Document:

Exhibit 10.32

RESEARCH COLLABORATION OPTION AND LICENSE AGREEMENT

BY AND BETWEEN

EMISPHERE TECHNOLOGIES, INC.

AND

NOVARTIS PHARMA AG

*** - indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission.

	
  
 
  	
  
This   Research Collaboration Option and License Agreement (the “Agreement”),   dated and effective as of December 1, 2004 (the “Effective Date”) is   between Emisphere Technologies, Inc., a Delaware corporation with offices at   765 Old Saw Mill River Road, Tarrytown, New York 10591, USA (“Emisphere”),   and Novartis Pharma AG, a company registered in Switzerland with offices at   Lichtstrasse 35, CH-4056 Basel, Switzerland (“Novartis”) and   Novartis and Emisphere shall each be a “Party” and together the “Parties”.
  
	
  
 
  	
  
 
  
	
  
 
  	
  
WHEREAS,   Emisphere is engaged in the research and development of proprietary synthetic   chemical compounds that enable the delivery of therapeutic macromolecules and   other compounds that are not currently deliverable by oral means; and
  
	
   
  	
  
 
  
	
  
 
  	
  
WHEREAS,   Novartis produces, or is engaged in research to produce, therapeutic   macromolecules and other compounds some of which are not currently   deliverable by oral means; and
  
	
  
 
  	
  
 
  
	
  
 
  	
  
WHEREAS,   subject to the exercise by Novartis of the Option set forth herein, Emisphere   and Novartis desire to collaborate in research regarding the applicability   and development of the Emisphere Technology (as defined below) to a Novartis   development project, and to provide for certain rights and obligations of   Emisphere and Novartis in the event that such research produces a   commercially viable product; and
  
	
  
 
  	
  
 
  
	
  
 
  	
  
WHEREAS,   Emisphere desires to grant to Novartis certain options to obtain license   rights as set forth herein to develop and commercialize Novartis’ products   using the Emisphere Technology.
  
	
  
 
  	
  
 
  
	
  
 
  	
  
NOW,   THEREFORE, in consideration of the mutual promises and agreements contained   herein, and for other good and valuable consideration, the receipt and   sufficiency of which are hereby acknowledged, the Parties agree as follows:
  
	
   
  	
  
 
  
	
  
 
  	
  
ARTICLE 1 DEFINED TERMS
  

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

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

1.3                    “Affiliate” shall mean, with respect to any Person, any other Person which directly or indirectly controls, is controlled by or is under common control with such Person.  A Person shall be

2.

*** - indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission.

deemed to control another Person if such Person possesses the power to direct or cause the direction of the management, business and policies of such Person, whether through the ownership of fifty percent (50%) or more of the voting securities of such Person, voting capacity at management meetings, by contract or otherwise. 

1.4                    “Alliance Manager” shall have the meaning set forth in Article 3.3. 

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

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

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

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

1.9                    “Carrier” means any synthetic chemical compound that allows a drug molecule to be transported within the body and for the avoidance of doubt, shall include *** and Back-up Carriers as supplied by Emisphere to Novartis during the term of the Agreement and without limitation, as set out in Annex B.

1.10                  “Carrier Improvement” shall mean an Invention made pursuant to this Agreement solely by employees or contractors of a Party or jointly by employees or contractors of both Parties that specifically relates to Carriers alone (but for the avoidance of doubt, not to any Compound/Carrier combination). 

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

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

3.

*** - indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission.

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

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

1.15                  “Compound” shall mean synthetic, natural or recombinant parathyroid hormone and/or any of its active fragments, analogues, ***, mimetics, derivatives and/or other variants.

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

1.17                  “Control” in the context of intellectual property, shall mean possession of the ability to grant the license or other access provided for herein without violating the terms of any agreement or other arrangement with a Third Party, subject to the termination of the Lilly Agreement as contemplated in Section 2.1. 

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

1.19                  “Development Budget” shall  mean the budget(s) included in the Development Plan drafted by Novartis for the Development of the Back-up Carrier.

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

	
   
  	
  
(a)       the   direct and indirect internal costs of each Party’s personnel, computed at the   FTE Rate of each Party at cost by those categories of such personnel included   in the Development Plan employed to perform the obligations set out in the   Development Plan;
  
	
  
 
  	
  
 
  
	
  
 
  	
  
(b)       any   subcontract costs, including, the following:
  
	
  
 
  	
  
 
  
	
  
 
  	
  
 
  	
  
(i)          clinical   and pre-clinical studies performed by Third Party investigators engaged by   Emisphere and/or Novartis;
  

4.

*** - indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission.

	
  
 
  	
  
 
  	
  
(ii)         Out-of-Pocket   Costs for other outside professional services;
  
	
   
  	
  
 
  	
  
 
  
	
  
 
  	
  
(c)       the   costs of bulk material and other clinical materials, including the Product,   to the Parties.
  
	
  
 
  	
  
 
  
	
  
 
  	
  
(d)       the   costs of regulatory filings to the extent that such costs are to be   considered Development Costs in accordance with the Accounting Standards;
  
	
  
 
  	
  
 
  	
  
 
  
	
  
 
  	
  
(e)       the   costs for identification, synthesis, qualification and/or validation of bulk   material (details of such costs will be specified in a separate manufacturing   and supply agreement which may be negotiated between the Parties);
  
	
  
 
  	
  
 
  	
  
 
  
	
   
  	
  
(f)       any   other costs directly related to the Development of the Product;
  
	
  
 
  	
  
 
  
	
  
 
  	
  
in each case   incurred by either Party in accordance with the Development Plan and   supported by invoices and actual payments or other appropriate documentation.
  

1.21                  “Development Plan” shall mean each development plan including the related Development Budget developed by Novartis, and Emisphere if necessary, and approved by Novartis for the Development of the Product with a Back-Up Carrier.

1.22                  “Development Plan Carriers” has the meaning provided in Article 3.1.

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

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

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

5.

*** - indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission.

surviving entity) more than fifty percent (50%) of the Voting Stock of Emisphere or such surviving entity immediately after such Transaction; or (iii) approval by Emisphere’s stockholders of a complete liquidation of Emisphere or a sale or disposition of all or substantially all of the assets of Emisphere.  

1.26                  “Emisphere Know-How” shall mean, to the extent Controlled by Emisphere on the Effective Date or during the Term as defined in Section 10.2 (including, without limitation, upon the termination of the Lilly Agreement as contemplated in Section 2.1), Know-How that is necessary for the manufacture, use, Development, sale, offer for sale or importation of the Product, including, without limitation, Inventions owned solely by Emisphere or jointly by Emisphere and a Third Party and for the avoidance of doubt, the production process for a Development Plan Carrier consisting of those chemical transformations, synthetic pathways, operating conditions, solvents, raw materials, intermediates, in-process controls, methods, vendors, and polymorph and salt forming procedures, that have been identified designed, used, developed, made or invented
by Emisphere or its subcontractors, which can be used to produce a Development Plan Carrier or its various *** (the “Emisphere Process”) and all Know-How Controlled by Emisphere in relation to the Compound.

1.27                  “Emisphere Patents” shall mean, to the extent Controlled by Emisphere as of the Effective Date or during the term of this Agreement (including, without limitation, upon the termination of the Lilly Agreement as contemplated in Section 2.1), all Patent Rights that claim the manufacture, use, Development, sale, offer for sale or import of Product, including, without limitation, Inventions owned solely by Emisphere or jointly by Emisphere and a Third Party. 

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

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

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

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

1.32                  “Field” shall mean all indications and uses in the treatment or prevention of human and animal diseases. 

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

6.

*** - indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission.

1.34                  “Formulation” shall mean any pharmaceutical composition containing the Compound in combination with a Development Plan Carrier.

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

1.36                  “FTE Rate” shall mean the annual rate to be payable at US$*** and calculation of the rate of payment for such FTE to be pro-rated on a daily basis (per annum amount to be divided by 200 to produce the rate per whole day consisting of eight hours) if necessary, such rate ($*** per FTE-hour) to include all travel expenses and for the avoidance of doubt, excluding managerial and scientific leading time.

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

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

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

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

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

1.42                  “Impurity Profiling” has the meaning provided in Article 3.4.

1.43                  “Independent Research” means: (a) research by employees or licensees of Novartis who have had no access to Emisphere Know-How; and/or (b) research by employees or licensees of Novartis

7.

*** - indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission.

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

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

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

1.46                  “Know-How” shall mean any and all proprietary unpatented technical information, data, ideas, test results, inventions, instructions, processes, knowledge, techniques, discoveries, formulae, specifications, designs, regulatory filings, and biological or other materials (including, without limitation, biological, chemical, toxicological, physical and analytical, safety, manufacturing and quality control data and information) and other information (whether or not patentable) which are now or hereafter during the Term of this Agreement are owned, licensed (with the right to sublicense) or otherwise held by a Party or its Affiliates related to the Carrier, the Formulation, the Product (including any Product Improvement), or the Development, manufacture, use, or sale thereof.

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

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

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

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

1.51                  “Lilly” shall mean Eli Lilly and Company.

8.

*** - indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission.

1.52                  “Lilly Agreement” shall mean, collectively, the research collaboration and option agreement between Emisphere and Lilly dated June 8, 2000 and the license agreement between Emisphere and Lilly dated April 9, 1998.

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

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

1.55                  “Major Market Country” shall mean each of Japan, China, France, Germany, Italy, Spain, the United Kingdom and the United States.  

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

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

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

	
  
 
  	
  
(i)          normal   and customary trade and quantity discounts actually allowed and properly   taken directly with respect to sales of the Product;
  
	
  
 
  	
  
 
  
	
  
 
  	
  
(ii)         amounts   repaid or credited by reasons of defects, rejection recalls, returns, rebates   and allowances of goods or because of retroactive price reductions   specifically identifiable to the Product;
  

9.

*** - indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission.

	
   
  	
  
(iii)        chargebacks   and other amounts paid on sale or dispensing of such Product;
  
	
  
 
  	
  
 
  
	
  
 
  	
  
(iv)        amounts   payable resulting from Governmental (or agency thereof) mandated rebate   programmes;
  
	
  
 
  	
  
 
  
	
  
 
  	
  
(v)         Third-Party   cash rebates and chargebacks related to sales of the finished Product, to the   extent actually allowed;
  
	
  
 
  	
  
 
  
	
  
 
  	
  
(vi)         tariffs,   duties, excise, sales, value-added and other taxes (other than taxes based on   income);
  
	
  
 
  	
  
 
  
	
  
 
  	
  
(vii)        retroactive   price reductions that are actually allowed or granted;
  
	
   
  	
  
 
  
	
  
 
  	
  
(viii)       cash   discounts for timely payment;
  
	
  
 
  	
  
 
  
	
  
 
  	
  
(ix)         delayed   ship order credits;
  
	
  
 
  	
  
 
  
	
  
 
  	
  
(x)          discounts   pursuant to indigent patient programmes and patient discount programmes,   including, without limitation, “Together Rx” and coupon discounts;
  
	
  
 
  	
  
 
  
	
  
 
  	
  
(xi)         all   freight, postage and insurance included in the invoice price; and
  
	
  
 
  	
  
 
  
	
   
  	
  
(xii)        amounts   repaid or credited for uncollectible amounts on previously sold Products.
  
	
  
 
  	
  
 
  
	
  
 
  	
  
Any of the   items set forth above that would otherwise be deducted from the invoice price   in the calculation of Net Sales but which are separately charged to Third   Parties shall not be deducted from the invoice price in the calculation of   Net Sales.
  
	
  
 
  	
  
 
  
	
  
 
  	
  
a)           Sales   from Novartis to its Affiliates shall be disregarded for purposes of   calculating Net Sales.  In the case of   any sale or other disposal of a Product between or among Novartis and its   Affiliates, licensees and sublicensees, for resale, Net Sales shall be   calculated as above only on the value charged or invoiced on the first   arm’s-length sale thereafter to a Third Party.
  
	
  
 
  	
  
 
  
	
  
 
  	
  
b)           In   the case of any sale which is not invoiced or is delivered before invoice,   Net Sales shall be calculated at the time of shipment or when the Product is   paid for, if paid for before shipment or invoice.
  
	
   
  	
  
 
  
	
  
 
  	
  
c)           In   the case of any sale or other disposal for value, such as barter or   counter-trade, of any Product, or part thereof, other than in an arm’s length   transaction exclusively for money, Net Sales shall be calculated as above on   the value of the non-cash consideration received or the fair market price (if   higher) of the Product in the country of sale or disposal.
  

10.

*** - indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission.

	
  
 
  	
  
d)           In   the event the Product is sold in a finished dosage form containing the   Compound in combination with one or more other active ingredients, and   Novartis has obtained a license to use the Emisphere Technology with the   other ingredients (a “Combination Product”), the Net Sales of the Product,   for the purposes of determining royalty payments, shall be determined by   ***  In the event that such average   sale price cannot be determined for both the Product and the other product(s)   in combination, Net Sales for the purposes of determining royalty payments   shall be agreed by the Parties based on the relative value contributed by   each component, such agreement shall not be unreasonably withheld.
  

1.59                  “Novartis Know-How” shall mean, to the extent Controlled by Novartis on the Effective Date or during the Term, Know-How that is necessary for the manufacture, use, sale, offer for sale or import of the Product, including, without limitation, Inventions owned solely by Novartis or jointly by Novartis and a Third Party.

1.60                  “Novartis Patents” shall mean, to the extent Controlled by Novartis as of the Effective Date or during the Term, any and all Patent Rights that claim the manufacture, use, sale, offer for sale or import of the Compound or the Product, including, without limitation, Inventions owned solely by Novartis and Product Improvements of Novartis and shall include, without limitation, the specific patents and patent applications listed in Schedule [ ].

1.61                  “Option” has the meaning provided in Article 2.1.

1.62                  “Option Fee” has the meaning provided in Article 2.2.

1.63                  “Option Period” has the meaning provided in Article 2.1 .

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

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

11.

*** - indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission.

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

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

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

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

1.70                  “Processing Costs” shall mean those costs for direct labor, costs of equipment, costs of production area overhead, costs of quality assurance, costs of material handling overhead, costs of general factory overhead, costs for utilities and costs for ecology, each to be established on a regular, standard basis. In this standard setting process all relevant costs as mentioned above are determined and all costs shall be based on a standard utilization of equipment. Costs of underutilization or idle capacity costs are not to be included in Processing Costs. Costs of equipment shall be those costs of depreciation or rent of the building accommodating that equipment plus repair and maintenance for the building, and costs for equipment depreciation, and other equipment costs such as costs for repair and maintenance. The building costs
shall be allocated to the equipment using an appropriate key such as space occupied by the equipment. Production area overhead costs shall be those costs for personnel who have a controlling and supervisory function, costs of indirect space shall include those costs for a break room, costs of in-process control, costs of microbiological monitoring of production environment, costs of training of process personnel, costs for utilities and ecology, costs for auxiliary and consumables, costs of shop floor control systems, costs for cleaning of production buildings, and costs of working clothes.  Quality assurance costs shall include those costs of identifying and analyzing the raw materials and intermediates needed for the manufacturing process, costs of finished product control, costs of production support, costs of cleaning validation, costs of EDP for the quality assurance/quality control department, costs of the microbiology department, costs of laboratory infrastructure, costs of quality systems
support and compliance, costs of overheads within the quality assurance/quality control department. Materials handling overhead costs are costs for warehousing and internal transportation of raw material and semi-finished goods, costs of quality control of raw and packaging material, costs of the

12.

*** - indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission.

purchasing department. General factory overhead (“GFO”) costs shall mean costs of plant and production management, costs for ensuring sufficient levels of safety, health and environment such as fire brigade, medical services, documentation for transportation of hazardous goods. Other GFO costs include costs for the scheduling of production, costs of the maintenance of the bills of materials, costs for the technical support, expenses of the plant administration and general services, costs of IT for non-dedicated IT systems such as SAP. Utility costs are costs associated with the consumption of supportive media such as electricity, water, nitrogen, steam, and air. Ecology costs are costs associated with the deposition of solid or liquid waste, purification of effluent water, and purification of waste air.

1.71                  “Product” shall mean a pharmaceutical product, for oral administration only (including translingual, sublingual and buccal forms), containing Compound as the sole pharmaceutical active in combination with the Commercial Carrier, and *** and the like of Compound in combination with the Commercial Carrier.  

1.72                  “Product Improvement” shall mean any enhancement to the Compound in combination with the Commercial Carrier, ingredients, preparation, presentation, dosage, packaging of, manufacture or any new or expanded therapeutic indication for the Product. 

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

1.74                  “Product Trademark” shall mean such trademark(s) for use in connection with the distribution, marketing, promotion and sale of the Product in the Territory and/or accompanying logos, trade dress and/or indicia of origin. 

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

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

13.

*** - indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission.

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

1.78                  “Territory” shall mean all the countries in the world.

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

	
  
 
  	
  
  ARTICLE 2 OPTION AND LICENSE   GRANT
  
	
  
 
  	
  
 
  
	
  
 
  	
  
2.1          The   Option
  
	
  
 
  	
  
 
  
	
  
 
  	
  
As of the   Effective Date, and for the period ending *** after Novartis receives notice   from Emisphere of the occurrence of the later of either:
  
	
  
 
  	
  
 
  
	
  
 
  	
  
 
  	
  
(i)          receipt   by Emisphere of the *** legal judgment in its favour allowing it to   terminate, or affirming its prior termination of, the Lilly Agreement; or
  
	
   
  	
  
 
  
	
  
 
  	
  
 
  	
  
(ii)          ***   settlement or reversion of rights to Emisphere from the Lilly Agreement such   that Emisphere is able to grant the License (as defined below) to Novartis   without infringing the rights of a third party,
  
	
  
 
  	
  
 
  
	
  
 
  	
  
(the “Option   Period”), Emisphere hereby grants to Novartis an option (the “Option”),   exercisable solely at any time during the Option Period, to obtain an   exclusive worldwide license with the ability to sublicense ***, under the   Emisphere Technology and Emisphere’s interest in any Inventions owned jointly   by the Parties and Joint Patent Rights, to Develop or have Developed,   Commercialize, have Commercialized, make, have made, use, or have used Products (the “License”).   The Option may be exercised at any time within the Option Period.  For purposes of clarification, the Option   Period shall not begin, and Novartis shall not have the right to exercise the   Option, until the first to occur of the following: (a) receipt by   Novartis of notification from Emisphere of the receipt by Emisphere of the   *** legal judgment in its favour allowing it to terminate, or affirming its   prior termination of,
the Lilly Agreement; or (b) receipt by Novartis of   notification from Emisphere of *** or settlement or reversion of rights to   Emisphere from the Lilly Agreement such that Emisphere is able to grant the   License (as defined below) to Novartis without infringing the rights of a   third party.
  
	
   
  	
  
 
  
	
  
 
  	
  
If Novartis exercises the Option, and without further   consideration, Emsiphere will, both before and after the end of the Option   Period (but following exercise of the Option by Novartis), do, execute,   acknowledge and deliver or cause to be done, executed, acknowledged or   delivered all such further acts, deeds, documents, assignments, transfers,   conveyances, powers of attorney
  

14.

*** - indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission.

	
  
 
  	
  
and   assurances as may be reasonably necessary to effect complete consummation of   the transactions contemplated by this Agreement and reasonably co-operate with   Novartis, at the cost of Novartis with respect to Emisphere’s documented   Out-Of-Pocket Costs, to the extent that such documents, declarations and/or   co-operation are required for the recording or registration of the License at   the various government offices, including but not limited to, relevant   regulatory agencies and patent offices for the benefit of Novartis, its   Affiliates, its marketing or co-marketing partner(s), or any of its   sublicensee(s).
  
	
  
 
  	
  
 
  
	
  
 
  	
  
Novartis may sublicense the License or any part of it in accordance   with the terms and conditions of this Agreement, and provided, however, that   the terms and conditions of any such sublicense agreement shall not be in   conflict with the terms of this Agreement. Novartis shall use Commercially   Reasonable Efforts to enforce the provisions of such sublicense agreement and   shall remain responsible to Emisphere for the performance of the   sublicensee’s obligations where the sublicence agreement with that   sublicensee has been entered into by Novartis. Novartis shall cause each   sublicensee to execute any and all additional documents to reflect the   conditions set forth in this Agreement and Emisphere shall execute any and   all additional documents reasonably requested by Novartis or a sublicensee to   reflect the conditions set forth in this Agreement.
  

2.2                  The Option Fee.  In consideration of the grant of the Option, Novartis shall pay US$10,000,000 (ten million dollars) to Emisphere governed by the terms of the convertible promissory note between Novartis and Emisphere dated of even date herewith (the “Option Fee”).  In the event that this Agreement shall terminates pursuant to Article 10.4:

	
  
 
  	
  
                    (a)          The   Option Fee shall be fully refundable by Emisphere to Novartis as set forth in   the convertible promissory note between the parties of even date;
  
	
  
 
  	
  
 
  
	
  
 
  	
  
                    (b)          ***
  
	
  
 
  	
  
 
  
	
  
 
  	
  
                    (c)          ***
  
	
   
  	
  
 
  
	
  
 
  	
  
Such amounts   payable by Emisphere pursuant to this Article 2.2 shall be paid within thirty   (30) Business Days of delivery of notice from Novartis  by wire transfer in immediately available   funds to an account or accounts designated in writing by Novartis in such   notice.
  

2.3                  Exercise of the Option.  Novartis may exercise the Option by the delivery of a written notice to Emisphere prior to or by the expiration of the Option Period. 

2.4                  The provisions of Articles 3 – 8 (inclusive) of this Agreement shall come into force and effect only in the event that Novartis exercises the Option set forth in this Article 2.

15.

*** - indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission.

	
  
 
  	
  
ARTICLE 3 DEVELOPMENT
  

3.1                  Development

	
  
 
  	
  
In the event   that Novartis exercises its Option pursuant to Article 2, Novartis shall be   solely responsible for all Development of the Compound in combination with   the Commercial Carrier, including without limitation all pre-clinical and   clinical Development activities.    Novartis (and its local Affiliates where appropriate) shall retain authority   and responsibility for ensuring and maintaining compliance with applicable   Laws.  Emisphere and its Affiliates   shall co-operate and provide to Novartis and its Affiliates any assistance   reasonably required by Novartis for the purposes of obtaining Regulatory   Approvals for the Product without further compensation, but with the   understanding that reasonable expenses that are incurred by Emisphere and as   are previously agreed by Emisphere and Novartis in connection therewith will   be reimbursed by Novartis.
  

3.2                  Carriers

	
  
 
  	
  
Emisphere will make fully available to Novartis such of the Emisphere   Technology as is necessary for Novartis to fully exploit the License   consistent with this Agreement.  This   shall include all information and Know-how with respect to one lead Carrier   (the “Lead Carrier”) and one back-up Carrier (the “Back-Up Carrier”)   that may be used to facilitate transport of the Compound through membranes   (collectively, with the Commercial Carrier, the “Development Plan Carriers”).  The initial Lead Carrier and initial   Back-Up Carrier as of the Effective Date are described in Annex B   hereto, and the Parties may amend Annex B by mutual written agreement   from time to time  to substitute for   the Lead Carrier or the Back-Up Carrier one or more different Carriers.  At any time during the term of this   Agreement, Novartis may, by written notice to Emisphere, designate the
then-current Back-Up Carrier as the Lead Carrier (or Commercial Carrier), in   which event the replaced Lead Carrier (or Commercial Carrier, as applicable)   shall be deemed the Back-Up Carrier, subject to replacement in accordance   with Article 4.1(a).  In the   event of any conflict between the operative terms of this Agreement and Annex   A, the operative terms of this Agreement shall prevail.
  

3.3                  Alliance Management Representatives.  

	
  
 
  	
  
Each Party   shall appoint a central contact person (the “Alliance Manager”) who shall   be  a senior representative having a   general understanding of development, regulatory, and manufacturing   issues.  During the conduct of   Development by Novartis, each Alliance Manager shall be primarily responsible   for facilitating the flow of information and otherwise promoting   communications and collaboration between the Parties and internally within   the Parties.
  

16.

*** - indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission.

3.4                  Supply of Materials

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

3.5                  Carrier Characterization.  

	
  
 
  	
  
As part of   Development, and in the event of a decision by Novartis in its sole   discretion not to proceed with the Development of the Lead Carrier or Back-up   Carrier, Novartis shall be responsible for characterizing in its sole   discretion each replacement Development Plan Carrier at such time as it requests   including conducting ***. Novartis shall be solely responsible for selecting   which Development Plan Carrier (whether the Lead Carrier or Back-up Carrier   or a replacement Development Plan Carrier as selected by Novartis in its sole   discretion as per section 4.1a) is to be Developed for commercial use in   Products after the performance by Novartis of proof of concept clinical   trials in humans (the “Commercial Carrier”). Novartis shall promptly   notify Emisphere of its selection of the Commercial Carrier. Novartis shall   be solely responsible for the profiling of impurities and the separation,   identification and
characterization of impurities present in the Commercial   Carrier, including stress impurity profiling of the Commercial Carrier in   combination with the Compound (the “Impurity Profiling”).
  

3.6                  Carrier Process Development.  

	
  
 
  	
  
(a)                         As   part of the Programme, as identified in attached Annex A, Novartis may at its   sole discretion be solely responsible for the process research, Development   and manufacture of the  Development   Plan Carriers, including the final quality of any required salts.  Novartis shall be solely responsible for   Developing and implementing manufacturing processes, which shall yield   materials of appropriate purity, morphology and stability as required by   Novartis to commercialize the Product. In the event that Novartis does not   elect to be responsible for such activities pursuant to this Article 3.6(a),   it shall notify Emisphere within thirty (30) Business Days of taking such a   decision and request that Emisphere shall be responsible for all such   activities pursuant to this Article
3.6(a).    In the event that Emisphere elects to assume responsibility for such   activities and provided that Emisphere has received such technical   information deemed necessary by both Parties, Emisphere shall provide to   Novartis within thirty (30) Business Days of 
  

17.

*** - indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission.

	
  
 
  	
  
receiving   the Novartis request and technical information, a non-binding budget and plan   for the conduct of such activities, such budget to be fully paid if agreed to   by Novartis on the basis of invoices or reasonable estimates received (the   “Emisphere Proposal”).  Novartis shall   provide all reasonably available information necessary for Emisphere to   prepare such budget.  Novartis shall   have thirty (30) Business Days after receipt of such plan to consider the   Emisphere Proposal and in the event that Novartis does not accept the terms   of the Emisphere Proposal, Novartis may enter into an agreement with a Third   Party for the conduct of such activities.
  
	
  
 
  	
   
 
	
  
 
  	
  
(b)                         Novartis   shall be responsible for scale-up engineering and optimization of the   Development of the Emisphere Process in Novartis facilities. Emisphere will   assist in the physical transfer of the Emisphere Process from Emisphere’s   facilities to Novartis’ facilities.    Emisphere shall provide fully detailed written documentation on the   Emisphere Process to Novartis and will make its staff fully available to   assist in the physical  transfer of   the Emisphere Process as Novartis reasonably requires.  Novartis may conduct reactions using all   steps of the Emisphere Process (including the *** selected by Emisphere) to   validate the technical feasibility of scale-up of the Emisphere Process   solely for the manufacture of the Lead Carrier and Commercial Carrier. 
Novartis shall be responsible for process   development of the Emisphere Process in large scale equipment (***). Novartis   shall make commercially reasonable efforts to minimize the changes to the   Emisphere Process wherever possible during process scale-up.  However, Emisphere recognizes that in   order to develop an economically viable process on the large scale in   Novartis equipment, process development efforts by Novartis may include,   without limitation, making changes in ***.    In no event shall Novartis use or modify the Emisphere Process for the   purpose of manufacturing any Carrier other than a  Development Plan Carrier, except with the prior written   approval of Emisphere, nor shall Novartis use the Emisphere Process for any   purpose other than the Development and Commercialization of Products in   accordance with this Agreement.  The   Parties shall share equally the costs incurred in transferring the Emisphere   Process from Emisphere’s facilities to
Novartis’ facilities.
  
	
   
  	
  
 
  
	
  
 
  	
  
(c)                         Emisphere   agrees that the *** may need to be changed should scale-up problems arise   using the solvents specified by the Emisphere Process. If such *** or ***   issues should arise, Novartis agrees to discuss proposed changes with   Emisphere in advance of any process development effort. If possible, all   proposed changes to the Emisphere Process are to be discussed with Emisphere   in advance of the experimentation. When such discussion is not possible, then   all changes, improvements and process development efforts made by Novartis   will be communicated in a written report to Emisphere in a timely manner.   Novartis shall make Commercially Reasonable Efforts to avoid changes that may   negatively impact the impurity profile of the Emisphere Process. Each   quarter, Novartis agrees to provide
Emisphere with a detailed summary of   activities involving process development and a schedule of the process   optimization and scale-up efforts or production planned for the next calendar   quarter. Novartis shall grant to Emisphere a royalty-free perpetual   non-exclusive license with right to sublicense to all Inventions generated by   Novartis in respect of the Emisphere Process for the purpose of manufacturing   Carriers.
  

18.

*** - indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission.

	
  
 
  	
  
(d)                         Further,   it is recognized that in order to achieve scale-up in a timely manner,   Novartis may generate batches of Lead Carrier or Commercial Carrier or its   salt forms containing new impurities.    Samples from batches of Lead Carrier or Commercial Carrier or its salt   forms will be sent within ten (10) Business Days to a designated person at   Emisphere for analysis.  However,   Novartis will be permitted to also test for impurities in these batches and   will communicate with Emisphere the results of its impurity analysis.  Novartis will not use any *** for any   purpose other than to *** the *** of the *** it generates.  *** of any *** shall be communicated to   Emisphere by Novartis within twenty (20) Business Days of their   identification.
  

          ARTICLE 4  DEVELOPMENT RESPONSIBILITIES

4.1                  Emisphere Participation.

	
  
 
  	
  
(a)                         Novartis   may invite Emisphere to participate, at Emisphere’s own election, in the   conduct of further Development on the Back-up Carrier. In such an event,   Novartis shall deliver to Emisphere a Development Plan within sixty (60)   Business Days of such invitation. Any changes to the approved Development   Plan for the Development of the Back-up Carrier that would require a change   in the approved Development Cost must be reviewed and approved by Emisphere.   The Development Budget shall set forth the estimated Development Costs that   are likely to be incurred in the applicable calendar year for the Back-up   Carrier.  At any time prior to the ***   anniversary of the exercise of the Option by Novartis, Novartis shall be   permitted to make requests to Emisphere for up to ***  Carriers
to replace the Back-up Carrier in   the event of a decision by Novartis in its sole discretion not to proceed   with the Development of the Lead Carrier or Back-up Carrier.  After the earlier of (i) the ***   anniversary of the exercise of the Option by Novartis  or (ii) Emisphere’s provision to   Novartis of *** Carriers after Novartis’ request, Emisphere shall not be   obligated to propose any additional Carriers to Novartis.
  
	
  
 
  	
  
 
  
	
   
  	
  
(b)                         The   Development Plan for the Back-up Carrier shall include time lines, key   decision points, deliverables, responsible parties and priorities for the   various Development activities, associated costs and shall designate which   Party, or whether a Third Party contractor, is to be responsible for each   activity.  In addition to the detailed   Development Plan and Development Budget for a given calendar year, each such   Development Plan and Development Budget shall include an outline of the   projected plan and estimated budget for the next calendar year.  In the case of Development activities to   be performed by a Third Party for the Back-up Carrier, Novartis shall decide   on which Party shall supervise the Third Party’s activities.
  

19.

*** - indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission.

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

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

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

4.5                  Regulatory

	
  
 
  	
  
(a)                         Ownership   of Approvals.  All Approval   Applications, Approvals, supporting documentation and data relating to the   Product shall be the solely owned property of Novartis and shall be treated   by the Parties as Confidential Information.
  
	
  
 
  	
  
 
  
	
  
 
  	
  
(b)                         Regulatory   Status Updates.  Novartis shall be   responsible for preparation of the registration dossier (including without   limitation the expert reports, as well as any foreign language translations   of the dossier) to be used for Approval Applications in the Territory.  On a semi-annual basis following the date   of exercise of the Option, Novartis shall prepare a Regulatory Status Update   which shall set forth the status of all Approval Applications to be submitted   to Regulatory Authorities in connection with the Commercialization of the   Product, including time lines for such submissions.  Each such Regulatory Status Update shall be treated by the   Parties as Confidential Information in accordance with Article 13.1(a).
  
	
   
  	
  
 
  
	
  
 
  	
  
(c)                         Novartis   shall have the sole authority and responsibility for (i) submitting Approval   Applications for the Product, (ii) obtaining and maintaining Approvals for   the Product, and (iii) complying with all regulatory requirements and   reporting obligations to Governmental Authorities relating to the Approvals   for and commercialization of the Product in each country.
  
	
  
 
  	
  
 
  
	
  
 
  	
  
(d)                         Emisphere   shall co-operate and provide to Novartis any assistance reasonably required   for the purposes of obtaining Regulatory Approvals for the Product.
  

4.6                  Co-operation between the Parties

	
  
 
  	
  
(a)                         Data   Sharing.  Emisphere shall provide   to Novartis within one month of its generation or sooner if reasonably   requested by Novartis, copies of all data generated by Emisphere relating to   or intended to support any Approval Application for the Product or any 
  

20.

*** - indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission.

	
  
 
  	
  
Product   Improvement in the Territory (including information related to GMP, GLP   and/or GCP compliance, and health, safety and environmental data concerning   manufacturing plants, in each case to the extent related to the Product),   subject, however, to the provisions of Article 13.2.  Such data, filings and other information   in respect of a Development Plan Carrier, Product and the Formulations as   provided by Emisphere pursuant to this Article shall be treated by the   Parties as Confidential Information belonging to Emisphere in accordance with   Article 13.
  
	
  
 
  	
  
 
  
	
  
 
  	
  
(b)                         Safety Issues. Emisphere shall provide to   Novartis within 48 hours of first receipt, any information concerning the   safety profile of any of the Development Plan Carriers which may indicate a   risk to patients. This shall include any adverse event reports suspected to   be related to the Development Plan Carrier used in connection with any other   active substance. In such an instance, Emisphere shall endeavor to promptly   obtain any additional supporting information reasonably requested by Novartis.
  

          ARTICLE 5  MANUFACTURE AND SUPPLY

5.1                  Manufacture and Supply of Product. 

	
  
 
  	
  
(a)
  	
  
The   Compound, Development Plan Carriers and Product will be manufactured by   Novartis or a Third Party manufacturer of Novartis’ sole choice, the   selection of which shall not be unreasonably withheld by Emisphere unless   Emisphere can reasonably demonstrate that the selected Third Party   manufacturer is considered a technological competitor of Emisphere and   Emisphere would suffer commercially from such selection for such reason   alone. Emisphere may raise objection to a maximum of one Third Party   manufacturer as proposed by Novartis.
  
	
  
 
  	
  
 
  	
  
 
  
	
  
 
  	
  
(b)
  	
  
Any chemical   (not including the Commercial Carrier) or formulation components required by   Novartis for its own manufacture of the Product, Development Plan 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.    Novartis shall have the right to manufacture any Development Plan   Carrier during Development and Commercialization.
  
	
   
  	
  
 
  	
  
 
  
	
  
 
  	
  
(c)
  	
  
From the   fifth anniversary of the Launch of the Product, subject to the following   sentence, Emisphere may itself manufacture up to a maximum of ***% of   Novartis’ needs for the Commercial Carrier only if Emisphere is able to   produce the Commercial Carrier to the same standards of quality and   consistency as Novartis and at a cost acceptable to Novartis.  If Emisphere quotes a verifiable price   that is ***% of the Novartis Fully Burdened Manufacturing Cost with the same   standard of quality and consistency as Novartis, then Emisphere shall be   permitted to manufacture up to ***% of the Novartis Commercial Carrier needs.
  

21.

*** - indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission.

5.2                  Quality Assurance.  

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

          ARTICLE 6  PAYMENT

6.1                  Payments.  

	
  
 
  	
  
(a)                         Responsibilities   of the Parties.  In the event that   Novartis invites Emisphere to participate in the Development and Emisphere   accepts, Novartis shall define the number of FTEs of Emisphere (“Emisphere   FTEs”) for Emisphere to complete Emsiphere’s obligations pursuant to the   Development according to a set time schedule, provided that Emisphere shall   not be required to dedicate more Emisphere FTEs to the Development than   Novartis agrees to fund, and Emisphere agrees to dedicate the FTEs funded to   the Development.  For the avoidance of   doubt, scientific work on or directly related to the Development to be   performed by Emisphere shall consist of experimental laboratory work,   recording and writing up results, reviewing literature and references,   holding
scientific discussions, managing and leading scientific staff, and   carrying out Development management duties or such other activities as may be   appropriate to the conduct of the Development.  Novartis shall pay to Emisphere on a quarterly basis the FTE   Rate  per Emisphere FTE required by   the Development within thirty (30) Business Days of the receipt of an invoice   from Emisphere for such amount as agreed by Novartis.  Emisphere will only invoice Novartis upon   the start of the work under the Development and once every three (3) months   thereafter.
  
	
  
 
  	
  
 
  
	
   
  	
  
(b)                         Payment   of Development Costs.  Commencing   from the date of commencement of participation in Development by Emisphere   and within thirty (30) Business Days following the end of each calendar   quarter during the Term, Emisphere shall deliver to Novartis a written report   (each, a “Development Costs Report”) setting forth in detail with supporting   documentation the Development Costs (if any) incurred by Emisphere (or its   Affiliates) in such calendar quarter and any Development Costs incurred by   Emisphere in a previous
  

22.

*** - indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission.

	
  
 
  	
  
calendar   quarter which were not previously included and accounted for in a prior   Development Costs Report, each subject to reasonable verification and   approval by Novartis (such approval not to be unreasonably withheld. In the   event that Novartis in good faith does not approve such Development Costs,   the Parties shall negotiate in good faith the amount to be paid by   Novartis.  All amounts payable by   Novartis shall be payable within thirty (30) Business Days of receipt by   Novartis of an invoice for the amount as agreed by the Parties.
  
	
  
 
  	
  
 
  
	
  
 
  	
  
(c)                         All   payments by Novartis under this Article 6.1 will be made pursuant to the   receipt of an invoice from Emisphere in the form attached as Annex C.
  
	
   
  	
  
 
  
	
  
 
  	
  
(d)                         Novartis   shall provide Emisphere with written notice of the achievement of each of the   milestone events listed below promptly (and in any event within ten (10)   Business Days) following such achievement.    In consideration of the grant of the License, Novartis shall make the   following payments on the achievement of the milestone events listed below,   where “Initiation” is defined as the first dose given to the first   subject or patient, within thirty (30) days of the receipt by Novartis of the   invoice from Emisphere:
  

	
  
1
  	
  
Upon ***
  	
  
US $***
  
	
  
2
  	
  
Upon ***
  	
  
US $***
  
	
  
3
  	
  
***
  	
  
US $***
  
	
  4
  	
  
***
  	
  
US $***
  
	
  
5
  	
  
On   achievement of ***
  	
  
US $***
  
	
  
6
  	
  
On   achievement of ***
  	
  
US $***
  

	
  
 
  	
  
Should   Novartis not be required to conduct either a *** or a *** for Acceptance of   *** for *** in a Major Market Country, then Milestones 1 ($***) and 2 ($***)   shall be deemed to have been achieved and shall be paid to Emisphere at the   time of the Acceptance of Approval Application for Regulatory Approval in the   United States or ***of the Major Market Countries other than the United   States.  If Milestones 1 and 2 have   been paid, no further payments shall be made pursuant to Milestones 1 and 2   with respect to the remaining Major Market Countries should ***be required in   such countries.
  
	
  
 
  	
  
 
  
	
  
 
  	
  
(e)                         All   amounts payable pursuant to Article 6.1(d) above shall be payable only once   and if paid by Novartis in respect of the Lead Carrier shall be creditable   against payments due in respect of a Back-up Carrier.
  
	
   
  	
  
 
  
	
  
 
  	
  
(f)                         Royalties.  Royalties will be paid to Emisphere on a   quarterly basis  within thirty (30)   Business Days of the receipt by Novartis of an invoice from Emisphere based   on the reports of the annual Net Sales of Product (as provided pursuant to   Article 6.1(g) below) and 
  

23.

*** - indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission.

	
  
 
  	
  
will be   calculated according to the following.    Rates apply to each increment of Net Sales in a given year and are   cumulative throughout the Territory.    Royalty payments under this Article shall be payable on a Product-by-Product   and country-by-country basis until the later of: *** after the date of Launch   of such Product in such country, and (b) the expiration of the last to   expire of the Emisphere Patents claiming the manufacture, use, sale, offer   for sale or import of such Product in such country.
  

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

	
  
 
  	
  
The above   royalty rates shall be *** on a country-by-country basis in the event that   *** or at the Launch of a generic *** product. For the avoidance of doubt,   all royalty amounts payable by Novartis to Emisphere shall be *** In the   event that *** in a quarter exceed *** by Novartis in royalties for that   quarter, such excess shall be carried forward by Novartis to the next quarter   *** payable by Novartis for that quarter.
  
	
  
 
  	
  
 
  
	
  
 
  	
  
(g)                         Reporting   of Net Sales.  Novartis shall   provide to Emisphere quarterly reports detailing its Net Sales (and   adjustments thereto) with respect to the Product.
  
	
  
 
  	
  
 
  
	
   
  	
  
(h)                         Currency   Denomination.With respect to amounts invoiced in United States Dollars,   all such amounts shall be expressed in United States Dollars.  With respect to amounts invoiced in a   currency other than United States Dollars, all such amounts shall be   expressed both in the currency in which the amount was invoiced and in the   United States Dollar equivalent.  The   United States Dollar equivalent shall be calculated using Novartis’   then-current standard exchange rate methodology applied in its external   reporting for the conversion of foreign currency sales into United States   Dollars.
  
	
  
.
  	
  
 
  
	
  
 
  	
  
(i)                         Royalty   Deductions. Anti-stacking provisions will not apply to the calculation of   royalties as noted above, unless it is necessary or useful for Novartis to   acquire a *** royalty-bearing license from a Third Party to patented   intellectual property of such Third Party, in order to use the Emisphere   Technology.  In such event, Novartis   may deduct from the royalties payable to Emisphere pursuant to Article 6.1(f)   above no more than *** of such royalties payable to such Third Party, however   the royalty payable to Emisphere shall not be lower than *** of the amounts   as outlined in the table in Article 6.1(f).
  

24.

*** - indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission.

          ARTICLE 7  BOOKS, RECORDS AND INSPECTIONS; AUDITS AND ADJUSTMENTS

7.1                  Books and Records.

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

7.2                  Audit.

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

7.3                  Audit Rights.

	
  
 
  	
  
(a)                         For   the purpose of the audit rights described herein, the individual Party   subject to an audit in any given year will be referred to as the “Auditee”   and the other Party who has certain and respective rights to audit the books   and records of the Auditee pursuant to this Article 7.3 will be referred to   as the “Audit Rights Holder” .
  
	
  
 
  	
  
 
  
	
  
 
  	
  
(b)                         Each   Party may, upon request and at its expense (except as provided for herein),   cause an internationally-recognized independent  accounting firm selected by it (except one to whom the Auditee   has some reasonable objection) (“Audit Team”) to audit the books and   records of the other Party during ordinary business hours the correctness of   any payment made or required to be made to or by such Party, and any report   underlying such payment (or lack thereof), pursuant to the terms of this   Agreement.  The Audit Team shall   execute an appropriate and customary confidentiality agreement with the   Auditee.
  
	
   
  	
  
 
  
	
  
 
  	
  
(c)                         In   respect of each audit of an Auditee’s books and records, the Audit Rights   Holder must exercise its audit right such that all of the following   conditions are met: (i) each Auditee is audited only once per year by  a single Audit Team  appointed by the Audit Rights Holder, (ii)   no records for any given year for an Auditee may be audited more than once   and (iii) an Audit Rights Holder shall only be entitled to audit books and   records of the Auditee from the *** calendar years prior to the calendar year   in which the audit request is made.
  

25.

*** - indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission.

	
  
 
  	
  
(d)                         In   order to initiate an audit for a particular calendar year, an Audit Right   Holder must provide written notice to the Auditee.  The Audit Rights Holder exercising its audit rights shall   provide the Auditee with notice of one or more proposed dates of the audit   not less than forty-five (45) days prior to the first proposed date.  The Auditee will reasonably accommodate   the scheduling of such audit.  The   Auditee shall provide such audit team with full and complete access to the   applicable books and records and otherwise reasonably co-operate with such audit.
  
	
   
  	
  
 
  
	
  
 
  	
  
(e)                         The   audit report and basis for any determination by an Audit Team under this   Article 7.3 shall be made available for review and comment by the Auditee,   and the Auditee shall have the right, at its expense, to request a further   determination by such Audit Team as to matters which the Auditee disputes (to   be completed no more than thirty (30) days after the first determination is   provided to such Auditee and to be limited to the disputed matters).  If the Parties disagree as to such further   determination, the Audit Right Holder and the Auditee shall mutually select   an internationally-recognized independent accounting firm that shall make a   final determination as to the remaining matters in dispute that shall be   binding upon the Parties.  Such   accountants shall not disclose to
the Audit Rights Holder any information   relating to the business of the Auditee except that which should properly   have been contained in any report required hereunder or otherwise required to   be disclosed to it to the extent necessary to verify the payments required to   be made pursuant to the terms of this Agreement.
  
	
  
 
  	
  
 
  
	
  
 
  	
  
(f)                         If   the audit shows any under-reporting or underpayment, or overcharging by any   Party, the underpaying or overcharging Party shall remit such underpayment or   reimburse such overcompensation (together with interest as provided below   with respect to any underpayment or overcharge) to the underpaid or   overcharged Party(s) within 15 days of receiving the audit report.  Further, if the audit for an annual period   shows an under-reporting or underpayment or an overcharge by any Party for   that period of (i) in excess of *** of the amounts properly determined, the   underpaying or overcharging Party, as the case may be, shall reimburse the   applicable underpaid or overcharged Audit Rights Holder conducting the audit   for its respective audit fees and reasonable out-of-pocket expenses in
connection with said audit, which reimbursement shall be made within fifteen   (15) days of receiving appropriate invoices and other support for such   audit-related costs.
  

26.

*** - indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission.

          ARTICLE 8  INTELLECTUAL PROPERTY

8.1                  Ownership of Intellectual Property

	
  
 
  	
  
(a)                         All   Inventions by Novartis, whether or not patentable, that are (i) generated,   identified, discovered, created or made or reduced to practice solely by its   Affiliates, employees and agents or others acting on its or their behalf   (other than Emisphere) during the term in connection with Novartis’   activities under this Agreement or (ii) owned or controlled by Novartis or   its Affiliates and that are necessary to use, research, develop, seek   regulatory approval, manufacture or sell, including, without limitation,   various chemical and physical forms, formulations, combinations, back-ups,   modes of delivery and methods of use for the Carriers, Compound or Product   developed pursuant to this Agreement (collectively, “Novartis Inventions”)   and all Patents Rights claiming such
Novartis Inventions shall be the   property of Novartis, and Novartis shall be the sole owner of such Novartis   Patents.
  
	
  
 
  	
  
 
  
	
  
 
  	
  
(b)                         Novartis   will bear all expenses incurred in preparing, filing, prosecuting and   maintaining all Novartis Patents.
  
	
   
  	
  
 
  
	
  
 
  	
  
(c)                         All   Inventions by Emisphere, whether or not patentable, that are (i) generated,   identified, discovered, created or made or reduced to practice solely by its   Affiliates, employees and agents or others acting on its or their behalf (other   than Novartis) during the term in connection with Emisphere’s activities   under this Agreement or (ii) owned or controlled by Emisphere or its   Affiliates and that are necessary to use, research, develop, seek regulatory   approval, manufacture or sell, including, without limitation, various   chemical and physical forms, formulations, combinations, back-ups, modes of   delivery and methods of use for the Carriers, developed pursuant to this   Agreement (collectively, “Emisphere Inventions”) and all Patents Rights   claiming such Emisphere Inventions
shall be the property of Emisphere, and   Emisphere shall be the sole owner of such Emisphere Patents.
  
	
  
 
  	
  
 
  
	
  
 
  	
  
(d)                         Emisphere   will bear all expenses incurred in preparing, filing, prosecuting and maintaining   the Emisphere Patents.
  
	
  
 
  	
  
 
  
	
  
 
  	
  
(e)                         In   the event of inventions, discoveries and Joint Patent Rights and Know-How,   information and the like (including, without limitation, data, discoveries,   technical information, patents, patent applications, proprietary information,   trade secrets and inventions) regarding the Carriers being conceived of, and   reduced to practice, during the term of, and as result of this Agreement,   jointly by employees or agents of Emisphere and employees or agents of   Novartis, resulting from Development activities directed towards the Carriers   and which are specifically related to the Formulations shall be jointly owned   by the Parties (“Joint IP”), and each Party shall have a co-exclusive,   worldwide, royalty-free, perpetual license under the interests of the other   Party in such Joint IP to use
such intellectual property and the Parties will   decide at such point in time on the responsibility for filing, maintenance,   defense and prosecution of such Joint Patent Rights. Inventorship and   ownership of patents and patent applications shall be 
  

27.

*** - indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission.

	
  
 
  	
  
determined   according to the patent Laws of the United States of America, 35 U.S.C. § 101   et seq. and the Parties shall agree on which Party shall be responsible for   such Joint IP (the “Controlling Party”).    The Controlling Party provided it agrees to do so, shall undertake   such filings, prosecutions and maintenance and the Parties shall share   equally all reasonable out of pocket expenses and legal fees.  The Controlling Party shall have the   following obligations with respect to the filing, prosecution and maintenance   of patent applications and patents on any such Joint IP:
  
	
  
 
  	
  
 
  
	
  
 
  	
  
          (i)   the Controlling Party shall permit the non-Controlling Party or Parties to   review and comment at least two weeks prior to the filing of any priority   patent application by the Controlling Party;
  
	
  
 
  	
  
 
  
	
  
 
  	
  
          (ii)   the Controlling Party shall notify the non-Controlling Party within 30 days   after the filing of a patent application by the Controlling Party;
  
	
   
  	
  
 
  
	
  
 
  	
  
          (iii)   the Controlling Party shall notify the non-Controlling Party or Parties   within nine (9) months from the filing of the priority application whether   and in which countries it intends to file convention applications;
  
	
  
 
  	
  
 
  
	
  
 
  	
  
          (iv)   the Controlling Party shall provide the non-Controlling Party promptly with   copies of all communications received from or filed in patent offices with   respect to such filings; and
  
	
  
 
  	
  
 
  
	
  
 
  	
  
          (v)   the Controlling Party shall provide the non-Controlling Party, a reasonable   time prior to taking or failing to take action that would affect the scope or   validity of rights under any patent applications or patents (including but   not limited to substantially narrowing or canceling any claim without   reserving the right to file a continuing or divisional application,   abandoning any patent or not filing or perfecting the filing of any patent   application in any country), with notice of such proposed action or inaction   so that the non-Controlling Party has a reasonable opportunity to review and   make comments, and take such actions as may be appropriate in the   circumstances.
  

28.

*** - indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission.

	
  
 
  	
  
In the event   that the Controlling Party materially breaches the foregoing obligations and   such breach is not cured within thirty (30) days of a written notice from the   non-Controlling Party to the Controlling Party describing such breach, or in   the event that the Controlling Party fails to undertake the filing of a   patent application within ninety (90) days of a written request by the   non-Controlling Party to do so the non-Controlling Party may assume the   Controlling Party’s responsibility for filing, prosecution and maintenance of   any such patent application or patent at the non-Controlling Party’s sole   expense, and will thereafter be deemed the Controlling Party for purposes   hereof.  Notwithstanding the   foregoing, either Party may withdraw from or abandon any jointly-owned patent   application or patent hereunder on thirty (30) days prior notice to the other   Party providing a free-of-charge option to assume the prosecution
or   maintenance thereof at its sole expense.
  
	
  
 
  	
  
 
  
	
  
 
  	
  
(f)                         In   the event that Emisphere obtains    Patent Rights on either
  

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

	
  
 
  	
  
then   Emisphere shall grant to Novartis a royalty-free non-exclusive irrevocable   perpetual license to use, manufacture, develop, commercialize (or have such   activities done for it) such Patent Rights in respect of compounds or   products which are the subject of this or other agreements between Novartis   and Emisphere. In the event that Emisphere receives royalties on net sales of   a product relying upon such patent(s), then in consideration of the   assignment, Emisphere shall pay to Novartis a royalty of *** of money   received by Emisphere with respect to each product, the manufacture, use or   sale of which is claimed by such Patent Right(s).
  
	
   
  	
  
 
  
	
  
 
  	
  
                    (g)          Emisphere   grants to Novartis the right of last negotiation for the assignment or   acquisition of the Development Plan Carriers or Commercial Carriers in the   event that during the term of this Agreement, Emisphere elects to assign or   otherwise dispose of its Development Plan Carriers or Commercial Carriers   solely.
  
	
  
 
  	
  
 
  
	
  
 
  	
  
                    (h)          Novartis   shall not use the Emisphere Technology for any purpose other than i) with   Compound as expressly permitted by this Agreement and (ii) with salmon   calcitonin and/or human growth hormone as expressly permitted by valid,   separate written agreements between the Parties or (iii) pursuant to any   other written agreements that may be entered into by the Parties.  For the avoidance of doubt nothing herein   shall prevent employees or agents of Novartis from carrying out Independent   Research and commercializing the results thereof, without any payment to   Emisphere provided that Novartis is not granted any license under Emisphere   Technology or any other intellectual property rights of Emisphere covering   such Independent Research or the results thereof, and
Emisphere shall be   under no obligation to grant any such license.
  

8.2                  Prosecution and Maintenance of Patent Rights

	
  
 
  	
  
(a)                         As   of the date of exercise of the Option, each Party shall be responsible, at   its own expense, for diligently taking all steps necessary to file,   prosecute, maintain and extend its own Patent Rights.
  

29.

*** - indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission.

	
  
 
  	
  
(b)                            Emisphere shall provide Novartis with copies of all of the documents and   communications between Emisphere or Emisphere’s agents and the appropriate   patent offices which are in Emisphere’s patent files directly relating to the   Emisphere Patent Rights.  Emisphere   shall supply Novartis with copies of other documents relating to the   Emisphere Patent Rights which may be in Emisphere’s possession.
  
	
  
 
  	
  
 
  
	
  
 
  	
  
(c)                         Emisphere   agrees that it shall not abandon or narrow the claims of any Emisphere Patent   Rights so that they no longer cover the Development Plan  Carriers, their use or manufacture, in any   country unless it has received written consent to do so from Novartis or   unless any such Patents have been finally rejected and Novartis reasonably   sees no prospect of overcoming such rejection at reasonable cost.
  

8.3                  Enforcement of Patent Rights

	
  
 
  	
  
(a)                         Third   Party Infringement.  If either Party   becomes aware of any activity that such Party believes represents an   infringement of the claims of the Emisphere Patent Rights relating to the   Carriers or any Joint Patent, the Party obtaining such knowledge shall   promptly advise the other of all relevant facts and circumstances pertaining   to the potential infringement. Novartis and Emisphere shall thereafter   consult and co-operate fully to determine a course of action, including but   not limited to, the commencement of legal action to terminate any   infringement of the Emisphere Patent Rights pursuant to the following.
  
	
  
 
  	
  
 
  
	
  
 
  	
  
(b)                         Emisphere   shall have the first right, but no obligation, to initiate and prosecute such   legal proceedings, at its own expense and in the name of Emisphere, and to   control the defense of any declaratory judgment action relating to the   Emisphere Patent Rights; provided, however, that no settlement shall be   entered into by Emisphere without the written consent of Novartis if such   settlement would materially affect Novartis’ interests.  Emisphere shall co-operate with Novartis   in such effort, including being joined as a Party to such action if   necessary.  In deciding whether to   pursue, and in the pursuit of such defense Novartis will use Commercially   Reasonable Efforts.
  
	
   
  	
  
 
  
	
  
 
  	
  
(c)                         If   Emisphere which is entitled to firstly pursue the defense, does not succeed,   within ninety (90) days after receiving notice from Novartis of a potential   infringement of the claims of Emisphere Patent Rights relating to the   Development Plan Carriers or within sixty (60) days after providing Novartis   with notice of such infringement, either in terminating such infringement or,   in instituting an action to prevent continuation thereof, or if Emisphere   notifies Novartis that it does not plan to defend against or terminate the   infringement or to institute any such action, then Novartis shall have the   right to do so at Novartis’ own cost and expense.  In such case, Emisphere shall reasonably co-operate with   Novartis in such effort, including being joined as a Party to such action
if   necessary.
  

30.

*** - indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission.

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

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

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

8.6                  Defense and Settlement of Third Party Claims.

	
   
  	
  
(a)                         If   a Third Party asserts that a patent, trademark or other intellectual   properties owned by it is infringed by the importation, manufacture, use or   sale of the Lead Carrier, the Commercial Carrier or the Back-Up Carrier or if   either Party learns of a claim or assertion that the development,   manufacture, use, marketing, promotion, importation, exportation, offer for   sale, sale or distribution of the Lead Carrier, the Commercial Carrier or the   Back-Up Carrier infringes or otherwise violates the intellectual property   rights of any Third Party, then such Party will promptly notify the other   Party in writing. Novartis has the right, if it so wishes, to be solely   responsible for defending against any such assertions and controlling any   related litigation at its own cost and expense. 
Novartis will have the first right, but not the obligation, to   defend against any such claim at its own expense.  If Novartis does not assume control of such defense, then   Emisphere will have the right to control such defense at its own   expense.  In any event, the Party not   controlling such defense will have the right to be represented in any such   action at its own expense.  The Party   controlling such defense shall keep the other Party advised of the status 
  

31.

*** - indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission.

	
  
 
  	
  
of  such action and shall consider   recommendations made by the other Party in respect thereto.  The Party not controlling such defense   will assist and cooperate in any such infringement litigation at the   defending Party’s reasonable request.    If the Party controlling such defense is not the Party against whom   such action was originally brought, then the Party controlling such defense   will not agree to the settlement of any such action without the prior written   consent of the other Party.
  
	
   
  	
  
 
  
	
  
 
  	
  
(b)                         If   Novartis conducts the defense, Novartis will use Commercially Reasonable   Efforts as to how and whether to defend against such charge of infringement.
  
	
  
 
  	
  
 
  
	
  
 
  	
  
(c)                         Such   application and deduction shall not apply to infringement caused by Novartis’   use of its name, trade name, logo or Novartis Patent Rights or Novartis   Know-How.
  

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

          ARTICLE 9  REPRESENTATIONS AND WARRANTIES

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

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

32.

*** - indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission.

9.3                  Emisphere Representations and Warranties

	
  
 
  	
  All  representations  and warranties of
Emisphere contained in this Agreement shall be true and correct in all respects
(in the case of any warranty containing any materiality qualification) or in all
material respects (in the case of any warranty without any materiality
qualification) on the date hereof and to be restated as of the date of exercise
of the Option, subject to the terms of this Section 9.3. Within five
Business Days of the commencement of the Option Period, Emisphere shall submit
to Novartis for Novartis’ review and comment a draft disclosure document
containing those disclosures that Emisphere wishes to make against the restated
representations and warranties. In the event that in reliance upon such restated
representations and warranties, Novartis elects to exercise its Option and it
informs Emisphere in writing of Novartis’ intention to do so, Emisphere
shall provide to Novartis the disclosure document in the form agreed by the
Parties for the restated representations and warranties (the “Bring Down
Certificate”). The Bring Down Certificate shall be appended to this
Agreement as Annex D. Emisphere represents and warrants to Novartis to the best
of its knowledge as of the Effective Date, subject to disclosure in agreed form
against the representations and warranties in an annex to this Agreement,
that:
 
	
   
  	
  
 
  
	
  
 
  	
  
                    (a)          other   than the litigation of which Novartis has been made aware of by Emisphere as   of the Effective Date and in respect of the Carrier ***, that Emisphere is   not engaged in any litigation or arbitration, or in any dispute or   controversy reasonably likely to lead to litigation, arbitration or other   proceeding, which would materially affect the validity of this Agreement or   such Party’s ability to fulfill its respective obligations under this   Agreement;
  
	
  
 
  	
  
 
  
	
  
 
  	
  
                    (b)          it Controls the entire right,   title and interest in the Emisphere Patents and Emisphere Know-How, free and clear of all   material charges, encumbrances, restrictions, liens, disputes, options,   royalty obligations, proceedings or claims relating to, affecting, or   limiting its rights or the rights of Novartis to Emisphere Patents or Emisphere Know-How under this Agreement;
  
	
  
 
  	
  
 
  
	
  
 
  	
  
                    (c)          the   execution, delivery and performance of this Agreement by Emisphere does not   violate any material law, regulation, orders, judgments or decrees of any   court, governmental body or administrative or other agency having authority   over it nor any other material agreement or arrangement, whether written or   oral, by which it is bound;
  
	
   
  	
  
 
  
	
  
 
  	
  
                    (d)          this Agreement is its   legal, valid and binding obligation, enforceable in accordance with the terms   and conditions hereof (subject to applicable Laws of bankruptcy and   moratorium);
  
	
  
 
  	
  
 
  
	
  
 
  	
  
                    (e)          the   rights granted to Novartis and its Affiliates hereunder do not conflict with   rights granted by Emisphere to any Third Party;
  
	
  
 
  	
  
 
  
	
  
 
  	
  
                    (f)          other than the litigation referred   to in Article 9.3(a), neither Emisphere nor any of its Affiliates has   received any notice concerning the institution or possible institution of any   interference, reexamination, reissue, revocation or nullification involving   any Emisphere Patents or any administrative proceeding challenging the   validity of any Emisphere Patents;
  

33.

*** - indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission.

	
  
 
  	
  
                    (g)          adverse   event reporting has shown that there is no material serious adverse effect   relating to the Emisphere Technology based on the data available at the   execution of the Agreement preventing its use in humans;
  
	
  
 
  	
  
 
  
	
  
 
  	
  
                    (h)          so   far as Emisphere is aware, Emisphere   Technology does not infringe the patent rights or other intellectual   property rights of any Third Party and no Third Party has taken any action   with respect to that Product that infringes Emisphere Technology;
  
	
  
 
  	
  
 
  
	
  
 
  	
  
                    (i)          no   representation or warranty made in this Agreement contains or will contain   any untrue statement of a material fact or omits or will omit to state a   material fact necessary in order to make the statements contained herein or   therein not false or misleading;
  
	
   
  	
  
 
  
	
  
 
  	
  
                    (j)          it   owns or has all necessary licenses or rights within its jurisdiction for the   Territory to the subject matter claimed by the Emisphere Patents, and so far   as it is aware that there are no issued Third Party patents in the Territory   having a valid claim directed to the Carriers, or the manufacture or use of   the Carriers, which would restrict or prevent Novartis’ ability to make, use   and sell the Product;
  
	
  
 
  	
  
 
  
	
  
 
  	
  
                    (k)          ***.
  
	
  
 
  	
  
 
  
	
  
 
  	
  
DISCLAIMER.  EXCEPT AS EXPRESSLY SET FORTH HEREIN, NO   PARTY MAKES ANY EXPRESS OR IMPLIED WARRANTIES, STATUTORY OR OTHERWISE,   CONCERNING THE VALUE, ADEQUACY, FREEDOM FROM INRINGEMENT OF THIRD PARTY   PATENTS, FREEDOM FROM FAULT OF, OTHER QUALITY, EFFICIENCY, STABILITY,   CHARACTERISTICS OR USEFULNESS OF, OR MERCHANTABILITY, OR FITNESS FOR A   PARTICULAR PURPOSE OF, ANY PRODUCT.
  

          ARTICLE 10 TERMINATION

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

10.2                  Expiration.  The term (“Term”) of this Agreement shall expire upon 

	
  
 
  	
  
                    (a)          the   expiration of the Option Period in the event that Novartis does not exercise   the Option within the Option Period or
  

34.

*** - indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission.

	
  
 
  	
  
                    (b)          in   the event that Novartis exercises the Option within the Option Period, upon   the expiration of all royalty payment obligations pursuant to Article 6.1(f).
  
	
   
  	
  
 
  
	
  
 
  	
  
In the event   of expiration of the Agreement pursuant to (b) above, Novartis shall have an   irrevocable, perpetual, non-exclusive royalty-free fully paid license under   Emisphere Technology to Develop, have developed, Commercialize, have   Commercialized make, have made, use or have used Products.
  

10.3                  Termination.  

	
  
 
  	
  
                    (a)          Novartis   may terminate the License at any time immediately in its sole discretion   within sixty (60) calendar days of the fully-analyzed results of preclinical   safety studies or Clinical Trial results becoming available to the Parties if   in Novartis’ sole judgment, the results from such trial do not warrant   further Development by Novartis. This sixty (60) day period will be suspended   if Novartis determines in its sole discretion that further clinical or   non-clinical trials are required, in which case Novartis will be obligated to   perform such further trials.  In such   case, Novartis will have a further sixty (60) days following the availability   to the Parties of the fully analysed results in respect of such further   trials to inform Emisphere of its
decision to terminate this Agreement;
  
	
   
  	
  
 
  
	
  
 
  	
  
                    (b)          This   Agreement may be terminated at any time on mutual written agreement between   the Parties.
  
	
  
 
  	
  
 
  
	
  
 
  	
  
                    (c)          Novartis   may terminate this Agreement pursuant to a decision of Novartis senior   management to terminate this Agreement, at any time with respect to the   Compound or Products upon provision of ninety (90) calendar days prior   written notice.
  
	
  
 
  	
  
 
  
	
  
 
  	
  
                    (d)          Emisphere   may terminate this Agreement, in the event that  Novartis has not used Commercially Reasonable Efforts to   Develop and Commercialize Products (other than as a result of a material   safety, efficacy, regulatory, manufacturing, legal or medical issue or   technical or commercial reasons beyond the reasonable control of Novartis)   and provides Novartis with written notice thereof, and Novartis fails to   reasonably demonstrate, within ninety (90) days of such written notice from   Emisphere, that Novartis is or has begun using such Commercially Reasonable   Efforts; provided, that prior to such termination, at the request of either   Emisphere or Novartis, representatives of Novartis and Emisphere will meet to   discuss the status of Novartis’ efforts with
respect to the Compound and   Products.  In the event that the   Parties are unable to agree on whether Novartis has been exercising its Commercially   Reasonable Efforts within the time schedule allowed, the Parties shall take   the matter resolve the matter in accordance with article 12 of this   Agreement.
  

35.

*** - indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission.

10.4                  In the event that 

          *** then this Agreement shall terminate immediately ***

	
  
 
  	
  
10.5          In   the event that the draft disclosure document or the Bring Down Certificate   delivered by Emisphere pursuant to Article 9.3 discloses a material adverse   change from the representations and warranties made by Emisphere on the   Effective Date and such material adverse change  causes Novartis, in its sole discretion, to no longer be   interested in exercising its Option, Novartis may terminate the Agreement   immediately by written notice to Emisphere given within sixty (60) Business   Days of the date of such draft disclosure document or Bring Down Certificate   (as applicable), and, if Novartis so terminates this Agreement, Emisphere   shall refund to Novartis the Option Fee as set forth in the convertible   promissory note between the Parties of even date, within sixty (60) Business   Days of such termination of this Agreement.
  
	
  
 
  	
  
 
  
	
  
 
  	
  
10.6          Either   Party shall have the right to terminate upon ninety (90) days written notice   if the other Party commits a material breach of this Agreement that is   material to the transactions contemplated by this Agreement taken as a   whole.  Any such notice of breach   shall set forth the details of the alleged breach and the breaching Party   shall have the opportunity to cure the breach during the ninety (90) days   notice period, or with respect to matters not capable of being cured with   ninety (90) days, to initiate steps reasonably expected to cure the breach   during such ninety (90) days period. The non-breaching Party may terminate   the Agreement forthwith in the event that a material breach is incurable.
  

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

	
  
 
  	
  
                    (a)          the   other Party shall file in any court or agency pursuant to any statute or   regulation of any state or country, a petition in bankruptcy or insolvency or   for reorganization or for an arrangement or for the appointment of a receiver   or trustee of the Party or of its assets, or
  
	
  
 
  	
  
 
  
	
  
 
  	
  
                    (b)          if   the other Party proposes a written agreement of composition or extension of   its debts, or
  
	
  
 
  	
  
 
  
	
  
 
  	
  
                    (c)          if   the other Party shall be served with an involuntary petition against it,   filed in any insolvency proceeding, and such petition shall not be dismissed   within sixty (60) days after the filing thereof, or
  
	
   
  	
  
 
  
	
  
 
  	
  
                    (d)          if   the other Party shall propose or be a party to any dissolution or   liquidation, or
  
	
   
  	
  
 
  
	
  
 
  	
  
                    (e)          if   the other Party shall make an assignment for the benefit of creditors.
  

36.

*** - indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission.

10.8                  Bankruptcy.  

	
  
 
  	
  
                    (a)          In   the event that this Agreement is terminated or rejected by Emisphere or its   receiver or trustee under applicable bankruptcy Laws due to Emisphere’s   bankruptcy, then all rights and licenses granted under or pursuant to this   Agreement by Emisphere to the Novartis are, and shall otherwise be deemed to   be, for purposes of Section 365(n) of the U.S. Bankruptcy Code and any   similar Laws in any other country in the Territory, licenses of rights to   “intellectual property” as defined under Section 101(52) of the U.S.   Bankruptcy Code.  The Parties agree   that all intellectual property rights licensed hereunder, including, without   limitation, any patents or patent applications in any country of a party   covered by the license grants under this
Agreement, are part of the   “intellectual property” as defined under Section 101(52) of the Bankruptcy   Code subject to the protections afforded the non-terminating Party under   Section 365(n) of the Bankruptcy Code, and any similar law or regulation in   any other country.
  
	
   
  	
  
 
  
	
  
 
  	
  
                    (b)          For   the avoidance of doubt, in the event of Emisphere being subject to the   operation of Section 365(n) of the U.S. Bankruptcy Code and any similar Laws   in any other country in the Territory, Novartis shall have the right to   continue to use the  Emisphere   Technology as provided in this Agreement and under any agreements   supplementary to this Agreement, access  Confidential Information of Emisphere and prosecute and maintain   all Emisphere Patents and Product-Specific Emisphere Patents as necessary.
  
	
  
 
  	
  
 
  
	
  
 
  	
  
                    (c)          In   the event that Emisphere is subject to the operation of Section 365(n) of the   U.S. Bankruptcy Code and any similar Laws in any other country in the   Territory then Emisphere shall grant to Novartis the right to commence action   against Third Party infringers of the Emisphere Patents and Product-Specific   Emisphere Patents  which Novartis may   exercise in the event that Emisphere fails to commence such action within   seven (7) Business Days of becoming aware of such a Third Party infringer of   the Emisphere Patents and Product-Specific Emisphere Patents.
  

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

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

37.

*** - indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission.

10.11                    Survival of Obligations.  Notwithstanding the expiration or termination of this Agreement, neither Novartis nor Emisphere shall be relieved of any obligations incurred by such Party prior to such termination, and all other provisions which by their nature are intended to survive any such termination, shall survive and continue to be enforceable (including, without limitation, Articles 6.1(g), 6.1(h), 7, 8, 10.8, 10.9, 10.10, 10.11, 12, 13 and 14).  Upon any termination of this Agreement, Novartis and Emisphere shall, and shall ensure that their respective Affiliates, promptly return or destroy (subject to written certification of the latter) to the other Party all written Confidential Information, and all copies thereof, belonging to such other Party; provided that such Party may retain one (1) copy of the
Confidential Information in a secure location for record-keeping purposes only.

10.12                    Effect of Termination.  

	
   
  	
  
                              (a)          Notice   of termination served by a Party upon the other Party shall be binding on the   Parties’ Affiliates.
  
	
  
 
  	
  
 
  
	
  
 
  	
  
                              (b)          Survival   of Liability.  Termination or   expiration of this Agreement shall not relieve the Parties of any obligation   accruing prior thereto and shall be without prejudice to the rights and   remedies of a Party with respect to any antecedent breach of any of the   provisions of this Agreement.
  
	
  
 
  	
  
 
  
	
  
 
  	
  
                              (c)          Return   of Rights.  Notwithstanding the   above,
  
	
  
 
  	
  
 
  
	
   
  	
  
                                            (i)          Novartis   shall upon termination by Novartis pursuant to Article 10.3(a) or 10.3(d) or   termination by Emisphere for unremedied material breach by Novartis pursuant   to Article 10.5, promptly provide Emisphere, at Emisphere’s request with all   Novartis data for the Development Plan Carriers or Commercial Carriers as is   necessary for Emisphere to continue with Development and Commercialisation.
  
	
  
 
  	
  
 
  
	
  
 
  	
  
                                            (ii)          Emisphere   shall upon early termination by Novartis for unremedied material breach by   Emisphere pursuant to Article 10.5, promptly provide Novartis, at Novartis’   request with all Emisphere data for the Development Plan Carriers or   Commercial Carriers as is necessary for Novartis to continue with Development   and Commercialization.
  
	
  
 
  	
  
 
  
	
  
 
  	
  
Effective   upon termination for material breach as per this section, each Party shall,   and it hereby does, grant to the other a non-exclusive, royalty-bearing   license of *** with the right to sub-license under the granting Party’s   interest in the Patent Rights, Know-how, Joint IP and Carrier Improvements to   make, have made, use, sell, have sold, offer for sale or import Products.
  

38.

*** - indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission.

	
  
 
  	
  
                              (d)          Upon   and after termination by Novartis pursuant to Section 10.3, Emisphere may   continue to Develop and/or Commercialize the Product.  Should Novartis be in Control of   Commercial Carrier manufacturing, then Emisphere shall be entitled to   continue purchasing supplies of the Commercial or Lead Carrier, as the case   may be, from Novartis for a period of ***.
  
	
  
 
  	
  
 
  
	
  
 
  	
  
                              (e)          In   all other cases, both Parties and their respective Affiliates shall   immediately cease their activities under this Agreement and shall pay all   sums due and owing to one another and to Third Parties.
  

          ARTICLE 11 INDEMNITY

11.1                   Novartis shall indemnify, defend and hold harmless Emisphere, its affiliates, agents, directors, officers and employees from and against any loss, damage, action, proceeding, expense or liability (including attorney’s fees) (“Loss”) arising from or in connection with (i) the practice by Novartis of any license which may be granted hereunder, (ii) the development, manufacture, use, handling, storage, sale or other disposition of any Product by Novartis, its Affiliates or sublicensees, (iii) Novartis’ gross negligence or willful misconduct, or (iv) the breach by Novartis of any warranty, representation, covenant or agreement made by Novartis in this Agreement, except, in each case, to the extent such Losses result from the gross negligence or willful misconduct of any Emisphere Indemnitee or the
breach by Emisphere of any warranty, representation, covenant or agreement made by Emisphere in this Agreement.

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

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

39.

*** - indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission.

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

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

11.6                   All claims for indemnification (“Indemnity Claims”) by any indemnified party with respect to this Agreement (the “Indemnified Party”) hereunder shall be asserted and resolved as set forth in this Article 11.  In the event that any written claim or demand for which a party (the “Indemnifying Party”) would be liable to any Indemnified Party hereunder is asserted against or sought to be collected from any Indemnified Party by a third party, such Indemnified Party shall promptly, but in no event more than ten (10) days following such Indemnified Party’s receipt of such claim or demand, notify the Indemnifying Party of such claim or demand and the amount or the estimated amount thereof to the extent then feasible (the “Claim Notice”).  All indemnity claims by any Indemnified Party which do
not involve third party claims shall be communicated via a Claim Notice to the other party promptly following discovery of such claim. The failure to provide such notice will not affect any rights under this Agreement except to the extent that the Indemnifying Party is materially prejudiced by such failure.

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

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

40.

*** - indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission.

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

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

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

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

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

41.

*** - indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission.

          ARTICLE 12 DISPUTE RESOLUTION

12.1                   Resolution of Disputes

	
  
 
  	
  
(a)           The   Parties agree that except as specified in Articles 12.2(f), 12.2(i) and   13.1(c) in no event shall any dispute, controversy or claim arising under   this Agreement be the subject of private litigation between the Parties.
  
	
  
 
  	
  
 
  
	
  
 
  	
  
(b)           To   the extent that a dispute, controversy or claim is related to compliance with   the terms of this Agreement, or the validity, breach, termination or   interpretation of this Agreement, such dispute, controversy or claim shall be   resolved in accordance with Article 12.1(c).
  
	
  
 
  	
  
 
  
	
  
 
  	
  
(c)           Each   Party shall have the right to refer any dispute, controversy or claim related   to compliance with the terms of this Agreement, or the validity, breach,   termination or interpretation of this Agreement, to the senior management   within each Party for resolution.  The   senior management shall have thirty (30) days in which to meet in good faith   to resolve the dispute, controversy or claim.  In the event that the senior management of both Parties are   unable to resolve the matter within such thirty (30) days, the dispute,   controversy or claim, shall be promptly submitted to the to the Chief   Executive Officer of Emisphere or its designee and the Global Head of Pharma   Development of Novartis or its designee (together, the “Senior Officers”) for   resolution.  In the event the Senior   Officers are unable to resolve the dispute, controversy or claim within
fifteen   (15) days, such dispute, controversy or claim shall be resolved through   binding arbitration pursuant to Article 12.2.
  

12.2                   Arbitration

	
  
 
  	
  
(a)           In   the event that the Senior Officers are unable to resolve any dispute,   controversy or claim between the Parties referred to them pursuant to Article   12.1(c) arising out of or in connection with compliance with this Agreement,   or the validity, breach, termination or interpretation of this Agreement, the   dispute, controversy or claim (other than a dispute, controversy or claim   relating to patent scope, validity or infringement) shall, at the request of   either Party be finally settled by binding arbitration in accordance with the   then current Rules of Arbitration of the International Chamber of Commerce.
  
	
  
 
  	
  
 
  
	
  
 
  	
  
(b)           The   arbitration panel shall consist of three (3) arbitrators, each of whom must   have legal or business experience in pharmaceutical licensing matters.  The arbitrators are to be selected as   follows: Novartis shall nominate one (1) such qualified arbitrator; Emisphere   shall nominate one (1) such qualified arbitrator; and the two arbitrators so   nominated shall nominate a third such qualified arbitrator, who shall be the   presiding arbitrator, in each case subject to confirmation by the   International Court of Arbitration of the International Chamber of Commerce   (the “ICC Court”).  In the event   either Novartis or Emisphere shall have failed to nominate a qualified   arbitrator as provided above within fifteen (15) days after the other Party   shall have nominated its arbitrator, or the two arbitrators so nominated   shall fail to agree on a third arbitrator as
provided above within thirty   (30) days, the presiding arbitrator shall be appointed by the ICC Court.
  

42.

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(c)           The   place of arbitration shall be New York and the language of the arbitration   shall be English.
  
	
  
 
  	
  
 
  
	
  
 
  	
  
(d)           Except   as otherwise provided in this Agreement, the arbitration procedure set forth   in this Article 12.2 shall be the sole and exclusive means of settling or   resolving any dispute referred to in this Article 12.2.
  
	
  
 
  	
  
 
  
	
  
 
  	
  
(e)           Within   sixty (60) days after the third and presiding arbitrator has been confirmed   by the ICC Court, the Parties shall exchange all documents in their   respective possession that are relevant to the issues in dispute and not   protected from disclosure by attorney-client privilege or other   immunity.  Each Party shall also be   permitted to take sworn oral deposition of individuals, such depositions to   be scheduled by mutual agreement and concluded within forty-five (45) days   after the exchange of documents described above.  At least fifteen (15) days prior to the first scheduled hearing   date, the Parties shall identify the witnesses that they intend to present at   the arbitration hearing and the documentation on which they intend to   rely.  The Parties shall use their   commercially reasonable efforts to conclude the arbitration hearings within   ten (10) months
following the confirmation of the third and presiding   arbitrator.  The arbitrators shall issue   their decision (including grounds and reasoning) in writing no later than   sixty (60) days following the conclusion of the last arbitration hearing.
  
	
   
  	
  
 
  
	
  
 
  	
  
(f)           The   award of the arbitrators shall be final and binding on the Parties and may be   presented by either of the Parties for enforcement in any court of competent   jurisdiction, and the Parties hereby consent to the jurisdiction of such   court solely for purposes of enforcement of this arbitration agreement and   any order or award entered therein.
  
	
  
 
  	
  
 
  
	
  
 
  	
  
(g)           Each   Party shall bear its own attorney’s fees, costs, and disbursements arising   out of the arbitration, and shall pay an equal share of the fees and costs of   the arbitrators; provided, however,   the arbitrators shall be authorized to determine whether a Party is the   prevailing party, and if so, to award to that prevailing Party reimbursement   for its reasonable attorneys’ fees, costs and disbursements and/or the fees   and costs of the arbitrators.
  
	
  
 
  	
  
 
  
	
  
 
  	
  
(h)           Provided   the Agreement has not terminated, the Parties covenant to continue the   performance under the Agreement in accordance with the terms thereof, pending   the final resolution of the dispute.
  
	
   
  	
  
 
  
	
  
 
  	
  
(i)           Notwithstanding   the foregoing, either Party shall have the right to pursue an action in a   court of competent jurisdiction to obtain injunctive or other equitable   remedy.
  

43.

*** - indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission.

          ARTICLE 13 CONFIDENTIALITY

13.1                   Confidentiality

	
  
 
  	
  
(a)                         Each   Party will maintain in strictest confidence, and will ensure that its   Affiliates and its and their consultants, employees, agents and   representatives maintain in strictest confidence, and not publish, use or   disclose for any purpose other than as set forth in this Agreement, all   proprietary and confidential information or materials possessed or developed   which has been or is provided by each Party to the other and whether   developed before or after the Effective Date (“Confidential Information”). For   the avoidance of doubt, Confidential Information shall include, but not be   limited to, information or materials on substances, formulations, technology,   equipment, data, reports, know-how, sources for supply, patent position and   business plans inventions, discoveries,
improvements and methods, business   plans, marketing techniques or plans, manufacturing and other plant designs,   location of operations, and any other information regarding the business   operations of a Party or in relation to Development, manufacture or   Commercialization of any Product hereunder. Each Party agrees that it will   not use for any purpose other than the completion of the Agreement, and will   not publish, disseminate, or disclose, in any manner, to any person not   subject to restrictions of confidentiality at least as strict as those   contained within this Agreement, any Confidential Information, except that a   Party may disclose any portion of the Confidential Information that:   (i) that Party is legally required to disclose, (ii) that Party can   demonstrate by competent evidence has entered or enters the public domain   through no fault of that Party, (iii) that Party can demonstrate by competent   evidence was already known by that Party before receipt from the
disclosing   Party, or is the result of Independent Research by that Party without breach   of this Agreement, in either case as shown by contemporaneous written   records, or (iv) that Party can demonstrate by competent evidence was   received by that Party, without restriction on disclosure, from a Third Party   under no confidentiality obligation to the other Party.
  
	
   
  	
  
 
  
	
  
 
  	
  
(b)                         Standard   of Care.  Each party will use at   least the same standard of care as it uses to protect proprietary or   confidential information of its own to ensure that its employees, agents,   consultants and other representatives do not disclose or make any   unauthorized use of the Confidential Information but in no event less than   reasonable care.  Each Party will promptly   notify the other upon discovery of any unauthorized use or disclosure of the   Confidential Information.  Each Party   shall ensure that any agent, consultant or representative shall only receive   such Confidential Information under restrictions of confidentiality at least   as strict as those contained within this Agreement.
  
	
  
 
  	
  
 
  
	
  
 
  	
  
(c)                         Injunctive   Relief.  Each Party acknowledges   that damages resulting from disclosure of the Confidential Information would   be an inadequate remedy and that, notwithstanding the provisions of Article   12.1(a), in the event of any such disclosure or any indication of an intent   to disclose such information, a Party (or its Affiliates) owning such   information shall be entitled to seek, by way of private litigation,   injunctive relief or other equitable relief in addition to any and all   remedies available at law or in equity.
  

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(d)                         Survival.  The provisions of this Article 13 will   survive for ten (10) years after the termination or expiration of this   Agreement.
  

13.2                   Notwithstanding any other provision of this Agreement, in no event shall Emisphere provide to Novartis any information which is the subject of confidentiality obligations to any Third Party (including, without limitation, Lilly), without the prior written consent of such Third Party.  

          ARTICLE 14 MISCELLANEOUS

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

14.2                   Publications.  

	
  
 
  	
  
                              (a)          Preclinical   - Each Party shall have the right to review and comment on any material   proposed for disclosure or publication by the other Party, such as by oral   presentation, manuscript or abstract, which utilizes data generated from   preclinical development conducted pursuant to this Agreement.  Before any such material is submitted for   publication, the Party proposing publication shall deliver a complete copy to   the other Party at least *** days prior to submitting the material to a   publisher or initiating any other disclosure.  Such reviewing Party shall review any such material and give   its comments to the Party proposing publication within *** days of the   delivery of such material to the
reviewing Party.  With respect to oral presentation materials and abstracts, the   reviewing Party shall make reasonable efforts to expedite review of such   materials and abstracts, and shall return such items as soon as practicable   to the Party proposing publication with appropriate comments, if any, but in   no event later than *** days from the date of delivery to the reviewing   Party.  The Party proposing   publication shall comply with the reviewing Party’s request to delete   references to the reviewing Party’s Confidential Information in any such   material and agrees to delay any submission for publication or other public   disclosure for a period of up to an additional *** days for the purpose of   preparing and filing appropriate patent applications.  Should a Party not wish for its   Confidential Information to be disclosed or published for any reason   (including, but not limited to, its desire to maintain such Confidential   Information as a trade secret),
then the Party proposing publication shall   remove such Confidential Information from the disclosure or publication.
  

45.

*** - indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission.

	
  
 
  	
  
                              (b)          Clinical   – Novartis may in its sole discretion disclose or publish material, such as   by oral presentation, manuscript or abstract, which utilizes data generated   from clinical development conducted pursuant to this Agreement, provided that   Novartis shall not disclose or publish any Confidential Information of   Emisphere without Emisphere’s prior written consent. In any publication or   disclosure  pursuant to this Article   14.2(b), Novartis shall acknowledge Emisphere and the Emisphere Technology   within the publication or disclosure.
  

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

14.4                   Assignment.  

	
  
14.4.1
  	
  
Subject to   Article 10.9, neither this Agreement nor any rights or obligations hereunder   may be assigned or otherwise transferred by Emisphere to a Party which is not   an Affiliate of Emisphere without the prior written consent of Novartis;   provided, however, that Emisphere may assign this Agreement and its rights   and obligations hereunder without Novartis’ consent in connection with the   transfer or sale of all or substantially all of the business of Emisphere to   a Third Party, whether by merger, sale of stock, sale of assets or   otherwise.  Any purported assignment   in contravention of this Article 14.4.1 shall, at the option of Novartis, be   null and void and of no effect.  No   assignment shall release either Party from responsibility for the performance   of any accrued obligation of such Party hereunder.  This Agreement shall be binding upon and enforceable against   the successor to or any permitted assignees of
Emisphere.
  
	
   
 	
   
  
	
  
14.4.2
  	
  
Subject to   Article 10.9, Novartis shall consult with Emisphere prior to an assignment by   it of the rights or obligations hereunder to a Party which is not an   Affiliate of Novartis, however Novartis may assign this Agreement without the   consent of Emisphere. Novartis shall give Emisphere written notice within   five Business Days of such assignment.    No assignment shall release either Party from responsibility for the   performance of any accrued obligation of such Party hereunder.  This Agreement shall be binding upon and   enforceable against the successor to or any permitted assignees of Novartis.
  
	
   
 	
  
 
  
	
  
14.4.3
  	
  
In the event   that an Affiliate to which a Party has assigned any of its rights or   obligations under this Agreement ceases to be an Affiliate of that Party, the   Affiliate shall assign back to that Party all such rights and obligations   prior to it ceasing to be an Affiliate.
  

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

46.

*** - indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission.

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

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

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

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

          to Emisphere:
           Emisphere Technologies, Inc.
           765 Old Saw Mill River Road
           Tarrytown, NY 10591
           Attention: ***
           Telecopy: ***

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

47.

*** - indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission.

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

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

14.10                  No Agency.  It is understood and agreed that Emisphere and Novartis each shall have the status of independent contractors under this Agreement and that nothing in this Agreement shall be construed as authorization for either Party to act as agent for the other.  

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

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

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

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

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

14.16                  Expenses.  Except as otherwise specified in this Agreement, all costs and expenses, including fees and disbursements of counsel, financial advisors and accountants, incurred in connection with this Agreement and the transactions contemplated hereby will be paid by the party incurring such costs and expenses.

48.

*** - indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission.

14.17                  Specific Performance.  The parties hereto agree that irreparable damage would occur in the event any provision of this Agreement were not performed in accordance with the terms hereof and that the parties hereto will be entitled to specific performance of the terms hereof, in addition to any other remedy at law or in equity without the ne cessity of demonstrating the inadequacy of monetary damages and without the posting of a bond.

49.

*** - indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission.

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

	
  
EMISPHERE TECHNOLOGIES, INC.
  
	
  
 
  
	
  
By:
  	
  
/s/ ***
  	
  
 
  
	
  
 
  	
  

  	
  
 
  
	
  
Name:
  	
  
***
  	
  
 
  
	
  
Title:
  	
  
***
  	
  
 
  
	
   
  	
  
 
  	
  
 
  
	
  
NOVARTIS PHARMA   AG
  	
  
 
  
	
  
 
  	
  
 
  	
  
 
  
	
  
By:
  	
  
/s/ ***
  	
  
 
  
	
  
 
  	
  

  	
  
 
  
	
  
Name:
  	
  
***
  	
  
 
  
	
  
Title:
  	
  
***
  	
  
 
  
	
  
Date:
  	
  
December 1,   2004
  	
  
 
  
	
  Location: 
  	
  
Basel
  	
  
 
  
	
  
 
  	
  
 
  	
  
 
  
	
  
By:
  	
  
/s/ ***
  	
  
 
  
	
  
 
  	
  

  	
  
 
  
	
  
Name:
  	
  
***
  	
  
 
  
	
  
Title:
  	
  
***
  	
  
 
  
	
  
Date:
  	
  
December 1,   2004
  	
  
 
  
	
  
Location: 
  	
  
Basel
  	
  
 
  

50.

*** - indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission.

Annex A – The Development Plan

The Development Plan shall include but is not limited to the following activities 

***

*** - indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission.

Annex B

Carrier Structures

Formula and structure for *** Carrier ***

*** - indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission.

Annex C

Sample Invoice

***

*** - indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission.

ANNEX D

AGREED FORM BRING DOWN CERTIFICATE FOR THE RESTATED REPRESENTATIONS AND WARRANTIES OF EMISPHERE TO BE MADE ON THE DATE OF EXERCISE OF THE OPTION BY NOVARTIS

*** - indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission.Exhibit 10.33

	
  
 
  	
  
          THIS   NOTE AND THE SECURITIES UNDERLYING THIS NOTE HAVE NOT BEEN REGISTERED UNDER   THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR   UNDER THE SECURITIES LAWS OF ANY OTHER JURISDICTION, AND MAY NOT BE OFFERED,   SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN   EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE   STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE   REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS.
  
	
  
 
  	
  
 
  
	
  
 
  	
  
No.   1                                                                                                                                  Issuance   Date: December 1, 2004
  

EMISPHERE TECHNOLOGIES, INC.
 Convertible Promissory Note Due December 1, 2009 (this “Note”)

                    FOR VALUE RECEIVED, the undersigned, EMISPHERE TECHNOLOGIES, INC. (the “Issuer”), a Delaware corporation, hereby promises to pay to the order of NOVARTIS PHARMA AG, a corporation organized under the laws of Switzerland (the “Initial Holder”) or its permitted registered assigns, on the Maturity Date (as defined in Section 12 hereof) the principal sum of TEN MILLION DOLLARS ($10,000,000) (as such amount may be reduced from time to time in accordance with Section 2(b) or Section 3(a) hereof), and to pay interest on the unpaid principal amount of this Note at the rate and on the dates specified herein.

          1.       Payment of Interest.  

                    (a)          The Issuer promises to pay interest (the “Interest”) from time to time on the principal amount of this Note at a rate per annum (subject to increase pursuant to Section 1(c) or 1(d) hereof) equal to (i) 3% until the second anniversary of the date hereof, (ii) 5% from and including the second anniversary of the date hereof until the fourth anniversary of the date hereof, and (iii) 7% from and including the fourth anniversary of the date hereof until the Maturity Date (the “Interest Rate”), and in the manner specified below.  If no Event of Default shall have occurred and be continuing, on each Interest Payment Date, Interest shall accrete as additional principal of this Note in an aggregate principal amount equal to the amount of cash Interest
that would otherwise be payable on such Interest Payment Date; provided, however, that (i) on each Interest Payment Date when an Event of Default shall have occurred and be continuing, all Interest then due and payable shall be paid in cash only, (ii) the Issuer may, at its option, elect that the Interest which would otherwise accrete as additional principal of this Note on such Interest Payment Date as provided above shall instead be paid in cash in an aggregate amount equal to the amount of Interest then payable pursuant to this Note and (iii) all interest payable pursuant to Section 1(c) of this Note shall be paid in cash.  All references herein to the “principal” of this Note shall include all Interest accreted thereon pursuant to the foregoing sentence.  The Issuer shall notify the Holder in writing of its election to pay Interest in cash as provided in clause (ii) of the immediately preceding sentence no more than thirty (30) or less than ten (10) days prior to
the relevant Interest Payment Date.  The Interest on this Note shall accrue daily from and including the Issuance Date through and until the repayment of the principal amount of this Note and the payment of all Interest in full, and shall be computed on the basis of a 360-day year of twelve 30-day months, compounded annually.  Interest shall be paid as follows:

*** - indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission.

                    (b)          Basic Interest.  Except as set forth in Section 1(c), Interest shall be payable by the Issuer annually in arrears on each anniversary of the date hereof or, if any such day is not a Business Day, on the next succeeding Business Day (each day on which Interest shall be so payable, an “Interest Payment Date”).  Cash Interest shall be paid by wire transfer of immediately available funds to an account or accounts designated by the Holder(s) in writing.

                    (c)          Subordination Rate of Interest.  If at any time after the date hereof the Issuer shall issue or incur indebtedness which is senior to the indebtedness evidenced by this Note, the outstanding principal amount of this Note (including any accrued Interest that has not yet been accreted to the principal amount pursuant to Section 1(a)) shall, during any period in which such senior indebtedness is outstanding, bear interest (including post-petition interest in any proceeding under applicable bankruptcy or insolvency laws) at a rate that is three percent (3%) per annum in excess of the Interest Rate otherwise payable under this Note pursuant to Section 1(a).

                    (d)          Default Rate of Interest.  Upon the occurrence and during the continuation of any Event of Default, the outstanding principal amount of this Note (including any accrued Interest that has been accreted to the principal amount pursuant to Section 1(a)) shall bear interest (including post-petition interest in any proceeding under applicable bankruptcy or insolvency laws) payable in cash upon demand at a rate that is two percent (2%) per annum in excess of the Interest Rate otherwise payable under this Note pursuant to Section 1(a) and, if applicable, Section 1(c) (the “Default Rate”).  Payment or acceptance of the increased rates of interest provided herein is not a permitted alternative to timely payment and shall not constitute a waiver of any Event of
Default or otherwise prejudice or limit any rights or remedies of the Holder.

          2.       Payments.

                    (a)          Scheduled Payment.  The unpaid principal amount of this Note, plus all accrued Interest thereon shall be due and payable in full on the Maturity Date.

                    (b)          Optional Prepayments.  Subject to Section 3(a), the Issuer may, at any time and from time to time, without premium or penalty, elect to prepay in cash all or a portion of the unpaid principal amount of this Note, together with any accrued and unpaid Interest thereon; provided that the amount of any such prepayment shall be in respect of an amount of unpaid principal of at least One Million Dollars ($1,000,000) or an integral multiple of One Million Dollars ($1,000,000) in excess thereof.  Prior to making any such prepayment, the Issuer shall notify the Holder in writing of such election.

                    (c)          Method of Payment.  The Issuer shall pay the principal amount of this Note, together with accrued and unpaid Interest thereon to the Person who is the Holder of this Note.  The Holder must surrender this Note to the Issuer to collect payments of the principal amount of this Note and any accrued and unpaid Interest thereon.  In the event of payment of only a portion of the unpaid principal amount of this Note, together with the accrued and unpaid

*** - indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission.

Interest thereon, the Issuer shall, following surrender of this Note by the Holder, either issue a new note on the same terms and conditions set forth herein in the amount of the remaining unpaid principal amount and any accrued Interest thereon or return this Note to the Holder with a notation as to the amount of principal amount of this Note and the accrued Interest thereon that was so paid.  Payments of principal and the accrued and unpaid Interest thereon shall be made by wire transfer in immediately available funds to the Holder’s account at a bank specified by such Holder and entered into the Register or, at the option of the Holder at the time of surrender by such Holder of this Note, by check.  The Issuer shall pay the principal amount of this Note, the Accrued Interest and accrued and unpaid interest thereon in money of the United States that at the time of payment is legal tender for payment of public and private debts.

                    (d)          Payment Allocation.  All payments made or to be made pursuant to this Section 2 and Section 6(a) shall be allocated and applied, first, to accrued and unpaid Interest and, second, to the unpaid principal amount of this Note.

                    (e)          Recourse.  This Note, and the payment of the principal amount of this Note and accrued Interest thereon and all other amounts, fees and obligations of the Issuer hereunder, shall constitute a full recourse, and an absolute and unconditional, obligation of the Issuer.

          3.        Conversion; Put Option.

                    (a)          Conversion.  If no Event of Default shall have occurred and be continuing, the Issuer shall have the right, at any time and from time to time prior to the Maturity Date, to cause the conversion, on the date that is five (5) Business Days after delivery of written notice to the Holder, of all or any portion of the principal amount of this Note and any accrued and unpaid Interest thereon into a number of shares of Common Stock of the Issuer equal to the amount obtained when such principal amount and accrued and unpaid Interest to be converted is divided by the Conversion Price; provided that no such conversion shall be permitted or otherwise occur unless, on or prior to the applicable Conversion Date, either (i) a shelf registration statement shall have been declared
effective and shall continue to be effective in accordance with that certain Registration Rights Agreement, dated as of even date herewith between the Issuer and the Initial Holder covering resales of the Conversion Shares issuable upon conversion of this Note or (ii) the Issuer shall have delivered to the Initial Holder a written opinion of legal counsel reasonably satisfactory to the Initial Holder, such opinion to (x) be in form and substance reasonably satisfactory to the Initial Holder and (y) state that all of the Conversion Shares issuable upon such conversion may be sold on the Conversion Date pursuant to Rule 144(k) under the Securities Act; and provided, further that if, after giving effect to the conversion of the principal amount of this Note and accrued and unpaid Interest specified in such notice to be so converted (such amount the “Designated Conversion Amount”), the Initial Holder would become the beneficial owner of issued and outstanding common equity
securities of the Issuer in an amount that exceeds the Ownership Threshold, then the Initial Holder shall have the right (but not the obligation), exercisable upon delivery of written notice to the Issuer at any time prior to the Conversion Date (such notice a “Reduction Notice”), to reduce the principal amount and accrued Interest which the Issuer may require the Initial Holder to convert hereunder to an amount (the “Threshold Amount”) equal to the maximum amount that may be so converted (based on the Conversion Price then in effect) without causing the Initial Holder’s beneficial

*** - indicates material omitted pursuant to a Confidential
Treatment Request and filed separately with the Securities and Exchange Commission.

ownership of equity securities of the Issuer to exceed the Ownership Threshold (after giving effect to such conversion).  The amount equal to the excess of the Designated Conversion Amount over the Threshold Amount (such excess being referred to herein as the “Threshold Reduction Amount”) shall continue to remain outstanding as principal or accrued and unpaid Interest, as applicable, for all purposes of this Note (and any such accrued and unpaid Interest shall accrete as additional principal of this Note in accordance with the provisions of Section 1 hereof); provided, however, that (i) from and after the applicable Conversion Date, Interest shall cease to accrue hereunder on the Threshold Reduction Amount and (ii) the Initial Holder shall have the right, at any time prior to the Maturity Date, to require the Issuer to convert, on the date that is five (5) Business Days after delivery of written notice of such request to the
Issuer, all or any portion of the Threshold Reduction Amount into a number of shares of Common Stock of the Issuer equal to the amount obtained when the portion of the Threshold Reduction Amount requested to be so converted is divided by the Conversion Price then in effect.

                    (b)          Conversion Procedure. 

	
  
 
  	
  
                        (i)          On   or before the Conversion Date, the Holder shall surrender this Note to the   Issuer and on the Conversion Date the Issuer shall (x) cause an appropriate   notation to be made in the Issuer’s share register crediting the Holder’s   account in an amount equal to the number of full Conversion Shares issuable   upon the conversion and shall cause, as soon as practicable thereafter, a   certificate for such shares to be issued to the Holder and (y) deliver cash   in lieu of any fractional shares determined pursuant to paragraph (c) of this   Section 3.
  
	
   
  	
  
 
  
	
  
 
  	
  
                        (ii)         If   this Note is converted in part only, upon such conversion the Issuer shall   execute and deliver to the Holder converting this Note, at the expense of the   Issuer, a new note or notes in the aggregate principal amount equal to the   unconverted portion of the principal amount of this Note.
  
	
  
 
  	
  
 
  
	
  
 
  	
  
                        (iii)        Upon   conversion of this Note, the Issuer shall be forever released from all of its   obligations and liabilities under this Note with regard to that portion of   the principal amount and accrued and unpaid interest so converted, including,   without limitation, the obligation to pay such portion of the principal   amount and accrued and unpaid interest.
  

                    (c)          Fractional Shares.  The Issuer shall not be required to issue any fractional Conversion Shares upon conversion of this Note.  The number of full Conversion Shares which shall be issuable upon conversion pursuant to this Section 3 shall be computed on the basis of the aggregate principal amount of this Note (together with any accrued Interest thereon) or any portion thereof (as the case may be) so converted divided by the Conversion Price then in effect.  Instead of any fractional share of Common Stock which would otherwise be issuable upon conversion of this Note or a portion hereof, the Issuer shall pay a cash adjustment in respect of such fraction in an amount equal to the fraction multiplied by the Conversion Price.

                    (d)          Taxes on Conversion.  The Issuer will pay all taxes and other governmental charges (including all documentary stamp taxes, but excluding all foreign, federal, state or local income taxes payable by a Holder) in connection with the issuance or delivery of

*** - indicates material omitted pursuant to a Confidential
Treatment Request and filed separately with the Securities and Exchange Commission.

Conversion Shares pursuant to this Section 3.  The Issuer shall not, however, be required to pay any tax that may be payable in respect of any subsequent transfer of Conversion Shares or any transfer involved in the issuance and delivery of Conversion Shares in a name other than that in which this Note to which such issuance relates were registered and, if any such tax would otherwise be payable by the Issuer, no such issuance or delivery shall be made unless and until the Person requesting such issuance has paid to the Issuer the amount of any such tax, or it is established to the reasonable satisfaction of the Issuer that any such tax has been paid.

                    (e)          Availability of Conversion Shares.  At any time that this Note is convertible the Issuer shall use its commercially reasonable efforts (which for purposes of this Section 3(e) shall include taking any and all corporate action necessary to increase the authorized capitalization of the Issuer, including submitting the matter of any such required increase to a vote of the stockholders of the Issuer and using its commercially reasonable efforts to procure the affirmative vote of the stockholders in favor of such increase) to reserve and keep available out of its authorized but unissued Common Stock, or shares of Common Stock held in treasury, for the purpose of effecting the conversion of this Note, a sufficient number of shares of Common Stock to permit the issuance of a
sufficient number of Conversion Shares upon the conversion of this Note.  All Conversion Shares credited on the share register upon conversion of this Note shall be newly issued shares, shall be duly and validly issued and fully paid and nonassessable and shall be free from preemptive rights (other than those imposed by law or regulation) and free of any lien or adverse claim created by the Issuer or which the Issuer suffers to exist.

                    (f)          Put Option.  

	
  
 
  	
  
                        (i)          If   there shall have occurred ***, then the Holder shall, upon giving written   notice to the Issuer at any time within six (6) months of such Acceleration   Event (the “Put Notice”), be entitled to sell and the Issuer shall be   obligated to purchase from the Holder all or any portion of the Conversion   Shares or such other securities, assets or property as the Holder may have   received as a result of an Issuer Liquidation Event (any such Conversion   Shares, other securities, assets or property, the “Put Securities”)   held by the Holder at the Put Option Purchase Price (as defined in Section 12   hereof).
  
	
  
 
  	
  
 
  
	
  
 
  	
  
                        (ii)         The   Put Notice shall specify (x) that the Holder is exercising its option,   pursuant to this Section 3(f), to sell to the Issuer the Put Securities and   (y) the number of  the Put Securities   being sold.
  
	
   
  	
  
 
  
	
  
 
  	
  
                        (iii)        The   Issuer shall be obligated to purchase all of the Put Securities specified in   the Put Notice and shall pay the Put Option Purchase Price to the Holder in   immediately available funds on the date specified in the Put Notice (the “Put   Option Closing Date”), against delivery by the Holder of any and all   certificates or other instruments evidencing the Put Securities specified in   the Put Notice, together with appropriate stock powers or other instruments   of transfer or assignment duly endorsed in blank.  The Holder shall execute and deliver to the Issuer any   agreements or documents reasonably required by the Issuer to consummate the   transaction and to effect the put pursuant to this Section 3(f), and shall   represent and warrant to
the Issuer that the Put Securities stated in the Put   Notice are free and clear of any and all liens and encumbrances of any type   or nature.
  

*** - indicates material omitted pursuant to a Confidential
Treatment Request and filed separately with the Securities and Exchange Commission.

	
  
 
  	
  
                        (iv)        If   the Holder shall have exercised its put option to sell to the Issuer only a   portion of the Put Securities held by the Holder, upon such sale the Issuer   shall execute and deliver to the Holder, at the expense of the Issuer, a new   certificate or other instrument evidencing any Conversion Shares or other   securities, assets or property as the Holder may have received as a result of   an Issuer Liquidation Event not sold pursuant to this Section 3(f).
  

          4.       Transfers.

                    (a)          Register of Holders.  The Issuer shall keep at its principal office a register (the “Register”) in which shall be entered the name, address and bank account of the registered Holder of this Note and of all transfers and exchanges of this Note.  References herein to “Holder” shall mean the Person listed in the Register as the payee of this Note unless the payee shall have presented this Note to the Issuer for transfer and the transferee shall have been entered in the Register as a subsequent Holder, in which case the term shall mean such subsequent Holder.  The ownership of this Note shall be proven by the Register.  For the purpose of paying the principal amount of this Note and any accrued Interest thereon, the Issuer shall be
entitled to rely on the name, address and bank account in the Register.  Notwithstanding anything to the contrary contained in this Note, no Event of Default shall occur under Section 6 hereof if payment of the principal amount of this Note and all accrued Interest thereon is made to, and in accordance with, the name and address and other particulars contained in the Register.

                    (b)          This Note shall be freely assignable, in whole or in part, by a Holder (i) to any of its Affiliates at any time and (ii) after the occurrence of an Event of Default, to any Person, in each case without the consent of the Issuer.

          5.       Covenants. 

                    (a)          For so long as any portion of the principal amount of this Note or any accrued and unpaid Interest thereon remains outstanding, the Issuer shall not (i) pay any dividend or otherwise make any distribution, directly or indirectly, in respect of any shares of its capital stock, other than such dividends or distributions payable solely in shares of its capital stock or (ii) except to any employee or former employee of the Issuer upon the death, disability or termination of such employee pursuant any employee stock incentive plan of the issuer or employment agreement with such employee of the Issuer, in each case as in effect on the date hereof and in an aggregate amount not to exceed $2,000,000, make any payment, directly or indirectly, on account of the purchase, redemption, retirement
or acquisition of any shares of its capital stock, or any option, warrant or other convertible or exchangeable security or other right to acquire shares of its capital stock.  

                    (b)          For the avoidance of doubt, nothing contained in this Section 5 shall prohibit the Issuer from paying when due, or prepaying, in accordance with the terms thereof or on terms more favorable to the Issuer, any amounts outstanding under that certain Zero Coupon Note due July 2, 2006 made by the Issuer in favor of Elan International Services, Ltd.  The Initial Holder hereby acknowledges and agrees that the Issuer may issue or incur indebtedness after the date hereof that is senior to the indebtedness evidenced by this Note and, subject to Section 1(c)

*** - indicates material omitted pursuant to a Confidential
Treatment Request and filed separately with the Securities and Exchange Commission.

hereof, the Initial Holder shall consent to any request by the Issuer to provide that this Note shall be expressly subordinated to any such indebtedness, whereupon the right of the Holder hereof to any current payment shall be subordinated to the right of the senior lenders to the prior payment in full of the Issuer’s obligations to such senior lenders.

          6.       Events of Default.

                     (a)          Events of Default; Remedies.  If, at any time that this Note shall be outstanding, any of the following events (herein called “Events of Default”) shall have occurred and be continuing (whatever the reason for such Event of Default and whether it shall be voluntary, involuntary, by operation of law or otherwise):

	
  
 
  	
  
                        (i)          the   Issuer shall have defaulted in the due and punctual payment of all or any   part of the principal amount of this Note or Accrued Interest on the Maturity   Date;
  
	
   
  	
  
 
  
	
  
 
  	
  
                        (ii)         a   trustee, custodian or receiver shall have been appointed for the Issuer, any   of its Affiliates, or any of their respective assets, or the commencement of   bankruptcy, reorganization, insolvency or liquidation proceedings shall have   occurred with respect to the Issuer or any of its Affiliates, other than an   involuntary proceeding which is dismissed, terminated, bonded or stayed   within thirty (30) days after it is commenced;
  
	
  
 
  	
  
 
  
	
  
 
  	
  
                           (iii)        a material breach by the   Issuer of the representations and warranties of the Issuer contained herein   as of the date such representations and warranties are made;
  
	
  
 
  	
  
 
  
	
  
 
  	
  
                           (iv)        the Issuer shall have   failed to perform or observe any of the agreements contained herein (other   than those agreements covered by clause (i) of this Section 6(a)), and any   such failure shall not have been remedied within thirty (30) days after the   Initial Holder delivers notice thereof to the Issuer;
  
	
   
  	
  
 
  
	
  
 
  	
  
                           (v)         there shall have   occurred an event of default that has not been cured within any applicable   cure or grace period or any acceleration of indebtedness under any other   current or future debt arrangement of the Issuer, in any such case involving   payments by the Issuer in an amount greater than $***, individually or in the   aggregate;
  
	
  
 
  	
  
 
  
	
  
 
  	
  
                           (vi)        a final judgment or final   judgments for the payment of money aggregating $*** are entered by a court or   courts of competent jurisdiction against the Issuer which remains   undischarged for a period (during which execution shall not be effectively   stayed) of thirty (30) days; or
  
	
  
 
  	
  
 
  
	
  
 
  	
  
                           (vii)       there shall have occurred any   Acceleration Event;
  

then the unpaid principal amount of this Note and all accrued and unpaid Interest thereon shall automatically become immediately due and payable without presentment, demand, notice, protest or other requirements of any kind, all of which are hereby expressly waived.

*** - indicates material omitted pursuant to a Confidential
Treatment Request and filed separately with the Securities and Exchange Commission.

                    (b)          Suits for Enforcement.  If any Event of Default shall have occurred and be continuing, the Holder may proceed to protect and enforce its rights, either by suit in equity or by action at law, or both, whether for the specific performance of any covenant or agreement con-tained in this Note or in aid of the exercise of any power granted in this Note, or the Holder may proceed to enforce the payment of all sums due upon such Note or to enforce any other legal or equitable right of the Holder.  The Issuer shall indemnify and hold the Holder harmless from any and all costs and expenses (including costs of collection and reasonable attorneys’ fees) incurred by the Holder in connection with its enforcement of the payment of all sums due under this Note.

                    (c)          Remedies Cumulative.  No remedy herein conferred upon the Holder is intended to be exclusive of any other remedy and each and every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute or otherwise.

                    (d)          Remedies Not Waived.  No course of dealing between the Issuer and the Holder and no delay or failure in exercising any rights under this Note in respect thereof shall operate as a waiver of any rights of the Holder.

          7.       Modification of this Note.  The terms and provisions of this Note may not be modified without the written consent of the Holder and the Issuer.  

          8.       Miscellaneous. 

                    (a)          This Note shall be deemed to be a contract under the laws of the State of New York, and for all purposes shall be construed in accordance with the laws of said State.  The parties hereto hereby waive presentment, demand, notice, protest and all other demand and notices in connection with the delivery, accep-tance, performance and enforcement of this Note, except as specifically provided herein.

                    (b)          All notices and other communications given or made pursuant to this Note shall be in writing and shall be deemed to have been duly given or made (i) the second Business Day after the date of mailing, if delivered by registered or certified mail, post-age prepaid; (ii) upon delivery, if sent by hand delivery; (iii) upon delivery, if sent by prepaid courier, with a record of receipt; or (iv) the next day after the date of dispatch, if sent by facsimile or telecopy (with a copy simultaneously sent by registered or certified mail, postage prepaid, return receipt requested), to the parties at the following addresses:

if to the Issuer, to:

                    EMISPHERE TECHNOLOGIES, INC
                     765 Old Saw Mill River Road 
                     Tarrytown, New York 10591
                     Attention:  ***
                     Telephone:  ***
                     Fax:  ***

                    with a required copy (which shall not constitute notice) to:

                    Proskauer Rose LLP

*** - indicates material omitted pursuant to a Confidential
Treatment Request and filed separately with the Securities and Exchange Commission.

                    1585 Broadway
                     New York, New York 10011
                     Attention: ***
                     Telephone:  ***
                     Fax: :  ***

                    if to the Initial Holder to:

                    NOVARTIS PHARMA AG
                    Lichtstrasse 35
                    CH-4002
                    Basel, Switzerland
                    Attention:  General Counsel
                    Telephone:  ***

                    Facsimile:   ***

                    with a required copy (which shall not constitute notice) to:

                    White & Case LLP
                     1155 Avenue of the Americas
                     New York, New York  10036
                     Attention:  ***
                     Telephone:  ***
                     Fax:  ***

          Any party hereto may change the address to which notice to it, or copies thereof, shall be addressed, by giving notice thereof to the other party hereto in conformity with Section 8(b).

          9.       Representations of the Initial Holder.  

                    (a)          The Initial Holder represents and warrants to the Issuer as follows:

	
  
 
  	
  
                         (i)          The   Initial Holder has acquired this Note, and will acquire Conversion Shares   upon conversion of all, or any portion, of this Note pursuant to Section 3   hereof, for its own account for investment and not with a view toward any   resale or distribution thereof.  The   Initial Holder has such knowledge, sophistication and experience in business   and financial matters that it is capable of evaluating the merits and risks   of the investment.
  
	
   
  	
  
 
  
	
  
 
  	
  
                        (ii)         The   Initial Holder is aware of the degree of risk involved in making an   investment in the Issuer and recognizes that there is no guarantee of return   on this Note or, (as the case may be), the Conversion Shares, and the Initial   Holder has such knowledge and experience that it is capable of evaluating the   risks, as well as the merits, of the investment herein and can bear the   economic risk of whatever investment it makes.
  
	
  
 
  	
  
 
  
	
  
 
  	
  
                         (iii)        The   Initial Holder represents that it is an “accredited investor” as that term is   defined in Rule 501 of Regulation D under the Securities Act.
  

*** - indicates material omitted pursuant to a Confidential
Treatment Request and filed separately with the Securities and Exchange Commission.

The Initial Holder understands that (i) this Note and the Conversion Shares, if any, are not registered under the Securities Act or under any applicable state securities law, and may not be sold, pledged or otherwise transferred except in accordance with the terms hereof and (w) to the Issuer or any of its subsidiaries, (x) to a “qualified institutional buyer” in accordance with Rule 144A under the Securities Act, (y) pursuant to an effective registration statement under the Securities Act or (z) pursuant to an exemption from registration under the Securities Act and (ii) this Note and the Conversion Shares, if any, are being offered and sold pursuant to an exemption from registration contained in the Securities Act, based in part upon the representations of the Initial Holder contained herein.

          10.     Representations of the Issuer.  The Issuer represents and warrants to the Initial Holder as follows:

                    (a)          The Issuer has the authorized and issued capital stock set forth on Exhibit A hereto.  Except as set forth on Exhibit A hereto, there are no outstanding (x) options, warrants or other rights to purchase Common Stock, (y) agreements or other obligations of the Issuer to issue Common Stock or (z) other rights to con-vert any obligation into, or exchange any securities for, Common Stock.

                    (b)          The Issuer has been duly incorporated, is validly existing and is in good standing under the laws of its jurisdiction of incorporation, with all requisite corporate power and authority to own its properties and conduct its business as now conducted.

                    (c)          The Issuer has all requisite corporate power and authority to execute, deliver and perform its obligations under this Note.  This Note has been duly and validly authorized, executed and delivered by the Issuer and constitutes a valid and legally binding agreement of the Issuer enforceable against the Issuer in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium, indemnity, contribution or other similar laws affecting the enforcement of creditors’ rights generally and by general equitable principles (regardless of whether the issue of enforceability is considered in a proceeding in equity or at law).

                    (d)          Neither the execution, delivery or performance by the Issuer of this Note, nor compliance by it with the terms and provisions hereof, (x) will contravene any provision of any Applicable Law, statute, rule or regulation or any order, writ, injunc-tion or decree of any court or governmental instrumentality, (y) will conflict with or result in any breach of any of the terms, covenants, conditions or provisions of, or constitute a default under, or result in the creation or imposition of (or the obligation to create or impose) any lien upon any of the property or assets of the Issuer pursuant to the terms of any indenture, mortgage, deed of trust, credit agreement or loan agreement, or any other agreement, contract or instrument to which the Issuer is a party or by which it or any of its
property or assets is bound or to which it may be subject or (z) will violate any provision of the certificate of incorporation or bylaws of the Issuer.

                    (e)          The Issuer controls the entire right, title and interest in the Issuer Technology, free and clear of all material charges, encumbrances, restrictions, liens, disputes, options, royalty obligations, proceedings or claims relating to, affecting, or limiting its rights with respect thereto.

*** - indicates material omitted pursuant to a Confidential
Treatment Request and filed separately with the Securities and Exchange Commission.

                    (f)          Other than the Litigation Matter, neither the Issuer nor any of its Affiliates has received any notice concerning the institution of any interference, reexamination, reissue, revocation or nullification involving any Emisphere Patents (as such term is defined in the Collaboration Agreement) or any administrative proceeding challenging the validity of any Emisphere Patents.

                    (g)          Adverse event reporting has shown that there is no material serious adverse effect relating to the Issuer Technology based on the data available as of the date hereof preventing its use in humans.

                    (h)          So far as the Issuer is aware, the Issuer Technology does not infringe the patent rights or other intellectual property rights of any third party.

                    (i)          No representation or warranty made by the Issuer in this Note contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make the statements contained herein or therein not false or misleading.

                    (j)          The Issuer owns or has all necessary licenses or rights to the subject matter claimed by the Emisphere Patents, and so far as it is aware that there are no issued third party patents having a valid claim directed to the Carriers (as that term is defined in the Collaboration Agreement), or the manufacture or use of the Carriers, which would restrict or prevent the Initial Holder’s ability to make, use and sell the Product (as such term is defined in the Collaboration Agreement).

                    (k)          Since January 1, 2000, the Issuer has filed all required reports, schedules, forms, statements and other documents (including exhibits and all other information incorporated therein) with the SEC (“Issuer SEC Documents”).  As of their respective dates, each of the Issuer SEC Documents complied, in all material respects, with the requirements of the Securities Act or the Exchange Act applicable to such Issuer SEC Documents, and no Issuer SEC Documents when filed contained any untrue statement of a material fact or omitted to state a 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.

                    (l)          The financial statements of the Issuer included in the Issuer SEC Documents comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto) and fairly present in all material respects the financial position of the Issuer as of the dates and the results of its operations and cash flows for the periods then ended.

                    (m)          The  Issuer does not have any liabilities, whether absolute, accrued, contingent or otherwise, except for liabilities (i) set forth in the audited balance sheet for the year ended December 31, 2003 included in the Form 10-K filed for such fiscal year, or specifically disclosed in the footnotes thereto or (ii) incurred in the ordinary course of business since December 31, 2003 that could not have a material adverse effect on the Issuer.

*** - indicates material omitted pursuant to a Confidential
Treatment Request and filed separately with the Securities and Exchange Commission.

          11.      Definitions.  For the purposes of this Note, the following terms shall have the following meanings:

                    “Acceleration Event” shall mean the occurrence of an ***.

                    “Affiliate” shall mean, as applied to any Person, any other Person directly or indirectly controlling (including, but not limited to, all directors and officers of such Person), controlled by, or under direct or indirect common control with, such Person.  A Person shall be deemed to “control” another Person if such Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such other Person, whether through the ownership of voting securities, by contract or otherwise.

                    “Applicable Law” shall mean, with respect to any Person, all provisions of laws, statutes, ordinances, rules, regulations, permits or certificates of any Governmental Authority applicable to such Person or any of its assets or property, and all judgments, injunctions, orders and decrees of all courts, arbitrators or Governmental Authorities in proceedings or actions in which such Person is a party or by which any of its assets or properties are bound.

                    “Business Day” shall mean any day except a Saturday, a Sunday or a legal holiday in the City of New York.

                    “Collaboration Agreement” shall mean the Research Collaboration Option and License Agreement, dated as of even date herewith, between the Issuer and the Initial Purchaser.

                    “Conversion Date” shall mean the date designated, pursuant to Section 3 hereof, for the conversion of any portion of the principal amount of this Note, any accrued and unpaid Interest thereon, or any portion of the Threshold Reduction Amount, as applicable, into Conversion Shares.

                    “Conversion Price” shall mean, with respect to a share of Common Stock to be converted on any Conversion Date, the average of the closing prices on the Business Day immediately preceding such Conversion Date of the Common Stock on all domestic securities exchanges on which the Common Stock is then listed, or, if there have been no sales on any such exchange on such day, the average of the highest bid and lowest asked prices on all such exchanges at the end of such day or, if on any such day the Common Stock is not so listed, the average of the representative bid and asked prices quoted on NASDAQ as of 4:00 P.M., New York time, on such day, or if on any day such security is not quoted on NASDAQ, the average of the highest bid and lowest asked prices on such day in the domestic over-the-counter market as reported by the
National Quotation Bureau, Incorporated, or any similar successor organization, in each such case averaged over a period of *** days consisting of the day as of which Conversion Price is being deter-mined and the *** consecutive Business Days prior to such day.

                    “Conversion Shares” shall mean any and all shares of Common Stock of the Issuer issuable upon any full or partial conversion of this Note pursuant to Section 3 hereof.

                    “Designated Conversion Amount” shall have the meaning assigned to such term in Section 3(a) hereof.

*** - indicates material omitted pursuant to a Confidential
Treatment Request and filed separately with the Securities and Exchange Commission.

                    “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

                    “Event of Default” shall have the meaning assigned to such term in Section 6(a) hereof.

                    “Governmental Authority” shall mean any federal, state, municipal or other govern-mental department, commission, board, bureau, agency or instrumentality, or any court, in each case whether of the United States of America or any foreign country.

                    “Holder” shall mean and refer to the Initial Holder and each subsequent holder of this Note.

                    “Initial Holder” shall have the meaning assigned to such term in the first paragraph of this Note.

                    “Interest” shall have the meaning assigned to such term in Section 1 hereof.

                    “Interest Payment Date” shall have the meaning assigned to such term in Section 1(a) hereof.

                    “Interest Rate” shall have the meaning assigned to such term in Section 1 hereof.

                    “Issuance Date” shall mean December 1, 2004.

                    “Issuer Acceleration Event” shall mean the occurrence of any of the following: (i) the Issuer shall have become entitled for any reason to terminate registration of its securities under Section 12(g) of the Exchange Act, to suspend or terminate its duty to file reports under Sections 13 and 15(d) of the Exchange Act, or to de-list its securities from trading on NASDAQ or any other national securities exchange on which such securities may at any time be traded; (ii) during any period of 365 consecutive days, individuals who at the beginning of such period constituted the board of directors of the Issuer (together with any new directors whose election by such directors or whose nomination for election by the stockholders of the Issuer was a approved by a vote of a majority of the directors of the Issuer then still in office who
were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the directors of the Issuer then in office; (iii) any merger, consolidation or other business combination with or into any other Person, or any other similar transaction, whether in a single transaction or a series of related transactions where (a) the stockholders of the Issuers immediately prior to such transaction in the aggregate cease to own at least fifty percent (50%) of the voting power of the Person surviving or resulting from such transaction (or the ultimate parent thereof) (such ownership being based solely on the voting power of the Issuer owned by such stockholders immediately prior to such event) or (b) any Person other than an Affiliate of the Initial Holder immediately prior to such transaction becomes the beneficial owner of more than fifty percent (50%) of the voting power of the Person surviving or resulting
from such transaction (or the ultimate parent thereof); (iv) any transaction or series of related transactions after which in excess of fifty percent (50%) of the Issuer’s voting power is held by any Person or group (within the meaning of Regulation 13D under the Exchange Act); (v) any sale, transfer, lease,

*** - indicates material omitted pursuant to a Confidential
Treatment Request and filed separately with the Securities and Exchange Commission.

assignment, conveyance, exchange, mortgage or other disposition, in one or a series of related transactions, of all or substantially all of the assets, properties or business of the Issuer; (vi) the Initial Holder shall have terminated the Collaboration Agreement pursuant to any provision of Section 10.4 thereof; or (vii) on any Conversion Date, there shall not be a sufficient number of authorized but unissued shares of Common Stock of the Issuer, or shares of such Common Stock held in treasury by the Issuer, to permit the issuance of the full amount of Conversion Shares to be issued on such Conversion Date;

                    “Issuer Technology” shall mean the Emisphere Technology (as such term is defined in the Collaboration Agreement).

                    “Litigation Acceleration Event” shall mean the entry by any court of competent jurisdiction over the Litigation Matter of a consent decree *** which has the effect of rendering the Issuer unable to honor and perform any of its obligations under the Collaboration Agreement.

                    “Litigation Matter” shall mean that certain litigation styled Eli Lilly and Company vs. Emisphere Technologies, Inc., filed on December 2, 2003 in the United States District Court for the Southern District of Indiana, Indianapolis Division, together with any counterclaims therein and any and all appeals of any ruling or judgment with respect thereto.

                    “Maturity Date” shall mean December 1, 2009.

                    “NASDAQ” shall mean the National Association of Securities Dealers, Inc., Automated Quotation System.

                    “Ownership Threshold” shall mean 19.90%; provided that, to the extent that the Initial Holder owns common equity securities of the Issuer on the Conversion Date (other than pursuant to any conversion of this Note pursuant to Section 3(a)), the Ownership Threshold shall be increased by a percentage amount equal to the percentage amount of the issued and outstanding common equity securities of the Issuer that is represented by such common equity securities at such time.

                    “Person” shall mean and include an individual, a partnership, a joint venture, a corporation, a limited liability company, a limited liability partnership, a trust, an incorporated organization and a Governmental Authority.

                    “Put Notice” shall have the meaning assigned to such term in Section 3(f) hereof.

                    “Put Option Purchase Price” shall mean an amount equal to the Relevant Put Exercise Price for each Put Security specified in the Put Notice multiplied by the number of the Put Securities specified in the Put Notice. 

                    “Put Securities” shall have the meaning assigned to such term in Section 3(f) hereof.

                    “Reduction Notice” shall have the meaning assigned to such term in Section 3(a) hereof.

*** - indicates material omitted pursuant to a Confidential
Treatment Request and filed separately with the Securities and Exchange Commission.

                    “Register” shall have the meaning assigned to such term in Section 4 hereof.

                    “Relevant Put Exercise Price” shall mean, with respect to any Conversion Share or such other securities, assets or property into which such Conversion Share was converted as a result of an Issuer Acceleration Event, the aggregate of (i) Conversion Price in effect on the Conversion Date of all or any portion of the principal amount of this Note and any accrued Interest thereon into such Conversion Share and (ii) any Interest that would have accrued thereon from the Conversion Date until the Put Option Closing Date if such principal amount and accrued Interest thereon had not been so converted into such Conversion Share pursuant to Section 3 hereof.

                    “Securities Act” shall mean the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

                    “Subsidiary” shall mean, with respect to any Person, (i) any corporation more than fifty percent (50%) of whose stock of any class or classes having by the terms thereof ordinary voting power to elect a majority of the directors of such corporation (irrespective of whether or not at the time stock of any class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is owned by such Person directly or indirectly through one or more Subsidiaries of such Person and (ii) any partnership, association, joint venture or other entity in which such Person directly or indirectly through one or more Subsidiaries of such Person has more than a fifty percent (50%) equity interest.

                    “Threshold Amount” shall have the meaning assigned to such term in Section 3(a) hereof.

                    “Threshold Reduction Amount” shall have the meaning assigned to such term in Section 3(a) hereof.

*          *          *

*** - indicates material omitted pursuant to a Confidential
Treatment Request and filed separately with the Securities and Exchange Commission.

          IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly executed as of the date of issuance set forth above.

	
  
 
  	
  
EMISPHERE TECHNOLOGIES, INC
  
	
  
 
  	
  
 
  	
  
 
  
	
  
 
  	
  
By:
  	
  
/s/ ***
  
	
  
 
  	
  
 
  	
  

  
	
  
 
  	
  
Name:
  	
  
***
  
	
   
  	
  
Title:
  	
  
***
  

Accepted and agreed as of
 this 1st day of December, 2004:

	
  
NOVARTIS PHARMA   AG
  	
  
 
  
	
  
 
  	
  
 
  	
  
 
  
	
  
By:
  	
  
/s/ ***
  	
  
 
  
	
  
 
  	
  

  	
  
 
  
	
  
Name:
  	
  
***
  	
  
 
  
	
  Title:
  	
  
***
  	
  
 
  
	
  
 
  	
  
 
  	
  
 
  
	
  
 
  	
  
 
  	
  
 
  
	
  
By:
  	
  
/s/ ***
  	
  
 
  
	
  
 
  	
  

  	
  
 
  
	
  
Name:
  	
  
***
  	
  
 
  
	
  
Title:
  	
  
***
  	
  
 
  

*** - indicates material omitted pursuant to a Confidential
Treatment Request and filed separately with the Securities and Exchange Commission.

EXHIBIT A

CAPITALIZATION

  
 

  
 

  
 

*** - indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission.

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