Document:

exv10w22

 

Exhibit 10.22

DISTRIBUTION AGREEMENT

     This Wholesale Distribution Agreement (this “Agreement”) is made as of
this 27th day of September 2001, between Guilford Pharmaceuticals Inc., a
Delaware corporation (“GPI’) and National Specialty Services, Inc., a Tennessee
corporation (“Wholesale Specialty Distributor”).

BACKGROUND

     GPI is a manufacturer of pharmaceutical products, including, without
limitation, the products set forth on Exhibit A attached hereto (as amended
from time to time, the “Products”).

     Wholesale Specialty Distributor is a wholesale distributor of specialty
pharmaceutical products.

     GPI wants to engage Wholesale Specialty Distributor and Wholesale
Specialty Distributor wants to be engaged by GPI to distribute the Products in
the territory set forth on Exhibit B (the “Territory”) on the terms and subject
to the conditions set forth in this Agreement.

     NOW, THEREFORE, in consideration of the forgoing, and of other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound, hereby agree
as follows:

1. APPOINTMENT OF WHOLESALE SPECIALTY DISTRIBUTOR.

     GPI appoints Wholesale Specialty Distributor as a non-exclusive
distributor of the Products in the Territory on the terms and subject to the
conditions set forth in this Agreement.

2. OBLIGATIONS OF GPI.

     2.01. PURCHASE OF PRODUCTS. GPI shall sell to Wholesale Specialty
Distributor the Products indicated on any purchase order provided by Wholesale
Specialty Distributor to GPI at the price or prices indicated on Exhibit A.

     2.02. TAXES. The parties acknowledge that the per unit prices indicated on
Exhibit A are exclusive of federal, state, and local excise, sales, use and
other taxes now or hereafter levied or imposed on the Products, the shipment,
delivery, ownership, possession, or resale of the Products, on this Agreement,
or on any activities hereunder (collectively, “Taxes”). GPI shall not have any
obligation to pay or collect Taxes on account of sales of the Products by
Wholesale Specialty

 

 

Distributor (except to the extent such Taxes are on account
of the net income of GPO. The collection and payment of Taxes (except as set
forth in the preceding sentence) shall be the obligation of Wholesale Specialty
Distributor in accordance with the terms of Section 7.03.

     2.03. SHIPMENT OF PRODUCTS. GPI shall ship the Products purchased by the
Wholesale Specialty Distributor pursuant to any purchase order to Wholesale
Specialty Distributor at the following address: 556 Metroplex Drive, Nashville,
Tennessee 37211, or such other address as Wholesaler shall indicate on the
purchase order.

     2.04. TRANSFER OF TITLE; RISK OF LOSS. Shipment of Products shall be
F.O.B. Wholesaler Specialty Distributor’s facility. Risk of loss and title to
the Products purchased by Wholesale Specialty Distributor under any purchase
order shall pass to the Wholesale Specialty Distributor upon delivery to
Wholesale Specialty Distributor at Wholesaler Specialty Distributor’s facility.

     2.05. DROP SHIPMENTS. If at any time Wholesale Specialty Distributor does
not have sufficient inventory of the Products to fill orders for the Products
from its customers or Wholesale Specialty Distributor otherwise determines that
it is in the best interests of its customers, Wholesale Specialty Distributor
may request that GPI ship the Products purchased by Wholesale Specialty
Distributor pursuant to a purchase order directly from GPI’s distribution
facility to Wholesale Specialty Distributor’s customers (each a “Drop
Shipment”). GPI may honor requests to make a Drop Shipment in its sole and
absolute discretion. Risk of loss and title to the Products in each Drop
Shipment shall remain with GPI until delivery to Wholesale Specialty
Distributor’s customers.

     2.06. SHIPMENT INSTRUCTIONS. The method of transportation and routing of
all shipments, including Drop Shipments shall be in accordance with Exhibit C.

     2.07. INVOICES. GPI shall invoice Wholesale Specialty Distributor for the
Products purchased pursuant to any applicable purchase order on the shipment
date for such Products. Delivery of all quantities of Products referred to in
GPI’ s invoice shall be deemed to have been made in full, unless within seven
(7) days from the date of receipt of the Product Wholesale Specialty
Distributor notifies GPI that it has not received the ordered quantities of the
Products.

3. OBLIGATION OF WHOLESALE SPECIALTY DISTRIBUTOR.

     3.01. SALES BY WHOLESALE SPECIALTY DISTRIBUTOR. Wholesale Specialty
Distributor shall not knowingly sell any Products to customers that sell or
intend to sell the Products outside of the Territory. Unless Wholesale
Specialty

 

 

Distributor has obtained the prior written authorization of GPI,
Wholesale Specialty Distributor shall not knowingly sell any Products to
customers who sell or intend to sell the Products on a wholesale or
distribution basis.

     3.02. PROMOTION BY WHOLESALE SPECIALTY DISTRIBUTOR. Wholesale Specialty
Distributor shall actively promote the sale and use of the Products to its
customers through methods customarily employed by Wholesale Specialty
Distributor with regard to the other products carried by Wholesale Specialty
Distributor. Wholesale Specialty Distributor shall include each new Product and
any new sizes and/or dosage forms of existing Products in any routine
distribution plan operated by Wholesale Specialty Distributor during the term
of this Agreement.

     3.03. PAYMENT BY WHOLESALE SPECIALTY DISTRIBUTOR. Wholesale Specialty
Distributor shall pay for all regular orders purchased by Wholesale Specialty
Distributor in accordance with the payment terms set forth on Exhibit D. Drop
Shipments shall be deemed to be purchases of the Products by the Wholesale
Specialty Distributor and Wholesale Specialty Distributor shall be responsible
for the payment of any invoices with respect to any Drop Shipment. All invoices
must be paid in full under the terms specified on Exhibit D.

     3.04. FINANCIAL AND CREDIT POSITION. Wholesale Specialty Distributor shall
maintain a financial condition reasonably satisfactory to GPI, and shall
substantiate such condition with annual audited consolidated financial
statements or with other documentation as reasonably requested by GPI from time
to time. If, in GPI’ s sole determination, at any time during the term of this
Agreement, the financial condition of the Wholesale Specialty Distributor
becomes impaired or unsatisfactory, GPI may require that Wholesale Specialty
Distributor pay for its purchases of Products in advance by cash payment or
require Wholesale Specialty Distributor to provide other assurances for the
payment or such Products.

     3.05. ORDERING. Wholesale Specialty Distributor shall transmit purchase
orders for the Products to GPI either direct via EDT, facsimile, or telephone.
If orders for products are placed by facsimile or telephone, they shall be
placed to the following numbers: (615) 287-2355 (facsimile); and (866) 405-9038
(telephone).

     3.06. PURCHASE OF PRODUCTS. Wholesale Specialty Distributor shall purchase
the Products exclusively from GPI according to the terms of this Agreement.
Wholesale Specialty Distributor shall not be permitted to purchase the Products
from sources other than GPI (including, but not limited to, other wholesalers)
without GPI’s prior written consent. Wholesale Specialty Distributor shall not
knowingly purchase or attempt to purchase Products that have previously been
exported or are designated for non-United States sales.

 

 

     3.07. MAINTENANCE OF INVENTORY. If requested by GPI, Wholesale Specialty
Distributor shall use commercially reasonable efforts to, from and after the
date of such request, maintain sufficient inventory of the Products to promptly
and adequately supply the demand of its customers, subject in all cases to the
manufacturing capabilities of GPI.

     3.08. SALES SUPPORT SERVICES. Wholesale Specialty Distributor shall
provide sales support services for the Products as well as the order-taking and
delivery services sufficient to meet the reasonable needs of customers for the
Products.

     3.09. SALES REPORTS. ON A MONTHLY BASIS, WHOLESALE SPECIALTY. Distributor
shall report to GPI information regarding its sales of the Products in the form
set forth on Exhibit B.

     3.10. SPECIAL CONTRACT PRICING. Wholesale Specialty Distributor shall
honor any pricing arrangements agreed to between GPI and GPI Marketed Customers
(“Special Contract Pricing”), subject to the continued validity of such Special
Contract Pricing in accordance with applicable law. Wholesale Specialty
Distributor’s Standard Policy on Chargebacks (a copy of which is incorporated
herein as Exhibit H (the “Chargeback Policy”)) will govern the administration
of the Special Contract Pricing under this Agreement.

     3.11. COMPLIANCE WITH LAWS. Wholesale Specialty Distributor shall take all
necessary precautions to prevent the Products from being possessed, used,
handled, distributed or sold by those who may not lawfully possess, use,
handle, distribute or sell the Products, and Wholesale Specialty Distributor
will fully comply with local, state, and federal laws regarding possession,
use, distribution, sale and safe handling of the Products. Wholesale Specialty
Distributor shall maintain all federal, state and local registrations necessary
for the lawful handling of the Products and shall promptly notify GPI of any
denial, revocation or suspension of any such registration.

     3.12. PROPER HANDLING AND STORAGE. Wholesale Specialty Distributor shall
handle and store the Products in a clean and orderly location, in a manner
which will assure that the proper rotation and quality of the Products are
maintained, and in compliance with all federal, state and local laws and
regulations. Wholesale Specialty Distributor shall comply with GPI criteria on
storing and shipping the Products that require special handling, as provided to
Wholesale Specialty Distributor from time to time. Wholesale Specialty
Distributor shall allow GPI TO inspect its storage facilities during normal
business hours, upon GPI providing at least seven (7) days advance notice to
Wholesaler. Wholesale Specialty Distributor shall in no way or manner be
permitted to repackage the Products.

 

 

Wholesale Specialty Distributor shall
notify GPI promptly of any changes in the appearance of any of the Products or
the packaging of the Products.

     3.13. NO SUBSTITUTIONS. Wholesale Specialty Distributor shall fill orders
for the Products only with the Products. Wholesale Specialty Distributor shall
not substitute any orders for the Products with products other than the
Products.

     3.14. CHANGE OF CONTROL. Wholesale Specialty Distributor shall notify GPI
of any change in address, at least thirty (30) days prior to the date on which
such change in address is to occur.

     3.15. ADVERSE EVENT AND PRODUCT COMPLAINT REPORTING. Wholesale Specialty
Distributor shall forward to GPI any information the Wholesale Specialty
Distributor obtains from a customer regarding Adverse Events or Product
Complaints (as each term is defined below). The customer reporting the Adverse
Event or Product Complaint shall be instructed to call a GPI representative by
calling GPI’s toll free hot line at (877) 691-6020, or such other number or
numbers provided to Wholesale Specialty Distributor by GPI. For the purposes of
this Agreement, “Adverse Event” means any adverse reaction associated with the
use of a Product in humans, whether or not considered product related and
whether or not confirmed by a health professional. The term “associated with
the use of product” is not limited to a causal relationship of the reported
event to the Product, and may include (i) an Adverse Event occurring in the
course of the use of a Product in professional practice, (ii) an adverse event
occurring from abuse of a Product, (iii) an adverse event occurring from the
withdrawal of a Product, (iv) any significant failure of expected
pharmacological action. For the purposes of this Agreement, a “Product
Complaint” means a claim or expression of displeasure, dissatisfaction or
annoyance with a Product, Product related materials or Product related
information. A Product Complaint may or may not involve a formal charge or
accusation. A Product Complaint may be related to, among other things,
identity, purity, potency, safety or quality of the product. Notwithstanding
the definition of Product Compliant, if the complaint involves a medical event
in a patient, it is regarded as an Adverse Event.

4. SPECIAL CONTRACT PRICING. From time to time, GPI may request that Wholesale
Specialty Distributor fulfill orders of the Products from its inventory to
customers for which GPI was the sole marketer of the Products (“GPI Marketed
Customers”). If GPI has quoted a GPI Marketed Customer a price for any Product
that is lower than the price for such Product set forth on Exhibit A (for such
Products), then GPI shall reimburse to Wholesale Specialty Distributor the
difference between the price quoted to the GPI Marketed Customer and the price
paid by the Wholesale Specialty Distributor for the Product, if the Wholesale
Specialty Distributor fulfills the GPI Marketed Customer’s order for the
Product out

 

 

of its inventory. Such reimbursement may, at the election of GPI,
be in the form of credits to Wholesale Specialty Distributor against future
purchases of products.

5. RECALLS. GPI shall reimburse Wholesale Specialty Distributor, consistent
with HDMA standards, for the full amount of all reasonable costs and expenses
incurred by Wholesaler in connection with Wholesale Specialty Distributor’s
performance of any recall services or assistance relating to the Products;
provided that, such recall is not due to Wholesale Specialty Distributor’s
gross negligence, willful misconduct or illegal conduct. Wholesale Specialty
Distributor will be credited for Products returned to GPI due to recalls of the
Products at the Wholesale Specialty Distributor’s purchase price for the
Products, calculated on a first-in, first-out basis. All shipping expenses for
recalled Product, both for shipments from Wholesale Specialty Distributor’s
customers to Wholesale Specialty Distributor and for shipments from Wholesale
Specialty Distributor to GPI, shall be the sole responsibility of GPI, unless
such recall is due to Wholesale Specialty Distributor’s gross negligence,
willful misconduct or illegal conduct.

6. WARRANTY; INDEMNITY; LIMITATION OF LIABILITY; INSURANCE.

     6.01. WARRANTY; DISCLAIMER OF IMPLIED WARRANTIES. GPI warrants that the
Products are manufactured and distributed in accordance with the Food, Drug and
Cosmetic Act, as amended (the “Act”) and in accordance with Exhibit F. EXCEPT
AS SET FORTH IN THE PRECEDING SENTENCE, GPI MAKES NO WARRANTIES, EXPRESS OR
IMPLIED, INCLUDING, WITHOUT LIM1TATION, WARRANTIES AS TO MERCHANTABILITY OR
Fitness FOR A PARTICULAR PURPOSE, With RESPECT TO ANY OF THE PRODUCTS.

     6.02. INDEMNIFICATION. GPI shall defend, indemnify, and hold harmless
Wholesale Specialty Distributor and its parent, affiliates, directors,
officers, employees and representatives from and against any and all claims,
liabilities, losses, damages, costs, and expenses (including without limitation
reasonable attorneys’ fees) arising directly or indirectly out of:

          a. injury or death to person or property alleged to have been caused by
any defect in the Products (exclusive of defects shown to be attributable to
Wholesale Specialty Distributor’s negligence or gross misconduct (but only to
the extent of such negligence or gross misconduct) or breach of this
Agreement); or

          b. the manufacture, marketing, testing, shipping, sale, possession or use
of the Products, unless such claim, liability, loss, damage, cost or expense is
shown to be attributable to Buyer’s negligence (but only to the extent of such
negligence) or breach of this Agreement; or

 

 

          c. “class of trade” pricing, if any, maintained by GPI from and after the
effective date of this Agreement, including without limitation those arising
out of Wholesale Specialty Distributor’s administration of Special Contract
Pricing or GPI Marketed Customer pricing; or

          d. any intellectual property infringement actions (including patent,
trademark, service mark, copyright trade dress, trade secret and other
proprietary rights) brought by a third party in connection with Wholesale
Specialty Distributor’s distribution and sale of Products hereunder (except to
the extent caused by Wholesale Specialty Distributor’s breach of this
Agreement, negligence or other intentional conduct) or in connection with any
marketing materials or information provided to Wholesale Specialty Distributor
by GPI. provided that, in all cases that GPI has promptly been notified in
writing of such suit, claim, or proceeding and is given full and complete
authority (including settlement authority), by Wholesale Specialty Distributor
or its directors, employees or agents, information and assistance by Wholesale
Specialty Distributor for such defense; further provided, that no admission is
made by either party without the consent of the other party and its insurers.
GPI shall not be liable for legal expenses Wholesale Specialty Distributor
incurs prior to GPI’s receipt of written notice of a claim for indemnification
by Wholesale Specialty Distributor and the express acknowledgement by Wholesale
Specialty Distributor of GPI’s authority to defend such claim, suit or
proceeding. GPI shall not be liable for legal expenses Wholesale Specialty
Distributor incurs once GPI has received notice of a claim for indemnification
and GPI has assumed the defense thereof.

     6.03. LIMITATION OF LIABILITY. EXCEPT WITH REGARD TO CLAIMS MADE BY THIRD
PARTIES, IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR ANY
INCIDENTAL, INDIRECT OR CONSEQUENTIAL DAMAGES, INCLUDING, WITHOUT LIMITATION,
DAMAGES FOR LOST PROFITS OR LOST OPPORTUNITY COSTS, AS A RESULT OF ANY CLAIM
ASSERTED BY SUCH OTHER PARTY, WHETHER IN CONTRACT OR IN TORT, ARISING OUT OF OR
RELATED TO THIS AGREEMENT.

     6.04. INSURANCE.

     (A) During the term of this Agreement and thereafter as may be necessary
to cover claims associated with Products purchased by Wholesale Specialty
Distributor (whether before, during or after such term), GPI shall obtain, pay
for, and keep in full force and effect commercial general liability insurance,
with one or more reputable insurance carriers with a minimal rating by AM Best
of A- or its equivalent, (including coverage for product liability and personal
injury damages) with a per occurrence limit of not less than $10 million.
“National Specialty Services, Inc.” shall be designated as an additional
insured” under all such insurance policies,

 

 

and GPI shall deliver to Wholesale
Specialty Distributor certificates evidencing the existence and continuation of
such insurance at the execution of this Agreement and upon GPI’s periodic
renewal of such policy. Such insurance shall include a provision for at least
thirty (30) days prior written notice in Wholesale Specialty Distributor in the
event of cancellation or material reduction of coverage.

     (B) During the term of this Agreement and thereafter as may be necessary
to cover claims associated with the distribution of products supplied by GPI to
Wholesale Specialty Distributor (whether before, during, or after such term),
Wholesale Specialty Distributor shall obtain, pay for, and keep in full force
and effect commercial general liability insurance, with one or more reputable
insurance carriers with a minimal rating by AM Best of A- or its equivalent,
(including coverage for product liability and personal injury damages) with a
per occurrence limit of not less than $10 million. “Guilford Pharmaceuticals
Inc. “shall be designated as an “additional insured” under all such insurance
policies, and Wholesale Specialty Distributor, shall deliver to GPI
certificates evidencing the existence and continuation of such insurance at the
execution of this Agreement and upon wholesale specialty distributor’s periodic
renewal of such policy. Such insurance shall include a provision for at least
thirty (30) days prior written notice to GPI in the event of cancellation or
material reduction of coverage.

7. RETURNS; CREDITS; AND TAXES.

     7.01. RETURNS AND CREDITS. GPI will accept returns of the Products and,
where appropriate, credit Wholesale Specialty Distributor’s account, in
accordance with Exhibit G.

     7.02. TAXES. The collection and payment of all Taxes owed as a result of
the sale of any Products by Wholesale Specialty Distributor shall be the
responsibility of Wholesale Specialty Distributor.

     7.03 INVENTORY. If at any time during the term of this Agreement, GPI’s
published wholesale price for any Product is decreased, then GPI shall issue a
credit to Wholesale Specialty Distributor in an amount equal to the difference
between (a) the published wholesale acquisition price of Wholesale Specialty
Distributor’s then-current inventory of that Product as of the date Wholesaler
purchased that Product, and (b) the value of Wholesale Specialty Distributor’s
then-current inventory of that Product, determined using the decreased price
for all such inventory. For purposes of this section, “Wholesale Specialty
Distributor’s then-current inventory” shall include all inventory held in
Wholesale Specialty Distributor’s distribution centers, all Products owned by
Wholesale Specialty Distributor at any store owned or operated by a customer of
Wholesale Specialty Distributor and held by such customer on consignment, and
all Product “in transit” to or from such distribution centers on the effective
date of such price decrease. For Product owned by Wholesale

 

 

Specialty Distributor and held by customer on consignment, the amount is calculated as
the difference between (a) the lesser of the published wholesale acquisition
price or a customer chargeback contract price of Wholesale Specialty
Distributor’s then-current inventory of that Product at the customer location
and (b) the value of Wholesale Specialty Distributor’s then current inventory
of that Product at the customer’s location, determined using the new decreased
published wholesale acquisition price or customer chargeback contract price, as
applicable. Wholesale Specialty Distributor will use good-faith efforts to
notify GPI of the amount of any credit due pursuant to this section within one
hundred twenty (120) days following the effective date of such price decrease.

8. TERM

     8.01. TERM. The term of this Agreement shall commence on the date of this
Agreement and shall continue for a period of one (1) year from the date hereof
(the “Initial Term”). At the expiration of the Initial Term and each
anniversary thereafter, this Agreement shall renew automatically for successive
one-year terms (each a “Renewal Term”), unless either party notifies the other
party of its intention to terminate this Agreement at least thirty (30) days
prior to the expiration of the Initial Term or a Renewal Term, as the case may
be.

     8.02. TERMINATION. This Agreement may be terminated by the parties in the
following manner:

          a. Either party may terminate this Agreement immediately upon breach of
this Agreement by the other party if such breach remains uncured for fifteen
(15) days after written notice thereof, or the breaching party fails to
diligently pursue a cure if the breach is of a nature that it cannot be cured
in fifteen (15) days.

          b. Either party may terminate this Agreement without cause upon sixty (60)
days prior written notice thereof to the other party.

     8.03. EFFECT OF TERMINATION. Upon the termination or expiration of this
Agreement:

          a. Each party shall within thirty (30) days pay the other party all
amounts due under any invoice or credit memo; and

          b. Wholesale Specialty Distributor shall immediately return to GPI, in
accordance with any requirements of GPI, all Products in the possession of the
Wholesale Specialty Distributor and GPI shall credit the purchase price for
such Products to the amounts owed by Wholesale Specialty Distributor to GPI, if
any. The parties shall be permitted to offset amounts owed to each other
pursuant to this Section 8.03b.

 

 

          c. Section 8.03 and Sections 6 and 9.d shall survive the termination or
expiration of this Agreement until the obligations of the parties under these
Sections have been fully performed.

9. GENERAL PROVISIONS

          a. All orders are subject to acceptance and approval by GPI.

          b. Neither GPI nor Wholesale Specialty Distributor shall be liable to the
other for failing to carry out the terms of this Agreement where such failure
is the result of a strike or other labor disturbance, fire, flood, earthquake,
storm, governmental action, or other reason beyond its control.

          c. In the event there is a shortage of the Products, GPI shall have the
right and sole discretion to allocate the available Products among its
customers in a commercially reasonable manner which does not place Wholesale
Specialty Distributor at a competitive disadvantage.

          d. During the term of the Agreement, each party may find it necessary to
disclose confidential and proprietary information to the other (hereinafter
“Confidential Information”). The Confidential Information may include but is
not limited to pricing generally, Special Contract Pricing, Price quotations
for the Products by Wholesale Specialty Distributor or GPI, delivery schedules,
manufacturing schedules, sales amounts and sales figures. During the term of
this Agreement and for three (3) years thereafter, regardless of any
termination earlier than the expiration of the term of this Agreement, each
party shall maintain the Confidential Information in confidentiality and shall
not reveal the Confidential Information to third parties without the written
consent of the disclosing party, except as required by law. Each party shall
use the Confidential Information only for the purposes of this Agreement. These
restrictions shall not apply to Confidential Information that:

	 	(1)	 	is in the public domain at the time of disclosure;
	 
	 	(2)	 	after receipt, becomes part of the public domain by
publication or otherwise, except by breach of this Agreement by
the party receiving the Confidential Information;
	 
	 	(3)	 	the party receiving the Confidential Information can
establish by documenting evidence that it was in its possession
at the time of disclosure by the other party;

 

 

	 	(4)	 	the Confidential Information is in the possession of
the receiving party from third parties not under an obligation to
maintain its confidentiality;
	 
	 	(5)	 	is independently developed by or for the party
receiving the Confidential Information hereunder who have had no
access to such Confidential Information as shown by documenting
evidence; or
	 
	 	(6)	 	is required to be disclosed by law, by a judicial or
administrative order, or by a regulatory agency with appropriate
jurisdiction.

          e. This Agreement is the entire and only understanding between the parties
as to the subject matter hereof and supersedes all prior promises, agreements
or understandings between the parties. This Agreement may be changed or amended
only in a writing signed by duly authorized representatives of GPI and
Wholesale Specialty Distributor. All attachments and addenda to this Agreement
are hereby incorporated by reference.

          f. This Agreement, and any rights or obligations hereunder, shall not be
assigned by either party without the written consent of the other party, except
that either party may otherwise assign its respective rights and transfer its
respective duties to any assignee of all or substantially all of its business
(or that portion thereof to which this Agreement relates) or in the event of
its merger or consolidation or similar transaction. Either party may also sell
or assign any payments due hereunder.

          g. All notices, claims, certificates, requests, demands and other
communications hereunder shall be in writing and shall be delivered personally
or sent by facsimile transmission, nationally-recognized express courier, or
United States registered or certified mail, return receipt requested, addressed
as follows:

	 	 	 
	 	 	If to GPI, to:
	 
	 	 
	

	 	Guilford Pharmaceuticals Inc.
	

	 	6611 Tributary Street
	

	 	Baltimore, Maryland 21224
	

	 	A1TN: Kevin Conley
	

	 	Assistant Manager, Distribution & Customer Service
	

	 	Fax: 410-631-5020
	 
	 	 
	 	 	If to Wholesale Specialty Distributor:
	 
	 	 
	 	 	National Specialty Services, Inc.
	

	 	556 Metroplex Drive

 

 

	 	 	 	 
	 	 	Nashville, Tennessee 37211	 
	
	 	ATT’N:	 
	
	 	 	 
	
	 	Fax: 615-	 
	
	 	 	 

          h. This Agreement shall be construed in accordance with, and governed by,
the laws of the State of Delaware without regard to the conflicts of laws
provisions thereof.

          i. The parties shall be permitted to offset amounts owed to each other
pursuant to this Agreement.

          j. Each party shall comply with all federal, state and local laws and
regulations applicable to its operations, including but not limited to, those
dealing with employment opportunity and affirmative action including Executive
Order 11246 (Equal Opportunity), 38 U.S.C. Section 4212(a) (Affirmative Action
for Disabled Veterans and Veterans of the Vietnam Era), and 29 U.S.C. Section
793 (Affirmative Action for Workers with Disabilities), and any amendment and
applicable regulations pertaining thereto. In addition, each party shall comply
with all terms of 48 C.F.R. Section 52.244-6 (Subcontracts for Commercial Items
and Commercial Components) (including the requirement of including this
provision in subcontracts awarded under this contract), 15 U.S.C. Section 637
(d) (2) and (3) (Utilization of Small Business Concerns), and such provision is
hereby incorporated into this Agreement as if fully set forth herein. In
accordance with the provisions of 48 C.F.R. Section 52.209-6, each party
certifies that neither it nor its principals was or is debarred, suspended, or
proposed for debarment by the Federal Government. In addition, each party
represents and warrants that it complies with all federal, state, local and
other applicable laws, regulations, conventions or treaties prohibiting any
form of child labor or other exploitation of children in the manufacturing and
delivery of such party’s products or services.

          k. During the term of this Agreement, upon reasonable prior notice and
during normal business hours, either party shall be entitled to audit and
inspect those relevant records which are maintained by the other party in
direct connection with its performance under this Agreement; provided, however,
the audit or inspection shall be performed by bona tide, full-time employees of
the party conducting such audit or inspection and in no event shall any such
audit or inspection relate to any transaction or event which occurred more than
twelve months prior to the date of such audit or inspection. GPI chargeback
audits shall be governed by the additional terms and conditions contained in
the Chargeback Policy.

 

 

          l. The relationship among the parties is and shall be that of independent
contractors. This Agreement does not establish or create a partnership or joint
venture among the parties.

          m. If any part of this Agreement is determined to be invalid or declared
null and void by any court of competent jurisdiction, then such part will be
reformed, if possible, to conform to the law and, in any event, the remaining
part of this Agreement will remain in full force and effect.

     IN WITNESS WHEREOF, the parties hereto have executed this Wholesaler
AGREEMENT as of the date set forth above.

	 	 	 	 
	 	 	GUILFORD PHARMACEUTICALS INC.	 
	 
	 	 	 
	 	 	By:     /s/ David P. Wright	 
	
	 	 	 
	
	 	Name: David P. Wright	 
	
	 	 	 
	
	 	Title: EVP, Commercial Operations	 
	
	 	 	 
	 
	 	 	 
	 	 	NATIONAL SPECIALTY SERVICES, INC.	 
	 
	 	 	 
	 	 	By:     /s/ David J. Canniff	 
	
	 	 	 
	
	 	Name: David J. Canniff	 
	
	 	 	 
	
	 	Title: Vice President	 
	
	 	 	 

 

 

EXHIBIT A — PRODUCTS AND PRICES

    	 	 	 
	Product
          
	
	Price

	
	 	

	GLlADEL®
            Wafer 
	
	$10,583.04 per unit

	
	 	

 

 

EXHIBIT B — TERRITORY

United States of America

 

 

EXHIBIT C — HANDLING AND SHIPPING

GLIADEL® Wafer Specifications (NDC 61379-0100-1)

GLIADEL® is available in a single dose treatment box containing eight
individually pouched wafers. Each wafer contains 7.7 mg of carraustine
and is packaged in two aluminum foil laminate packages. The inner
pouch is sterile and is designed to maintain product sterility and
protect the product from moisture. The outer pouch is a peelable
overlap. The outside surface of the outer pouch is not sterile.

The single dose treatment box dimensions L x W x Thickness
are 6” x 53” x 1.5”.

GLIADEL® must be stored at or below
-20° C (-4° F).

A shipping container that is appropriate for dry ice and the safe
transportation of GLIADEL® Wafer such as Part No. 68-4LB manufactured
by Polyfoam Packers should be used. GPI MAKES NO REPRESENTATION OR
WARRANTY REGARDING ANY SHIPPING CONTAINER WHETHER MANUFACTURED BY
POLYFOAM PACKERS OR OTHERWISE.

GLIADEL® Wafer is fragile and must be handled with care.

 

 

EXHIBIT D — TERMS OF PAYMENT

Wholesale Specialty Distributor will be entitled to a three percent
(3%) discount if the balance is paid within thirty (30) days of the
invoice date; a two percent (2%) discount if the balance is paid
within sixty (60) days of the invoice date; and a one percent (1%)
discount if the balance is paid within ninety (90) days of the
invoice date. All balances most be paid within ninety-one (91) days
of the invoice date. Late fees will accrue at one percent (1%) per
month on unpaid balances outstanding more than ninety-one (91) days.

 

 

EXHIBIT E- SALES REPORTING CRITERIA

All sales data must be forwarded electronically to Guilford Pharmaceuticals
no later than ten (10) days past the last day of the prior month. The data can
be sent in either a Microsoft Excel or Microsoft Access Database format but
must include the following data fields:

    	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	

	Account
          
	 	Address 	 	City 	 	ST. 	 	Zip 	 	Jan 	 	Feb 	 	Mar 	 	Q1 	 	Apr 	 	May 	 	Jun 	 	Q2 	 	Jul 	 	Aug 	 	Sep 	 	Q3 	 	Oct 	 	Nov 	 	Dec 	 	Q4
	Name 
	 	 	 	 	 	 	 	 	 	Units 	 	Units 	 	Units 	 	Units 	 	Units 	 	Units 	 	Units 	 	Units 	 	Units 	 	Units 	 	Units 	 	Units 	 	Units 	 	Units 	 	Units 	 	Units
	

 

 

EXHIBIT F — PRODUCT WARRANTIES

See GLIADEL® Wafer package insert attached hereto.

 

 

EXHIBIT G

  
GUILFORD

    PHARMACEUT1CALS
  
Credit & Return Policy GLADEL®
    Wafer Treatments
  

	•	 	Guilford Pharmaceuticals Inc. (“GPI”) will accept for return
        GLIADEL® Wafer Treatment(s) from a licensed pharmacy, authorized
        distributor and /or wholesaler on the following conditions: GPI will only
        accept returns of complete GLIADEL®  Wafer Treatments which are in their original packaging with the lot number visible.
	 
	•	 	GPI will credit to a customer’s account amounts charged for In-dated
        GLIADEL® Wafer Treatments that have been sent to a customer in error,
        provided that the customer notifies GPI within 48 hours of receiving the
        treatment(s), that the treatment(s) were received in error, the "cold
        chain" has been maintained by the customer and the treatment(s) are
        shipped back to GPI the same day in which the "return packet"
        has been provided to the customer account by GPI. A return packet contains
        instructions, packaging materials and a cold chain maintenance verification
        letter. 
	 
	•	 	GPI will replace any GLIADEL® Wafer Treatment(s) that were damaged
        in shipment, or found to have wafers broken in more than 2 pieces,
        provided that, the customer notifies GPI’s Customer Service
        Department (1-866-405-9038) within 48 hours of opening the treatment box(es)
        that the Treatment(s) were damaged and identifies the number of damaged
        treatments and the lot numbers thereof.
	 
	•	 	GPI will replace GLIADEL® Wafer Treatment(s) that are expired,
        provided that, the treatment(s) are in their sealed original packaging
        with lot number visible, the expiration date is within 12 months
        of the date that the treatments are returned to GPI, and GPI’s Customer
        Service Department is notified before the treatments are returned to GPI.

A GLIADEL® Wafer Treatment consists of eight GLIADEL® Wafers. All returns
must be approved by GPI’s Customer Service Department Except as set forth
above, upon receipt by GPI of a
returned GLIADEL® Wafer Treatment, GPI will, at GPI’s sole discretion, either
send the customer a new GLIADEL® Wafer Treatment or credit the customer the
amount of the purchase price for the returned treatment.

 

 

EXHIBIT H — WHOLESALER’S CHARGEBACK POLICY

  
NATIONAL SPECIALTY SERVICES, INC.

STANDARD POLICY ON CHARGEBACKS

     The following represents the standard policy of National Specialty
Services, Inc. (“NSS”) pertaining to the sale of product under contract
(“chargebacks”) between NSS’ customers and supplier (“Supplier”) and the
processing and audits of chargebacks, as well as certain related matters.
Depending upon the individual facts and circumstances associated with a
Supplier’s administrative procedures for chargeback related matters (e.g. the
extent of use of EDI, electronic funds transfer, and other factors that
contribute to or detract from NSS’s ability to efficiently deal with
chargeback matters), NSS reserves the right to modify any or all of the
following terms and
conditions.

I. Chargeback Processing

  
     NSS will
    recognize and administer contracts between Suppliers and customers pursuant
    to which prices at which the customer may purchase certain products have been
    established, subject to the continued validity of such contracts in accordance
    with applicable law and Supplier’s compliance with NSS’s standard
    policy and credit considerations deemed relevant to NSS. Amounts owed to NSS
    by Suppliers relating to chargebacks shall be calculated based upon the wholesale
    acquisition price of Supplier’s product at date of sale, and shall be
    paid, or credited, as appropriate, to NSS. within seven (7) days following
    NSS’s submission of a request for such amounts. In the event that NSS
    notifies Supplier that chargeback amounts owed by Supplier to NSS exceed amounts
    owed by NSS to Supplier (a “Debit Balance”) Supplier will remit
    payment for chargebacks to NSS by check or wire transfer until such time that
    NSS notifies Supplier that it is no longer in a Debit Balance. Chargeback
    reconciliation issues shall be resolved as soon as practicable with each party
    responding to the other within sixty (60) days following receipt of documentation
    supporting those issues.
  
II. Supplier Chargeback Audits

     The Supplier shall have the right to audit NSS’ compliance with the
respective contracts in force and related chargeback matters subject to the
following terms and conditions:

	A.	 	Chargeback audits will be limited to twelve (12) months
of historical information as of the
date such audit begins.
	 
	B.	 	NSS shall have a reciprocal twelve (12) month period to
reconcile any differences that may
arise with Supplier related to chargeback issues (including
submission and other errors and
regardless of whether such issues arise as part of a Supplier
chargeback audit).
	 
	C.	 	Supplier shall notify NSS’ Controller of an intent to perform an
        audit at least thirty (30) days prior to beginning the audit, specifying
        the location to be audited and the time period to be covered. In the event
        that such timing is expected to create undue disruption in NSS’ business,
        NSS shall have the right to delay the start of the audit for up to thirty
        (30) additional days.
	 
	D.	 	Audits must be performed by bona fide, permanent employees
of Supplier,
        subject to a confidentiality agreement to be prepared by NSS and signed
        by the Supplier and such employee(s), prior to beginning the audit.
	 
	E.	 	Audits shall be performed at the NSS site that
is being audited, or such alternate sites where appropriate
records are located, as NSS may designate.

 

 

	F.	 	Audits shall be performed during the normal,
customary office hours of the NSS site that is being audited.
	 
	G.	 	The existing accounting records of the NSS site
being audited will be made available for audit, subject to
the following limitations:

	1.	 	Electronic data will not be specially created.
	 
	2.	 	NSS reserves the right to summarize and/or retract the
contents of all records
containing sensitive or competitive information.

	H.	 	NSS will bill Supplier for any direct out-of-pocket
costs incurred in conjunction with a Supplier-requested audit,
unless such audit reflects a deficiency of five percent (5.0%)
or greater of the actual amount of the invoice submitted over
the audit period. Amounts billed will be deducted from NSS’
next payment for current purchases, after completion of the
audit.
	 
	I.	 	Any Supplier claims arising from an audit must be
supported by specific audit results related to specific
transactions. Extrapolation of results from one period to
another will not be accepted.
	 
	J.	 	Any Supplier claims arising from an audit must be
submitted to NSS’ Controller within thirty (30) days of
completing the audit. All claims must be accompanied by
specific supporting details of the transactions that comprise
such claim. NSS shall then have forty-five (45) days to review
the claim and advise Supplier of its acceptance or
disagreement.

IV. Related Matters

	A.	 	NSS shall be entitled to cash discounts based on the
gross invoice price of all goods purchased from Supplier,
regardless of whether a chargeback is ultimately claimed by
NSS.
	 
	B.	 	Supplier shall provide NSS with a chargeback advance
to cover credit exposure of unsecured credit granted to
Supplier by NSS for chargeback claims and to help effect the
carrying costs involved in the chargeback process, subject to
the following terms and conditions:

	1.	 	The chargeback advance shall be not less
than an amount equal to one (1) month of
chargeback billings based on an average of the most recent
six- (6) months of billings.
	 
	2.	 	On a quarterly basis, NSS will reconcile
the amount of the advance against the six- (6)
month average billings. If the amount of the advance
exceeds the six- (6) month
average billings, NSS shall include the amount of such
excess in the next payment
made to Supplier. If the amount of the advance is less than
the six- (6) month average,
NSS will deduct the amount of such shortfall from the next
payment for current
purchases.

 

 

  
EXHIBIT I MARKETING FEE 

GPI will pay Wholesale
Specialty Distributor a quarterly marketing fee equal
to 1.25% of purchases by Wholesale Specialty Distributor. The marketing fee
will be furnished to Wholesale Specialty Distributor for conducting three (3)
marketing services campaigns per calendar year. Marketing Fee to be paid by
check within thirty (30) days from the end of then current quarter.

In order for Wholesale Specialty
Distributor to conduct such telemarketing
and direct mail campaigns, GPI shall provide to Wholesale Specialty
Distributor marketing materials and/or information regarding the Products
for Wholesale Specialty Distributor’s use. Wholesale Specialty Distributor
will use the marketing material only in the form provided by GPI. GPI hereby
grants to Wholesale Specialty Distributor permission and a license to use
such marketing materials and/or information and all trademarks, copyrights
or other intellectual property rights included in such marketing materials
and/or information for such purposes.

GPI warrants and represents that all
marketing materials and/or other
information provided to Wholesale Specialty Distributor complies with the
Federal Food, Drug and Cosmetic Act, as amended, and all other applicable
laws, rules and regulations and does not infringe on any third party’s
intellectual property right (including, but not limited to, patent,
trademark, service mark, copyright, trade dress, trade secret). GPI further
warrants and represents and shall ensure that all marketing materials and
other information submitted to Wholesale Specialty Distributor shall comply
with FDA promotional and advertising regulations and guidance documents
including but limited to the fact that said material shall be fair balanced,
accurate and complete. Furthermore, said marketing materials and information
shall not contain any claims for a product other than those specifically
approved by the FDA (or other applicable agency) or included in the
Product’s approved labeling. For prescription drug products, full
prescribing information shall be provided and be included with all promotion
and advertising where claims are being made. Also, GPI shall inform
Wholesale Specialty Distributor if any changes occur in such marketing
material and/or other information so that said marketing material(s) and
other information continue to remain compliant with applicable laws and
regulations. To the extent that there is a requirement to make submissions
of promotional and marketing material to the FDA or other applicable
agencies, GPI shall provide said material to those agency(ies).

GPI shall defend, indemnify and hold harmless Wholesale Specialty Distributor
and its parent, affiliates, directors, officers, employees and
representatives from and against any and all claims, liabilities, losses,
damages, costs, and expenses (including without limitation, reasonable
attorneys’ fees) brought by a third party and arising directly or indirectly
out of any marketing materials or other information provided by GPI
hereunder.<PAGE>

                                                                   EXHIBIT 10.37

THIS DEBENTURE HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS.

No. B1-                                                        U.S. $___________
                                                            ___________ __, 2004

                                     FORM OF
                    SECURED SUBORDINATED SERIES B1 DEBENTURE
                              DUE FEBRUARY 19, 2008

         THIS SERIES B1 DEBENTURE is one of a duly authorized issue of secured
subordinated debentures of NATURAL SODA HOLDINGS, INC., a Colorado corporation,
having a principal place of business at 20971 E. Smoky Hill Rd., Centennial, CO
80015 (Tel: (720) 876-2373; Fax: (720) 876-2374) (the "Company"), designated as
its Secured Subordinated Secured Series B1 Debentures, due February 19, 2008
(the "Secured Series B1 Debentures"), in an aggregate principal amount of
$11,300,000 plus accrued but unpaid interest. This Series B1 Debenture is
purchased by Sentient Executive GP I, Limited, on behalf of the General Partner
of Sentient Global Resources Fund I, L.P., pursuant to the terms of the
Debenture Purchase Agreement.

Capitalized words used in this Series B1 Debenture not defined in the preceding
paragraph are defined in Section 1, below.

         FOR VALUE RECEIVED, the Company promises to pay to the Holder: (i) on
or before the Maturity Date (a) the principal sum stated above; (b) interest to
the Holder on the principal sum at the Rate per annum from the date hereof
payable quarterly in arrears beginning June 30, 2004 ("Interest"); and (ii)
Contingent Interest, if owed. Interest shall be calculated for the actual number
of days elapsed for any period less than a full quarter. The principal of,
Interest and Contingent Interest on, this Series B1 Debenture are payable in
such coin or currency of the United States of America as at the time of payment
is legal tender for payment of public and private debts, at the address of the
Holder last appearing on the Company's records on the date such amounts become
due.

         This Series B1 Debenture is subject to the terms of the Debenture
Purchase Agreement and the Securityholder Agreement and the following additional
provisions.

         Section 1. Definitions. For the purposes hereof, the following terms
shall have the following meanings:

         "Adjusted EBITDA" means the earnings of Natural Soda, Inc. (calculated
         in accordance with generally accepted accounting principles,
         consistently applied) (A) before any deduction for (i) interest, taxes,
         depreciation, writedowns, revaluations and amortization and (ii)
         payments to the Company for payment by the Company of the Management
         Cost and Reimbursement Agreement dated as of the date hereof, and (B)
         but including amortization of well-field capital expense.

Series B1 Debenture

                                       1
<PAGE>

         "Business Day" means any day except Saturday, Sunday and any day which
         shall be a legal holiday or a day on which banking institutions in the
         State of Colorado are authorized or required by law or other government
         action to close.

         "Collateral" is as defined in Section 2(d).

         "Collateral Agent" means Sentient Resources USA, Inc., a Colorado
         corporation.

         "Company" means Natural Soda Holdings, Inc., a Colorado corporation.

         "Contingent Interest" means a payment of additional interest, which
         when added to the other payments of principal and interest on the
         Debentures, shall provide an internal rate of return of 34.8766% per
         annum compounded annually. In computing such Contingent Interest,
         February 20, 2003 shall be used as the issue date for the Debentures.

         "Debenture Purchase Agreement" means that certain Debenture Purchase
         Agreement dated as of the date hereof between the Company, AmerAlia,
         the Subsidiary, Sentient Executive GP I, Limited, acting on behalf of
         the General Partner of Sentient Global Resources Fund I, L.P., and
         Sentient (Aust) Pty. Limited, acting on behalf of Sentient Global
         Resources Trust No. 1.

         "Debentures" means the Series A Debentures, the Series B Debentures,
         the Series C Debentures, or any of them, as the context may require.

         "Holder" means any person who is a registered holder of these B1
         Debentures as listed in the books of the Company and any person who is
         a permitted transferee of a Holder.

         "Interest" is as defined in the paragraph entitled "FOR VALUE
         RECEIVED," above.

         "Majority of the Holders" is as defined in Section 6(b).

         "Material Adverse Effect" means a material adverse effect upon the
         business, operations, properties, assets or condition (financial or
         otherwise) of AmerAlia, the Company or, as the case may be, of the
         Company and the Subsidiary taken as a whole.

         "Maturity Date" means February 19, 2008 or (if earlier) the date of any
         prepayment or acceleration.

         "Person" means a corporation, an association, a partnership,
         organization, a business, an individual, a government or political
         subdivision thereof or a governmental agency.

         "Rate" means the interest rate for the periods set forth below.

<TABLE>
<CAPTION>
                                                                     INTEREST RATE
            PERIOD                                                      PER ANNUM
<S>                                                                  <C>
March 19, 2004 - June 30, 2004                                             1.5%
July 1, 2004 - June 30, 2005                                               4.5%
July 1, 2005 - June 30, 2006                                               7.5%
July 1, 2006 - June 30, 2007                                              10.5%
July 1, 2007 - February 19, 2008                                          13.5%
</TABLE>

Series B1 Debenture

                                       2
<PAGE>

         "Security Agreements" means the Security Agreements between the Company
         and the Collateral Agent for the benefit of AmerAlia, the Subsidiary
         and Sentient dated as of the date hereof and the Security Agreements
         between the Subsidiary and the Collateral Agent for the benefit of
         AmerAlia, the Subsidiary and Sentient dated as of the date hereof.

         "Sentient" means any of Sentient Executive GP I, Limited, acting on
         behalf of the General Partner of Sentient Global Resources Fund I,
         L.P., or Sentient (Aust) Pty. Limited, acting on behalf of Sentient
         Global Resources Trust No. 1.

         "Series A Debentures" means the Company's Senior Secured Series A 10%
         Debentures.

         "Series B Debentures" means the Company's Secured Subordinated Series
         B1 Debentures and the Secured Subordinated Series B2 Convertible
         Debentures.

         "Series C Debentures" means the Company's Unsecured Subordinated Series
         C Debentures.

         "Securityholder Agreement" means the Securityholder Agreement, dated as
         of the date hereof between the Company, AmerAlia, Inc., the Subsidiary
         and Sentient.

         "Subsidiary" means Natural Soda, Inc., a Colorado corporation and
         wholly-owned subsidiary of the Company.

         Section 2. Subordination, Seniority, Pari Passu, and Collateral.

         (a) The Secured Series B1 Debentures are subordinated to the Series A
Debentures, such subordination occurring with no action of the Holders;
provided, however, that the Secured Series B1 Debentures shall be pari passu
with the Series A Debentures, if the Series A Debentures held by AmerAlia and
the Subsidiary are (i) not subject to any pledge agreement or security
arrangement with a third party or (ii) not held by a third party. The Holder
understands that the Company intends to make no payments of (i) Interest with
respect to the Secured Series B1 Debentures except to the extent corresponding
Interest has been paid on the Series A Debentures and (ii) principal with
respect to the Secured Series B1 Debentures unless the principal on the Series A
Debentures has been paid. Nothing in this Series B1 Debenture shall be
interpreted to impose any restrictions whatsoever on the ability of any holder
of a Series A Debenture or any person acting on behalf of such holder to take
any action authorized by the Series A Debentures.

         (b) Except as set forth in Section 5 and Section 7 below, the Secured
Series B1 Debentures, the Series B2 Debentures and the Series C Debentures shall
be treated in pari passu in all respects with respect to all payments of
principal and Interest, unless the holders of the Series B Debentures declare an
Event of Default. During the continuation of such Event of Default, the Series C
Debentures will be treated as junior to the Series B Debentures, and no payments
will be made to the holders of Series C Debentures, until the Series A
Debentures and the Series B Debentures have been paid in full, including any
Contingent Interest.

         (c) This Series B1 Debenture is one of a series of debentures known as
the Series B1 Subordinated Debentures in a total principal amount of $11,300,000
plus accrued but unpaid interest. No payments will be made to the holder of this
Series B1 Debenture unless a proportional payment (based on outstanding
principal amount) is made with respect to all other Secured Series B1
Debentures, the Series B2 Debentures and, except as provided in Section

Series B1 Debenture

                                       3
<PAGE>

2(b) above, the Series C Debentures; provided, however, that the Company may
prepay the Secured Series B1 Debentures and the Series B2 Debentures pursuant to
Section 7 hereof prior to making any prepayments to the Series C Debentures.

         (d) Pursuant to the terms of a Collateral Holding and Liquidation
Agreement, the Security Agreements and the Pledge Agreement, Collateral Agent
holds as a security interest, as collateral for repayment of all of the Secured
Series B1 Debentures, the Series A Debentures, and the Series B2 Debentures,
including all Contingent Interest, all of the outstanding shares of common stock
of the Subsidiary plus all other assets of the Company and the Subsidiary (the
"Collateral"). The Collateral Holding and Liquidation Agreement is incorporated
herein as if fully set forth, and the rights of the Holder are subject to the
terms of said agreements.

         Section 3. No Sale or Transfer. This Series B1 Debenture may not be
sold, transferred, assigned, hypothecated or divided into two or more Debentures
of smaller denominations, except in accordance with the Securityholder
Agreement. Subject to the foregoing, transfers of this Debenture shall be
registered upon registration books maintained for such purpose by or on behalf
of Company. Prior to presentation of this Series B1 Debenture for registration
of transfer, Company shall treat the registered holder hereof as the owner and
holder of this Series B1 Debenture for the purpose of receiving all payments of
principal and Interest hereon and for all other purposes whatsoever, whether or
not this Series B1 Debenture shall be overdue and Company shall not be affected
by notice to the contrary.

         Section 4. Provisions Regarding Payment of Interest. Subject to the
subordination provisions in paragraph 2(a) hereof and to the in pari passu
provisions of paragraphs 2(b) and 2(c), Interest hereunder will be paid to the
Holder on each Interest payment date; provided, however, that the Interest
payable, including any Contingent Interest, if owed, shall not be higher than
the maximum interest allowable under applicable law. If the Interest payable is
higher than the maximum interest payable under applicable law, the Company shall
only pay the amount allowable under applicable law.

         Section 5. Trade Sale. Except as provided in the Securityholder
Agreement, if the Company (i) should (a) assign, transfer or sell its interest
in the Subsidiary to a Person unaffiliated with the Company, or (b) assign,
transfer or sell substantially of its Assets, or (ii) should the Subsidiary
sell, assign or transfer, all or substantially all of its Assets, the Company
shall be obligated to prepay this Series B1 Debenture pari passu with the other
Secured Series B1 Debentures including accrued and unpaid Interest and
Contingent Interest, but after the Series A Debentures have been fully repaid
and prior to any payment to the Series B2 Debentures and the Series C
Debentures, to the extent of the consideration received by the Company or the
Subsidiary in such a transaction.

         Section 6.

         (a) "Event of Default" wherever used herein, means any one of the
following events (whatever the reason and whether it shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgment, decree
or order of any court, or any order, rule or regulation of any administrative or
governmental body):

         (i)      any default in the payment of the principal or interest or
         Contingent Interest on this Series B1 Debenture as and when the same
         shall become due and payable, (whether on the Maturity Date or by
         acceleration or otherwise);

         (ii)     the Company or AmerAlia, Inc., shall fail to observe or
         perform any other covenant, agreement or warranty contained in, or
         otherwise commit any breach of, this

Series B1 Debenture

                                       4
<PAGE>

         Series B1 Debenture or the Securityholder Agreement, and such failure
         or breach shall not have been remedied within 15 days after the date on
         which notice of such failure or breach shall have been given;

         (iii)    the occurrence or existence of any condition that constitutes
         an event of default or that would constitute an event of default with
         the giving of notice, the passage of time, or both, under the terms of
         any of the Debentures, or any other material indebtedness of the
         Company or the Subsidiary;

         (iv)     the occurrence of any event that would, upon passage of time
         or otherwise, have a Material Adverse Effect on AmerAlia, the Company,
         or the Subsidiary;

         (v)      AmerAlia shall have failed to: (i) file a proxy statement with
         the Securities and Exchange Commission for shareholder approval of the
         transactions contemplated by the Debenture Purchase Agreement by not
         later than April 15, 2004; (ii) diligently pursue the finalization of
         the proxy statement in accordance with the rules of the Securities and
         Exchange Commission; and (iii) obtain the approval of its shareholders
         of the transactions contemplated by the Debenture Purchase Agreement as
         soon after finalization of the proxy statement as possible, but no
         later than June 30, 2004; or

         (vi)     the Company shall commence a voluntary case under the United
         States Bankruptcy Code or insolvency laws as now or hereafter in effect
         or any successor thereto (the "Bankruptcy Code"); or an involuntary
         case is commenced against the Company under the Bankruptcy Code and the
         petition is not controverted within 30 days, or is not dismissed within
         60 days, after commencement of such involuntary case; or a "custodian"
         (as defined in the Bankruptcy Code) is appointed for, or takes charge
         of, all or any substantial part of the property of the Company or the
         Company commences any other proceeding under any reorganization,
         arrangement, adjustment of debt, relief of debtors, dissolution,
         insolvency or liquidation or similar law of any jurisdiction whether
         now or hereafter in effect relating to the Company or there is
         commenced against the Company any such proceeding which remains
         undismissed for a period of 60 days; or the Company is adjudicated
         insolvent or bankrupt; or any order of relief or other order approving
         any such case or proceeding is entered; or the Company suffers any
         appointment of any custodian or the like for it or any substantial part
         of its property which continues undischarged or unstayed for a period
         of 60 days; or the Company makes a general assignment for the benefit
         of creditors; or the Company shall fail to pay, or shall state that it
         is unable to pay its debts generally as they become due; or the Company
         shall call a meeting of all of its creditors with a view to arranging a
         composition or adjustment of its debts; or the Company shall by any act
         or failure to act indicate its consent to, approval of or acquiescence
         in any of the foregoing; or any corporate or other action is taken by
         the Company for the purpose of effecting any of the foregoing.

         (b) Remedies. For so long as Sentient holds any of the Secured Series
B1 Debentures, only Sentient may declare an Event of Default under the Secured
Series B1 Debentures on 15 days' written notice to the Company. If Sentient does
not hold any of the Secured Series B1 Debentures, the Holder, together with all
other holders of Secured Series B1 Debentures based on a majority vote by
principal amount of the Holders of all Secured Series B1 Debentures (a "Majority
of the Holders") may declare an Event of Default on 15 days' written notice to
the Company. Neither Sentient nor (if applicable) a Majority of the Holders may
declare an Event of Default while there are any Series A Debentures outstanding
unless an Event of Default has been declared with respect to the Series A
Debentures. If the Company fails to cure an Event of Default within such period
(or if the cure cannot be reasonably completed within such

Series B1 Debenture

                                       5
<PAGE>

period, commence the cure of the Event of Default and diligently pursue such
cure), Sentient or (if applicable) a Majority of the Holders may:

         (i)      Declare all amounts due under the Secured Series B1 Debentures
         and all other Debentures owned by Sentient immediately due and owing
         and exercise all rights with respect thereto permitted by law;

         (ii)     Subject to the rights of the Series A Debentures and to the
         terms of the Collateral Holding and Liquidation Agreement, the Security
         Agreements and the Pledge Agreement, cause the Company and the
         Subsidiary to transfer ownership of the Collateral on its books to
         Collateral Agent on behalf of the Holder and all other holders of the
         Series A Debentures, the Secured Series B1 Debentures, and the Series
         B2 Debentures, and exercise all rights to vote with respect to the
         Pledged Shares (including the right to elect the board of directors of
         the Subsidiary by shareholder consent);

         (iii)    Apply to a court with its seat in Colorado that has
         jurisdiction over the Company or the Subsidiary for the appointment of
         a receiver to manage the assets and operations of the Company or the
         Subsidiary; or

         (iv)     Assert any other remedy available at law or in equity.

         Section 7. Prepayment. Provided the Series A Debentures have been paid
in full and prior to any prepayment of the Series B2 Debentures and the Series C
Debentures, the Company may prepay the Secured Series B1 Debentures in whole or
in part at any time prior to the Maturity Date upon not less than 30 days'
notice to the Holder. Any prepayment shall include payment of accrued and unpaid
Interest, if the Company is repaying the full principal amount of the Secured
Series B1 Debentures or repaying the Secured Series B1 Debentures below an
aggregate principal amount of $1,000,000. A mandatory prepayment in the amount
of $3,384,998.40 shall be payable on September 30, 2005.

         Section 8. Contingent Interest. The Company shall pay Contingent
Interest on the amounts represented by the Secured Series B1 Debentures to the
Holder (a) on the Maturity Date of the Secured Series B1 Debentures, if owed,
subject to the achievement of the contingencies described herein, (b) if the
Company prepays any of the Secured Series B1 Debentures, without regard to the
contingencies described herein, as to the amount prepaid, (c) without regard to
the contingencies if there is a trade sale, and (d) without regard to the
contingences described herein, upon the declaration of a default pursuant to the
Secured Series B1 Debentures. Subject to the preceding sentence, Contingent
Interest shall not be payable if: the Adjusted EBITDA is less than $ 500,000 for
the 12-month period prior to the Maturity Date; provided, however, that if the
Adjusted EBITDA is less than $ 500,000, then if the Adjusted EBITDA is in excess
of $1,000,000 in the aggregate for the 36-month period immediately prior to the
Maturity Date, the Contingent Interest shall be due and payable on the Maturity
Date. Notwithstanding the foregoing, if an Event of Default occurs, the
Contingent Interest shall be immediately due and payable.

         Section 9. No Impairment. Except as expressly provided herein, no
provision of this Series B1 Debenture shall alter or impair the obligation of
the Company, which is absolute and unconditional, to pay the principal of, and
Interest and Contingent Interest on, this Series B1 Debenture at the time,
place, and rate, and in the coin or currency, herein prescribed. This Series B1
Debenture is a direct obligation of the Company subject, however, to the
subordination provisions set forth in Section 2, above.

Series B1 Debenture

                                       6
<PAGE>

         Section 10. No Rights as a Shareholder. This Series B1 Debenture shall
not entitle the Holder to any of the rights of a stockholder of the Company,
including without limitation, the right to vote, to receive dividends and other
distributions, or to receive any notice of, or to attend, meetings of
stockholders or any other proceedings.

         Section 11. Mutilated, Lost or Stolen Debentures. If this Series B1
Debenture shall be mutilated, lost, stolen or destroyed, the Company shall
execute and deliver, in exchange and substitution for and upon cancellation of a
mutilated Debenture, or in lieu of or in substitution for a lost, stolen or
destroyed debenture, a new Debenture for the principal amount of this Series B1
Debenture so mutilated, lost, stolen or destroyed but only upon receipt of
evidence of such loss, theft or destruction of such Debenture, and of the
ownership hereof, and adequate indemnity, if requested, all reasonably
satisfactory to the Company.

         Section 12. Governing Law. This Series B1 Debenture shall be governed
by and construed in accordance with the laws of the State of Colorado. Each of
the parties consents to the exclusive jurisdiction of the federal courts whose
districts encompass any part of Denver, Colorado, or the state courts of the
State of Colorado sitting in Arapahoe County, Colorado in connection with any
dispute arising under this Agreement and hereby waives, to the maximum extent
permitted by law, any objection, including any objection based on forum non
coveniens, to the bringing of any such proceeding in such jurisdictions. To the
extent determined by such court, the Company shall reimburse the Holder for any
reasonable legal fees and disbursements incurred by the Holder in enforcement of
or protection of any of its rights under any of this Series B1 Debenture.

         Section 13. Waiver of Jury Trial; No Other Waivers. The Company and the
Holder hereby waive the right to a trial by jury in any action, proceeding or
counterclaim in respect of any matter arising out or in connection with this
Debenture. Any waiver by the Company or the Holder of a breach of any provision
of this Series B1 Debenture shall not operate as or be construed to be a waiver
of any other breach of such provision or of any breach of any other provision of
this Series B1 Debenture. The failure of the Company or the Holder to insist
upon strict adherence to any term of this Series B1 Debenture on one or more
occasions shall not be considered a waiver or deprive that party of the right
thereafter to insist upon strict adherence to that term or any other term of
this Series B1 Debenture. Any waiver must be in writing.

         Section 14. Severability. If any provision of this Series B1 Debenture
is invalid, illegal or unenforceable, the balance of this Series B1 Debenture
shall remain in effect, and if any provision is inapplicable to any person or
circumstance, it shall nevertheless remain applicable to all other persons and
circumstances.

         Section 15. Obligations Due on a Business Day. Whenever any payment or
other obligation hereunder shall be due on a day other than a Business Day, such
payment shall be made on the next succeeding Business Day (or, if such next
succeeding Business Day falls in the next calendar month, the preceding Business
Day in the appropriate calendar month).

         Section 16. Notices. Any notice, request or other communication
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given if personally delivered or mailed by registered or certified
mail, postage prepaid, or by recognized overnight courier or personal delivery
at the respective addresses of the parties as set forth in the Debenture
Purchase Agreement or on the register maintained by Company. Notice shall
conclusively be deemed to have been given when received.

                [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

Series B1 Debenture

                                       7
<PAGE>

         IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer duly authorized for such purpose, as of the date first
above indicated.

                                              NATURAL SODA HOLDINGS, INC.

                                              By: ______________________________
                                                  Bill H. Gunn, President

Attest:

By: _________________________________
    Robert C.J. van Mourik, Secretary

Accepted this _____ day of _________, 2004 by the undersigned, thereunto duly
authorized, in accordance with the terms of the Debenture Purchase Agreement.

SENTIENT EXECUTIVE GP I, LIMITED
ON BEHALF OF THE GENERAL PARTNER OF
SENTIENT GLOBAL RESOURCES FUND I, L.P.

By: _________________________________
       Mark A. Jackson, Director

                              Series B1 Debenture

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