EXHIBIT 10.32
 
DATED JULY 15, 2002
 
DR. FALK PHARMA GmbH
 
-and-
 
SALIX PHARMACEUTICALS, INC.
 
LICENSE AGREEMENT
 
THE INFORMATION HEREIN MARKED BY [*] HAS BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT FILED WITH THE SEC.
 

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This Agreement is made the 15th day of July, 2002
 
B E T W E E N:
 
(1)
 
DR. FALK PHARMA GMBH a company incorporated in Germany having its registered
office and principal place of business at Leinenweberstraße 5, 79108 Freiburg,
Germany (“Falk”); and

 
(2)
 
SALIX PHARMACEUTICALS, INC. a company incorporated under the law of California
whose principal place of business is at 8540 Colonnade Center Drive, Suite 501,
Raleigh, North Carolina NC 27615, USA (“Salix”).

 
WHEREAS    Falk has developed and owns rights in a pharmaceutical product and
has agreed to grant Salix an exclusive license in respect of such product for
its development use and exploitation in the USA and Canada upon the terms of
this Agreement.
 
NOW IT IS HEREBY AGREED as follows:-
 
1.      DEFINITIONS
 
1.1    In this Agreement, unless the context otherwise requires:
 
“Additional Product”
shall mean a Falk Additional Product and/or a Salix Additional Product, as the
context may require.

 
“Affiliate”
shall mean in relation to either Party any person who directly or indirectly
controls, is controlled by or is under common control with that Party or, with
regard to Falk, is controlled by the same group of persons controlling Falk. A
person shall be regarded as in control of another person if it owns directly or
indirectly more than 50% (fifty per cent) of the voting stock or other ownership
or income interest of the other person or if it directly or indirectly possesses
the power to direct or cause the direction of the management and policies of any
other person by any means whatsoever.

 
“ANDA”
shall mean an Abbreviated New Drug Application as defined in the U.S. Food, Drug
and Cosmetics Act and the regulations promulgated thereunder (21 USC s355) which
references the NDA.

 
“ANDA Date”
shall mean the date of approval by the FDA of an ANDA permitting commercial
marketing of a competitive product in the Territory by a Third Party.

 

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“Approval”
shall mean approval by the FDA of an NDA permitting the commercial marketing of
the [*] Product in the USA.

 
“Approval Date”
shall mean the date on which Approval of the [*] Product occurs.

 
“[*] Product”
shall mean a version of the [*] Product which provides a [*].

 
“Business Day”
shall mean any day on which clearing banks within both the USA and Germany are
open for business.

 
“Clinical Development Date”
shall mean the date on which the [*].

 
“Compound”
shall mean Mesalamine (mesalazine) (CAS No 89-57-6)

 
“Confidentiality Agreement”
shall mean an agreement between the Parties dated [*].

 
“Change of Control”
shall mean any transaction or series of transactions in which in excess of 50 %
of a Party’s voting power is transferred or in which all or substantially all of
the assets of the Party are sold or otherwise conveyed.

 
[“*”
*]

 
“Dossier”
shall mean the dossier of Falk Product Data and other information filed with the
relevant regulatory authority in Germany in respect of the German MA.

 
“Effective Date”
shall mean the date hereof.

 
“Excluded Territory”
shall mean those parts of the world in which the Product is for the time being
Exploited by Falk, its Affiliates or licensees, excluding only the Territory.

 
“Exploit”
shall mean to make, have made, import, have imported, use, have used, sell, have
sold, offer for sale, or otherwise dispose of, including all discovery,
research, development, registration, modification, enhancement, improvement,
manufacture, storage, formulation, exportation, transportation, distribution,
promotion and marketing activities related thereto and “Exploitation” shall be
construed accordingly.

 
[*] CONFIDENTIAL TREATMENT REQUESTED, CERTAIN INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SEC.

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“Falk Additional Product”
shall mean a pharmaceutical product other than the Product, with the active
ingredients [*], which Falk itself (not in a collaboration with or by license
from a Third Party) intends to develop and commercialise for one or more
indications in the field of gastroenterology and [*] and which shall be subject
to the right of first negotiationunder Clause 15 and shall include a [*] product
and a [*] product and a [*] product

 
“Falk IP”
shall mean all Intellectual Property of Falk relating to a Product and/or the
Compound (including any Improvement) which is at the Effective Date or
subsequently during the Term (a) vested in Falk or any Affiliate of Falk or (b)
licensed to Falk or any Affiliate of Falk including any Falk Patents and
including the Licensed IP.

 
“Falk Patents”
shall mean any Patent in the name of Falk or any Falk Affiliate existing at any
time during the Term, including the Patents listed in Schedule 1, relating in
any manner to the Exploitation of the Compound in a medicinal pellet
formulation, in the Territory.

 
“Falk Product Data”
shall mean all Product Data relating to the Product in the possession or control
of Falk as at the Effective Date and thereafter during the Term (including
without limitation the Dossier and Manufacturing Technology and including Falk’s
interest in any [*] Product Data).

 
“Falk Territory”
shall mean all European countries.

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

 
“Force Majeure”
shall mean in relation to either Party any circumstances beyond the reasonable
control of that Party including without limitation any strike, lock-out, or
other form of industrial action, act of God, war, riot, accident, fire, flood,
explosion or government action.

 
“Improvement”
shall mean any discovery, development, invention or improvement relating to a
Product made by Falk (or any Affiliate or licensee of Falk) during the Term and
all Intellectual Property rights existing therein.

 
[*] CONFIDENTIAL TREATMENT REQUESTED, CERTAIN INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SEC.

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“[*] Product”
shall mean a medicinal pellet formulation containing Compound, under a [*] for
oral administration, having the product characteristics substantially in the
form of those set out in the Summary.

 
“Intellectual Property”
shall mean all Patents, claims in Patents, trade marks and trade names, service
marks, registered designs, applications for any of the foregoing and the right
to apply for any of the foregoing in any part of the world, copyright, design
right, inventions, confidential information (including without limitation
Know-how) and any other similar right situated in any country in the world;

 
“[*] Product Data”
shall mean all Product Data relating to the Product arising out of any Studies
as defined in Clause 8.1;

 
“Know-How”
shall mean the information, procedures, instructions, knowledge, experience,
data (including, without limitation, toxicological, pharmaceutical, clinical and
medical data, health registration data, marketing data and all other data),
designs, dossiers (including, without limitation, manufacturing, assay and
quality control dossiers), manufacturing formulae, processing specifications,
sales and marketing materials and technology relating to or concerning the
Product, whether committed to writing or not including without limitation all
Product Data and the Manufacturing Technology.

 
“Launch”
shall mean the commencement of commercial sale of a Product in the Territory
after Approval of such Product.

 
“Licensed IP”
shall mean such of the Falk IP as is licensed to Falk by a Third Party,
including the Intellectual Property licensed to Falk by [*] under the terms of a
license agreement dated [*] in connection with the [*].

 
“Manufacturing Technology”
shall mean all methods, processes, designs, data, procedures and other
information relating to the manufacture of a Product including, without
limitation, final quality assurance, quality control procedures, manufacturing
procedures, product and raw material specifications, formulation data and other
technology related thereto.

 
[*] CONFIDENTIAL TREATMENT REQUESTED, CERTAIN INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SEC.

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“[*]”
shall mean the [*] of Salix relating to the anticipated [*] for the [*] Product,
the [*] Product and the [*] Product in the Territory during the Term, as set out
in Schedule 3.

 
“[*]”
[*]

 
“NDA”
shall mean a New Drug Application as defined in the US Food Drug and Cosmetics
Act and the regulations promulgated thereunder (21 U.S.C. s355) for the [*]
Product.

 
“NetSales”
shall mean gross amounts invoiced in respect of sales of the Product in the
Territory by Salix, its Affiliates or Sublicensees, as appropriate, to Third
Parties, less the following items:

 

 
(a)
 
trade, quantity and cash discounts or rebates actually allowed and taken and any
other adjustments, provided that such discounts or rebates are not applied
disproportionately to the Product as compared with other similar products of the
selling entity, including, without limitation, those granted on account of price
adjustments, billing errors, rejected goods, damaged goods and recall returns;

 

 
(b)
 
credits, rebates, charge-back and prime vendor rebates, fees, reimbursements or
similar payments granted or given to wholesalers and other distributors, buying
groups, health care insurance carriers, pharmacy benefit management companies,
health maintenance organizations or other institutions or health care
organizations;

 

 
(c)
 
any tax, tariff, customs duties, excise or other duties or other governmental
charge (other than an income tax) levied on the sale, transportation or delivery
of the Product;

 
[*] CONFIDENTIAL TREATMENT REQUESTED, CERTAIN INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SEC.

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(d)
 
payments or rebates reasonably and customarily paid in connection with sales of
Product to any governmental or regulatory authority in respect of any state or
federal Medicare, Medicaid or similar programs;

 

 
(e)
 
any [*] provided that in each Year the maximum sum which may be deducted in
respect of [*] shall not exceed [*]% ([*] percent) of Net Sales in such Year and
further provided that in the event that any [*] and subsequently recovered by
Salix, upon such recovery such [*] shall be included in Net Sales for such
Quarter in any statement under Clause 5.1

 
provided always that:
 

 
(i)
 
Sales of a Product by and between Salix and its Affiliates and Sublicensees are
not sales to Third Parties (except where such Affiliate or Sublicensee
purchasers are end users) and shall be excluded from Net Sales calculations for
all purposes;

 

 
(ii)
 
Where a Product is sold otherwise than on arm’s length terms the price that
would have been charged on an arm’s length sale (calculated as above) shall be
the invoice price for such Product and where a Product is disposed of for
consideration other than cash, such consideration shall be valued at the fair
market value thereof;

 

 
(iii)
 
Where a Product is not sold on arm’s length terms but is used or otherwise
disposed of on a commercial basis by a Third Party, the price that would have
been charged (after the deductions in Sub-Clauses (a) through (f) above) on an
arm’s length sale in such country shall be deemed the Net Sales for the sale of
such Product, provided that any Product supplied and used in clinical trials or
for other research or development activities or reasonably and customarily
supplied for promotional purposes as samples shall not be treated as being
disposed of on a commercial basis and shall be ignored for the purpose of
calculating Net Sales.

 
[*] CONFIDENTIAL TREATMENT REQUESTED, CERTAIN INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SEC.

7

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“[*] Product”
shall mean a version of the [*] Product which provides a [*].

 
“Outline Development Plan”
shall mean an outline development plan for the development of the [*] Product
and for the identification and development of the [*] Product in accordance with
Clause 6.3.

 
“Outline Marketing Plan”
shall mean an outline marketing plan for the marketing and Exploitation of the
[*] Product and the [*] Product, post Launch of such Product in accordance with
Clause 6.4.

 
“Patents”
shall mean all patents or letters patent, claims in any patent and applications
for any patent and the right to apply for the same in any part of the world
including, without limitation, all reissues, reexaminations, extensions,
substitutions, confirmations, registrations, revalidations, additions,
confirmations, continuations in part and divisions thereof and any Supplementary
Protection Certificates.

 
“Patent Expiry Date”
shall mean the date on which the Product shall cease to be the subject of any
Valid Claim in any Falk Patents in the Territory.

 
“Phase III Clinical Trials”
shall mean, with respect to the [*] Product all tests and studies (other than
Phase I and Phase II Trials) necessary to provide substantive evidence of
efficacy and safety in support of an application for Approval.

 
“Product”
shall mean any medicinal pellet formulation of the Compound the Exploitation of
which in the Territory falls within any Valid Claim of the Falk Patents in the
Territory, including the [*] Product, the [*] Product and the [*] Product, as
the context may require.

 
“Product Data”
shall mean all data, information or results generated in the performance of any
clinical studies, non-clinical studies (including pharmacological and
toxicological studies) or chemistry, manufacturing, control and analytical
studies in respect of a Product conducted by or on behalf of either Party
whether before or after the Effective Date during the Term, including the
Manufacturing Technology.

 
[*] CONFIDENTIAL TREATMENT REQUESTED, CERTAIN INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SEC.

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“Quarter”
shall mean each three calendar-month period in any Year of the Term ending on
31st March, 30th June, 30th September and 31st December in each Year and
“Quarterly” has a corresponding meaning.

 
“Royalties”
shall mean royalties payable by Salix to Falk under the terms of Clauses 3.1.6,
3.1.7 and 3.1.8;

 
“Salix Additional Product”
shall mean a pharmaceutical product other than a Product, which Salix itself
(not in a collaboration with or by license from a Third Party) intends to
develop and commercialise for one or more indications in the field of
gastroenterology and [*], derived from either of two active ingredients, other
than [*] or [*], designated by Salix for the purpose of this definition, which
shall be subject to the right of first negotiation under Clause 15.

 
 
“[*] Approval Date”
shall mean the date of approval by the FDA of a change in labelling or a
supplemental NDA permitting marketing by Salix in the USA of a [*] Product.

 
“[*] Product”
shall mean either a [*] Product or a [*] Product.

 
“Sublicense”
shall mean a sublicense granted by Salix to a Third Party of the rights granted
under Clause 2.1. For the avoidance of doubt (a) the appointment by Salix of any
distributor, wholesaler or dealer of the Product shall not be a Sublicense; and
(b) the appointment of a manufacturer to manufacture Product for and on behalf
of Salix, shall not be deemed a Sublicense.

 
“Summary”
shall mean the summary of Product characteristics as set out in Schedule 4.

 
“Term”
shall commence on the Effective Date and continue until whichever is later of;

 

 
(a)
 
the Patent Expiry Date; or

 

 
(b)
 
the [*] anniversary of the Launch of a Product in the Territory,

 

 
subject
 
always to earlier termination under Clause 18.

 
[*] CONFIDENTIAL TREATMENT REQUESTED, CERTAIN INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SEC.

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“Territory”
shall mean the United States of America and its territories and possessions and
the commonwealth of Puerto Rico.

 
“Third Party”
shall mean any third party and shall not include the Parties or any Affiliate of
the Parties.

 
“Valid Claim”
shall mean a claim of any issued and unexpired Patent in the Territory, which
has not been held permanently revoked, unenforceable or invalid by a decision of
a court or other governmental agency of competent jurisdiction, unappealable or
unappealed within the time allowed for appeal and which has not been admitted to
be invalid or unenforceable through reissue or disclaimer or otherwise.

 
“Year”
shall mean a calendar year during the Term.

 
1.2
 
The expression “the Parties” shall mean together Falk and Salix and “Party”
shall refer to one such Party;

 
1.3
 
Unless the context otherwise requires all references to a particular clause
sub-clause schedule or paragraph shall be a reference to that clause sub-clause
schedule or paragraph in or to this Agreement as it may be amended from time to
time pursuant to this Agreement;

 
1.4
 
Headings are for convenience only and shall be ignored in interpreting this
Agreement;

 
1.5
 
Words importing the singular shall include the plural and vice versa and words
importing the masculine gender shall include the feminine and vice versa;

 
1.6
 
The words “including” or “included” are to be construed without limitation to
the generality of the preceding words.

 
1.7
 
Any reference to “writing” or any cognate expression includes a reference to any
communication effected by facsimile transmission or similar means.

 
2.
 
LICENSE GRANT

 
2.1
 
Falk grants to Salix from the Effective Date for the Term in respect of the Falk
Patents, the Falk IP and the Falk Product Data the sole and exclusive royalty
bearing right and license to use the same and to develop, use and Exploit the
Product throughout the Territory and a non-exclusive right and license to

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manufacture and have manufactured the Product in any part of the world for
Exploitation in the Territory only and Falk therefore undertakes;

 

 
2.1.1
 
not at any time during the Term to grant or purport to grant to any Third Party
any rights to Exploit the Product in the Territory; and

 

 
2.1.2
 
not itself to Exploit the Product during the Term in the Territory; and

 

 
2.1.3
 
to maintain as Confidential Information (subject to the provisions of Clause
11), all Product Data (including [*] Product Data) and not to disclose any
Product Data to any Third Party otherwise than under terms relating to
confidentiality and restricting the use of such Product Data in any manner in
the Territory.

 
2.2
 
Salix undertakes that it shall use the Falk IP only in the development and
Exploitation of the Product in the Territory under the terms of this Agreement
and shall not be entitled to use all or any part of the Falk IP for any other
purpose whatsoever.

 
2.3
 
The granting of Sublicenses by Salix with respect to all or any of the rights
granted to Salix pursuant to Clause 2.1 shall be subject to the [*].

 
2.4
 
In respect of the Licensed IP, Falk undertakes to use reasonable commercial
efforts to obtain for Salix an amendment to the terms of its license whereby the
sublicense granted hereunder to the Licensed IP shall continue (free of any
payment) notwithstanding any termination of the rights of Falk in respect of the
Licensed IP, substantially in the form of the document contained in Schedule 6.

 
3.
 
CONSIDERATION

 
3.1
 
In consideration of the license granted under Clause 2.1, Salix shall pay to
Falk;

 

 
3.1.1
 
the non-refundable and non-creditable sum of US$[*] ([*] US dollars) on the
Effective Date;

 

 
3.1.2
 
the non-refundable and non-creditable sum of US $[*] ([*] US dollars) within [*
(*)] days of the Clinical Development Date;

 

 
3.1.3
 
the non-refundable and non-creditable sum of US $[*] ([*] US dollars) within [*
(*)] days of the date of [*] or upon [*];

 

 
3.1.4
 
the non-refundable and non-creditable sum of US $[*] ([*] dollars) within [*
(*)] days of the [*];

 
[*] CONFIDENTIAL TREATMENT REQUESTED, CERTAIN INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SEC.

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3.1.5
 
the non-refundable and non-creditable sum of US$[*] ([*] US dollars) within [*
(*)] days of the [*]; and

 

 
3.1.6
 
for the period from Launch to the Patent Expiry Date a Royalty at the rate of
[*]% ([*] per cent) of aggregate Net Sales, payable in accordance with Clause
5;and

 

 
3.1.7
 
for the period from the Patent Expiry Date to whichever shall be the earlier of
the expiry of the Term and the [*], a Royalty at the rate of [*]% ([*] per cent)
of aggregate Net Sales, payable in accordance with Clause 5; and

 

 
3.1.8
 
for the period from the [*] (if applicable) for the remainder of the Term, a
Royalty at the rate of [*]% ([*] per cent) of aggregate Net Sales, payable in
accordance with Clause 5.

 
3.2
 
Salix shall notify Falk promptly of any determination, filing or approval which
would trigger a payment by Salix to Falk under Clause 3.1 and the amount of the
payment required. Falk shall promptly invoice Salix for each payment made.

 
4.
 
[*]

 
4.1
 
[*]

 
4.2
 
[*]

 
4.3
 
[*]

 
4.4
 
[*]

 
4.5
 
[*]

 
4.6
 
In the event that the Parties are unable to agree the [*] upon any such
renegotiation under Clause 4.5 in such sixty (60) day period (or any agreed
extended period) the Parties agree that determination of any adjustment to the
[*] shall be referred to an independent expert (experienced in the negotiation
of the financial terms of commercial contracts in the pharmaceutical field)
appointed by the agreement of the Parties, or in the event that the Parties are
unable to agree on the appointment of any independent expert he shall be
appointed, at the request of either party by the President for the time being of
The Pharmaceutical Research and Manufacturers of America (PhRMA) who shall have
the authority to appoint such an independent expert. In determining any such
adjustment to the [*];

 

 
(i)
 
such expert shall act as an expert and not as an arbitrator;

 
[*] CONFIDENTIAL TREATMENT REQUESTED, CERTAIN INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SEC.

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(ii)
 
the costs of such expert shall be borne as determined by the expert taking
account of the position of the Parties as at the date of referral to the expert
and the expert determination; and

 

 
(iii)
 
such expert shall make such determination in such manner as he reasonably
considers appropriate taking account of the [*] and any adjustments thereto
reasonably arising by reason of any Revision Circumstance; and

 

 
(iv)
 
such expert’s determination shall in the absence of manifest error be final and
binding in respect of the [*] applicable after the date of such determination;
and

 
such expert shall be required to effect such determination within forty-five
(45) days of his appointment and any adjusted [*] shall take effect from the
date of the request for renegotiation made under Clause 4.5 and the [*] for such
Year shall be adjusted pro rata from such date.
 
5.
 
PAYMENT: GENERAL

 
5.1
 
Salix shall prepare a statement in respect of each Quarter which shall show in
reasonable detail for the Quarter in question the calculation of Royalties due
to Falk with respect to aggregate Net Sales. Such statement shall specify in
reasonable detail the calculation of Net Sales (in accordance with the
definition set out in Clause 1) and the applicable Royalties due to Falk and
such other information relating to the calculation of Net Sales as Falk may
reasonably request from time to time. Such statement shall be submitted to Falk
within ninety (90) days of the end of the Quarter to which it relates together
with remittance for Royalties due to Falk under Clauses 3.1.6, 3.1.7 and 3.1.8
(as applicable).

 
5.2
 
Salix, its Affiliates and Sublicensees shall keep complete, true and accurate
books of account and records for the purpose or determining the amounts payable
or accountable hereunder. Such books and records shall be kept at one of the
principal places of Salix, its Affiliates and Sublicensees for a least seven (7)
years following the end of the calendar quarter to which they pertain. Falk
shall have the following audit rights:

 

 
5.2.1
 
Upon the written request of Falk and, except with respect to an audit permitted
by Clause 5.2.2, not more than once in each Year, Salix shall permit an
independent certified public accounting firm of recognized good standing in the
US, selected by Falk, at Falk’s expense, to have access during normal business
hours, and upon reasonable prior written notice, to such of the records of Salix
as may be reasonably necessary to verify the accuracy of the calculations of
royalties and other amounts due and payable under this Agreement for any Year
ending, except as

 
[*] CONFIDENTIAL TREATMENT REQUESTED, CERTAIN INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SEC.

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otherwise permitted under Clause 5.2.2, not more than three (3) Years prior to
the date of such request. If such accounting firm concludes, as indicated by a
written report delivered to each of the Parties, that additional Royalties or
other amounts were owed during such period, Salix shall pay the additional
Royalties or other amounts, as applicable, with interest from the date
originally due at the rate specified in Clause 5.3 within sixty (60) days after
the date on which such accounting firm’s written report is delivered to Salix.
Any overpayment of Royalties shall be fully creditable against future royalties
payable to Falk.

 

 
5.2.2
 
If, and only if, the amount of any underpayment discovered as the result of an
audit conducted in accordance with Clause 5.2.1 is greater than [*] percent
([*]%) of the total amount previously paid, then Salix shall reimburse Falk for
all costs related to such audit and Falk shall be entitled to conduct an audit
in accordance with Clause 5.2.1 for any Year ending not more than five (5) years
prior to the date of such audit; provided, that in no event shall Falk audit
Salix more than twice in any Year.

 
5.3
 
Without prejudice to Falk’s rights under Clause 18.5 if any Royalty or any other
amount due and payable under this Agreement is overdue, Salix shall pay interest
thereon at an annual rate (but with interest accruing on a daily basis) of [*]
percent ([*]%) above the then-current U.S. prime rate, as published in The Wall
Street Journal, Eastern U.S. Edition. Such interest shall run from the date upon
which payment of such sum became due until payment thereof in full together with
such interest by Salix.

 
5.4
 
Salix shall be entitled to set off against payments due by Salix to Falk under
the terms of this Agreement any sums due from Falk to Salix.

 
5.5
 
All sums due to Falk under this Agreement:-

 

 
5.5.1
 
are, unless otherwise expressly stated, exclusive of any Value Added Tax or
equivalent sales tax which shall be payable (if applicable) on submission by
Falk of valid Value Added Tax invoices in respect thereof; and

 

 
5.5.2
 
shall be paid in full subject to deduction for withholding taxes, charges and
other duties that may be imposed in the Territory save insofar as Falk shall be
capable of obtaining a credit therefor. The Parties agree to co-operate in all
respects necessary to take advantage of such double taxation agreements as may
be available. If Salix is required to deduct or withhold it will (i) promptly
notify Falk of such requirement, (ii) pay to the relevant authorities the full
amount to be deducted or withheld

 
[*] CONFIDENTIAL TREATMENT REQUESTED, CERTAIN INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SEC.

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promptly upon the earlier of determining that such deduction or withholding is
required or receiving notice that such amount has been assessed against Falk and
(iii) promptly forward to Falk an official receipt (or certified copy), or other
documentation reasonably acceptable to Falk and obtainable by Salix, evidencing
such payments to such authorities.

 
5.6
 
All Royalties or other sums payable under this Agreement shall be paid in US
dollars by telegraphic transfer to such bank as Falk may designate for such
purpose.

 
6.
 
OBLIGATIONS OF SALIX

 
6.1
 
Salix shall in accordance with the Outline Development Plan prepared and amended
in accordance with Clauses 6.3 and the Outline Marketing Plan prepared and
amended in accordance with Clause 6.4:

 

 
6.1.1
 
use all reasonable commercial efforts to obtain Approval for the [*l] Product at
the earliest opportunity and for such purpose shall effect studies and obtain
such Product Data as may be required in connection with the Approval; in
particular, Salix shall [*] perform additional galenical, preclinical and
clinical development according to the requirements stipulated by the FDA
reasonably required for Approval. Salix shall commit such resources to the
development of each Product as are specified in the Outline Development Plan; it
shall use personnel with such skills and experience as are designed to
accomplish efficiently and expeditiously the Approval for the [*] Product as set
forth in the Outline Development Plan. Salix undertakes to notify Falk of each
proposed meeting with the FDA and representatives of Falk may attend any such
FDA meeting (at Falk’s expense).

 

 
6.1.2
 
use reasonable commercial efforts to effect Launch of the [*] Product as soon as
reasonably practicable after Approval;

 

 
6.1.3
 
use reasonable commercial efforts to achieve the [*] Approval Date at the
earliest opportunity;

 

 
6.1.4
 
use reasonable commercial efforts to manufacture or procure the manufacture of
Product whereby such manufacture shall be effected by an FDA approved Third
Party manufacturer to be identified by Salix. Falk shall have the right to
attend any inspection of the Third Party manufacturer or any proposed Third
Party manufacturer, effected by Salix (at Falk’s expense), at such times as may
be notified to it by Salix and Salix shall notify Falk of any such inspection
proposed to be effected by it; and

 
[*] CONFIDENTIAL TREATMENT REQUESTED, CERTAIN INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SEC.

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6.1.5
 
use reasonable commercial efforts throughout the Term and shall devote financial
resources, personnel and other resources as stipulated in the Outline Marketing
Plan, to promote sales of Products throughout the Territory. Such reasonable
commercial efforts shall in no event be less than used by Salix with respect to
the commercialisation of its own products of comparable commercial significance
and market potential or than used by other companies with respect to the
commercialisation of other products in the market of comparable commercial
significance and market potential in the Territory.

 
6.2
 
Salix shall keep Falk regularly informed of its progress in the development of
each Product and in the performance of its obligations under Clause 6.1. Such
information shall be made available to Falk in the form of [*] months. In
immediate subsequence to the furnishing of a report the Parties shall discuss
its content in telephonic meetings (including video conferencing). Furthermore,
Falk may call additional personal meetings as deemed necessary or appropriate in
order to review and discuss the progress in the development of each Product.

 
6.3
 
Within [*(*)] months of the Effective Date, Salix shall submit to Falk the
Outline Development Plan describing [*] Salix’s plan and time frame with respect
to obtaining Approval for the [*] Product and detail of the studies to be
effected for such purpose. Thereafter, it shall regularly update the Outline
Development Plan and shall notify Falk regularly of all such material updates
and amendments to the Outline Development Plan and of its progress and
performance against the Outline Development Plan and shall use reasonable
commercial efforts to perform in accordance with the Outline Development Plan.
Salix shall notify and discuss with Falk, [*] of the Outline Development Plan
and shall notify Falk of its [*]. Salix agrees that Falk may comment on the
content of the Outline Development Plan and any changes or amendments thereto
and Salix shall [*]. Salix shall endeavour to [*], the provisions of Clause 28
shall not apply and Salix shall be entitled to implement and effect the Outline
Development Plan as determined by it. Salix undertakes that it shall not in the
Outline Development Plan propose or effect any clinical study in the Territory
which might reasonably be anticipated to have a material adverse effect on the
Products in the Excluded Territory, [*]. In respect of each Year of the Term
prior to Launch of the [*] Product, the Parties shall on or before [*] in
respect of the following Year, meet at a mutually agreed location or by means of
video or telephone conferencing to discuss the contents of the Outline
Development Plan.

 
6.4
 
At least [* (*)] months prior to the anticipated Approval Date, Salix shall
submit to Falk the Outline Marketing Plan describing [*] at the time Salix’s
plan relating to the manufacturing promotion, marketing, sale and distribution
of the Product. Thereafter, it shall regularly update the Outline Marketing Plan
and shall notify Falk regularly of all such updates and amendments to the
Outline Marketing Plan and of

 
[*] CONFIDENTIAL TREATMENT REQUESTED, CERTAIN INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SEC.

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its progress and performance against the Outline Marketing Plan and shall use
reasonable commercial efforts to perform in accordance with the Outline
Marketing Plan. Salix shall notify and discuss with Falk its performance against
the Outline Marketing Plan and shall notify Falk of its [*] in accordance with
the Outline Marketing Plan. In particular the Outline Marketing Plan shall be
[*] at least [*] months prior to the anticipated [*] Approval Date. Salix agrees
that Falk may comment on the content of the Outline Marketing Plan and any
changes and amendments thereto and Salix shall [*]. Salix shall endeavour to
[*], the provisions of Clause 28 shall not apply and Salix shall be entitled to
implement and effect the Outline Marketing Plan as determined by it. In respect
of each Year of the Term, the Parties shall on or before [*] in respect of the
following Year, meet at a mutually agreed location or by means of video or
telephone conferencing to discuss the contents of the Outline Marketing Plan
including [*].

 
6.5
 
For the avoidance of doubt, Salix shall be solely responsible for the
performance of its obligations under Clause 6.1 and [*].

 
6.6
 
Salix shall assist Falk as reasonably required in the event that Falk wishes to
use the Third Party manufacturer identified by Salix for manufacture of Product
for use outside the Territory Provided that Falk undertakes not to manufacture
Product in the Territory or otherwise use such Salix Third Party manufacturer
without the prior consent in writing of Salix and acknowledges that in the event
of any limited capacity of any manufacturer in the Territory, Salix shall be
entitled at all times to obtain from such manufacturer in the Territory all such
quantities of Product as it may require for Exploitation in the Territory in
priority to any supplies of Product required by Falk.

 
7.
 
OBLIGATIONS OF FALK

 
7.1
 
Within 30 days of the Effective Date Falk shall deliver to Salix:

 

 
7.1.1
 
the Falk IP; and

 

 
7.1.2
 
the Falk Product Data.

 
7.2
 
Thereafter during the Term Falk shall (at its sole cost and expense) provide to
Salix such assistance as Salix may reasonably require in connection with the
performance of its obligations under Clause 6 and shall promptly deliver any
further Falk IP or Falk Product Data coming into the possession or control of
Falk.

 
8.
 
PRODUCT DATA

 
8.1
 
In the event that Salix ascertains that the FDA requires additional Product Data
to be filed before granting Approval or in respect of the [*] Product, [*] will
at its own

 
[*] CONFIDENTIAL TREATMENT REQUESTED, CERTAIN INFORMATION OMITTED AND FILED
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cost conduct such study(ies) (the “Studies”) in accordance with the Outline
Development Plan in order to assist in obtaining an Approval or in respect of
the [*] Product and will provide all medical resources and study monitors for
such purpose.

 
8.2
 
The Outline Development Plan shall contain details of anticipated Studies to be
effected by [*]. All clinical trial master files, in particular the study report
and the CRF Files, in respect of the Studies shall be made available to [*]. [*]
shall keep [*] informed as to conduct, progress and results of the Studies. [*]
acknowledges that in respect of any Product Data supplied to it by [*], it shall
comply in all material respects with data privacy requirements applicable to
such Product Data.

 
8.3
 
All right, title and interest in all Product Data arising from any Studies shall
be [*] and to incorporate it in any regulatory filing Provided that [*]
acknowledges that during the Term it shall not and shall not authorise or permit
any Third Party to, [*]. [*] shall assign into the [*] its rights in all such
[*] as reasonably required by [*] from time to time. Each Party undertakes to
provide such assistance as may reasonably be required by the other Party in
connection with the protection of the [*] Product Data from unauthorised use or
disclosure and acknowledges that the [*] Product Data shall be deemed
Confidential Information of both Parties under the terms of Clause 11.

 
9.
 
TRADEMARKS

 
9.1
 
Salix shall have the sole right and responsibility for developing trademark(s)
for the Product in the Territory, including product names and distinctive
artwork and logos, and for seeking registration or other protection of such
trademark(s) in the Territory. Such trademark(s) shall be the subject of a
trademark application in the Territory (effected by Salix) and shall be
registered and maintained in the name of Salix at the sole expense of [*].
However, trademark(s) to be used from time to time in the commercialization of
the Product in the Territory so selected by Salix shall be notified to Falk and
such trademark(s) shall be [*]. Insofar as permitted by law and regulation in
the Territory and subject to the Approval, all packaging and printed literature
for the Product offered for sale in the Territory shall, if so and as long as so
requested by Falk, display that the Product is an innovation of Falk and that it
is distributed under a license granted by Falk.

 
9.2
 
Each Party shall notify the other, in writing, in the event of any infringement
of such trademark(s) used by Salix, or potential infringement of such
trademark(s), in the Territory coming to such Party’s attention. Salix shall be
entitled to take such action against any infringers or potential infringers as
Salix may in its sole discretion determine.

 
9.3
 
Falk undertakes that it shall not use or register any tradename or trademark
confusingly similar to the trademark(s) used by Salix on the Product in
accordance with Clause 9.1, without the prior consent of Salix which may
withhold consent in

 
[*] CONFIDENTIAL TREATMENT REQUESTED, CERTAIN INFORMATION OMITTED AND FILED
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its absolute discretion in the event that it reasonably considers that any such
use may prejudice or otherwise affect the marketing of the Product in the
Territory.

 
10.
 
INTELLECTUAL PROPERTY OWNERSHIP AND INFRINGEMENT

 
10.1
 
Falk shall retain all rights, title and interest in and to the Falk IP and the
Falk Product Data, including any improvement, amendment, modification,
enhancement, discovery or invention to the Product or the use of the Product,
together with all Intellectual Property therein. In the event that [*] develops,
creates or identifies any improvement, amendment, modification, enhancement,
discovery or invention relating to the Product (“an Invention”), [*] shall
promptly disclose the Invention to [*] and shall take all such actions and
execute all such documents as may reasonably be required to procure the sole
ownership thereof by [*], provided that such Invention shall be licensed back to
[*] for [*] to use and exploit the Invention under the terms of [*] in such
manner as it considers appropriate within [*]. Except as otherwise expressly
provided in this Agreement, [*] has no right, title or interest in any
Invention, provided that ownership rights to [*] Product Data resulting from the
Studies shall be as described in Clause 8.3. All rights not expressly granted to
Salix under this Agreement are reserved by Falk. [*] shall not (and shall not
attempt or purport to) file or prosecute in any country any patent application
which claims, discloses or uses or purports to claim, disclose or use any
Invention, without the prior express written consent of [*]. Additionally, [*]
shall not, directly or indirectly prevent or attempt to prevent [*] from filing
or prosecuting in any country any patent application which claims, discloses or
uses or purports to claim, disclose or use any Invention.

 
10.2
 
Falk shall at its own cost prosecute to grant all subsisting Patent applications
within the Falk Patents and shall maintain (including payment of all renewal
fees) and defend all such Patents granted pursuant to the Patent rights existing
as at the date hereof in respect of the Falk Patents in force for the full term
thereof Provided Always that [*].

 
10.3
 
In the event that Salix at any time during the Term becomes aware of any
misappropriation or infringement or alleged misappropriation or infringement by
a Third Party (the “Infringer”) of any part of the Falk IP in the Territory,
Salix shall give prompt written notice thereof to Falk and (save only in respect
of the [*] Product Data, under Clause 10.4);

 

 
10.3.1
 
Falk shall have the first right (but not the obligation) to take such steps
against an Infringer (including all injunctive, compensatory and other remedies
and relief) (collectively “Remedies”) as may be necessary or desirable to
prevent such infringement and preserve the Falk IP. Salix shall permit any such
Remedies to be brought in its name if permitted or required by law. Falk may
compromise or settle any of the Remedies in its sole discretion Provided that
Falk shall not make any settlement or

 
[*] CONFIDENTIAL TREATMENT REQUESTED, CERTAIN INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SEC.

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compromise that adversely affects the interests of Salix in respect of the
Products in the Territory without the prior consent in writing of Salix, such
consent not to be unreasonably withheld or delayed.

 

 
10.3.2
 
In the event that Falk elects not to pursue Remedies with respect to the Falk IP
within the Territory within ninety (90) days after notice in writing from Salix
requesting Falk to do so, Falk shall provide full details of such advice to
Salix. Thereafter, and in any event if Falk fails to pursue Remedies against
such Infringer Salix shall have the right (but not the obligation) to pursue
Remedies against such Infringer; provided that Salix does not make any
settlement or compromise that adversely affects the interests of Falk in the
Products in the Excluded Territory without the prior consent of Falk, such
consent not to be unreasonably withheld or delayed and provided that if Falk has
commenced negotiations with an Infringer for discontinuance of such Infringement
within such ninety (90) day period, Falk shall have an additional ninety (90)
day period to conclude its negotiations before Salix may bring suit for such
Infringement.

 
10.4
 
In the event that Salix at any time during the Term becomes aware of any
misappropriation or infringement or alleged misappropriation or infringement by
an Infringer of any part of the [*] Product Data in the Territory, Salix shall
give prompt written notice thereof to Falk and Salix shall have the first right
(but not the obligation) to take such Remedies as may be necessary or desirable
to prevent such infringement and preserve the [*] Product Data. Falk shall
permit any such Remedies to be brought in its name if permitted or required by
law. Salix may compromise or settle any of the Remedies in its sole discretion
Provided that Salix shall not make any settlement or compromise that adversely
affects the interests of Falk in respect of the [*] Product Data in the Excluded
Territory without the prior consent in writing of Falk, such consent not to be
unreasonably withheld or delayed.

 
10.5
 
In the event that either Party shall pursue Remedies under Clauses 10.3 or 10.4;

 

 
10.5.1
 
the other Party shall use all reasonable efforts to assist and cooperate with
the Party pursuing such Remedies, including providing access to relevant
documents and other evidence; and

 

 
10.5.2
 
each Party shall bear its own costs and expenses relating to its pursuit of
Remedies or in providing assistance and cooperation; and

 

 
10.5.3
 
any damages or other amounts collected by either Party shall be used, (i) by the
Party that pursued Remedies, to cover its costs and expenses incurred (ii) by
the other Party to cover its costs and expenses, if any, relating to the pursuit
of such Remedies; and (iii) the remaining amount, shall be allocated between
Salix and Falk equitably as appropriate to

 
[*] CONFIDENTIAL TREATMENT REQUESTED, CERTAIN INFORMATION OMITTED AND FILED
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reflect the loss suffered by each Party in connection with the actions of the
Infringer, and as appropriate to reflect the basis on which such damages were
awarded in any such action to compensate for the loss of each Party .

 
10.6
 
In the event that a Third Party institutes a patent, trade secret or other
infringement suit against Salix or its Affiliates during the Term, alleging that
its Exploitation of the Product in the Territory infringes one or more Patents
or other Intellectual Property rights held by such Third Party (an “Action”),
Salix shall promptly notify Falk thereof in writing and promptly discuss with
Falk the best way to respond.

 

 
10.6.1
 
Save as specified in Clause 10.6.2, Salix shall have the exclusive right to
defend and control the defense of any such Action using counsel of its own
choice, and the Action, subject to Clause 13, shall be at Salix’s own expense;
provided that Falk may participate in the defense and/or settlement of such
Action at its own expense with counsel of its choice and provided that Salix
shall not enter into any settlement to the extent that such Action and/or the
settlement of such Action is the subject of any claim made by Salix against Falk
for indemnification under Clause 13.1 except as agreed in writing between the
Parties, such agreement not to be unreasonably withheld and delayed. Salix
acknowledges that any such agreement of Falk to any such settlement shall be
without prejudice to the right of Falk to dispute any claim for indemnification
in respect thereof. Salix further acknowledges that in the event that Salix
enters into any settlement, without the agreement of Falk, in circumstances
where such Action and/or the settlement of such Action is not as at the date of
such settlement, the subject of any claim made by Salix against Falk for
indemnification under Clause 13.1, Salix shall not subsequently make any claim
for indemnification against Falk under Clause 13.1 in respect of such Action or
settlement.

 

 
10.6.2
 
In the event that Falk shall have acknowledged its obligation to indemnify Salix
in respect of any such Action under Clause 13, Falk shall have the exclusive
right to defend and control the defense of any such Action using counsel of its
own choice, and the Action shall be at Falk’s own expense; provided that Salix
may participate in the defense and/or settlement of such Action at its own
expense with counsel of its choice and provided that Falk shall not enter into
any settlement relating to the Product in the Territory if such settlement
admits the invalidity or unenforceability of any of the Falk IP except as agreed
in writing between the Parties, such agreement not to be unreasonably withheld
and delayed.

 
[*] CONFIDENTIAL TREATMENT REQUESTED, CERTAIN INFORMATION OMITTED AND FILED
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10.6.3
 
In any such Action under Clauses 10.6.1 or 10.6.2, the Parties shall cooperate
with each other in connection with any such claim, suit or proceeding and shall
keep each other reasonably informed of any material developments in connection
with any such claim, suit or proceeding, including providing access to relevant
documents and other evidence.

 

 
10.6.4
 
[*]

 
The foregoing shall not affect any liability of Falk under Clause 13, arising
out of or in connection with any Action.
 
11.
 
CONFIDENTIALITY

 
11.1
 
Each Party undertakes that in relation to all confidential information of the
other Party which may be within or come into its possession in connection with
or arising from this Agreement or which it may generate in reliance on any
confidential information so disclosed (such confidential information of Falk to
include all information relating to the Falk IP and Falk Product Data and the
Manufacturing Technology and any Falk IP Invention and such confidential
information of Salix to include all information relating to the Salix Product
Data, any Salix Invention, marketing and development information and other
information delivered to Falk under Clauses 6.2 and 6.3 (collectively
“Confidential Information”, comprising respectively “Falk Confidential
Information” or “Salix Confidential Information”, as applicable) it will keep
the same secret and confidential and will not at any time for any reason
whatsoever disclose or permit the same to be disclosed to any Third Party (save
as provided in Clauses 11.3, 11.5 and 11.7 below).

 
11.2
 
The obligations of confidentiality contained in this Clause 11 shall not extend
to any part of the Confidential Information of the disclosing Party which the
recipient Party can show by documentary evidence:-

 

 
11.2.1
 
shall (otherwise than by reason of any default by the recipient Party) become
freely available to the general public; or

 

 
11.2.2
 
was legally in its possession or control prior to the date upon which it was
received from the other Party free of any obligation of confidentiality; or

 

 
11.2.3
 
came into its possession or control legally from a Third Party free of any
obligation of confidentiality and otherwise than by reason of any breach of any
obligation of confidentiality by such Third Party subsequent to the date of this
Agreement; or was generated from research and development efforts by the
non-disclosing Party, its Affiliates or sublicensees independent of disclosure
by the disclosing Party.

 
[*] CONFIDENTIAL TREATMENT REQUESTED, CERTAIN INFORMATION OMITTED AND FILED
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11.3
 
Either Party shall be permitted to disclose the other Party’s Confidential
Information at such times and in such manner as may be required by law or any
relevant regulatory authority or any relevant Stock Exchange regulation Provided
that in such circumstances it shall notify the other Party of such disclosure,
shall limit such disclosure to what is strictly required and shall endeavour
(insofar as is appropriate) to preserve the confidentiality of any such
Confidential Information so disclosed.

 
11.4
 
In the event that either Party is required at any time whilst it shall retain
any Confidential Information under the terms of this Agreement by any relevant
law or regulation to disclose all or any part of the Confidential Information:

 

 
11.4.1
 
it shall forthwith notify the other Party of such part of the Confidential
Information as may be required to be disclosed by law, the extent to which such
disclosure is required and the circumstances in which such disclosure is
required or effected pursuant to any applicable law; and

 

 
11.4.2
 
it shall keep the other Party informed of the extent and nature of such
disclosure; and

 

 
11.4.3
 
it shall ensure that any Party to whom all or any part of the Confidential
Information is disclosed by reason of any disclosure required by law is made
fully aware of the confidentiality obligations attaching to the Confidential
Information and shall (insofar as is possible) procure an equivalent obligation
of confidentiality from any such Party.

 
11.5
 
It is acknowledged that notwithstanding the provisions of Clause 11.1 above each
Party shall be entitled to disclose any Confidential Information of the other
Party to its agents, representatives, employees and consultants (collectively
“Third Party Recipients”) to the extent necessary to facilitate the performance
of its obligations in connection with this Agreement Provided that any such
disclosure shall be limited to what is necessary in order to facilitate the
performance of such obligations and the disclosing Party shall procure that any
Third Party recipient shall be bound by obligations of confidentiality
substantially similar to the provisions of this Clause 11.

 
11.6
 
Subject to the provisions of Clause 11.10 neither Party shall issue any press
release or communication to be published by or in the media in any manner
concerning the subject matter of this Agreement without the prior written
consent of the other Party (such consent not to be unreasonably withheld or
delayed).

 
11.7
 
For the avoidance of doubt it is acknowledged that subject to the terms of
Clauses 11.3, 11.4 and 11.5 Falk may disclose the [*] Product Data to the extent
reasonably required in connection with obtaining regulatory approval for the
Product in any part of the Excluded Territory and Salix may use and disclose the
[*] Product Data

 
[*] CONFIDENTIAL TREATMENT REQUESTED, CERTAIN INFORMATION OMITTED AND FILED
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as may reasonably be required in connection with its Exploitation of the Product
in the Territory. It is further acknowledged that, subject to Clauses 11.3, 11.4
and 11.5, the terms of this Agreement and the contents of Schedules 3, 4, 5 and
6 shall constitute Confidential Information of each Party under the terms of
this Clause 11.
 
11.8
 
The obligations of both Parties under Clause 11.1 to 11.6 (inclusive) shall
remain in force for the Term and continue thereafter for a period of [* (*)]
years.

 
11.9
 
The Parties undertake to continue to comply with the provisions of the
Confidentiality Agreement Provided that in the event of any ambiguity or
discrepancy between this Agreement and the Confidentiality Agreement the former
shall prevail.

 
11.10
 
The Parties agree that each Party may within the period of ten days following
the Effective Date issue a press release in the form of Schedule 2.

 
12.
 
REPRESENTATIONS AND WARRANTIES

 
12.1
 
Salix hereby represents and warrants to Falk as at the Effective Date as
follows:

 

 
12.1.1
 
Salix is a company duly organized, validly existing and in good standing under
the laws of California;

 

 
12.1.2
 
Salix has full power, authority and legal right to execute and deliver this
Agreement and to perform its obligations hereunder;

 

 
12.1.3
 
the execution and delivery of this Agreement by Salix has been duly authorized
by all necessary actions of Salix;

 

 
12.1.4
 
this Agreement is a legal and valid obligation of Salix, binding upon Salix and
enforceable in accordance with its terms;

 

 
12.1.5
 
The execution, delivery and performance of this Agreement do not and will not
violate any provision of any indenture, agreement or other instrument or
document to which Salix is a Party or by which any of its assets or properties
is bound or affected or be in conflict with or result in a breach of or
constitute a default under any such indenture, agreement, instrument or
document; and

 

 
12.1.6
 
other than consents, authorizations, filings, notices and other acts that have
been obtained or anticipated in this Agreement, no consent or authorization of,
filing with, notice to or other act by or in request of, any governmental
authority or any other person, in the name of Salix, is required in connection
with the execution, delivery, performance, validity or enforceability of this
Agreement.

 
[*] CONFIDENTIAL TREATMENT REQUESTED, CERTAIN INFORMATION OMITTED AND FILED
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12.2
 
Falk hereby represents and warrants to Salix as at the Effective Date as
follows:

 

 
12.2.1
 
Falk is a corporation duly organized and in good standing under the laws of
Germany;

 

 
12.2.2
 
Falk has the full power and legal right to execute and deliver this Agreement,
grant the rights granted to Salix hereby and perform Falk’s obligations
hereunder;

 

 
12.2.3
 
the execution and delivery of this Agreement by Falk has been duly authorised by
all necessary actions on the part of Falk;

 

 
12.2.4
 
this Agreement is a legal and valid obligation of Falk, binding upon Falk and
enforceable in accordance with its terms;

 

 
12.2.5
 
The execution, delivery and performance of this Agreement do not and will not
violate any provision of any indenture, agreement or other instrument or
document to which Falk is a Party or by which any of its assets or properties is
bound or affected or be in conflict with or result in a breach of or constitute
a default under any such indenture, agreement, instrument or document;

 

 
12.2.6
 
other than consents, authorizations, filings, notices and other acts that have
been obtained or anticipated in this Agreement, no consent or authorization of,
filing with, notice to or other act by or in request of, any governmental
authority or any other person, in the name of Falk, is required in connection
with the execution, delivery, performance, validity or enforceability of this
Agreement.

 

 
12.2.7
 
There is no action or proceeding nor, so far as Falk is aware (due inquiry
having been made), any threat of an action or proceeding that would materially
and adversely affect the rights granted to Salix herein in respect of the
Product, [*];

 

 
12.2.8
 
[*], there is no action or proceeding against Falk or any Falk Affiliate and
Falk is not aware of any notification to Falk or any Falk Affiliate alleging the
ability of a third party to commence any action or proceeding [*], against Falk
or any of its Affiliates, that would materially and adversely affect the rights
granted to Salix herein in respect of the Products in the Territory;

 

 
12.2.9
 
[*], Falk is not aware of any Patents or Patent applications that may prevent
the Exploitation by Salix of the Product under the terms of this Agreement;

 
[*] CONFIDENTIAL TREATMENT REQUESTED, CERTAIN INFORMATION OMITTED AND FILED
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12.2.10
 
the Falk Patents, the Falk IP and Falk Product Data includes all Intellectual
Property, Know-how and Confidential Information in the possession, custody or
control of Falk which is [*] reasonably required for the Exploitation of the
Product by Salix under the terms of this Agreement;

 

 
12.2.11
 
[*], the Falk Patents, the Falk IP and Falk Product Data (including all
documents recording or embodying the same) supplied to Salix by Falk under
Clause 7 are true, accurate and up to date;

 

 
12.2.12
 
there are in respect of any part of the Territory:

 

 
(a)
 
no outstanding orders, judgments, injunctions, awards or decrees of any court or
arbitrator or any other governmental regulatory body relating to the Product;

 

 
(b)
 
no challenges, oppositions, actions, suits, personal injury or product liability
or other claims, legal, administrative or arbitral proceedings or investigations
against Falk, its Affiliates or sublicensees pending or threatened against or
relating to the Product which have had or in the reasonable opinion of Falk may
have a material adverse effect on the Exploitation of the Product in the
Territory; and

 

 
(c)
 
Falk is not aware of any written communication from or to the FDA which
indicates that any application for Approval is likely to be rejected; and

 

 
12.2.13
 
there are in respect of any part of the Excluded Territory so far as Falk is
aware having made diligent enquiry;

 

 
(a)
 
no outstanding orders, judgments, injunctions, awards or decrees of any court or
arbitrator or any other governmental regulatory body relating to the Product;

 

 
(b)
 
no challenges, oppositions, actions, suits, personal injury or product liability
or other claims, legal, administrative or arbitral proceedings or investigations
against Falk, its Affiliates or sublicensees pending or threatened against or
relating to the Product which have had or in the reasonable opinion of Falk may
have a material adverse effect on the Exploitation of the Product in the
Territory; and

 

 
(c)
 
Falk is not aware of any written communication from or to a regulatory authority
which indicates that any marketing authorisation or product approval in respect
of the Product in the Excluded Territory

 
[*] CONFIDENTIAL TREATMENT REQUESTED, CERTAIN INFORMATION OMITTED AND FILED
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granted are likely to be invalid or subject to challenge, revocation or
withdrawal or that applications for any of the same are likely to be rejected.

 

 
12.2.14
 
Falk is the sole legal and beneficial owner of all right title and interest in
and to the Falk Patents free of any lien, charge or encumbrance; and

 

 
12.2.15
 
The Falk Patents are valid and enforceable and no act or omission has occurred
whereby any of the Falk Patents has ceased to be valid and enforceable and no
circumstance exists which might cause any of the Falk Patents to cease to be
valid and enforceable;

 

 
12.2.16
 
All of the Licensed IP is licensed to Falk upon terms permitting the sublicense
to Salix under the terms of this Agreement and none of such licenses are capable
of termination by either party thereto at any time during the Term.

 
12.3
 
The warranties expressly set forth in this Clause 12 by each Party are exclusive
and no other warranty, written or oral, is expressed or implied. Other than as
expressly set forth in this Clause 12, Falk makes no warranty to Salix of any
kind whether express, implied or statutory, regarding the product and expressly
disclaims all warranties and terms of non-infringement of third party rights,
quality, fitness for a particular purpose or merchantability and Salix
acknowledges and agrees that there are known and unknown inherent risks involved
in developing a pharmaceutical product in the Territory. Furthermore, save in
respect of any breach of warranty by Falk, Falk will not be liable to Salix in
any amount in the event that Salix is unable to develop the Product or in the
event that the Product is not approved for sale or distribution in the
Territory.

 
12.4
 
Each party acknowledges that in entering into this Agreement it does not do so
on the basis of and does not rely on any representation or warranty or other
provision (except as expressly provided herein) and all conditions, warranties
or other terms implied by statute or common law are hereby excluded to the
fullest extent permitted by law.

 
12.5
 
Salix acknowledges that in respect of the exercise by it of the rights granted
under this Agreement it is not authorised to and shall not make any warranty,
express or implied, on behalf of Falk.

 
13.
 
INDEMNIFICATION AND LIABILITY

 
13.1
 
Falk shall defend, indemnify and hold Salix, its Affiliates and Sublicensees
(the “Salix Indemnitees”) harmless from any claim, liability, damage or loss
(including reasonable attorneys’ fees and disbursements) (“Losses”) arising out
of:

 

 
13.1.1
 
any breach by Falk of the representations, warranties given under Clause 12.2;
or

27

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13.1.2
 
the manufacture and/or Exploitation of the Product by Falk, its Affiliates or
licensees outside the Territory.

 
Save to the extent that the event giving rise to such Losses is not an event
which would give rise to an indemnification obligation of Salix under Clause
13.2 and provided that Falk shall have no obligation to indemnify any Salix
Indemnitee against any Losses in connection with any product liability claim
arising solely out of the manufacture, use or sale of the Product by Salix and
its Affiliates and Sublicensees, regardless of whether such claim arises in
tort, contract, strict liability, product liability or any other legal theory.
 
13.2
 
Salix shall defend, indemnify and hold Falk and its Affiliates harmless from any
Losses arising out of:

 

 
13.2.1
 
any breach by Salix of the representations and warranties given under Clause
12.1; or

 

 
13.2.2
 
the manufacture and/or Exploitation of the Product by Salix, its Affiliates or
Sublicensees in the Territory;

 
Save to the extent that the event giving rise to such Losses in respect of
Salix’s or its Affiliates’ or Sublicensees’ Exploitation of such Product is not
an event which would give rise to an indemnification obligation of Falk under
Clause 13.1.
 
13.3
 
Each indemnified Party agrees to give the indemnifying Party prompt written
notice of any Losses or the discovery of a fact upon which such indemnified
Party intends to base a request for indemnification hereunder.

 
13.4
 
Each Party shall furnish promptly to the other copies of all papers and official
documents received in respect of any Losses. The indemnified Party shall
cooperate as reasonably requested by the indemnifying Party in the defence
against any Losses.

 
13.5
 
With respect to Losses relating to all matters as to which the indemnifying
Party shall have acknowledged in writing the obligation to indemnify the
indemnified Party hereunder, the indemnifying Party shall have the sole right to
control the defence of such matter; Provided that the indemnifying Party shall
obtain the written consent of the indemnified Party, prior to ceasing to defend,
settling or otherwise disposing of any Losses if as a result thereof (i) the
indemnified Party would become subject to injunctive or other equitable relief
or any remedy other than the payment of money by the indemnifying Party or (ii)
the business of the indemnified Party would be adversely affected. The
indemnified Party shall have the right to control the defence of all other
matters; Provided that the indemnifying Party shall not be liable for any
settlement or other disposition of a Loss by the indemnified Party which is
reached without the written consent of the indemnifying Party, which consent
shall not be unreasonably withheld.

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13.6
 
Except as provided above, the costs and expenses, including reasonable fees and
disbursements of counsel, incurred by any indemnified Party in connection with
any claim shall be reimbursed on a Quarterly basis by the indemnifying Party,
without prejudice to the indemnifying Party’s right to contest the indemnified
Party’s right to indemnification and subject to refund in the event the
indemnifying Party is ultimately held not to be obligated to indemnify the
indemnified Party.

 
13.7
 
Except in circumstances of gross negligence or wilful misconduct by a Party or
its Affiliates and save as may be required in connection with any indemnity
under this Clause 13;

 

 
13.7.1
 
neither Falk or Salix shall be liable to the other for special, exemplary,
indirect, incidental, punitive or consequential damages, whether in contract,
warranty, negligence, tort, strict liability or otherwise;

 

 
13.7.2
 
the aggregate liability of Falk for damages in connection with any claim or
action arising under the terms of or in connection with this Agreement, whether
in contract, warranty, negligence, tort, strict liability or otherwise, shall
not exceed [*] US dollars ($US [*]).

 
14.
 
ADVERSE REACTIONS REPORTING

 
14.1
 
Salix and Falk agree to exchange adverse event information in such manner and
following such procedure as may be agreed between the Parties after the
Effective Date before Launch of the [*] Product.

 
15.
 
RIGHT OF FIRST NEGOTIATION

 
15.1
 
The Parties acknowledge their mutual desire to explore a broader collaboration
whereby Salix would develop and market Falk Additional Products in the Territory
and Falk would market Salix Additional Products in the Falk Territory.
Therefore, in addition to the exclusive rights granted to Salix in respect of
the Product under Clause 2, in respect of Additional Products developed or
identified during the period of [*] years from the Effective Date;

 

 
15.1.1
 
Falk hereby grants to Salix a right of first negotiation with respect to rights
to develop and exploit in the Territory Falk Additional Products; and

 

 
15.1.2
 
Salix hereby grants to Falk a right of first negotiation with respect to rights
to develop and exploit in the Falk Territory Salix Additional Products.

 
15.2
 
The Party having developed such Additional Product on or before the [*]
anniversary of the Effective Date (the “Offeror”) shall provide written
notification

 
[*] CONFIDENTIAL TREATMENT REQUESTED, CERTAIN INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SEC.

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to the other Party (the “Offeree”) of the opportunity in respect of the
Additional Product (such notice, an “Additional Product Notice”), together with
a description in reasonable detail of the Additional Product(s) and such other
information as may reasonably be required to enable the Offeree to assess the
Additional Product opportunity. Upon request by the Offeree within [* (*)] days
after receipt of such Product Notice (the date of such receipt the “Notice Date”
and such period the “Notice Period”), the Parties shall negotiate in good faith
towards an agreement granting to the Offeree exclusive rights in respect of the
Additional Product in either the Territory or the Falk Territory (as
applicable). If the Offeree chooses not to request such negotiations, it shall
so notify the Offeror promptly during the Notice Period if the Offeree makes no
communication within the Notice Period, it shall be deemed to have not effected
a request. If notwithstanding good faith negotiations the Parties do not enter
into a definitive agreement within [* (*)] days of the Notice Date (the
“Negotiation Period”), the Offeror may proceed to grant rights or licenses to
Third Parties with respect to all or a part of the Additional Product(s)
opportunity offered to the Offeree provided that the Offeror shall not enter
into a transaction in respect of the Additional Product(s) opportunity proposed
by the Offeror to the Offeree with a Third Party on terms which, assessed as a
whole, are materially less favourable to the Offeror than those proposed by the
Offeree in the course of the good faith negotiations.
 
15.3
 
The only obligations of Falk and Salix under this Clause 15 are as expressly
stated therein, and there are no further implied obligations relating to the
matters contemplated therein.

 
16.
 
RESTRICTIONS

 
16.1
 
Each of Falk and Salix agrees that during the Term, neither of them shall
directly or indirectly solicit or encourage any employee or consultant of the
other to leave or terminate such employment or consultancy for any reason,
including without limitation, becoming employed or otherwise engaged in any
capacity by such Party (or any person or entity associated with such Party) nor
shall it assist others in doing so.

 
16.2
 
Falk undertakes and covenants that it shall not within the Territory either
directly or indirectly during the Term be involved in the marketing, use, sale
or exploitation of any product containing the Compound Provided That such
restriction shall cease to apply in respect of a Falk Additional Product
notified to Salix under Clause 15.2 in the event that Salix shall not acquire
rights to such Falk Additional Product under the terms of Clause 15.2.

 
17.
 
FORCE MAJEURE

 
17.1
 
In the event that the performance of the obligations of either Party is
prevented, restricted or hindered by any event of Force Majeure such Party:-

 
[*] CONFIDENTIAL TREATMENT REQUESTED, CERTAIN INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SEC.

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17.1.1
 
shall not be liable to the other Party for any damages arising from any breach
of the terms of this Agreement caused by Force Majeure; and

 

 
17.1.2
 
shall immediately serve notice in writing on the other Party specifying the
nature of the Force Majeure, their effect upon its performance of this Agreement
and the period of time in which they are anticipated to apply; and

 

 
17.1.3
 
shall use its reasonable endeavours to overcome the Force Majeure and resume its
proper performance of its obligations under this Agreement.

 
18.
 
TERMINATION

 
18.1
 
This Agreement shall become effective as of the Effective Date and unless
earlier terminated pursuant to the other provisions of this Clause 18, shall
continue in full force and effect for the Term.

 
18.2
 
In the event that [*], Salix reasonably considers that the [*] Product is
unlikely to obtain Approval in the Territory, Salix, after discussion and
consultation with Falk, may terminate this Agreement on thirty (30) days notice
at any time prior to the Approval Date. Each Party undertakes promptly to notify
the other Party in writing if it becomes aware of any such recall or suspension.

 
18.3
 
Salix may terminate this Agreement after the [*]. Such termination shall be
effected by service of * (*)] days’ written notice by Salix to Falk and [*].

 
18.4
 
In the event that after [*], provided that Salix has performed its obligations
under Clause 6.1 and used reasonable commercial efforts to effect development of
the [*] Product in accordance with the Outline Development Plan and as
reasonably anticipated to be required to obtain Approval for the [*] Product, if
Salix considers it appropriate and is willing to [*], it shall consult with Falk
and keep Falk fully informed as to [*]. In the event that upon completion of
[*], Salix may by [*] days notice in writing to Falk terminate this Agreement
and in such circumstance no further payment shall be due [*] under the terms of
this Agreement.

 
18.5
 
Salix may terminate this Agreement at any time after the [*] if Salix reasonably
considers that [*], provided that Salix shall have discussed such circumstance
and consulted fully with Falk and the Parties shall have discussed and if
appropriate amended the [*] under Clause 4.5, prior to Salix effecting any such
termination. Such termination shall be made by providing [*] months written
notice to Falk Provided that Falk may in its sole discretion reduce such notice
period or permit termination during such notice period. During such notice
period all obligations of Salix under this Agreement shall continue in full
force and effect (including in particular all payment obligations) and the
obligation to effect payment of [*] shall be apportioned over the relevant part
Years up to the date of expiry of such notice

 
[*] CONFIDENTIAL TREATMENT REQUESTED, CERTAIN INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SEC.

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period (or earlier termination permitted by Falk) and any shortfall shall be
calculated by reference to Royalties due in respect of Net Sales in such period
from to the date of expiry of such notice or earlier termination.
 
18.6
 
In the event there shall have occurred a material adverse breach of this
Agreement or a material adverse default in the observance or performance of any
provision of this Agreement by a Party (the “Defaulting Party”), the Party
claiming the same (the “Non Defaulting Party”) shall promptly provide detailed
notice thereof to the Defaulting Party. The Defaulting Party shall have sixty
(60) days from the date of receipt of such notice to cure the material adverse
breach or material adverse default detailed in such notice and, if the same is
timely cured within such sixty (60) day period the provisions of this Agreement
shall remain in full force and effect. In the event that the material adverse
breach or material adverse default detailed in such notice cannot with due
diligence be cured within such sixty (60) day period, and the Defaulting Party
promptly notifies the Non Defaulting Party of the period (not exceeding 120
days) in which it anticipates that it can be cured, the time to cure such
material adverse breach or material adverse default shall be extended for such
period (up to a maximum of 120 days) as may be necessary to cure the same with
all due diligence. This Agreement may be terminated forthwith by service of
notice in writing by the Non Defaulting Party in the event that the Defaulting
Party shall fail to cure such material adverse breach or material adverse
default within such initial or extended period. The right of a Party to
terminate this Agreement, under this Clause 18.5, shall not be affected in any
way by its waiver or failure to take action with respect to any prior breach or
default and shall be without prejudice to any other rights of the Non Defaulting
Party in connection with any such material adverse breach or material adverse
default.

 
18.7
 
In the event that Salix suffers a Change of Control it shall promptly notify
Falk of such event and Falk may within a period of [* (*)] days after the date
of such notice terminate this Agreement by service of [* (*)] months notice of
termination to Salix Provided That this Agreement shall not terminate upon the
expiry of such notice period, if on or before the expiry of such [* (*)] month
notice period [*];

 

 
18.7.1
 
In the event that such Change of Control occurs at any time prior to the [*]
anniversary of the Approval Date, the [*]. In such circumstances where the [*]
prior to the Approval Date, the [*]. Provided that in the event that the [*]
after the Approval Date or in the event that [*].

 

 
18.7.2
 
In the event that such Change of Control occurs at any time after the [*]
anniversary of the Approval Date, the [*]. In such circumstance [*]. For the
avoidance of doubt any part of the [*].

 
[*] CONFIDENTIAL TREATMENT REQUESTED, CERTAIN INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SEC.

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19.
 
CONSEQUENCES OF TERMINATION.

 
19.1
 
Upon the effective date of termination by Salix of this Agreement under Clauses
18.2, 18.3, 18.4 or 18.5 or the effective date of termination by Falk of this
Agreement under Clause 18.5 or the expiry of the notice period under Clause 18.6
(in the event that Salix shall not have [*]):

 

 
19.1.1
 
all rights and licenses of Salix under this Agreement with respect to the
Territory shall immediately terminate and Salix shall;

 

 
(i)
 
cease all use of the Falk IP and the Falk Product Data; and

 

 
(ii)
 
cease development and Exploitation of the Product; and

 

 
(iii)
 
immediately return to Falk all relevant records and materials in its possession
or control containing or comprising Falk’s Know-How and Confidential Information
(except one copy of which may be retained in Salix’s confidential files for
archival purposes); and

 

 
(iv)
 
provide Falk with copies of all [*] Product Data (if any) not previously
provided to Falk; and

 

 
(v)
 
take all such actions as may reasonably be required to effect a transfer to Falk
(or as it may direct) of the NDA and any Approval for the Product; and

 

 
(vi)
 
transfer to Falk or as it may direct any trademark used on the Products in the
Territory under the provisions of Clause 9.

 

 
19.1.2
 
Salix shall, and shall cause its Affiliates and Sublicensees to, immediately
cease all Exploitation of the Product. However, if such termination occurs after
the Approval Date, Salix shall be entitled to sell all stock of the Product in
its possession or control during a period of [* (*)] months after the effective
date of termination (save only where termination arises on expiry of the notice
period under Clause 18.4) Provided that if so required by notice in writing
served by Falk on Salix within [*] days of the effective date of termination
Salix shall sell and Falk shall purchase all such stock of Product at a price
calculated as the [*].

 

 
19.1.3
 
save only as provided in Clause 18.3 or otherwise in respect of Royalties and
other sums accrued due to Falk prior to the effective date of termination, no
further payment shall be due from Salix either upon such termination or
otherwise under the terms of this Agreement after the effective date of
termination.

 
[*] CONFIDENTIAL TREATMENT REQUESTED, CERTAIN INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SEC.

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19.2
 
Termination of this Agreement for any cause shall not bring to an end:

 

 
19.2.1
 
the confidentiality obligations of the Parties hereunder; and

 

 
19.2.2
 
Salix’s obligation to pay Royalties or other sums which have accrued due to Falk
up to and including the effective date of termination, in accordance with Clause
5;

 

 
19.2.3
 
any provision of this Agreement which in order for full effect to be given
thereto needs to survive termination of this Agreement.

 
19.3
 
Any termination of this Agreement shall be without prejudice to the rights and
remedies of either Party with respect to any of the provisions of this Agreement
or arising out of breaches prior to such termination and shall not relieve
either Party of any obligations or liability accrued hereunder prior to such
termination including, without limitation, indemnity obligations and
confidentiality obligations, nor rescind or give rise to any right to rescind
anything done or payments made or other consideration given hereunder prior to
the time of such termination.

 
19.4
 
If this Agreement expires upon the expiration of the Term, the licenses granted
hereunder shall continue thereafter on a non exclusive basis and shall be fully
paid-up and perpetual and for the avoidance of doubt;

 

 
19.4.1
 
Salix shall thereafter be entitled to Exploit the Product in the Territory free
of any further payment to Falk; and

 

 
19.4.2
 
Falk shall be entitled either itself or by a Third Party to exploit the Product
in the Territory.

 
20.
 
NOTICES

 
20.1
 
All notices, statements or other documents that either Party shall be required
or shall desire to give to the other hereunder shall be in writing and shall be
given by the Parties only as follows:

 

 
20.1.1
 
by personal delivery; or

 

 
20.1.2
 
by addressing it as indicated below or to such other address as such Party shall
have last given by notice to the other Party, and by depositing it certified
mail, postage prepaid, in the mail, airmail; or

 

 
20.1.3
 
by addressing it as indicated below or to such other address as such Party shall
have last given by notice to the other Party, and by delivering it prepaid to a
recognized courier service (e.g., Federal Express or DHL).

 
20.2
 
If so delivered, mailed, or couriered, each such notice, statement or other
document shall, except as herein expressly provided, be conclusively deemed to
have been given when personally delivered during a Business Day, or on the fifth
Business

34

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Day after the date of mailing, or on the second Business Day after delivery to a
courier service, as the case may be. The address of a Party shall be the address
at which the other Party actually receives written notice pursuant to this
Clause 20 and until further notice is:
 
If to Falk: Leinenweberstraße 5, 79108 Freiburg, Germany
Facsimile:++49/761/1514-356 Attention: C.E.O.
 
If to Salix: 8540 Colonnade Center Drive, Suite 501, Raleigh, North Carolina
27615, USA
 
Facsimile:(919)862-1095
Attention: C.E.O.
 
with a copy in any event to: General Counsel
 
20.3
 
Either Party may also deliver a copy of any such notice by facsimile to the fax
numbers specified above.

 
21.
 
ENTIRE AGREEMENT

 
This Agreement contains the entire agreement between the Parties with respect to
the transactions contemplated herein or effected hereby and supersedes all prior
written agreements, all previous communications, either oral or written, and all
negotiations and oral understandings, if any, between the Parties hereto.
 
22.
 
ASSIGNMENT

 
22.1
 
Subject only to Clause 22.2, each Party may assign its rights and obligations
under this Agreement to its Affiliates, provided that save where this entire
Agreement is assigned to an Affiliate whose identity shall have previously been
approved in writing by the other Party (such approval not to be unreasonably
withheld or delayed), the assigning Party shall remain liable for the due and
proper performance of its obligations hereunder. In the event a Party assigns
all or any of its rights hereunder to an Affiliate whose identity shall have
been previously approved by the other Party, such other Party agrees to enter
into such supplemental agreements not inconsistent herewith with such Affiliate
as may be necessary or advisable to permit such Affiliate to avail itself of or
perform any right or obligation of the assigning Party hereunder.

 
22.2
 
Notwithstanding the provisions of Clause 22.1, Falk undertakes that this
Agreement shall be assigned only to an Affiliate or Third Party to whom Falk has
assigned all

 
[*] CONFIDENTIAL TREATMENT REQUESTED, CERTAIN INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SEC.

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right title and interest in the Falk IP and the [*] Products Data and that its
rights under this Agreement and its rights in the Falk IP and [*] Products Data,
shall at all times be held in common ownership by a single entity.
 
22.3
 
Either Party may assign any or all of its rights or obligations under this
Agreement in conjunction with a Change of Control, merger or acquisition of such
Party or its Affiliates or of substantially all of the assets thereof, which
such assignment shall not require the consent of the other Party [*].

 
22.4
 
Save as expressly provided in Clauses 22.1 and 22.3 neither Party shall assign,
charge or transfer this Agreement to a Third Party without the written consent
of the other.

 
23.
 
NON-WAIVER OF RIGHTS

 
Failure of a Party to enforce any of the provisions or any rights with respect
to this Agreement shall in no way be considered a waiver of such provisions or
rights or in any way affect the validity of this Agreement. The failure of
either Party to enforce any of such provisions or rights shall not preclude or
prejudice such Party from later enforcing or exercising the same or any other
provisions or rights which it may have under this Agreement.
 
24.
 
AMENDMENT

 
This Agreement may not be revised, amended, supplemented or varied except by an
instrument in writing signed by Falk and Salix.
 
25.
 
INDEPENDENT CONTRACTORS

 
Nothing in this Agreement shall create or imply an association, partnership or
joint venture between the Parties hereto, it being agreed and understood that
the Parties are independent contractors and neither Party, with respect to a
Third Party, shall have the power or authority to bind or obligate the other
Party in any way.
 
26.
 
FURTHER ASSURANCES AND COOPERATION

 
Each Party agrees that after the date hereof it will execute and deliver, or
cause the execution and delivery of, such further documents and instruments as
may be reasonably necessary or proper to fully effectuate this Agreement and the
transactions contemplated thereby.
 
[*] CONFIDENTIAL TREATMENT REQUESTED, CERTAIN INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SEC.

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27.
 
SEVERABILITY

 
This Agreement is intended to be valid and effective under any applicable law
and, to the extent permissible under applicable law, shall be construed in a
manner to avoid violation of or invalidity under any applicable law. Should any
provisions of this Agreement be or become invalid, illegal or unenforceable
under any applicable law, the other provisions of this Agreement shall not be
affected and shall remain in full force and effect and, to the extent
permissible under applicable law, any such invalid, illegal or unenforceable
provision shall be deemed amended lawfully to conform with the intent of the
Parties.
 
28.
 
DISPUTE RESOLUTION

 
28.1
 
Within ten (10) days of either Party becoming aware of any dispute relating in
any manner to this Agreement or the terms hereof it shall prepare and submit to
the Chief Executive Officer or such other senior manager as may be nominated
from time to time for such purpose (“CEOs”) of each of the Parties a memorandum
or statement setting out its position in respect of the matter in dispute and
its reasons for adopting that position. The other Party shall within ten (10)
Business Days of receipt of the memorandum or statement prepare and submit to
the other Party a memorandum or statement setting out like particulars on its
own behalf and the CEOs shall consider the dispute in the light of those
statements.

 
28.2
 
If the CEOs agree upon the resolution of the dispute they shall issue a joint
statement setting out the agreed terms and shall exercise and powers available
to them to procure that the agreed terms are fully and promptly carried into
effect.

 
28.3
 
If the dispute is not resolved or disposed of in accordance with this Clause 28,
within thirty (30) days of compliance with the terms of Clause 28.1, or if
either Party shall fail to comply with the terms of Clause 28.2, either Party
may by notice in writing request mediation in accordance with the provisions of
Clause 28.4.

 
28.4
 
If either Party by notice in writing under Clause 28.3 invokes mediation, the
CEOs shall agree upon a mediator in the US State of New York. Each Party shall
propose a list of up to five names within 10 Business Days of the date of the
written notice invoking mediation. Each such name proposed shall be of an
independent Third Party with appropriate experience and expertise. If any of the
names are the same the Parties shall agree upon a mediator from the names they
have jointly proposed. If none of the names are the same the Party who initiates
mediation shall select a mediator from the list provided by the non-initiating
Party. All lists of mediators shall include a full résumé for each mediator
named on the list. The Parties shall complete the process of selecting a
mediator within 20 days of the date of the

 
[*] CONFIDENTIAL TREATMENT REQUESTED, CERTAIN INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SEC.

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written notice invoking mediation. If the Parties are unable to reach a mediated
resolution within 60 days after selection of the mediator, the provisions of
Clause 29 shall apply.
 
29.
 
LAW AND ARBITRATION

 
29.1
 
Any controversy or claim of whatsoever nature arising out of or relating in any
manner whatsoever to this Agreement or any breach of any terms of this Agreement
shall be governed by and construed in all respects in accordance with the laws
of the US State of New York without regard to any choice of law provisions or
rule that might otherwise refer construction or interpretation of this Agreement
to the substantive law of another jurisdiction.

 
29.2
 
If the Parties are unable to reach a mediated resolution according to Clause
28.4, either Party may submit any dispute or other claim arising out of or in
connection with this Agreement for resolution by binding arbitration in New
York, USA under the Rules of Arbitration of the American Arbitration Association
( “AAA”) before a panel of three independent arbitrators with relevant business,
financial, scientific or other experience based on the subject matter of the
dispute. Each Party shall select one arbitrator and the arbitrators so selected
shall appoint a third arbitrator from a list of qualified persons provided by
the AAA. Each Party shall pay its own legal costs and expenses associated with
the arbitration, including the costs of its appointee and one-half the costs of
the third arbitrator provided that all other costs incurred in the arbitration
shall be borne as directed by the arbitrators. Judgment on the award rendered
unanimously by the arbitrators shall in the absence of manifest error or failure
of the arbitrators to conduct the arbitration in accordance with said AAA Rules
be binding on the Parties with no right of appeal to any court and such
judgement may be entered by either Party in any court having jurisdiction
thereof.

 
29.3
 
Nothing in either Clause 28 or this Clause 29 shall be construed to limit or
preclude a Party from bringing an action in any court of competent jurisdiction
for injunctive or other equitable relief as may reasonably be appropriate to
protect the Intellectual Property of such Party.

 
29.4
 
Each Party shall be entitled to recover from the other Party any costs
(including reasonable legal fees) reasonably incurred by such Party in enforcing
any payment or other obligation under the terms of this Agreement.

 
30.
 
COUNTERPARTS

 
This Agreement may be executed simultaneously or in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
 
[*] CONFIDENTIAL TREATMENT REQUESTED, CERTAIN INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SEC.

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31.
 
INTERPRETATION

 
In the event of a dispute hereunder, this Agreement shall be interpreted in
accordance with its fair meaning and shall not be interpreted for or against a
Party hereto on the ground that such Party drafted or caused to be drafted this
Agreement or any part thereof.
 
IN WITNESS WHEREOF, the Parties have executed this Agreement with effect from
the date first above written.
 

39

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SCHEDULE 1
 
Falk Patents
 
[*]
 
[*] CONFIDENTIAL TREATMENT REQUESTED, CERTAIN INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SEC.

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SCHEDULE 2
 
Press Release

41

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32.
 
FOR IMMEDIATE RELEASE

 
Contact:
  
Adam C. Derbyshire
  
Mike Freeman
    
Vice President and
  
Director, Investor Relations and
    
Chief Financial Officer
  
Corporate Communications
    
919-862-1000
  
919-862-1000
           
SALIX PHARMACEUTICALS IN-LICENSES
    
ULCERATIVE COLITIS PRODUCT FROM
                
DR. FALK PHARMA
                     
Salix/Falk Establish Collaboration
    

 
RALEIGH, NC, July 15, 2002—Salix Pharmaceuticals, Ltd. (Nasdaq:SLXP) today
announced that it has in-licensed rights to a pellet formulation of mesalamine
under an agreement with Dr. Falk Pharma GmbH (Freiburg, Germany). The agreement
gives Salix the exclusive rights to develop and market the product in the United
States. In return Salix will make upfront, milestone and royalty payments to
Falk. The agreement also provides Salix the right of first negotiation with
respect to rights to develop and market certain additional Falk products in the
United States.
 
The new mesalamine product is marketed in Germany by Falk under the trade name
Salofalk® Granu-Stix® for the treatment of acute episodes and the maintenance of
remission of ulcerative colitis. Salofalk Granu-Stix delivers the
therapeutically active anti-inflammatory agent mesalamine (5-aminosalicylic acid
or 5-ASA) to the distal ileum and colon by means of dual-release granules.
 
Salix intends to complete the development work required to secure regulatory
approval for the product in the U.S., which is patent protected until 2018.
 
“Salofalk Granu-Stix represents a unique release mechanism and formulation for
the delivery of mesalamine to the distal ileum and colon, commented Dr. Allen
Mangel, Vice

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President, Research and Development, Salix. “The addition of this product to our
portfolio will allow the Company to expand its range of treatment options for
ulcerative colitis. The product’s prolonged release system is designed to
consistently release mesalamine in the distal ileum and throughout the entire
colon. Furthermore, the release characteristics of the product may present the
possibility of less frequent dosing; therefore, we intend to explore the
development of improved dosing regimens.”
 
Bob Ruscher, President and CEO of Salix, stated, “We are extremely pleased to
announce the initiation of a collaboration between Dr. Falk Pharma and Salix
Pharmaceuticals, as well as the in-licensing of a late-stage product for the
treatment of ulcerative colitis. Falk is one of the most recognized companies
worldwide in gastroenterology. Since 1967, the Falk Foundation has sponsored
over 150 international symposia in which thought leaders from over 100 countries
have come together to advance knowledge in the treatment of gastroenterology and
hepatology. We are honored to be allied with Falk and look forward to bringing
innovations from their research efforts to gastroenterologists and their
patients in the U.S.”
 
The Company will host a conference call at 10:00 a.m. EDT, on July 16, 2002 to
discuss the subjects of this press release. Interested parties may access the
conference call by way of web cast or telephone. The live web cast will be
available at http://www.salixpharm.com. The web cast will be archived on the
Company’s web site through July 22. The telephone numbers to access the
conference call are (800) 500-0177 (U.S. and Canada) or (719) 457-2679
(international.) A replay of the call will be available from 1:00 p.m. EDT, July
16 through July 22. The telephone numbers to access the replay of the call are
(888) 203-1112 (U.S. and Canada) or (719) 457-0820 (international.) The access
code for the replay is 140756.
 
Salix Pharmaceuticals, Ltd., headquartered in Raleigh, North Carolina, develops
and markets prescription pharmaceutical products for the treatment of
gastrointestinal diseases. Salix’s strategy is to in-license late-stage or
marketed proprietary therapeutic drugs; complete the required development and
regulatory submission of these products; and

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market them through the Company’s 60-member gastroenterology specialty sales
force. Salix’s first marketed product is COLAZAL® (balsalazide disodium)
Capsules 750 mg, an anti-inflammatory drug approved for the treatment of mildly
to moderately active ulcerative colitis. The Company launched the product in the
U.S. through its specialty sales force in January 2001. COLAZAL was well
tolerated in clinical studies. In clinical trials, patients reported the
following adverse events most frequently: headache (8%); abdominal pain (6%);
diarrhea (5%); nausea (5%); vomiting (4%); respiratory infection (4%); and
arthralgia (4%). Withdrawal from therapy due to adverse events was comparable to
placebo. Salix’s next product candidate is rifaximin, currently in development
for the potential treatment of infections of the lower gastrointestinal tract.
The Company submitted an NDA for rifaximin for the treatment of travelers’
diarrhea to the FDA on December 26, 2001. Salix trades on the Nasdaq National
Market under the ticker symbol “SLXP.”
 
For more information please contact the Company at 919-862-1000 or visit our web
site at www.salixpharm.com.
 
###
 
Please Note:    This press release contains forward-looking statements regarding
future events. These statements are just predictions and are subject to risks
and uncertainties that could cause the actual events or results to differ
materially. These risks and uncertainties include risks of regulatory review and
clinical trials, the need to acquire additional products and management of rapid
growth. The reader is referred to the documents that the Company files from time
to time with the Securities and Exchange Commission.

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SCHEDULE 3
 
[*]
 
[*] CONFIDENTIAL TREATMENT REQUESTED, CERTAIN INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SEC.

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SCHEDULE 4
 
SUMMARY OF PRODUCT CHARACTERISTICS
 
1.
 
NAME OF THE MEDICINAL PRODUCT

 
Salofalk® 500 mg, Granu-Stix®
 
Salofalk® 1000 mg, Granu-Stix®
 
2.
 
QUALITATIVE AND QUANTITATIVE COMPOSITION

 
One Salofalk® 500 mg Granu-Stix® contains 500 mg mesalazine.
 
One Salofalk® 1000 mg Granu-Stix® contains 1000 mg mesalazine.
 
3.
 
PHARMACEUTICAL FORM

 
Gastro-resistant prolonged-release granules
 
4.
 
CLINICAL PARTICULARS

 
4.1    [*]
 
[*]
 
[*]
 
5.
 
PHARMACOLOGICAL PROPERTIES

5.1    [*]
 
[*]
 
[*]
 
[*] CONFIDENTIAL TREATMENT REQUESTED, CERTAIN INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SEC.

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6.
 
PHARMACEUTICAL PARTICULARS

 
6.1    [*]
 
6.6    [*]
 
[*] CONFIDENTIAL TREATMENT REQUESTED, CERTAIN INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SEC.

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SCHEDULE 5
 
[*]
 
[*] CONFIDENTIAL TREATMENT REQUESTED, CERTAIN INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SEC.

48

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SCHEDULE 6
 
LICENSED IP—FORM OF THIRD PARTY ACKNOWLEDGEMENT
 
1948242
 
THIS AGREEMENT dated June            , 2002 is made between:
 
(1)
 
[*], whose registered office is at [*] (which is hereinafter “[*]”); and

 
(2)
 
Dr. Falk Pharma GmbH, whose registered office is at Leinenweberstraße 5, 79108
Freiburg, Germany (which is hereinafter “Falk”);

 
WHEREAS:
 
(A)
 
To facilitate [*] has invented a certain method for the [*] of medicinal pellet
formulations containing Mesalamine (mesalazine) for which a [*] patent has been
granted ([*]) and, in various countries, including [*] has been filed
(hereinafter the “Invention”);

 
(B)
 
With contract as of [*] has granted Falk the unrestricted right to use and
exploit the Invention and certain improvements and enhancements thereto free of
any charge in connection with the Salofalk-Pellets of Falk (the “License”).

 
(C)
 
Falk shall be entering into agreements with third parties by which Falk shall
grant to such third parties certain rights and licenses regarding the
development, manufacturing, use and exploitation of medicinal pellet
formulations containing Mesalamine (mesalazine), involving licenses regarding
the Invention.

 
NOW THEREFORE, WITH REGARD TO SUCH AGREEMENTS WITH THIRD PARTIES, IT IS AGREED
AS FOLLOWS:
 

 
(1)
 
It is herewith expressly confirmed and agreed that the License granted to Falk
includes the unrestricted and gratuitous right of Falk to sublicense the
Invention and any future improvements and enhancements thereto to third parties
in connection with any license granted for any medicinal pellet formulation
containing Mesalamine (mesalazine) and that in the event of any

 
[*] CONFIDENTIAL TREATMENT REQUESTED, CERTAIN INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SEC.

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termination of the rights of Falk, in whole or in part, to the Invention, any
such sublicense to the Invention granted shall continue as a direct license from
[*] to such sublicensee (free of any payment from the sublicensee to [*]).

 

 
(2)
 
The contract as of [*] shall remain in full force and effect in accordance with
its terms, in particular with respect to Falk’s rights to any improvements and
enhancements relating to the Invention.

 
IN WITNESS WHEREOF the Parties hereto have executed this agreement the day and
year first above written.
 
 
 
 

--------------------------------------------------------------------------------

     

--------------------------------------------------------------------------------

[(*)]
     
(Dr. FALK PHARMA GmbH)

 
[*] CONFIDENTIAL TREATMENT REQUESTED, CERTAIN INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SEC.

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DR FALK PHARMA GmbH
 
 
By:
 

--------------------------------------------------------------------------------

   
Name:
   
Title:

 
 
 
 
SALIX PHARMACEUTICALS, INC.
 
 
By:
 

--------------------------------------------------------------------------------

   
Name:
   
Title:

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