Exhibit 10.58

Portions of this exhibit marked [*] are requested to be treated confidentially.

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MASTER PURCHASE AND SALE

AND LICENSE AGREEMENT

Between

MERCK & CO., INC.

and

SALIX PHARMACEUTICALS, LTD.

Dated as of February 22, 2007

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TABLE OF CONTENTS

 

1

 

DEFINITIONS

   2

2

 

SALE AND PURCHASE OF ASSETS; LIABILITIES

   10  

2.1

  

Sale of Assets

   10  

2.2

  

Rights Retained by Merck

   11  

2.3

  

Liabilities

   12  

2.4

  

Consideration

   12  

2.5

  

Inventory

   14  

2.6

  

Closing

   14  

2.7

  

Regulatory and Third Party Approvals

   15  

2.8

  

Post-Closing Payments

   15

3

 

LICENSES

   16  

3.1

  

Trademark License

   16  

3.2

  

NDA License

   17  

3.3

  

Manufacturing Know-How License

   17

4

 

REPRESENTATIONS AND WARRANTIES

   18  

4.1

  

Representations and Warranties of Merck

   18  

4.2

  

Representations and Warranties of Salix

   22

5

 

REGULATORY COVENANTS

   24  

5.1

  

Maintenance of NDAs

   24  

5.2

  

Labeling

   25  

5.3

  

Regulatory Compliance

   25  

5.4

  

Adverse Events

   26  

5.5

  

Recalls

   27

6

 

SUPPLY AND MANUFACTURING COVENANTS

   27  

6.1

  

Supply of Products

   27  

6.2

  

FDA Approval

   28  

6.3

  

Storage and Distribution of the Products

   28  

6.4

  

Continued Sale of Diuril OS Product

   28

7

 

OTHER COVENANTS RELATING TO THE PRODUCTS

   29  

7.1

  

Customer Matters

   29  

7.2

  

Promotion and Marketing

   29  

7.3

  

Medical and Other Inquiries

   30

 

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7.4

  

Returned Products, Chargebacks and Rebates

   31  

7.5

  

Price Submissions and Certifications

   32  

7.6

  

Audits and Price Submissions

   34  

7.7

  

Restatements of Price Submissions

   34  

7.8

  

Indemnification Related to Price Submissions

   35  

7.9

  

Provision of Historical Pricing Information

   35

8

 

ADDITIONAL COVENANTS

   36  

8.1

  

Covenants of Merck

   36  

8.2

  

Covenants of Salix

   37  

8.3

  

Mutual Covenants

   38

9

 

INDEMNIFICATION

   41  

9.1

  

Indemnification

   41  

9.2

  

Third-Party Claim Procedure

   42  

9.3

  

Limitations on Indemnification

   43

10

 

MISCELLANEOUS

   43  

10.1

  

Force Majeure

   43  

10.2

  

Assignment/Change of Control

   44  

10.3

  

Survival

   45  

10.4

  

Exclusive Jurisdiction

   45  

10.5

  

Equitable Remedies

   45  

10.6

  

Notices

   46  

10.7

  

Entire Agreement

   47  

10.8

  

Section Headings

   47  

10.9

  

Applicable Law

   47  

10.10

  

Dispute Resolution

   47  

10.11

  

Expenses

   48  

10.12

  

Bulk Sales Statutes

   49  

10.13

  

Waiver

   49  

10.14

  

Severability

   49  

10.15

  

Incorporation by Reference

   49  

10.16

  

Assignment

   49  

10.17

  

Independent Contractors

   49  

10.18

  

No Third Party Beneficiaries

   50  

10.19

  

Waiver of Rule of Construction

   50  

10.20

  

Counterparts

   50  

10.21

  

Compliance with Laws and Regulations

   50

 

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EXHIBITS

SCHEDULES

 

Schedule

   1.19   

Documents

Schedule

   1.38   

Licensed Trademarks

Schedule

   1.40   

Manufacturing Know-How

Schedule

   1.41   

Form of Merck FDA Letters

Schedule

   1.55   

Purchase Orders

Schedule

   1.58   

Related Company

Schedule

   1.60   

Form of Salix FDA Letters

Schedule

   2.5   

Price of Inventory

Schedule

   2.7.2   

Third Party Consents

Schedule

   4.1.9   

Inventory

Schedule

   6.4   

Diuril Market History and Anticipated Need

Schedule

   8.3.2   

Approved Salix Press Release

 

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MASTER PURCHASE AND SALE AND LICENSE AGREEMENT

This MASTER PURCHASE AND SALE AND LICENSE AGREEMENT (this “Agreement”) made as
of this 22nd day of February, 2007 between:

Salix Pharmaceuticals, Ltd., a corporation incorporated under the laws of the
State of Delaware, whose head office is located at 1700 Perimeter Park Drive,
Morrisville, NC 27560 (“Salix”); and

Merck & Co., Inc., a corporation organized under the laws of the State of New
Jersey, whose head office is located at One Merck Drive, P.O. Box 100,
Whitehouse Station, New Jersey, 08889-0100, U.S.A. (“Merck”).

RECITALS

WHEREAS, Merck and certain of its Affiliates (as defined below) are the owners
of a business engaged in the manufacture, use, marketing, sale, and distribution
of the Existing Products (as defined below), for which they have been granted
the NDAs (as defined below).

WHEREAS, Merck wishes to sell, transfer and assign or license or cause to be
sold, transferred and assigned or licensed to Salix the Assets (as defined
below), and Salix desires to purchase or license such Assets from Merck, upon
the terms and conditions hereinafter set forth.

WHEREAS, Merck intends to enter into, and Salix intends to enter into, certain
ancillary agreements including, but not necessarily limited to:

 

  (a) a Supply Agreement by which Merck or its Affiliates will manufacture, or
have manufactured and supply to Salix or its designees the Existing Products and
the active pharmaceutical ingredients for the Existing Products;

 

  (b) a Trademark and Domain Name License Agreement by which Merck or its
Affiliates will license to Salix the Licensed Trademarks (as defined below);

 

  (c) a Transition Services Agreement by which Merck or its Affiliates will
provide certain transition services to Salix with respect to the Existing
Products; and

 

  (d) one or more Bills of Sale and Assignment, by which Merck will transfer
certain Assets to Salix.

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NOW, THEREFORE, in consideration of the mutual agreements and covenants
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties agree as follows:

 

1 DEFINITIONS

For the purposes of this Agreement, the following terms are defined as follows:

 

1.1 “Affiliate” means, with respect to a Person, any other Person directly or
indirectly controlling or controlled by, or under direct or indirect common
control with, such Person. For purposes of this definition, a Person shall be
deemed to control another Person if it owns or controls, directly or indirectly,
more than fifty percent (50%) of the voting equity of the other Person (or other
comparable ownership if such other Person is not a corporation).

 

1.2 “Ancillary Agreement(s)” means the Supply Agreement, the Trademark License
Agreement, and the Transition Services Agreement.

 

1.3 “Assets” means (a) the Documents, (b) Merck’s rights under all Purchase
Orders, except for accounts receivable existing on the Closing Date, (c) the
NDAs, (d) all clinical and regulatory data contained in the NDAs that are solely
related to the Products (subject to the rights and licenses retained by Merck
and its Affiliates as set forth in Section 2.2 and 3.3), (e) the Inventory and
(f) all current customer lists of Merck related to the sale of Existing Products
in the Territory.

 

1.4 “Astellas” means Astellas Pharma Inc., formerly known as Yamanouchi
Pharmaceutical Co., Ltd.

 

1.5 “Astellas Agreements” means that certain License Agreement by and between
Merck and Astellas, dated as of June 30, 1981, and that certain Supply Agreement
by and between Merck and Astellas, dated as of June 20, 1981, each as amended,
and the various related agreements by and between Merck and Astellas, or their
respective Affiliates, entered into in connection therewith. For the avoidance
of doubt, the Astellas Agreements are not Assets.

 

1.6 “Assumed Liabilities” means (a) all liabilities and obligations that Salix
has expressly assumed or agreed to assume or perform under this Agreement,
(b) Merck’s obligations under all Purchase Orders that are included in the
Assets, and (c) all Liabilities arising out of the sale, purchase, consumption
or use of the Products or the Assets in the Field in the Territory from and
after the Closing Date, except for the Excluded Liabilities.

 

1.7 “Business” means Merck’s and its Affiliates’ business related to the
manufacture, sale, marketing or distribution of the Existing Products in the
Territory.

 

1.8 “Business Day” means any day other than Saturday, Sunday or a day on which
banking institutions in the State of New Jersey are permitted or obligated by
law to close.

 

1.9 “Calendar Quarter” means a three-month period commencing on January 1,
April 1, July 1, or October 1.

 

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1.10 “Change of Control” of a Party means (i) the sale of all or substantially
all of a Party’s assets or business relating to this Agreement; (ii) the closing
of a merger, reorganization or consolidation involving a Party in which the
voting securities of such Party outstanding immediately prior thereto (or any
securities of the surviving entity issued in exchange therefor) cease to
represent at least fifty percent (50%) of the combined voting power of the
surviving entity immediately after such merger, reorganization or consolidation;
or (iii) an event whereby any Person or group (as defined in Section 13(d)(3) or
14(d)(2) of the Exchange Act has become the direct or beneficial owner (as
defined in Rule 13d-3 under the Exchange Act) of more than 50% of the voting
stock of a Party.

 

1.11 “cGMP” means current Good Manufacturing Practices, as specified in the
United States Code of Federal Regulations (21 CFR Part 210 & Part 211).

 

1.12

“Chlorothiazide” means 6-chloro-2H-1,2,4-benzothiadiazine-7sulfonamide 1,
1-dioxide, having the empirical formula C7H6CIN304S2, a molecular weight of
295.72 and the structural formula:

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1.13 “Chlorothiazide Derivative” means any Derivative of Chlorothiazide in Oral
Suspension developed by or on behalf of Salix or its Affiliates.

 

1.14 “Confidential Information” means (i) the terms and conditions of this
Agreement and the Ancillary Agreements and (ii) any and all information,
know-how and data, whether oral, written or graphical, including without
limitation, Manufacturing Know-How, disclosed or provided by Merck or its
Affiliates to Salix or its Affiliates or by Salix or its Affiliates to Merck or
its Affiliates (including any analysis, materials, product or conclusions drawn
or derived therefrom) or which are derived from any visits by personnel of Merck
or its Affiliates or Salix or its Affiliates to the location of Salix or Merck,
respectively, or are otherwise known to Merck or its Affiliates or Salix or its
Affiliates through its visits or contacts with Salix or Merck, respectively,
whether such information, know-how and/or data is disclosed, provided or derived
before or after the Closing Date. Any information that constitutes Confidential
Information of Merck prior to the Closing Date and that is included in the
Assets shall, at Closing, become Confidential Information of Salix.

 

1.15 “Derivative” means any hydrate, solvate, salt, polymorphic form (including
but not limited to a different crystal form), racemate, isomer, enantiomer,
prodrug, metabolite, ester, or other analog or derivative of a particular
chemical compound or molecule.

 

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1.16 “Distributor Returned Products” means any Existing Product sold on or after
the Closing Date by Merck in its capacity as distributor for Salix under the
Transition Services Agreement and returned to Salix or to Merck within the time
allowed for return under Merck’s Standard Return Terms and Conditions.
Distributor Returned Products does not include any Supplied Products or other
Products sold directly by Salix after the Closing.

 

1.17 “Diuril OS NDA” means the new drug application 11-870, including any
submissions, amendments or supplements thereto and any official correspondence
with FDA, as of the Closing Date.

 

1.18 “Diuril OS Product” means the prescription oral suspension pharmaceutical
product containing Chlorothiazide as the active ingredient and approved for
human therapeutic use by the FDA pursuant to the Diuril OS NDA, which product,
from its date of first commercial sale through the Closing Date, has been
identified by NDC 0006-3239-66.

 

1.19 “Documents” means the documents and records relating to the Existing
Products owned, held or controlled by Merck or any of its Affiliates, as listed
on Schedule 1.19.

 

1.20 “Encumbrance” means, with respect to the Assets, any mortgage, lien,
license, pledge, charge, security interest or encumbrance of any kind,
including, without limitation, the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement
relating to such asset; provided the Astellas Agreements or any continuing
rights or obligations of any Party under or pursuant thereto do not constitute
an Encumbrance.

 

1.21 “Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

1.22 “Excluded Assets” means all assets, property, rights and interests of Merck
and its Affiliates and Related Companies other than the Assets, including,
without limitation, all patents, information, know-how, trademarks, trade names,
good will, intellectual property and proprietary rights, new drug applications
and their equivalents (other than the NDAs), NDC numbers and their equivalents,
product registrations, accounts receivable, and other assets of Merck and its
Affiliates. For the avoidance of doubt, the Manufacturing Know-How and Non-Oral
Suspension Pepcid Products are Excluded Assets.

 

1.23 “Excluded Liabilities” means the liabilities retained by Merck pursuant
hereto, namely all Liabilities relating to (a) the Existing Products or any or
all of the Assets if such Liabilities are made or brought prior to the Closing
Date or (b) any Existing Product sold by Merck prior to the Closing Date if such
Liabilities are made and brought on or after the Closing Date.

 

1.24 “Execution Date” means the date of execution of this Agreement as first
written above.

 

1.25 “Existing Products” means the Diuril OS Product and the Pepcid OS Product.

 

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1.26

“Famotidine” means
N´-(aminosulfonyl)-3-[[[2-[(diaminomethylene)amino]-4-thiazolyl]methyl]thio]propanimidamide,
having the empirical formula C8H15N7O2S3, a molecular weight of 337.43 and the
structural formula:

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1.27 “Famotidine Derivative” means any Derivative of Famotidine in Oral
Suspension developed by or on behalf of Salix or its Affiliates.

 

1.28 “FDA” means the U.S. Food and Drug Administration.

 

1.29 “Field” means the use of a pharmaceutical product in humans by prescription
for the treatment of only those diseases and conditions for which the Products
have been approved (or subsequent to the Closing Date, are approved) for
marketing in the Territory and only as an Oral Suspension formulation. For the
avoidance of doubt, the Field shall not include any prescription formulation
except for Oral Suspension, any over-the-counter or non-human products or uses
or any other products that may be dispensed without a prescription from a
licensed physician.

 

1.30 “First Commercial Sale” means the first sale for end use or consumption by
humans of a Generic Product in the Territory.

 

1.31 “First Post-Closing Period” means the period from the Closing Date through
[*].

 

1.32 “Fiscal Year Gross Sales” means the gross sales (as defined in accordance
with generally accepted accounting principles and determined in a manner
consistent with that applied in preparing Salix’s annual audited financial
statements) of the Products realized by Salix during any fiscal year following
the Closing Date (including the partial fiscal year commencing on the Closing
Date and ending on December 31, 2007).

 

1.33 “Generic Product” means any Oral Suspension pharmaceutical product in final
form containing Famotidine as the sole active ingredient and in the same
strength as the Pepcid OS Product, [*].

 

1.34 “Governmental Authority” means any national, regional, state, county, local
or other government, or other court of competent jurisdiction, legislature,
governmental, administrative or regulatory agency, department, body, bureau,
council or commission or any other national, regional, state, county, local or
other governmental authority or instrumentality, in each case having
jurisdiction in the Territory, including, but not limited to, the FDA.

 

[*] Confidential treatment requested; certain information omitted and filed
separately with the SEC.

 

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1.35 “IND” means (a) an Investigational New Drug Application (as defined in the
Food, Drug, and Cosmetic Act, as amended, and the regulations promulgated
thereunder, including 21 CFR part 312) that is required to be filed with the FDA
before beginning clinical testing of a Product in human subjects, or any
successor application or procedure, and (b) all supplements and amendments that
may be filed with respect to the foregoing.

 

1.36 “Inventory” means all saleable finished and packaged goods inventory of
Merck related exclusively to the Existing Products and located within, or held
by Merck for distribution within, the Territory.

 

1.37 “Liabilities” means any claims and/or complaints (including, without
limitation, all damages, losses, expenses, adverse reactions, recalls, product
and packaging complaints and other liabilities).

 

1.38 “Licensed Trademarks” means the trademarks relating to the Existing
Products listed in Schedule 1.38, all of which will be licensed to Salix for use
in the sale of the Existing Products in the Territory on an irrevocable (except
as otherwise expressly provided in the Trademark License Agreement), perpetual,
fully-paid, royalty-free, transferable and sublicensable basis pursuant to the
Trademark License Agreement.

 

1.39 “Loss” or “Losses” means each and all of the following items to the extent
actually incurred: claims, actions, causes of action, liabilities, losses,
damages, judgments, fines, penalties, amounts paid in settlement and reasonable
costs and expenses incurred in connection therewith, including, without
limitation, interest which is imposed in connection therewith, reasonable costs
and expenses of suits and proceedings, and reasonable fees and disbursements of
counsel.

 

1.40 “Manufacturing Know-How” means the data, information and know-how that is
not generally known, is controlled (whether by ownership or license) by Merck or
its Affiliates as of the Closing Date, and is used by or on behalf of Merck as
of the Closing Date for the manufacture of the Existing Products in the Field in
the Territory on the Closing Date, regardless of whether it is included in the
NDAs or otherwise, including, but not limited to, (1) the data, information and
know-how that is identified or described with more specificity on Schedule 1.40
and (2) any other Manufacturing data, information and know-how provided by Merck
pursuant to Section 3.3.1 that is not generally known. For the avoidance of
doubt, if such data, information or know-how becomes publicly disclosed (other
than as a result of any disclosure by Salix in breach of its obligations under
Section 8.3.4 or any other provision of this Agreement or the Supply Agreement),
such data, information or know-how shall no longer be deemed Manufacturing
Know-How.

 

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1.41 “Merck FDA Letters” means the letters from Merck to the FDA, duly executed
by Merck, to be filed with the FDA no later than one (1) Business Day following
the Closing Date with regard to the NDAs, the form of which is attached hereto
as Schedule 1.41.

 

1.42 “Merck Image Product” shall mean Existing Products using the label for such
Existing Product as it exists on the Closing Date in the Territory.

 

1.43 “Merck’s Standard Terms and Conditions” means the standard return terms and
conditions as provided by Merck to Salix prior to the Closing Date, as the same
may be amended by Merck from time to time for its products generally, in Merck’s
sole and absolute discretion upon notice to Salix.

 

1.44 “NDAs” means the Pepcid OS NDA and the Diuril OS NDA, collectively.

 

1.45 “Non-Oral Suspension Pepcid Products” means any pharmaceutical preparation
for sale by prescription, except for Oral Suspension, in final form containing
Famotidine for any and all uses outside of the Field, including without
limitation the Pepcid Tablet Products and any combination product including
active ingredients other than Famotidine in combination with Famotidine.

 

1.46 “Oral Suspension” means a liquid preparation that consists of solid
particles dispersed throughout a liquid phase in which the particles are not
soluble and that is intended to be administered orally.

 

1.47 “Party” shall mean Merck and Salix, individually, and “Parties” shall mean
Merck and Salix, collectively.

 

1.48 “Pepcid OS NDA” means the new drug application 19-527, including any
submissions, amendments or supplements thereto and any official correspondence
with FDA, as of the Closing Date.

 

1.49 “Pepcid OS Product” means the prescription oral suspension pharmaceutical
product containing Famotidine as the active ingredient and approved by the FDA
for human therapeutic use pursuant to the Pepcid OS NDA, which product, from its
date of first commercial sale through the Closing Date, has been identified by
NDC 0006-3538-92.

 

1.50 “Pepcid Tablet NDA” means the new drug application 19-462, including any
submissions, amendments or supplements thereto and any official correspondence
with FDA, as of the Closing Date.

 

1.51 “Pepcid Tablet Products” means the prescription tablet pharmaceutical
products identified by NDC 0006-0963-31, NDC 0006-0963-58, NDC 0006-0964-31 and
NDC 0006-0964-58 and containing Famotidine as the active ingredient.

 

7

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1.52 “Permitted Encumbrance” means, with respect to any Asset, any encumbrance
for Taxes not yet due or delinquent or for those Taxes being contested in good
faith by appropriate proceedings for which adequate reserves have been
established.

 

1.53 “Person” means any individual, partnership, limited partnership, limited
liability company, joint venture, syndicate, sole proprietorship, corporation,
unincorporated association, trust, trustee, executor, administrator or other
legal personal representative, or any other legal entity.

 

1.54 “Products” means, collectively, (i) the Existing Products and (ii) any
prescription Oral Suspension pharmaceutical product in final form containing
Famotidine or Chlorothiazide, as the case may be, or any Famotidine Derivative
or Chlorothiazide Derivative, as the case may be, as the sole active ingredient.

 

1.55 “Purchase Orders” means all purchase orders for the sale of Existing
Products in the Territory after the Closing Date accepted by Merck prior to the
Closing Date and all sales contracts pursuant to which Merck is obligated to
sell Existing Products in the Territory after the Closing Date entered into by
Merck prior to the Closing Date, in each case to the extent that they relate
solely to Existing Products, as listed on Schedule 1.55 attached hereto.

 

1.56 “Rebate” means any payment or credit required under any agreement or by
operation of law, including, without limitation, any retroactive form of the
foregoing, rebate payable to a managed care organization or a pharmaceutical
benefit manager and any rebate payable to a State Medicaid program (as described
in the Social Security Act, 42 U.S.C. Section 1398r-8, and related provisions)
or to a State pharmaceutical assistance program.

 

1.57 “Recorded Information” means information or data that is physically
recorded or stored in a readable or retrievable form, including, without
limitation, any information or data recorded in or on any writing, microfiche,
computer disk, or electronic or optical storage media.

 

1.58 “Related Company” means (a) Johnson & Johnson-Merck Consumer
Pharmaceuticals Co., (b) the several joint ventures between Merck and
Schering-Plough Corporation, and (c) any joint venture, partnership, corporation
or other business entity in which Merck owns an equity interest of fifty percent
(50%) or less, as set forth on Schedule 1.58.

 

1.59 “Returned Products” means any Existing Product sold by Merck before the
Closing Date and returned to Salix or to Merck within the time allowed for
returns under Merck’s Standard Return Terms and Conditions. Returned Products do
not include any Supplied Products or other Products sold directly by Salix after
the Closing Date.

 

1.60 “Salix FDA Letters” means the letters from Salix to the FDA, duly executed
by Salix, to be filed with the FDA no later than one (1) Business Day following
the Closing Date with regard to the NDAs, the form of which is attached hereto
as Schedule 1.60.

 

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1.61 “Second Post-Closing Period” means the period from [*], through [*].

 

1.62 “Serious” means (as per ICH E2A) an adverse experience at any dose which is
fatal or life threatening, results in persistent or significant
disability/incapacity, requires in-patient hospitalization or results in
prolongation of existing hospitalization, is a congenital anomaly/birth defect,
or is a medically important event or reaction (even if not life-threatening,
resulting in death, or requiring hospitalization) if, based upon appropriate
medical judgment, such medical event or reaction may jeopardize the patient’s or
subject’s health or may require medical intervention to prevent one of the other
outcomes listed previously.

 

1.63 “Specifications” means the final release quality specifications for the
Existing Products.

 

1.64 “Subsidiary” means an Affiliate of Salix of which one hundred percent
(100%) of the voting stock or other equity interest is owned directly or
indirectly by Salix.

 

1.65 “Supplied Products” means the Existing Products manufactured, labeled and
packaged by Merck or its Affiliate that are sold to Salix pursuant to the Supply
Agreement or the Transition Services Agreement (including, without limitation,
Existing Products distributed for Salix by Merck under the Transition Services
Agreement).

 

1.66 “Supply Agreement” means that certain agreement, dated as of even date
herewith, by which Merck or its Affiliates will manufacture, or have
manufactured and supply to Salix or its designees the Existing Products and the
active pharmaceutical ingredients for the Existing Products.

 

1.67 “Taxes” means all taxes of any kind, and all charges, fees, customs,
levies, duties, imposts, required deposits or other assessments, including all
federal, state, local or foreign net income, capital gains, gross income, gross
receipt, property, franchise, sales, use, excise, withholding, payroll,
employment, social security, worker’s compensation, unemployment, occupation,
capital stock, transfer, gains, windfall profits, net worth, asset, transaction,
and other taxes, and any interest, penalties or additions to tax with respect
thereto, imposed upon any person by any taxing authority or other Governmental
Authority under applicable law.

 

1.68 “Territory” means the United States of America and its territories and
possessions, including, without limitation, the Commonwealth of Puerto Rico.
With respect to Diuril OS Product only the Territory shall include Sweden.

 

1.69 “Trademark License Agreement” means that certain Trademark and Domain Name
License Agreement, dated as of even date herewith, by which Merck or its
Affiliates will license to Salix the Licensed Trademarks.

 

1.70 “Transition Services Agreement” means that certain agreement, dated as of
even date herewith, by which Merck or its Affiliates will provide certain
transition services to Salix with respect to the Existing Products.

 

[*] Confidential treatment requested; certain information omitted and filed
separately with the SEC.

 

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1.71 Other Definitions

The following terms have the meaning set forth in the Sections below:

 

DEFINED TERM

   LOCATION OF DEFINITION

AAA

   10.10.1

Agreement

   Introduction

AMP

   7.5.1

Approvals

   4.1.11

Asset Acquisition Statement

   2.4.2

Closing

   2.6.1

Closing Date

   2.6.1

Closing Payment

   2.4.1(b)

CMS

   7.5.5

Excluded Claim

   10.10

FCPs

   7.9.2

FD&C Act

   4.1.8

FSS

   7.9.2

Insurance Term

   8.2.2(a)

Manufacturing Know-How License

   3.3.1

Merck

   Introduction

Merck Intellectual Property

   4.1.7

Non-FAMP

   7.5.2

Retained Rights

   2.2.1

Sales Data

   4.1.13

Salix

   Introduction

Salix Insurance

   8.2.2(a)

Third Party Auditor

   7.6.1

Third Party Consents

   2.7.2

 

2 SALE AND PURCHASE OF ASSETS; LIABILITIES

 

2.1 Sale of Assets

 

  2.1.1 Subject to the terms and conditions hereof, Merck agrees to sell,
transfer and assign (or in the case of the Licensed Trademarks and Manufacturing
Know-How, to license), or cause its Affiliates to sell, transfer and assign (or
in the case of the Licensed Trademarks and Manufacturing Know-How, to license),
to Salix, on the Closing Date, the Assets, free and clear of all Encumbrances
other than the Permitted Encumbrances, and Salix agrees to purchase (or in the
case of the Licensed Trademarks and Manufacturing Know-How, to license) from
Merck, on the Closing Date, such Assets.

 

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  2.1.2 Salix shall not acquire pursuant hereto any assets or rights of any kind
or nature, real or personal, tangible or intangible, other than (i) all right,
title and interest in and to the Assets and (ii) the licenses to the
Manufacturing Know-How and Licensed Trademarks described herein and in the
Ancillary Agreements, subject to the conditions and rights set forth herein and
therein, and Merck shall retain all other assets, including, without limitation,
the Excluded Assets. Nothing contained in this Agreement shall be deemed to
create a liability or obligation for, or to impose any restriction on, any
Related Company.

 

  2.1.3 It is understood that Salix receives no rights by virtue of this
Agreement (a) in any countries other than the Territory, except the right to
(i) conduct research and development concerning Products outside the Territory
and (ii) manufacture Products outside the Territory for sale or distribution in
the Territory or use in research and development outside the Territory, or
(b) outside the Field. For greater certainty, but without limiting the
generality of anything otherwise contained herein, it is expressly understood
and agreed that after the Closing Date, Salix shall not (A) sell, market or
distribute Products (a) outside the Territory or (b) outside of the Field in the
Territory or (B) knowingly sell, market or distribute Products to any Person for
resale, marketing or distribution (x) outside the Territory or (y) outside the
Field in Territory, except, in the case of (A) and (B), for the purposes of
(1) conducting research and development outside the Territory or
(2) Manufacturing Products for sale or distribution in the Territory or use in
research and development outside the Territory.

 

2.2 Rights Retained by Merck

 

  2.2.1 Notwithstanding Section 2.1 above, and subject to the remaining
provisions of this Agreement, Merck (on behalf of itself and its Affiliates) as
of the Closing Date reserves and retains the right (collectively, the “Retained
Rights”) to use any data, know-how or intellectual property contained in the
Assets to the extent they relate to:

 

  (a) the Excluded Assets or the Excluded Liabilities;

 

  (b) the manufacture, marketing, distribution, import or sale of the Products
inside and outside of the Territory solely and exclusively for non-prescription
use and non-human use;

 

  (c) the use of the Existing Products solely and exclusively for research
and/or development purposes;

 

  (d) except as provided in Section 8.1.1, any pharmaceuticals, biologicals or
chemical entities or products (other than the Existing Products) currently or
hereafter developed, acquired, manufactured or marketed by Merck, including
formulations, other than Oral Suspensions, containing the same active
pharmaceutical ingredient(s) as the Existing Products;

 

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  (e) any and all purposes outside the Territory; or

 

  (f) the defense or prosecution of any legal or regulatory proceeding to which
Merck and/or its Affiliates is a party or a potential party.

 

  2.2.2 Merck reserves and retains a right of reference to the NDAs in
connection with (i) manufacture of the Existing Products under the Supply
Agreement and (ii) any and all of the purposes set forth in Section 2.2.1.

 

  2.2.3 Merck reserves and retains all rights with respect to registrations and
sales relating to the Products outside the Territory and outside the Field in
the Territory, provided that Salix, or any third party(ies) Manufacturing
Products or conducting research and developments concerning Products on Salix’s
behalf, outside the Territory to the extent expressly permitted by this
Agreement, may obtain any such registrations as may be required in order to
perform such activities outside the Territory.

 

2.3 Liabilities

 

  2.3.1 Assumed Liabilities. Subject to the terms and conditions hereof, as of
the Closing Date, Salix shall assume the Assumed Liabilities related to the
Assets.

 

  2.3.2 Excluded Liabilities. Salix shall not assume any liabilities or
obligations of Merck or any of its Affiliates (other than the Assumed
Liabilities to be assumed by Salix) and the Excluded Liabilities shall remain
the sole obligation and responsibility of Merck and its Affiliates.

 

2.4 Consideration

 

  2.4.1 Purchase Price

 

  (a) Salix has heretofore paid to Merck the sum of FIVE HUNDRED THOUSAND
DOLLARS (US $500,000).

 

  (b) At the Closing, Salix shall pay to Merck the sum of FIFTY-FOUR MILLION
FIVE HUNDRED THOUSAND DOLLARS (US $54,500,000) by wire transfer of immediately
available funds in accordance with the written instructions delivered by Merck
to Salix (the “Closing Payment”).

 

  (c)

In the event that any Person (including Merck, its Affiliates and any Related
Company) other than (i) Salix or its Affiliates, (ii) a Person of which Salix or
its Affiliates owns an equity interest greater than one percent (1%) or
(iii) any Person (other than Merck or its Affiliates) to

 

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whom Salix, its Affiliates or a Person defined in clause (ii) may grant rights
under the Assets, including, without limitation, the NDAs, obtains the requisite
regulatory approvals for and achieves a First Commercial Sale during the First
Post-Closing Period, Merck shall, within 60 days after demand by Salix
accompanied by reasonably sufficient evidence that such First Commercial Sale
has occurred, pay to Salix the sum of FIFTEEN MILLION DOLLARS (US $15,000,000)
by wire transfer of immediately available funds in accordance with the written
instructions delivered by Salix to Merck.

 

  (d) In the event that (i) a First Commercial Sale does not occur during the
First Post-Closing Period, and (ii) any Person (including Merck, its Affiliates
and any Related Company) other than (x) Salix or its Affiliates, (y) a Person of
which Salix or its Affiliates owns an equity interest greater than one percent
(1%) or (z) any Person (other than Merck or its Affiliates) to whom Salix, its
Affiliates or a Person of which Salix or its Affiliates owns an equity interest
greater than one percent (1%) may grant rights under the Assets, including,
without limitation, the NDAs, obtains the requisite regulatory approvals for and
achieves a First Commercial Sale during the Second Post-Closing Period, then
Merck shall, within 60 days after demand by Salix accompanied by reasonably
sufficient evidence that such First Commercial Sale has occurred, pay to Salix
the sum of [*] DOLLARS (US $[*]) by wire transfer of immediately available funds
in accordance with the written instructions delivered by Salix to Merck. Any
payment by Merck pursuant to this Section 2.4.1 shall be deemed to be an
adjustment to the purchase price for the Assets. In no event shall Merck be
obligated to make more than one payment pursuant to this Section 2.4.1.

 

  2.4.2 Allocation of Consideration. Merck and Salix recognize their mutual
obligations pursuant to Section 1060 of the Code to file timely IRS Form 8594
(the “Asset Acquisition Statement”) with each of their respective United States
federal income tax returns. Accordingly, Merck and Salix shall, as promptly as
practicable following the Closing Date with respect to the Existing Products,
but in any event not later than sixty (60) days following the Closing Date
allocate the Purchase Price between and among the underlying asset categories.
If Merck and Salix shall have agreed on a Purchase Price allocation and an Asset
Acquisition Statement, then Merck and Salix shall file the Asset Acquisition
Statement in the form so agreed and neither Merck nor Salix shall take a tax
position which is inconsistent with such Purchase Price allocation. Merck and
Salix agree to cooperate to make any and all filings necessary or required in
all other jurisdictions in which Assets are located and further agree that the
positions taken in such filings shall be consistent with the Asset Acquisition
Statement.

 

[*] Confidential treatment requested; certain information omitted and filed
separately with the SEC.

 

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2.5 Inventory

At or prior to Closing, Merck shall deliver to Salix a listing, based on Merck’s
inventory records of the Inventory maintained by Merck as of the Closing Date.
At Closing, Salix shall pay to Merck, in consideration for the Inventory, the
amount equal to (i) the number of units of Pepcid OS Products reflected in such
inventory, multiplied by the cost therefor specified on Schedule 2.5, plus
(ii) the number of units of Diuril OS Products reflected in such inventory,
multiplied by the cost therefor specified on Schedule 2.5.

 

2.6 Closing

 

  2.6.1 Closing. The closing of the transactions contemplated by this Agreement
(the “Closing”) and all actions specified in this Agreement to occur at the
Closing shall take place via facsimile at 10:00 a.m., New York time, on the date
of this Agreement, or at such other time and/or on such other date as Merck and
Salix shall agree. The date on which the Closing takes place is referred to
herein as the “Closing Date”.

 

  2.6.2 Closing Deliveries.

 

  (a) At the Closing, Merck shall deliver the following to Salix:

 

  (i) the Ancillary Agreements, executed by Merck;

 

  (ii) a copy of the executed Merck FDA Letters;

 

  (iii) an electronic copy of the NDAs; and

 

  (iv) a copy of the Third Party Consent listed on Schedule 2.7.2.

 

  (b) At the Closing, Salix shall deliver the following to Merck:

 

  (i) the Ancillary Agreements, executed by Salix;

 

  (ii) a copy of the executed Salix FDA Letters;

 

  (iii) the Closing Payment (by wire transfer of immediately available funds to
an account designated by Merck); and

 

  (iv) payment for the Inventory (by wire transfer of immediately available
funds to an account designated by Merck).

 

  2.6.3 Merck shall deliver to Salix the Documents electronically (unless
otherwise provided on Schedule 1.19) as soon as reasonably practicable but in no
event later than [*] Business Days after the Closing Date, except for the
Documents listed on items 4 and 7 of Schedule 1.19, each of which shall be
delivered no later than [*] days of the Closing Date or as otherwise provided on
Schedule 1.40. Notwithstanding any provision of this Agreement to the contrary,
Merck shall have the right to retain copies of the NDAs and the Documents for
its records and in order to exercise the Retained Rights.

 

[*] Confidential treatment requested; certain information omitted and filed
separately with the SEC.

 

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2.7 Regulatory and Third Party Approvals

 

  2.7.1 FDA Notification of Transfer of the NDAs

 

  (a) Salix and Merck shall file the Salix FDA Letters and the Merck FDA
Letters, respectively, with the FDA within one (1) Business Day after the
Closing Date. Salix shall be responsible for the payment of any filing or
similar fees payable to the FDA with respect to the transfer of the NDAs and the
Products to the Salix. Transfer of title to the NDAs shall be effective as of
the Closing Date.

 

  (b) In addition to the filing of the Salix FDA Letters and Merck FDA Letters,
the Parties shall each, at the request of the other Party, promptly make any
further filings and take any actions reasonably required to consummate the
transactions contemplated hereby and perform its obligations hereunder,
including without limitation, filing with the FDA, any other notices,
assignments, documents and/or other materials required by applicable regulations
and laws.

 

  2.7.2 Third Party Consents. Each of the Parties hereto shall use its
reasonable efforts and cooperate with the other Party hereto to promptly secure
all necessary consents, approvals, authorizations, exemptions and waivers from
third parties as shall be required in order to enable the Parties hereto to
promptly effect the transactions contemplated hereby (the “Third Party
Consents”) (all of which are listed in Schedule 2.7.2), and will otherwise use
its reasonable efforts to cause the prompt consummation of such transactions in
accordance with the terms and conditions hereof.

 

2.8 Post-Closing Payments

 

  2.8.1 During the five-year period commencing on the Closing Date, Salix shall
provide Merck with quarterly reports, not later than 45 days after the end of
each Calendar Quarter, of the Fiscal Year Gross Sales to date achieved by Salix.
Such reports shall be certified by the chief financial officer of Salix as true
and correct, and shall be accompanied by such information and documentation as
Merck may reasonably request to permit it to substantiate and verify such
reports. In the event that, during the five-year period commencing on the
Closing Date, Salix achieves Fiscal Year Gross Sales in excess of the amounts
specified below, Salix shall pay to Merck the following amounts, each payable
within ten (10) Business Days following the date of the report disclosing such
Fiscal Year Gross Sales except as otherwise specified in this Section 2.8:

 

  (a) When Salix’s Fiscal Year Gross Sales first reach $[*] million, Salix shall
pay to Merck the sum of $[*] million;

 

[*] Confidential treatment requested; certain information omitted and filed
separately with the SEC.

 

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  (b) When Salix’s Fiscal Year Gross Sales first reach $[*] million, Salix shall
pay to Merck the sum of $[*] million; and

 

  (c) When Salix’s Fiscal Year Gross Sales first reach $[*] million, Salix shall
pay to Merck the sum of $[*] million.

 

  2.8.2 The payments specified above shall be cumulative and all payments
payable under this Section 2.8 shall not exceed $6 million in the aggregate.
Salix and Merck agree to cooperate in the preparation of a supplemental Asset
Acquisition Statement consistent with their obligations under Section 2.4.2 and
Treasury Reg. § 1.1060-1(e) as a result of any adjustment to the Purchase Price.
If more than one Fiscal Year Gross Sales target is first achieved in a single
fiscal year, then the payment for each such target shall be payable, but Salix
shall have the right to defer payment of the second such payment for a period of
[*] and, if three payments are due with respect to a single fiscal year, to
defer payment of the third such payment for a period of [*].

 

  2.8.3 Salix has no right of setoff of any amounts due and payable, or any
liabilities arising, under this Agreement against any amounts due and payable,
or any liabilities arising, under the Ancillary Agreements. In addition, Salix
has no right of setoff of any amounts due and payable, or any liabilities
arising, under the Ancillary Agreements against any amounts due and payable, or
any liabilities arising, under this Agreement. The payment obligations under
each of this Agreement and the Ancillary Agreements remain independent
obligations of each Party, irrespective of any amounts owed to the other Party
under this Agreement or the respective Ancillary Agreements.

 

3 LICENSES

 

3.1 Trademark License

At Closing, Merck and Salix shall enter into a Trademark License Agreement,
granting Salix a perpetual, irrevocable (except as otherwise expressly provided
in the Trademark License Agreement), fully-paid, royalty-free, exclusive,
sublicensable, assignable license to the Licensed Trademarks in the Territory
for use in the registration, manufacture, marketing, distribution and/or sale of
the Products in the Territory and the Manufacturing of Products outside the
Territory for use or sale in the Territory. In such Trademark License Agreement,
the Parties shall agree to take such further actions as reasonably requested by
the other Party, to effect the grant of the license to the Licensed Trademarks
in accordance with the intent of this Agreement.

 

[*] Confidential treatment requested; certain information omitted and filed
separately with the SEC.

 

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3.2 NDA License

 

  3.2.1 Subject to the terms and conditions of this Agreement, Salix hereby
grants to Merck, effective as of the Closing, a perpetual, fully-paid,
royalty-free, irrevocable and non-exclusive license, with the right to
sublicense, to use and reference the NDAs and the data and know-how contained in
the NDAs (a) for the research, manufacture (by or on behalf of Merck), sale and
marketing of products other than the Products, including, without limitation,
the Non-Oral Suspension Pepcid Products, in the Territory for use outside the
Field, and (b) for all purposes with respect to the Products and all other
products outside the Territory.

 

  3.2.2 Subject to the terms and conditions of this Agreement, Merck hereby
grants to Salix, effective as of the Closing, a perpetual, fully-paid,
royalty-free, irrevocable and non-exclusive license, with the right to
sublicense, to use and reference the “Drug Substance Specifications and
Analytical Methods” sections of the Pepcid Tablet NDA and any other sections of
the Pepcid Tablet NDA that the FDA advises Salix are necessary for, together
with the data and know-how contained in those sections of the Pepcid Tablet NDA,
the research, manufacture (by or on behalf of Salix), sale and marketing of the
Products in the Field inside the Territory.

 

3.3 Manufacturing Know-How License

 

  3.3.1 License Grant. Subject to the terms and conditions of this Agreement,
the Supply Agreement and the Transitions Services Agreement, Merck hereby grants
to Salix, effective as of the Closing, under the Manufacturing Know-How (i) a
perpetual, irrevocable, fully-paid, royalty-free, exclusive (subject to Merck’s
right to manufacture and have manufactured the Products pursuant to the Supply
Agreement) worldwide license, with the right to sublicense, to manufacture or
have manufactured (including by third parties for Salix) Products solely for use
or sale in the Field in the Territory and (ii) a perpetual, irrevocable,
fully-paid, royalty-free, nonexclusive, worldwide license, with the right to
sublicense, to manufacture or have manufactured (including by third parties for
or on behalf of Salix) Products for purposes of conducting research and
development of Products outside the Territory (collectively, the “Manufacturing
Know-How License”); provided that Salix shall not be entitled to exercise its
rights under the Manufacturing Know-How License to manufacture or have
manufactured the Products for sale prior to the date of expiration or
termination of the Supply Agreement, except as otherwise permitted thereby.

 

  3.3.2 Merck Ownership of Manufacturing Know-How. Salix acknowledges and agrees
that, notwithstanding any information or data contained in the NDAs relating to
Manufacturing, Merck retains sole ownership of and title to the Manufacturing
Know-How and no ownership interest in or title to the Manufacturing Know-How is
or has been transferred or conveyed to Salix or any other Person by this
Agreement or otherwise. Salix acknowledges and agrees that it shall not at any
time claim adversely to Merck or its Affiliates any right, title or interest in
or to the Manufacturing Know-How, except as necessary to exercise, defend or
protect its rights hereunder or under the Ancillary Agreements with respect
thereto.

 

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  3.3.3 Supply of Active Ingredient and Materials. From and after the expiration
or termination of the Supply Agreement, Salix, at its own expense, shall, as
between the Parties, be responsible for (a) obtaining its own source of
Famotidine, Chlorothiazide and any other ingredients and materials associated
with the manufacture of the Existing Products, (b) obtaining all equipment
necessary to manufacture the Existing Products, and (c) Manufacturing the
Existing Products, provided that this Section 3.3.3 shall not create any
affirmative obligation on the part of Salix to undertake any of the foregoing
activities.

 

4 REPRESENTATIONS AND WARRANTIES

 

4.1 Representations and Warranties of Merck

Merck hereby represents and warrants to Salix with regard to itself and/or the
Assets, as the case may be, that, as of the Closing Date:

 

  4.1.1 Corporate Status. Merck is a corporation duly organized and validly
existing and in good standing under the laws of the State of New Jersey, USA and
has all requisite corporate power and authority to own, use or operate the
Assets, to produce, market, distribute and sell the Existing Products prior to
the Closing Date and to consummate the transactions contemplated hereby.

 

  4.1.2 Authority. Merck and its Affiliates each has the full corporate power
and authority to enter into this Agreement, the Ancillary Agreements and any
other documents contemplated hereby or thereby. Such deliveries will convey to
Salix good and marketable title to the Assets. The execution and delivery of
this Agreement and Ancillary Agreements and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by the necessary
corporate actions of Merck and its Affiliates. This Agreement, the Ancillary
Agreements and any other documents contemplated hereby or thereby constitute
valid and legally binding obligations of Merck and its Affiliates enforceable
against them in accordance with their respective terms.

 

  4.1.3 Non-Contravention. The execution, delivery and performance by Merck and
its Affiliates (as applicable) of this Agreement, the Ancillary Agreements and
any other agreements and instruments contemplated hereunder will not (i) in any
material respect violate any statute, regulation, judgment order, decree or
other restriction of any Governmental Authority to which Merck or any of its
Affiliates is subject, (ii) violate any provision of the corporate charter,
by-laws or other organizational documents of Merck or any of its Affiliates, or
(iii) constitute a material violation or breach by Merck or any of its
Affiliates of any provision of any material contract, agreement or instrument to
which Merck or any of its Affiliates is a Party or to which Merck or any of its
Affiliates may be subject although not a Party.

 

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  4.1.4 No Broker. There is no broker, finder or financial advisor acting or who
has acted on behalf of Merck, who is entitled to receive any brokerage or
finder’s or financial advisory fee from Salix in connection with the
transactions contemplated by this Agreement.

 

  4.1.5 No Lawsuits; Consents. There is no lawsuit, arbitration or proceeding
pending or, to the knowledge of Merck, threatened against Merck which might
prevent the consummation of any of the transactions contemplated by this
Agreement or have a material adverse effect upon the Assets, and, except for the
consents required to be obtained pursuant to Section 2.7, the execution,
delivery and performance by Merck of this Agreement, the Ancillary Agreements
and each of the instruments contemplated hereby to which Merck is a Party and
the consummation by Merck of the transactions contemplated hereby and thereby,
require no action by or in respect of, or filing with any Governmental Agency or
any other consent of any Person, firm or other entity.

 

  4.1.6 Title to the Assets. Merck and its Affiliates are the true and lawful
owners of, and will convey to Salix upon Closing, all right, title and interest
in the Assets, free and clear of any adverse interest, claim, lien, pledge,
mortgage, security interest, restriction on transfer or Encumbrance other than
Permitted Encumbrances.

 

  4.1.7 Intellectual Property. Merck owns all right, title and interest to the
Assets, Manufacturing Know-How, and Licensed Trademarks with respect to the
Existing Products for use in the Field in the Territory (collectively, the
“Merck Intellectual Property”), free and clear of all Encumbrances. Neither
Merck nor its Affiliates has any Recorded Information constituting notice of any
claim in the Territory (i) that the Licensed Trademarks are not valid or
enforceable trademarks, (ii) that Merck’s use of the Merck Intellectual Property
infringes upon or conflicts with any trademark, service mark, name, logo,
design, trade dress or other intellectual property rights of any third party, or
(iii) that a third party is engaged in the unauthorized use or infringement of
the Merck Intellectual Property. Any necessary registration, maintenance and
renewal fees due in connection with the Licensed Trademarks have been paid in a
timely manner and all necessary documents and certificates in connection with
the Licensed Trademarks have, for the purposes of maintaining the Licensed
Trademarks, been filed in a timely manner with all necessary Governmental
Authorities in the Territory.

 

  4.1.8

Compliance with Laws. The Manufacturing of the Existing Products is and has been
conducted in compliance with cGMP, the Specifications, the NDAs, and all other
applicable laws, rules, and regulations, and the development, marketing, sale,
distribution, import and export of the Existing Products and the conduct of

 

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the Business are, and have been conducted, in compliance with all applicable
laws, rules and regulations (including, but not limited to, the United States
Federal Food, Drug and Cosmetic Act, as amended (the “FD&C Act”) and the United
States Prescription Drug Marketing Act, as amended from time to time) in all
material respects. Neither the FDA nor any other Governmental Authority, has
notified Merck that it is in violation of any laws, rules or regulations with
respect to the Existing Products, the Business or the development, manufacture,
use, sale, marketing, import or export thereof or of the active ingredients of
the Existing Products in the Territory.

 

  4.1.9 Inventory. Schedule 4.1.9 sets forth the Inventory as of the Closing
Date. All of the Inventory was manufactured, produced, tested, validated and
released in accordance with cGMP and the Specifications; none of the Inventory
has been adulterated or misbranded within the meaning of the FD&C Act and the
regulations promulgated thereunder; and none of the Inventory is an article that
may not be introduced into interstate commerce under the provisions of
Section 404 or 505 of the FD&C Act. The Existing Products in the Inventory are
of a quality usable and saleable in the ordinary course of Business and do not
have an expiration date prior to [*] months after the Closing Date.

 

  4.1.10 Third Party Contracts. Except for the Astellas Agreements, the Purchase
Orders, the obligations that arise out of the listing of the Existing Products
on the Federal Supply Schedule, and a Section 340B contract with the Office of
Drug Pricing, there are no contracts between Merck (or any Affiliate thereof)
and any third parties (including, but not limited to, government agencies,
health maintenance organizations and other buyers of the Existing Products in
the Territory) specifically relating to the sale of the Existing Products in the
Territory. The Third Party Consent listed on Schedule 2.7.2 is in full force and
effect as of the Closing Date and shall not be modified or terminated after the
Closing Date without the prior written consent of Salix.

 

  4.1.11 Regulatory Status

 

  (a) Merck has all required approvals, licenses, permits, authorizations and
registrations with any Governmental Authority with respect to the use of the
Assets and the use, manufacture, sale, marketing, and import of Existing
Products in the Territory, including without limitation all required FDA
registrations and the NDAs (the “Approvals”). Each Approval is in full force and
effect. Merck is in compliance in all material respects with each Approval. All
information submitted or made known by Merck to any Governmental Authority for
the purpose of seeking the Approvals has, to Merck’s knowledge, been true,
accurate and complete in all material respects, and Merck and its Affiliates
have taken all reasonable steps to ensure that such information is true,
accurate and complete in all material respects.

 

[*] Confidential treatment requested; certain information omitted and filed
separately with the SEC.

 

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  (b) Except for certain ongoing reporting and administrative requirements and
except as otherwise disclosed in publicly available FDA records and filings,
there are no outstanding material commitments or obligations of Merck to the FDA
or any other Governmental Authority with respect to the Approvals or the
Existing Products. Merck has made available to Salix copies, if any, of all
serious and unexpected adverse event reports and periodic adverse event reports
with respect to the Existing Products that have been filed by Merck with the
FDA, including any correspondence relating thereto.

 

  (c) There is no action or proceeding by any Governmental Authority pending or,
to the knowledge of Merck as of the Closing Date, threatened, seeking the
revocation or suspension of any Approval in the Territory.

 

  4.1.12 Taxes. Merck has no material liability for Taxes that would affect
Salix’s rights, title and interest in or Salix’s right to use or enjoy (free and
clear of any lien or restriction) any Asset, Licensed Trademark, or
Manufacturing Know-How, or any aspect of the Business acquired by Salix pursuant
to this Agreement or the Ancillary Agreements.

 

  4.1.13 Sales Data. The historical sales data related to the Existing Products
for the period from [*] to [*] provided to Salix prior to the date hereof (the
“Sales Data”) has been prepared by Merck pursuant to and is consistent with the
books and records of Merck and presents fairly the sales of Existing Products
for the respective periods covered thereby. The internal books and records of
Merck upon which the Sales Data was prepared have been kept accurately in all
material respects.

 

  4.1.14 Disclaimers. Merck does not make any representation or warranty, and
specifically disclaims any warranty:

 

  (a) That the Assets will be useful to Salix for any purpose whatsoever; and
more specifically Merck makes no representations or warranties concerning the
Manufacturing process, or the efficacy, efficiency or adequacy of the Assets for
the purpose of Manufacturing, marketing or selling the Products or any other
product either before or after the Closing.

 

  (b) Concerning the efficacy or safety for human use of Famotidine, Pepcid OS
Product or any other product, whether in the formulation heretofore manufactured
and sold under the name “PEPCID” or in the form of any other hydrates, solvates,
salts, polymorphic forms (different crystal forms) of Famotidine or any
Derivatives thereof.

 

  (c) Concerning the efficacy or safety for human use of Chlorothiazide, or
Diuril OS Product or any other product, whether in the formulation heretofore
manufactured and sold under the name “DIURIL” or in the

 

[*] Confidential treatment requested; certain information omitted and filed
separately with the SEC.

 

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form of any other hydrates, solvates, salts, polymorphic forms (different
crystal forms) of Chlorothiazide or any Derivatives thereof.

 

  (d) Concerning the accuracy, completeness or utility of the Documents
contained within the Assets.

 

  (e) Concerning any legal and regulatory requirements that must be satisfied by
Salix before Salix will be able lawfully to manufacture, market and sell the
Products in the Territory.

 

  (f) That any medical information provided by Merck to Salix concerning the use
of the Existing Products is in accordance with sound medical practice or may be
relied on by Salix or any other Person for any purpose.

 

  (g) That it is the holder of any unexpired patent rights for the Existing
Products in the Territory.

 

  (h) SALIX ACKNOWLEDGES AND AGREES THAT, EXCEPT FOR THE EXPRESS REPRESENTATIONS
AND WARRANTIES CONTAINED IN THIS AGREEMENT, MERCK HAS MADE NO REPRESENTATION OR
WARRANTY WHATSOEVER AND SALIX HAS NOT RELIED ON ANY REPRESENTATION OR WARRANTY,
EXPRESS OR IMPLIED, EXCEPT THOSE EXPRESSLY SET FORTH IN THIS AGREEMENT. WITHOUT
LIMITING THE GENERALITY OF THE FOREGOING, SALIX ACKNOWLEDGES AND AGREES THAT,
EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, SALIX IS ACQUIRING THE ASSETS ON
AN “AS IS, WHERE IS” BASIS WITHOUT ANY EXPRESS OR IMPLIED WARRANTIES AS TO THE
FITNESS FOR A PARTICULAR PURPOSE, MERCHANTABILITY OR CONDITION OF THE ASSETS OR
AS TO THE NON-INFRINGEMENT OF ANY INTELLECTUAL PROPERTY RIGHTS OF ANY PERSON OR
AS TO ANY OTHER MATTER.

 

4.2 Representations and Warranties of Salix

Salix represents and warrants, as of the Closing Date that:

 

  4.2.1 Corporate Status. Salix is a corporation duly incorporated and validly
existing under the laws of the State of Delaware and has all requisite corporate
power and authority to own its properties and carry on its business as now being
conducted and to consummate the transactions contemplated hereby.

 

  4.2.2

Authority. Salix and its Affiliates each has the full corporate power and
authority to enter into this Agreement, the Ancillary Agreements and any other
documents contemplated hereby or thereby. The execution and delivery of this
Agreement

 

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and Ancillary Agreements and the consummation of the transactions contemplated
hereby and thereby have been duly authorized by the necessary corporate actions
of Salix and its Affiliates. This Agreement, the Ancillary Agreements and any
other documents contemplated hereby or thereby constitute valid and legally
binding obligations of Salix and its Affiliates enforceable against them in
accordance with their respective terms.

 

  4.2.3 Non-Contravention. The execution, delivery and performance by Salix and
its Affiliates (as applicable) of this Agreement, the Ancillary Agreements and
any other agreements and instruments contemplated hereunder will not (i) in any
material respect violate any statute, regulation, judgment order, decree or
other restriction of any Governmental Authority to which Salix is subject,
(ii) violate any provision of the corporate charter, by-laws or other
organizational documents of Salix, or (iii) constitute a material violation or
breach by Salix of any provision of any material contract, agreement or
instrument to which Salix is a Party or to which Salix may be subject although
not a Party.

 

  4.2.4 No Broker. There is no broker, finder, financial advisor or other Person
acting or who has acted on behalf of Salix, who is entitled to receive any
brokerage or finder’s or financial advisory fee from Merck in connection with
the transactions contemplated by this Agreement.

 

  4.2.5 No Lawsuits; Consents. There is no lawsuit, arbitration or proceeding
pending or, to the knowledge of Salix, threatened against Salix which might
prevent the consummation of any of the transactions contemplated by this
Agreement, and, except for the consents required to be obtained pursuant to
Section 2.7, the execution, delivery and performance by Salix of this Agreement,
the Ancillary Agreements and each of the instruments contemplated hereby to
which Salix is a Party and the consummation by Salix of the transactions
contemplated hereby and thereby, require no action by or in respect of, or
filing with any Governmental Authority or any other consent of any Person, firm
or other entity.

 

  4.2.6 Insurance. Salix has obtained the insurance coverages required in
Section 8.2.2 hereof.

 

  4.2.7 Debarred Personnel. Salix has not been debarred and is not subject to
debarment pursuant to Section 306 of the Federal Food, Drug, and Cosmetic Act,
as amended, or nor is it the subject of a conviction described in such section.

 

  4.2.8 Intention to Distribute Diuril OS Products. Salix has no current
intention or plan to discontinue at any time the supply and distribution of the
Diuril OS Product for the Territory.

 

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  4.2.9 Financial Capacity. Salix has adequate financial resources to complete
the transactions contemplated hereby and to perform its obligations under this
Agreement and the Ancillary Agreements.

 

  4.2.10 Compliance with State Law. Salix is aware of state laws in the United
States relating to distribution of Merck Image Product, and can legally
distribute Merck Image Product in all states, territories and possessions of the
United States.

 

5 REGULATORY COVENANTS

 

5.1 Maintenance of NDAs

 

  5.1.1 After the Closing Date and until such time as Salix decides to withdraw
the Pepcid OS NDA, Salix shall maintain the validity and good standing of the
Pepcid OS NDA such that Salix is authorized to manufacture (or have manufactured
pursuant to and in accordance with the Supply Agreement) and to sell the Pepcid
OS Product under the name “PEPCID” in the Territory, in accordance with
applicable laws and regulations. During such period, Salix shall not alter or
impair the Pepcid OS NDA in any manner or take any other action with respect to
the Assets that might adversely affect Merck’s or its Affiliates’ or Related
Companies’ ability to (i) manufacture the Pepcid OS Product under the Supply
Agreement or (ii) otherwise exercise their rights regarding (x) the Excluded
Assets or (y) Famotidine and its Derivatives outside the Field or outside the
Territory.

 

  5.1.2 During the period specified in Section 6.4, Salix shall maintain the
validity and good standing of the Diuril OS NDA such that Salix is authorized to
manufacture (or have manufactured pursuant to and in accordance with the Supply
Agreement) and to sell the Diuril OS Product under the name “DIURIL” in the
Territory, in accordance with applicable laws and regulations. During such
period, Salix shall not alter or impair the Diuril OS NDA in any manner or take
any other action with respect to the Assets that might adversely affect Merck’s
or its Affiliates’ or Related Companies’ ability to (i) manufacture the Diuril
OS Product under the Supply Agreement or (ii) otherwise exercise their rights
regarding (x) the Excluded Assets or (y) Chlorothiazide and its Derivatives
outside the Field or outside the Territory.

 

  5.1.3 After the Closing Date and until such time as Merck decides to withdraw
or convey the Pepcid Tablet NDA, Merck shall maintain the validity and good
standing of the Pepcid Tablet NDA such that Merck is authorized to manufacture
and to sell the Pepcid Tablet Product under the name “PEPCID” in the Territory,
in accordance with applicable laws and regulations. During such period, Merck
shall not alter or impair the Pepcid Tablet NDA in any manner that might
adversely affect Salix’s or its Affiliates’ ability to exercise the rights
pursuant to the license set forth in Section 3.2.2 hereof.

 

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5.2 Labeling

 

  5.2.1 From and after the Closing Date, except to the extent otherwise provided
in this Agreement, the Supply Agreement or the Transition Services Agreement,
Salix will be responsible for developing, and shall promptly develop, at its own
expense, new labeling (i.e., the package insert), new NDC numbers and printed
packaging components, including, without limitation, bottle labels, cartons,
shipper end-labels and packaging data as appropriate for the Products. Unless
otherwise specifically provided herein or in the Supply Agreement or Transition
Services Agreement, Salix, at its own expense, shall prepare and file with the
FDA any and all reports, documents and materials, and take such other actions,
as are necessary to undertake the foregoing.

 

  5.2.2 Notwithstanding the provisions of Section 5.2.1, with respect to certain
labeling for the Pepcid OS Product, the Parties acknowledge and agree as
follows:

 

  (a) The Pepcid OS Product and Pepcid Tablet Products share a common product
circular and such product circular contains the Merck company signature.

 

  (b) Concurrently with or after the amendment described in subparagraph
(b) above has been completed, (1) the Parties shall amend the product circular
for the Pepcid OS Product and the Pepcid Tablet Products in order to establish
two separate product circulars so that (i) one refers primarily to the Pepcid OS
Product and identifies Salix as the owner of such Pepcid OS Product and (ii) the
other refers primarily to the Pepcid Tablet Products and identifies Merck as the
owner of such Pepcid Tablet Products. The foregoing amendments to the product
circulars shall be effected by annual report submissions to FDA by Merck and
Salix, respectively. Thereafter, Salix shall be solely responsible for the
product labeling as described in Section 5.2.1).

 

5.3 Regulatory Compliance

From and after the Closing Date, except as provided in the Transition Services
Agreement and with respect to the manufacture of the Existing Products pursuant
to the Supply Agreement, Salix will be responsible for, and shall conduct, all
regulatory compliance activities with respect to the NDAs and the Products in
the Territory.

 

  5.3.1 Reporting Obligations. After the Closing Date, Salix shall have full
responsibility for completing and filing, and shall complete and file, the
annual report and all other reports required by any Government Authority in the
Territory for the Products. With respect to such period of time that Merck is
supplying Existing Products to Salix pursuant to the Supply Agreement, Merck
shall provide to Salix Merck’s internal annual review to the extent applicable
to the Existing Products in the Field and in the Territory.

 

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  5.3.2 Annual Report; Other FDA Submissions. Upon request by Merck, Salix shall
promptly send to Merck a copy of the annual report for the NDAs, any other New
Drug Application(s) or other regulatory approvals or applications with respect
to the Products, any supplements, amendments or changes to the NDAs, other New
Drug Application(s), other regulatory approvals or applications, and any INDs or
other filing, correspondence or other communication (including any summaries or
reports thereof) made with, or to, or received from, the FDA with respect to the
Products, and any changes made to the product circular or product label for the
Products after the Closing Date. Merck agrees to assist Salix in the preparation
of the first annual report for the Existing Products.

 

  5.3.3 Third Party Contractors; Debarment. Salix shall not at any time retain
or use in any capacity in connection with the research, development,
manufacture, marketing, sale or distribution of the Products any Person who has
been debarred pursuant to Section 306 of the Federal Food, Drug, and Cosmetic
Act, as amended, or who is the subject of a conviction described in such
section. Salix shall inform Merck in writing immediately if Salix, any of
Salix’s Affiliates or, to Salix’s knowledge, any other Person connected with the
research, development, manufacture, marketing, sale or distribution of the
Products is debarred or is the subject of a conviction described in such
Section 306, or if any action, suit, claim, investigation or legal or
administrative proceeding is pending or, to Salix’s knowledge, is threatened,
relating to the debarment or conviction of Salix or any such Person.

 

5.4 Adverse Events

 

  5.4.1 Effective as of the Closing Date, Salix shall be responsible for
reporting of adverse event information received with respect to the Products to
meet the current requirements for adverse drug reaction reporting to the FDA and
shall comply with the adverse experience reporting requirements set forth in
this Section 5.4 with respect to the Existing Products, except as otherwise
provided in the Transition Services Agreement. Pursuant to Section 2.6.3, Merck
will provide Salix an electronic copy of all legacy data of adverse events or
experiences, both Serious and non-Serious, as maintained by Merck on its global
safety database.

 

  5.4.2 Merck and its Affiliates shall provide to Salix, and Salix shall provide
to Merck, timely notice of all side effects, drug interactions and other adverse
effects identified or suspected by such Party with respect to the Existing
Products. Merck shall provide Salix, and Salix shall provide Merck, with all
necessary assistance in complying with all adverse reaction reporting
requirements established by, or required under, either of the NDAs within the
Territory.

 

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  5.4.3 Merck shall provide Salix, and Salix shall provide Merck, within
five (5) calendar days of “date first learned,” written notice of all such side
effects, drug interactions and other adverse effects reported to such Party or
its Affiliates regarding the Products. With respect to any such information,
Merck and Salix shall also use reasonable efforts to obtain, and to furnish to
each other, such information, including, but not limited to, patients,
circumstances, consequences and sources of information, reasonably sufficient to
permit the other Party to evaluate such side effects, drug interactions or other
adverse effects of the Products. Each Party shall retain all documents, reports,
studies and other materials relating to any and all such side effects, drug
interactions, or other adverse effects relating to the Products. Upon reasonable
written notice, Merck shall permit Salix, and Salix shall permit Merck, to
inspect, and to make copies of, all such documents, reports, studies and other
materials.

 

  5.4.4 Merck shall provide Salix, and Salix shall provide Merck, with such
assistance as the other Party shall reasonably request in connection with the
identification, analysis, mitigation and elimination of all such side effects,
drug interactions and other adverse effects with respect to the Products, as
applicable, provided, however, that, in the event that the FDA requires any
clinical studies or additional studies with respect to any such side effects,
drug interactions or other adverse effects of the Products in order to maintain
the NDA for such Products, Salix shall bear the costs in relation to the
performance of any such studies Salix elects, in its sole discretion, to
conduct.

 

  5.4.5 Within thirty (30) days of the Closing Date, Merck and Salix shall enter
into a separate agreement, consistent with pharmaceutical industry practices and
standards, regarding procedures for adverse event reporting for the Products.

 

5.5 Recalls

Effective as of the Closing Date, Salix shall have full responsibility for
determinations to initiate recalls, field corrections or withdrawals with
respect to Products sold or marketed in the Field in the Territory, provided,
however, that during the term of the Supply Agreement any recalls, field
corrections or withdrawals shall be effected in accordance with the Supply
Agreement. The costs of any such recall or withdrawal, to the extent not subject
to the provisions of the Supply Agreement, shall be deemed to be an Assumed
Liability except to the extent encompassed within the term “Excluded Liability”,
in which case such costs shall be borne by Merck.

 

6 SUPPLY AND MANUFACTURING COVENANTS

 

6.1 Supply of Products

Except with respect to the Supplied Products pursuant to the Supply Agreement
and any extension or modification thereof, Salix will manufacture, or have
manufactured on its

 

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behalf by a third party, the Products, in compliance with cGMPs and in material
compliance with those applicable laws governing quality compliance of human
pharmaceutical products.

 

6.2 FDA Approval

To the extent that the manufacture, distribution and sale of the Products is
subject to approval or certification by the FDA, Salix will not manufacture,
distribute or sell the Products without such approval or certification.

 

6.3 Storage and Distribution of the Products

Salix shall comply with cGMP in the storage and distribution of Inventory and
Supplied Products.

 

6.4 Continued Sale of Diuril OS Product

Merck and Salix acknowledge and agree that the Diuril OS Product is medically
necessary to treat a disease, illness, condition and/or patient population, that
there are no alternative sources or acceptable alternative molecules, and that
the Diuril OS Product is currently being used for its appropriate indications in
the Territory. It is the joint desire of Merck and Salix that the Diuril OS
Product satisfy the foregoing need and continue to be available to the public to
meet reasonably anticipated patient needs. Consequently, and as a material
inducement to Merck to enter into this Agreement, Salix agrees for a period of
at least [*] to maintain a supply of Diuril OS Product for the Territory
reasonably sufficient to meet reasonably anticipated patient needs and demands
as determined by reference to certain historical data as set forth on Schedule
6.4, but taking into account any subsequent developments that cause Merck and
Salix to mutually agree in writing that such Diuril OS Product is no longer
medically necessary. In addition, Salix shall distribute the Diuril OS Product
in the Territory in a manner reasonably calculated to meet such patient needs
and demands. Further, no later than [*], Salix shall obtain and receive approval
from the FDA to provide for an update to the packaging and formulation of the
Diuril OS Product from a source of supply other than Merck or its Affiliates and
shall keep Merck periodically and reasonably informed of such approval process.
Any failure of Salix to perform its obligations under this Section 6.4 shall
constitute a material breach of this Agreement.

 

6.5 Equipment

In the event that Merck determines that it desires to sell certain equipment
related to the manufacture of the Existing Products, and Salix desires to
acquire any or all such equipment from Merck, Salix may request that Merck sell
such equipment to Salix. In the event of such request, Merck and Salix shall
negotiate in good faith and seek to reach agreement for the sale of such
equipment by Merck to Salix on an as is basis upon mutually acceptable terms,
taking into account the fair market value of such equipment at the time of sale.

 

[*] Confidential treatment requested; certain information omitted and filed
separately with the SEC.

 

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7 OTHER COVENANTS RELATING TO THE PRODUCTS

 

7.1 Customer Matters

 

  7.1.1 Customer Notification. Merck will notify the other parties to the
Purchase Orders in writing within [*] Business Days after the Closing Date that
Salix is the owner of the NDAs for the Existing Products in the Territory but
that Merck will continue to distribute the Existing Products, as Salix’s agent,
for a limited period of time pursuant to the Transition Services Agreement.

 

  7.1.2 Orders; Customer Service. Commencing on the Closing Date, Salix shall be
responsible for receiving and processing all orders, undertaking all invoicing,
collection and receivables, and providing all customer service related to the
sale of Products in the Territory including the handling of customer orders;
provided, that Merck shall perform certain services for Salix with respect to
the Existing Products. For a period of [*] from and after the Closing Date, if
Merck receives any customer order for an Existing Product in the Territory,
Merck shall, within [*] of receipt, forward such order to Salix by facsimile,
followed by the original hard copy if the order is placed by hard copy and if
requested by Salix. Except as provided in the Transition Services Agreement,
commencing on the Closing Date, Salix shall be responsible for and handle all
customer complaints and inquiries (medical and non-medical) with respect to the
Products.

 

7.2 Promotion and Marketing

 

  7.2.1 Products Selling Price. Effective as of the Closing Date, Salix shall
independently determine and set prices for the Products in the Territory to be
sold by Salix, including the selling price, volume discounts, rebates and
similar matters.

 

  7.2.2 Advertising and Promotional Materials

 

  (a) Salix Promotion. Commencing on the Closing Date, Salix shall be
responsible for development of all advertising and promotional materials in the
Territory for the Products, if any.

 

  (b) FDA Contacts. Commencing on the Closing Date, Salix shall be the contact
for review and discussion of all promotional materials for the Products with the
FDA. In connection with the transfer hereunder of the NDAs, Salix shall file on
a timely basis after the Closing Date, all promotional materials for the
Products as may be required with the FDA.

 

  (c) Use of Merck Trade Names. Except to the extent otherwise provided in the
Supply Agreement or the Transition Services Agreement, beginning on

 

[*] Confidential treatment requested; certain information omitted and filed
separately with the SEC.

 

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the Closing Date, Salix shall mark clearly all units of the Products
manufactured or distributed by Salix to indicate Salix’s ownership of the
Products in the Territory and shall not use the words, names or combined letters
“Merck”, “Merck & Co., Inc.”, “MMD”, “Merck Manufacturing Division”, “Merck
Sharp & Dohme”, “MSD”, “Merck Frosst”, “Frosst”, “Merck Frosst Canada Ltd.” or
any variation thereof or other word, name or letter combination substantially
similar thereto, or any other trade name or trademark (except as expressly set
forth in the Trademark License Agreement) of Merck, or any NDC of Merck, in
connection with the Products or otherwise, or as part of the name of Salix.
After the Closing Date, except to the extent otherwise provided in the Supply
Agreement or the Transition Services Agreement, Salix shall not give the
impression to the public, to physicians or to the pharmaceutical marketplace
that the Products are products of Merck or its Affiliates or are in any way
connected with Merck or its Affiliates (except in a public announcement approved
by Merck as provided in Section 8.3.2), provided that Salix shall be entitled to
identify any Existing Products supplied to Salix under the Supply Agreement as
manufactured by Merck.

 

  (d) Trade Dress. Commencing on the Closing Date, Salix shall not use trade
dress, packaging (both internal and external) or labeling which is substantially
the same as that of Merck in connection with any Product which is not
manufactured by, or purchased under this Agreement or the Supply Agreement from,
Merck or its Affiliates.

 

7.3 Medical and Other Inquiries

 

  7.3.1 Commencing on the Closing Date, Salix shall be responsible for, and
shall respond to, all medical inquiries related to the Products. In addition,
Salix shall be responsible for, and shall conduct, all correspondence and
communication with physicians and other health care professionals in the
Territory relating to the Products. Salix shall keep such records and make such
reports as shall be reasonably necessary to document such communications in
compliance with all applicable regulatory requirements.

 

  7.3.2 Merck and Salix shall cooperate to effect an orderly transfer of the
responsibilities associated with correspondence and communication with health
care professionals and customers relating to the Existing Products sold in the
Territory. Except to the extent otherwise required in the case of medical
emergency (in which case, Merck shall promptly inform Salix of the question and
response), Merck will refer all questions raised by health care professionals
and customers relating to the Products sold by Salix in the Territory to Salix
for response. Salix shall provide to Merck a U.S. toll-free telephone number and
facsimile number to use for such referrals.

 

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7.4 Returned Products, Chargebacks and Rebates

 

  7.4.1 Salix shall keep adequate records of any Returned Products and shall
promptly notify Merck of receipt of any Returned Products. Salix shall at the
request of Merck remit all such Returned Products to Merck at:

[*]

[*]

[*]

[*]

at the expense of Merck, unless Merck specifically authorizes Salix to destroy
such Returned Products at Merck’s expense, in which event Salix shall provide
such certifications regarding the destruction and cost of destruction of such
Returned Products as Merck shall reasonably require.

 

  7.4.2 Merck shall keep adequate records of any Distributor Returned Products
and shall promptly notify Salix of receipt of any Distributor Returned Products.
Merck shall at the request of Salix remit all such Distributor Returned Products
to Salix at:

Salix Pharmaceuticals, Ltd.

Attn: Brad Bainbridge

1700 Perimeter Park Drive

Morrisville, NC 27560-8404

Fax: 919-862-1095

at the expense of Salix, unless Salix specifically authorizes Merck to destroy
such Distributor Returned Products at Salix’s expense, in which event Merck
shall provide such certifications regarding the destruction and cost of
destruction of such Distributor Returned Products as Salix shall reasonably
require.

 

  7.4.3 Merck shall give credit for all Returned Products in accordance with
Merck’s Standard Return Terms and Conditions to (i) customers who purchased
Returned Products from Merck and return such Returned Products to Merck and
(ii) Salix if Salix provides documentation that it provided credit to a customer
who purchased Returned Products from Merck and returned such Returned Products
to Salix. A Product shall be deemed a Returned Product if it comes from a batch
from which any sale was made by Merck prior to the Closing Date.

 

  7.4.4 Salix shall be responsible for all Distributor Returned Products and
shall give credit for all Distributor Returned Products in accordance with
Merck’s Standard Return Terms and Conditions to (i) customers who purchased
Distributor Returned Products and return such Distributor Returned Products to
Salix and (ii) Merck if Merck provides documentation that it provided credit to
a customer who

 

[*] Confidential treatment requested; certain information omitted and filed
separately with the SEC.

 

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purchased Distributor Returned Products and returned such Distributor Returned
Products to Merck. A Product shall be deemed a Distributor Returned Product if
it does not come from a batch from which any sale was made by Merck prior to the
Closing Date.

 

  7.4.5 Merck shall be responsible for processing all chargebacks arising from
sales of the Existing Products bearing Merck’s NDC by wholesalers to customers
in the Territory. Merck shall be responsible for the cost of such chargeback
claims submitted prior to the Closing Date and through (and including) [*].
Salix shall be responsible for the cost of all chargeback claims submitted on or
after [*] (including, without limitation, any Supplied Products sold by Merck as
distributor for Salix pursuant to the Transition Services Agreement).

 

  7.4.6 Salix shall be responsible for payment of all non-Medicaid Rebates
arising from the utilization of the Existing Products bearing Merck’s NDCs sold
on and after the Closing Date in the Territory (including, without limitation,
the utilization of any Supplied Products sold by Merck as distributor for Salix
pursuant to the Transition Services Agreement).

 

  7.4.7 Merck shall be responsible for processing all Medicaid Rebates for the
Existing Products bearing Merck’s NDC. Salix will cooperate as necessary to
facilitate the processing of Medicaid Rebate claims by Merck during this period.
Salix shall reimburse Merck for all such Rebates paid by Merck for Existing
Products sold on or after the Closing Date.

 

  7.4.8 Salix shall at all times have sole and exclusive responsibility for the
processing and payment of any and all chargebacks and Rebates arising from or
with respect to Products bearing Salix’s NDC numbers.

 

7.5 Price Submissions and Certifications

 

  7.5.1 Monthly Submissions to Merck. Beginning on the Closing Date, Salix shall
submit to Merck on a monthly basis, within [*] days after the last day of the
previous month, the monthly Average Manufacturer Price (“AMP”) for each Existing
Product that bears a Merck NDC number, calculated from sales of that Existing
Product made by Salix (including, without limitation, sales made by Merck as
distributor for Salix under the Transition Services Agreement) in accordance
with applicable law and regulatory guidance.

 

  7.5.2 Quarterly Submissions to Merck. Beginning on the Closing Date, Salix
shall submit to Merck on a quarterly basis, within [*] days after the last day
of the previous calendar quarter, the quarterly AMP, Best Price, and Non-Federal
Average Manufacturer Price (“Non-FAMP”) for each Existing Product that bears a
Merck NDC, calculated from sales of that Existing Product made by Salix
(including, without limitation, sales made by Merck as distributor for Salix
under the Transition Services Agreement) in accordance with applicable law and
regulatory guidance.

 

[*] Confidential treatment requested; certain information omitted and filed
separately with the SEC.

 

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  7.5.3 Customary Prompt Pay Discounts and Nominally Priced Sales. Salix agrees
to include with its quarterly AMP submissions to Merck information concerning
all customary prompt pay discounts on sales of each Existing Product that bears
a Merck NDC that Salix provided to wholesalers during the preceding calendar
quarter. Salix also agrees to include with its quarterly Best Price submissions
to Merck information concerning all nominally priced sales that occurred during
the preceding calendar quarter and that Salix excludes from each Best Price
calculation.

 

  7.5.4 Representations and Warranties Concerning Price Submissions to Merck

Salix understands that Merck is reasonably relying on Salix for the timely and
accurate submission of the information described in Subparagraphs 7.5.1 through
7.5.3. Accordingly, Salix represents and warrants that: (a) any information
submitted to Merck pursuant to those subparagraphs: is accurate, based on the
best and most complete data available at the time each submission is made; and
(b) each price is calculated pursuant to the appropriate price calculation
methodology. Salix further represents and warrants that each of its price
calculation methodologies complies with applicable law, including without
limitation all applicable regulations and agency guidance.

 

  7.5.5 Certifications to Merck

 

  (a) Salix agrees that each AMP and Best Price submission to Merck shall be
accompanied by the following certification, to be executed by the Salix official
who executes the certifications that accompany Salix’s Medicaid rebate-related
price reports to the Centers for Medicare and Medicaid Services (“CMS”):

I, John Temperato, Vice President, Managed Markets, an authorized representative
of Salix Pharmaceuticals LTD, certify that the information provided to Merck &
Co., Inc. with this submission: (a) is accurate based on the best information
currently available; and (b) has been calculated pursuant to Salix’s Medicaid
Drug Rebate Program calculation methodology.

I further certify that Salix’s Medicaid Drug Rebate Program calculation
methodology fully complies with all applicable laws and regulations, and all
applicable guidance issued by the Centers for Medicare and Medicaid Services.

 

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  (b) Salix agrees that each non-FAMP submission to Merck shall be accompanies
by the following certification:

I, John Temperato, Vice President, Managed Markets, an authorized representative
of Salix Pharmaceuticals LTD, certify that the information provided to Merck &
Co., Inc. with this submission: (a) is accurate based on the best information
currently available; and (b) has been calculated pursuant to Salix’s non-Federal
Average Manufacturer Price calculation methodology.

I further certify that Salix’s non-Federal Average Manufacturer Price
calculation methodology fully complies with all applicable laws and regulations,
and all applicable guidance issued by the Department of Veterans Affairs.

 

7.6 Audits and Price Submissions

 

  7.6.1 Merck Audit Rights. Merck shall have the right to have an independent
third party reasonably acceptable to Salix (“Third Party Auditor”) audit and
examine all relevant records of Salix as may be reasonably necessary to verify
the accuracy and completeness of the prices and other information submitted to
Merck pursuant to Paragraph 7.5 and to verify that each of Salix’s price
calculation methodologies complies with applicable law. Such Third Party Auditor
shall execute a confidentiality agreement and shall report its conclusions to
both Merck and Salix without disclosing to Merck any information about pricing
or discounts for any of the Products, except information that Salix is required
to submit to Merck pursuant to Paragraph 7.5, including the correct figures if
the auditor believes any price or other information submitted by Salix was
incorrect. Payment for any audit services rendered by the Third Party Auditor
shall be made by [*].

 

  7.6.2 Representations and Warranties Concerning Information Furnished to the
Third Party Auditor. Salix represents and warrants that all information required
to be provided to the Third Party Auditor: (a) will be made available for
inspection and audit by the Third Party Auditor not later than seven (7) days
after the close of each month; (b) will be complete and accurate; and (c) will
be collected and maintained in accordance with applicable law.

 

7.7 Restatements of Price Submissions

 

  7.7.1 Routine Restatements. With respect to any information described in
Subparagraphs 7.5.2 or 7.5.3 and submitted by Salix to Merck, Salix agrees, upon
obtaining sales data not available at the time the information was originally
submitted to Merck but that renders the original submission incorrect, to revise
the original information and to re-submit the information to Merck within five
(5) days of obtaining the new sales data.

 

[*] Confidential treatment requested; certain information omitted and filed
separately with the SEC.

 

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  7.7.2 Restatements to Address Inaccuracies in Original Price Submissions. Upon
discovery by Merck or Salix, either through their own efforts or those of the
Third Party Auditor, that any information was inaccurate at the time it was
originally submitted, Salix agrees to correct the inaccurate information and to
re-submit the information to Merck within five (5) days of its own discovery of
the inaccuracy or notification by Merck or the Third Party Auditor of the
inaccuracy.

 

7.8 Indemnification Related to Price Submissions

 

  7.8.1 Agreement to Indemnify. Salix shall reimburse and indemnify Merck for
any liability that results from any inaccuracy in any price or related
information submitted to Merck pursuant to Paragraph 7.5.

 

  7.8.2 Construction with Other Provisions. The indemnity obligation set forth
above shall be separate from, in addition to, and not subject to, any
indemnification obligations arising under Article 10 of this Agreement.

 

7.9 Provision of Historical Pricing Information

 

  7.9.1 Medicaid Drug Rebate Program. Within [*] days of the Closing Date, Merck
shall provide to Salix the baseline information for the Existing Products that
Merck submitted to CMS in accordance with Paragraph II(f) of its Medicaid Rebate
Agreement with the Secretary of Health and Human Services, including, but not
limited to, base date AMP.

 

  7.9.2 Federal Supply Schedule Listings. Within [*] days of the Closing Date,
Merck shall provide to Salix the necessary information required by Salix to
establish the Products bearing Salix’s NDCs on Salix’s Federal Supply Schedule
(“FSS”) contract, including, but not necessarily limited to, the Products’
Federal Ceiling Prices (“FCPs”), FSS prices that are in effect as of the Closing
Date, and any other historical information necessary for Salix to calculate the
Products’ FCPs or FSS prices for the following calendar year. By the date Salix
begins marketing or selling Products bearing Salix’s NDCs, Salix agrees to
execute with the Secretary of Veterans Affairs an FSS contract, a Master
Agreement, and a Pharmaceutical Pricing Agreement, each covering the Products
bearing Salix’s NDCs.

 

  7.9.3 Section 340B Pricing. Within [*] days of the Closing Date, Merck shall
provide to Salix the necessary information required by Salix to establish the
Products bearing Salix’s NDCs on Salix’s contract with the Secretary of Health
and Human Services entered into pursuant to Section 340B of the Public Health
Service Act, which such contract Salix will execute by no later than the date it
begins marketing or selling Products bearing Salix’s NDCs.

 

[*] Confidential treatment requested; certain information omitted and filed
separately with the SEC.

 

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8 ADDITIONAL COVENANTS

 

8.1 Covenants of Merck

Merck hereby covenants and agrees that:

 

  8.1.1 Non-Competition Relating to Products. During the period commencing on
the Closing Date and ending on the [*] thereof, Merck and its Affiliates shall
not:

 

  (a) market, sell or distribute any prescription Oral Suspension pharmaceutical
product containing Famotidine, Chlorothiazide, or any Derivative of either of
the foregoing as the sole active ingredient in the Field in the Territory except
for (i) any sales or distribution of Existing Products or active ingredients to
or on behalf of Salix pursuant to the Supply Agreement or Transition Services
Agreement or (ii) any sales of Products that are intended, at the time of sale,
for use outside of the Territory; or

 

  (b) grant a license to any third Party to sell or distribute under the name
“PEPCID” or “DIURIL”, as the case may be, any prescription Oral Suspension
pharmaceutical product containing Famotidine, Chlorothiazide, or any Derivative
of either of the foregoing in the Field in Territory.

 

  8.1.2 Limitation on Covenants of Merck. Nothing in this Agreement shall be
construed as restricting the ability of Merck or its Affiliates:

 

  (a) to manufacture any Product for use by Salix in the Territory, for use by a
Person outside of the Field in the Territory, or for use by a Person for any
purpose outside of the Territory;

 

  (b) to market, sell or distribute any Product intended for use outside of the
Field in the Territory or for any use for any purpose outside of the Territory;

 

  (c) to research Famotidine or Chlorothiazide, as the case may be, or any
product or combination product containing Famotidine, Chlorothiazide or any of
their respective Derivatives for any purpose;

 

  (d) to manufacture, formulate and use Famotidine or Chlorothiazide, as the
case may be, or any product or combination product containing Famotidine,
Chlorothiazide or any of their respective Derivatives thereof in the Field in
the Territory solely for the purpose of using such compound as a comparator in
one or more clinical studies;

 

[*] Confidential treatment requested; certain information omitted and filed
separately with the SEC.

 

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  (e) to use any information, data, or intellectual property contained in the
Assets in a manner consistent with Section 2.2; and

 

  (f) to research, develop, manufacture, market, sell or distribute Famotidine
or Chlorothiazide, as the case may be, or any product or combination product
containing Famotidine, Chlorothiazide or any of their respective Derivatives for
any purpose anywhere in the world, other than any Oral Suspension pharmaceutical
preparation containing Famotidine or Chlorothiazide, as the case may be, that is
labeled or intended for use in the Field in the Territory.

 

8.2 Covenants of Salix

Salix hereby covenants and agrees that:

 

  8.2.1 Notice of Litigation. Salix shall give prompt written notice to Merck of
any litigation or regulatory proceeding (including, without limitation, any
government investigation) in which Salix is involved as a party that directly
concerns, and might materially and adversely affect, the Products or Assets or
Salix’s rights in the same or that might otherwise have a material adverse
affect on the rights of Merck and its Affiliates and Related Companies to
Famotidine or Chlorothiazide, as the case may be, or any product or combination
product containing Famotidine, Chlorothiazide or any of their respective
hydrates, solvates, salts, polymorphic forms (different crystal forms) or other
Derivatives thereof outside the Field or outside the Territory.

 

  8.2.2 Insurance

 

  (a) Salix shall at all times until [*] after the Closing Date (the “Insurance
Term”) maintain at its own expense standard products liability/completed
operations insurance covering all claims against Salix whatsoever and howsoever
arising from the manufacture, sale, distribution or use of the Products by
Salix, its employees, agents and assigns, with coverage limits of not less than
$[*] per occurrence and not less than $[*] in the aggregate for all claims made
within any year (the “Salix Insurance”). Without limitation of the foregoing,
the Salix Insurance shall be effective commencing on the Closing Date and shall
cover Merck as an additional insured with respect to such claims and such
insurers of Salix shall provide a waiver of subrogation against Merck. The Salix
Insurance shall be with insurers having an AM Best (A-) or higher rating.
Further, the Salix Insurance shall be primary with no contribution by Merck’s
insurance.

 

[*] Confidential treatment requested; certain information omitted and filed
separately with the SEC.

 

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  (b) Salix shall continue to make premium payments on the Salix Insurance for
as long as necessary to keep the Salix Insurance in full force and effect during
the above-required period. If Salix fails for any reason to make such premium
payments in a timely fashion, Merck shall have the right to make such payments
at the expense of Salix. Salix shall request its insurer or its agent give Merck
prompt written notice if Salix fails to make a required premium payment in a
timely fashion such that Merck shall have not less than ten (10) Business Days
after receipt of such notice to make such premium payments. In the event that
the Salix Insurance is not in full force and effect and Merck, in its sole
discretion, determines that it is able to apply its own insurance, Salix shall
reimburse Merck for any premium or expense in connection therewith and Merck
shall be entitled to off-set any such expense against any payments or
liabilities arising under this Agreement or the Ancillary Agreements.

 

  (c) Salix shall immediately notify Merck of any change in the status of the
Salix Insurance and shall at Closing and from time to time thereafter, at
Merck’s request, provide Merck with a certificate of insurance attesting that
the Salix Insurance policies providing the required coverage and limits of
insurance are in full force and effect and with insurers having an AM Best (A-)
or higher rating. Maintenance of the Salix Insurance shall not relieve Salix of
any responsibility under this Agreement, or the Ancillary Agreements for
liability in excess of insurance limits or otherwise.

 

  8.2.3 Taxes. Salix shall bear and be responsible for and pay all applicable
Taxes related to (i) the transfer to Salix of the NDAs and the Assets to be
transferred thereto under this Agreement and (ii) the promotion, marketing, sale
and distribution by Salix of the Products in the Territory after the Closing
Date, and shall indemnify and hold Merck and its relevant Affiliates harmless
from any liability relating to such Taxes other than any income taxes imposed on
Merck resulting from the transactions contemplated by this Agreement, including
but not limited to, such transfers.

 

8.3 Mutual Covenants

Merck and Salix covenant and agree as follows:

 

  8.3.1

Further Assurances. Each of Merck and Salix shall, at any time or from time to
time after the Closing Date, at the request and expense of the other Party,
execute and deliver to the other Party all such instruments and documents or
further assurances as the other Party may reasonably request in order to
(i) sell, assign and transfer to Salix Merck’s right, title and interest in and
to the Assets as contemplated hereby, (ii) effectuate Salix’s assumption of the
Assumed Liabilities, and (iii) grant Salix all rights licensed under this
Agreement and the Ancillary Agreements; provided, however, that after the
Closing Date, apart from such customary further assurances, Merck shall have no
other obligations except

 

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as specifically set forth and described herein or in the Ancillary Agreements.
Without limitation of the foregoing Merck shall have no obligation to (i) assist
or otherwise participate in the amendment or supplementation of the NDAs or
otherwise to participate in any filings or other activities relating to the NDAs
other than as necessary to effect the assignment thereof to Salix pursuant to
this Agreement (and which shall include, but not be limited to, transmitting the
Merck FDA Letters as contemplated by Section 2.7.1 and the activities in
Section 5.3 (except as specifically provided in the Supply Agreement or the
Transition Services Agreement)), or (ii) assist or otherwise participate in
efforts to validate, continue or improve any process for or related to the
manufacture of the Products (except as specifically provided in the Supply
Agreement or the Transition Services Agreement), or (iii) provide any assistance
to Salix related to manufacture of the Products, after the Closing Date or at
any time in the future, except, in each case, as specifically set forth herein
or in the Ancillary Agreements.

 

  8.3.2 Publicity. Other than as expressly permitted herein, no press release,
public announcement, confirmation or other information regarding this Agreement,
the Ancillary Agreements or related matters shall be made by either Party
without the prior written consent of the other Party with respect to its form,
content and means of dissemination (other than Products advertising); provided
that in no event shall Salix use the word “Merck” or the other words or the
other words or names referred to in Section 7.2.2(c)). A public announcement
substantially in the form attached hereto as Schedule 8.3.2 is hereby approved
by both Parties and may be released immediately upon the Closing Date.
Notwithstanding the foregoing, Salix may make any (i) filings with the U.S.
Securities and Exchange Commission as permitted under Section 8.3.4(e).

 

  8.3.3 Cooperation. From and after the Closing Date, each Party shall make
available to the other Party during normal business hours and upon reasonable
prior written notice, but without unreasonably disrupting its business, all
records as to the Products, Assets, Assumed Liabilities and Excluded Liabilities
held by it and reasonably necessary to permit the defense or investigation of
any litigation, hearing, regulatory proceeding or investigation directly
relating to the Products, Assets, Assumed Liabilities or Excluded Liabilities
and shall preserve and retain all such records for the length of time
contemplated by its standard record retention policies and schedules; provided,
however, that in no event shall Merck be required to assist Salix in any
validation process or other regulatory process or proceeding related to the
manufacture of the Products or any other product except as specifically set
forth herein or in the Ancillary Agreements.

 

  8.3.4 Confidentiality

All Confidential Information disclosed by one Party to the other Party hereunder
shall be maintained in confidence by the receiving Party and its Affiliates and

 

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shall not be disclosed to any third party or used for any purpose except as set
forth herein without the prior written consent of the disclosing Party, except
to the extent that such Confidential Information:

 

  (a) is known by the receiving Party at the time of its receipt, and not
through a prior disclosure by the disclosing Party, as documented by the
receiving Party’s business records;

 

  (b) is in the public domain by use and/or publication before its receipt from
the disclosing Party, or thereafter enters the public domain through no fault of
the receiving Party;

 

  (c) is subsequently disclosed to the receiving Party by a third party who may
lawfully do so and is not under an obligation of confidentiality to the
disclosing Party;

 

  (d) is developed by the receiving Party independently and without benefit of
Confidential Information received from the disclosing Party, as documented by
the receiving Party’s business records;

 

  (e) is reasonably necessary to disclose to Governmental Authorities to comply
with disclosure obligations under applicable laws, rules or regulations,
including, without limitation, the rules and regulations of any stock exchange,
provided, in the case of disclosure by Salix, that the receiving Party (i) gives
the disclosing Party, to the extent reasonably practicable, a reasonable advance
opportunity, in light of the time reasonably required to prepare any such filing
or disclosure and the required deadlines for such filing or disclosure, to
review and comment on any proposed filing, (ii) in the case of any required
filing by Salix of this Agreement or any Ancillary Agreement with the Securities
and Exchange Commission, Salix redacts and seeks confidential treatment for any
portions of such agreements that Merck may identify to Salix as being
competitively sensitive to Merck, which such portions Merck shall identify to
Salix within five (5) Business Days of notification by Salix that filing of such
agreement is required, (iii) in the case of any other filing or disclosure,
seeks or assists the disclosing Party, as reasonably requested, in seeking
protective or confidential treatment of such information, and (iv) minimizes any
such disclosure to the extent permitted by applicable laws, rules or
regulations;

 

  (f) is deemed necessary by counsel to the receiving Party to be disclosed to
such Party’s attorneys, independent accountants or financial advisors for the
sole purpose of enabling such attorneys, independent accountants or financial
advisors are subject to provide advice to the receiving Party, on the condition
that such attorneys, independent accountants and financial advisors are subject
to or agree to be bound by confidentiality and non-use obligations at least as
strict as those contained in this Agreement;

 

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  (g) is deemed necessary by the receiving Party to be disclosed to a third
party that has provided the receiving Party with a bona fide written offer to
effect a Change of Control on the condition that such third party and its
attorneys, independent accountants and financial advisors agree to be bound by
confidentiality and non-use obligations at least as strict as those contained in
this Agreement; provided, however, that the term of confidentiality for such
third party and its attorneys, independent accountants and financial advisors
shall be no less than ten (10) years; or

 

  (h) is required to be disclosed by judicial or administrative process to which
the disclosing Party is subject.

Any combination of features or disclosures shall not be deemed to fall within
the foregoing exclusions merely because individual features are published or
available to the general public or in the rightful possession of the receiving
Party unless the combination itself and principle of operation are published or
available to the general public or in the rightful possession of the receiving
Party.

If a Party is required by judicial or administrative process to disclose
Confidential Information in accordance with Section 8.3.4(h), such Party shall
promptly, and, to the extent reasonably practicable, in advance, inform the
other Party of the disclosure that is being sought in order to provide the other
Party an opportunity to challenge or limit the disclosure obligations and the
receiving Party shall cooperate with the disclosing Party, as reasonably
requested, in seeking confidential or protective treatment of such information.
Confidential Information that is disclosed by judicial or administrative process
shall remain otherwise subject to the confidentiality and non-use provisions of
this Section 8.3.4.

 

9 INDEMNIFICATION

 

9.1 Indemnification

 

  (a)

Indemnification by Merck. Subject to Section 9.3, Merck shall indemnify, defend
and hold harmless Salix and its Affiliates and their officers, directors,
employees and agents from and against any and all Losses, which directly or
indirectly arise out of or relate to (i) any breach by Merck of any of the
representations or warranties made by Merck in this Agreement; (ii) failure by
Merck to perform any of its covenants or agreements contained herein or in the
Ancillary Agreements; (iii) failure by Merck to pay, perform or discharge when
due, any of the Retained

 

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Liabilities or (iv) waiver of compliance with any applicable bulk sales statutes
pursuant to Section 10.12 hereof (other than with respect to Assumed
Liabilities).

 

  (b) Indemnification by Salix. Subject to Section 9.3, Salix shall indemnify
and hold harmless Merck and its Affiliates, and their respective officers,
directors, employees and agents from and against any and all Losses which
directly or indirectly arise out of or relate to (i) any breach by Salix of any
of the representations or warranties made by Salix in this Agreement;
(ii) failure by Salix to perform any of its respective covenants or agreements
contained herein or in the Ancillary Agreements; or (iii) failure by Salix to
pay, perform or discharge when due, any of the Assumed Liabilities assumed by
Salix pursuant to this Agreement.

 

9.2 Third-Party Claim Procedure

If a claim by a third party is made against an indemnified Party, and if such
Party intends to seek indemnification with respect thereto under this
Section 9.2, the indemnified Party shall promptly notify the indemnifying Party
of such claim. The indemnifying Party shall have thirty (30) days after receipt
of such notice to undertake, conduct and control, through counsel of its own
choosing (subject to the consent of the indemnified Party, such consent not to
be unreasonably withheld) and at its expense, the settlement or defense of such
claim, and the indemnified Party shall cooperate with the indemnifying Party in
connection therewith; provided, however, that (i) the indemnifying Party shall
permit the indemnified Party to participate in such settlement or defense
through counsel chosen by the indemnified Party, provided that the fees and
expenses of such counsel shall be borne by the indemnified Party, and (ii) the
indemnifying Party shall promptly reimburse the indemnified Party for the full
amount of any loss resulting from such claim and all related expenses incurred
by the indemnified Party (except as otherwise provided in the preceding clause)
in accordance with Section 9.1, and (iii) no settlement, consent judgment or
other voluntary final disposition of the suit which (1) materially limits the
indemnified Party’s rights with respect to Products, (ii) subjects the
indemnified Party to any non-indemnified liability or obligation, or
(iii) admits fault or wrongdoing on the part of the indemnified Party may be
entered into without the consent of the indemnified Party, which consent shall
not unreasonably be withheld. The indemnified Party shall, in such case, provide
the indemnifying Party notice of its approval or denial of such approval within
ten (10) Business Days of any request for such approval by the indemnifying
Party, provided that (i) in the event the indemnified Party wishes to deny such
approval, such notice shall include a detailed written description of its
reasonable objections to the proposed settlement, consent judgment, or other
voluntary disposition and (ii) the indemnified Party shall be deemed to have
approved of such proposed settlement, consent judgment, or other voluntary
disposition in the event it fails to provide proper, full notice within such ten
(10) Business Day period in accordance herewith. If the indemnifying Party does
not notify the indemnified Party within thirty (30) days after receipt of the
indemnified Party’s notice of a claim of indemnity

 

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hereunder that it elects to undertake the defense thereof, or so notifies the
indemnified Party but fails to undertake such defense promptly and in good
faith, the indemnified Party shall have the right to contest, settle or
compromise the claim in the exercise of its reasonable judgment at the expense
of the indemnifying Party.

 

9.3 Limitations on Indemnification

 

  (a) The provisions for indemnity under Section 9.1(a)(i) or Section 9.1(b)(i)
shall be effective only when the aggregate amount of all Losses for which
indemnification is sought from Merck or Salix, as the case may be, exceeds $[*],
in which case the indemnified Party shall be entitled to indemnification of the
indemnified Party’s Losses in excess thereof. In no event shall either
indemnifying Party have liability for indemnification under Section 9.1(a)(i) or
Section 9.1.(b)(i), as applicable, together with liability for breach of any
representations and warranties under any of the Ancillary Agreements, for any
amounts exceeding, in the aggregate, [*] percent ([*]%) (or, in the case of
Merck’s liability with respect to any breach of Section 4.1.6, [*] percent
([*]%)) of the amount equal to (i) the Closing Payment less (ii) any adjustments
made pursuant to Section 2.4.1(c) or Section 2.4.1(d). Indemnification under
this Article 9 shall be the exclusive remedy for any breach of representation or
warranty under this Agreement.

 

  (b) IN NO EVENT WILL EITHER PARTY BE LIABLE FOR ANY PUNITIVE, SPECIAL,
INDIRECT, CONSEQUENTIAL, INCIDENTAL OR EXEMPLARY DAMAGES OR SIMILAR DAMAGES OR
LOSSES INCURRED BY THE OTHER PARTY, INCLUDING BUT NOT LIMITED TO LOST PROFITS,
REGARDLESS OF WHETHER ARISING FROM BREACH OF CONTRACT, WARRANTY, TORT, STRICT
LIABILITY OR OTHERWISE, EVEN IF THE PARTY IS ADVISED OF THE POSSIBILITY OF SUCH
LOSS OR DAMAGE OR IF SUCH LOSS OR DAMAGE COULD HAVE BEEN REASONABLY FORESEEN;
PROVIDED HOWEVER, THAT THE FOREGOING LIMITATION OF LIABILITY SHALL NOT APPLY TO
(i) THE LIABILITIES ARISING FROM EITHER PARTY’S GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT AND (ii) THE LIABILITIES OF THE PARTIES UNDER SECTION 9.1.

 

10 MISCELLANEOUS

 

10.1 Force Majeure

Neither Party shall be held liable to the other Party nor be deemed to have
defaulted under or breached this Agreement for failure or delay in performing
any obligation under this Agreement, other than a payment obligation, to the
extent that such failure or delay is

 

[*] Confidential treatment requested; certain information omitted and filed
separately with the SEC.

 

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caused by or results from causes beyond the reasonable control of the affected
Party, potentially including, but not limited to, embargoes, war, acts of war
(whether war be declared or not), acts of terrorism, insurrections, riots, civil
commotions, strikes, lockouts or other labor disturbances, fire, floods, or
other acts of God, or acts, omissions or delays in acting by any governmental
authority or the other Party. The affected Party shall notify the other Party of
such force majeure circumstances as soon as reasonably practical, and shall
promptly undertake all reasonable efforts necessary to cure such force majeure
circumstances. In no event shall Salix’s inability to pay the amounts due under
this Agreement be deemed a Force Majeure event and a Force Majeure event shall
not excuse Salix from is obligation to make payments when due hereunder;
provided, that the foregoing is not intended to apply to a bank or financial
institution’s failure to process a wire transfer transaction for any reason
other than lack of sufficient Salix funds, a failure by Salix to give
appropriate wire instructions, or other requirements to wire transfer within the
control of Salix.

 

10.2 Assignment/Change of Control

 

  10.2.1 Except as provided in this Section 10.2, this Agreement may not be
assigned or otherwise transferred, nor may any right or obligation hereunder be
assigned or transferred, by either Party without the written consent of the
other Party.

 

  10.2.2 Merck, may without Salix’s consent, assign this Agreement and its
rights and obligations hereunder in whole or in part to a Merck Affiliate or in
connection with a Change of Control of Merck.

 

  10.2.3

Salix may, without Merck’s consent, assign this Agreement and its rights and
obligations hereunder in whole or in part to a Salix Affiliate (provided that
Salix is not thereby relieved of any of its obligations hereunder) or in
connection with a Change of Control of Salix; provided however, that Salix shall
notify Merck at least thirty (30) days prior to completion of any Change of
Control of Salix, except that in the case of a Change of Control as set forth in
Section 1.10(iii) only, Salix shall provide Merck such notice thirty (30) days
after Salix becomes aware of such Change of Control. If Merck is notified of a
Change of Control of Salix pursuant to the foregoing sentence, that, in the
reasonable judgment of Merck, will result in material harm to the PEPCID name or
Licensed Trademark (which will continue to be used by Merck for other
formulations), then Merck shall notify Salix of such determination in writing
within ten (10) Business Days of such notification (such notification by Merck
to be accompanied by a reasonably sufficient explanation and description of the
circumstances supporting such determination) and at any time thereafter Merck
shall have the right to terminate any one or more of the Ancillary Agreements or
the Manufacturing Know-How License, provided that the Parties will negotiate in
good faith provisions for termination of such agreements over a reasonable time
period, and provided further, that if Salix does not consummate any such
proposed Change of Control after the delivery of the notification required by
Merck pursuant to this

 

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sentence then Merck shall not have the right to terminate any one or more of the
Ancillary Agreements or the Manufacturing Know-How License as provided by this
Section 10.2.3 with respect to such proposed Change or Control.

 

  10.2.4 Any permitted assignee shall assume all assigned obligations of its
assignor under this Agreement. Any attempted assignment not in accordance with
this Section 10.2 shall be void.

 

10.3 Survival

All representations, warranties, covenants and indemnities of the Parties
contained herein shall, except as otherwise expressly provided herein, survive
until ten (10) years after the Closing Date. The covenants and agreements of
Merck and Salix hereunder that require by their terms performance or compliance
on and after the Closing Date shall continue in force thereafter in accordance
with their terms. In addition, the provisions of Sections 8.3.2 and 8.3.4 shall
survive any expiration or termination of this Agreement.

 

10.4 Exclusive Jurisdiction

Subject to the provisions of Sections 10.5 and 10.10, each Party irrevocably
submits to the exclusive jurisdiction of the courts of the State of New York and
the Federal courts of the United States District Court for the Southern District
of New York for the purposes of any suit, action or other proceeding arising out
of this Agreement or transactions contemplated hereby. Each Party irrevocably
and unconditionally waives any objection to the laying of venue in the state and
Federal courts of New York as stated above and that any such action was brought
in an inconvenient forum.

 

10.5 Equitable Remedies

The Parties recognize that breach by a Party of any of the obligations set forth
in Sections 6.4, 8.1.1 and 8.3.4 of this Agreement may require a remedy
different from the remedy for other possible breaches of this Agreement. In the
event that such a breach occurs or is threatened, damages to the non-breaching
Party will not be readily ascertainable, irreparable harm to such Party may
occur, and such Party will not have an adequate remedy at law. The Parties
therefore stipulate and agree that in the event a breach of any of the
obligations set forth under Section, 6.4, 8.1.1 or 8.3.4 o of this Agreement
occurs or is threatened, the non-breaching Party may seek equitable relief from
any competent court in New Jersey or in the jurisdiction where the breach occurs
or is threatened (including, without limitation, a temporary restraining order
and/or preliminary and permanent injunction) notwithstanding the arbitration
provisions set forth in Section 10.10. The foregoing shall not limit the
availability of equitable or other forms of injunctive relief, whether permanent
or temporary, for any other threatened, possible or actual breach of this
Agreement.

 

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10.6 Notices

All notices, requests and other communications to any Party hereunder or under
the Ancillary Agreements shall be in writing and shall be sent by fax and by
first class mail or nationally recognized overnight delivery service:

If to Merck, to:

Merck & Co., Inc.

[*]

[*]

Attn: [*]

Facsimile: [*]

with a copy to:

Merck & Co., Inc.

One Merck Drive (WS 3A-65)

P.O. Box 100

Whitehouse Station, NJ 08889-0100

Facsimile: [*]

If to Salix, to:

Salix Pharmaceuticals, Ltd.

1700 Perimeter Park Drive

Morrisville, NC 27560

Attn: General Counsel

Facsimile: 919-862-1095

with a copy to:

Wyrick Robbins Yates & Ponton LLP

4101 Lake Boone Trail, Suite 300

Raleigh, NC 27607

Attn: Donald R. Reynolds

Facsimile: 919-781-4865

or such other address as such Party may hereafter specify by written notice to
the other Party. Each such notice, request or other communication shall be
effective when received at the address specified in this Section 10.6.

 

[*] Confidential treatment requested; certain information omitted and filed
separately with the SEC.

 

 

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10.7 Entire Agreement

This Agreement, including, without limitation, the Schedules hereto and the
Ancillary Agreements, embodies the entire agreement of the Parties hereto with
respect to the subject matter hereof and supersedes any and all prior agreements
with respect thereto, except for any prior confidentiality agreements, which
shall survive. In the event of any conflict between this Agreement and any such
prior confidentiality agreement, the agreement imposing stricter confidentiality
shall govern. No waiver, amendment or modification of any provision hereof or of
any right or remedy hereunder shall be effective unless in writing and signed by
the Party against whom such waiver, amendment or modification is sought to be
enforced.

 

10.8 Section Headings

Captions herein are inserted for convenience of reference only and shall be
ignored in the construction or interpretation of this Agreement. Unless
otherwise specified, the words “herein”, “hereof” and terms of like import shall
be deemed to refer to the Agreement as a whole and not merely to a single part
thereof.

 

10.9 Applicable Law

This Agreement shall be governed by, interpreted and construed, and all claims
and disputes, whether in tort, contract or otherwise be resolved in accordance
with the substantive laws of the State of New York without reference to any
rules of conflict or laws or renvoi.

 

10.10  Dispute Resolution

 

  10.10.1 The Parties shall negotiate in good faith and use reasonable efforts
to settle any dispute, controversy or claim arising from or related to this
Agreement or the breach thereof. If the Parties do not fully settle, and a Party
wishes to pursue the matter, each such dispute, controversy or claim that is not
an “Excluded Claim” shall be finally resolved by binding arbitration in
accordance with the Commercial Arbitration Rules and Supplementary Procedures
for Large Complex Disputes of the American Arbitration Association (“AAA”), and
judgment on the arbitration award may be entered in any court having
jurisdiction thereof.

 

  10.10.2 The arbitration shall be conducted by a panel of three independent,
neutral persons experienced in the pharmaceutical business: within thirty
(30) days after initiation of arbitration, each Party shall select one person to
act as arbitrator; and the two Party-selected arbitrators shall select a third
arbitrator within thirty (30) days of their appointment. If one Party fails to
select an arbitrator within the thirty (30) day period provided therefor, the
arbitrator selected by the other Party shall select such second arbitrator. If
the first two arbitrators selected by the Parties are unable or fail to agree
upon the third arbitrator, the third arbitrator shall be appointed by the AAA.
The place of arbitration shall be New York, New York, and all proceedings and
communications shall be in English.

 

 

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  10.10.3 Either Party may apply to the arbitrators for interim injunctive
relief until the arbitration award is rendered or the controversy is otherwise
resolved. Either Party also may, without waiving any remedy under this
Agreement, seek from any court having jurisdiction any injunctive or provisional
relief necessary to protect the rights or property of that Party pending the
arbitration award. The arbitrators shall have no authority to award punitive or
any other type of damages not measured by a Party’s compensatory damages. Each
Party shall bear its own costs and expenses and attorneys’ fees and an equal
share of the arbitrators’ fees and any administrative fees of arbitration,
provided that the arbitrators shall be entitled to apportion such costs between
the Parties unequally in a manner reasonably consistent with their decision on
the dispute at issue.

 

  10.10.4 Except to the extent necessary to confirm an award or as may be
required by law, neither a Party nor an arbitrator may disclose the existence,
content, or results of an arbitration without the prior written consent of both
Parties. In no event shall an arbitration be initiated after the date when
commencement of a legal or equitable proceeding based on the dispute,
controversy or claim would be barred by the applicable New York statute of
limitations.

 

  10.10.5 The Parties agree that, in the event of a dispute over the nature or
quality of performance under this Agreement, neither Party may terminate this
Agreement by reason of such dispute until a final resolution of the dispute
through arbitration or other judicial determination and then only in accordance
with the outcome of such dispute resolution. The Parties further agree that any
payments made pursuant to this Agreement pending resolution of the dispute shall
be refunded if an arbitrator or court determines that such payments are not due.

As used in this Section 10.10, the term “Excluded Claim” shall mean a dispute,
controversy or claim that concerns (a) the validity or infringement of a patent,
trademark or copyright; or (b) any antitrust, anti-monopoly or competition law
or regulation, whether or not statutory.

 

10.11  Expenses

All legal and other costs and expenses incurred in connection herewith and the
transactions contemplated hereby shall (except as otherwise provided herein) be
paid by the Party incurring such expenses.

 

48

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10.12  Bulk Sales Statutes

Salix hereby waives compliance by Merck with any applicable bulk sales statutes
in any jurisdiction in connection with the transactions under this Agreement.

 

10.13  Waiver

No waiver by any Party in one or more instances of any of the provisions of this
Agreement or the breach thereof shall establish a precedent for any other
instance with respect to that or any other provision. Furthermore, in case of
waiver of a particular provision, all other provisions of this Agreement will
continue in full force and effect.

 

10.14  Severability

If any provision of this Agreement is held to be illegal, invalid or
unenforceable under any present or future law, and if the rights or obligations
of either Party under this Agreement will not be materially and adversely
affected thereby, (a) such provision will be fully severable, (b) this Agreement
will be construed and enforced as if such illegal, invalid or unenforceable
provision had never comprised a part hereof, (c) the remaining provisions of
this Agreement will remain in full force and effect and will not be affected by
the illegal, invalid or unenforceable provision or by its severance herefrom,
and (d) in lieu of such illegal, invalid or unenforceable provision, there will
be added automatically as a part of this Agreement a legal, valid and
enforceable provision as similar to such illegal, invalid or unenforceable
provision as may be possible and reasonably acceptable to the Parties.

 

10.15  Incorporation by Reference

The Ancillary Agreements and Schedules hereto and thereto constitute integral
parts of this Agreement and are hereby incorporated into this Agreement by this
reference. A disclosure in a given Schedule shall be deemed a disclosure for the
purposes of any other representation, warranty and Schedule to which it may
relate. In case of conflict of provisions between this Agreement and any
Ancillary Agreement, the provisions of this Agreement shall govern.

 

10.16  Assignment

This Agreement shall be binding upon and shall inure to the benefit of the
Parties and their respective successors and assigns; provided, however, that,
except as expressly permitted by Section 10.2, and except for any merger,
restructuring or corporate reorganization of Merck, this Agreement may not be
assigned by either Party without the prior written consent of the other Party
hereto, and any other attempted assignment shall be void.

 

10.17  Independent Contractors

It is expressly agreed that Salix and Merck shall be independent contractors and
that the relationship between the Parties hereto shall not constitute a
partnership, joint venture or

 

49

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agency. Neither Salix nor Merck shall have the authority to make any statements,
representations or commitments of any kind, or to take any action, which shall
be binding on the other Party, without the prior written consent of the other
Party.

 

10.18   No Third Party Beneficiaries

Nothing in this Agreement, express or implied, is intended to confer upon any
third Party (other than a permitted successor or assign of a Party hereto) any
rights, remedies, obligations or liabilities.

 

10.19   Waiver of Rule of Construction

There shall not be any presumption against either Party hereto on the ground
that such Party was responsible for drafting or preparing the term sheet or this
Agreement or any part of either of such documents.

 

10.20   Counterparts

This Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original, but all of which together shall constitute
but one and the same instrument. Delivery of an executed counterpart signature
page of this Agreement by facsimile transmission shall be as effective as
delivery of a manually executed signature page.

 

10.21   Compliance with Laws and Regulations

In performing their obligations pursuant to this Agreement, the Parties hereto
agree and covenant that they will comply with all applicable federal, state and
local laws and regulations.

[SIGNATURE PAGE TO FOLLOW]

 

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

 

MERCK & CO., INC. By:   /s/ Judy C. Lewent   Judy C. Lewent   Executive Vice
President & Chief Financial Officer

 

SALIX PHARMACEUTICALS, LTD. By:   /s/ Carolyn J. Logan   Carolyn J. Logan  
President and Chief Executive Officer

Signature Page to Master Purchase and Sale and License Agreement

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SCHEDULE 1.19

DOCUMENTS

 

1. Purchase Orders

 

2. Current customer lists

 

3. An electronic copy of all legacy data of adverse events and experiences, both
Serious and non-Serious, as maintained by Merck on its global safety database.

 

4. An electronic copy of certain Manufacturing Know-How as set forth in
Schedule 1.40.

 

5. Certificates of Analysis and Certificates of Compliance related to the
Inventory.

 

6. Quality Issues List related to the Inventory.

 

7. The following documents related to the Inventory:

 

  a. [*]

 

  b. [*]

 

  c. [*]

 

  d. Batch records (paper copies only)

 

[*] Confidential treatment requested; certain information omitted and filed
separately with the SEC.

 

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SCHEDULE 1.38

LICENSED TRADEMARKS

 

Trademark

   Registration Number

DIURIL® (limited to use with Oral Solution only)

   676884

PEPCID® (limited to use with Oral Solution only)

   1373383

 

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SCHEDULE 1.40

MANUFACTURING KNOW-HOW

 

1. Manufacturing Data

 

  •  

Process Formula

 

  •  

Process Description

 

  •  

[*]

 

  •  

[*]

 

  •  

[*]

 

  •  

Equipment Type

 

2. Analytical Methods Information

 

  •  

In process specifications/analytical methods

 

  •  

Non-compendial specifications/analytical methods for excipients, raw materials,
active pharmaceutical ingredients and/or finished product

 

  •  

Non-compendial specifications for packaging components

 

3. DIURIL OS Product Active Pharmaceutical Ingredient Milling Parameters

 

4. [*]

 

[*] Confidential treatment requested; certain information omitted and filed
separately with the SEC.

 

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SCHEDULE 1.41

FORM OF MERCK FDA LETTERS

 

[*]    Merck & Co., Inc. [*]    P.O. Box 1000, UG2CD-48 [*]    North Wales, PA
19454-1099    Tel [*]    Fax [*]    [*]

H

February 23, 2007

Brian E. Harvey, M.D., Ph.D., Director

Food and Drug Administration

Center for Drug Evaluation and Research

Division of Gastroenterology Products

5901-B Ammendale Road

Beltsville, MD 20705-1266

Dear Dr. Harvey:

NDA 19-527: PEPCID™ Oral Suspension (Famotidine)

General Correspondence

Transfer of Ownership

This is to inform you that Merck & Co., Inc., holder of NDA 19-527 for PEPCID™
Oral Suspension has ceased selling PEPCID™ Oral Suspension and as of
February 22, 2007 has sold, assigned, and transferred NDA 19-527 and the
licensed trademark name PEPCID™ Oral Suspension to Salix Pharmaceuticals, Ltd. a
Delaware corporation. Salix Pharmaceuticals, Ltd. will also notify the Division
of Gastroenterology Products of the transfer of NDA 19-527 and of the trademark
license. A copy of the letter that Salix Pharmaceuticals, Ltd. sent to the
Division of Gastroenterology Products is enclosed for your information.

In accordance with 21 CFR 314.72(a)(2)(iii), Merck & Co., Inc. has provided to
Salix Pharmaceuticals, Ltd. a complete copy of the approved application,
including supplements and records that are required under 21 CFR 314.81 for
PEPCID™ Oral Suspension.

 

[*] Confidential treatment requested; certain information omitted and filed
separately with the SEC.

 

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Brian E. Harvey, M.D., Ph.D., Director

NDA 19-527: PEPCID™ Oral Suspension (Famotidine)

Page 2

As of February 22, 2007, Merck will no longer market or sell PEPCID™ Oral
Suspension in the United States or its territories and possessions (including
without limitation the Commonwealth of Puerto Rico). The Merck listing of
PEPCID™ Oral Suspension in the Orange Book should be revised to reflect Salix
Pharmaceuticals, Ltd. as the new owner.

All future correspondences to NDA 19-527, PEPCID™ Oral Suspension (famotidine),
should be directed to:

Jill Kompa, M.S., RAC

Director, Regulatory Affairs

Salix Pharmaceuticals, Inc.

1700 Perimeter Park Drive

Morrisville, NC 27560

Tel (919) 862-1047; Fax (919) 228-4247

jill.kompa@salix.com

This application is formatted as required in Title 21 paragraph 314.50 of the
Code of Federal Regulations and is being submitted in accordance with the
January 1999, Guidance for Industry – Providing Regulatory Submissions in
Electronic Format – NDAs.

As an attachment to this letter, Merck Research Laboratories (MRL), a Division
of Merck & Co., Inc., is providing one Compact Disk (CD) which contains the
submission. All documents requiring signatures for certification are included as
paper for archival purposes.

All of the information is contained on one CD and is not more than 100MB. Merck
has taken precautions to ensure that the contents of this media are free of
computer viruses (Symantec AntiVirus Corporate Edition, Symantec Corporation)
and we authorize the use of anti-virus software, as appropriate.

A list of reviewers from the Division of Gastroenterology Products who should be
provided access to this electronic submission on their desktops may be obtained
from Mr. Giuseppe Randazzo, Regulatory Health Project Manager, Division of
Gastroenterology Products.

We consider the filing of this letter to be a confidential matter, and request
that the Food and Drug Administration not make its content, or any future
communications in regard to it, public without first obtaining the written
permission of Merck & Co., Inc.

 

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Questions concerning this supplemental application should be directed to [*] [*]
or, in my absence, to [*] [*].

 

Sincerely, [*] Associate Director Worldwide Regulatory Affairs

Enclosure: CD

 

Desk Copy:

   Giuseppe Randazzo, Regulatory Health Project Manager (cover letter)   
Division of Gastroenterology Products    Mary A. Holovac    Office of Generic
Drugs, Orange Book Staff

 

[*] Confidential treatment requested; certain information omitted and filed
separately with the SEC.

 

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H

February 23, 2007

Norman Stockbridge, M.D., Ph. D., Director

Food and Drug Administration

Center for Drug Evaluation and Research

Division of Cardiovascular and Renal Products

5901-B Ammendale Road

Beltsville, MD 20705-1266

Dear Dr. Stockbridge:

NDA 11-870: DIURIL™ Oral Suspension (Chlorothiazide)

General Correspondence

Transfer of Ownership

This is to inform you that Merck & Co., Inc., holder of NDA 11-870 for DIURIL™
Oral Suspension, has ceased selling DIURIL™ Oral Suspension and as of
February 22, 2007 has sold, assigned, and transferred NDA 11-870 and the
licensed trademark name DIURIL™ Oral Suspension to Salix Pharmaceuticals, Ltd.,
a Delaware corporation. Salix Pharmaceuticals, Ltd. will also notify the
Division of Cardiovascular and Renal Products of the transfer of NDA 11-870 and
of the trademark license. A copy of the letter that Salix Pharmaceuticals, Ltd.
sent to the Division of Cardiovascular and Renal Products is enclosed for your
information.

In accordance with 21 CFR 314.72(a)(2)(iii), Merck & Co., Inc. has provided to
Salix Pharmaceuticals, Ltd. a complete copy of the approved application,
including supplements and records that are required under 21 CFR 314.81 for
DIURIL™ Oral Suspension.

As of February 22, 2007, Merck will no longer market or sell DIURIL™ Oral
Suspension in the United States or its territories and possessions (including
without limitation the Commonwealth of Puerto Rico). The Merck listing of
DIURIL™ Oral Suspension in the Orange Book should be revised to reflect Salix
Pharmaceuticals, Ltd. as the new owner.

 

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Norman Stockbridge, M.D., Ph. D., Director

NDA 11-870: DIURIL™ Oral Suspension (Chlorothiazide)

Page 2

All future correspondence to NDA 11-870, DIURIL™ Oral Suspension
(chlorothiazide), should be directed to:

Jill Kompa, M.S., RAC

Director, Regulatory Affairs

Salix Pharmaceuticals, Inc.

1700 Perimeter Park Drive

Morrisville, NC 27560

Tel (919) 862-1047; Fax (919) 228-4247

jill.kompa@salix.com

This application is formatted as required in Title 21 paragraph 314.50 of the
Code of Federal Regulations and is being submitted in accordance with the
January 1999, Guidance for Industry – Providing Regulatory Submissions in
Electronic Format – NDAs.

As an attachment to this letter, Merck Research Laboratories (MRL), a Division
of Merck & Co., Inc., is providing one Compact Disk (CD) which contains the
submission. All documents requiring signatures for certification are included as
paper for archival purposes.

All of the information is contained on one CD and is not more than 100MB. Merck
has taken precautions to ensure that the contents of this media are free of
computer viruses (Symantec AntiVirus Corporate Edition, Symantec Corporation)
and we authorize the use of anti-virus software, as appropriate.

A list of reviewers from the Division of Cardiovascular and Renal Products who
should be provided access to this electronic submission on their desktops may be
obtained from Quynh M. Nguyen, Pharm.D., Regulatory Health Project Manager,
Division of Cardiovascular and Renal Products.

We consider the filing of this letter to be a confidential matter, and request
that the Food and Drug Administration not make its content, or any future
communications in regard to it, public without first obtaining the written
permission of Merck & Co., Inc.

 

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Questions concerning this supplemental application should be directed to [*] [*]
or, in my absence, to [*] [*].

 

Sincerely, [*] Associate Director Worldwide Regulatory Affairs

Enclosure: CD

 

Desk Copy:

   Quynh M. Nguyen, Pharm.D., Regulatory Health Project Manager    Division of
Cardiovascular and Renal Products    Mary A. Holovac    Office of Generic Drugs,
Orange Book Staff

 

[*] Confidential treatment requested; certain information omitted and filed
separately with the SEC.

 

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SCHEDULE 1.55

PURCHASE ORDERS

 

CUSTOMER NAME

  

DATE OF

PURCHASE

ORDER

  

PRODUCT PURCHASED

  

QTY

# Bottles

  

AMOUNT

[*]

   [*]    [*]    [*]    $ [*]

[*]

   [*]    [*]    [*]    $ [*]

[*]

   [*]    [*]    [*]    $ [*]

[*]

   [*]    [*]    [*]    $ [*]

[*]

   [*]    [*]    [*]    $ [*]

[*]

   [*]    [*]    [*]    $ [*]

[*]

   [*]    [*]    [*]    $ [*]

[*]

   [*]    [*]    [*]    $ [*]

[*]

   [*]    [*]    [*]    $ [*]

[*]

   [*]    [*]    [*]    $ [*]

[*]

   [*]    [*]    [*]    $ [*]

[*]

   [*]    [*]    [*]    $ [*]

[*]

   [*]    [*]    [*]    $ [*]

[*]

   [*]    [*]    [*]    $ [*]

Grand Total

         [*]    $ [*]

 

[*] Confidential treatment requested; certain information omitted and filed
separately with the SEC.

 

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SCHEDULE 1.58

RELATED COMPANIES

 

[*]

 

[*] Confidential treatment requested; certain information omitted and filed
separately with the SEC.

 

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SCHEDULE 1.60

FORM OF SALIX FDA LETTERS

February 23, 2007

Brian E. Harvey, M.D., Ph.D., Director

Food and Drug Administration

Center for Drug Evaluation and Research

Division of Gastroenterology Products

5901-B Ammendale Road

Beltsville, MD 20705-1266

 

 

Re:

NDA 19-527 PEPCIDTM Oral Suspension (Famotidine) Transfer of Rights to NDA

Dear Dr. Harvey:

Effective February 22, 2007, Salix Pharmaceuticals, Ltd., hereby accepts rights
to NDA 19-527 for PEPCIDTM Oral Suspension.

Salix Pharmaceuticals, Ltd., has received a complete copy of the NDA,
supplements and correspondence, including records required to be kept under 21
CFR 314.72. In accordance with 21 CFR 314.72(a)(2)(i), Salix Pharmaceuticals,
Ltd., commits to all agreements, promises and conditions contained in the
application or made by the former owner.

All issues regarding NDA 19-527 may be directed to:

Jill Kompa, M.S., RAC

Director, Regulatory Affairs

Salix Pharmaceuticals, Inc.

1700 Perimeter Park Drive

Morrisville, NC 27560

Telephone (919) 862-1047; Fax (919) 228-4247

jill.kompa@salix.com

Written acknowledgment of the change in holder would be appreciated. Please
contact me at (919) 862-1047 if you have any comments or questions regarding
this letter.

 

Sincerely yours, Jill Kompa, M.S., RAC Director, Regulatory Affairs

 

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February 23, 2007

Norman Stockbridge, M.D., Ph. D., Director

Food and Drug Administration

Center for Drug Evaluation and Research

Division of Cardiovascular and Renal Products

5901-B Ammendale Road

Beltsville, MD 20705-1266

 

  Re: NDA 11-870: DIURIL™ Oral Suspension (chlorothiazide) Transfer of Rights to
NDA

Dear Dr. Stockbridge:

Effective February 22, 2007, Salix Pharmaceuticals, Ltd., hereby accepts rights
to NDA 11-870 for DIURILTM Oral Suspension.

Salix Pharmaceuticals, Ltd., has received a complete copy of the NDA,
supplements and correspondence, including records required to be kept under 21
CFR 314.72. In accordance with 21 CFR 314.72(a)(2)(i), Salix Pharmaceuticals,
Ltd., commits to all agreements, promises and conditions contained in the
application or made by the former owner.

All issues regarding NDA 11-870 may be directed to:

Jill Kompa, M.S., RAC

Director, Regulatory Affairs

Salix Pharmaceuticals, Inc.

1700 Perimeter Park Drive

Morrisville, NC 27560

Telephone (919) 862-1047; Fax (919) 228-4247

jill.kompa@salix.com

Written acknowledgment of the change in holder would be appreciated. Please
contact me at (919) 862-1047 if you have any comments or questions regarding
this letter.

 

Sincerely yours, Jill Kompa, M.S., RAC Director, Regulatory Affairs

 

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SCHEDULE 2.5

PRICE OF INVENTORY

 

PRODUCT

  

PRODUCT FORM

  

PACKAGE FORM

  

COST/UNIT*

Pepcid® OS

   Powder (suspension)    40mg/5ml    US $[*]

Diuril® OS

   Liquid (suspension)    250mg/5ml    US $[*]

 

[*] Confidential treatment requested; certain information omitted and filed
separately with the SEC.

 

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SCHEDULE 2.7.2

THIRD PARTY CONSENTS

Astellas

 

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SCHEDULE 4.1.9

INVENTORY

 

Product

   Bottles  

Diuril® OS

   [ *]

Pepcid® OS

   [ *]

 

[*] Confidential treatment requested; certain information omitted and filed
separately with the SEC.

 

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SCHEDULE 6.4

DIURIL MARKET HISTORY AND ANTICIPATED NEED

2005:

US – [*] units

Sweden – [*] unit

2006:

US – [*] units

Sweden – [*] units

 

[*] Confidential treatment requested; certain information omitted and filed
separately with the SEC.

 

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SCHEDULE 8.3.2

APPROVED SALIX PRESS RELEASE

FOR IMMEDIATE RELEASE

 

Contact:

   Adam C. Derbyshire    Mike Freeman    Senior Vice President and    Executive
Director, Investor Relations and    Chief Financial Officer    Corporate
Communications    919-862-1000    919-862-1000

SALIX PHARMACEUTICALS ACQUIRES PEPCID® ORAL SUSPENSION

Salix Secures $100 Million Senior Secured Credit Facility

RALEIGH, NC, February 28, 2007 - Salix Pharmaceuticals, Ltd. (Nasdaq:SLXP) today
announced that it has purchased the U.S. prescription pharmaceutical product
rights to PEPCID® Oral Suspension and DIURIL® Oral Suspension from Merck & Co.,
Inc. PEPCID Oral Suspension is a widely-known prescription pharmaceutical
product indicated for several gastrointestinal indications including the
treatment of duodenal ulcer, benign gastric ulcer and gastroesophageal reflux
disease. Under the terms of the agreement, Salix will make a $55 million
up-front payment and up to $6 million in potential sales-based milestone
payments to Merck.

Commenting on this development, Carolyn Logan, President and Chief Executive
Officer, Salix, stated, “The acquisition of such a trusted brand and
revenue-producing product as PEPCID Oral Suspension reflects the ongoing
execution of the Company’s strategy to expand and diversify revenue. These
marketed products should generate immediate revenue while requiring minimal
promotional expense. PEPCID Oral Suspension achieved net sales in the U.S. of
approximately $20 million in 2006. In the near term, this additional revenue
should serve to fund ongoing strategic product development efforts and, in the
longer term, should contribute to growing EPS.

“PEPCID Oral Suspension and DIURIL Oral Suspension, both liquid formulations of
their solid dosage form counterparts, compete in an approximately $150 million
market that is concentrated in pediatric and hospitalized patient populations.
This acquisition builds upon our recent acquisition of SANVAR®. If XIFAXAN® is
approved for hepatic encephalopathy and C. difficile-associated diarrhea, these
hospital-based indications, together with PEPCID Oral Suspension and SANVAR,
should create an institutional product portfolio that complements our current
field-based business.”

Salix also announced today that it has entered into a credit facility with Bank
of America, N.A. for up to $100 million to help finance the transaction and for
working capital, capital expenditures, other permitted acquisitions and general
corporate purposes. Salix has borrowed approximately $15 million at this time.
Outstanding amounts generally bear interest at the

 

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option of Salix at the British Bankers Association LIBOR Rate or a base rate, in
each case plus an applicable margin of between 1.00 percent and 1.75 percent for
LIBOR Rate loans and 0.00 percent and 0.75 percent for base rate loans,
each based on consolidated leverage. The facility also includes standard
covenants. A copy will be filed with the SEC as an exhibit to our Form 8-K.

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 any required development and
regulatory submission of these products, and market them through the Company’s
150-member gastroenterology specialty sales and marketing team.

Salix markets COLAZAL®, XIFAXAN®, OSMOPREP™, MOVIPREP®, VISICOL®, AZASAN®,
ANUSOL-HC® and PROCTOCORT®. Balsalazide tablets, Granulated Mesalamine, SANVAR®
(600 mg vials vapreotide acetate powder) and Xifaxan for additional indications
are under development.

For full prescribing information on Salix products, please visit www.salix.com.

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.salix.com. Information on our web site is not incorporated in our
SEC filings.

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: competition, including from
potential generic or over-the-counter products; management of rapid growth,
including the addition of these institutional products; market acceptance for
approved products; risks of regulatory review and clinical trials; intellectual
property risks; and the need to acquire additional products. 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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