The failure to pay $30.517 million in principal and interest for the 11% senior secured convertible notes and $600,000 in principal for promissory notes has placed Emisphere Technologies (OTC: EMIS) on the verge of facing a foreclosure of substantially all of its assets by the creditor MHR Fund Management (MHR). Reacting to the news, the share price of the company nose-dived by over 20% in the first hour of trading on a volume that is almost triple the three-month daily average of 88,186 shares.
The New Jersey-based biopharmaceutical company focused on the delivery of therapeutic molecules or nutritional supplements using Eligen technology, entered into a loan agreement with MHR on September 26, 2005. As per the agreement, MHR offered a seven-year, $15 million secured loan at an interest rate of 11%. On May 16, 2006, under the conditions of the loan agreement, Emisphere effected the exchange of the loan for the senior secured convertible notes.
Emisphere’s obligations under the issued notes are secured by a first priority lien on substantially all of its assets. Emisphere failed to pay approximately $30.5 million in principal and interest due and payable on September 26, 2012, under the notes. MHR now has the right to foreclose on substantially all of the Emisphere’s assets. MHR, however, has not demanded payment under the notes or exercised its rights to foreclosure as a result of default by Emisphere. MHR, assuming conversion and exercise of all convertible securities, warrants and options held, owns approximately 47.6% of Emisphere’s common stock. MHR has indicated that it is ready to continue discussions regarding suitable measures relating to the notes while reserving all of its rights under the loan documents.
Added to the above, as of September 27, 2012, Emisphere is also in default under the terms of certain non-interest bearing promissory notes in the aggregate principal amount of $600,000 issued to MHR on June 8, 2010. The promissory notes were issued in the aggregate principal amount of $500,000 and $100,000 with respect to legal fees incurred in connection with the non-disturbance agreement and another transaction agreement respectively. Emisphere entered into non-disturbance agreement with its collaboration partner, Novartis Pharma AG.
The reimbursement notes were originally due and payable on June 8, 2012, but were later extended to September 26, 2012, by an agreement signed on June 1, 2012. As with the senior secured convertible notes, MHR has not demanded payment under the reimbursement notes and indicated that it is ready to continue discussions regarding alternative proposals relating to the promissory notes while reserving all of its rights under the loan documents.
Emisphere’s shares traded below $0.10 for the past two months. Following the announcement of a new corporate strategy and appointment of Alan Rubino as president and CEO effective September 13, 2012, the company’s share price gained 288% in 10 days to reach a high of $0.35, up from $0.09 on September 17, 2012.
Emisphere ended the day at $0.30 per share, down $0.05 or 15.5% on a volume of 274,662 shares.
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