COLLABORATION AGREEMENT

Exhibit 10.64

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

EXECUTION COPY

COLLABORATION AGREEMENT

between

NAPO PHARMACEUTICALS, INC.

and

SALIX PHARMACEUTICALS, INC.

Dated as of December 9, 2008

TABLE OF CONTENTS

 

 

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COLLABORATION AGREEMENT

T HIS C OLLABORATION A GREEMENT ( the “Agreement ”) is made effective as of December 9, 2008 (the “ Effective Date ”), by and between Salix Pharmaceuticals, Inc., a Delaware corporation having its principal place of business at 1700 Perimeter Park Drive, Morrisville, North Carolina 27560 (“ Salix ”), and Napo Pharmaceuticals, Inc., a Delaware corporation having its principal place of business at 250 East Grand Avenue, Suite 90, South San Francisco, California 94080 (“ Napo ”). Salix and Napo are sometimes referred to herein individually as a “ Party ” and collectively as the “ Parties .”

R ECITALS

W HEREAS , Napo Controls (as defined below) certain intellectual property with respect to the Licensed Compound (as defined below);

W HEREAS , Napo desires to grant certain licenses to Salix, and Salix desires to obtain certain licenses from Napo, to commercialize and distribute the Licensed Compound and the Licensed Products (as defined below) in accordance with the terms and conditions set forth below;

W HEREAS , Napo currently maintains an ongoing program to generate and develop new chemical entities and new pharmaceutical products for gastrointestinal indications;

W HEREAS , Napo desires to grant to Salix, and Salix desires to obtain from Napo, certain rights of first negotiation with respect to such chemical entities and pharmaceutical products; and

W HEREAS , simultaneously herewith, Salix and Glenmark Pharmaceuticals Ltd. (“ Glenmark ”) are entering into a Manufacturing and Supply Agreement, pursuant to which Glenmark will supply Salix’s commercial supply requirements of the Licensed Compound (the “ Glenmark Supply Agreement ”); Napo and Glenmark are entering into a Fifth Amendment (the “ Glenmark-Napo Amendment ”) to the Glenmark Agreement (as defined below); and Napo and Glenmark are entering into a letter agreement clarifying the Glenmark Agreement (the “ Glenmark-Napo Letter Agreement ”);

N OW , T HEREFORE , in consideration of the foregoing premises and the mutual covenants 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 1

DEFINITIONS

The following terms shall have the following meanings as used in this Agreement:

1.1 “Acquisition,” with respect to a Party, means a merger, acquisition (whether of all of the stock or all or substantially all of the assets of a Person or any operating or business

 

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division of a Person) or similar transaction by or with the Party, other than a Change in Control of the Party.

1.2 “Act” means the United States Food, Drug, and Cosmetic Act, as amended.

1.3 “Advent Product” means any Licensed Product, including a CRO-HIV Product, that has obtained Initial Regulatory Approval based on the Advent Study.

1.4 “Advent Study” means the Randomized, Double-Blind, Parallel-Group, Placebo-Controlled, Two-Stage Study to Assess the Efficacy and Safety of Crofelemer 125 mg, 250 mg, and 500 mg Orally Twice Daily for the Treatment of HIV-Associated Diarrhea, ongoing as of the Effective Date.

1.5 “Affiliate” means, with respect to a Party, a Person that (directly or indirectly) controls, is controlled by, or is under common control with such Party. For purposes of this definition, the term “ control ” (including, with correlative meanings, the terms “ controlled by ” and “ under common control with ”) as used with respect to a Person (including a Party), means (a) the possession, directly or indirectly, of the power to direct, or cause the direction of, the management or policies of such Person (including a Party), whether through the ownership of voting securities, by contract or otherwise, or (b) the ownership, directly or indirectly, of more than fifty percent (50%) of the voting securities or other ownership interest of a Person (including a Party).

1.6 “Agreement” has the meaning set forth in the Preamble.

1.7 “Annual Period” means, with respect to each Licensed Product, the twelve (12)-month period beginning on the date of the first commercial sale of such Licensed Product by Salix or any of its Affiliates or Sublicensees and each successive twelve (12)-month period thereafter.

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

1.9 “Approval” means, with respect to any particular country, all those approvals, licenses, registrations or authorizations of any Regulatory Authority necessary to commercially distribute, sell or market a Licensed Product in such country (or, if applicable, the EU), including, where applicable, (a) pricing or reimbursement approval in such country (or, if applicable, the EU), (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.

1.10 “Approved Relief Organizations” has the meaning set forth in Section 6.5.1.

1.11 “AsiaPharm” means AsiaPharm Investment Limited.

1.12 “AsiaPharm Agreement” means that certain Alliance Agreement, dated May 23, 2005, by and between AsiaPharm and Napo.

 

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1.13 “Breaching Party” has the meaning set forth in Section 13.2.

1.14 “Business Day” means a day that is not a Saturday, Sunday or a day on which banking institutions in New York, New York are required or permitted by law to remain closed.

1.15 “Calendar Year” means each successive period of twelve (12) calendar months commencing on January 1 and ending on December 31.

1.16 “Change in Control,” with respect to a Party, shall be deemed to have occurred if any of the following occurs after the Effective Date:

1.16.1 any “person” or “group” (as such terms are defined below) (a) is or becomes the “beneficial owner” (as defined below), directly or indirectly, of shares of capital stock or other interests (including partnership interests) of such Party then outstanding and normally entitled (without regard to the occurrence of any contingency) to vote in the election of the directors, managers or similar supervisory positions (“ Voting Stock ”) of such Party representing fifty percent (50%) or more of the total voting power of all outstanding classes of Voting Stock of such Party or (b) has the power, directly or indirectly, to elect a majority of the members of the Party’s board of directors or similar governing body (“ Board of Directors ”); or

1.16.2 such Party enters into a merger, consolidation or similar transaction with another Person (whether or not such Party is the surviving entity) and as a result of such merger, consolidation or similar transaction (a) the members of the Board of Directors of such Party immediately prior to such transaction constitute less than a majority of the members of the Board of Directors of such Party or such surviving Person immediately following such transaction or (b) the Persons that beneficially owned, directly or indirectly, the shares of Voting Stock of such Party immediately prior to such transaction cease to beneficially own, directly or indirectly, shares of Voting Stock of such Party representing at least a majority of the total voting power of all outstanding classes of Voting Stock of the surviving Person in substantially the same proportions as their ownership of Voting Stock of such Party immediately prior to such transaction; or

1.16.3 such Party sells or transfers to any Third Party, in one or more related transactions, properties or assets representing all or substantially all of such Party’s consolidated total assets; or

1.16.4 the holders of capital stock of such Party approve a plan or proposal for the liquidation or dissolution of such Party.

For the purpose of this definition of Change in Control, (a) “person” and “group” have the meanings given such terms under Section 13(d) and 14(d) of the United States Securities Exchange Act of 1934 and the term “group” includes any group acting for the purpose of acquiring, holding or disposing of securities within the meaning of Rule 13d-5(b)(1) under the said Act, (b) a “beneficial owner” shall be determined in accordance with Rule 13d-3 under the aforesaid Act, and (c) the terms “beneficially owned” and “beneficially own” shall have meanings correlative to that of “beneficial owner.”

 

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1.17 “China” means the People’s Republic of China (including Hong Kong and Macau).

1.18 “Claims” has the meaning set forth in Section 14.1.

1.19 “Clinical Data” means all information with respect to the Licensed Compound or any Licensed Product made, collected or otherwise generated under or in connection with the Clinical Trials or the Post Approval Studies for the Licensed Compound or the Licensed Products, including any data, reports and results with respect to any of the foregoing.

1.20 “Clinical Trial” means a Phase I Clinical Trial, Phase II Clinical Trial or Phase III Clinical Trial (including a Pivotal Trial), and such other tests and studies in patients that are required by Applicable Law, or otherwise recommended by the Regulatory Authorities, to obtain or maintain Drug Approval Applications, but excluding Post Approval Studies, and “Clinical Trials” means all of the foregoing clinical trials.

1.21 “Commercialization” means any and all activities (whether before or after Approval) directed to the marketing, detailing and promotion of a Licensed Product after Approval for commercial sale has been obtained, and shall include pre-launch and post-launch marketing, promoting, detailing, distributing, offering to sell and selling such Licensed Product, importing, exporting or transporting such Licensed Product for sale, and regulatory affairs with respect to the foregoing, but shall exclude Post Approval Studies. “ Commercialize ” and “ Commercializing ” shall be interpreted accordingly.

1.22 “Commercially Reasonable Efforts” means, with respect to the research, Development, Commercialization or other Exploitation of a Licensed Product, as the case may be, efforts and resources commonly used in the research-based pharmaceutical industry for an internally-developed product of similar commercial potential at a similar stage in its lifecycle, taking into consideration its safety and efficacy, its cost to Develop, the competitiveness of alternative products, its proprietary position and the likelihood of regulatory approval. Commercially Reasonable Efforts shall be determined on a market-by-market basis for each Licensed Product without regard to the particular circumstances of a Party, including any other product opportunities of such Party, and, with respect to Salix, without regard to any payments owed to Napo under Sections 7.3, 7.4 and 7.5.

1.23 “Committee” has the meaning set forth in Section 5.1.2(j).

1.24 “Competitor” means (a) the entities set forth on Schedule 1.24 and any of their respective Affiliates, (b) any Person that derives a material portion of its revenues from one or more pharmaceutical or biological products (including over-the-counter products) or dietary supplements or other products intended for human use or consumption that are directly competitive in one or more national markets with any one or more products from which Salix derives a material portion of its revenues, and (c) any Person that Controls Information, Material, invention, Patent or other intellectual property rights in or with respect to a Generally Competitive Product.

1.25 “Confidential Information” has the meaning set forth in Section 12.1.

 

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1.26 “Control” means, with respect to any Information, Material, invention, Patent or other intellectual property right, possession by a Party or its Affiliates of the right, whether directly or indirectly, to grant the right to use, or to grant a license or a sublicense under, such Information, Material, invention, Patent or other intellectual property right as provided for herein without violating the terms of any agreement or other arrangement with any Third Party. No Party (or Affiliate of a Party) shall be deemed to Control any Information, Material, invention, Patent or other intellectual property right of the other Party by virtue of the grants set forth in Section 10.1, 10.4 or 13.6.

1.27 “Corporate Names” shall mean (a) in the case of Napo, such Trademarks and corporate names and logos Controlled by Napo as Napo may designate in writing from time to time and (b) in the case of Salix, such Trademarks and corporate names and logos Controlled by Salix as Salix may designate in writing from time to time, in each case ((a) and (b)) together with any variations and derivatives thereof.

1.28 “Courts” has the meaning set forth in Section 15.8.2.

1.29 “CPL” means crude plant latex of Croton lechleri .

1.30 “CRO-HIV Product” means a Licensed Product for the treatment of chronic diarrhea in humans living with HIV/AIDS.

1.31 “Data Exclusivity” has the meaning set forth in Section 1.88.

1.32 “Designated Payee” means those payees set forth on Schedule 7.1 .

1.33 “Development” means those activities, including research, pre-clinical and other non-clinical activities, test method development and stability testing, toxicology, formulation, process development, manufacturing scale-up, qualification and validation, quality assurance/quality control, Clinical Trials, Post Approval Studies, supporting manufacturing activities and related regulatory activities, that are necessary or useful to obtain and maintain Initial Regulatory Approval for a Licensed Product for an indication. “ Develop ” and “ Developing ” shall be interpreted accordingly.

1.34 “Development Costs” means, subject to the other terms of this Agreement and without duplication, (a) the direct out-of-pocket costs paid to Third Party Providers or Third Party Suppliers by or on behalf of a Party or any of its Affiliates, during the term of and pursuant to this Agreement, that (i) are specifically identifiable or reasonably allocable to the Development activities for a Licensed Product for the purpose of obtaining Initial Regulatory Approval for such Licensed Product for one or more indications and any Post Approval Studies required by the FDA with respect to such Licensed Product, (ii) relate solely to Development activities performed on or after July 1, 2008, and, (iii)(A) with respect to Development activities performed from July 1, 2008 through the Effective Date, are included in the Development Plan and Budget and specifically listed on Schedule 1.34(a)(ii)(A) or, (B) with respect to Development activities performed after the Effective Date, are included in the Development Plan and Budget, (b) amounts paid by Napo or Salix to Glenmark pursuant to the Glenmark Agreement or the Glenmark Supply Agreement in respect of capital acquisition costs for equipment to support the manufacturing activities contemplated by the Glenmark Agreement or

 

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the Glenmark Supply Agreement, to the extent such capital acquisition costs are included in the Development Plan and Budget, (c) the payments from Salix to Napo contemplated by Section 3.1.2, (d) amounts paid to Third Parties by either Party pursuant to Section 11.3, and (e) filing fees and other amounts paid to Regulatory Authorities in connection with applications for Initial Regulatory Approval for the Licensed Product; provided , however , that if Salix takes ownership of an IND and the corresponding program loses its small business waiver resulting in a PDUFA Fee being payable on filing of a Drug Approval Application in the United States, then payment of any resulting fee by Salix in respect of such Drug Approval Application shall constitute a Development Cost only if Salix provides written notice to Napo that the chief executive officer of Salix has determined in good faith that due to concerns regarding the financial condition and prospects of Napo it is appropriate in order to protect the rights of Salix hereunder that Salix take ownership of the IND and file the Drug Approval Application in its own name. Development Costs shall include payments to Third Party Suppliers for or in connection with the manufacture of Licensed Product for use in Clinical Trials and Post Approval Studies. Third Party Payments shall not constitute Development Costs nor, for the avoidance of doubt, shall any cost of whatever kind or nature that is not reflected in and authorized by the Development Plan and Budget constitute Development Costs.

1.35 “Development Plan and Budget” has the meaning set forth in Section 2.4.

1.36 “Distributor” means a Person, other than a Sublicensee or an Affiliate of Salix, that (a) purchases Licensed Product from Salix, its Affiliates or Sublicensees, (b) assumes responsibility from Salix for all or a portion of the Commercialization of Licensed Product, and (c) sells Licensed Product.

1.37 “Dollars” or “$” means the legal tender of the United States.

1.38 “Drug Approval Application” means a New Drug Application as defined in the Act, and the regulations promulgated thereunder, or any corresponding application in a country or jurisdiction other than the United States, including, with respect to the European Union, a Marketing Authorization Application (“ MAA ”) filed with the European Medicines Agency (“ EMEA ”) pursuant to the centralized Approval procedure or with the applicable Regulatory Authority of a country in the European Union with respect to the mutual recognition or any other national Approval procedure.

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

1.40 “Effective Date” has the meaning set forth in the Preamble.

1.41 “EMEA” has the meaning set forth in Section 1.38.

1.42 “Europe” means the countries comprising the European Union as it may be constituted from time to time, together with Switzerland and those additional countries comprising the European Economic Area as it may be constituted from time to time (as of the Effective Date, Iceland, Liechtenstein and Norway).

 

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1.43 “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.

1.44 “Exploit” or “Exploitation” means to make, have made, import, use, sell, offer for sale, or otherwise dispose of, including all discovery, research, Development, Commercialization, registration, modification, enhancement, improvement, manufacture, storage, formulation, exportation, transportation, distribution, promotion and marketing activities related thereto.

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

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

1.47 “GAAP” means United States generally accepted accounting principles consistently applied.

1.48 “Generally Competitive Product” means (a) any pharmaceutical or biological product (including any over-the-counter product), whether currently marketed or in development, that is intended for use in the Human Excluding HIV/AIDS/ID/Pediatric Field, the HIV/AIDS/Pediatric Field, or the ID Field and (b) any dietary supplement or food product, whether currently marketed or in development, that is advertised, marketed or promoted for use in the Human Excluding HIV/AIDS/ID/Pediatric Field, the HIV/AIDS/Pediatric Field, or the ID Field.

1.49 “Glenmark” has the meaning set forth in the Recitals.

1.50 “Glenmark Agreement” means that certain Collaboration Agreement entered into on July 2, 2005, by and between Glenmark and Napo, as amended.

1.51 “Glenmark-Napo Amendment” has the meaning set forth in the Recitals.

1.52 “Glenmark-Napo Letter Agreement” has the meaning set forth in the Recitals.

1.53 “Glenmark Supply Agreement” has the meaning set forth in the Recitals.

1.54 “Good Manufacturing Practice” or “GMP” means the current good manufacturing practices applicable from time to time to the manufacturing of a Licensed Product or any intermediate thereof pursuant to Applicable Law.

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

 

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1.56 “HIV/AIDS/Pediatric Field” has the meaning set forth in Section 1.57.

1.57 “Human Excluding HIV/AIDS/ID/Pediatric Field” means all indications of the Licensed Compound for human use or consumption (including by way of food or dietary supplements), other than HIV/AIDS-related diarrhea, acute infectious diarrhea and pediatric diarrhea of any etiology including cholera; “HIV/AIDS/Pediatric Field” means only those indications of the Licensed Compound for human use for HIV/AIDS-related diarrhea and pediatric diarrhea; and “ID Field” means only those indications of the Licensed Compound for human use for acute infectious diarrhea, specifically including cholera and traveler’s diarrhea.

1.58 “ID Field” has the meaning set forth in Section 1.57.

1.59 “Improvement” shall mean any modification to a compound, product or technology or any discovery, technology, device or process or formulation related to such compound, product or technology, whether or not patented or patentable, including any enhancement in the efficiency, operation, manufacture (including any manufacturing process), ingredients, preparation, presentation, formulation, means of delivery, packaging or dosage of such compound, product or technology, any discovery or development of any new or expanded indications for such compound, product or technology, or any discovery or development that improves the stability, safety or efficacy of such compound, product or technology.

1.60 “IND” means any investigational new drug application filed with the FDA for authorization to commence Clinical Trials or its equivalent in other countries or regulatory jurisdictions.

1.61 “Indemnification Claim Notice” has the meaning set forth in Section 14.3.1.

1.62 “Indemnified Party” has the meaning set forth in Section 14.3.1.

1.63 “Indemnifying Party” has the meaning set forth in Section 14.3.1.

1.64 “Information” means techniques and data relating to the Development, Commercialization and other Exploitation of a Licensed Product, including inventions, practices, methods, knowledge, know-how, test data, including pharmacological, toxicological, biological, chemical and physical and pre-clinical and clinical test data, analytical and quality control data, regulatory submissions, correspondence and communications, marketing, pricing, distribution, cost, sales, manufacturing, patent and legal data or descriptions (whether or not confidential, proprietary, patented or patentable), in each case in written, electronic or any other form now known or hereafter developed.

1.65 “Initial Regulatory Approval” of a Licensed Product for an indication means (a) with respect to the United States, the approval by the FDA and, (b) with respect to a country or jurisdiction other than the United States, the approval by the applicable Regulatory Authorities of the Drug Approval Application with respect to such Licensed Product for such indication in the applicable regulatory jurisdiction (including, in the European Union, the approval by the EMEA of an MAA filed pursuant to the centralized Approval procedure, if applicable, or otherwise with respect to the mutual recognition Approval procedure on a country-by-country basis with the applicable Regulatory Authority of a country in Europe).

 

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1.66 “Joint Steering Committee” or “JSC” has the meaning set forth in Section 5.1.1.

1.67 “Know-How” means, as applicable, in the case of Napo, the Napo Know-How, and in the case of Salix, the Salix
Know-How.

1.68 “Licensed Compound” means oligomeric proanthocyanidin (OPC) of varying chain lengths with an average molecular weight of approximately 2000 daltons (Crofelemer), including any Improvements thereto.

1.69 “Licensed Product” means any form or dosage of pharmaceutical composition or preparation in finished form labeled and packaged for sale by prescription, over-the-counter, dietary supplement, food or any other method that contains the Licensed Compound as an active ingredient (including a Licensed Product that contains the Licensed Compound as an active ingredient together with one or more other active ingredients (which may be either combined in a single formulation or bundled with separate formulations but sold as one product)), and any Improvements thereto.

1.70 “License Notice” has the meaning set forth in Section 10.5.

1.71 “License Terms” has the meaning set forth in Section 10.5.

1.72 “Losses” has the meaning set forth in Section 14.1.

1.73 “MAA” has the meaning set forth in Section 1.38.

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

1.75 “Manufacturing Technology” shall mean any process, technology, Information, data or documentation (including batch records and regulatory documentation) that is necessary for or used in the manufacture or formulation or vialing or release of the Licensed Compound or a Licensed Product.

1.76 “Materials” means compositions of matter, articles of manufacture, assays and pharmacological, toxicological, biological, chemical or physical materials relating to the Exploitation of a Licensed Product.

1.77 “Napo” has the meaning set forth in the Preamble.

1.78 “Napo Agreements” means those agreements entered into by and between Napo or its Affiliates, on the one hand, and certain Third Parties on the other hand, whether entered into prior to or after the Effective Date, pursuant to which Napo Controls (or Third Party Payments are otherwise due with respect to) certain Licensed Products; provided , however , that Napo shall only enter into any such agreement with a Third Party with respect to a Licensed Product after the Effective Date in accordance with Section 11.7 and if Napo concludes in good

 

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faith that it requires a license under Patent(s) controlled by such Third Party in order to Develop or Exploit such Licensed Product and shall not grant any rights in such Licensed Product to such Third Party to the extent such rights could reasonably be expected to adversely affect Salix’s rights to or ability to Exploit (including the ability to manufacture) such Licensed Product.

1.79 “Napo Common Stock” means the common stock, par value $0.0001 per share, of Napo.

1.80 “Napo Indemnitees” has the meaning set forth in Section 14.1.

1.81 “Napo Know-How” means all Information, Materials and inventions that are Controlled by Napo or its Affiliates as of the Effective Date or at any time during the term of this Agreement that (a) are developed or acquired by, or licensed to, Napo or any of its Affiliates or, to the extent permitted under the applicable sublicense agreement, its Sublicensees (other than Salix and its Affiliates) under or in connection with this Agreement or otherwise used by or on behalf of Napo or any of its Affiliates or, to the extent permitted under the applicable sublicense agreement, Sublicensees (other than Salix and its Affiliates) in the Development or Commercialization of a Licensed Product or (b) are necessary or useful for the Development or Commercialization of a Licensed Product, in each case ((a) or (b)), whether or not patented or patentable, excluding any Information and inventions to the extent covered or claimed by the Napo Patents that are publicly disclosed.

1.82 “Napo Patents” means all of the Patents that are Controlled by Napo or its Affiliates as of the Effective Date or at any time during the term of this Agreement that (a) are necessary or useful for the Development or Commercialization of a Licensed Product or (b) claim or cover a Licensed Product or any component thereof or the Development or Commercialization of a Licensed Product or any component thereof. Without limitation of the foregoing, the Napo Patents shall include those Patents listed on Schedule 1.82 to this Agreement, and any substitutions, divisions, continuations, continuations-in-part, reissues, renewals, registrations, confirmations, re-examinations, extensions, supplementary protection certificates, and any international or foreign equivalent of any Patent listed in such Schedule.

1.83 “Napo Technology” means the Napo Know-How and the Napo Patents.

1.84 “Net Sales” means, for any period, the gross amount invoiced by Salix and its Affiliates and Sublicensees for the sale of Licensed Product(s) to Third Parties (other than Sublicensees) (the “ Invoiced Sales ”), less deductions for: (a)  [*] and [*] and [*] and [*] and [*] , including (i) those [*] and [*] , (ii)  [*] and other [*] and [*] and similar [*] and other [*] and other [*] , (iii)  [*] and [*] , and (iv)  [*] ; (b)  [*] and [*] to the extent that such items are included in the Invoiced Sales; (c)  [*] and [*] and other [*] related to the sales to the extent that such items are included in the Invoiced Sales; (d)  [*] and similar [*] such as, by way of illustration and not in limitation of the Parties’ rights hereunder, [*] or [*] or similar [*] or equivalent [*] (e)  [*] and other [*] and [*] directly related to the sale or delivery of Licensed Product(s) (but not including [*] ); (f) any other similar and [*] ; (g)  [*] to the extent that such items are included in the Invoiced Sales; and (h) any [*] . Any of the deductions listed above that involves a payment by

 

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

 

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Salix or its Affiliates or Sublicensees shall be taken as a deduction in the Quarter in which the payment is accrued by such entity. Deductions pursuant to subsection (h) above shall be taken in the Quarter in which such sales are no longer recorded as a receivable. For purposes of determining Net Sales, the Licensed Product(s) shall be deemed to be sold when invoiced and a “sale” shall not include transfers or dispositions for charitable (including pursuant to Section 6.5), promotional, pre-clinical, clinical, regulatory or governmental purposes to the extent no amount is received by Salix, its Affiliates, or Sublicensees in connection therewith.

For purposes of calculating Net Sales, sales between or among Salix, its Affiliates and its Sublicensees shall be excluded from the computation of Net Sales, but sales by Salix, its Affiliates or its Sublicensees to Third Parties (other than Sublicensees) shall be [*] in the computation of Net Sales.

If Salix should, in a given country during a given accounting period, sell a Licensed Product that contains one or more active ingredients in addition to the Licensed Compound (which may be either combined in a single formulation or bundled with separate formulations but sold as one product), Net Sales for such combination product will be calculated by multiplying actual Net Sales of such combination product by the fraction [*] where A is the [*] , and B is the [*] . If, on a country-by-country basis, either a Licensed Product, on the one hand, or such other active ingredient or ingredients in the combination product, on the other hand, is, or both of the foregoing are, not sold separately in said country, Net Sales for the purpose of determining royalties of a Licensed Product shall be determined by the respective chief financial officers of the Parties in good faith and in a manner consistent with the intent of this Agreement, provided that any matters in dispute with respect thereto shall be ultimately and finally reasonably determined by the Chief Financial Officer of [*] .

[*] sales of Licensed Products outside of North America that give rise to royalties or other payments that are shared between Salix and Napo pursuant to Section 7.11.2 shall constitute or be included in Net Sales.

1.85 “Non-Prescription Competitive Product” means (a) any over-the-counter product, whether currently marketed or in development, that contains as an active pharmaceutical ingredient the Licensed Compound or any compound in the same or substantially similar chemical class as the Licensed Compound and that is intended for use in the Human Excluding HIV/AIDS/ID/Pediatric Field, the HIV/AIDS/Pediatric Field, or the ID Field and (b) any dietary supplement or food product, whether currently marketed or in development, that contains any compound obtained or derived from Croton lechleri and is advertised, marketed or promoted for use in the Human Excluding HIV/AIDS/ID/Pediatric Field, the HIV/AIDS/Pediatric Field, or the ID Field.

1.86 “North America” means the United States of America (including its territories and possessions, Puerto Rico and the District of Columbia), Canada and Mexico.

1.87 “Party” or “Parties” has the meaning set forth in the Preamble.

 

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

 

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1.88 “Patents” means (a) all national, regional and international patents and patent applications, including provisional patent applications, (b) all patent applications filed either from such patents, patent applications or provisional applications or from an application claiming priority from either of these, including divisionals, continuations, continuations-in-part (other than with respect to new subject matter that would not otherwise be covered in this Agreement), provisionals, converted provisionals, and continued prosecution applications, (c) any and all patents that have issued or in the future issue from the foregoing patent applications ((a) and (b)), including utility models, petty patents and design patents and certificates of invention, (d) any and all extensions or restorations by existing or future extension or restoration mechanisms, including revalidations, reissues, re-examinations and extensions (including any supplementary protection certificates and the like) of the foregoing patents or patent applications ((a), (b) and (c)), (e) any similar rights, including so-called pipeline protection, or any importation, revalidation, confirmation or introduction patent or registration patent or patent of additions to any of such foregoing patent applications and patents ((a), (b), (c) and (d)), and (f) any data or market exclusivity periods, including any such periods listed in the FDA’s Orange Book or periods under national implementations of Article 10.1(a)(iii) of Directive 2001/EC/83, and all international equivalents (“ Data Exclusivity ”).

1.89 “PDUFA Fee” means any fee in connection with a Drug Approval Application in respect of a Licensed Product in the United States pursuant to the Prescription Drug User Fee Act of 1992, as amended.

1.90 “Pediatric Licensed Products” has the meaning set forth in Section 6.5.1.

1.91 “Person” shall mean 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.

1.92 “Per Tablet Cost of Goods” means, with respect to a Product, the amount equal to the sum (expressed in United States Dollars per Tablet) of (a) the [*] of the Product; (b) the [*] (including [*] and [*] , and including [*] and [*] therefore); (c) the [*] and the [*] and [*] for incorporation therein; (d) a reasonable [*] of [*] (including [*] of the [*] and [*] ), and [*] and [*] and other [*] , calculated in accordance with reasonable cost accounting methods that comply with GAAP; and (e)  [*] (net of [*] or [*] , if any, and not including [*] ) to [*] or [*] or in connection with the [*] ; provided, however , that (x) no cost may be counted more than once in such calculation, (y) in respect of Quality Control and Quality Assurance activities in respect of the Product, only amounts paid to Third Parties in respect of such activities shall be included in the calculation of Per Tablet Cost of Goods, and (z) warehousing, handling and storage costs incurred after finished Product is delivered to Salix’s or a Third Party’s distribution center and while such finished Product is held for retail or wholesale distribution shall be excluded from the calculation of Per Tablet Cost of Goods.

 

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

 

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1.93 “Phase I Clinical Trial” means a human clinical trial of a Licensed Product, the principal purpose of which is a preliminary determination of safety in healthy individuals or patients or a similar clinical study prescribed by the Regulatory Authorities in a foreign country.

1.94 “Phase II Clinical Trial” means a human clinical trial of a Licensed Product, the principal purpose of which is a determination of safety and efficacy in the target patient population or a similar clinical study prescribed by the Regulatory Authorities in a foreign country.

1.95 “Phase III Clinical Trial” means a human clinical trial of a Licensed Product on a sufficient number of subjects that is designed to establish that a pharmaceutical product is safe and efficacious for its intended use, and to determine warnings, precautions, and adverse reactions that are associated with such pharmaceutical product in the dosage range to be prescribed, which trial is intended to support Approval of a Licensed Product. A Phase III Clinical Trial shall be deemed to have commenced when the first patient in such study has been dosed.

1.96 “Pivotal Trial” means the first pivotal Phase III Clinical Trial for a Licensed Product for an indication that is intended to support Initial Regulatory Approval of such Licensed Product for such indication in the United States, wherever conducted.

1.97 “Post Approval Study” means any human clinical study, or other test or study with respect to a Licensed Product for an indication that (a) is conducted solely in support of pricing or reimbursement for such Licensed Product in a country or (b) is not required to obtain or maintain Initial Regulatory Approval for such Licensed Product for such indication and is conducted within the scope of the labeling for such Licensed Product (for clarity, any human clinical study that is intended to expand the labeling for a Licensed Product shall be a Clinical Trial and shall not be a Post Approval Study). Subject to the foregoing, Post Approval Studies may include epidemiological studies, modeling and pharmacoeconomic studies, post-marketing surveillance studies, investigator sponsored studies, and health economics studies. For clarity, Post Approval Studies shall not include any tests or studies that are required or recommended for a Licensed Product by the Regulatory Authorities as a condition to obtaining, or as a requirement of maintaining, an Initial Regulatory Approval for such Licensed Product for an indication.

1.98 “Prescription Competitive Product” means any pharmaceutical or biological product (other than an over-the-counter product or a dietary supplement or food product), whether currently marketed or in development, that contains as an active pharmaceutical ingredient the Licensed Compound or any compound in the same or substantially similar chemical class as the Licensed Compound and that is intended for use in the Human Excluding HIV/AIDS/ID/Pediatric Field, the HIV/AIDS/Pediatric Field, or the ID Field.

1.99 “Product Labeling” means, with respect to a country, (a) the full prescribing information for any Licensed Product approved by the relevant Regulatory Authority for such country, including any required patient information; and (b) all labels and other written, printed or graphic matter upon a container, wrapper or any package insert utilized with or for such Licensed Product.

 

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1.100 “Product Trademarks” shall mean all Trademarks for use with a Licensed Product designated in accordance with Section 2.5 and any registrations thereof or any pending applications relating thereto.

1.101 “ Promotional Materials” means all sales representative training materials with respect to the Licensed Products and all written, printed, graphic, electronic, audio or video matter, including journal advertisements, sales visual aids, direct mail, medical information/education monographs, direct-to-consumer advertising, Internet postings, broadcast advertisements and sales reminder aids ( e.g. , scratch pads, pens and other such items) intended for use or used in connection with any promotion of the Licensed Products (but excluding Product Labeling).

1.102 “Quarter” means each successive period of three (3) calendar months commencing on January 1, April 1, July 1 and October 1.

1.103 “Recalls” has the meaning set forth in Section 4.6.

1.104 “Regulatory Authority” means any supra-national, federal, national, regional, state, provincial or local regulatory agency, department, bureau, commission, council or other government entity, including FDA and EMEA, regulating or otherwise exercising authority with respect to the Exploitation (including the determination of pricing/reimbursement) of a Licensed Product in any country or other jurisdiction.

1.105 “Regulatory Documentation” means (a) submissions to any Regulatory Authority, including INDs, Drug Approval Applications, Drug Master Files, 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 and (b) any minutes or contact logs with respect to any telephone conferences conducted with any Regulatory Authority relating to the subject matter described in clause (a) of this sentence.

1.106 “Royalty Term” has the meaning set forth in Section 7.6.

1.107 “Salix” has the meaning set forth in the Preamble.

1.108 “Salix HIV/AIDS/Pediatric Territory” has the meaning set forth in Section 1.109.

1.109 “Salix Human Excluding HIV/AIDS/ID/Pediatric Territory” means worldwide; “Salix HIV/AIDS/Pediatric Territory” means those countries set forth on Schedule 1.109(b) ; and “Salix ID Territory” means worldwide, but excluding those countries set forth on Schedule 1.109(c) .

1.110 “Salix ID Territory” has the meaning set forth in Section 1.109.

1.111 “Salix Indemnitees” has the meaning set forth in Section 14.2.

 

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1.112 “Salix Know-How” means all Information, Materials and inventions that are Controlled by Salix or its Affiliates as of the Effective Date or at any time during the term of this Agreement that are used by or on behalf of Salix or its Affiliates, pursuant to this Agreement, in the Development or Commercialization of a Licensed Product and are necessary or useful for the Development or Commercialization of such Licensed Product, whether or not patented or patentable, excluding any Information and inventions to the extent covered or claimed by the Salix Patents that are publicly disclosed.

1.113 “Salix Patents” means all of the Patents that are Controlled by Salix or its Affiliates as of the Effective Date or at any time during the term of this Agreement that are necessary or useful for the Development or Commercialization of a Licensed Product or specifically claim or cover a Licensed Product or the Development and Commercialization thereof. For clarity, if this Agreement is terminated with respect to a Licensed Product, then (a) Patents coming under the Control of Salix or any of its Affiliates after such termination will not be included in Salix Patents for such Licensed Product and (b) Salix Patents will not include Patents necessary or useful for the Development or Commercialization of such Licensed Product because of modifications made after such termination or which specifically claim or cover such modifications.

1.114 “Salix Technology” means the Salix Know-How and the Salix Patents.

1.115 “Specifications” means, with respect to CPL, the specifications set forth on Schedule 1.115 .

1.116 “Stock Purchase Agreement” means that certain Stock Purchase Agreement, dated the Effective Date, between the Parties, pursuant to which Salix will purchase certain shares of Napo Common Stock.

1.117 “Sublicensee” means a Person, other than an Affiliate, that is granted a sublicense by a Party under the license grants in Section 10.1, 10.4 or 13.6, as applicable, as provided in Section 10.3 or 13.6, as applicable.

1.118 “Tablet” means the [*] mg tablet of Product.

1.119 “Technology” means the Salix Technology and the Napo Technology, as applicable.

1.120 “Tempesta License Agreement” means that certain Amended and Restated License Agreement, dated October 16, 2002, by and between Napo and Michael Tempesta, Ph.D.

1.121 “Third Party” means any Person other than Napo, Salix and their respective Affiliates.

1.122 “Third Party Payments” means (a) up-front fees (including any fees paid in installments) and milestones (including any royalties or other payments that are not tied to sales

 

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

 

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of a Licensed Product) to the extent payable to a Third Party in consideration for rights necessary or useful for the Exploitation of a Licensed Product, but excluding (i) amounts paid, at or below fair market value, for services provided by a Third Party (or its Affiliate), (ii) amounts paid, at or below fair market value, for equity in a Third Party (or its Affiliate), or (iii) equity issued to a Third Party in exchange for monetary consideration at or above fair market value, and (b) royalties (but excluding any royalties or other payments that are not tied to sales of a Licensed Product) payable to a Third Party in consideration for rights necessary or useful for the Exploitation of a Licensed Product.

1.123 “Third Party Provider” has the meaning set forth in Section 2.1.3.

1.124 “Third Party Supplier” has the meaning set forth in Section 6.1.3.

1.125 “Trademark” shall include any word, name, symbol, color, designation or device or any combination thereof, including any trademark, trade dress, brand mark, trade name, brand name, logo or business symbol, which in each case is specific to a Licensed Product. Notwithstanding anything in the foregoing, the term “Trademark” does not include any house marks, trade dress or logos of Salix or its Affiliates.

1.126 “UIRF License Agreement” means that certain License Agreement, dated February 26, 2008, by and between the University of Iowa Research Foundation and Napo.

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

1.128 “Up-Front Payment” has the meaning set forth in Section 7.1.

1.129 “Valid Claim” means, with respect to a particular country, (a) a claim of an issued and unexpired Patent in such country that (i) has not been revoked or held unenforceable or invalid by a decision of a court or governmental agency of competent jurisdiction from which no appeal can be taken or has been taken within the time allowed for appeal and (ii) has not been abandoned, disclaimed, denied or admitted to be invalid or unenforceable through reissue or disclaimer or otherwise in such country; or (b) a claim of a pending Patent application that was filed and is being prosecuted in good faith and has not been abandoned or finally disallowed without the possibility of appeal or re-filing of the application, provided that such prosecution has not been ongoing for more than five (5) years.

ARTICLE 2

DEVELOPMENT ACTIVITIES

2.1 Development Activities.

2.1.1 Each of Napo and Salix shall use Commercially Reasonable Efforts to perform the Development activities designated for Napo or Salix, as the case may be, in the Development Plan and Budget, in accordance with the terms and conditions of this Agreement. ˆ#Ø’^

 

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2.1.2 Each of Napo and Salix shall, and shall use commercially reasonable efforts to cause its Third Party Providers to, conduct its designated Development activities (a) in good scientific manner, and in compliance in all material respects with all requirements of Applicable Law and agreed laboratory practices, and (b) efficiently and expeditiously, in accordance with the schedule set forth in the Development Plan and Budget and in compliance with the Development Plan and Budget.

2.1.3 In order to perform its Development activities set forth in the Development Plan and Budget, each of Napo and Salix may enter into agreements with one or more Third Parties as, in the case of Napo, Salix may from time to time approve in writing (such approval not to be unreasonably withheld, conditioned, or delayed) (each, a “ Third Party Provider ”) for the performance of such Development activities, provided that Napo shall include Salix in any discussions with any such Third Party Providers and shall follow Salix’s instructions with respect to any decision pertaining to Napo’s arrangement with such Third Party Provider.

2.1.4 The Parties acknowledge and agree that the Development Plan and Budget shall assign Development activities to Napo and Salix so as to utilize certain resources and competencies of Napo and Salix for purposes of resource optimization with respect to the Development activities. Except as provided in Section 3.1.2, any costs incurred by Salix or Napo in connection with performing such Development activities in-house pursuant to the Development Plan and Budget shall not constitute Development Costs.

2.1.5 Except as provided in the Development Plan and Budget, neither Party shall perform any Development activities of any kind or nature without the other Party’s prior written consent.

2.2 Records and Reports.

2.2.1 Each of Napo and Salix shall, and shall ensure that its Third Party Providers, maintain records in good scientific manner and in sufficient detail for patent and regulatory purposes, and in compliance with Applicable Law, fully and properly documenting all work done and results achieved in the performance of its designated Development activities. Such records shall be retained by Napo or Salix, as the case may be, for at least [*] years after the termination of this Agreement, or for such longer period as may be required by Applicable Law. Upon request, each Party shall provide copies of the records it has maintained pursuant to this Section 2.2.1 to the other Party.

2.2.2 Each Party shall have the right, during normal business hours and upon reasonable notice, to inspect and copy all records of the other Party maintained pursuant to Section 2.2.1. The inspecting Party shall maintain such records and the information disclosed therein in confidence in accordance with Article 12.

 

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

 

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2.2.3 Without limiting Section 11.1, within [*] days following the end of each Quarter during which a Party is conducting Development activities, or with respect to the Advent Study, within [*] days following the end of each calendar month, such Party shall provide to the JSC access to or copies of such written reports and materials as such Party produces in the ordinary course of business.

2.3 Regulatory Inspections. If any governmental or Regulatory Authority (a) contacts a Party, any of its scientific staff or any other Person performing Development activities on such Party’s behalf, with respect to such Development activities; (b) conducts, or gives notice of its intent to conduct, an inspection at any facility of such Party used in the performance of its obligations hereunder; or (c) takes, or gives notice of its intent to take, any other regulatory action alleging improper or inadequate research practices (including the issuance of a “Notice of Inspectional Observations,” “Warning Letter” or the equivalent) with respect to any activity of such Party, any of its scientific staff or any other Person performing Development activities on such Party’s behalf, whether or not in connection with the services provided under this Agreement, such Party shall notify the other Party within five (5) Business Days 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 Development activities, 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 Development activities. The inspected Party shall provide the other Party with copies of all documentation issued 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 Development activities conducted by, or to be conducted by, the inspected Party.

2.4 Development Plan and Budget. The Development of the CRO-HIV Product, and of each Licensed Product for other indications as to which the JSC may determine to pursue Development activities, shall be governed by a comprehensive, multi-year plan and budget relating to such Development (the “ Development Plan and Budget ”). The initial Development Plan and Budget is attached hereto as Exhibit A . The JSC shall review such Development Plan and Budget on a regular basis and make amendments thereto with respect to the Development of each Licensed Product that may from time to time be included in the Development Plan and Budget. Any amendment to the Development Plan and Budget shall include a proposed budget in a format to be determined by the JSC for any new Clinical Trials, Post Approval Studies or other Development activities, which budget shall include line item estimates of Development Costs broken down on a Quarterly basis. No amendment to the Development Plan and Budget shall obligate Napo to pay for any additional cost or expense over and above the costs and expenses set forth in Exhibit A without reimbursement of Napo by Salix unless with the express written consent of Napo, which consent shall be provided or withheld by Napo in its sole and absolute discretion, provided that all such costs reimbursed by Salix shall be deemed Development Costs incurred by Salix for purposes of Section 3.1 or 3.1.3 , as applicable.

 

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

 

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2.5 Product Trademarks. Subject to Section 4.9, the JSC shall designate Trademarks as Product Trademarks with respect to each Licensed Product to be Exploited by Salix hereunder and determine their use and manner of use. 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 in respect of each Licensed Product on a worldwide basis.

ARTICLE 3

DEVELOPMENT FUNDING

3.1 Salix’s Payment Obligations for Development and Other Activities in Respect of Advent Products.

3.1.1 During the term of this Agreement, Salix shall reimburse Napo for Development Costs paid by Napo to Third Party Providers in respect of Development and other activities relating to the Advent Products up to and including the filing with the FDA of an application for Initial Regulatory Approval of an Advent Product.

3.1.2 Salix shall pay to Napo [*] Dollars ($ [*] ) in the aggregate in respect of a portion of the costs associated with Napo’s employment of the employees named in Schedule 3.1.2 as follows: (a)  [*] Dollars ($ [*] ) on the date that is [*] Business Days after the Effective Date, (b)  [*] Dollars ($ [*] ) on the first day of the first calendar [*] following the month in which the Effective Date falls, and (c)  [*] Dollars ($ [*] ) on the first day of the [*] calendar [*] following the month in which the Effective Date falls. Should any of the aforesaid employees cease to be employed by Napo prior to the end of the [*] calendar [*] following the month in which the Effective Date falls, the remainder of the obligation of Salix under the foregoing sentence shall be reduced pro rata to account for such employee’s departure. In the event that the pro rata reduction contemplated by the foregoing sentence results in the payments made by Salix to the date of the employee’s departure being in excess of its aggregate commitment as so reduced, Napo shall promptly refund any overpayment.

3.1.3 Any Development Costs incurred by Salix, whether reimbursed by Salix to Napo or incurred by Salix itself, in respect of Development and other activities relating to the Advent Products that in the aggregate exceed twelve million Dollars ($12,000,000) shall constitute and be applied as a credit to reduce the milestone payment otherwise due to Napo pursuant to Section 7.3.1 by the amount of such Development Costs that exceeds twelve million Dollars ($12,000,000). Any Development Costs incurred by Salix, whether reimbursed by Salix to Napo or incurred by Salix itself, in respect of Development and other activities relating to the Advent Products that in the aggregate exceed [*] Dollars ($ [*] ) shall constitute and be applied as a credit to reduce the milestone payments otherwise due to Napo pursuant to Section 7.4 by the amount of such Development Costs that exceeds [*] Dollars ($ [*] ).

 

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

 

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3.2 Salix’s Payment Obligations for Development and Other Activities for Other Indications.

3.2.1 At its sole and absolute discretion, Salix may agree to incur, including by way of reimbursement of Development Costs incurred by Napo, Development Costs in respect of Development and other activities relating to Licensed Products other than an Advent Product. Any such Development Costs incurred by Salix in connection with seeking Approval for an indication shall constitute and be applied as a credit to reduce the milestone payment in respect of the relevant indication otherwise due to Napo pursuant to Section 7.3, provided that Salix, Napo or one of their respective Affiliates receives an Approval for such indication. Any such Development Costs incurred by Salix that in the aggregate exceed the amount of the milestone payment in respect of the relevant indication otherwise due to Napo pursuant to Section 7.3 shall constitute and be applied as a credit to reduce the milestone payments otherwise due to Napo pursuant to Section 7.4 by the amount of such Development Costs that exceeds the amount of the milestone payment in respect of the relevant indication otherwise due to Napo pursuant to Section 7.3.

3.2.2 For the avoidance of doubt, Salix shall not have any obligation, unless otherwise specifically agreed by the Parties in writing, to incur, or reimburse Napo for, Development Costs in respect of Development and other activities relating to a Licensed Product for pediatric indications.

3.3 Invoices and Payments. Within thirty (30) days after the end of each Quarter, or in the case of reimbursements related to the Advent Study, within five (5) days after the end of each calendar month, Napo shall invoice Salix for the amounts reimbursable by Salix to Napo pursuant to Sections 3.1 and 3.1.3 for such Quarter or month, as applicable, which invoice shall be accompanied by reasonable documentation thereof. Napo shall promptly furnish Salix with such other information in support of such invoice as Salix may reasonably request. Each undisputed Quarterly invoice shall be payable to Napo within forty-five (45) days after receipt by Salix of such invoice and supporting documentation and information, and each undisputed monthly invoice shall be payable to Napo within thirty (30) days after receipt by Salix of such invoice and supporting documentation and information, with interest calculated in accordance with Section 7.9.

3.4 Books and Records; Audit. Each Party shall maintain (and shall ensure that its Affiliates shall maintain) complete and accurate books, records and accounts that, in reasonable detail, fairly reflect any Development Costs and expenses incurred by it or its Affiliates in conformity with GAAP and this Agreement. Such books, records and accounts shall be retained by Napo or Salix, as the case may be, for at least [*] years after the end of the period to which such books, records and accounts pertain or for such longer period as may be required by Applicable Law. Such books, records and accounts shall be subject to audit pursuant to Section 7.15.

 

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

 

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ARTICLE 4

REGULATORY MATTERS

4.1 Regulatory Responsibilities. As between the Parties, Salix shall have sole responsibility and authority for the preparation and maintenance of all Regulatory Documentation with respect to (a) Approvals, including Drug Approval Applications, for Licensed Products in (i) the Human Excluding HIV/AIDS/ID/Pediatric Field in the Salix Human Excluding HIV/AIDS/ID/Pediatric Territory; (ii) the HIV/AIDS/Pediatric Field in the Salix HIV/AIDS/Pediatric Territory; and (iii) the ID Field in the Salix ID Territory and (b) Development activities for Licensed Products that are conducted in support of Approvals for the Licensed Products or Commercialization of the Licensed Products in (i) the Human Excluding HIV/AIDS/ID/Pediatric Field in the Salix Human Excluding HIV/AIDS/ID/Pediatric Territory; (ii) the HIV/AIDS/Pediatric Field in the Salix HIV/AIDS/Pediatric Territory; and (iii) the ID Field in the Salix ID Territory. Subject to Article 13, all Approvals contemplated by the preceding sentence and related Regulatory Documentation relating to the Licensed Products shall be the sole property of Salix and held in the name of Salix (or in each such case Salix’s Affiliate or Sublicensee).

4.2 Regulatory 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 Drug Approval Application or other regulatory filings with respect to each Licensed Product, when and as such pre-clinical data or Clinical Data become available.

4.3 Communications with Regulatory Authorities.

4.3.1 As between the Parties, Salix shall have the sole responsibility and authority to communicate with Regulatory Authorities during the term of this Agreement in relation to Licensed Products in (a) the Human Excluding HIV/AIDS/ID/Pediatric Field in the Salix Human Excluding HIV/AIDS/ID/Pediatric Territory; (b) the HIV/AIDS/Pediatric Field in the Salix HIV/AIDS/Pediatric Territory; and (c) the ID Field in the Salix ID Territory. Except as necessary to comply with Applicable Law, Napo shall not, nor shall it permit any of its Affiliates or Sublicensees to, initiate any communications with any Regulatory Authority concerning the Licensed Compound or the Licensed Products without first notifying Salix in writing. The Parties acknowledge and agree that the rights and responsibilities set forth in this Section 4.3.1 shall be subject to Glenmark’s right to prepare and maintain Regulatory Documentation pursuant to Section 4.4(b) of the Glenmark Agreement as in effect as of the Effective Date.

4.3.2 Without limiting the provisions of Section 4.2 or 4.3.1, Salix shall promptly provide to Napo (a) copies of all written or electronic communications received by Salix or its Affiliates or Sublicensees from, or forwarded by Salix or its Affiliates or Sublicensees to, Regulatory Authorities with respect to (i) obtaining or maintaining any Approvals or (ii) any other activities relating to the Licensed Compound or the Licensed Products regarding such Regulatory Authorities and (b) copies of all contact reports produced by Salix or its Affiliates or Sublicensees, in each case (clause (a) and (b)), within five (5) Business Days of receiving, forwarding or producing any of the foregoing.

 

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4.3.3 Without limiting the provisions of Section 4.2 or 4.3.1, Napo shall promptly provide to Salix (a) copies of all material written or electronic communications received by Napo or its Affiliates or Sublicensees from, or forwarded by Napo or its Affiliates or Sublicensees to, Regulatory Authorities with respect to (i) obtaining or maintaining any Approvals or (ii) any other activities relating to the Licensed Compound or the Licensed Products regarding such Regulatory Authorities and (b) copies of all contact reports produced by Napo or its Affiliates or Sublicensees, in each case (clauses (a) and (b)), within five (5) Business Days of receiving, forwarding or producing any of the foregoing.

4.4 Transfer of Product Documentation. Subject to Section 10.4, Napo, for itself and its Affiliates, hereby assigns and transfers to Salix its entire right, title, and interest in and to any and all INDs and Drug Approval Applications relating to the Licensed Compound or the Licensed Products and shall execute and deliver to the FDA (and any other Regulatory Authority as reasonably requested by Salix in writing) a letter in a form approved by Salix transferring ownership to Salix of any and all such INDs and Drug Approval Applications filed with the FDA (or such other Regulatory Authority) by or on behalf of Napo and its Affiliates. Napo shall provide Salix with complete and accurate copies of all such assigned INDs and Drug Approval Applications and all related Regulatory Documentation as soon as reasonably practicable after Salix’s written request therefor, but in any event within forty-five (45) days of such request.

4.5 Drug Safety Information. Notwithstanding anything to the contrary in this Article 4, the Parties shall execute a pharmacovigilance agreement ( “Pharmacovigilance Agreement” ) (a) for the CRO-HIV Product within ninety (90) days after the Effective Date and (b) for any other Licensed Product at least ninety (90) days prior to the first commercial sale of such Licensed Product in (i) the Human Excluding HIV/AIDS/ID/Pediatric Field in the Salix Human Excluding HIV/AIDS/ID/Pediatric Territory; (ii) the HIV/AIDS/Pediatric Field in the Salix HIV/AIDS/Pediatric Territory; or (iii) the ID Field in the Salix ID Territory. Salix shall have the sole right to create and maintain a master drug safety database which shall cross-reference any Adverse Event (as such term shall be defined in the Pharmacovigilance Agreement) relating to a Licensed Product occurring anywhere worldwide. Salix shall be the sole owner of this master drug safety database. Napo shall submit to Salix all data collected by it with respect to Adverse Events relating to a Licensed Product in accordance with the timelines set forth in the Pharmacovigilance Agreement. The Parties agree that the form of the Pharmacovigilance Agreement shall be substantially in the form of the agreement attached as Exhibit B .

4.6 Recalls. Salix shall be responsible for controlling the conduct of, 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 Licensed Products in (a) the Human Excluding HIV/AIDS/ID/Pediatric Field in the Salix Human Excluding HIV/AIDS/ID/Pediatric Territory; (b) the HIV/AIDS/Pediatric Field in the Salix HIV/AIDS/Pediatric Territory; and (c) the ID Field in the Salix ID Territory. Napo shall provide such assistance to Salix in investigating and conducting any Recall as Salix reasonably may request. Salix shall bear all of the expenses of any such Recall; provided , however , that to the extent any such Recall resulted solely from Napo’s breach of its obligations hereunder or its gross negligence or willful misconduct, Napo shall bear the expense of such Recall.

 

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4.7 Rights of Reference. Each Party, each Party’s Affiliates, as well as Glenmark and AsiaPharm and their respective Affiliates, 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 any Licensed Product, or any component thereof (including all Approvals), in order to support regulatory submissions that such Party is permitted to make under this Agreement (or, in the case of Glenmark or AsiaPharm, that Glenmark is permitted to make under the Glenmark Agreement and that AsiaPharm is permitted to make under the AsiaPharm Agreement) for any Licensed Product and the Commercialization thereof. Napo shall support Salix as may be reasonably necessary in obtaining Approvals, including providing necessary documents, or other materials required by Applicable Law to obtain Approvals, in each case in accordance with the terms and conditions of this Agreement. For the avoidance of doubt, no Party shall be obligated as a result of this Section 4.7 to develop or prepare additional information or materials beyond those that it has otherwise developed or prepared for its own purposes.

4.8 Pricing and Reimbursement Approvals. Salix shall have the sole responsibility and authority in respect of all pricing and reimbursement approval proceedings relating to the Exploitation of any Licensed Product hereunder.

4.9 Drug Naming Approvals. Salix shall have the sole responsibility and authority in respect of all drug naming approval proceedings with the Regulatory Authorities relating to the Exploitation of any Licensed Product hereunder.

ARTICLE 5

COLLABORATION MANAGEMENT

5.1 Joint Steering Committee.

5.1.1 Formation and Purpose. Within fifteen (15) days after the Effective Date, the Parties shall establish a joint steering committee (the “ Joint Steering Committee ” or “ JSC ”), which shall oversee and coordinate the Development of, regulatory filings for, and other Exploitation of the Licensed Products hereunder. The JSC shall be composed of six (6) members, with an equal number of members appointed by each Party. Each member of the JSC shall be an employee of the respective Party or of an Affiliate of such Party with significant experience and responsibility for oversight of the Licensed Products. Either Party may substitute any of its representatives on the JSC by written notice to the other Party. Salix shall appoint one of its representatives to serve as Chairperson of the JSC.

5.1.2 Specific Responsibilities. The JSC shall continuously monitor the progress of the Development Plan and Budget and provide status reports to the senior management of each of the Parties as appropriate. The Parties contemplate that the responsibilities of the Joint Steering Committee shall evolve during the course of the Parties’ relationship under this Agreement. In support of its responsibility for overseeing and coordinating the Development and Exploitation of the Licensed Products, the JSC shall:

 

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(a) establish a strategy for (i) the Development, Approval, Commercialization and other Exploitation of the Licensed Products in (A) the Human Excluding HIV/AIDS/ID/Pediatric Field in the Salix Human Excluding HIV/AIDS/ID/Pediatric Territory; (B) the HIV/AIDS/Pediatric Field in the Salix HIV/AIDS/Pediatric Territory; and (C) the ID Field in the Salix ID Territory and (ii) the coordination of the Development, Approval, Commercialization and other Exploitation of the Licensed Products in fields and countries other than those specified in the preceding clause (i) to the extent such Development, Approval, Commercialization and other Exploitation impacts or affects the Development, Approval, Commercialization and other Exploitation of the Licensed Products in the fields and countries specified in clause (i);

(b) review and monitor the Development Plan and Budget and the implementation thereof and make recommendations to the Parties regarding updates, amendments and modifications to the Development Plan and Budget;

(c) consider the allocation of responsibilities between the Parties for Development pursuant to the Development Plan and Budget;

(d) consider the allocation of responsibilities between the Parties for Commercialization and other Exploitation activities pursuant to one or more written plans covering the Commercialization and other Exploitation of each Licensed Product;

(e) review and make recommendations to the Parties regarding the conduct of Clinical Trials for additional indications for Licensed Products, Post Approval Studies for Licensed Products, and amendments to the Development Plan and Budget in respect thereof;

(f) review statistical analysis plans and protocols for, and monitor the progress of, all Clinical Trials and Post Approval Studies for the Licensed Products;

(g) review and make recommendations to the Parties on all proposed product labeling, Drug Approval Applications and other filings with the Regulatory Authorities with respect to Approvals for the Licensed Products;

(h) review and make recommendations to the Parties on advertising and promotional materials and strategies, packaging designs and Product Trademarks for each Licensed Product;

(i) facilitate the exchange of Development Information relating to all Clinical Trials and Post Approval Studies and Commercialization Information for the Licensed Products;

 

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(j) establish such other committees (each, including the JSC, a “ Committee ”) as deemed appropriate by the JSC, including such Committees as the JSC deems appropriate to coordinate the Development, Approval, Commercialization and other Exploitation of the Licensed Products on a worldwide basis;

(k) consider labeling issues and undertake coordination of labeling on a worldwide basis so as to ensure such degree of consistency in labeling as the JSC deems to be desirable; and

(l) perform such other functions as are set forth herein or as the Parties may mutually agree in writing.

For clarity, subject to the terms of this Agreement, the activities and resources of each Party shall be managed by such Party, acting independently and in its individual capacity.

5.1.3 Pediatric Formulation of the Licensed Compound. Napo, in its sole discretion, may put forward to the JSC a development plan, to be prepared and implemented at Napo’s sole expense, for a Drug Approval Application in the United States of a pediatric formulation of the Licensed Compound. Upon the presentation of such plan, Salix shall cause its representatives on the JSC to consider such plan reasonably and in good faith.

5.1.4 Meetings and Minutes. Each Committee shall meet Quarterly, or as otherwise agreed to by the Parties, at a location designated by the Chairperson. During such time as the Advent Trial is ongoing, the JSC shall also hold telephone conferences as frequently as the Chairperson deems appropriate. Employees or consultants of either Party that are not members of a Committee may attend any meeting of such Committee; provided , however , that such attendees (a) shall not vote or otherwise participate in the decision-making process of such Committee and (b) are bound by obligations of confidentiality and non-disclosure equivalent to those set forth in Article 12. The Chairperson shall be responsible for calling meetings, preparing and circulating an agenda in advance of each meeting of each Committee, and preparing and issuing minutes of each meeting within thirty (30) days thereafter. Minutes shall be deemed approved unless any member of the JSC objects in writing to the accuracy of such minutes within seven (7) days of receipt of the minutes. In the event that any such objection is not resolved by mutual agreement of the Parties, such minutes shall be amended to reflect such unresolved dispute.

5.1.5 Procedural Rules.

(a) Each Committee shall have the right to adopt such standing rules as shall be necessary for its work to the extent that such rules are not inconsistent with this Agreement. A quorum of a Committee shall exist whenever there is present at a meeting at least one (1) representative appointed by each Party. Members of a Committee may attend a meeting either in person or by telephone, video conference or similar means in

 

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which each participant can hear what is said by, and be heard by, the other participants. Representation by proxy shall be allowed. A Committee shall take action by consensus of the members present at a meeting at which a quorum exists, with each Party having a single vote irrespective of the number of representatives of such Party in attendance, or by a written resolution signed by the Chairperson of such Committee and one (1) representative of Napo on such Committee.

(b) Dispute Resolution. If a Committee other than the JSC cannot, or does not, reach consensus on an issue within its jurisdiction, then the dispute shall be referred to the JSC for resolution and a special meeting of the JSC may be called for such purpose. If the JSC cannot, or does not, reach consensus on an issue within its jurisdiction, including any dispute arising in another Committee, then such issue shall be referred to a senior management employee of each of the Parties. Such senior management employees shall meet for attempted resolution by good faith negotiations within fifteen (15) days after such issue is referred to such senior management employees. In the event such designated senior management employees are not able to resolve such issue within such fifteen (15) day period, then such issue shall be finally and definitively resolved by the Chairperson of the JSC. For the avoidance of doubt, subject to the last sentence of Section 2.4, the right of the Chairperson of the JSC to finally and definitively resolve all disputes relating to matters within the purview of the JSC shall extend to amendments to the Development Plan and Budget, and the Chairperson of the JSC is specifically authorized and empowered to finally and definitively resolve any such dispute involving any and all amendments, alterations or changes to the Development Plan and Budget.

5.1.6 Limitations on Authority. Each Party shall retain the rights, powers and discretion granted to it under this Agreement, and no such rights, powers or discretion shall be delegated to or vested in a Committee unless the Parties expressly so agree in writing. No Committee shall have the power to amend, modify or waive compliance with this Agreement, which may only be amended or modified as provided in Section 15.10 or compliance with which may only be waived as provided in Section 15.13.

5.1.7 Interactions Between Committees and Internal Teams. The Parties recognize that each Party possesses an internal structure (including various committees, teams and review boards) that will be involved in administering such Party’s activities under this Agreement. Each Committee shall establish procedures to facilitate communications between such Committee and the relevant internal committee, team or board of each of the Parties in order to maximize the efficiency of the Committees and the performance by the Parties of their obligations hereunder, including by requiring appropriate members of such Committee to be available at reasonable times and places and upon reasonable prior notice for making appropriate oral reports to, and responding to reasonable inquiries from, the relevant internal committee, team or board.

 

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5.2 Napo and Salix Rights and Responsibilities. It is understood that the Development of each Licensed Product shall be designed on a global basis. It is contemplated that from and after the Effective Date, all Clinical Trials and Post Approval Studies for each Licensed Product, wherever and by whomever conducted, shall be structured, where practicable, so as to support the filing of Drug Approval Applications for each Licensed Product in the United States, and Napo agrees to use Commercially Reasonable Efforts to coordinate with its licensees, sublicensees or other rights holders with respect to the Licensed Products for that purpose to the extent such coordination is permitted under Applicable Law and under the Glenmark Agreement and the AsiaPharm Agreement as such agreements are in effect as of the Effective Date. Without limiting the foregoing, each Party agrees to coordinate with the other Party to facilitate such other Party’s performance of its obligations under this Agreement that specifically support the global Development, Approval, Commercialization and other Exploitation of the Licensed Products, including mutual rights of reference in Regulatory Documentation, 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.

ARTICLE 6

SUPPLY OBLIGATIONS

6.1 Pre-Clinical and Clinical Supply Obligations.

6.1.1 Napo shall, if and to the extent requested by Salix, supply pre-clinical and clinical requirements of the Licensed Products for use by Napo and Salix in the Development of the Licensed Products as contemplated hereunder, provided that Napo shall not be obligated to supply requested quantities of pre-clinical and clinical supply to the extent such quantities exceed the amounts reasonably contemplated under the Development Plan and Budget. Such supply arrangements shall be in such amounts and on such a schedule as is set forth in the initial Development Plan and Budget as the same exists on the Effective Date or as may be otherwise agreed between the Parties.

6.1.2 Napo shall manufacture the Licensed Compound and the Licensed Products pursuant to GMP.

6.1.3 In order to perform its supply obligations under Section 6.1.1, Napo may, with the prior written approval of Salix (such approval not to be unreasonably withheld, conditioned, or delayed), enter into agreements with one or more Third Parties (each, a “ Third Party Supplier ”) for the supply of Licensed Product, provided that Napo shall include Salix in any discussions with any Third Party Supplier and shall follow Salix’s instructions with respect to any decision pertaining to Napo’s arrangement with such Third Party Supplier. Payments by Napo to Third Party Suppliers shall, to the extent they otherwise qualify as Development Costs, be eligible for reimbursement by Salix as Development Costs pursuant to Article 3.

 

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6.2 Commercial Supply.

6.2.1 Salix shall itself, or through a Third Party manufacturer, manufacture Licensed Products for its commercial supply and shall do so pursuant to GMP.

6.2.2 Napo shall use commercially reasonable efforts to facilitate an arrangement between Salix and Third Party suppliers of CPL to meet Salix’s commercial supply requirements of CPL for incorporation into the Licensed Products. Until Salix has entered into an appropriate arrangement with Third Party suppliers of CPL for commercial supplies of CPL for incorporation into the Licensed Products and such Third Parties are able to supply all of Salix’s commercial supply requirements of such CPL, Napo shall cause a Third Party supplier to supply to Salix’s designated Third Party suppliers of the Licensed Compound all of Salix’s commercial supply requirements of such CPL, all such CPL to be in conformity with the Specifications and the Certificate of Analysis therefor and Manufactured in conformance with Applicable Law.

6.2.3 The Parties shall cooperate and negotiate in good faith with AsiaPharm to enter into an agreement among the Parties and AsiaPharm with respect to the Development, supply and Exploitation of the Licensed Products contemplated hereunder.

6.3 Supply Chain.

6.3.1 Notwithstanding anything to the contrary in Section 6.1 or 6.2, Salix shall have the right, at its sole discretion, to (a) enter into an arrangement with a Third Party regarding supply of any material derived from plant matter that contains the Licensed Compound in commercially extractable quantities, including CPL, (b) subject to any applicable terms of the Glenmark Agreement as in effect as of the Effective Date, enter into an arrangement with a Third Party manufacturer to obtain supplies of any Licensed Product or the Licensed Compound for incorporation into any Licensed Product, and (c) otherwise control the supply chain of Licensed Product on a direct basis; provided that in all cases ((a), (b) and (c)) Salix shall consult with Napo regarding matters of fair trade and sustainable supply.

6.3.2 Napo hereby sells, coveys and transfers to Salix, without additional consideration, all of Napo’s right, title and interest in and to the CPL described on Schedule 6.3.2 .

6.4 Technology Transfer. If Salix elects to manufacture a Licensed Product as provided in Section 6.2 or 6.3, Napo shall, upon [*] days’ advance written notice from Salix, commence a transfer of the then-current Manufacturing Technology of Napo for the Licensed Compound and such Licensed Product to either Salix or a Third Party manufacturer designated by Salix, the expense of which transfer shall be borne by Salix. As part of any transfer made pursuant to this Section 6.4, Napo shall provide Salix or such designee with Manufacturing

 

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

 

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Technology related to process development activities that are relevant to and would be required (a) to perform the manufacturing process with respect to the Licensed Compound and the applicable Licensed Product as performed by or on behalf of Napo and (b) for regulatory filings (including recovery steps established, process validation, product identity assays, in-process-control assays and relevant standard operating procedures, as well as technical methods for assays required for such manufacturing process). Salix agrees that, as between the Parties, all right, title and interest to such Manufacturing Technology belongs to Napo and that Salix shall, and shall cause such designee to, use such Manufacturing Technology transferred by Napo to Salix or such designee pursuant to this Section 6.4 solely for the purpose of manufacturing the Licensed Compound and the applicable Licensed Product pursuant to the terms and conditions of this Agreement and for no other purpose and pursuant to a written agreement regarding confidentiality having terms no less stringent than those set forth in Article 12.

6.5 Compassionate Distribution by Napo of Pediatric Products.

6.5.1 Distribution to Approved Relief Organizations. Salix agrees that it will work with Napo in good faith to structure and implement arrangements to permit Napo to distribute Licensed Products that have received Approval from the FDA for sale and distribution in the United States for pediatric indications (“ Pediatric Licensed Products ”) to Direct Relief International and International Rescue Committee and their Affiliates and such other multi-lateral partnering organizations as Napo may from time to time propose to Salix and Salix approve (such approval not to be unreasonably withheld, conditioned, or delayed) (each, an “ Approved Relief Organization ”) for compassionate distribution in the countries listed in Schedule 6.5.1 . The Parties agree that for any such distribution arrangement to be acceptable, (a) either (i) such distribution must be effected [*] to Salix or (ii) Napo must agree, pursuant to a legally binding agreement reasonably acceptable to Salix, to [*] Salix for any costs incurred by Salix in connection with such distribution; (b) such distribution must not, as determined by Salix in its sole and absolute discretion (such discretion nonetheless to be exercised in good faith), adversely affect the commercial position of any Licensed Product; and, (c) without limiting the provisions of Section 6.5.3, such distribution must not, as determined by Salix in its sole and absolute discretion (such discretion nonetheless to be exercised in good faith), adversely affect the “best price” concept in the United States or any similar concept in a jurisdiction outside the United States for any Licensed Product anywhere worldwide.

6.5.2 No Contravention. Any distribution effected pursuant to the provisions of Section 6.5.1 shall be deemed to be for the greater good and part of Napo’s commitment to the global health community and, subject to compliance by Napo with the provisions of Section 6.5.4, shall not be considered to be in contravention of the license rights granted by Napo to Salix in this Agreement.

6.5.3 Adverse Impact on “Best Price.” The Parties acknowledge and agree that Salix shall have no obligation to authorize or consent to any arrangement for the distribution of Pediatric Licensed Products pursuant to Section 6.5.1, and may

 

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

 

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terminate any existing arrangements for distribution of Pediatric Licensed Products to Approved Relief Organizations pursuant to Section 6.5.1, in the event that Salix determines at any time, in its sole and absolute discretion (such discretion nonetheless to be exercised in good faith), that such distribution may adversely affect the “best price” concept in the United States or any similar concept in a jurisdiction outside the United States for any Licensed Product anywhere worldwide. Salix agrees that in the event it should decline to approve or terminate an arrangement for distribution of Pediatric Licensed Products as contemplated by Section 6.5.1 due to considerations in respect of the “best price” concept in the United States or any similar concept in a jurisdiction outside the United States, it will work with Napo in good faith to identify alternative arrangements for the compassionate distribution of Pediatric Licensed Products as contemplated by Section 6.5.1 that will avoid any such adverse impact in respect of the “best price” concept in the United States or any similar concept in a jurisdiction outside the United States for any Licensed Product anywhere worldwide.

6.5.4 Unauthorized Sales. The provisions of this Section 6.5 are in all respects subject to the provisions of Section 9.3.2 and Napo shall strictly comply with the provisions of Section 9.3.2 in connection with any distribution, marketing, promotion, offering for sale or sale effected by it pursuant to this Section 6.5.

ARTICLE 7

FINANCIAL TERMS

7.1 Equity Investment. In partial consideration of the rights granted by Napo to Salix hereunder, Salix shall purchase two hundred fifty thousand (250,000) shares of Napo Common Stock at a purchase price of two Dollars ($2.00) per share, for an aggregate purchase price of five hundred thousand Dollars ($500,000), pursuant to the Stock Purchase Agreement.

7.2 Up-Front Payment. In partial consideration of the rights granted by Napo to Salix hereunder, subject to the terms and conditions set forth in this Agreement, Salix shall pay a one-time patent license fee in the amount of four million five hundred thousand Dollars ($4,500,000) (the “Up-Front Payment”) on or before the later of five (5) Business Days after the Effective Date and the date on which Napo has received and delivered to Salix the written confirmation of each Designated Payee of the amount owed to it by Napo as of the Effective Date, as follows: (a) to each Designated Payee in the amount set forth next to such Designated Payee’s name in Schedule 7.2 and (b) the remainder of the Up-Front Payment to Napo.

7.3 Regulatory Approval Milestones. Salix shall promptly inform Napo of the achievement of each of the milestones set forth below by Salix or any of its Affiliates or, if applicable, any of its Sublicensees. In partial consideration of the rights granted by Napo to Salix hereunder and subject to the terms and conditions set forth in this Agreement (including Sections 3.1 and 3.1.3 ), Salix shall pay to Napo a [*] milestone payment within [*] days after the achievement of each of the following milestones, calculated as follows:

 

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

 

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7.3.1 upon [*] Dollars ($ [*] );

7.3.2 upon [*] Dollars ($ [*] );

7.3.3 upon [*] Dollars ($ [*] ); and

7.3.4 upon [*] Dollars ($ [*] ).

Each milestone payment in this Section 7.3 shall be payable only upon the first achievement of such milestone and no amounts shall be due for subsequent or repeated achievements of such milestone, whether for the same or a different Licensed Product.

7.4 Sales Milestones. In partial consideration of the rights granted by Napo to Salix hereunder and subject to the terms and conditions set forth in this Agreement (including Sections 3.1 and 3.1.3 ), Salix shall pay to Napo a fully-earned, noncreditable, nonrefundable, non-cancelable milestone payment within [*] days after the achievement of each of the following milestones, calculated as follows:

7.4.1 upon the [*] Dollars ($ [*] ), [*] Dollars ($ [*] );

7.4.2 upon the [*] Dollars ($ [*] ), [*] Dollars ($ [*] );

7.4.3 upon the [*] Dollars ($ [*] ), [*] Dollars ($ [*] );

7.4.4 upon the [*] Dollars ($ [*] ), [*] Dollars ($ [*] );

7.4.5 upon the [*] Dollars ($ [*] ), [*] Dollars ($ [*] );

7.4.6 upon the [*] Dollars ($ [*] ), [*] Dollars ($ [*] ).

Each milestone payment in this Section 7.4 shall be payable only upon the first achievement of such milestone and no amounts shall be due for subsequent or repeated achievements of such milestone.

7.5 Royalties to Napo. In partial consideration of the rights granted by Napo to Salix hereunder and subject to the terms and conditions set forth in this Agreement, Salix shall pay to Napo royalties on each Licensed Product in respect of each Annual Period as follows:

7.5.1 From the date of the first commercial sale of such Licensed Product by Salix or any of its Affiliates or Sublicensees until the [*] anniversary of such date and thereafter, except to the extent the royalty rates set forth in Section 7.5.2 become effective pursuant to the terms of such Section and remain effective, subject to Section 7.5.3:

(a) [*] percent ( [*] %) of the first [*] Dollars ($ [*] ) in aggregate Net Sales of such Licensed Product;

 

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

 

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(b) [*] percent ( [*] %) of the aggregate Net Sales of such Licensed Product greater than [*] Dollars ($ [*] ) but not exceeding [*] Dollars ($ [*] ); and

(c) [*] percent ( [*] %) of the aggregate Net Sales of such Licensed Product greater than [*] Dollars ($ [*] ).

7.5.2 After the [*] anniversary of the date of the first commercial sale of such Licensed Product by Salix or any of its Affiliates or Sublicensees, at all times when the Per Tablet Cost of Goods is equal to or greater than [*] United States Cents ($ [*] ) so long as Salix has then obtained and placed into service a [*] :

(a) at all times when the Per Tablet Cost of Goods is equal to or greater than [*] United States Cents ($ [*] ) but less than [*] United States Cents ($ [*] ), [*] percent ( [*] %);

(b) at all times when the Per Tablet Cost of Goods is equal to or greater than [*] United States Cents ($ [*] ) but less than [*] United States Cents ($ [*] ), [*] percent ( [*] %);

(c) at all times when the Per Tablet Cost of Goods is equal to or greater than [*] United States Cents ($ [*] ) but less than [*] United States Cents ($ [*] ), [*] percent ( [*] %);

(d) at all times when the Per Tablet Cost of Goods is equal to or greater than [*] United States Cents ($ [*] ) but less than [*] United States Cents ($ [*] ), [*] percent ( [*] %);

(e) at all times when the Per Tablet Cost of Goods is equal to or greater than [*] United States Cents ($ [*] ) but less than [*] United States Cents ($ [*] ), seven percent ( [*] %);

(f) at all times when the Per Tablet Cost of Goods is equal to or greater than [*] United States Cents ($ [*] ) but less than [*] United States Cents ($ [*] ), [*] percent ( [*] %); or

(g) at all times when Per Tablet Cost of Goods is equal to or greater than [*] United States Cents ($ [*] ), [*] percent ( [*] %).

7.5.3 For clarification purposes, in the event that, at any time (and every time) after the terms of Section 7.5.2 have been triggered, the Per Tablet Cost of Goods is less than [*] United States Cents ($ [*] ), then the terms of Section 7.5.1 shall be
re-instated and shall again be effective for so long as the Per Tablet Cost of Goods remains less than [*] United States Cents ($ [*] ).

 

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

 

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7.6 Royalty Term. Napo’s right to receive royalties under Section 7.5 shall expire on a country-by-country and Licensed Product-by-Licensed Product basis upon the earlier of (a) the date of the first commercial sale (by a Person other than Salix or its Affiliates, Sublicensees or Distributors) in the country of a product that is approved by a Regulatory Authority and constitutes a Prescription Competitive Product in respect of such Licensed Product and (b) the later of (i) ten (10) Calendar Years from the date of first commercial sale of such Licensed Product in such country and (ii) the first date on which there is no longer (A) a Napo Patent that includes at least one Valid Claim or (B) any Data Exclusivity with respect to such Licensed Product in such country (such period, the “ Royalty Term ”). Upon expiration of each such Royalty Term, on a country-by-country and Licensed Product-by-Licensed Product basis, the licenses set forth in Section 10.1 shall be fully paid-up and perpetual licenses with respect to such Licensed Product in such country.

7.7 Royalty Step-Down. The royalties payable pursuant to Section 7.5 shall be reduced by [*] percent ( [*] %) on a
country-by-country basis (a) during any period in which there are [*] in such country in the [*] and [*] or (b) if aggregate commercial sales of units of Licensed Products [*] basis, based on data generated by IMS International (or if such data is not available, another reliable data source that is mutually agreed by the Parties by mutual written consent), for [*] or more consecutive [*] during the first [*] years following the initiation of commercial sales (by a Person other than Salix or its Affiliates, Sublicensees or Distributors) of a
Non-Prescription Competitive Product in the country.

7.8 Royalty Payments and Reports. Within forty-five (45) days after the end of each Quarter (or, for the last Quarter in a Calendar Year, sixty (60) days after the end of such Quarter), Salix shall make all royalty payments payable to Napo under this Agreement with respect to such Quarter. Along with such payments, Salix shall also provide detailed information regarding the calculation of royalties due pursuant to Section 7.5 including allowable deductions in the calculation of Net Sales of each Licensed Product on which royalties are paid.

7.9 Payment Method. All amounts due by Salix to Napo hereunder shall be paid in Dollars by wire transfer in immediately available funds to an account designated by Napo. Any undisputed payments or portions thereof due hereunder that are not paid on the date such payments are due under this Agreement shall accrue interest from the date that is thirty (30) days after the date on which payment was due at a rate equal to the lesser of (a) the prime rate as published in The Wall Street Journal , Eastern United States Edition, on the first Business Day of each Quarter in which such payments are overdue, plus [*] percentage points, and (b) the maximum rate permitted by law, calculated on the number of days such payment is delinquent, compounded monthly.

7.10 Taxes. Napo shall pay any and all taxes required by Applicable Law that are levied on account of royalties or other payments it receives under this Agreement. If laws or regulations require that taxes be withheld, Salix shall (a) deduct those taxes from the remittable royalty or other payment, (b) pay the taxes to the proper taxing authority, and (c) send evidence

 

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

 

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of the obligation together with proof of payment to Napo within fifteen (15) days following that payment.

7.11 Sublicenses.

7.11.1 Salix shall have the responsibility to account for and report sales of any Licensed Product by its Sublicensees that are subject to royalty payments under Section 7.5 on the same basis as if such sales were Net Sales by Salix. Salix shall pay to Napo (or cause its Sublicensee(s) to pay to Napo, with Salix remaining responsible for any failure of the Sublicensee(s) to pay amounts when due under this Agreement) royalties on such sales as if such sales of the Sublicensee(s) were Net Sales of Salix or any of its Affiliates.

7.11.2 In the event Salix enters into agreements with one or more Sublicensees to Exploit any Licensed Product outside North America, Salix shall pay to Napo (a)  [*] percent ( [*] %) of (i) any up-front fees (including any fees paid in installments), (ii) milestone payments not tied to sales (including regulatory milestones), and (iii) the fair market value of any other consideration not tied to sales, in each case ((i), (ii) and (iii)) paid to Salix by such Sublicensee under such agreement; and (b)  [*] percent ( [*] %) of any royalties or other payments tied to sales and paid to Salix by such Sublicensee under such agreement in respect of sales of Licensed Products made by such Sublicensee outside North America, provided that in the event any such agreement extends to territories within North America and territories outside North America, then the payments described in the foregoing clause (a) shall be reasonably allocated between such territories and the foregoing clause (a) shall not apply in respect of payments allocated to North America.

7.11.3 Except as otherwise provided in this Section 7.11, Salix shall have no obligation to Napo or its Affiliates to share any fees, milestone payments, royalties, financial consideration or other consideration received by Salix and its Affiliates from any sublicense of their rights hereunder.

7.12 Foreign Exchange. For the purpose of computing the Net Sales for any Licensed Product sold in a currency other than Dollars and for purposes of determining Net Sales and Development Costs, or other shared expenses under this Agreement incurred by a Party in a currency other than Dollars, such Net Sales or Development Costs amounts shall be converted into Dollars each Quarter using an exchange rate that is the arithmetic average of the daily exchange rates (obtained as described below) during such 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.

7.13 Third Party Payments Under Existing Agreements. Napo shall be solely responsible for all Third Party Payments and all of its other obligations under (a) the Tempesta License Agreement (including any and all royalties due, on each Licensed Product, to Michael

 

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

 

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Tempesta, Ph.D.), (b) the UIRF License Agreement, and (c) any other agreements between Napo or any of its Affiliates and any Third Party in existence as of the Effective Date.

7.14 Records. Salix shall keep (and shall ensure that its Affiliates and Sublicensees shall keep) such records as are required to determine, in a manner consistent with GAAP and this Agreement, amounts due from it to Napo under this Article 7. All such books, records and accounts shall be retained by Salix until the later of (a) three (3) years after the end of the period to which such books, records and accounts pertain and (b) the expiration of the applicable tax statute of limitations (or any extensions thereof), or for such longer period as may be required by Applicable Law. Salix shall require its Sublicensees to provide to it a report detailing the foregoing expenses and calculations incurred or made by such Sublicensee, which report shall be made available to Napo in connection with any audit conducted by Napo pursuant to Section 7.15.

7.15 Audits. Each Party shall have the right to have an independent certified public accounting firm of internationally recognized standing, and reasonably acceptable to the audited Party, provided with access by the other Party during normal business hours, and upon reasonable prior written notice, to examine only those records of such other Party (and its Affiliates and Sublicensees) as may be reasonably necessary to determine, with respect to any Calendar Year or Annual Period ending not more than [*] years prior to the requesting Party’s request, the correctness or completeness of any report or payment made under this Agreement. The foregoing right of review may be exercised only once per Calendar Year and only upon objective criteria. Results of any such examination shall be (a) limited to information relating to the Licensed Products, (b) made available to both Parties and (c) subject to Article 12. The auditing Party shall bear the full cost and expense of the performance of any such audit, unless such audit discloses a variance to the detriment of the auditing Party of more than [*] percent ( [*] %) from the amount of the original report, royalty or payment calculation, in which case the audited Party shall bear the full cost and expense of the performance of such audit. The results of such audit may be disputed in good faith by either Party according to Section 15.7.1. If such audit concludes that additional payments were owed or that excess payments were made during such period, the owing Party shall pay the additional amounts or the receiving Party shall reimburse such excess payments, with interest calculated in accordance with Section 7.9, within forty-five (45) days after the date on which such accounting firm’s written report is delivered to the Parties or any dispute with respect thereto is finally determined pursuant to Section 15.7.1, whichever is later.

ARTICLE 8

REPRESENTATIONS AND COVENANTS

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

 

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

 

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8.1.1 Corporate Power. Such Party is duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation or formation, and has full corporate or other power and authority to enter into this Agreement and to carry out the provisions hereof.

8.1.2 Due Authorization. Such Party (a) has the power and authority and the legal right to enter into this Agreement and to perform its obligations hereunder and (b) 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.

8.1.3 Binding Agreement. 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 the terms hereof subject to the effects of bankruptcy, insolvency or other 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.

8.1.4 Consents, Approvals, etc. All necessary consents, approvals and authorizations of all Regulatory Authorities and other parties 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.

8.1.5 Conflicts. The execution and delivery of this Agreement and the performance of such Party’s obligations hereunder (a) do not conflict with or violate any requirement of Applicable Law or any provision of the articles of incorporation, bylaws or any similar instrument of such Party, as applicable, in any material way and (b) do 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.

8.1.6 Additional Napo Representations and Warranties. Napo hereby represents and warra