without limitation, advance notice of any committee
meetings and copies of meeting minutes) given to members of the
Board of Directors in connection with such meetings
contemporaneously with any transmission, circulation or delivery
of such materials and information to the directors, and if the
Company proposes to take any action by written consent in lieu
of a meeting of its Board of Directors or of any committee
thereof, the Company shall give written notice thereof to each
such Investor Observer contemporaneously with any transmission,
circulation or delivery of such written consent to the
directors; provided, however, that if the Board of
Directors, based on the advice of outside legal counsel,
determines that, with respect to a specific matter to be
included on the agenda for the next meeting of the Board of
Directors or any committee thereof, that the disclosure of
information directly related to such matter and required to be
discussed at such meeting (the “Privileged
Information”) to the Investor Observer would adversely
affect the attorney-client privilege in effect at such time
between the Board of Directors and its counsel, then the Board
of Directors may withhold solely the Privileged Information from
the Investor Observer and shall otherwise permit the Investor
Observer to (i) participate in the portions of the meeting
of the Board of Directors or any committee thereof that do not
include discussions of the Privileged Information and
(ii) receive any other information that the Investor
Observer would be entitled to receive. Except as specifically
provided in the prior sentence, the Investor Observer may
participate in discussions of any and all matters brought to the
Board of Directors.

     
4.     Registration Rights
Agreement. Contemporaneously with the execution of this
Agreement and in connection with the transactions contemplated
by the Transaction Documents, the Company and the Investor are
entering into the Registration Rights Agreement attached hereto
as Exhibit C.

     
5.     Antidilution Rights. The
Warrants beneficially held by the Investor shall include
antidilution rights as reflected in the Amendment to Warrant
attached hereto as Exhibit D.

     
6.     Representations and
Warranties of the Company. The Company hereby represents and
warrants to the Investor that as of the date hereof, as of the
Exchange Date and as of any other date specified in the
following clauses (a) through (m), if any:

		
	 	     
    (a) Organization, Good Standing and Qualifications.
    It is duly organized, validly existing and in good standing
    under the laws of the State of Delaware and has all requisite
    corporate or similar power and authority to own and operate its
    properties and assets and to carry on its business as presently
    conducted and is qualified to do business and is in good
    standing as a foreign corporation in each jurisdiction where the
    ownership or operation of its properties or conduct of its
    business requires such qualification, except where the failure
    to be so qualified would not have a Material Adverse Effect.
	 
	 	     
    (b) Authorization. The execution, delivery and
    performance by the Company of the Transaction Documents and its
    obligations thereunder have been duly authorized, and the
    Transaction Documents and each other document or agreement to be
    executed by the Company in connection with the execution,
    delivery and performance of the Transaction Documents will each
    constitute the valid and legally binding obligation of the
    Company, enforceable against it in accordance with its terms,
    subject to bankruptcy, insolvency, fraudulent transfer,
    reorganization, moratorium and similar laws of general
    applicability, relating to or affecting creditors’ rights
    generally.
	 
	 	     
    (c) Issuance of Securities; Board Approval.
    (i) The Convertible Note and the Common Stock into which
    the Convertible Note may be converted, when so issued and
    delivered by the Company, will have been (A) duly and
    validly authorized, issued, fully paid and nonassessable, free
    and clear of any mortgage, pledge, lien, security interest,
    claim, voting agreement, conditional sale agreement, title
    retention agreement, restriction, option or encumbrance of any
    kind, character or description whatsoever, and no person will
    have any preemptive right of subscription, purchase or share
    issuance in respect thereof and (B) free of any
    restrictions on transfer other than restrictions on transfer
    under applicable

7

 

		
	 	
    federal and state securities laws and will be issued in
    compliance with all applicable federal and state securities
    laws. The Company has duly authorized and reserved a sufficient
    number of shares of Common Stock for issuance upon the
    conversion of the Convertible Note in accordance with the
    Transaction Documents.
	 
	 	     
    (ii) Effective as of the date hereof, the Board of
    Directors has (i) approved and declared advisable each of
    the transactions contemplated by the Transaction Documents and
    (ii) taken all other corporate action necessary to
    consummate each of the transactions contemplated by the
    Transaction Documents, including, but not limited to, the
    nomination and election of directors in accordance with
    Section 3 hereof. A true and complete copy of the
    resolutions of the Board of Directors that has not been amended
    or revoked is attached hereto as Exhibit E.
	 
	 	     
    (iii) Effective as of the date hereof, the Board of
    Directors has amended the Bylaws of the Company to provide,
    among other things, that a quorum of the Board of Directors
    shall be the majority of directors.
	 
	 	     
    (d) Governmental Filings; No Registration. Other
    than filings pursuant to federal and state securities laws or
    filings required to be made with the NASD or Nasdaq directly
    related to the execution and delivery of the Transaction
    Documents, no notices, reports or other filings are required to
    be made by the Company with, nor are any consents,
    registrations, approvals, permits or authorizations required to
    be obtained by the Company from, any court or governmental or
    regulatory or self-regulatory entity in connection with the
    execution and delivery of the Transaction Documents by it.
	 
	 	     
    (e) No Conflicts. The execution, delivery and
    performance of the Transaction Documents by the Company do not,
    and the performance by the Company of its obligations
    contemplated thereunder will not,
	 
	 	     
    (i) violate or contravene any provision of the
    Company’s Restated Certificate of Incorporation or Bylaws
    or similar organizational documents of the Company;
	 
	 	     
    (ii) constitute or result in a breach or violation of, or a
    default under, the acceleration of any obligations of, or the
    creation of any Lien on the assets of, the Company or any of its
    Subsidiaries (with or without notice, lapse of time or both)
    pursuant to any Contract that is material to and binding upon
    the Company or any of its Subsidiaries or any change in the
    rights or obligations of any party under any of such Contracts;
	 
	 	     
    (iii) except pursuant to the Transaction Documents, require
    the Company or any of its Subsidiaries to obtain the consent,
    waiver, authorization or approval of any person which has not
    already been obtained; or
	 
	 	     
    (iv) violate, contravene or conflict with any award,
    judgment, decree or other order of any governmental entity
    (each, an “Order”), any statute, law, rule,
    regulation or other requirement of any governmental entity in
    the United States or elsewhere (each, a “Law”)
    or any permit, license, registration or other approval or
    authorization of any governmental entity applicable to the
    Company.
	 
	 	     
    (f) State Takeover Statutes Inapplicable. The Board
    of Directors has taken all action necessary so that
    Section 203 of the DGCL is inapplicable to any of the
    transactions contemplated hereby or by the Transaction
    Documents, including execution of the Loan Agreement, issuance
    of the Convertible Note, and issuance of any shares of Common
    Stock upon conversion of the Convertible Note. No other Takeover
    Statute is applicable to any of the transactions contemplated
    hereby or by the other Transaction Documents including execution
    of the Loan Agreement, issuance of the Convertible Note,
    issuance of any shares of Common Stock upon conversion of the
    Convertible Note.
	 
	 	     
    (g) No Fees. Other than W.R. Hambrecht, no
    investment banker, financial advisor, consultant or other
    intermediary is entitled to any fee or commission from the
    Company or any of its Subsidiaries for services rendered in
    connection with the transactions contemplated by the Transaction
    Documents.

8

 

		
	 	     
    (h) Expenses. Notwithstanding anything to the
    contrary contained in the reimbursement letter or agreement
    between the Company and any counsel to the Investor, all the
    fees and expenses of the Investor, including fees and expenses
    of all counsel to the Investor and accounting fees, incurred and
    billed separately on or prior to the date hereof, have been paid
    by the Company.
	 
	 	     
    (i) Rights Agreement Waiver. The Company has
    irrevocably taken all necessary action, including, without
    limitation, amending the Rights Agreement, dated as of
    February 23, 1996 and restated with amendments on
    June 7, 2001, between the Company and Mellon Investor
    Services, LLC (as Rights Agent) (the “Rights
    Agreement”), with respect to all of the outstanding
    rights issued pursuant to the Rights Agreement (the
    “Rights”), (i) to render the Rights
    Agreement inapplicable to this Agreement and any Transaction
    Documents and the transactions contemplated hereby and thereby,
    (ii) to ensure that the Investor or any of its Affiliates
    are not deemed to be an Acquiring Person (as defined in the
    Rights Agreement) pursuant to the Rights Agreement,
    (iii) to ensure that the Stockholders are not entitled to
    receive Rights by reason of the execution and delivery of this
    Agreement and the other Transaction Documents or the
    consummation of any of the transactions contemplated hereby and
    thereby and (iv) so that the Company will have no
    obligations under the Rights or the Rights Agreement in
    connection with this Agreement, the Loan Agreement, the
    Exchange, the Convertible Note and the other Transaction
    Documents and the transactions contemplated hereby and thereby
    and the holders of shares of Common Stock will have no rights
    under the Rights or the Rights Agreement in connection with the
    any of the transactions contemplated hereby and by the
    Transaction Documents. The Rights Agreement, as so amended, has
    not been further amended or modified. True and complete copies
    of all such amendments to the Rights Agreement have been
    provided to the Investor prior to the execution of this
    Agreement.
	 
	 	     
    (j) Vote Required. The only vote of holders of any
    class or series of capital stock of the Company necessary to
    approve the Proposals is the affirmative vote of the holders of
    the majority of the outstanding shares of Common Stock in favor
    of the Proposals.
	 
	 	     
    (k) Information Provided for DGCL Opinion. The
    information provided by the Company to Richards
    Layton & Finger, P.A. (“Richards
    Layton”), in connection with the delivery of its
    opinion regarding certain DGCL issues to the Board of Directors
    of the Company (the “Opinion”), was true,
    complete and accurate in all material respects as of the date
    such information was furnished to Richards Layton and is true,
    complete and accurate in all material respects as of the date
    hereof, and the Company has no other information that could
    reasonably be expected to affect the information provided by the
    Company or the use of such information in connection with the
    preparation and delivery of the Opinion.
	 
	 	     
    (l) Proxy Statement. The Proxy Statement filed with
    the Commission shall not contain any untrue statement of a
    material fact or omit to state a material fact necessary in
    order to make the statements contained therein, in light of the
    circumstances under which they were made, not misleading at the
    time of (i) the filing of the preliminary Proxy Statement
    with the Commission, (ii) mailing the definitive Proxy
    Statement to the Stockholders, and (iii) the Special
    Meeting. Notwithstanding the foregoing, the representation and
    warranty made in this Section 6(l) does not apply to
    statements made or statements omitted in reliance upon and in
    conformity with written information furnished to the Company by
    the Investor with respect to the Investor expressly for use in
    the Proxy Statement or any amendment thereof.

     
7.     Representations and
Warranties of the Investor. The Investor hereby represents
and warrants to the Company that as of the date hereof (if
applicable) and as of the Exchange Date (if applicable):

		
	 	     
    (a) Authorization. The execution, delivery and
    performance by it of the Transaction Documents and its
    obligations thereunder have been duly authorized; and the
    Transaction Documents and each other document or agreement to be
    executed by the Investor in connection with the execution,
    delivery and performance of the Transaction Documents shall, in
    each case constitute a valid and legally binding obligation of
    the Investor, enforceable against it in accordance with its
    terms, subject to bankruptcy, insolvency, fraudulent transfer,
    reorganization, moratorium and similar laws of general
    applicability, relating to or affecting creditors’ rights
    generally.

9

 

		
	 	     
    (b) Investment Intent. The Investor is acquiring the
    Convertible Note issuable pursuant to the Exchange solely for
    its own account and not with a view to, or for resale in
    connection with, any distribution thereof.
	 
	 	     
    (c) Investor Sophistication. The Investor is an
    “accredited investor” within the meaning of
    Rule 501 of Regulation D under the Securities Act. The
    Investor has such knowledge, skill and experience in business,
    financial and investment matters that it is capable of
    evaluating the merits, risks and consequences of an investment
    in the Convertible Note and the Investor is able to bear the
    economic risk of loss of this investment.
	 
	 	     
    (d) Share Ownership. As of the date of this
    Agreement, Investor owns 3,250,000 shares of Common Stock.
	 
	 	     
    (e) Information Provided for DGCL Opinion. The
    information provided by the Investor to Richards Layton
    regarding the Investor’s ownership of shares of Common
    Stock, in connection with the delivery of the Opinion, was true,
    complete and accurate in all material respects as of the date
    such information was furnished to Richards Layton and is true,
    complete and accurate in all material respects as of the date
    hereof, and the Investor has no other information regarding such
    ownership of shares of Common Stock that could reasonably be
    expected to affect the information provided by the Investor or
    the use of such information in connection with the preparation
    and delivery of the Opinion.
	 
	 	     
    (f) No Fees. Except for fees and expenses of counsel
    to the Investor, including Stroock and Richards Layton, payable
    in accordance with Sections 6(h) and 8 of this Agreement,
    no investment banker, financial advisor, consultant or other
    intermediary is entitled to any fee or commission from the
    Company or any of its subsidiaries for services rendered on
    behalf of the Investor in connection with the transactions
    contemplated by the Transaction Documents.
	 
	 	     
    (g) Restricted Securities. The Investor agrees that,
    at the time of issuance, the Convertible Note to be issued to
    the Investor hereunder will not be registered under the
    Securities Act or qualified under any state securities laws.
    Such securities are being issued on the basis that the Exchange
    and the issuance by the Company of the Convertible Note to the
    Investor are exempt from registration under the Securities Act
    and from applicable state securities laws. The Investor agrees
    that the reliance by the Company on such exemptions is
    predicated, in part, on the Investor’s representations and
    warranties and other agreements set forth in this Agreement. The
    Investor acknowledges and agrees that each certificate
    representing the Convertible Note issued in the Exchange shall
    bear substantially the following legend, as applicable:

		
	 	
    THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
    OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY
    APPLICABLE STATE SECURITIES LAW AND MAY NOT BE TRANSFERRED
    UNLESS (i) THERE IS AN EFFECTIVE REGISTRATION STATEMENT
    UNDER THE SECURITIES ACT OR SUCH APPLICABLE STATE SECURITIES
    LAWS, (ii) PURSUANT TO RULE 144 OF THE SECURITIES ACT
    OR (iii) IN THE OPINION OF COUNSEL REASONABLY ACCEPTABLE TO
    THE ISSUER, REGISTRATION UNDER THE SECURITIES ACT OR SUCH
    APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED IN CONNECTION
    WITH SUCH TRANSFER.
	 
	 	
    THIS SECURITY IS SUBJECT TO FURTHER RESTRICTIONS ON TRANSFER AND
    OTHER CONDITIONS, AS SET FORTH IN THE REGISTRATION RIGHTS
    AGREEMENT AND THE INVESTMENT AND EXCHANGE AGREEMENT BOTH ENTERED
    INTO AS OF THE       TH DAY
    OF
                        ,
    2005, COPIES OF WHICH ARE ON FILE AT THE OFFICE OF THE ISSUER
    AND WILL BE FURNISHED WITHOUT CHARGE TO THE HOLDER OF SUCH
    SECURITY UPON WRITTEN REQUEST.

     
8.     Transaction Expenses. The
Company shall pay all charges and expenses relating to the
transactions contemplated by the Transaction Documents,
including fees and expenses of legal advisors and accountants
incurred by the Company and the Investor and their expenses
incurred in connection with the negotiation,

10

 

structuring, preparation and review of the Transaction Documents
and documents related thereto and the preparation, review or
making of filings and mailings of the Proxy Statement and
obtaining of any approvals from any governmental entity or under
any Law.

     
9.     Warrant Amendment; Option to
Purchase Warrants.

     
(a) The Investor and the Company agree to amend the terms
and conditions of the Warrants in accordance with the Form of
Warrant Amendment attached hereto as Exhibit I.

     
(b) On any date more than 45 days after the Closing
Date, the Investor shall have the option at any time to purchase
from the Company, in whole or in part, and the Company shall
sell to the Investor, warrants to purchase up to
617,211 shares of Common Stock, at: (i) $0.01 per each of
the first 67,084 warrants and (ii) $1.00 per each additional warrant,
allocated among the Investor and its Affiliates as indicated in
writing in the Investor’s notice to elect to purchase such
warrants. Such warrants shall have terms and conditions that are
in accordance with the Form of Post-Closing Warrant attached
hereto as Exhibit K. Within two (2) Business
Days following the date of the Company’s receipt of the
Investor’s notice to elect to purchase such warrants, the
Company shall deliver to the Investor (i) the warrants and
(ii) an opinion of Brown Rudnick Berlack Israels LLP,
outside counsel to the Company, dated as of the date of such
delivery and substantially in the form attached hereto as
Exhibit L.

     
10.     Novartis Payment.

     
(a) In the event that the following shall occur:

		
	 	     
    (1) Novartis does not exercise the Option (pursuant to and
    as defined in the Novartis Agreement) solely as a result,
    directly or indirectly, of the failure by the Company to perform
    its obligations under the Novartis Agreement in accordance
    therewith;
	 
	 	     
    (2) the Option Fee (as defined in the Novartis Agreement),
    together with any other fees payable pursuant to
    Sections 2.2 or 10.5 of the Novartis Agreement (taken
    together, the “Novartis Payment”), becomes due
    and payable; and
	 
	 	     
    (3) immediately after making the Novartis Payment in full
    and without obtaining or receiving any funds from any third
    party prior to such payment, the Company would have less than
    $7.5 million in cash on hand, calculated as of the date of
    termination of the Novartis Agreement;

then immediately upon the Company having knowledge that the
events in clauses (i), (ii) and (iii) above have
occurred, and in any event prior to the Company paying all or
any portion of the Novartis Payment, the Company shall provide
the Investor written notice to such effect, which notice shall
also state the date of termination of the Novartis Agreement and
the deadline for payment of the Option Fee pursuant to the
Novartis Agreement (“Novartis Payment
Deadline”). During the period ending 15 Business Days
after receipt of such notice, the Investor shall in its sole
discretion have the right, but not the obligation, to enter into
a loan agreement with the Company (the “Novartis Payment
Loan”) subject to the following conditions:

		
	 	     
    (i) all the terms and conditions of the Novartis Payment
    Loan shall be substantially similar to the Loan Agreement, the
    related Convertible Note and any other Transaction Documents, as
    applicable for the purposes of updating such documents;
    provided, however, that the conversion price of
    the convertible note pursuant to the Novartis Payment Loan shall
    be the lesser of (x) the dollar value of the Conversion
    Price (as defined in the Convertible Note, a copy of which is
    attached here to as Exhibit B) and (y) 110% of
    the average closing price of the Common Stock for the five
    Trading Days prior to the closing date of the Novartis Payment
    Loan; and
	 
	 	     
    (ii) in the event that any consent or approval, including
    of Stockholders, shall be required in connection with the
    provision of the Novartis Payment Loan, the Company shall use
    its best efforts to obtain such consent or approval, including
    Stockholders’ approval.

     
(b) In the event that the Investor decides not to exercise
its right to enter into the Novartis Payment Loan, it shall
provide written notice to the Company to such effect, and the
Company may thereafter make the Novartis Payment (including by
obtaining financing, as permitted by the Loan Agreement, the
Convertible Note or this Agreement, as the case may be, from any
third party necessary to make such

11

 

payment) in accordance with the Novartis Agreement, and such
payment (and such financing, if any) shall not constitute an
Event of Default (pursuant to and as defined in the Loan
Agreement or the Convertible Note, as the case may be);
provided, however, that if such financing to be
provided by a third party shall be on terms and conditions,
including without limitation interest rate, term and conversion
price, that are better for the financing party than those
proposed pursuant to subparagraph (a)(i) above, the Company
shall, on or prior to 15 Business Days prior to the Novartis
Payment Deadline, provide written notice to the Investor of all
material terms and conditions of such third party proposal, and
the Investor shall have 10 Business Days thereafter to provide
the Company written notice as to whether or not it would provide
financing to the Company on terms and conditions substantially
similar to those offered by such third party and following such
notice the Company shall only enter into a financing transaction
with the Investor. In the event that immediately after making
the Novartis Payment in full and without obtaining or receiving
any funds from any third party prior to such payment the Company
has an aggregate amount of cash on hand equal to or exceeding
$7.5 million, calculated as of the date of termination of
the Novartis Agreement, then the Company may thereafter make the
Novartis Payment (including by obtaining financing, as permitted
by the Loan Agreement, the Convertible Note or this Agreement,
as the case may be, from any third party necessary to make such
payment) in accordance with the Novartis Agreement, and such
payment (and such financing, if any) shall not constitute an
Event of Default (pursuant to and as defined in the Loan
Agreement or the Convertible Note, as the case may be);
provided, however, that any financing by a third
party other than the Investor shall be subject to the preceding
sentence including without limitation the proviso contained
therein.

     
(c) The Company shall not enter into, or agree to amend,
supplement, modify or otherwise change, any agreement,
instrument, commitment, understanding or arrangement that would
adversely affect the ability of the Company to perform its
obligations herein or the ability of the Investor to enter into
the Novartis Payment Loan in accordance with the terms contained
in this Section 10.

     
11.     Miscellaneous.

     
(a) Governing Law; Jurisdiction. This Agreement
shall, pursuant to Sections 5-1401 and 5-1402 of the
General Obligations Law of the State of New York, be construed
and interpreted in accordance with the laws of the State of New
York. The parties hereto irrevocably consent to the jurisdiction
of the United States federal courts and the state courts located
in the County of New York, State of New York located in the
Southern District of the State of New York solely in respect of
any suit or proceeding based on or arising under this Agreement
and irrevocably agree that all claims in respect of such suit or
proceeding may be determined in such courts. The parties hereto
irrevocably waive the defense of an inconvenient forum to the
maintenance of such suit or proceeding. The parties hereto
further agree that mailing of process or other papers in
connection with any such action or proceeding in the manner
provided in the Section on notices below or in such other manner
as may be permitted by law shall be valid and sufficient service
thereof. The parties hereto agree that a final non-appealable
judgment in any such suit or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on such judgment
or in any other lawful manner.

     
(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY
WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE
COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY
HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH
PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS
AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.
EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (I) NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING
WAIVER, (II) EACH PARTY UNDERSTANDS AND HAS CONSIDERED THE
IMPLICATIONS OF THIS WAIVER, (III) EACH PARTY MAKES THIS
WAIVER VOLUNTARILY, AND (IV) EACH PARTY HAS BEEN INDUCED TO
ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL
WAIVERS AND CERTIFICATIONS IN THIS SECTION.

12

 

     
(c) Entire Agreement. This Agreement, the Loan
Agreement, the Note, the Convertible Note, the Registration
Rights Agreement and the Security Agreement (in each case,
including any schedules and exhibits hereto and thereto),
constitute the entire agreement, and supersede all other prior
agreements, understandings, representations and warranties both
written and oral, among the parties, with respect to the subject
matter hereof. EACH PARTY HERETO AGREES THAT, EXCEPT FOR THE
REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS AGREEMENT
(INCLUDING THE EXHIBITS), NO PARTY MAKES ANY OTHER
REPRESENTATIONS OR WARRANTIES, AND EACH HEREBY DISCLAIMS ANY
OTHER REPRESENTATIONS OR WARRANTIES MADE BY ITSELF OR ANY OF ITS
OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, FINANCIAL AND LEGAL
ADVISORS OR OTHER REPRESENTATIVES, WITH RESPECT TO THE EXECUTION
AND DELIVERY OF THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY, NOTWITHSTANDING THE DELIVERY OR DISCLOSURE TO THE OTHER
OR THE OTHER’S REPRESENTATIVES OF ANY DOCUMENTATION OR
OTHER INFORMATION WITH RESPECT TO ANY ONE OR MORE OF THE
FOREGOING.

     
(d) Severability. In case any provision of this
Agreement is declared invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.

     
(e) Notices. All notices and other communications
given to any party hereto pursuant to this Agreement shall be in
writing and shall be delivered, or mailed first class postage
prepaid, registered or certified mail, addressed as follows:

			
	 	(i)	
    If to the Company, to:

		
	 	
    Emisphere Technologies, Inc.
	 	
    765 Old Saw Mill River Road
	 	
    Tarrytown, NY 10591
	 	
    Attention: Chief Executive Officer
	 
	 	
    with a copy to:
	 
	 	
    Brown Rudnick Berlack Israels LLP
	 	
    One Financial Center
	 	
    Boston, MA 02111
	 	
    Fax number: (617) 289-0413
	 	
    Attention: Timothy C. Maguire, Esq.

			
	 	(ii)      	
    If to the Investor, to:

		
	 	
    MHR Fund Management LLC
	 	
    40 West 57th Street, 24th Floor
	 	
    New York, NY 10019
	 	
    Fax number: (212) 262-9356
	 	
    Attention: Hal Goldstein
	 
	 	
    with a copy to:
	 
	 	
    Stroock & Stroock & Lavan LLP
	 	
    180 Maiden Lane
	 	
    New York, NY 10038
	 	
    Fax number: (212) 806-6006
	 	
    Attention: Doron Lipshitz, Esq.
	 	
                     Brett
    Lawrence, Esq.

Each such notice or other communication shall for all purposes
be treated as being effective or having been given when
delivered, if delivered personally, by e-mail or facsimile with
confirmation of receipt or by overnight courier or, if sent by
mail, at the earlier of its actual receipt or three
(3) days after the same has

13

 

been deposited in a regularly maintained receptacle for the
deposit of United States mail, addressed and postage prepaid as
aforesaid.

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

     
(g) Further Assurances. Each party shall do and
perform, or cause to be done and performed, all such further
acts and things, and shall execute and deliver all such other
agreements, certificates, instruments and documents, as the
other party may reasonably request in order to carry out the
intent and accomplish the purposes of this Agreement and the
consummation of the transactions contemplated by the Transaction
Documents.

     
(h) Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties and their
successors and permitted assigns. The Company shall not assign
this Agreement or any rights or obligations hereunder.
Notwithstanding the foregoing, the Investor may assign its
rights hereunder to any of its Affiliates, without the consent
of the Company or to any other person or entity with the consent
of the Company, which consent shall not be unreasonably withheld.

     
(i) Survival. The parties agree that the covenants
and agreements contained in this Agreement and the
representations and warranties of the parties contained in
Sections 6 and 7 shall survive indefinitely,
notwithstanding any due diligence investigation conducted by or
on behalf of the Investor. Moreover, none of the representations
and warranties made by the Company herein shall act as a waiver
of any rights or remedies the Investor may have under applicable
U.S. federal or state securities laws.

     
(j) Indemnification. The Company (the
“Indemnifying Party”) shall indemnify, defend
and hold harmless to the fullest extent permitted by law the
Investor and the Investor’s Affiliates and each of their
respective officers, directors, managers, partners,
stockholders, employees, lenders, advisors, agents and other
representatives and any Affiliate of the foregoing, and each of
their respective successors and permitted assigns and each
Person who controls any of the foregoing, within the meaning of
the Securities Act and the Exchange Act (each, an
“Indemnified Party”), from and against, and
shall promptly reimburse each Indemnified Party for, all
demands, claims, actions or causes of action (whether or not the
Indemnified Party is a party thereto), assessments, losses,
damages, liabilities, costs and expenses, including, without
limitation, interest, court costs and reasonable attorneys’
fees and expenses (including, without limitation, reasonable
expenses of investigation and attorneys’ and
accountants’ fees and expenses in connection with any
action, suit or proceeding, including those incurred upon any
appeal), joint or several, arising or resulting from or in
connection with (x) any misrepresentation or any breach of
any warranty, covenant or agreement contained in this Agreement
or in any of the other Transaction Documents, (y) any claim
or demand for commission or other compensation by any broker,
finder, agent or similar intermediary claiming to have been
employed by the Investor or any of its controlled Affiliates,
(z) the Investor’s holding a lien on the assets of the
Company or its Subsidiaries in accordance with the Security
Agreement or with respect to the execution, delivery,
enforcement, performance and administration of, or in any other
way arising out of or relating to any of the collateral
documents in accordance with the terms thereof with respect to
such lien, or any actions or failures by the Company to act with
respect to any of the foregoing, (xx) any performance by
the Investor of its obligations in accordance with the terms of
the Transaction Documents (collectively, “Indemnified
Liabilities”), except that any such Indemnified
Liability shall be reduced in proportion to the amount (finally
determined by a court of competent jurisdiction) to be
attributable to such Indemnified Party’s gross negligence,
bad faith, or willful misconduct. The rights of the Indemnified
Parties under this Section 11(j) shall be in addition to
(a) any cause of action or similar right of any Indemnified
Party against the Company or other persons, or (b) any
liabilities the Company or any of its Subsidiaries may be
subject to pursuant to any applicable law. In the event that the
transactions described herein are not consummated, or are
otherwise modified or prevented in any way, other than in
accordance with Section 11(n) hereof, the provisions of
this Section 11(j) shall remain and continue to be valid,
legally binding and in full force and effect.

     
(k) Third Party Beneficiaries. Except as provided in
Sections 6(h) and (i), this Agreement is not intended to
confer upon any person other than the parties hereto any rights
or remedies hereunder; provided, however, that
each of the parties hereto acknowledges and agrees that MHR Fund
Management LLC, an

14

 

Affiliate of the Investor, shall have the right to act on behalf
of the Investor for the purposes of this Agreement and in
connection with any of the transactions contemplated hereby at
any time and from time to time.

     
(l) Future Subsidiaries. In the event that on or
after the date hereof, the Company forms or acquires any
Subsidiary(ies), then the terms and conditions of this
Agreement, including without limitation any representation,
warranty, covenant or agreement contained in this Agreement that
shall apply to the Company on or after the date hereof, shall
also apply to such Subsidiary(ies).

     
(m) Publicity. The Company and the Investor each
shall consult with each other prior to issuing any press
releases or making any public statement with respect to this
Agreement or the other Transaction Documents and the
transactions contemplated hereby and thereby and, shall not
issue any such press release or make any such public statement
with respect thereto unless the text of the statement shall
first have been agreed to by the parties hereto.

     
(n) Amendments; Waivers. This Agreement may be
amended or modified only by a written agreement signed by each
of the Company and the Investor. No provision of this Agreement
may be waived except pursuant to a writing signed by each of the
Company and the Investor.

     
(o) Rules of Construction. The table of contents and
headings herein are for convenience of reference only, do not
constitute part of this Agreement and shall not be deemed to
limit or otherwise affect any of the provisions hereof. Where a
reference in this Agreement is made to a Section or Exhibit,
such reference shall be to a Section or Exhibit to this
Agreement unless otherwise indicated. Whenever the words
“include,” “includes” or
“including” are used in this Agreement, they shall be
deemed to be followed by the words “without
limitation.” This Agreement shall be construed as if it is
drafted by all the parties hereto and no presumption or burden
of proof will arise favoring or disfavoring any party by virtue
of authorship of any of the provisions of this Agreement if an
ambiguity or question of intent or interpretation arises. For
purposes of this agreement “knowledge” shall mean,
when applied to a natural person, that such individual has or at
any time had (i) actual knowledge of the item or matter,
(ii) constructive knowledge of the item or matter, either
by operation of law or because the individual, by responsibility
or position, should have conducted a reasonable inquiry which,
if performed, would have likely resulted in such individual
gaining actual knowledge of the item or matter, or
(iii) received written notice of the fact or matter.

     
(p) Injunctive Relief. It is hereby agreed and
acknowledged that it will be impossible to measure in money the
damages that would be suffered if the parties fail to comply
with any of the obligations herein imposed on them and that in
the event of any such failure, an aggrieved Person will be
irreparably damaged and will not have an adequate remedy at law.
Any such Person shall, therefore, be entitled (in addition to
any other remedy to which it may be entitled in law or in
equity) to injunctive relief, including, without limitation,
specific performance, to enforce such obligations, and if any
action should be brought in equity to enforce any of the
provisions of this Agreement, none of the parties hereto shall
raise the defense that there is an adequate remedy at law.

     
(q) Remedies Cumulative. In the event that the
Company fails to observe or perform any covenant or agreement to
be observed or performed under this Agreement, the Investor may
proceed to protect and enforce its rights by suit in equity or
action at law, whether for specific performance of any term
contained in this Agreement or for an injunction against the
breach of any such term or in aid of the exercise of any power
granted in this Agreement or to enforce any other legal or
equitable right, or to take any one or more of such actions,
without being required to post a bond. None of the rights,
powers or remedies conferred under this Agreement shall be
mutually exclusive, and each such right, power or remedy shall
be cumulative and in addition to any other right, power or
remedy, whether conferred by this Agreement or now or hereafter
available at law, in equity, by statute or otherwise.

     
(r) Recovery of Attorneys’ Fees. In any action
or proceeding brought to enforce any provision of this Agreement
or where any provision hereof is validly asserted as a defense,
the successful party shall, to the extent permitted by
applicable law, be entitled to recover reasonable
attorneys’ fees in addition to any other available remedy.

[The Remainder of This Page is Intentionally Left Blank]

15

 

     
IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the day and year first set forth above.

		
	 	
    EMISPHERE TECHNOLOGIES, INC.

			
	 	By: 	
    /s/ Elliot M. Maza

		
	 	
     

	 	
    Name: Elliot M. Maza
	 	
    Title:   Chief Financial Officer
	 
	 	
    MHR CAPITAL PARTNERS (500) LP

			
	 	By: 	
    MHR ADVISORS LLC,

		
	 	
    its General Partner

			
	 	By: 	
    /s/ Hal Goldstein

		
	 	
     

	 	
    Name: Hal Goldstein
	 	
    Title:   Authorized Signatory
	 
	 	
    MHR CAPITAL PARTNERS (100) LP

			
	 	By: 	
    MHR ADVISORS LLC,

		
	 	
    its General Partner

			
	 	By: 	
    /s/ Hal Goldstein

		
	 	
     

	 	
    Name: Hal Goldstein
	 	
    Title:   Authorized Signatory
	 
	 	
    MHR INSTITUTIONAL PARTNERS II LP

			
	 	By: 	
    MHR INSTITUTIONAL ADVISORS II LLC

		
	 	
    its General Partner

			
	 	By: 	
    /s/ Hal Goldstein

		
	 	
     

	 	
    Name: Hal Goldstein
	 	
    Title:   Authorized Signatory
	 
	 	
    MHR INSTITUTIONAL PARTNERS IIA LP

			
	 	By: 	
    MHR INSTITUTIONAL ADVISORS II LLC

		
	 	
    its General Partner

			
	 	By: 	
    /s/ Hal Goldstein

		
	 	
     

	 	
    Name: Hal Goldstein
	 	
    Title:   Authorized Signatory

16<PAGE>
                                                                    EXHIBIT 10.4

                             AMENDMENT TO WARRANT A3

      This Amendment (this "Amendment") is dated as of September 26, 2005 and
amends the Warrant numbered A3, dated as of March 31, 2005 (the "Warrant"),
issued by Emisphere Technologies Inc., a Delaware corporation (the "Company"),
to MHR Capital Partners (100) LP, a Delaware limited partnership ("MHR").

                                   WITNESSETH

      WHEREAS, the Company previously issued to MHR the Warrant to purchase
114,114 shares of common stock of the Company, $0.01 par value per share (the
"Common Stock"); and

      WHEREAS, the Company and MHR hereby wish to amend the terms of the Warrant
pursuant to Section 13(a) of the Warrant on the terms set forth herein.

      NOW, THEREFORE, in consideration of the foregoing premises and for other
good and valuable consideration, the sufficiency of which is hereby
acknowledged, the parties hereby agree as follows:

SECTION I

                            AMENDMENT TO THE WARRANT

      (a) Section 7(e)(i)(A)(1) of the Warrant is hereby amended in the
following manner:

            (i) inserting the phrase "in effect on or prior to September 26,
      2005 and" immediately after the phrase "stock option or stock purchase
      plans or agreements"; and

            (ii) inserting the phrase "and granted, sold or awarded in the
      ordinary course of business and consistent with past practice" after the
      phrase "approved by the Company's Board of Directors" and immediately
      prior to the semicolon.

      (b) Section 7(e)(i)(A)(2) of the Warrant is hereby deleted in its entirety
and replaced with the following:

      for an aggregate consideration (determined pursuant to Section 7(e)(v)
      hereof) of not more than $10,000,000 during any 24-month period;

      (c) Section 7(e)(iv) is hereby amended in the following manner:

            (i) by deleting the word "In" and adding a "(a) Subject to the last
      sentence of subsection (b) below, in ..." at the beginning of the first
      sentence;

            (ii) by deleting the phrase "Exercise Price in effect on the date of
      and" in the fourth line of the first sentence and replacing it with
      "closing price per Share of Common Stock as reported on a publicly traded
      exchange ("MARKET PRICE") on the last full trading day";

<PAGE>

            (iii) by deleting the phrase "Exercise Price" in the tenth line of
      the first sentence and replacing it with "Market Price";

            (iv) by adding the following new subsection after the second
      paragraph of Section 7(e)(iv):

      (b) In the event the Company, at any time while this Warrant is
      outstanding, shall issue Additional Shares of Common Stock (including
      Additional Shares of Common Stock deemed to be issued pursuant to Section
      7(e)(iii)) with a purchase price, conversion price or exercise price,
      respectively, that is less than the Exercise Price in effect immediately
      prior to the time of such issuance or sale, then and in each such case the
      then-existing Exercise Price shall be reduced, as of the close of business
      on the effective date of such issuance or sale, to the lowest purchase
      price, conversion price or exercise price at which any Additional Shares
      of Common Stock were issued or sold. In the event that both subsections
      (iv)(a) and (iv)(b) hereof may apply to any issuance, sale or deemed
      issuance or sale, then only this section (b) shall be deemed to apply to
      such transaction.

      (d) Section 7(j) is hereby amended and replaced in its entirety by the
      following:

                  Notwithstanding anything to the contrary in this Section 7, in
      no event will this Warrant be exercisable for a number of Warrant Shares
      that would cause the Holder's beneficial ownership of the outstanding
      Common Stock, Convertible Securities or Options, together with any
      affiliates of the Holder, to exceed 19.9% of the sum of (a) the number of
      Warrant Shares and (b) the issued and outstanding shares of Common Stock
      of the Company prior to any such exercise. In the event any exercise of
      this Warrant would contravene this provision, the number of shares of
      Common Stock for which this Warrant would otherwise be exercisable shall
      automatically be reduced accordingly.

                                   SECTION II

                                  MISCELLANEOUS

      (a) Ratification. Except as expressly amended hereby, all of the
provisions of the Warrant shall otherwise remain in full force and effect to the
same extent as if fully set forth herein.

      (b) Separate Counterparts. This Amendment may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall constitute but one and the
same instrument.

                                       2
<PAGE>
      IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the day and year first above written.

                                    EMISPHERE TECHNOLOGIES, INC.

                                    By: /s/ Elliot M. Maza
                                        ----------------------------------------
                                        Name: Elliot M. Maza
                                        Title: Chief Financial Officer

                                    MHR CAPITAL PARTNERS (100) LP
                                    By:   MHR Advisors LLC, its general partner

                                         By:/s/ Hal Goldstein
                                            ------------------------------------
                                            Name:  Hal Goldstein
                                            Title: Authorized Signatory

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