Exhibit 10.65

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

EXECUTION COPY

MANUFACTURING AND SUPPLY AGREEMENT

between

SALIX PHARMACEUTICALS, INC.

and

GLENMARK PHARMACEUTICALS LTD.

Dated as of December 9, 2008

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TABLE OF CONTENTS

 

ARTICLE I.         
DEFINITIONS.......................................................................................................................................................

   1

ARTICLE II.
        MANUFACTURING.............................................................................................................................................

   8

2.1

 

Supply
Obligations.....................................................................................................................................................

   8

2.2

 

Forecasting, Order and Delivery of
Compound..........................................................................................................

   8

2.3

 

Raw
Materials.............................................................................................................................................................

   9

2.4

 

Invoice and
Payment...................................................................................................................................................

   10

2.5

 

Price............................................................................................................................................................................

   10

2.6

 

Warranty......................................................................................................................................................................

   12

2.7

 

Failure or Inability to Supply
Compound...................................................................................................................

   12

2.8

 

Limitations of Current
Capacity..................................................................................................................................

   14

2.9

 

Costs and
Expenses.....................................................................................................................................................

   15

2.10

 

Amendment of
Specifications.....................................................................................................................................

   15

2.11

 

Quality
Agreement......................................................................................................................................................

   16

2.12

 

Quality Control Analyses and
Release.......................................................................................................................

   16

2.13

 

Maintenance of
Facility..............................................................................................................................................

   16

2.14

 

Regulatory Cooperation of
Glenmark.........................................................................................................................

   17

2.15

 

Inspection by
Salix......................................................................................................................................................

   17

2.16

 

Notification of Regulatory Inspections;
Communications.........................................................................................

   17

2.17

 

Recalls and
Withdrawals............................................................................................................................................

   17

2.18

 

Compliance with Applicable
Laws.............................................................................................................................

   18

2.19

 

Retention of Manufacturing Records and
Samples....................................................................................................

   18

2.20

 

No Other
Supply.........................................................................................................................................................

   19

2.21

 

Shortages.....................................................................................................................................................................

   19

2.22

 

Second
Source.............................................................................................................................................................

   19

ARTICLE III.         GLOBAL
COORDINATION...............................................................................................................................

   19

3.1

 

Global Cooperation and
Coordination........................................................................................................................

   19

3.2

 

Consultation................................................................................................................................................................

   20

3.3

 

Regulatory
Matters.....................................................................................................................................................

   20

3.4

 

Trademarks.................................................................................................................................................................

   21

ARTICLE IV.         INTELLECTUAL
PROPERTY............................................................................................................................

   21

4.1

 

Ownership...................................................................................................................................................................

   21

4.2

 

Patent Maintenance and
Prosecution..........................................................................................................................

   23

4.3

 

Enforcement of Invention
Patents...............................................................................................................................

   25

4.4

 

Third Person
Litigation...............................................................................................................................................

   26

4.5

 

Third Party
Licenses...................................................................................................................................................

   27

ARTICLE V.         REPRESENTATIONS AND WARRANTIES;
COVENANTS............................................................................

   27

5.1

 

Representations and Warranties of Each
Party..........................................................................................................

   27

5.2

 

Additional Warranties and Covenants of
Glenmark...................................................................................................

   28

5.3

 

Disclaimer of Other
Warranties..................................................................................................................................

   28

 

-i-

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ARTICLE VI.
        CONFIDENTIALITY..........................................................................................................................................

   29

6.1

 

Confidential
Information............................................................................................................................................

   29

6.2

 

Exceptions to
Confidentiality.....................................................................................................................................

   29

6.3

 

Disclosure...................................................................................................................................................................

   30

6.4

 

Notification.................................................................................................................................................................

   30

6.5

 

Remedies.....................................................................................................................................................................

   30

6.6

 

Use of
Names..............................................................................................................................................................

   30

6.7

 

Press
Releases.............................................................................................................................................................

   31

ARTICLE VII.         TERM AND
TERMINATION............................................................................................................................

   31

7.1

 

Term............................................................................................................................................................................

   31

7.2

 

Termination.................................................................................................................................................................

   31

7.3

 

Effect of Expiration or
Termination...........................................................................................................................

   32

ARTICLE VIII.
        INDEMNIFICATION.......................................................................................................................................

   33

8.1

 

Glenmark
Indemnification..........................................................................................................................................

   33

8.2

 

Salix
Indemnification..................................................................................................................................................

   34

8.3

 

Indemnification
Procedure..........................................................................................................................................

   34

8.4

 

Insurance.....................................................................................................................................................................

   36

8.5

 

Limitation on
Damages...............................................................................................................................................

   37

ARTICLE IX.
        MISCELLANEOUS............................................................................................................................................

   37

9.1

 

Notices........................................................................................................................................................................

   37

9.2

 

Force
Majeure.............................................................................................................................................................

   38

9.3

 

Entire Agreement;
Amendment..................................................................................................................................

   39

9.4

 

Further
Assurances.....................................................................................................................................................

   39

9.5

 

Successors and
Assigns..............................................................................................................................................

   39

9.6

 

Dispute
Resolution......................................................................................................................................................

   39

9.7

 

Governing Law; Jurisdiction; Venue;
Service............................................................................................................

   39

9.8

 

Third Party
Beneficiaries............................................................................................................................................

   40

9.9

 

Export
Control............................................................................................................................................................

   40

9.10

 

Assignment.................................................................................................................................................................

   40

9.11

 

Waiver.........................................................................................................................................................................

   41

9.12

 

Severability.................................................................................................................................................................

   41

9.13

 

Independent
Contractors.............................................................................................................................................

   41

9.14

 

Construction................................................................................................................................................................

   42

9.15

 

Remedies.....................................................................................................................................................................

   42

9.16

 

Counterparts; Facsimile
Execution.............................................................................................................................

   42

9.17

 

English
Language........................................................................................................................................................

   42

9.18

 

Attorneys’
Fees...........................................................................................................................................................

   43

 

Schedules and Exhibits Schedule 1.6    Capped Price Schedule 1.17    Current
Capacity Schedule 1.31    Fully-Allocated Manufacturing Costs Schedule 1.40   
Glenmark Territory

 

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Schedule 1.81    Specifications Schedule 2.2(c)    Full Production Lot Size
Schedule 2.5(c)    Fixed Price Schedule 2.5(d)    Compensation to Glenmark for
Use of Third Party Manufacturer Schedule 2.8(c)    Compound Equipment Usage
Exhibit A    Example of Scale-Up Plans

 

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This MANUFACTURING AND SUPPLY AGREEMENT (this “Agreement”), dated as of
December 9, 2008 (the “Effective Date”), is made by and between Salix
Pharmaceuticals, Inc., a Delaware corporation (“Salix”), and Glenmark
Pharmaceuticals Ltd., a corporation organized under the laws of India
(“Glenmark”). Salix and Glenmark are sometimes referred to herein individually
as a “Party” and collectively as the “Parties.”

RECITALS

WHEREAS, subject to the terms and conditions set forth in this Agreement, Salix
wishes to have Glenmark manufacture and supply the Compound (as defined below)
for Salix, and Glenmark wishes to manufacture and supply, or have manufactured
and supplied through its Affiliate, Glenmark Generics Ltd., the Compound for
Salix.

NOW, THEREFORE, in consideration of the foregoing premises, the mutual promises
and covenants of the Parties contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Parties, intending to be legally bound, do hereby agree as follows:

ARTICLE I. DEFINITIONS

As used herein, the following terms shall have the following meanings:

1.1 “Actual Cost” has the meaning set forth in Section 2.5(a).

1.2 “Affiliate” of a Person means any other Person that directly, or indirectly
through one or more intermediaries, controls, is controlled by or is under
common control with, such first Person. “Control” and, with correlative
meanings, the terms “controlled by” and “under common control with”, means to
possess the power to direct the management or policies of a Person, whether
through ownership of voting securities or by contract or otherwise.

1.3 “Agreement” has the meaning set forth in the preamble hereto.

1.4 “Applicable Law” means applicable laws, rules and regulations, including any
rules, regulations, guidelines or other requirements of Regulatory Authorities,
that may be in effect from time to time.

1.5 “Calendar Year” means each successive period of twelve (12) consecutive
calendar months commencing on January 1 and ending on December 31, except that
the first Calendar Year of the Term shall commence on the Effective Date and end
on December 31, 2008 and the last Calendar Year of the Term shall commence on
January 1 of the year in which the Term ends and end on the last day of the
Term.

1.6 “Capped Price” has the meaning set forth in Schedule 1.6.

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1.7 “Certificate of Analysis” has the meaning set forth in the Quality
Agreement.

1.8 “Certificate of Compliance” has the meaning set forth in the Quality
Agreement.

1.9 “CMC Data” means the chemistry, manufacturing and controls data required by
Applicable Law to be included in a New Drug Application (as defined in the FFDCA
and the regulations promulgated thereunder) for a Product or in any other
Marketing Authorization outside the United States.

1.10 “Compound” means oligomeric proanthocyanidin (OPC) of varying chain lengths
with an average molecular weight of approximately 2000 daltons (Crofelemer)
meeting the Specifications.

1.11 “Compound Equipment” means the Napo-Provided Equipment and the Scale-Up
Equipment.

1.12 “Compound Invention Patents” has the meaning set forth in
Section 4.2(a)(i).

1.13 “Compound Inventions” means any and all Inventions relating to the Compound
or any derivatives thereof or other compounds related thereto, that are
conceived, discovered, developed or otherwise made, solely by a Party or jointly
by or on behalf of the Parties as a result of or in connection with this
Agreement, but excluding the Glenmark Inventions.

1.14 “Confidential Information” means any and all information or material that,
at any time before or after the Effective Date, has been or is provided or
communicated to the Receiving Party by or on behalf of the Disclosing Party
pursuant to this Agreement or in connection with the transactions contemplated
hereby or any discussions or negotiations with respect thereto; any data, ideas,
concepts or techniques contained therein; and any modifications thereof or
derivations therefrom. Confidential Information may be disclosed either orally,
visually, electronically, in writing, by delivery of materials containing
Confidential Information or in any other form now known or hereafter invented;
provided, however, that notwithstanding the Party that disclosed such
information or material, (a) all information and materials regarding the
Compound, including the Specifications, Salix Information, and Compound
Inventions, shall be Confidential Information of Salix and not the Confidential
Information of Glenmark, and Salix will be deemed to be the Disclosing Party,
and Glenmark will be deemed to be the Receiving Party, with respect thereto, and
(b) Glenmark Information shall be Confidential Information of Glenmark and not
the Confidential Information of Salix, and Glenmark will be deemed to be the
Disclosing Party, and Salix will be deemed to be the Receiving Party, with
respect thereto.

1.15 “Courts” has the meaning set forth in Section 9.7(b).

 

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1.16 “CPL” means crude plant latex of croton lechleri that meets the
Specifications.

1.17 “Current Capacity” means the capacity of Glenmark’s equipment and process
in place as of the Effective Date to conduct the Manufacturing process, as set
forth on Schedule 1.17, unless and until increased pursuant to a Scale-Up Plan.

1.18 “Disclosing Party” means the Party disclosing Confidential Information.

1.19 “Dispute” has the meaning set forth in Section 9.6.

1.20 “Drug Master File” means any drug master file filed with the FDA with
respect to a Product, and any equivalent filing in other countries or regulatory
jurisdictions.

1.21 “Effective Date” has the meaning set forth in the preamble hereto.

1.22 “European Union” or “EU” means the economic, scientific and political
organization of member states of the European Union, and which, as of the
Effective Date, consists of Austria, Belgium, Bulgaria, Czech Republic, Denmark,
Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia,
Lithuania, Luxembourg, Malta, The Netherlands, Poland, Portugal, Romania,
Slovakia, Slovenia, Spain, Sweden and the United Kingdom, and that certain
portion of Cyprus included in such organization.

1.23 “Excluded Lists” means the United States Department of Health and Human
Service’s List of Excluded Individuals/Entities and the General Services
Administration’s Lists of Parties Excluded from Federal Procurement and
Non-Procurement Programs.

1.24 “Exploit” means to make, have made, import, use, sell, offer for sale or
otherwise dispose of a compound, product or process, including all discovery,
research, development, commercialization, registration, modification,
enhancement, improvement, Manufacture, storage, formulation, optimization,
exportation, transportation, distribution, promotion and marketing of such
compound, product or process.

1.25 “Facility” means the Manufacturing facility of Glenmark’s Affiliate,
Glenmark Generics Ltd., located at 3109, GIDC Industrial Estate, Ankleshwar,
India 393 002.

1.26 “FDA” means the United States Food and Drug Administration and any
successor agency thereto.

1.27 “FFDCA” means the United States Federal Food, Drug, and Cosmetic Act, as
amended.

1.28 “Firm Forecast” has the meaning set forth in Section 2.2(b).

 

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1.29 “Fixed Price” has the meaning set forth in Section 2.5(c).

1.30 “Forecast” has the meaning set forth in Section 2.2(b).

1.31 “Fully-Allocated Manufacturing Cost” or “FAMC” has the meaning set forth in
Schedule 1.31.

1.32 “Glenmark” has the meaning set forth in the preamble hereto.

1.33 “Glenmark Activities” has the meaning set forth in Section 2.8(c).

1.34 “Glenmark Indemnified Parties” has the meaning set forth in Section 8.2.

1.35 “Glenmark Information” means all technical, scientific and other know-how
and information, trade secrets, knowledge, technology, means, methods,
processes, practices, formulae, instructions, skills, techniques, procedures,
technical assistance, designs, assembly procedures, specifications, assays, test
methods, analytical methods, and other material or information owned or
controlled by Glenmark and its Affiliates and necessary or useful for the
Manufacture of the Compound, excluding Glenmark Inventions.

1.36 “Glenmark Invention Patents” has the meaning set forth in
Section 4.2(b)(i).

1.37 “Glenmark Inventions” has the meaning set forth in Section 4.1(b).

1.38 “Glenmark Policies” has the meaning set forth in Section 8.4(b).

1.39 “Glenmark-Supplied Material” means all ingredients, raw materials,
packaging and labeling components, and all other supplies of any kind used in
connection with Manufacturing the Compound, excluding the Salix-Supplied
Material.

1.40 “Glenmark Territory” shall mean the countries set forth on Schedule 1.40.

1.41 “GMP” means current good manufacturing practices as required under the
FFDCA and as set forth by the FDA in regulations promulgated at 21 C.F.R. Parts
210 and 211, and in applicable FDA guidance and policy documents.

1.42 “Hatch-Waxman Act” means the Drug Price Competition and Patent Term
Restoration Act of 1984, as amended.

1.43 “Indemnification Claim Notice” has the meaning set forth in Section 8.3(a).

1.44 “Indemnified Party” has the meaning set forth in Section 8.3(a).

1.45 “Indemnifying Party” has the meaning set forth in Section 8.3(a).

 

4

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1.46 “Informational Forecast” has the meaning set forth in Section 2.2(a).

1.47 “Invention” means any discovery, improvement, process, formula, data,
invention, know-how, trade secret, procedure, device, or other intellectual
property, whether or not patentable, including any enhancement in the
manufacture, formulation, ingredients, preparation, presentation, means of
delivery, dosage or packaging of a compound or product or any discovery or
development of a new indication for a compound or product.

1.48 “Joint Invention Patents” has the meaning set forth in Section 4.2(c)(i).

1.49 “Joint Inventions” means any manufacturing technique, process or Compound
derivative that is not derived from or based on the Specifications, any Salix
Information, Compound Invention or Glenmark Information that is conceived,
discovered, developed or otherwise made, jointly by or on behalf of the Parties
as a result of or in connection with this Agreement, but excluding the Glenmark
Inventions.

1.50 “Launch Date” means the first date on which Salix anticipates requiring
supply of Compound hereunder in order to make Product available for commercial
sale or distribution.

1.51 “Losses” has the meaning set forth in Section 8.1.

1.52 “Manufacture” and “Manufacturing” means (a) the manufacturing, processing,
formulating, packaging, labeling, holding, storage, warehousing, and quality
control testing of a pharmaceutical product or compound and (b) the holding,
storage or warehousing of raw materials, finished product or work in process.

1.53 “Marketing Authorization” means an approved New Drug Application as defined
in the FFDCA and the regulations promulgated thereunder, or any corresponding
foreign application, registration or certification, necessary or reasonably
useful to market any Product in a country or regulatory jurisdiction in the
Territory other than the United States, including applicable pricing and
reimbursement approvals.

1.54 “Material(s)” means the Glenmark-Supplied Material and the Salix-Supplied
Material.

1.55 “Napo” means Napo Pharmaceuticals, Inc.

1.56 “Napo-Glenmark Agreement” means that certain Collaboration Agreement
entered into on July 2, 2005, by and between Glenmark and Napo, as amended
through the Effective Date.

1.57 “Napo-Provided Equipment” has the meaning set forth in Section 2.8(b).

1.58 “Other Product Entry” has the meaning set forth in Section 7.2(c)(iii).

1.59 “Party” and “Parties” has the meaning set forth in the preamble hereto.

 

5

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1.60 “Patents” means the Compound Invention Patents, the Glenmark Invention
Patents and the Joint Invention Patents.

1.61 “Person” means an individual, sole proprietorship, partnership, limited
partnership, limited liability partnership, corporation, limited liability
company, business trust, joint stock company, trust, unincorporated association,
joint venture or other similar entity or organization, including a government or
political subdivision, department or agency of a government.

1.62 “Policies” means the Glenmark Policies and the Salix Policies.

1.63 “Product” means a pharmaceutical product that contains the Compound as an
active ingredient.

1.64 “Purchase Order” means a written purchase order that sets forth, with
respect to the period covered thereby, (a) the quantities of Compound to be
delivered by Glenmark to Salix and (b) the required delivery dates therefor.

1.65 “Purchase Price” has the meaning set forth in Section 2.5(a).

1.66 “Quality Agreement” means the quality assurance agreement to be agreed
between the Parties relating to the Manufacture of the Compound in accordance
with Section 2.11, as such agreement shall be amended from time to time.

1.67 “Recalls” shall have the meaning set forth in Section 3.3(e).

1.68 “Receiving Party” means the Party receiving Confidential Information.

1.69 “Recipients” has the meaning set forth in Section 6.1.

1.70 “Regulatory Approval” means, with respect to any particular country, any
and all approvals, licenses, registrations or authorizations of any Regulatory
Authority necessary for the Exploitation of a Product in such country (or, if
applicable, the EU), including, where applicable, (a) approval of a Product in
such country (or, if applicable, the EU), including any Marketing Authorization
and supplements and amendments thereto; (b) pre- and post-approval marketing
authorizations (including any prerequisite Manufacturing approval or
authorization related thereto); (c) labeling approval; and (d) technical,
medical and scientific licenses.

1.71 “Regulatory Authority” means any applicable supra-national, federal,
national, regional, state, provincial or local regulatory agencies, departments,
bureaus, commissions, councils or other government entities regulating or
otherwise exercising authority with respect to the Exploitation of the Compound
or a Product in any country or jurisdiction in the Specified Territory.

1.72 “Regulatory Documentation” means (a) submissions to any Regulatory
Authority, including investigational new drug applications, New Drug
Applications (as defined in the FFDCA and the regulations promulgated
thereunder), Drug Master Files,

 

6

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correspondence with regulatory agencies (registrations and licenses, regulatory
drug lists, advertising and promotion documents), period safety update reports,
adverse event files, complaint files and manufacturing records and, if
applicable, any updates or supplements to any of the foregoing, (b) any minutes
or contact logs with respect to any telephone conferences conducted with any
Regulatory Authority relating to the subject matter described in Section 1.72(a)
and (c) any written correspondence received from any Regulatory Authority.

1.73 “Salix” has the meaning set forth in the preamble hereto.

1.74 “Salix Indemnified Parties” has the meaning set forth in Section 8.1.

1.75 “Salix Information” means all technical, scientific and other know-how and
information, trade secrets, knowledge, technology, means, methods, processes,
practices, formulae, instructions, skills, techniques, procedures, technical
assistance, designs, assembly procedures, specifications, assays, test methods,
analytical methods, and other material or information owned or controlled by
Salix and its Affiliates and necessary or useful for the Manufacture of the
Compound.

1.76 “Salix Policies” has the meaning set forth in Section 8.4(a).

1.77 “Salix-Supplied Material” means the CPL used in connection with
Manufacturing the Compound.

1.78 “Scale-Up Equipment” has the meaning set forth in Section 2.8(c).

1.79 “Scale-Up Plan Effective Date” has the meaning set forth in Section 2.8(c).

1.80 “Scale-Up Plans” means the adaptations, scale-ups or improvements to
Glenmark’s Manufacturing equipment or process, and any required investments
relating thereto, in order to satisfy Salix’s anticipated annual requirements in
excess of the Current Capacity. A non-binding example of such proposal is set
forth on Exhibit A.

1.81 “Specifications” means, with respect to the Compound, those
Compound-related specifications set forth on Schedule 1.81 and, with respect to
CPL, those CPL-related specifications set forth on Schedule 1.81, in each case
as the same may be amended from time to time in accordance with the terms
hereof.

1.82 “Specified Territory” means the United States, the EU and India, together
with such additional countries or territories as may be agreed by the Parties
pursuant to written amendment to this Agreement. The Parties agree that upon the
proposal by Salix of additional countries or territories to be included in the
definition of “Specified Territory,” they will negotiate in good faith in
respect of the inclusion of such additional countries or territories in such
definition, including with respect to the appropriate allocation between the
Parties of any additional costs anticipated as a result thereof.

 

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1.83 “Territory” means the entire world.

1.84 “Term” has the meaning set forth in Section 7.1.

1.85 “Testing Expert” has the meaning set forth in Section 2.7(d).

1.86 “Third Party Claim” has the meaning set forth in Section 8.3(b).

1.87 “Third Party Manufacturer” means any Third Party manufacturer of the
Compound designated by Salix, other than an Affiliate of Glenmark.

1.88 “Third Party Manufacturer License” means the license described in Schedule
1.88.

1.89 “United States” means the United States of America.

ARTICLE II. MANUFACTURING

2.1 Supply Obligations. Subject to the terms and conditions hereof, Glenmark
shall Manufacture or have Manufactured by its Affiliate, Glenmark Generics Ltd.,
and supply to Salix, and Salix shall purchase from Glenmark, such quantities of
Compound as Salix may order pursuant to Purchase Orders in accordance with the
terms hereof from time to time during the Term.

2.2 Forecasting, Order and Delivery of Compound.

(a) At least [*] days prior to the first day of each Calendar Year during the
Term commencing with the Calendar Year in which the Launch Date is anticipated
to occur, Salix shall deliver to Glenmark a written good faith forecast
estimating, on a quarterly basis, the quantities of Compound that Salix expects
to purchase from Glenmark during such Calendar Year (each, an “Informational
Forecast”); provided that in the event that the Launch Date is anticipated to
occur in Calendar Year [*], Salix shall deliver to Glenmark the Informational
Forecast in respect of Calendar Year [*] on a date reasonably agreed by the
Parties. Each Informational Forecast shall be non-binding and shall be used by
Glenmark for planning purposes only.

(b) On or before the fifteenth (15th) day of each month, commencing at least [*]
months prior to the month in which the Launch Date is anticipated to occur,
Salix shall deliver to Glenmark a written good faith forecast estimating the
quantities of Compound that Salix expects to purchase from Glenmark for each
month during the following [*] months (each, a “Forecast”). The [*] months of
each Forecast shall be a “Firm Forecast”. Except as provided in Section 2.2(c),
each Forecast shall be non-binding and shall be used by Glenmark for planning
purposes only.

(c) Without duplication of any previously delivered Purchase Order, each Firm
Forecast shall be accompanied by a Purchase Order for Compound to be

 

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

 

8

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delivered to Salix during each of the [*] months, respectively, set forth in
such Firm Forecast. The quantity of Compound specified in any Purchase Order for
delivery in any month (i) shall be in multiples of the full production lots of
Compound set forth on Schedule 2.2(c) and (ii) shall not be less than [*]
percent ([*]%) nor more than [*] percent ([*]%) of the quantities specified in
any previous Firm Forecast applicable to such month. In no event shall the
delivery date of Compound for any Purchase Order be less than [*] months from
the date of the Purchase Order; provided, however, that such period shall be
shortened to [*] months so long as Salix has fulfilled its obligations under
Section 2.3(b) to provide to Glenmark the Salix-Supplied Material in respect of
such Purchase Order.

(d) Glenmark shall, within [*] business days after Glenmark receives each
Purchase Order submitted in accordance with Section 2.2(c), accept in writing
such Purchase Order. Glenmark shall be deemed to have accepted such Purchase
Order if such Purchase Order is not rejected in writing by Glenmark in such [*]
business day period. Salix shall be obligated to purchase, and Glenmark shall be
obligated to deliver by the required delivery date set forth therein, such
quantities of Compound as are set forth in each Purchase Order. In the event
that the terms of any Purchase Order are not consistent with or are in addition
to the terms of this Agreement, the terms of this Agreement shall prevail.

(e) Glenmark shall deliver the quantities of Compound set forth in each Purchase
Order by the required delivery date set forth in such Purchase Order DDU (as
defined in Incoterms 2000) the port of entry in any Specified Territory (or, in
the case of the EU, any member state of the EU) other than India designated by
Salix; provided, however, that (i) Glenmark shall only engage such carriage,
insurance or other providers in connection with such delivery as are designated
by Salix in the applicable Purchase Order, (ii) Salix shall bear costs and
expenses for (A) carriage and insurance of the Compound from the Facility and
(B) clearance of Compound through customs in the destination country and
(iii) in the event any claim arises against any such carriage, insurance or
other provider, Glenmark, as promptly as possible, shall assign such claim to
Salix. All Compound shall be labeled in accordance with Applicable Law and
packed for shipping in accordance with packing instructions provided by Salix.
Title to and risk of loss of Compound shall pass to Salix at the time of
delivery.

(f) Each delivery of Compound shall be accompanied by (i) a Certificate of
Analysis, (ii) a Certificate of Compliance, (iii) such other documents as may be
required pursuant to the Quality Agreement, and (iv) documentation necessary for
the sale or import of the Compound.

2.3 Raw Materials.

(a) In any given month, Glenmark shall maintain an inventory of Materials in
sufficient quantities, and shall use its commercially reasonable efforts, to

 

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

 

9

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supply Salix with quantities of Compound that are up to [*] percent ([*]%) of
the quantities specified in any Firm Forecast applicable to such month.

(b) Simultaneous with delivery of each Firm Forecast by Salix to Glenmark, Salix
shall deliver to Glenmark at the Facility such quantities of Salix-Supplied
Material as are necessary for Manufacture of Compound in accordance with each
Firm Forecast, free of charge to Glenmark. Glenmark shall use the Salix-Supplied
Material solely for the purpose of Manufacturing the Compound for supply to
Salix. In the event Salix fails to deliver Salix-Supplied Material in quantities
and quality necessary for Glenmark to Manufacture Compound in accordance with
the applicable Purchase Order, such failure shall be deemed a force majeure
event for which Glenmark’s obligation to supply to Salix shall be excused until
such force majeure event has been corrected or eliminated.

(c) Each Party shall be responsible for auditing and qualifying its respective
third party supplier(s) of Materials and obtaining supplies of Materials in
accordance with the applicable Specifications. All Materials shall conform to
the applicable Specifications and any applicable Drug Master File, as further
referenced in any applicable Regulatory Documentation.

2.4 Invoice and Payment. Glenmark promptly shall invoice Salix for all
quantities of Compound delivered in accordance herewith. Payment with respect to
Compound delivered shall be due [*] days from the date of invoice to Salix;
provided that if Salix rejects such Compound pursuant to Section 2.7, then
payment shall be due within [*] days after receipt by Salix of notice from the
Testing Expert that the invoiced Compound is conforming or, subject to
Section 2.7, receipt by Salix of replacement Compound, as the case may be;
provided further, if Salix disputes any portion of an invoice, it shall pay the
undisputed portion and shall provide Glenmark with written notice of the
disputed portion and its reasons therefor, and Salix shall not be obligated to
pay such disputed portion. The Parties shall use good faith efforts to resolve
any such disputes promptly. In the event of any inconsistency between an invoice
and this Agreement, the terms of this Agreement shall control. Payment of
invoices shall be made by wire transfer to an account designated in writing by
Glenmark in United States Dollars. If any currency conversion shall be required
in connection with any payment hereunder, such conversion shall be made each
calendar quarter using an exchange rate that is the arithmetic average of the
daily exchange rates (obtained as described below) during such calendar quarter.
Each daily exchange rate shall be obtained from The Wall Street Journal, Eastern
United States Edition, or, if not so available, as otherwise agreed by the
Parties.

2.5 Price.

(a) The purchase price per kilogram (the “Purchase Price”) for all Compound
delivered hereunder shall equal Glenmark’s Fully-Allocated Manufacturing Cost
plus [*] percent ([*]%). Along with each acceptance of a Purchase Order

 

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

 

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pursuant to Section 2.2(d), Glenmark shall also confirm the Purchase Price
applicable for such Purchase Order, based on the formula set forth in the
preceding sentence. If Glenmark fails to confirm the Purchase Price for any
Purchase Order, the Purchase Price for such Purchase Order shall be the [*]. No
later than thirty (30) days following each anniversary of the first day of the
month in which Glenmark commences commercial supply to Salix, Glenmark shall
calculate its actual Fully-Allocated Manufacturing Cost of manufacturing
Compound supplied to Salix in the [*] percent ([*]%) (the “Actual Cost”). If the
Purchase Price paid by Salix for Compound is within [*] ([*]%) of the Actual
Cost, no reconciliation of the Purchase Price will be made between the Parties.
If the Purchase Price paid by Salix for Compound is greater than the Actual Cost
by more than [*] percent ([*]%), Glenmark shall reimburse Salix for such amount
in excess of [*] percent ([*]%) within [*] days of such determination. If the
Purchase Price paid by Salix for Compound is less than the Actual Cost by more
than [*] percent ([*]%), Salix shall reimburse Glenmark for such amount in
excess of [*] percent ([*]%) within [*] days of such determination.

(b) Glenmark shall provide Salix with access to such books, records, and
financial and other information, including in respect of the details of its
arrangements with third parties for the supply of Materials, as Salix may
reasonably request in order to establish that the Purchase Price for Compound
supplied hereunder is in compliance with the provisions of Section 2.5(a).

(c) The Parties acknowledge that there are other terms negotiated between Napo
and Glenmark in connection with the execution of this Agreement. Section 2.5(a)
notwithstanding, the Purchase Price for supply of Compound by Glenmark to Salix
during the [*] months following the Effective Date shall be fixed at the
purchase price set forth in Schedule 2.5(c) (“Fixed Price”); provided that the
Parties shall review such Fixed Price every [*] months following the Effective
Date and (i) in the event the FAMC plus [*] percent ([*]%) at such time is less
than such Fixed Price, the Fixed Price shall be adjusted downward to equal such
FAMC plus [*] percent ([*]%) and, (ii) in the event the FAMC plus [*] percent
([*]%) at such time is greater than such Fixed Price, the Fixed Price shall be
adjusted upward to equal such FAMC plus [*] percent ([*]%) up to a maximum
amount equal to the Capped Price. In no event shall the aggregate quantity of
Compound purchased hereunder at the Fixed Price exceed [*] kilograms ([*]).
Salix acknowledges and understands that as of the Effective Date the Fixed Price
does not reflect Glenmark’s Fully-Allocated Manufacturing Cost plus [*] percent
([*]%) as of the Effective Date and such Fixed Price is only being offered as a
short term accommodation.

(d) The Parties acknowledge that Glenmark has invested significant resources in
developing and optimizing the manufacturing process for the Manufacture of
Compound. In the event that Salix uses a Third Party Manufacturer, Salix shall
provide compensation to Glenmark as set forth in Schedule 2.5(d), subject to all
of the limitations set forth in such Schedule including the limitation with
respect to the [*] year duration of such obligations.

 

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

 

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2.6 Warranty. In connection with each delivery of Compound to Salix hereunder,
Glenmark hereby represents and warrants to Salix as of the date of the delivery
of such Compound to Salix as follows: (a) such Compound is in conformity with
the Specifications and the Certificate of Analysis therefor provided pursuant to
Section 2.2(f); (b) such Compound has been Manufactured in conformance with GMP,
all other Applicable Law, this Agreement and the Quality Agreement; (c) title to
such Compound will pass to Salix free and clear of any security interest, lien
or other encumbrance; (d) such Compound has been Manufactured at the Facility
and those portions of the Facility used in the Manufacture of the Compound are
in compliance with all Applicable Law at the time of such Manufacture (including
applicable GMP and inspection requirements of FDA and other Regulatory
Authorities); (e) the expiration date of such Compound is no earlier than [*]
months after the date of delivery thereof (or such longer period after the date
of delivery thereof as may be supported by ongoing stability studies, it being
acknowledged that a [*] month period must be allowed for packaging and
shipment); (f) such Compound has not been adulterated (as such term is defined
in the FFDCA) at the time of shipment by Glenmark from the Facility; (g) such
Compound may be introduced into interstate commerce pursuant to the FFDCA and
similar provisions of other Applicable Law in the Specified Territory; and
(h) neither Glenmark nor any of its Affiliates has been debarred or is subject
to debarment pursuant to Section 306 of the FFDCA or any similar law in any
country in the Specified Territory or listed on either Excluded List or any
similar list in any country in the Specified Territory; provided that, with
respect to any such similar laws or lists in any country in the Specified
Territory other than the United States, Salix has identified for Glenmark with
specificity such law or list.

2.7 Failure or Inability to Supply Compound.

(a) In the event that Glenmark, at any time during the Term, shall have reason
to believe that it will be unable to supply Salix with the full quantity of
Compound forecasted to be ordered or actually ordered by Salix in a timely
manner and in conformity with the warranties set forth in Section 2.6, Glenmark
shall promptly notify Salix thereof. Promptly thereafter, the Parties shall meet
to discuss how Salix shall obtain such full quantity of conforming Compound.
Compliance by Glenmark with this Section 2.7(a) shall not relieve Glenmark of
any other obligation or liability under this Agreement, including any obligation
or liability under Section 2.7(b) or 2.7(c).

(b) Subject to Section 2.7(f), if Glenmark fails to deliver the full quantity of
Compound specified in a Purchase Order by [*] days after the required delivery
date specified therein and in conformity with the warranty set forth in
Section 2.6, then Salix may, at its option, (i) cancel all or any portion of
such Purchase Order, in which event Salix shall have no liability with respect
to the portion of such Purchase Order so cancelled, or (ii) accept late delivery
of all or any portion of the Compound specified in such Purchase Order.

 

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

 

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(c) Subject to Section 2.7(f), if Glenmark fails to deliver the full quantity of
Compound specified in a Purchase Order by [*] days after the required delivery
date specified therein and in conformity with the warranty set forth in
Section 2.6, then Salix may, at its option, (i) accept late delivery of all or
any portion of the Compound specified in such Purchase Order, (ii) terminate its
obligations under Section 2.1 in whole or in part by written notice to Glenmark
or (iii) provide written notice to Glenmark of its intention to qualify a Third
Party Manufacturer for the Compound, in which event Glenmark shall use its
commercially reasonable efforts promptly to assist Salix to qualify such Third
Party Manufacturer designated by Salix to Manufacture such Compound, and
provide, to such Third Party Manufacturer such technical assistance, as Salix
may reasonably request and such Third Party Manufacturer may reasonably require
in order to Manufacture the Compound without charge to Salix, except that Salix
shall be responsible for the out of pocket expenses incurred by Glenmark in
providing such technical assistance and provided further that the technical
assistance is for no more than [*] (equal to [*] work hours each). Glenmark
shall also promptly grant to such Third Party Manufacturer a Third Party
Manufacturer License, provided that Salix shall compensate Glenmark in the
manner set forth in Schedule 2.5(d), subject to all of the limitations set forth
in such Schedule including the limitation with respect to the [*] year duration
of such obligations and Schedule 1.31, Section III.

(d) In the event that Salix determines, within [*] days after delivery thereof
by Glenmark (or within [*] days after discovery of any non-conformity that could
not reasonably have been detected by a customary inspection on delivery, so long
as such discovery is during the production of Product, but in no event more than
[*] months after delivery of Compound by Glenmark), that any Compound supplied
by Glenmark does not conform to the warranties set forth in Section 2.6, Salix
shall give Glenmark notice thereof (including a sample of such Compound, if
applicable). Glenmark shall undertake appropriate evaluation of any such sample
and shall notify Salix whether it has confirmed such nonconformity within [*]
days after receipt of such notice from Salix. If Glenmark notifies Salix that it
has not confirmed such nonconformity, then the Parties shall submit the dispute
to an independent testing laboratory or other appropriate expert mutually
acceptable to the Parties (the “Testing Expert”) for evaluation. Both Parties
shall cooperate with the Testing Expert’s reasonable requests for assistance in
connection with its evaluation hereunder. The findings of the Testing Expert
shall be binding on the Parties, absent manifest error. The expenses of the
Testing Expert shall be borne by Glenmark if the testing confirms the
nonconformity and otherwise by Salix. If the Testing Expert or Glenmark confirms
that a lot of Compound does not conform to the warranties set forth in Section
2.6, then Glenmark, at Salix’s option, promptly shall (A) supply Salix with a
conforming quantity of Compound at Glenmark’s expense or (B) reimburse Salix for
the Purchase Price paid by Salix with respect to such non-conforming Compound if
already paid. In addition, Glenmark promptly shall reimburse Salix for all costs
incurred by Salix with respect to such non-conforming Compound, including the
Salix-Supplied Material. Salix shall have the right to offset any such costs
against any payments owed by Salix to Glenmark under this Agreement. Glenmark
immediately shall notify Salix if at any time it discovers that any Compound
delivered hereunder does

 

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

 

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not conform to the Specifications. Notwithstanding any other provision of this
Section 2.7(d), Glenmark shall have no liability hereunder to the extent any
such liability is attributable to (i) a failure of Salix-Supplied Material to
conform to applicable Specifications or (ii) Salix-Supplied Material having been
adulterated (as such term is defined in the FFDCA) prior to the time of delivery
to Glenmark.

(e) Subject to Salix’s right to indemnification under Section 8.1, the rights
and remedies provided in this Section 2.7 shall be cumulative and shall be
Salix’s sole and exclusive remedy with respect to Glenmark’s failure to supply
Compound that conforms to the warranties set forth in Section 2.6, or Glenmark’s
inability to supply Compound pursuant to any accepted Purchase Order.

(f) The rights and remedies provided in Sections 2.7(b) and (c) shall be subject
to Salix fulfilling its obligations under Section 2.3(b).

2.8 Limitations of Current Capacity.

(a) The Parties acknowledge the Current Capacity production constraints of
Glenmark, and, subject to Section 2.8(b), agree that the estimation of the
maximum annual quantities of the Compound that Glenmark is capable of delivering
to Salix as of the Effective Date are as set forth on Schedule 1.17.

(b) Glenmark shall bear the expenses for the required civil, mechanical, HVAC,
electrical and instrumentation, qualified utilities, environment and safety and
consultancy charges for manufacturing state I and II of the Compound at the
Facility. Napo has provided, at its sole cost and expense, the required [*] as
of the Effective Date (the “Napo-Provided Equipment”).

(c) In anticipation of Salix’s annual requirements exceeding the amount of
Compound permitted by Current Capacity, the Parties shall discuss in good faith
the Scale-Up Plans. Glenmark agrees to use its commercially reasonable efforts
to implement any agreed upon Scale-Up Plan as promptly as possible and the cost
of such implementation shall be borne by Salix, including the purchase and
installation of any equipment needed for the Scale-up Plans and any replacement
for Napo-Provided Equipment purchased and installed after the Effective Date
(the “Scale-up Equipment”). Until such time as Glenmark has been afforded a
reasonable period of time to implement a Scale-Up Plan (the date on which such
period expires, the “Scale-Up Plan Effective Date”), Glenmark’s inability to
supply Compound in excess of the amount set forth on Schedule 1.17 per year
shall not be construed as a material breach of this Agreement. Glenmark shall
have the right to use all Compound Equipment to (i) carry out any research,
development scale-up and other activities relating to the Compound, provided,
however, that such usage shall not exceed [*] percent ([*]%) of such Compound
Equipment’s capacity and (ii) subject to Section 2.21, [*] permitted pursuant to
the Napo-Glenmark Agreement (collectively, the “Glenmark Activities”). Glenmark
shall reimburse Salix in accordance with the terms set forth in Schedule 2.8(c).

 

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

 

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(d) Salix acknowledges and agrees that the Scale-Up Plan as set forth on Exhibit
A is for illustrative purposes only and Glenmark has no obligations to achieve
the targets set forth therein.

2.9 Costs and Expenses. Except as otherwise explicitly set forth herein, [*]
shall be solely responsible for all costs and expenses incurred in connection
with the Manufacture of Compound hereunder, including costs and expenses of
personnel, quality control testing, Manufacturing facilities and equipment, and
Glenmark-Supplied Materials.

2.10 Amendment of Specifications.

(a) In the event that an amendment to the Specifications, the Manufacturing
process, or the test methods for the Compound is required in writing by any
Regulatory Authority, Salix promptly shall provide Glenmark with appropriate
documentation relating to any such changes to the Specifications or
Manufacturing process to the extent that such changes affect Glenmark’s
Manufacturing of the Compound hereunder. So long as the process capability can
meet such amendment to Specifications or Manufacturing process required by the
Regulatory Authority, Glenmark shall promptly implement such changes in
accordance with the change control procedures applicable under GMP. In the event
that the process capability cannot meet such an amendment to Specifications or
Manufacturing process required by the Regulatory Authority, then the Parties
will pursue good faith discussions with respect to the identification and
implementation of arrangements that will permit Glenmark to meet such amendment.
Salix may request any other amendment to the Specifications, the Manufacturing
process, or the test methods for the Compound, in which event the Parties shall
meet to discuss such proposed amendment in good faith. Salix promptly shall
provide Glenmark with appropriate documentation relating to any such changes to
the Specifications or Manufacturing process to the extent that such changes
affect Glenmark’s Manufacturing of the Compound hereunder. Promptly thereafter,
Glenmark shall use its commercially reasonable efforts to implement any such
change agreed to by the Parties. Glenmark shall not, in any respect, amend,
modify or supplement the Specifications, the Manufacturing process, or the test
methods for the Compound or any Materials or sources of Materials used in
connection with Manufacturing the Compound without the prior written consent of
Salix.

(b) [*] shall reimburse [*] for reasonable expenses that are actually incurred
by [*] in connection with any amendment of the Specifications or the
Manufacturing process for the Compound required by Salix, including reasonable
costs of capital equipment and process upgrades and obsolescence of Materials,
goods-in-process, and finished goods not suitable for other use in the business
or operations of Glenmark or any of its Affiliates; provided, however, that [*]
liability for such reimbursement shall be limited to levels of inventory that
are customary in pharmaceutical manufacturing operations.

 

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

 

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(c) [*] shall be solely responsible for any and all increased costs or expenses
incurred by [*] or [*] as a result of any amendment of the Specifications or the
Manufacturing process for the Compound (i) requested by Glenmark and consented
to by Salix or (ii) required by Salix as a result of Glenmark’s failure to
Manufacture the Compound in conformity with the Specifications.

2.11 Quality Agreement. Within [*] days after the Effective Date, and in any
event, prior to any commercial sale of the Compound, Salix and Glenmark shall
prepare and enter into a reasonable and customary quality assurance agreement,
upon terms generally consistent with the existing quality agreement between
Glenmark and Napo with such modifications thereto as either Party may reasonably
request (the “Quality Agreement”). Each Party shall duly and punctually perform
all of its obligations under the Quality Agreement.

2.12 Quality Control Analyses and Release. Glenmark shall be responsible for all
quality control analyses of the Compound and all Compound shall be released by
Glenmark, in each case in accordance with the terms of the Quality Agreement.

2.13 Maintenance of Facility.

(a) Except as otherwise approved in writing by Salix, Glenmark shall Manufacture
the Compound exclusively at the Facility under GMP.

(b) Glenmark shall ensure that any and all licenses, registrations, and
Regulatory Authority approvals required by Applicable Law are and shall be
obtained in connection with the Facility and equipment used in connection with
the Manufacture of the Compound by Glenmark.

(c) Glenmark shall maintain the Facility and such equipment in a state of repair
and operating efficiency consistent with the requirements of the Specifications,
the Regulatory Approvals, GMP and all other Applicable Law.

(d) Glenmark shall maintain in the Facility adequate and segregated holding
accommodations for the Compound and the Materials used in Manufacturing the
Compound in accordance with the Specifications, the Regulatory Approvals, GMP
and all other Applicable Law.

(e) Glenmark shall only use disposal services or sites that have appropriate
environmental permits and are in compliance with Applicable Law.

2.14 Regulatory Cooperation of Glenmark. Glenmark shall cooperate with any
reasonable requests for assistance from Salix with respect to obtaining and
maintaining any and all Regulatory Approvals, including by:

 

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

 

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(a) at Salix’s cost and expense, making its employees, consultants and other
staff available upon reasonable notice during normal business hours to attend
meetings with Regulatory Authorities concerning the Compound and the Product;
and

(b) at Salix’s cost and expense, disclosing and making available to Salix, in
such form as may be required by any applicable Regulatory Authority, all
Manufacturing and quality control data, CMC Data and other information related
to the Compound and the Manufacturing process therefor as is reasonably
necessary to prepare, file, obtain and maintain any Regulatory Approval.

2.15 Inspection by Salix. Glenmark agrees that Salix and its agents shall have
the right [*] each Calendar Year, upon reasonable prior notice to Glenmark and
during normal business hours, to inspect those portions of the Facility where
Manufacture of the Compound takes place, as well as the Manufacturing of the
Compound, including inspection of (a) the Materials used in the Manufacture of
the Compound, (b) the holding facilities for such Materials, (c) the equipment
used in the Manufacture of the Compound, and (d) all records relating to such
Manufacturing and the Facility (only to the extent they relate to the Compound).
Following such audit, Salix shall discuss its observations and conclusions with
Glenmark and Glenmark shall use its commercially reasonable efforts to implement
such corrective actions as may be requested reasonably and in good faith by
Salix within [*] days after notification thereof by Salix or such longer period
as may be reasonable in the circumstances as determined by Glenmark after
consultation with Salix or agreed by the Parties.

2.16 Notification of Regulatory Inspections; Communications. Glenmark shall
notify Salix by telephone within [*] hours, and in writing within [*] business
days, after learning of any proposed visit or inspection by any Regulatory
Authority, the specific (but not necessarily exclusive) focus of which is on
those portions of the Facility where Manufacture of the Compound takes place or
on operations of the Facility material to the Manufacture of the Compound, and
shall use its commercially reasonable efforts to permit Salix or its agents to
be present and participate in such visit or inspection. For purposes of clarity,
routine inspection of the Facility which may include inspection of those
portions of the Facility where Manufacture of the Compound takes place shall not
trigger Glenmark’s notification obligation under this Section 2.16.

2.17 Recalls and Withdrawals. [*] promptly shall [*] for all costs incurred by
[*] in connection with recalls, market withdrawals, and returns and destruction
of Product containing any non-conforming Compound (as determined pursuant to
Section 2.7(d)) as and to the extent and only to the extent any such recall,
market withdrawal or return or destruction of Product is the direct result of
[*]’s breach of its warranties under Section 2.6 or [*]’s gross negligence or
willful misconduct. [*] shall have the right to offset any such costs against
any payments owed by [*] to [*] under this Agreement. All other costs for
recalls, market withdrawals and returns and destruction of Product shall be the
sole and exclusive responsibility of [*] (including any recalls, market
withdrawals and returns

 

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

 

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and destruction of Product as and to the extent attributable to the failure of
[*] to conform to applicable Specifications).

2.18 Compliance with Applicable Laws. Glenmark shall comply, and shall cause
each of its Material suppliers (other than Salix and its Affiliates) to comply,
with GMP and all other Applicable Law in carrying out the Manufacturing of the
Compound and its other duties and obligations under this Agreement.

2.19 Retention of Manufacturing Records and Samples.

(a) Glenmark shall generate, retain and maintain:

(i) all records necessary to comply with GMP and all other Applicable Law
relating to the Manufacture of the Compound. Without limiting the foregoing,
records shall be made concurrently with the performance of each step in the
Manufacture of the Compound and in such a manner that at any time successive
steps in the Manufacture and distribution of any batch may be traced by an
inspector. Such records shall be legible and indelible, shall identify the
person immediately responsible, shall include dates of the various steps and be
as detailed as necessary for a clear understanding of each step by an individual
experienced in the manufacture of pharmaceutical products;

(ii) all Manufacturing records, standard operating procedures, equipment log
books, batch manufacturing records, laboratory notebooks and all raw data
relating to the Manufacturing of the Compound;

(iii) samples of each batch and Materials. Samples shall include a quantity of
representative material of each batch and Materials sufficient to perform at
least full duplicate quality control testing, and shall specify the dates of
Manufacture and packaging thereof. Samples so retained shall be selected at
random from either final container material or from bulk and final containers;
provided that they include at least one final container as a final package, or
package-equivalent of such filling of each batch. Such sample shall be stored at
temperatures and under conditions which will maintain the identity and integrity
of the relevant sample; and

(iv) such other records and samples that Glenmark maintains in the ordinary
course of business, as Salix reasonably may require in order to ensure
compliance by Glenmark with the terms of this Agreement and Applicable Law.

(b) Without prejudice to Glenmark’s obligations pursuant to Section 2.19(a),
Glenmark shall diligently complete the master batch record for the Compound
during the Manufacture of such Compound.

(c) All materials, samples, records and other items referred to in Sections
2.19(a) and 2.19(b) shall be retained by Glenmark for the longer of (i) such
period as may be [*] and [*] and (ii) [*] years.

 

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

 

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2.20 No Other Supply. Glenmark shall not, and Glenmark shall cause its
Affiliates not to, Manufacture or supply the Compound to or for any Person other
than (a) Salix and its Affiliates under and pursuant to this Agreement, (b) [*]
under and pursuant to the [*]Glenmark Agreement, and (c) [*] as permitted under
the [*]Glenmark Agreement.

2.21 Shortages. In the event that the amount of Compound which Glenmark
Manufactures is less than the amount required to meet the requirements of all
Persons to be supplied by Glenmark pursuant to Section 2.20, the total supply
Manufactured by Glenmark shall be apportioned as follows: first, to those
Persons with pending or approved Marketing Authorizations, pro rata on the basis
of each such Person’s good faith anticipated volume requirements of the Compound
for the next [*] months for itself and its Affiliates, licensees and
sublicensees in respect of those countries or jurisdictions where such Person
(or its Affiliates, licensees or sublicensees) has a pending or approved
Marketing Authorization; second, to those Persons who paid for the Compound
Equipment, pro rata on the basis of each such Person’s good faith anticipated
volume requirements of the Compound for the next [*] months; and third, as
agreed by the Parties in good faith.

2.22 Second Source. Notwithstanding anything to the contrary herein, Salix shall
have the right, at its own expense, to secure a Third Party Manufacturer to
Manufacture Compound for supply to Salix; provided, however, that no such Third
Party Manufacturer shall be located in any country that is included in the
Glenmark Territory. Glenmark shall use its commercially reasonable efforts to
assist Salix to qualify such Third Party Manufacturer designated by Salix to
Manufacture such Compound, and provide, to such Third Party Manufacturer such
technical assistance, as Salix may reasonably request and such Third Party
Manufacturer may reasonably require in order to Manufacture the Compound at
Salix’s sole cost and expense, provided that the technical assistance is for no
more than [*] (equal to [*] work hours each). [*] shall also promptly grant to
such Third Party Manufacturer a Third Party Manufacturer License, provided that
Salix shall compensate [*] in the manner set forth in Schedule 2.5(d), subject
to all of the limitations set forth in such Schedule including the limitation
with respect to the [*] year duration of such obligations and Schedule 1.31,
Section III.

ARTICLE III. GLOBAL COORDINATION

3.1 Global Cooperation and Coordination. Each of the Parties holds certain
licenses from Napo permitting it to Exploit the Product in certain fields of use
in certain territories. Accordingly, each of the Parties has an interest in
enhancing the development and commercialization of the Product in those fields
and territories to which its licenses extend. Each Party hereby acknowledges
that the maximum commercial potential of the Product in its field of use and
territories will be achieved through the coordinated global development and
commercialization. To that end, each of the Parties hereby agrees to cooperate
and coordinate with the other Party to support the global development,

 

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

 

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approval by Regulatory Authorities, commercialization and other Exploitation of
the Product.

3.2 Consultation. The Parties shall consult with each other on a regular basis,
either in writing, by telephone, or through face-to-face meetings, as the
Parties may deem most expedient, with regard to all aspects of the development
and commercialization of the Product. Without limiting the foregoing, each Party
shall designate by written notice to the other Party a single senior executive
of such Party to serve as the principal contact with such other Party for
purposes of the cooperation and coordination contemplated by this Article 3.
Each Party shall ensure that at all times during the Term it has designated such
a senior executive for such purpose.

3.3 Regulatory Matters.

(a) Rights of Reference. Each Party hereby grants to the other Party rights of
reference in and to all Regulatory Documentation filed by such Party with any
Regulatory Authority. The Parties shall negotiate in good faith and implement
appropriate provisions, consistent with Applicable Law, in respect of mutual
adverse event reporting and mutual access to, and mutual exchange between the
Parties of, information necessary for each Party to adhere to regulatory
requirements. Without limiting the foregoing, each Party shall have the right to
cross reference, file or incorporate by reference any regulatory submission or
Drug Master File (and any data contained therein) for the Product, or any
component thereof (including any Regulatory Approvals), in order to support
regulatory submissions that such Party has the right to make.

(b) Regulatory Inspections. If any governmental or Regulatory Authority takes,
or gives notice of its intent to take, any other regulatory action alleging
improper or inadequate Manufacturing practices (including the issuance of a
“Notice of Inspectional Observations,” “Warning Letter” or the equivalent) with
respect to those portions of the Facility where Manufacture of the Compound
takes place, such Party shall notify the other Party by telephone within
twenty-four (24) hours, and in writing within one (1) business day of such
contact or notice, or sooner if necessary to permit such other Party to be
present at, or otherwise participate in, any such inspection or regulatory
action with respect to the Compound and shall supply such other Party with all
information pertinent thereto. Such other Party shall have the right to be
present at and to participate in any such inspection or regulatory action with
respect to the Compound. The inspected Party shall provide the other Party with
copies of all documentation issued or inspected by any governmental or
Regulatory Authority in connection with such inspection or regulatory action and
any response thereto proposed by the inspected Party. No such responses shall
contain any false or misleading information, or omit any information necessary
to make such response not false or misleading, with respect to the Compound.

(c) Access to Data. Each Party shall provide the other Party on a timely basis
with access to all material pre-clinical data and clinical data compiled in
support of a an application for Regulatory Approval or other regulatory filings
with

 

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respect to the Product, when and as such pre-clinical data or clinical data
become available. Each Party shall provide the other Party with Regulatory
Documentation within a reasonable timeframe of receipt or production thereof
and, to the extent applicable, within the timeframe as is necessary for the
responsible Party to take action or comply with any requirement of any
Regulatory Authority applicable to the responsible Party.

(d) Communications with Regulatory Authorities. As between Salix and Glenmark,
Salix shall have sole responsibility and authority to communicate with
Regulatory Authorities with respect to the Drug Master File for the Compound;
provided that, from and after the date that such Drug Master File is transferred
to Glenmark, then Glenmark shall have the sole responsibility and authority to
communicate with Regulatory Authorities with respect to such Drug Master File.
Subject to the foregoing, (i) Glenmark shall have the sole responsibility and
authority to communicate with Regulatory Authorities during the term of the
Napo-Glenmark Agreement in relation to the Product in the Glenmark Territory and
for the fields of use exclusively granted Glenmark in the Glenmark Territory and
(ii) in relation to the Product outside the Glenmark Territory and outside the
fields of use exclusively granted to Glenmark in the Glenmark Territory, either
Napo or Salix shall have sole responsibility and authority to communicate with
Regulatory Authorities with respect to such Product.

(e) Conduct of Recalls. As between Salix and Glenmark, Salix shall have the sole
responsibility and authority to conduct, and shall have the final decision
whether to implement, all voluntary and involuntary recalls, stop sales, field
corrections or other related actions (collectively, “Recalls”) of the Product in
and with respect to all fields of use in all countries worldwide, except for
those countries included in the General Territory (as defined in the
Napo-Glenmark Agreement), but only in the field of use relating to
HIV/AIDS-related diarrhea and pediatric diarrhea, and those countries included
in the AAID Specific Territory (as defined in the Napo-Glenmark Agreement), but
only in the field of use relating to adult acute infectious diarrhea, with
respect to which fields of use in the specified countries Glenmark shall have
sole responsibility and authority to conduct or implement Recalls during the
term of the Napo-Glenmark Agreement. Glenmark and Salix shall cooperate and each
shall provide such assistance to the other in respect of Recalls of the Product
as the other may reasonably request.

3.4 Trademarks. The Parties shall cooperate in all respects for the purpose of
achieving appropriate coordination and harmonization of the use and manner of
use of trademarks, trade dress, and trade names in respect of the Product on a
global basis.

ARTICLE IV. INTELLECTUAL PROPERTY

4.1 Ownership.

(a) Salix shall own all right, title and interest in and to (i) the
Specifications and the Salix Information and (ii) any and all Compound
Inventions.

 

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Salix hereby grants to Glenmark and its Affiliates the right to use the Compound
Inventions on the same terms and conditions set forth in Section 2.1 of the
Napo-Glenmark Agreement, as such agreement is in effect as of the Effective
Date. Glenmark shall, and shall cause its Affiliates to, promptly disclose in
writing to Salix the discovery, development, making, conception or reduction to
practice of any Compound Invention and shall and does hereby, and shall cause
its Affiliates to, assign to Salix any and all right, title or interest Glenmark
or its Affiliates may have in or to any Compound Invention. Glenmark shall
execute any documents and perform such other acts as may be reasonably requested
by Salix in order to secure, perfect, confirm, exercise or enforce Salix’s
foregoing rights.

(b) Glenmark shall own all right, title and interest in and to any manufacturing
technique or process that is not derived from or based on the Specifications,
any Salix Information or any Compound Invention that is conceived, discovered,
developed or otherwise made, solely by or on behalf of Glenmark as a result of
Glenmark’s performance of its obligations hereunder (the “Glenmark Inventions”).
Glenmark shall, and shall cause its Affiliates to, promptly disclose in writing
to Salix the discovery, development, making, conception or reduction to practice
of any Glenmark Invention. Subject to Schedule 1.31, Section III, Glenmark
shall, and does hereby, grant to Salix a non-exclusive license to Glenmark
Inventions and Glenmark Invention Patents to Exploit the Compound and Products
in all fields of use in all countries worldwide, except for (i) those countries
included in the General Territory (as such term is defined in the Napo-Glenmark
Agreement as such agreement is in effect as of the Effective Date), but only in
the field of use relating to HIV/AIDS-related diarrhea and pediatric diarrhea,
and (ii) those countries included in the AAID Specific Territory (as such term
is defined in the Napo-Glenmark Agreement as such agreement is in effect as of
the Effective Date), but only in the field of use relating to adult acute
infectious diarrhea.

(c) Glenmark and Salix shall jointly own all right, title and interest in and to
any and all Joint Inventions. Each of Glenmark and Salix shall, and shall cause
its respective Affiliates to, promptly disclose in writing to the other Party
the discovery, development, making, conception or reduction to practice of any
Joint Invention. For those countries in the Territory where a specific license
is required to be granted by a Joint Invention owner to the other Joint
Invention owner in order for the other Joint Invention owner to practice such
Joint Inventions in such countries in the Territory, Glenmark shall, and does
hereby, grant to Salix a non-exclusive fully paid up license to Glenmark’s
interest in all Joint Inventions to Exploit the Compound and Products in all
fields of use in all countries worldwide, except for (i) those countries
included in the General Territory, but only in the field of use relating to
HIV/AIDS-related diarrhea and pediatric diarrhea, and (ii) those countries
included in the AAID Specific Territory, but only in the field of use relating
to adult acute infectious diarrhea. For those countries in the Territory where a
specific license is required to be granted by a Joint Invention owner to the
other Joint Invention owner in order for the other Joint Invention owner to
practice such Joint Inventions in such countries in the Territory, Salix shall,
and does hereby, grant to Glenmark a non-exclusive fully paid-up license to
Salix’s interest in all Joint Inventions to Exploit the Compound and Products in

 

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(i) those countries included in the General Territory, but only in the field of
use relating to HIV/AIDS-related diarrhea and pediatric diarrhea, and (ii) those
countries included in the AAID Specific Territory, but only in the field of use
relating to adult acute infectious diarrhea.

(d) Without limiting the provisions of Article VI, Glenmark shall use the
Specifications and Salix Information solely for purposes of performing its
supply obligations hereunder.

4.2 Patent Maintenance and Prosecution.

(a) Compound Invention Patents.

(i) [*] shall have sole discretion and responsibility to prepare, file,
prosecute and maintain all patent applications and patents covering Compound
Inventions (collectively, the “Compound Invention Patents”, and each, a
“Compound Invention Patent”) and shall be responsible for related interference
and opposition proceedings; provided, however, that if [*] plans to abandon any
Compound Invention Patent, [*] shall notify [*] in writing at least [*] days in
advance of the due date of any payment or other administrative action that is
required to maintain such Compound Invention Patent (i.e., an administrative
action that involves routine and customary filings, it being understood that
interference, opposition, reissue and re-examination proceedings, prosecution or
defense of infringement actions, and the like, shall not be considered
administrative actions), and Glenmark may elect, upon written notice within such
[*]-day period to [*], to make such payment or take such administrative action,
on behalf of [*]. Except as expressly permitted in this Section 4.2(a)(i), [*]
shall have no right to prepare, file, prosecute or maintain any Compound
Invention Patents.

(ii) Costs and expenses of filing, prosecuting and maintaining (including any
costs and expenses of patent interference, opposition, reissue and
re-examination proceedings) Compound Invention Patents as contemplated by
Section 4.2(a)(i) shall be borne by the [*] such filing, prosecution and
maintenance.

(b) Glenmark Invention Patents.

(i) [*] shall have the first right, but not the obligation, to prepare, file,
prosecute and maintain all patent applications and patents covering Glenmark
Inventions (collectively, the “Glenmark Invention Patents”, and each, a
“Glenmark Invention Patent”) and shall be responsible for related interference
and opposition proceedings; provided, however, that if [*] plans to abandon any
Glenmark Invention Patent, [*] shall notify [*] in writing at least [*] days in
advance of the due date of any payment or other administrative action that is
required to maintain such Glenmark Invention Patent (i.e., an administrative
action that involves routine and customary filings, it being understood that
interference, opposition, reissue and re-examination proceedings, prosecution or
defense of infringement actions, and the like, shall not be

 

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

 

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considered administrative actions), and [*] may elect, upon written notice
within such [*]-day period to [*], to make such payment or take such
administrative action, on behalf of [*]. Except as expressly permitted in this
Section 4.2(b)(i), [*] shall have no right to prepare, file, prosecute or
maintain any Glenmark Invention Patents.

(ii) If [*] does not wish to file, prosecute or maintain any Glenmark Invention
Patent or maintain or defend such Glenmark Invention Patent in a particular
country, it shall notify [*] in writing and, if [*] elects to maintain such
Glenmark Invention Patent as contemplated by Section 4.2(b)(i), [*] shall, and
shall cause its Affiliates, as applicable, to (A) reasonably cooperate with [*]
in this regard and, (B) upon [*] request, promptly release or assign to [*],
without compensation, all right, title and interest in and to such invention in
such country. In the event of such assignment, [*] hereby grants to [*] a
non-exclusive, [*] license under the relevant Glenmark Invention Patent to use
for any purpose in the Territory.

(iii) Costs and expenses of filing, prosecuting and maintaining (including any
costs and expenses of patent interference, opposition, reissue and
re-examination proceedings) Glenmark Invention Patents as contemplated by
Section 4.2(b)(i) and (ii) shall be borne by the [*] such filing, prosecution
and maintenance.

(c) Joint Invention Patents.

(i) Salix and Glenmark shall collaborate to determine which Party shall be
responsible for preparing, filing, prosecuting and maintaining all patent
applications and patents covering Joint Inventions (collectively, the “Joint
Invention Patents”, and each, a “Joint Invention Patent”) and for related
interference and opposition proceedings on behalf of both Parties based on a
good faith determination of the relative contributions of the Parties to the
invention(s) claimed or covered by such Joint Invention Patent and the relative
level of interest of the Parties in such invention(s). At least [*] business
days prior to the contemplated filing with respect to a Joint Invention Patent,
the [*] for such activities for such Joint Invention Patent shall submit a
substantially completed draft of such Joint Invention Patent to the other Party
for its review and approval, and shall incorporate any reasonable comments
provided by the other Party. If the [*] does not wish to file, prosecute or
maintain any Joint Invention Patent or maintain or defend such Joint Invention
Patent in a particular country, it shall notify the other Party in writing and,
if the other Party elects to maintain such Joint Invention Patent, such first
Party shall, and shall cause its Affiliates, as applicable, to (A) reasonably
cooperate with such first Party in this regard and (B) upon such first Party’s
request, promptly release or assign to such first Party, without compensation,
all right, title and interest in and to such invention in such country
(whereupon such Joint Invention Patent shall cease to be a Joint Invention
Patent and thereafter shall be deemed to be a [*] or a Compound Invention
Patent, as applicable, for purposes of this Article IV).

 

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

 

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(ii) Costs and expenses of filing, prosecuting and maintaining (including costs
and expenses of patent interference, opposition, reissue and re-examination
proceedings) Joint Invention Patents as contemplated by Section 4.2(c)(i) shall
be shall be borne by the [*] such filing, prosecution and maintenance.

(d) Each Party shall assist and cooperate with the other Party as such other
Party may reasonably request from time to time in connection with its activities
set forth in Sections 4.2(a), 4.2(b) and 4.2(c). Each Party shall keep the other
Party currently informed of all steps to be taken in the preparation and
prosecution of all applications filed by it according to this Section 4.2 and
shall furnish such other Party with copies of such applications for Patents,
amendments thereto and other related correspondence to and from patent offices,
and, to the extent reasonably practicable, permit such other Party an
opportunity to offer its comments thereon before making a submission to a patent
office which could materially affect the scope or validity of the patent
coverage that may result. Such other Party shall offer its comments, if any,
promptly.

(e) With respect to Patents filed in any country other than those countries
included in the Glenmark Territory, [*] shall be responsible for making
decisions regarding patent term extensions, including supplementary protection
certificates and any other extensions that are now or become available in the
future, wherever applicable, for such Patents. With respect to Patents filed in
any country included in the Glenmark Territory, the Parties shall cooperate in
making decisions regarding patent term extensions, including supplementary
protection certificates and any other extensions that are now or become
available in the future, wherever applicable, for such Patents. Notwithstanding
the foregoing, the Parties shall coordinate their activities with respect to any
patent term extension with respect to all Patents in order to secure the optimal
protection for the Product available under Applicable Law.

4.3 Enforcement of Patents.

(a) If any Patent is allegedly or actually infringed by any Person in a manner
relating to the Product, the Party first having knowledge of such infringement
shall promptly notify the other in writing. The notice shall set forth the facts
of that infringement in reasonable detail.

(b) As between the Parties, [*] shall have the first right, but not the
obligation, to control the prosecution of any infringement described in this
Section 4.3(a). [*] shall have the right, at its own expense, to be represented
in any such action by counsel of its own choice. If [*] does not initiate an
infringement action within [*] days (or [*] days in the case of an action
brought under the Hatch-Waxman Act or within the timeframe of any other relevant
regulatory or statutory framework that may govern) of learning of the
infringement, [*] shall have the right, but not the obligation, to bring such an
action solely (i) with respect to any Glenmark Invention Patent or

 

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

 

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Joint Invention Patent in any country included in the Glenmark Territory and,
(ii) subject to the prior written consent of [*], with respect to any Glenmark
Invention Patent or Joint Invention Patent in countries outside the Glenmark
Territory; provided that, if the Patent at issue is the only patent protecting
the Product, [*] shall in any event consult with [*] with respect to any such
action and shall obtain [*]’s written consent prior to taking any steps in
respect of such action. [*] shall have the right, at its own expense, to be
represented in any such action by counsel of its own choice.

(c) In the event that a Party entitled to bring an infringement action does so
in accordance with this Section 4.3(a), the other Party shall cooperate fully,
including furnishing of a power of attorney, being joined as a party plaintiff
or indispensable party in such action, providing access to relevant documents
and other evidence, and making its employees available at reasonable business
hours. If a Party pursues an action against such alleged infringement, it shall
consider in good faith any comments from the other Party and shall keep the
other Party reasonably informed of any steps taken to preclude such
infringement.

(d) Any costs and expenses relating to any enforcement action commenced pursuant
to this Section 4.3 by [*] shall be borne by [*]. Any costs and expenses
relating to any enforcement action commenced pursuant to this Section 4.3 by [*]
shall be borne by [*]. Any damages or other amounts collected shall be first
allocated to reimburse the Parties for their costs and expenses in making such
recovery (which amounts shall be allocated pro rata if insufficient to cover the
totality of such expenses). Any remainder after such reimbursement is made shall
be [*]; provided, however, that to the extent that any award or settlement
(whether by judgment or otherwise) is attributable to loss of sales or profits
with respect to the Product, the Parties shall negotiate in good faith an
appropriate allocation of such remainder to reflect the economic interests of
the Parties under this Agreement with respect to the Product.

4.4 Third Person Litigation.

(a) If any Person institutes against Glenmark any action that alleges that the
Manufacture of Compound hereunder in accordance with the terms hereof infringes
the intellectual property rights held by such Person, then, as between Glenmark
and Salix, [*] shall have the first right, but not the obligation, to contest,
and assume direction and control of the defense of, such action, including the
right to settle such action; provided that, prior to any such settlement, [*]
provides its written consent (such consent not to be unreasonably withheld,
conditioned or delayed). If [*] determines not to defend against such action,
[*] shall, at its sole cost and expense, have the right but not the obligation
to control the defense of such action solely (i) with respect to any [*] in any
country included in the [*] and, (ii) subject to the prior written consent of
[*], with respect to any [*] or [*] in countries outside the [*]; provided that,
if the Patent at issue is the only patent protecting the Product, [*] shall in
any event

 

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

 

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consult with [*] with respect to any such action and shall obtain [*]’s written
consent prior to taking any steps in respect of such action. [*] shall have the
right, at its own expense, to be represented in any such action by counsel of
its own choice.

(b) Any costs and expenses relating to any enforcement action commenced pursuant
to this Section 4.4 shall be borne by the [*] the defense of such action. Any
damages or other amounts collected shall be first allocated to reimburse the
Parties for their costs and expenses in making such recovery (which amounts
shall be allocated pro rata if insufficient to cover the totality of such
expenses). Any remainder after such reimbursement is made shall be retained by
the Party that has exercised its right to control the defense of the action.

(c) In the event that a Party entitled to defend an infringement action does so
in accordance with this Section 4.4, the other Party shall cooperate fully,
including providing access to relevant documents and other evidence and making
its employees available at reasonable business hours. If a Party pursues the
defense of such an infringement action, it shall consider in good faith any
comments from the other Party and shall keep the other Party reasonably informed
of any steps taken to preclude such infringement.

4.5 Third Party Licenses. If, in the absence of a license from a Person, the
Manufacture of the Compound hereunder in accordance with the terms hereof
infringes or misappropriates any patent or any intellectual property right of
such Person, such that Glenmark or any of its Affiliates cannot Manufacture such
Compound without infringing the patent or intellectual property rights of such
Person, then [*] shall have the first right to take the lead on negotiating the
terms of each such license; provided that if [*] does not take such lead, then
[*] may do so; provided further that the negotiating Party shall obtain the
written consent of the other Party prior to entering into any such license, such
consent not to be unreasonably withheld, conditioned, or delayed. The Parties
shall negotiate in good faith an appropriate allocation of any royalties or
other payments to be made pursuant to any such license so as to reflect the
economic interests of the Parties under this Agreement with respect to the
Product.

ARTICLE V. REPRESENTATIONS AND WARRANTIES; COVENANTS

5.1 Representations and Warranties of Each Party. Each Party hereby represents
and warrants to the other Party as of the Effective Date as follows:

(a) Such Party (i) is duly formed and in good standing under the laws of the
jurisdiction of its formation, (ii) has the power and authority and the legal
right to enter into this Agreement and perform its obligations hereunder, and
(iii) has taken all necessary action on its part required to authorize the
execution and delivery of this Agreement and the performance of its obligations
hereunder. This Agreement has been duly executed and delivered on behalf of such
Party and constitutes a legal, valid and binding obligation of such Party and is
enforceable against it in accordance with its

 

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

 

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terms, subject to the effects of bankruptcy, insolvency or other similar laws of
general application affecting the enforcement of creditor rights and judicial
principles affecting the availability of specific performance and general
principles of equity, whether enforceability is considered a proceeding at law
or equity.

(b) All necessary consents, approvals and authorizations of all regulatory and
governmental authorities and other Persons required to be obtained by such Party
in connection with the execution and delivery of this Agreement and the
performance of its obligations hereunder have been obtained.

(c) The execution and delivery of this Agreement and the performance of such
Party’s obligations hereunder (i) do not and will not conflict with or violate
any requirement of applicable law or any provision of the articles of
incorporation, bylaws, limited partnership agreement or other similar documents
of such Party and (ii) do not and will not conflict with, violate, or breach, or
constitute a default or require any consent under, any contractual obligation or
court or administrative order by which such Party is bound.

5.2 Additional Warranties and Covenants of Glenmark. Glenmark hereby represents,
warrants and covenants to Salix that (a) neither Glenmark nor any of its
Affiliates has been debarred or is subject to debarment pursuant to Section 306
of the FFDCA or any similar law in any country in the Specified Territory or
listed on either Excluded List or any similar list in any country in the
Specified Territory and (b) neither Glenmark nor any of its Affiliates will use
in any capacity, in connection with the services to be performed under this
Agreement, any Person who has been debarred pursuant to Section 306 of the FFDCA
or any similar law in any country in the Specified Territory, or who is the
subject of a conviction described in such section, or listed on either Excluded
List; provided that, in each case ((a) and (b)), with respect to any such
similar laws or lists in any country in the Specified Territory other than the
United States, Salix has identified for Glenmark with specificity such law or
list. Glenmark shall inform Salix in writing immediately if it or, to its
knowledge, any Person who is performing services hereunder is debarred or is the
subject of a conviction described in Section 306 of the FFDCA or any similar law
in any country in the Specified Territory or listed on either Excluded List, or
if any action, suit, claim, investigation or legal or administrative proceeding
is pending or is threatened, relating to the debarment or conviction under
Section 306 of the FFDCA or any similar law in any country in the Specified
Territory, or listing on either Excluded List, of Glenmark or, to Glenmark’s
knowledge, any other Person performing services hereunder; provided that, with
respect to any such similar laws or lists in any country in the Specified
Territory other than the United States, Salix has identified for Glenmark with
specificity such law or list.

5.3 Disclaimer of Other Warranties. EXCEPT AS EXPRESSLY SET FORTH IN THIS
AGREEMENT, THE PARTIES MAKE NO REPRESENTATIONS AND EXTEND NO WARRANTIES OF ANY
KIND, EITHER EXPRESS OR

 

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IMPLIED, INCLUDING ANY WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE OR WARRANTY
OF MERCHANTABILITY.

ARTICLE VI. CONFIDENTIALITY

6.1 Confidential Information. Subject to the provisions of Sections 6.2 and 6.3,
at all times during the Term and for [*] years following the expiration or
termination of this Agreement, the Receiving Party (a) shall keep completely
confidential and shall not publish or otherwise disclose any Confidential
Information furnished to it by the Disclosing Party, except to those of the
Receiving Party’s employees, Affiliates, or consultants who have a need to know
such information to perform such Party’s obligations hereunder (and who shall be
advised of the Receiving Party’s obligations hereunder and who are bound by
confidentiality obligations with respect to such Confidential Information no
less onerous than those set forth in this Agreement) (collectively,
“Recipients”) and (b) shall not use Confidential Information of the Disclosing
Party directly or indirectly for any purpose other than performing its
obligations or exercising its rights hereunder. The Receiving Party shall be
jointly and severally liable for any breach by any of its Recipients of the
restrictions set forth in this Agreement.

6.2 Exceptions to Confidentiality. The Receiving Party’s obligations set forth
in this Agreement shall not extend to any Confidential Information of the
Disclosing Party:

(a) that is or hereafter becomes part of the public domain by public use,
publication, general knowledge or the like through no wrongful act, fault or
negligence on the part of a Receiving Party or its Recipients;

(b) that is received from a third party without restriction and without breach
of any agreement between such third party and the Disclosing Party;

(c) that the Receiving Party can demonstrate by competent evidence was already
in its possession without any limitation on use or disclosure prior to its
receipt from the Disclosing Party; provided, however, that this exception shall
not apply with respect to any information or materials regarding the Compound
that are provided to Glenmark by Salix under this Agreement;

(d) that is generally made available to third parties by the Disclosing Party
without restriction on disclosure; or

(e) that the Receiving Party can demonstrate by competent evidence was
independently developed by the Receiving Party.

 

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

 

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6.3 Disclosure.

(a) Each Party may disclose Confidential Information to the extent that such
disclosure is:

(i) made in response to a valid order of a court of competent jurisdiction or
other governmental body of a country or any political subdivision thereof of
competent jurisdiction; provided, however, that the Receiving Party shall first
have given notice to the Disclosing Party and given the Disclosing Party a
reasonable opportunity to quash such order or to obtain a protective order
requiring that the Confidential Information or documents that are the subject of
such order be held in confidence by such court or governmental body or, if
disclosed, be used only for the purposes for which the order was issued; and
provided further that if a disclosure order is not quashed or a protective order
is not obtained, the Confidential Information disclosed in response to such
court or governmental order shall be limited to that information that is legally
required to be disclosed in such response to such court or governmental order;
or

(ii) otherwise required by law or regulation, in the opinion of counsel to the
Receiving Party.

(b) Salix may disclose Confidential Information to the extent that such
disclosure is made to Regulatory Authorities as required in connection with any
filing, application or request for Regulatory Approval; provided, however, that
reasonable measures shall be taken to assure confidential treatment of such
information.

6.4 Notification. The Receiving Party shall notify the Disclosing Party
immediately, and cooperate with the Disclosing Party as the Disclosing Party may
reasonably request, upon the Receiving Party’s discovery of any loss or
compromise of the Disclosing Party’s Confidential Information.

6.5 Remedies. Each Party agrees that the unauthorized use or disclosure of any
information by the Receiving Party in violation of this Agreement will cause
severe and irreparable damage to the Disclosing Party. In the event of any
violation of this Article V, the Receiving Party agrees that the Disclosing
Party shall be authorized and entitled to obtain from any court of competent
jurisdiction injunctive relief, whether preliminary or permanent, without the
necessity of proving irreparable harm or monetary damages, as well as any other
relief permitted by Applicable Law. The Receiving Party agrees to waive any
requirement that the Disclosing Party post bond as a condition for obtaining any
such relief.

6.6 Use of Names. Neither Party shall mention or otherwise use the name,
insignia, symbol, trademark, trade name or logotype of the other Party (or any
abbreviation or adaptation thereof) in any publication, press release,
promotional material or other form of publicity without the prior written
approval of such other Party in each instance. The restrictions imposed by this
Section 6.6 shall not prohibit either Party from making any disclosure
identifying the other Party that is required by applicable law;

 

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provided, however, that reasonable measures shall be taken to assure
confidential treatment of such information.

6.7 Press Releases. Except as expressly provided in Section 6.3, neither Party
shall make a press release or other public announcement regarding this
Agreement, the terms hereof or the transactions contemplated hereby without the
prior written approval of the other Party. Each Party shall provide the other
with the proposed text of any such press release or public announcement for
review and approval, which approval shall not be unreasonably withheld,
conditioned or delayed, as early as possible, but in no event less than four
(4) business days in advance of the publication, communication or dissemination
thereof; provided, however, that the receiving Party shall be deemed to have
approved any such press release or public announcement if it fails to notify the
proposing Party in writing of any objections to such press release or public
announcement within three (3) business days after receipt by the receiving Party
of the text of such public announcement.

ARTICLE VII. TERM AND TERMINATION

7.1 Term. This Agreement shall commence as of the Effective Date and, unless
earlier terminated in accordance with the terms hereof, shall expire on the
tenth (10th) anniversary of the Effective Date, unless extended for additional
two (2) year periods, at Salix’s option, upon written notice given by Salix to
Glenmark not less than six (6) months prior to the expiration of the
then-current term (the “Term”).

7.2 Termination. In addition to any other provision of this Agreement expressly
providing for termination of this Agreement, this Agreement may be terminated as
follows:

(a) Salix may terminate this Agreement immediately upon notice to Glenmark in
the event that Regulatory Authorities cause the withdrawal of any Product from
any national market in the Territory.

(b) Upon the termination of the Napo-Glenmark Agreement, Glenmark may terminate
this Agreement upon eighteen (18) months’ prior written notice to Salix.

(c) This Agreement may be terminated by either Party:

(i) immediately upon written notice if the other Party shall (a) file in any
court or agency pursuant to any statute or regulation of any state, country or
jurisdiction a petition in bankruptcy or insolvency or for reorganization or for
arrangement or for the appointment of a receiver or trustee of that Party or of
its assets, (b) propose a written agreement of composition or extension of its
debts, (c) be served with an involuntary petition against it, filed in any
insolvency proceeding, and such petition shall not be dismissed within sixty
(60) days after the filing thereof, (d) propose or be a party to any dissolution
or liquidation, (e) make makes an assignment for the benefit of its creditors,
or (f) admit in writing its inability generally to pay its debts as they fall
due in the general course;

 

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(ii) immediately upon written notice in the event of any material breach by the
other Party in the performance of any of its obligations herein contained that
has not been cured by the defaulting Party within thirty (30) days after
receiving written notice thereof from the non-breaching Party;

(iii) upon at least thirty (30) days’ prior written notice to the other Party in
the event that any Person sells, offers for sale, or distributes an unauthorized
generic version of the Compound or any Product in any national market in the
Territory (such event, an “Other Product Entry”), which notice of termination,
if given, must be given within thirty (30) days after the Other Product Entry;
or

(iv) immediately upon written notice in the event that, as a result of an order
of government or any other official authority, the continued operation of this
Agreement in its entirety or in substantial part is prevented or delayed for an
unspecified and indeterminate period.

7.3 Effect of Expiration or Termination.

(a) The expiration or earlier termination of this Agreement shall be without
prejudice to any rights or obligations of the Parties that may have accrued
prior to such termination, and the provisions of Section 4.1, Articles VI, VIII
and IX, and this Section 7.2(c)(i) shall survive the expiration or termination
of this Agreement. Except as otherwise expressly provided herein, termination of
this Agreement in accordance with the provisions hereof shall not limit remedies
that may otherwise be available at law or in equity.

(b) Upon expiration or earlier termination of this Agreement, each Party, at the
request of the other, shall return all data, files, records and other materials
in its possession or control containing or comprising the other Party’s
Confidential Information except that the legal department of such Party may
retain one copy for archival purposes.

(c) Upon expiration or earlier termination of this Agreement, other than
pursuant to Section 7.2(b)(i), at Salix’s option and sole cost and expense,
Glenmark shall use its commercially reasonable efforts promptly to assist Salix
to qualify such Third Party Manufacturer designated by Salix to Manufacture such
Compound, and provide, to such Third Party Manufacturer such technical
assistance, as Salix may reasonably request and such Third Party Manufacturer
may reasonably require in order to Manufacture the Compound provided that the
technical assistance is for no more than [*] (equal to [*] work hours each). [*]
shall also promptly grant to such Third Party Manufacturer a Third Party
Manufacturer License, provided that Salix shall compensate [*] in the manner set
forth in Schedule 2.5(d), subject to all of the limitations set forth in such
Schedule including the limitation with respect to the [*] year duration of such
obligations and Schedule 1.31, Section III.

 

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

 

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(d) Subject to Section 7.3(f), upon termination of this Agreement for any
reason, (i) Glenmark immediately shall cease all Manufacturing of the Compound
pursuant to this Agreement, (ii) all submitted but unfilled Purchase Orders
automatically shall be cancelled, and (iii) Glenmark promptly shall return any
remaining Salix-Supplied Material to Salix or its designee.

(e) Subject to Glenmark’s continuing right to make Compound and use the Compound
Equipment, in the event of termination of this Agreement by Glenmark pursuant to
7.2(b), Glenmark shall continue to supply Compound to Salix pursuant to the
terms of this Agreement for [*] months following the date of notice of
termination; provided that, notwithstanding Section 2.2, Salix shall have the
right to submit a revised Forecast promptly after the date Salix receives notice
of such termination from Glenmark; provided further that Salix may elect, upon
[*] months’ prior written notice to Glenmark, to extend such period for [*]
periods, and shall have the right, notwithstanding Section 2.2, to submit a
revised Forecast together with such notice. Thereafter, upon the mutual written
agreement of the Parties, such period may be extended for an additional [*]
months. In addition, if there is no Third Party Manufacturer that has been
approved by the FDA and is referenced in Salix’s Regulatory Documentation in
respect of the Product that is supplying Compound to Salix as of the date of
notice of such termination, then (i) Salix shall use commercially reasonable
efforts to qualify a Third Party Manufacturer and (ii) Glenmark shall use
commercially reasonable efforts to assist Salix in qualifying a Third Party
Manufacturer in accordance with Section 2.22, in each case ((i) and (ii)),
within [*] months of the date of notice of such termination.

(f) For purposes of clarification, termination of this Agreement does not
preclude Glenmark from manufacturing Compound for its own use and the use of its
Affiliates and Glenmark may continue to use Compound Equipment so long as
Glenmark continues to compensate Salix in accordance with Section 2.8(c);
provided that Glenmark shall have the option, in its sole discretion, to
purchase the Scale-Up Equipment from Salix at such Scale-Up Equipment’s fair
market value as agreed by the Parties. If Glenmark does not exercise its option,
(i) Salix shall have the first right to remove the Scale-Up Equipment from the
Facility at Salix’s sole cost and expense; and (ii) if Salix does not remove the
Scale-Up Equipment from the Facility, Glenmark may have the Scale-Up Equipment
removed from the Facility at Salix’s sole cost and expense.

ARTICLE VIII. INDEMNIFICATION

8.1 Glenmark Indemnification. Glenmark shall indemnify Salix, its Affiliates and
its and their respective directors, officers, employees and agents (the “Salix
Indemnified Parties”), and defend and hold each of them harmless, from and
against any and all Third Party claims, lawsuits, losses, damages, liabilities,
penalties, costs and expenses (including reasonable attorneys’ fees and
disbursements) (collectively, “Losses”) incurred by any of them in connection
with, arising from or occurring as a result of Glenmark’s gross negligence or
willful misconduct in the performance of this

 

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

 

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Agreement, except, in each case, for those Losses for which Salix has an
obligation to indemnify the Glenmark Indemnified Parties pursuant to
Section 8.2, as to which Losses each Party shall indemnify the other Party to
the extent of its respective liability for such Losses.

8.2 Salix Indemnification. Salix shall indemnify Glenmark, its Affiliates and
its and their respective directors, officers, employees and agents (the
“Glenmark Indemnified Parties”), and defend and save each of them harmless, from
and against any and all Losses incurred by any of them in connection with,
arising from or occurring as a result of (a) any Third Party Claim made by any
Person that the Manufacture and supply of the Compound in accordance with the
terms hereof infringes, misappropriates or otherwise violates the patent,
trademark or other intellectual property rights of such Person, (b) any Third
Party Claim made by any Person relating to or arising out of death, personal
injury, or other product liability, related to the marketing, sale, distribution
or use of the Compound or the Product, and (c) the gross negligence or willful
misconduct of Salix or its subcontractors or agents, except, in each case, for
those Losses for which Glenmark has an obligation to indemnify the Salix
Indemnified Parties pursuant to Section 8.1, as to which Losses each Party shall
indemnify the other Party to the extent of its respective liability for such
Losses.

8.3 Indemnification Procedure.

(a) Notice of Claim. The indemnified party (the “Indemnified Party”) shall give
the indemnifying Party (the “Indemnifying Party”) prompt written notice (an
“Indemnification Claim Notice”) of any Losses or discovery of facts upon which
such Indemnified Party intends to base a request for indemnification under
Section 8.1 or 8.2, but in no event shall the Indemnifying Party be liable for
any Losses that result from any delay in providing such notice. Each
Indemnification Claim Notice must contain a description of the claim and the
nature and amount of such Loss (to the extent that the nature and amount of such
Loss are known at such time). The Indemnified Party shall furnish promptly to
the Indemnifying Party copies of all papers and official documents received in
respect of any Losses.

(b) Third Party Claims. The obligations of an Indemnifying Party under this
Article VIII with respect to Losses arising from claims of any third Person that
are subject to indemnification as provided for in Section 8.1 or 8.2 (a “Third
Party Claim”) shall be governed by and be contingent upon the following
additional terms and conditions:

(i) Control of Defense. At its option, the Indemnifying Party may assume the
defense of any Third Party Claim by giving written notice to the Indemnified
Party within thirty (30) days after the Indemnifying Party’s receipt of an
Indemnification Claim Notice. The assumption of the defense of a Third Party
Claim by the Indemnifying Party shall not be construed as an acknowledgment that
the Indemnifying Party is liable to indemnify any Indemnified Party in respect
of the Third Party Claim, nor shall it constitute a waiver by the Indemnifying
Party of any defenses it may assert against any Indemnified Party’s claim for
indemnification. Upon assuming

 

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the defense of a Third Party Claim, the Indemnifying Party may appoint as lead
counsel in the defense of the Third Party Claim any legal counsel selected by
the Indemnifying Party, which shall be reasonably acceptable to the Indemnified
Party. In the event the Indemnifying Party assumes the defense of a Third Party
Claim, the Indemnified Party shall immediately deliver to the Indemnifying Party
all original notices and documents (including court papers) received by any
Indemnified Party in connection with the Third Party Claim. Subject to
Section 8.3(b)(ii), if the Indemnifying Party assumes the defense of a Third
Party Claim, the Indemnifying Party shall not be liable to the Indemnified Party
for any legal expenses subsequently incurred by such Indemnified Party in
connection with the analysis, defense or settlement of the Third Party Claim. In
the event that it is ultimately determined that the Indemnifying Party is not
obligated to indemnify, defend or hold harmless a Salix Indemnified Party or
Glenmark Indemnified Party, as applicable, from and against the Third Party
Claim, the Indemnified Party shall reimburse the Indemnifying Party for any and
all costs and expenses (including attorneys’ fees and costs of suit) and any
Losses incurred by the Indemnifying Party in its defense of the Third Party
Claim with respect to such Salix Indemnified Party or Glenmark Indemnified
Party, as applicable.

(ii) Right to Participate in Defense. Without limiting Section 8.3(b)(i), any
Indemnified Party shall be entitled to participate in, but not control, the
defense of such Third Party Claim and to employ counsel of its choice for such
purpose; provided, however, that such employment shall be at the Indemnified
Party’s own expense unless (A) the employment thereof has been specifically
authorized by the Indemnifying Party in writing, (B) the Indemnifying Party has
failed to assume the defense and employ counsel in accordance with
Section 8.3(b)(i) (in which case the Indemnified Party shall control the
defense), or (C) the interests of the Indemnified Party and the Indemnifying
Party with respect to such Third Party Claim are sufficiently adverse to
prohibit the representation by the same counsel of both parties under applicable
law, ethical rules or equitable principles.

(iii) Settlement. With respect to any Losses relating solely to the payment of
money damages in connection with a Third Party Claim and that will not result in
the Indemnified Party’s becoming subject to injunctive or other relief or
otherwise adversely affect the business of the Indemnified Party in any manner,
and as to which the Indemnifying Party shall have acknowledged in writing the
obligation to indemnify the Indemnified Party hereunder, the Indemnifying Party
shall have the sole right to consent to the entry of any judgment, enter into
any settlement or otherwise dispose of such Loss, on such terms as the
Indemnifying Party, in its sole discretion, shall deem appropriate. With respect
to all other Losses in connection with Third Party Claims, where the
Indemnifying Party has assumed the defense of the Third Party Claim in
accordance with Section 8.3(b)(i), the Indemnifying Party shall have authority
to consent to the entry of any judgment, enter into any settlement or otherwise
dispose of such Loss; provided that it obtains the prior written consent of the
Indemnified Party (which consent shall not be unreasonably withheld, conditioned
or delayed). The Indemnifying Party shall not be liable for any settlement or
other disposition of a Loss by an Indemnified Party that is reached without the
written consent of the Indemnifying Party. Regardless of whether the
Indemnifying Party chooses to defend or prosecute any

 

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Third Party Claim, no Indemnified Party shall admit any liability with respect
to, or settle, compromise or dispose of, any Third Party Claim without the prior
written consent of the Indemnifying Party (which consent shall not be
unreasonably withheld, conditioned or delayed).

(iv) Cooperation. If the Indemnifying Party chooses to defend or prosecute any
Third Party Claim, the Indemnified Party shall cooperate in the defense or
prosecution thereof and shall furnish such records, information and testimony,
provide such witnesses and attend such conferences, discovery proceedings,
hearings, trials and appeals as may be reasonably requested in connection
therewith. Such cooperation shall include access during normal business hours
afforded to the Indemnifying Party to, and reasonable retention by the
Indemnified Party of, records and information that are reasonably relevant to
such Third Party Claim, and making employees and agents available on a mutually
convenient basis to provide additional information and explanation of any
material provided hereunder, and the Indemnifying Party shall reimburse the
Indemnified Party for all its reasonable out-of-pocket expenses in connection
therewith.

(v) Expenses. Except as provided above, the reasonable and verifiable costs and
expenses, including fees and disbursements of counsel, incurred by the
Indemnified Party in connection with any Third Party Claim shall be reimbursed
on a calendar quarter basis in arrears by the Indemnifying Party, without
prejudice to the Indemnifying Party’s right to contest the Indemnified Party’s
right to indemnification and subject to refund in the event the Indemnifying
Party is ultimately held not to be obligated to indemnify the Indemnified Party.

8.4 Insurance.

(a) Salix shall maintain (i) comprehensive general liability insurance written
on an occurrence basis with a combined single limit for bodily injury and
property damage of not less than [*] United States Dollars ($[*]) and
(ii) product liability/completed operations coverage with a per claim limit of
not less than [*] United States Dollars ($[*]) (together, the “Salix Policies”).

(b) Glenmark shall maintain (i) comprehensive general liability insurance in the
amount of [*] United States Dollars ($[*]) and (ii) public liability insurance
in the amount of [*] United States Dollars ($[*]) (collectively, the “Glenmark
Policies”).

(c) The Policies shall (i) be provided by an insurance carrier(s) acceptable to
the other Party and (ii) show the other Party as additional named insured and
loss payee, as its interests may appear. Certificates of insurance for the
Policies shall be furnished to the other Party within ten (10) days after the
Effective Date. The Policies shall remain in effect throughout the Term of this
Agreement and shall not be canceled or

 

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

 

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subject to a reduction of coverage or any other modification without the prior
written authorization of the other Party.

8.5 Limitation on Damages.

(a) EXCEPT WITH RESPECT TO THE GROSS NEGLIGENCE OR INTENTIONAL MISCONDUCT OF A
PARTY, NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY FOR SPECIAL, EXEMPLARY
OR CONSEQUENTIAL DAMAGES, INCLUDING BUSINESS INTERRUPTION OR LOST PROFITS,
WHETHER IN CONTRACT, WARRANTY, NEGLIGENCE, TORT, STRICT LIABILITY OR OTHERWISE.

(b) EXCEPT FOR EACH PARTY’S RESPECTIVE INDEMNIFICATION OBLIGATIONS SET FORTH IN
SECTIONS 8.1 AND 8.2, EACH PARTY’S TOTAL LIABILITY UNDER THIS AGREEMENT SHALL IN
NO EVENT EXCEED THE TOTAL FEES PAID BY SALIX TO GLENMARK DURING THE TERM OF THIS
AGREEMENT; PROVIDED, HOWEVER, THAT GLENMARK’S LIABILITY FOR RECALLS PURSUANT TO
SECTION 2.17 SHALL IN NO EVENT EXCEED THE PURCHASE PRICE RECEIVED BY GLENMARK
FOR THE BATCH(ES) GIVING RISE TO SUCH LIABILITY.

ARTICLE IX. MISCELLANEOUS

9.1 Notices. All notices, requests and other communications hereunder must be in
writing, specifically reference this Agreement in a prominent manner, and be
delivered personally, by electronic mail (i.e., E-mail) with delivery receipt
requested or by recognized international courier, to the Parties at the
following addresses or E-mail addresses:

If to Salix to:

Salix Pharmaceuticals, Inc.

1700 Perimeter Park Drive

Morrisville, North Carolina 27560

Attention: AVP, Pharmaceutical Development and Manufacturing

E-mail: Joseph.Lockhart@Salix.com

with copies (which will not constitute notice) to:

Salix Pharmaceuticals, Inc.

1700 Perimeter Park Drive

Morrisville, North Carolina 27560

Attention: General Counsel

E-mail: Mark.Reeth@Salix.com

and

 

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Covington & Burling LLP

1201 Pennsylvania Avenue, N.W.

Washington, D. C. 20004

Attention: Edward C. Britton, Esq.

E-mail: ebritton@cov.com

If to Glenmark to:

Glenmark Pharmaceuticals Ltd.

B/2, Mahalaxmi Chambers

22, Bhulabhai Desai Road

Mumbai-400 026

India

Attention: Glenn Saldanha

E-mail: glenn_saldanha@glenmarkpharma.com

with a copy (which will not constitute notice) to:

Glenmark Pharmaceuticals Ltd.

B/2, Mahalaxmi Chambers

22, Bhulabhai Desai Road

Mumbai-400 026

India

Attention: Rajesh Desai

E-mail: rajesh_desai@glenmarkpharma.com

All such notices, requests and other communications will (a) if delivered
personally to the address as provided in this Section, be deemed given upon
receipt, (b) if delivered by electronic mail to the E-mail address as provided
in this Section 9.1, be deemed given on the next regular business day in the
jurisdiction of receipt, and (c) if delivered by courier to the address as
provided in this Section 9.1, be deemed given upon receipt. Any Party from time
to time may change its address, E-mail address or other information for the
purpose of notices to that Party by giving notice specifying such change to the
other Party hereto.

9.2 Force Majeure. Neither Party shall be liable for delay in delivery or
nonperformance in whole or in part (other than a failure to pay any amount due
hereunder), nor shall the other Party have the right to terminate this Agreement
except as otherwise specifically provided in this Section 9.2, where delivery or
performance has been affected by a condition beyond such Party’s reasonable
control, including fires, floods, embargoes, shortages, epidemics, quarantines,
war, acts of war (whether war be declared or not), terrorism, insurrections,
riots, civil commotion, strikes, lockouts or other labor disturbances, acts of
God or acts, omissions or delays in acting by any governmental authority;
provided that the Party affected by such a condition shall, within ten (10) days
of its occurrence, give notice to the other Party stating the nature of the

 

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condition, its anticipated duration and any action being taken to avoid or
minimize its effect. The suspension of performance shall be of no greater scope
and no longer duration than is reasonably required and the nonperforming Party
shall use its commercially reasonable efforts to remedy its inability to
perform. Notwithstanding the foregoing, in the event the suspension of
performance continues for [*] days after the date of the occurrence, and such
failure to perform would constitute a material breach of this Agreement in the
absence of such force majeure event, the non-affected Party may terminate this
Agreement immediately by written notice to the affected Party.

9.3 Entire Agreement; Amendment. This Agreement, together with the Schedules and
Exhibits attached hereto, sets forth and constitutes the entire agreement and
understanding between the Parties with respect to the subject matter hereof and
all prior agreements, understandings, promises and representations, whether
written or oral, with respect thereto are superseded hereby. Each Party confirms
that it is not relying on any representations or warranties of the other Party
except as specifically set forth herein. No amendment, modification, release or
discharge shall be binding upon the Parties unless in writing and duly executed
by authorized representatives of both Parties.

9.4 Further Assurances. Each Party shall duly execute and deliver, or cause to
be duly executed and delivered, such further instruments and do and cause to be
done such further acts and things, including the filing of such assignments,
agreements, documents and instruments as may be necessary or as the other Party
may reasonably request in connection with this Agreement or to carry out more
effectively the provisions and purposes hereof or to better assure and confirm
unto such other Party its rights and remedies under this Agreement.

9.5 Successors and Assigns. The terms and provisions hereof shall inure to the
benefit of, and be binding upon, Salix, Glenmark and their respective successors
and permitted assigns.

9.6 Dispute Resolution. Any dispute, controversy or claim arising out of or
relating to this Agreement or the breach, termination or validity thereof (each,
a “Dispute”), shall be referred to a senior executive of each Party; provided
that each such senior executive is not involved in such Dispute. Such senior
executives shall meet for attempted resolution of such Dispute by good faith
negotiations within thirty (30) days after such Dispute is referred to such
senior management employees. In the event such senior management employees are
not able to resolve such Dispute within such thirty (30) day period, then, at
the election of either Party, such Dispute shall be decided by litigation. Any
such litigation shall be pursued in accordance with Section 9.7; provided that
any dispute regarding the validity, scope, enforceability, inventorship or
ownership of intellectual property rights shall be submitted by either Party to
a court of competent jurisdiction in the country in which such rights apply.

9.7 Governing Law; Jurisdiction; Venue; Service.

 

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

 

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(a) This Agreement shall be governed and interpreted in accordance with the law
of the State of New York, excluding any conflicts or choice of law rule or
principle that might otherwise refer construction or interpretation of this
Agreement to the substantive law of another jurisdiction. The Parties agree to
exclude the application to this Agreement of the United Nations Convention on
Contracts for the International Sale of Goods.

(b) Subject to Section 9.6, each Party irrevocably and unconditionally consents
to the exclusive jurisdiction of the courts of general jurisdiction of the State
of New York and the United States District Court for the Southern District of
New York sitting in the Borough of Manhattan (collectively, the “Courts”) for
any action, suit or proceeding (other than appeals therefrom) concerning any
matter arising out of or relating to this Agreement, and agrees not to commence
any action, suit or proceeding (other than appeals therefrom) related thereto
except in such Courts.

(c) Each Party hereto further hereby irrevocably and unconditionally waives any
objection to the laying of venue of any action, suit or proceeding (other than
appeals therefrom) arising out of or relating to this Agreement in the Courts
and hereby further irrevocably and unconditionally agrees not to raise any
objection at any time to the laying or maintaining of the venue of any such
action, suit or proceeding in any of such Courts, irrevocably waives any claim
that such action, suit or other proceeding has been brought in an inconvenient
forum and further irrevocably waives the right to object, with respect to such
action, suit or other proceeding, that such Court does not have any jurisdiction
over such Party.

(d) Each Party hereto further agrees that, to the maximum extent permitted by
Applicable Law, service of any process, summons, notice or document by
registered mail to its address and contact person for notices provided for in
Section 9.1 shall be effective service of process for any action, suit or
proceeding brought against it under this Agreement in any of the Courts.

9.8 Third Party Beneficiaries. Nothing in this Agreement shall be construed as
giving any person, firm, corporation or other entity, other than the Parties
hereto and their successors and permitted assigns, any right, remedy or claim
under or in respect of this Agreement or any provision hereof.

9.9 Export Control. This Agreement is made subject to any restrictions
concerning the export of products or technical information from the United
States or other countries that may be imposed on the Parties from time to time.
Each Party agrees that it will not export, directly or indirectly, any technical
information acquired from the other Party under this Agreement or any products
using such technical information to a location or in a manner that at the time
of export requires an export license or other governmental approval, without
first obtaining the written consent to do so from the appropriate agency or
other governmental entity in accordance with Applicable Law.

9.10 Assignment. Except as expressly provided herein, neither Party may, without
the prior written consent of the other Party, sell, transfer, assign, delegate,

 

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pledge, subcontract or otherwise dispose of, whether voluntarily, involuntarily,
by operation of law or otherwise, this Agreement or any of its rights or duties
hereunder; provided, however, (a) Salix may, without the prior written consent
of Glenmark, assign this Agreement and its rights and obligations hereunder to
the purchaser or sublicensee of Salix’s rights in and to the Compound or any
Product and (b) either Party may, without the prior written consent of the other
Party, assign this Agreement and its rights and obligations hereunder to any of
its Affiliates or the purchaser of all or substantially all of its assets or to
any successor entity or acquirer in the event of a merger, consolidation or
change in control of such Party. Any attempt to assign, transfer, subcontract or
delegate any portion of this Agreement in violation of this Section shall be
null and void. All validly assigned and delegated rights and obligations of the
Parties hereunder shall be binding upon and inure to the benefit of and be
enforceable by and against the successors and permitted assigns of Salix or
Glenmark, as the case may be. In the event either Party assigns or delegates its
rights or obligations to another Person in accordance with the terms hereof, the
assignee or transferee shall assume all obligations of its assignor or
transferor under this Agreement and the assignor or transferor shall cease to be
a party to this Agreement and shall cease to have any rights or obligations
under this Agreement from and after the effective date of such assignment.
Notwithstanding the foregoing, no such assignment or delegation shall relieve
the assignor or transferor of any of its obligations hereunder. Notwithstanding
anything to the contrary herein, Glenmark may not subcontract or delegate any of
its obligations under this Agreement to any Person without the prior written
consent of Salix, which consent shall not be unreasonably withheld, conditioned
or delayed.

9.11 Waiver. Any term or condition of this Agreement may be waived at any time
by the Party that is entitled to the benefit thereof, but no such waiver shall
be effective unless set forth in a written instrument duly executed by or on
behalf of the Party waiving such term or condition. No waiver by either Party of
any term or condition of this Agreement, in any one or more instances, shall be
deemed to be or construed as a waiver of the same or any other term or condition
of this Agreement on any future occasion.

9.12 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 shall be fully severable,
(b) this Agreement shall 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 shall remain in full force and effect and shall 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 shall be added automatically as a part of this Agreement a
legal, valid and enforceable provision as similar in terms to such illegal,
invalid or unenforceable provision as may be possible and reasonably acceptable
to the Parties herein.

9.13 Independent Contractors. The status of the Parties under this Agreement
shall be that of independent contractors. Nothing in this Agreement is intended
or shall be deemed to constitute a partnership, agency, employer, employee, or
joint venture

 

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relationship between the Parties. Neither Party shall have the right to enter
into any agreements on behalf of the other Party, nor shall it represent to any
Person that it has any such right or authority.

9.14 Construction. Unless the context of this Agreement otherwise requires:
(a) words of any gender include each other gender; (b) words using the singular
or plural number also include the plural or singular number, respectively;
(c) the terms “hereof,” “herein,” “hereby” and derivative or similar words refer
to this entire Agreement; (d) the terms “Article,” “Section,” “Schedule,”
“Exhibit” or “clause” refer to the specified Article, Section, Schedule, Exhibit
or clause of this Agreement; (e) the term “or” has, except where otherwise
indicated, the inclusive meaning represented by the phrase “and/or”; (f) the
term “including” or “includes” means “including without limitation” or “includes
without limitation”; and (g) references to any agreement, instrument or other
document in this Agreement refer to such agreement, instrument or other document
as originally executed or, if subsequently amended, replaced or supplemented
from time to time, as so amended, replaced or supplemented and in effect at the
relevant time of reference thereto. Whenever this Agreement refers to a number
of days, such number shall refer to calendar days unless business days are
specified. The captions of this Agreement are for convenience of reference only
and in no way define, describe, extend, or limit the scope or intent of this
Agreement or the intent of any provision contained in this Agreement. The
language of this Agreement shall be deemed to be the language mutually chosen by
the Parties and no rule of strict construction shall be applied against either
Party.

9.15 Remedies. The rights and remedies provided herein are cumulative and do not
exclude any other right or remedy provided by applicable law or otherwise
available except as expressly set forth herein.

9.16 Counterparts; Facsimile Execution. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original, and all
of which, taken together, shall constitute one and the same instrument. Delivery
of an executed counterpart of a signature page of this Agreement (and each
amendment, modification and waiver in respect of it) by facsimile or other
electronic transmission shall be as effective as delivery of a manually executed
original counterpart of each such instrument.

9.17 English Language. This Agreement shall be written and executed in, and all
other communications under or in connection with this Agreement shall be in, the
English language. Any translation into any other language shall not be an
official version thereof, and in the event of any conflict in interpretation
between the English version and such translation, the English version shall
control.

 

42

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9.18 Attorneys’ Fees. If a Party is determined to be in breach of this Agreement
by a court of competent jurisdiction, such Party shall be responsible to the
prevailing Party for any and all reasonable out-of-pocket expenses, including
attorneys’ fees and court costs actually incurred by the prevailing Party by
reason of its enforcement and protection of its rights under this Agreement, as
determined by such court.

[The remainder of this page has been intentionally left blank.]

 

43

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

 

SALIX PHARMACEUTICALS, INC.     GLENMARK PHARMACEUTICALS LTD By:   /s/ Carolyn
J. Logan     By:   /s/ Rajesh Desai Name:   Carolyn J. Logan     Name:   Rajesh
Desai Title:   President and CEO     Title:   Director Finance & Legal

Napo hereby acknowledges and consents to this Agreement.

 

NAPO PHARMACEUTICALS, INC. By:   /s/ Lisa Conte Name:   Lisa Conte Title:   CEO

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Schedule 1.6

Capped Price

$ [*]/gram

 

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

 

2

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Schedule 1.17

Current Capacity

Glenmark’s Current Capacity is based on a [*] for purification and fractionation
of the Compound.

The Current Capacity permits up to [*] cycles per month to be run that produce
[*] kg of Compound per cycle, or [*] kg per year.

 

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

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Schedule 1.31

Fully-Allocated Manufacturing Costs

As used in this Agreement, “Fully-Allocated Manufacturing Costs” (“FAMC”) means:

I. FAMC includes the costs of all direct materials, direct labor and
manufacturing overhead consumed, provided or procured by a manufacturing
facility in the manufacture of the Compound, together with appropriate:
(i) allowances for manufacturing variances, (ii) inventory carrying charges, and
(iii) adjustments for inventory valuations as calculated using International
Financial Reporting Standards (“IFRS”). To the extent calculation under IFRS is
limited due to Glenmark’s current books and records, Glenmark agrees to use
Glenmark’s then current standard procedures and methodology for such
calculation, consistently applied. Further, Glenmark agrees to use commercially
reasonable efforts to apply IFRS calculation as soon as practicable. Costs
associated with unused capacity or downtime shall not be included in determining
FAMC, and FAMC shall not include [*] and other [*] or [*] or [*] or [*]. Also
not included in the FAMC costs is the [*] (defined above).

For such purposes:

A. Direct material costs include:

1. The cost of [*] (i.e., [*], etc. to the extent [*] and [*] and more
appropriately captured by Item I.C.2. (below), [*] and other [*] used in the
production of a Compound.

2. [*] and [*] (exclusive of [*] in excess of [*] for Compound.)

B. Direct labor costs include:

1. [*] and [*] for [*].

C. Manufacturing overhead is limited to costs that can be identified in a
practical manner with specific units of production in accordance with IFRS but
cannot be included in specific direct material or direct labor costs. Such
overhead costs may include:

1. [*], including, but not limited to, [*] (e.g., [*] and [*] (e.g., [*] and [*]
and [*] and [*] (excluding [*]) and [*] with respect to the Compound at the
Facility.

2. [*] which reflects on a [*] in the manufacture of the Compound at the
Facility.

 

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

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3. [*], including [*], including [*] and [*] (including [*] and [*] relating to
[*] and [*]), [*], and other [*] in connection with the Manufacture of the
Compound at the Facility.

4. [*] and other [*] or [*] to Manufacture the Compound at the Facility.

D. Allowances for manufacturing variances, including yield variances within GMP
tolerances.

E. Allowances for adjustments to inventory, valuation, including reasonable
charges for spoilage, expiration of shelf life and like charges related to the
Compound Manufactured at the Facility.

F. Property and sales taxes on shipment and warehousing related to finished
goods.

II. FAMC does not include:

A. [*]

B. [*]

C. [*]

C. [*]

D. Costs associated with the [*] and the [*], including, without limitation, the
costs of [*] and other [*].

E. [*]

F. [*]

G. [*]

III. Adjustments for Glenmark Inventions

In the event that (a) any Glenmark Inventions come into existence during the
Term, (b) such Glenmark Inventions result in a reduction of the then-current
FAMC, and (c) Salix has the Compound Manufactured using such Glenmark
Inventions, then the FAMC shall be increased by an amount equal to [*] percent
([*]%) of the amount of any such reduction in FAMC (the “Markup Amount”) if such
Manufacture is performed by Glenmark. If such Manufacture is performed by a
Third Party Manufacturer pursuant to a Third Party Manufacturer License,

 

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

 

2

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then the markup set forth in Section (B) of Schedule 2.5(d) shall be increased
by the [*].

 

 

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

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

Schedule 1.40

Glenmark Territory

[*]

 

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

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

Schedule 1.81

Specifications

Compound-Related Specifications

[*]

 

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

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

[*]

 

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

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

CPL-Related Specifications

[*]

 

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

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

Schedule 1.88

Third Party Manufacturer License

A Third Party Manufacturer License shall be a non-exclusive license to use the
Glenmark Inventions and the Glenmark Information solely for the purpose to
Manufacture the Compound for supply to Salix.

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Schedule 2.2(c)

Full Production Lot Sizes

[*]

 

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

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

Schedule 2.5(c)

Fixed Price

$[*]/gram

 

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

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

Schedule 2.5(d)

Compensation to Glenmark for Use of

Third Party Manufacturer

In the event that Salix uses a Third Party Manufacturer at any time during the
Term of this Agreement from the Effective Date until the [*] anniversary
thereof, Salix shall compensate Glenmark for any such use as follows:

(A) So long as Glenmark is ready, willing and able to supply Salix’s full
requirement for Compound, Salix may purchase Compound from a Third Party
Manufacturer without any markup so long as Salix purchases no more than [*]
([*]%) of its total requirements for Compound from the Third Party Manufacturer;

(B) If Glenmark is ready, willing and able to supply Salix’s full requirements
for Compound and Salix purchases Compound from a Third Party Manufacturer for
more than [*] ([*]%) of its total requirements for Compound from the Third Party
Manufacturer, Salix shall pay Glenmark a markup of [*] ([*]%) of the purchase
price paid to the Third Party Manufacturer for the quantities in excess of [*]
percent ([*]%);

(C) If Glenmark is unable to supply Compound to Salix, Salix may purchase any
quantities of Compound from a Third Party Manufacturer such quantities of
Compound that Glenmark is unable to supply to Salix without any markup, so long
as Glenmark’s inability to supply is not the direct result of Salix’s breach of
its obligations under this Agreement or Salix’s willful misconduct. In such
event, Glenmark may resume supply of Compound to Salix for at least [*] percent
([*]%) of Salix’s full requirements of Compound, if Glenmark provides Salix’s
with [*] months’ prior written notice of its intention to resume supply of
Compound from Glenmark for at least [*] percent ([*]%) of Salix’s full
requirements of Compound. Salix shall resume its relationship with Glenmark in
such capacity as soon as practicable; provided that Salix has fulfilled its
purchase requirement to its Third Party Manufacturer, which in no event shall be
more than [*] months from receipt of such notice by Salix from Glenmark.

(D) If Glenmark’s inability to supply is the result of Salix’s breach of its
obligations under this Agreement or Glenmark’s willful misconduct, then Salix is
obligated to pay a markup in accordance with the terms of Section (B) above.

 

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

 

Exhibit A – Page 2 of 2

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Schedule 2.8(c)

Compound Equipment Usage

Costs for usage of the Compound Equipment shall be based on depreciation of the
Compound Equipment on a pro rata basis over the reasonably estimated life of the
Compound Equipment and use of the Compound Equipment in the Manufacture of
Compound for the performance of the Glenmark Activities.

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Exhibit A

Example of Scale-Up Plan

[*]

 

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

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

CROFELEMER SCALE-UP KEY EQUIPMENT ESTIMATES (EXAMPLE)

[*]

 

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