<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 15, 1997
REGISTRATION NO. 333-
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------
SALIX HOLDINGS, LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
-----------
BRITISH VIRGIN ISLANDS 2834 94-3267443
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
-----------
3600 WEST BAYSHORE ROAD, SUITE 205
PALO ALTO, CALIFORNIA 94303
(650) 856-1550
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
-----------
DAVID BOYLE
VICE PRESIDENT, FINANCE & ADMINISTRATION,
AND CHIEF FINANCIAL OFFICER
SALIX HOLDINGS, LTD.
3600 WEST BAYSHORE ROAD, SUITE 205
PALO ALTO, CALIFORNIA 94303
(650) 856-1550
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE OF PROCESS)
-----------
COPIES TO:
DOUGLAS H. COLLOM, ESQ. ROBERT M. CHILSTROM, ESQ.
ROBERT F. KORNEGAY, ESQ. CHRISTOPHER W. MORGAN, ESQ.
ROSEMARY G. REILLY, ESQ. SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
WILSON SONSINI GOODRICH & ROSATI P.O. BOX 189, ROYAL BANK PLAZA
PROFESSIONAL CORPORATION NORTH TOWER, SUITE 1820
650 PAGE MILL ROAD TORONTO, ONTARIO M5J 2J4
PALO ALTO, CALIFORNIA 94304 (416) 777-4700
(650) 493-9300
-----------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION
STATEMENT.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_] ____________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] ____________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
===============================================================================
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED TO BE REGISTERED(1) PER SHARE(2)(3) OFFERING PRICE(2)(3) REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Shares, no par
value................. 3,450,000 U.S.$6.13 U.S.$21,148,500 U.S.$6,409
</TABLE>
===============================================================================
(1) Includes 450,000 Common Shares which the Underwriters have the option to
purchase solely to cover over-allotments, if any.
(2) Estimated in accordance with Rule 457 solely for the purpose of computing
the amount of the registration fee based on the average of the high and
low sales prices of the Common Shares as reported on The Toronto Stock
Exchange on August 13, 1997.
(3) For purposes of computing the amount of the registration fee, proposed
maximum offering price per share and the proposed maximum aggregate
offering price have been converted to U.S. dollars based on an exchange
rate of Cdn. $1.3942 to U.S. $1.00. The Common Shares of the Registrant
are currently traded on The Toronto Stock Exchange in Canadian Dollars and
the Common Shares being registered hereby will be purchased and
subsequently traded in Canadian Dollars.
-----------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
===============================================================================
<PAGE>
EXPLANATORY NOTE
This Registration Statement contains a Prospectus relating to a public
offering in the United States (the "U.S. Offering") of the Common Shares, no
par value (the "Common Shares"), of Salix Holdings, Ltd., together with
alternate prospectus pages relating to a concurrent offering of the Common
Shares in Canada (the "Canadian Offering"). The complete Prospectus for the
U.S. Offering follows immediately after this explanatory note. After such
Prospectus are the following alternate prospectus pages for the Canadian
Offering: a front outside cover page, a front inside cover page and the pages
containing the captions "Certificate of the Company" and "Certificate of the
Underwriters". All other pages of the Prospectus for the U.S. Offering are to
be used for both the U.S. Offering and the Canadian Offering.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE OR JURISDICTION. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED AUGUST 15, 1997
3,000,000 Common Shares
[LOGO]
--------
All of the Common Shares offered hereby are being sold by Salix Holdings,
Ltd. ("Salix" or the "Company"). The Company's Common Shares are traded on The
Toronto Stock Exchange. Prior to this offering, there was no public market for
the Company's Common Shares in the United States, and following this offering
the Common Shares will be traded only in Canada. See "Description of Share
Capital". On August 13, 1997, the closing price of the Company's Common Shares
as reported on The Toronto Stock Exchange was Cdn. $8.50 per Common Share. See
"Price Range of Common Shares". On August 13, 1997, The Bank of Canada noon
rate of exchange for United States dollars into Canadian dollars was
Cdn. $1.3942 = U.S. $1.00.
The 3,000,000 Common Shares offered hereby are being offered outside the
United States by the Canadian Underwriters and in the United States by certain
U.S. affiliates of the Canadian Underwriters. See "Plan of Distribution".
--------
THE COMMON SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 9.
--------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
<CAPTION>
UNDERWRITING PROCEEDS
PRICE TO DISCOUNTS AND TO
PUBLIC (/1/) COMMISSIONS (/2/) COMPANY(/3/)
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share..................... Cdn. $ Cdn. $ Cdn. $
- ------------------------------------------------------------------------------
Total (/4/)................... Cdn. $ Cdn. $ Cdn. $
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
</TABLE>
(1) Purchasers will be required to pay for the Common Shares in Canadian
dollars. The Underwriters have arranged for the conversion of U.S. dollars
into Canadian dollars to enable U.S. purchasers to pay for the Common
Shares. All costs of exchange will be borne by the purchasers of the Common
Shares. See "Plan of Distribution".
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the United States Securities Act
of 1933, as amended, and applicable Canadian securities laws. See "Plan of
Distribution".
(3) Before deducting expenses payable by the Company, estimated at Cdn.
$1,219,925 (U.S. $875,000).
(4) The Company has granted to the Underwriters a 60-day option to purchase up
to an additional 450,000 Common Shares, solely to cover over-allotments, if
any. See "Plan of Distribution". If such option is exercised in full, the
total Price to Public, Underwriting Discounts and Commissions and Proceeds
to Company will be Cdn. $ , Cdn. $ and Cdn. $ , respectively.
--------
The Common Shares are offered by the Underwriters as stated herein, subject
to receipt and acceptance by them and subject to their right to reject any
order in whole or in part. It is expected that delivery of such shares will be
made through the offices of Levesque Beaubien Geoffrion Inc., Montreal, Quebec
on or about , 1997.
NBC Levesque International Ltd. Yorkton Capital Inc.
Marleau, Lemire Securities Inc. Midland Walwyn Capital Corporation
THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE>
[ARTWORK: PHOTOGRAPHIC DEPICTION OF THE MANUFACTURE OF BALSALAZIDE CAPSULES
AND PHOTOGRAPHS OF FINISHED BALSALAZIDE CAPSULES].
In July 1997, Salix received
authorization to market its first product,
Colazide, for treatment of acute ulcerative
colitis from the United Kingdom Medicines
Control Agency. The Company submitted a New
Drug Application to the United States Food
and Drug Administration in June 1997 for
the same indication.
Colazide is currently being manufactured
in preparation for the scheduled October
1997 United Kingdom product launch.
Salix, Salix Pharmaceuticals, Glycyx Pharmaceuticals, and Salix Holdings are
trade names of the Company. Colazide is a trademark of Biorex Laboratories
Limited. This Prospectus also contains trademarks and trade names of other
companies.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON SHARES.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING,
MAY BID FOR, AND PURCHASE, THE COMMON SHARES IN THE OPEN MARKET AND MAY IMPOSE
PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "PLAN OF
DISTRIBUTION".
<PAGE>
No dealer, sales representative or any other person has been authorized to
give any information or to make any representation in connection with this
offering other than those contained in this Prospectus, and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Company or any Underwriter. This Prospectus does not
constitute an offer to sell, or a solicitation of an offer to buy, any
securities other than the registered securities to which it relates or an
offer to, or solicitation of, any person in any jurisdiction where such an
offer or solicitation would be unlawful. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that there has been no change in the affairs of the Company
since the date hereof or that the information contained herein is correct as
of any time subsequent to the date hereof.
Until , 1997 (90 days after the date of this Prospectus), all dealers
effecting transactions in the Common Shares, whether or not participating in
this distribution, may be required to deliver a Prospectus. This delivery
requirement is in addition to the obligation of dealers to deliver a
Prospectus when acting as Underwriters and with respect to their unsold
allotments or subscriptions.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Exchange Rates........................................................... 4
Eligibility for Investment............................................... 4
Summary.................................................................. 5
Risk Factors............................................................. 9
Use of Proceeds.......................................................... 20
Price Range of Common Shares............................................. 21
Dividend Policy.......................................................... 21
Capitalization........................................................... 22
Dilution................................................................. 23
Selected Consolidated Financial Data..................................... 24
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 25
Business................................................................. 29
Management............................................................... 46
Principal Shareholders................................................... 56
Description of Share Capital............................................. 57
Prior Sales of Securities................................................ 58
Comparison of Canadian, United States and British Virgin Islands
Corporate Laws.......................................................... 59
Certain Tax Considerations............................................... 61
Shares Eligible for Future Sale.......................................... 65
Plan of Distribution..................................................... 67
Legal Matters............................................................ 69
Experts.................................................................. 69
Transfer Agent........................................................... 69
Material Contracts....................................................... 70
Canadian Purchasers' Statutory Rights.................................... 71
Additional Information................................................... 71
Glossary................................................................. 72
Index to Consolidated Financial Statements............................... F-1
</TABLE>
------------
The Company intends to furnish its shareholders with annual reports
containing audited financial statements examined by an independent accounting
firm and quarterly reports for the first three quarters of each year
containing interim unaudited consolidated financial information. Upon
completion of the offering contemplated hereby, the Company will be subject to
the informational requirements of the United States Securities Exchange Act of
1934, and in accordance therewith, will be filing reports and other
information with the United States Securities and Exchange Commission. The
Company is also subject to the informational requirements of The Toronto Stock
Exchange and applicable Canadian securities legislation.
------------
3
<PAGE>
EXCHANGE RATES
IN THIS PROSPECTUS, UNLESS OTHERWISE SPECIFIED OR THE CONTEXT OTHERWISE
REQUIRES, ALL DOLLAR AMOUNTS ARE EXPRESSED IN UNITED STATES DOLLARS. The
average exchange rate for the six months ended June 30, 1997 and 1996 and the
years ended December 31, 1996, 1995, 1994, 1993 and 1992 and the exchange rate
at the end of each such period for the conversion of United States dollars
into Canadian dollars based on the Bank of Canada noon rate of exchange for
United States dollars were as follows:
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED DECEMBER 31,
ENDED JUNE 30, ----------------------------------
1997 1996 1996 1995 1994 1993 1992
------- ------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
End of period................ 1.3811 1.3651 1.3696 1.3652 1.4028 1.3240 1.2711
Period average............... 1.3724 1.3668 1.3636 1.3726 1.3659 1.2898 1.2083
</TABLE>
On August 13, 1997, the Bank of Canada noon rate of exchange for United
States dollars into Canadian dollars was Cdn. $1.3942 = U.S. $1.00. Unless
otherwise noted, all exchange rate conversions within this Prospectus assume
an exchange rate of Cdn. $1.3942 = U.S. $1.00.
ELIGIBILITY FOR INVESTMENT
Eligibility of the Common Shares offered hereby for investment by purchasers
to whom any of the following statutes apply is, in certain cases, governed by
criteria which such purchasers are required to establish as policies or
guidelines pursuant to the applicable statute (and, where applicable, the
regulations thereunder) and is subject to the prudent investment standards and
general investment provisions and restrictions provided therein:
Insurance Companies Act (Canada) An Act respecting insurance (Quebec)
Pension Benefits Standards Act, 1985 (for insurers as defined therein
(Canada) incorporated under the laws of the
Trust and Loan Companies Act (Canada) province of Quebec other than a
Pension Benefits Act (Ontario) mutual association or guarantee
Financial Institutions Act fund)
(British Columbia) An Act respecting trust companies
Pension Benefits Standards Act and savings companies (Quebec) (for
(British Columbia) savings companies investing their
Supplemental Pension Plans Act (Quebec) own funds, and by trust companies
investing their own funds and
deposits received by them)
The Common Shares will be qualified investments under the Income Tax Act
(Canada) (the "Canadian Act") for trusts governed by registered retirement
savings plans, registered retirement income funds and deferred profit sharing
plans.
The Common Shares will be foreign property for the purposes of the foreign
property limitations under the Canadian Act. Part XI of the Canadian Act
requires that certain tax payers, including registered retirement savings
plans, registered retirement income funds and deferred profit sharing plans,
restrict their investments in foreign property within the limits contained in
the Canadian Act in order to avoid a penalty tax. The foreign property limit
is currently 20% of the cost amount of all property held by the taxpayer.
4
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the financial statements and notes thereto appearing elsewhere
in this Prospectus. Prospective investors should consider carefully the
information discussed under "Risk Factors" and elsewhere in this Prospectus.
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth under "Risk Factors" and elsewhere in this
Prospectus.
The "as adjusted" and other proforma financial information contained in this
Prospectus under "Summary", "Dilution", "Capitalization" and "Use of Proceeds"
assumes the completion of the offering of the Common Shares made hereby at an
assumed public offering price of Cdn. $8.50 per Common Share. This assumed
price represents the closing price of the Company's Common Shares as reported
on The Toronto Stock Exchange on August 13, 1997, and is not indicative of the
actual offering price of the Common Shares to be determined by the Company and
the Underwriters.
UNLESS OTHERWISE INDICATED, ALL REFERENCES TO "$" OR "DOLLARS" REFER TO
UNITED STATES DOLLARS. ALL REFERENCES TO "CDN. $" REFER TO CANADIAN DOLLARS.
THE COMPANY
Salix Holdings, Ltd. ("Salix" or the "Company") identifies and in-licenses
gastrointestinal products that have near-term commercial potential and applies
its product development expertise to accelerate the commercialization of these
products. The Company's business strategy is to select and in-license
gastrointestinal products that have the potential for rapid regulatory
approval. By in-licensing drugs with late-stage clinical data and developing
these drugs for diseases that are in need of new pharmaceutical treatments, the
Company believes that it can significantly reduce the risk, time and investment
normally associated with the development and commercialization of
pharmaceuticals products.
The Company's first product, Colazide, recently was approved for marketing in
the United Kingdom for the treatment of acute ulcerative colitis. The Company
currently expects that commercial launch of Colazide in the United Kingdom will
occur in October 1997 and, subject to regulatory approvals, that Colazide will
become commercially available in other countries in Europe in 1998. In
addition, the Company has recently submitted to the United States Food and Drug
Administration ("FDA") its New Drug Application ("NDA") for Colazide for the
same indication.
The Company has also in-licensed a second product, rifaximin, and intends to
pursue regulatory approvals for the drug in the treatment of two initial
indications, hepatic encephalopathy and antibiotic associated colitis. The
Company presently expects to submit an application to the FDA in the fourth
quarter of 1997 seeking Orphan Drug Status for rifaximin in the treatment of
hepatic encephalopathy. If the Company's application is approved, rifaximin
could receive priority review from the FDA following completion of clinical
trials for the drug and filing of an NDA for marketing approval. It is not
currently expected that the Company will be in a position to file an NDA for
rifaximin prior to mid-1998.
In the course of its transition to a commercial stage company, the Company
has leveraged its resources by establishing strategic alliances with companies
that have significant resources in clinical monitoring and manufacturing. In
anticipation of the commercial release of Colazide in the United
5
<PAGE>
Kingdom in October 1997, the Company has entered into manufacturing
arrangements with Courtaulds Chemicals (Holdings) Limited and Anabolic, Inc.,
each of which is a commercially established pharmaceutical manufacturer.
Colazide will be distributed in all markets except certain countries in
southern Europe and Asia by AB Astra ("Astra"), a Swedish international
pharmaceutical company, under a distribution agreement that provides Astra with
exclusive distribution rights, and in Italy, Spain, Portugal, and Greece by a
division of Menarini Pharmaceutical Industries s.r.l. ("Menarini"), an Italian
manufacturer and distributor of pharmaceutical products. The Company's
distribution arrangements with Astra and Menarini have provided the Company
with funding necessary to complete the late-stage development of Colazide, in-
license other gastrointestinal products and help establish the Company as a
viable gastrointestinal pharmaceutical company.
The Company expects to market and sell rifaximin and other future products
in-licensed and commercialized by the Company through a small, specialized
direct sales force to be established by Salix. The Company believes that a
direct sales model will reflect higher operating margins than the distribution
partner model that the Company will use in connection with sales of Colazide.
The Company was incorporated in the British Virgin Islands in December 1993.
Prior to December 1993, the business of the Company was conducted by Salix
Pharmaceuticals, Inc., a California corporation ("Salix Pharmaceuticals"),
which was incorporated in California in 1989 and which is now a subsidiary of
Salix Holdings, Ltd. Unless the context otherwise requires, references in this
Prospectus to "Salix" and the "Company" refer to Salix Holdings, Ltd., a
corporation organized under the laws of the British Virgin Islands, and its
wholly owned subsidiaries, Salix Pharmaceuticals and Glycyx Pharmaceuticals,
Ltd., a Bermuda corporation ("Glycyx"). The Company's executive offices are
located at 3600 West Bayshore Road, Suite 205, Palo Alto, California 94303, and
its telephone number at that address is (650) 856-1550.
6
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Securities Offered...... 3,000,000 Common Shares of the Company
Common Shares
Outstanding after the
Offering............... 10,118,173 Common Shares(/1/)
Toronto Stock Exchange
Symbol................. SLX(/2/)
Use of Proceeds......... The net proceeds to the Company from the sale of the 3,000,000
Common Shares offered hereby are estimated to be approximately
Cdn. $22,622,575 (approximately Cdn. $26,198,950 if the
Underwriters' over-allotment option is exercised in full) at an
assumed public offering price of Cdn. $8.50 per Common Share,
which is not indicative of the actual offering price, and after
deducting estimated underwriting discounts and commissions and
offering expenses payable by the Company.
Of the offering proceeds, the Company expects to apply
approximately Cdn. $4,000,000 (U.S. $2,869,029) toward the
commercialization of Colazide in the United Kingdom and
obtaining regulatory approval in the United States,
approximately Cdn. $15,622,575 (U.S. $11,205,404) toward the
Company's other product development and clinical programs, and
approximately Cdn. $3,000,000 (U.S. $2,151,772) for other
working capital and general corporate purposes. The Company's
allocation of offering proceeds to other product development and
clinical programs will be increased by the amount of any net
proceeds resulting from the exercise of the Underwriters' over-
allotment option. There can be no assurance that the actual
allocation of the offering proceeds will not differ materially
from their currently anticipated use. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and
Results of Operations".
Risk Factors............ Investment in the Common Shares may be regarded as speculative
due to the nature of the Company's business and the various
stages of development of its new products. In particular,
investors should consider that the Company has only one product
approved for sale, such approval relates to the sale of the
product only in the United Kingdom, and the product has not yet
been launched commercially. The Company has incurred operating
losses and cash flow deficiencies to date and does not expect to
achieve profitability on an annual basis before 2000. The
Company's products are subject to strict regulatory approval
requirements. The proceeds from this offering may be inadequate
to fund the development of the new products, and it is likely
the Company will require additional funding in the future. See
"Risk Factors".
</TABLE>
- --------
(1) Based on Common Shares outstanding as of June 30, 1997. Excludes (i)
713,500 Common Shares issuable upon exercise of options outstanding as of
June 30, 1997 under the Company's 1994 Stock Plan (the "1994 Plan") and the
1996 Stock Option Plan (the "1996 Plan" and together with the 1994 Plan,
the "Stock Plans") at a weighted average exercise price of $3.72 per Common
Share, (ii) 303,362 Common Shares reserved for issuance under future option
grants as of June 30, 1997 under the Stock Plans, and (iii) 602,331 Common
Shares issuable upon exercise of outstanding warrants as of June 30, 1997
at an exercise price of $3.00 per Common Share. See "Management--Stock
Plans", "Description of Share Capital" and Notes 8 and 10 of Notes to
Consolidated Financial Statements.
(2) The Company's Common Shares currently trade on The Toronto Stock Exchange
under the symbol "SLX.s" and carry a legend reflecting the Company's
reliance, in connection with its initial public offering in Canada in May
1996, on the exemption from the registration requirements of the United
States Securities Act of 1933, as amended (the "U.S. Securities Act"), set
forth in Regulation S thereunder. It is the Company's current intention to
authorize the removal on May 28, 1998 of the Regulation S legend from all
shares currently bearing such legend. Shareholders may request that the
Company remove such legend in connection with resales prior to May 28,
1998, subject to the shareholder's ability to establish, to the
satisfaction of the Company and its legal counsel, that the requirements of
the U.S. Securities Act have been satisfied. After May 28, 1998, all Common
Shares that are then freely tradeable on The Toronto Stock Exchange will
trade under the symbol "SLX". The Common Shares offered by the Company
hereby will be registered under the U.S. Securities Act and will not,
therefore, carry a legend. See "Shares Eligible for Future Sale".
7
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
---------------- -------------------------------------------
1997 1996 1996 1995 1994 1993 1992
------- ------- ------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
License revenue......... $ -- $ -- $ 1,186 $ -- $ -- $ 1,000 $ 1,712
Revenue from
collaborative
agreements and other... 21 384 634 1,990 2,827 3,439 1,212
Loss from operations.... (2,575) (1,443) (2,569) (2,332) (1,497) (755) (1,023)
Net loss................ (2,475) (1,571) (2,451) (2,420) (1,452) (714) (1,011)
Net loss per
share(/1/)............. $ (0.35) $ (0.41) $ (0.46) $ (0.77) $ (0.46) $ (0.23) $ (0.38)
Shares used in computing
net loss per
share(/1/)............. 6,975 3,877 5,365 3,149 3,144 3,144 2,688
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
--------------------------
ACTUAL AS ADJUSTED(/2/)
-------- ----------------
(UNAUDITED)
<S> <C> <C>
SELECTED CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............................ $ 3,657 $19,883
Working capital...................................... 2,986 19,212
Total assets......................................... 4,250 20,476
Accumulated deficit.................................. (11,076) (11,076)
Shareholders' equity................................. 3,181 19,407
</TABLE>
- --------
(1) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of shares used in computing net loss per share.
(2) Adjusted to give effect to the sale of 3,000,000 Common Shares offered by
the Company hereby at an assumed public offering price of Cdn. $8.50 per
Common Share (and an assumed exchange rate of Cdn. $1.3942 per U.S. $1.00)
and the application of the estimated net proceeds therefrom after deducting
estimated underwriting discounts and commissions and offering expenses
payable by the Company. See "Use of Proceeds" and "Capitalization".
------------
Except as otherwise indicated herein, all information in this Prospectus
assumes no exercise of the Underwriters' over-allotment option.
8
<PAGE>
RISK FACTORS
An investment in the Common Shares offered by this Prospectus involves a
high degree of risk. Prospective purchasers of the Common Shares offered
hereby should carefully review the following risk factors as well as the other
information set forth in this Prospectus. This Prospectus contains forward-
looking statements based upon current expectations of future events that
involve risks and uncertainties. The Company's actual results and the timing
of certain events could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those set
forth in the following risk factors and elsewhere in this Prospectus.
----------------
Dependence on Currently Licensed Products; Uncertainty of Regulatory
Approval of Company's Products. The Company's future success will depend,
among other factors, on its ability to in-license, develop, and commercialize
new pharmaceutical products. The Company currently licenses two pharmaceutical
products, balsalazide and rifaximin, and the Company's prospects over the next
three to five years are substantially dependent on regulatory approval and
successful commercialization of these products. The Company has in-licensed
certain rights to balsalazide and rifaximin in certain markets from Biorex
Laboratories Limited ("Biorex") and Alfa Wassermann S.p.A. ("Alfa
Wassermann"), respectively. In addition, the Company has entered into
agreements relating to the development, commercialization, manufacture, and
marketing of Colazide, the disodium salt of balsalazide, with AB Astra, a
Swedish pharmaceutical company ("Astra"), and with a division of Menarini
Pharmaceutical Industries s.r.l., an Italian pharmaceutical company
("Menarini"). See "--Dependence on Exclusive Licenses" and "--Dependence on
Collaborative Partners".
Development, manufacture, and marketing of both balsalazide and rifaximin
are subject to extensive regulation by governmental authorities in the United
States and other countries. Neither drug has been approved by the United
States Food and Drug Administration ("FDA") for use in the United States. In
June 1997, the Company submitted a New Drug Application ("NDA") to the FDA
relating to Colazide as a therapy for acute ulcerative colitis. The NDA is
subject to acceptance for filing by the FDA by August 22, 1997 and, if
accepted for filing, a detailed substantive review. The Company believes that
FDA approval to market Colazide will not be obtained before mid-1998, if at
all. In July 1997, the Medicines Control Agency in the United Kingdom approved
Colazide as a treatment for acute ulcerative colitis in the United Kingdom,
and the Company and its partners, Astra and Menarini, are in the process of
seeking approvals in other member countries of the European Union through a
mutual recognition procedure. There can be no assurance that Colazide will
receive approval from the FDA or from regulatory agencies in any member
country of the European Union other than the United Kingdom. Even if such
approvals are ultimately received, there can be no assurance as to the timing
of such approvals or market acceptance of Colazide for the approved
indications. With respect to rifaximin, Alfa Wassermann is currently
conducting a clinical trial in Spain relating to the drug as a therapy for
hepatic encephalopathy. The Company has not yet reviewed the protocol for this
trial, has not audited the data collection procedures, and has not determined
that such study is being conducted in accordance with Good Clinical Procedures
("GCP"). There can be no assurance that the clinical trial for rifaximin
currently being performed by Alfa Wassermann will demonstrate that the drug is
safe and effective for the indication tested, that such clinical trial will
support the filing of an NDA for rifaximin as a therapy for hepatic
encephalopathy, that in the event an NDA is filed with the FDA, the Company
will be successful in obtaining regulatory approval in the United States, or
that the Company will obtain regulatory approval for rifaximin from
authorities in any other jurisdiction. The Company believes that an NDA will
not be filed for rifaximin prior to mid-1998 and that FDA approval for
rifaximin will not be obtained for at least one year after filing, if at all.
The Company expects that a significant portion of its potential revenues for
the next few years will depend on regulatory approval and sales of these
products. Failure to obtain regulatory approvals, delays in obtaining
regulatory approvals, obtaining regulatory approvals for Colazide or rifaximin
in only limited markets or for limited uses, or lack of market acceptance for
either product, to the extent regulatory approvals are obtained, would have a
material adverse effect on the Company's business, financial
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condition, and results of operations. See "--Significant Government
Regulation; No Assurance of Product Approvals" and "Business--Products Under
Development".
Expectation of Future Losses. The Company has only a limited history of
operations consisting primarily of development of its products and sponsorship
with third parties of research and clinical trials. The Company has had no
earnings to date and has not realized any material operating revenues from
product sales, either directly by the Company or indirectly through its
development and distribution partners. Substantially all of the Company's
revenues to date have been derived from milestone payments from the Company's
collaborative partners related to the development of Colazide. As of June 30,
1997, the Company had incurred cumulative losses since inception of
approximately $11.1 million. The Company currently expects operating losses to
continue at least through 1999 and to increase from current levels prior to
1999 as the Company continues to develop Colazide and rifaximin. The Company's
future operating performance will depend on the timing of regulatory approvals
of Colazide and rifaximin, particularly the timing of FDA approval, and if
such approvals can be obtained, will also depend on market acceptance. See "--
Uncertainty of Market Acceptance; Lack of Sales and Marketing Experience", "--
Future Capital Needs; Uncertainty of Additional Funding", and "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
Dependence on Collaborative Partners. The initial commercialization of
Colazide in the United Kingdom and, to the extent regulatory approval is
obtained, in other countries in which the Company has commercial rights to
Colazide is entirely dependent on Astra. Under its agreements with Astra, the
Company has granted Astra exclusive rights to distribute and sell Colazide on
a worldwide basis with the exception of Italy, Spain, Portugal, and Greece,
where the Company has granted exclusive distribution rights to Menarini, and
with the exception of Japan, Taiwan, and Korea, where the Company does not
have rights to Colazide. Although Astra has agreed to use its best endeavors
to promote, market, and sell Colazide in its exclusive markets, there are no
specified financial thresholds that must be achieved for Astra to maintain its
exclusivity. The Company's agreements with Astra provide for, with respect to
Europe, a term of 15 years and, with respect to the United States, a term
ending on the later to occur of the expiration date of the last expiring
patent and the date 9 years from the first commercial launch date of Colazide
but, in either event, the agreements may be terminated earlier by either party
upon the occurrence of specified events, including a material breach.
The Company's agreements with Astra require Astra to accomplish the
commercial launch of Colazide in any jurisdiction within 90 days of receipt of
regulatory approval in that jurisdiction, subject to a 90 day cure period. The
Company received marketing approval for Colazide in the United Kingdom from
the Medicine Controls Agency in July 1997, and the Company and Astra have
announced that the commercial launch of Colazide is expected to occur in the
United Kingdom in October 1997, based on a selling price set by Astra.
Following regulatory approval of Colazide in each country in Europe where
Astra has exclusive distribution rights, the Company and Astra must agree on
the Colazide sales price for such country, which may be less than the selling
price in the United Kingdom. The agreed sales price for Colazide will directly
affect the Company's revenues because the parties' agreement obligates Astra
to purchase Colazide from the Company, and the Company to supply Colazide to
Astra, at a transfer price equal to a percentage of Astra's selling price. The
Company does not anticipate significant margins from Colazide sales by Astra
in the United Kingdom or in continental Europe, where pricing has not yet been
determined.
Regulatory approvals for the marketing of Colazide in European countries
other than the United Kingdom are not expected until 1998, and it is unlikely
the FDA will approve marketing of Colazide in the United States before mid-
1998, if at all. In addition, the Company's strategy for the research,
development and commercialization of products, including balsalazide,
rifaximin, and other drugs the Company may in-license in the future, requires
arrangements with other corporate partners, governmental and university
collaborators, clinical research organizations ("CROs"), contract
manufacturers, licensors, licensees and others, and is dependent upon the
success of these outside parties in performing their responsibilities. There
can be no assurance that the Company will be able to negotiate acceptable
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collaborative arrangements in the future, or that its current or future
collaborative arrangements, including the agreements with Astra or Menarini,
will be successful or will not be terminated by the other party. Although the
Company believes that parties to any collaborative arrangements would have an
economic motivation to succeed in performing their contractual
responsibilities, the amount and timing of resources to be devoted to these
activities in most instances will not be within the control of the Company.
Failure of the Company and its collaborative partners to develop,
commercialize, manufacture or market products, including Colazide, would have
a material adverse effect on the Company's business, financial condition, and
results of operations.
Significant Governmental Regulation; No Assurance of Product Approvals. The
production and marketing of the Company's products and its ongoing research
and development activities are subject to extensive regulation by governmental
authorities in the United States and other countries. Failure to comply with
FDA or other applicable regulatory requirements may subject a company to
administrative sanctions or judicially imposed sanctions such as civil
penalties, criminal prosecution, injunctions, product seizure or detention,
product recalls, total or partial suspension of production. In addition, non-
compliance may result in the FDA's refusal to approve pending NDAs or
supplements to approved NDAs or in the withdrawal of an NDA. Any such sanction
could result in adverse publicity, which could have a material adverse effect
on the Company's business, financial condition, and results of operation. The
Company has not received regulatory approval in the United States or any
foreign jurisdiction other than the United Kingdom for the commercial sale of
any of its products. Prior to marketing in the United States, any drug
developed by the Company must undergo rigorous preclinical (animal) and
clinical (human) testing and an extensive regulatory approval process
implemented by the FDA under the United States Federal Food, Drug and Cosmetic
Act, and implementing regulations. Satisfaction of such regulatory
requirements, which includes satisfying the FDA that the product is both safe
and effective for its proposed uses, typically takes several years or more,
depending upon the type, complexity, and novelty of the product, and requires
the expenditure of substantial resources. Preclinical studies must be
conducted in conformance with the FDA's Good Laboratory Practice regulations.
Clinical testing, which is rigorously regulated, must meet requirements for
Institutional Review Board oversight and informed consent, as well as FDA
prior review and oversight, and Good Clinical Practice requirements. The
Company has limited experience in conducting preclinical and clinical testing
necessary to obtain regulatory approval and will rely on CROs to perform this
work. There can be no assurance that those conducting clinical trials for the
Company will be able to initiate trials at preferred clinical test sites or
recruit sufficient test subjects or that clinical trials will be started or
completed successfully in a timely fashion, if at all, with respect to any of
the Company's products. Furthermore, the Company or the FDA may suspend
clinical trials at any time if it believes that the subjects participating in
such trials are being exposed to unacceptable health risks. There can be no
assurance that the Company will not encounter problems in clinical trials
which will cause the Company or the FDA to delay or suspend clinical trials.
On June 23, 1997, the Company submitted an NDA to the FDA covering the use
of Colazide as a therapy for acute ulcerative colitis. The NDA is subject to
acceptance for filing by the FDA by August 22, 1997. If accepted for filing,
the NDA can be approved only if the FDA determines that the NDA contains
substantial evidence from clinical trials that the drug is safe and effective
for its intended use. There can be no assurance that the results of the
Company's preclinical or clinical studies, including its United States Phase
III clinical testing in combination with the results from a European Phase III
safety and efficacy study, will demonstrate, to the FDA's satisfaction,
substantial evidence that the drug is safe and effective. If clinical data, in
addition to that filed in the NDA, is requested from the Company to support
approval of Colazide, such a request is likely to delay significantly any
pending review and approval of the product, if approval is granted at all. If
regulatory approval of Colazide or any other product is granted, such approval
will be limited to those disease states and conditions for which the product
has been shown to be safe and effective, as demonstrated to the FDA's
satisfaction through well controlled clinical studies. Furthermore, approval
may entail ongoing requirements for post-marketing studies. Even if such
regulatory approval is obtained, a marketed product, promotional activities
for the product, its manufacturer and its
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manufacturing facilities are subject to continual review and periodic
inspections. In addition, identification of certain side effects after a drug
is on the market or the occurrence of manufacturing problems could cause
subsequent withdrawal of approval, reformulation of the drug, additional
preclinical testing or clinical trials and changes in labeling of the product.
The Company does not expect to file an NDA for rifaximin prior to mid-1998 and
will do so only if the clinical trials support such a filing. See "Business--
Government Regulation".
Dependence on Third Parties for Manufacturing. The Company currently does not
intend to manufacture its potential pharmaceutical products, including Colazide
and rifaximin, and, therefore, will be dependent on contract manufacturers for
the production of such products for development and commercial purposes. In the
event that the Company is unsuccessful in obtaining or retaining third-party
manufacturing or if the Company's manufacturers experience production
difficulties, delays or disruptions or fail to comply with regulatory
requirements, the Company may not be able to obtain adequate supplies of
products in a timely fashion or at acceptable quality, quantity, timing or
prices, or to commercialize its potential products as planned. The Company's
initial product, Colazide, has never been manufactured in commercial
quantities. No assurances can be given that the Company, or its manufacturing
partners, will be able to manufacture Colazide (or other future developed
products) in commercial quantities that would enable the Company to meet its
business objectives. Under the terms of the Company's distribution agreements
with Astra and Menarini, the obligations of such companies to purchase product
will terminate under certain circumstances in which the Company is unable or
unwilling to adequately supply them with product. In such circumstances, Astra
or Menarini, as the case may be, is granted a temporary license to manufacture
Colazide. Under certain situations, such manufacturing licenses may become
permanent, in which case the Company's revenues from the arrangements could be,
depending on the circumstances, severely reduced or eliminated. Moreover,
contract manufacturers that the Company may use must adhere to current Good
Manufacturing Practices ("GMPs"), which are regulations strictly enforced by
the FDA through its facilities inspection program. If these facilities cannot
pass a pre-approval plant inspection, the likelihood of the FDA's pre-market
approval of Colazide will be adversely affected. Certain material manufacturing
changes that may occur after approval are also subject to FDA review and
approval. There can be no assurance that the FDA or other regulatory agencies
will approve the processes or the facilities by which any of the Company's
products may be manufactured. In addition, if the facilities cannot pass
regular post-approval FDA inspections, manufacturing and distribution may be
disrupted, recalls of distributed products may be necessary, and other
sanctions could be applied. Any disruption in the supply in manufacturing and
marketing of the Company's proposed products would have a material adverse
effect on the Company's business, financial condition, and results of
operations.
Dependence on In-Licensing and Acquisition of New Products for Future Growth;
Uncertainties Related to Clinical Trials of Development Stage Products. Whether
or not Colazide or rifaximin receives regulatory approvals and is successfully
marketed, the Company's ability to grow in the future will depend on its
success in in-licensing or acquiring additional pharmaceutical products. The
Company seeks to in-license or acquire pharmaceutical products that have been
developed beyond the initial discovery phase and for which late-stage human
clinical data is already available. There can be no assurance that such
pharmaceutical products will be available on attractive terms for in-licensing
or acquisition by the Company. In addition, any product in-licensed by Salix
will likely require significant further research and development, including
clinical testing, regulatory approval, and investment prior to
commercialization, and as a result will be subject to the risks of failure
inherent in the development of therapeutic products based on innovative
technologies. These risks include the possibility that any or all of these
proposed products may not be found to be safe or effective or that they may
otherwise fail to receive necessary regulatory approvals; that the proposed
products will prove uneconomical to market or will not achieve broad market
acceptance; that third parties will hold proprietary rights that prevent the
marketing of the proposed products; or that third parties will market a
superior or equivalent product. In addition, due to the extended testing and
regulatory review process required before marketing approval can be obtained,
the time-frames for commercialization of any products are long and uncertain.
See "Business--Government Regulation".
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Uncertainty of Market Acceptance; Lack of Sales and Marketing
Experience. The Company's future success will depend in part on its ability to
develop and commercialize new products, including Colazide and rifaximin, or
new formulations of or indications for current products. Assuming the Company
can successfully develop such products and obtain regulatory approvals, their
future success will depend upon their acceptance by the medical community and
third-party payors as useful and cost-effective. Market acceptance will depend
upon several factors, including the establishment of the safety,
effectiveness, patient tolerance, and cost of the Company's products relative
to those of competitors. The Company and its collaborative partners may be
required to engage in extensive advertising, educational programs or other
means to market its products. Failure of any of the Company's products to
achieve market acceptance would have a material adverse effect on the
Company's business, financial condition, and results of operations.
The Company has no experience marketing and selling its products either
directly or through distributors. The Company's sales and marketing strategy
for Colazide relies on its third-party distributors, Astra and Menarini, to
whom the Company has granted exclusive marketing rights. There can be no
assurance that either Astra or Menarini will market Colazide successfully in
any country in which they have exclusive rights. The Company intends to
establish its own direct sales force for the purpose of achieving direct sales
of rifaximin and other future products. There can be no assurance that the
Company's marketing and direct sales efforts will be successful.
Dependence on Exclusive Licenses. The Company's rights to balsalazide and
rifaximin are derived from its license agreements with Biorex and Alfa
Wassermann, respectively. The Company's rights under these licenses are
subject to early termination by Biorex or Alfa Wassermann, as the case may be,
under certain circumstances, including material breach by the Company, the
bankruptcy or insolvency of the Company, the failure to commence marketing of
products within specified periods after their regulatory approval, or the
Company's failure to satisfy its manufacturing obligations under its
agreements with distribution partners. In the event that Biorex or Alfa
Wassermann terminate their respective license agreements, the Company would
have no further rights to utilize their respective patents or trade secrets to
manufacture and market products based on balsalazide or rifaximin, as the case
may be. The Company's licenses for balsalazide and rifaximin provide that the
Company's royalty obligations may extend beyond the expiration date of the
underlying patents, which could have a material adverse effect on the
Company's business, financial condition, and results of operations in the
event a generic version of balsalazide or rifaximin, as the case may be, were
introduced. In addition, the Company's license agreement with Alfa Wassermann
also provides that the Company may not promote, distribute or sell any
antibiotic products that compete with rifaximin in its licensed territory (the
United States and Canada) for a period of five years after the first
commercial sale of rifaximin under the agreement, thereby limiting the
Company's ability to in-license, develop, or market such products. See
"Business--Strategic Alliances".
Patents and Proprietary Rights; Expiration of Patents. Because of the
substantial length of time and expense associated with bringing new products
through development and regulatory approval to the marketplace, the
pharmaceutical industry places considerable importance on obtaining patent and
trade secret protection for new technologies, products and processes. Because
the Company's strategy is to in-license or acquire pharmaceutical products
which typically have been discovered and initially researched by others, such
products may have limited or no remaining patent protection due to the time
elapsed since their discovery. The patents for the Colazide composition of
matter and method of treating ulcerative colitis with Colazide expire in July
2001 in the United States, February 2002 in the United Kingdom, May 2002 in
France, July 2001 in Italy, and April 2002 in Germany. The patents for the
method of treating colon cancer using Colazide expire in January 2014 in the
United States and, assuming patents issue from pending applications, in
January 2015 in various countries in Europe, Asia, and North America. The
patents for the rifaximin composition of matter (also covering the process of
making rifaximin and using rifaximin to treat gastrointestinal infectious
diseases) expire in May 2001 in the United States and Canada. The patents for
the process of making rifaximin expire in April 2005 in both the United States
13
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and Canada. Patents for the use of rifaximin for H. pylori infections expire
in June 2013 in the United States and February 2014 in Canada. Although the
Company believes it may be granted extensions of up to five years in certain
circumstances, based on patent term restoration procedures established in
Europe and in the United States under the Waxman-Hatch Act for products that
have received regulatory approval, there is no assurance that such extensions
will be granted. See "--Uncertainty Regarding Waxman-Hatch Act and Similar
Foreign Laws". The Company has filed applications for use patents for
additional indications using balsalazide and related chemical substances.
There can be no assurance that any patents will be issued. There can be no
assurance that competitors will not develop products based on the same active
ingredients for marketing as soon as the applicable patents expire or at any
time thereafter or that competitors will not design around existing patents.
Sales of such generic versions could have an adverse effect on the Company's
business, financial condition, and results of operations. The Company's
success will depend in part on its ability to obtain United States and foreign
patent protection for its products and processes, preserve its trade secrets,
and operate without infringing on the proprietary rights of third parties.
There can be no assurance that patents will issue with respect to, or that the
claims allowed will provide sufficient protection to, the Company's present or
future technology.
There can be no assurance that any other patents will be issued on any of
the Company's patent applications or on patent applications licensed from
third parties. Moreover, there can be no assurance that the claims allowed in
the patents or patent applications are or will be sufficiently broad to
protect the Company's technology or that the patents will provide protection
against competitive products or otherwise be commercially valuable.
Furthermore, as with any pharmaceutical company, the Company's patent and
other proprietary rights are subject to uncertainty. The Company's patent or
other proprietary rights related to its products might conflict with current
or future rights of others. For instance, there is no assurance that the use
of the Company's technology will not infringe the patent rights of others. For
the same reasons, the products of others could infringe the patent or other
proprietary rights of the Company. Litigation or patent interference
proceedings, either of which could result in substantial cost to the Company,
may be necessary to enforce any patents issued to and other proprietary rights
of the Company or to determine the scope and validity of other parties'
proprietary rights. The defense and prosecution of patent and intellectual
property claims are both costly and time-consuming, even if the outcome is
favorable to the Company. Any adverse outcome could subject the Company to
significant liabilities to third parties, require disputed rights to be
licensed from third parties, or require the Company to cease selling its
products.
In addition to patent protection, the Company also relies on trade secrets,
proprietary know-how and technological advances which it seeks to protect, in
part, through confidentiality agreements with its collaborative partners,
employees and consultants. There can be no assurance that these agreements
will not be breached, that the Company will have adequate remedies for any
breach, or that the Company's trade secrets and proprietary know-how will not
otherwise become known or be independently developed by others.
There can be no assurance that the Company will be able to obtain a license
to any third-party technology that it may require to conduct its business or
that, if obtainable, such technology can be licensed at a reasonable cost.
Failure by the Company to obtain a license to any technology that it may
require to commercialize its technologies or products will have a material
adverse effect on the Company. In addition, there can be no assurance that
others will not independently develop substantially equivalent proprietary
information or obtain access to the Company's know-how, or that others will
not be issued patents which prevent the manufacture or sale of Company
products or require licensing and the payment of significant fees or royalties
by the Company in order for it to be able to carry on its business.
Litigation, which could result in substantial cost to the Company, may be
necessary to enforce or defend the Company's patents or proprietary rights.
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Uncertainty Regarding Waxman-Hatch Act and Similar Foreign Laws. Certain
provisions of the Waxman-Hatch Act provide patent term extensions for the
first permitted commercial marketing or use of a new drug that is subject to
regulatory review prior to marketing. Under the Waxman-Hatch Act, the Patent
and Trademark Office is directed to extend the term of an eligible patent for
a time equal to the "regulatory review period for the approved product". This
time period is generally one-half the length of time between the effective
date of the IND and submission of the NDA, plus the length of time between
filing and approval of the NDA, up to a total possible extension of five
years. Periods during which the applicant did not act with "due diligence" are
subtracted from the regulatory review period. Under this law, the Colazide
patent in the United States could be extended by up to five years, giving the
product patent protection until as late as 2006 if approval in the United
States is received before expiration of the original patent term in 2001. In
addition, the Company intends to seek patent extensions under similar laws in
effect in the European Union, which could give Colazide patent protection in
these jurisdictions until as late as 2006. There can be no assurance that any
of the benefits of the Waxman-Hatch Act or similar foreign laws will be
available to the Company or that such laws will not be amended or repealed.
Uncertain Availability of Health Care Reimbursement; Health Care Reform
Proposals. The Company's ability to commercialize gastrointestinal products
may depend in part on the extent to which reimbursement for the costs of such
products and related treatments will be available from government health
administration authorities, private health insurers and others. Significant
uncertainty exists as to the reimbursement status of newly approved health
care products. There can be no assurance of the availability of adequate third
party insurance reimbursement coverage that would enable the Company to
establish and maintain price levels sufficient for realization of an
appropriate return on its investment in developing new therapies. Government
and other third party payors are increasingly attempting to contain health
care costs by limiting both coverage and the level of reimbursement for new
therapeutic products approved for marketing by the FDA and by refusing, in
some cases, to provide any coverage for uses of approved products for disease
indications for which the FDA has not granted marketing approval. If adequate
coverage and reimbursement levels are not provided by government and third
party payors for uses of the Company's therapeutic products, the market
acceptance of these products could be adversely affected.
Health care reform proposals have been introduced in the United States
Congress and in various state legislatures in the United States. It is
currently uncertain whether any health care reform legislation will be enacted
at the federal level or what actions governmental and private payors may take
in response to the suggested reforms. The Company cannot predict when any
suggested reforms will be implemented, if ever, or the effect of any
implemented reforms on the Company's business. There can be no assurance that
any implemented reforms will not have a material adverse effect on the
Company's future results of operations. Such reforms, if enacted, may affect
the availability of third party reimbursement for products developed by the
Company as well as the price levels at which the Company is able to sell such
products. In addition, to the extent that the Company is able to commercialize
products in markets outside the United States, the Company's ability to
achieve success in such markets will depend, in part, on the health care
financing and reimbursement policies of such countries.
Intense Competition. Competition in the pharmaceutical industry is intense
and characterized by extensive research efforts and rapid technological
progress. The Company believes that there are numerous pharmaceutical and
biotechnology companies, both public and private and including large well-
known pharmaceutical companies, as well as academic research groups throughout
the world engaged in research and development efforts with respect to
pharmaceutical products targeted at gastrointestinal diseases and conditions
addressed by the Company's current and potential products. In particular, the
Company is aware of products in research or development by competitors that
address the diseases being targeted by the Company's products. There can be no
assurance that developments by others will not render the Company's current
and potential products obsolete or non-competitive. Competitors may be able to
complete the development and regulatory approval process sooner and,
therefore, market their
15
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products earlier than the Company. Many of the Company's competitors have
substantially greater financial, marketing and personnel resources and
development capabilities than the Company. For example, many large, well
capitalized companies already offer products in the United States and Europe
that target the proposed indications for Colazide, including mesalamine
(SmithKline Beecham plc, Dr. Falk Pharma GmbH, Pharmacia & Upjohn, Inc., Solvay
S.A., The Procter & Gamble Company, and Hoechst Marion Roussel, Inc.),
sulfasalazine (Pharmacia & Upjohn, Inc.), and olsalazine (Pharmacia & Upjohn,
Inc.). Technological developments by competitors, earlier regulatory approval
for marketing competitive products, or superior marketing capabilities
possessed by competitors could adversely affect the commercial potential of the
Company's products, including Colazide, and could have a material adverse
effect on the Company's business, financial condition, and results of
operations. In addition, manufacturers of generic drugs may seek to compete
directly with the Company's products in the absence of effective patent
protection or non-patent exclusivity protection.
Future Capital Needs; Uncertainty of Additional Funding. The Company believes
that the anticipated net proceeds of this offering, together with the Company's
existing cash reserves and cash flows from operations, should be sufficient to
satisfy the cash requirements of the Company through at least 1998. The
Company's actual cash requirements will depend on numerous factors, including
the costs of obtaining regulatory approvals, including FDA approvals; costs
associated with the commercialization of Colazide in the United Kingdom and, if
necessary regulatory approvals are obtained, in other member countries of the
European Union and the United States; the Company's research and development
efforts, including expenditures in connection with alliances, license
agreements and acquisitions of and investments in additional pharmaceutical
products; the cost of filing, prosecuting, defending and enforcing intellectual
property rights; and the purchase or lease of additional capital equipment.
There can be no assurance that changes in the Company's product offerings,
product development plans or other changes affecting the Company's operating
expenses will not result in unanticipated increases in expenditures of the
Company's capital resources. In addition, the Company anticipates that it will
need to raise additional funds in the form of debt or equity financing to fund
future licensing, development and commercialization of new products. If
additional capital is raised through the sale of equity or convertible debt
securities (including warrants or other convertible securities issued in
connection with any debt financing), additional dilution to existing
shareholders could result. There can be no assurance that additional funding
will be available on commercially reasonable terms, if at all. If required
funds are not available, the Company may be compelled to curtail operations or
to obtain funds through collaborative arrangements that may require the Company
to relinquish rights to certain of its products, product candidates, or
potential markets. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
Currency Fluctuations. A significant portion of the Company's business is
conducted in currencies other than the United States dollar. Foreign currency
transaction gains and losses arising from normal business operations are
credited to or charged against earnings in the period incurred. As a result,
fluctuations in the value of the currencies in which the Company conducts its
business relative to the United States dollar have caused and will continue to
cause currency transaction gains and losses. Due to the substantial volatility
of currency exchange rates, among other factors, the Company cannot predict the
effect of exchange rate fluctuations upon future operating results. There can
be no assurance that the Company will not experience currency losses in the
future. The Company has not previously undertaken hedging transactions to cover
its currency exposure but may hedge a portion of its currency exposure in the
future as management deems appropriate. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations".
Management of Growth. The Company expects to experience significant growth in
the number of its employees and the scope of its operations. This growth is
expected to place a significant strain on the Company's management and
operations. The Company's ability to manage such growth effectively will depend
upon its ability to broaden its management team and its ability to attract,
hire, and retain skilled employees. The Company's success will also depend on
the ability of its officers and key employees to continue to implement and
improve its operational, management information and financial control
16
<PAGE>
systems and to expand, train and manage its employee base. The Company's
inability to manage growth effectively could have a material adverse effect on
the Company's business, financial condition and results of operations.
Product Liability and Insurance; No Assurance of Adequate Insurance
Coverage. The Company's business exposes it to potential products liability
risks which are inherent in the testing, manufacture, and marketing of human
therapeutic products. There can be no assurance that the Company will be able
to maintain its current product liability insurance, that such insurance will
provide adequate coverage against potential losses, or that such insurance
will remain available to the Company at acceptable costs. Claims or losses in
excess of any liability insurance coverage obtained by the Company could have
a material adverse effect on the business, financial condition, or results of
operations of the Company.
Dependence on Key Personnel; Ability to Recruit Personnel. The Company is
dependent upon a number of key management and technical personnel, none of
whom is bound by an employment agreement with the Company. The loss of the
services of one or more key employees could have a material adverse effect on
the Company. The Company's success will also depend on its ability to attract
and retain additional highly qualified management and technical personnel. The
Company faces intense competition for qualified personnel, many of whom are
often subject to competing employment offers. In the event the Company obtains
regulatory approvals for rifaximin, it intends to sell rifaximin through a
small direct sales force. New employees, particularly new sales and marketing
employees, will require substantial training and education concerning the
Company's products. There can be no assurance that the Company will be
successful in attracting and retaining qualified personnel as necessary, and
the failure to do so could have a material adverse effect on the Company's
business, operating results, and financial condition.
Control by Directors and Executive Officers. The Company's directors,
executive officers, and entities affiliated with them will, in the aggregate,
beneficially own approximately 33% of the Company's outstanding Common Shares
immediately after the completion of this offering. Accordingly, these
shareholders as a group could effectively control the Company on substantially
all matters requiring approval by the shareholders of the Company, including
the election of directors and the approval of mergers or other business
combination transactions. See "Principal Shareholders".
Shares Eligible for Future Sale. Sales of a substantial number of Common
Shares in the public market following this offering could adversely affect the
market price for the Common Shares. The number of Common Shares available for
resale in the public market by holders in the United States is limited by
restrictions under the United States Securities Act of 1933, as amended (the
"U.S. Securities Act"), including Rule 144 and Regulation S. Following this
offering, all of the 3,000,000 Common Shares sold in this offering will be
freely tradeable in the United States without restriction (unless such shares
are held by an "affiliate" of the Company as such term is defined in the U.S.
Securities Act) and will trade on The Toronto Stock Exchange under the symbol
"SLX". An additional 2,200,000 Common Shares were issued in connection with
the Company's initial public offering in Canada in May 1996 (the "Canadian
IPO"). The Common Shares issued in the Canadian IPO and all other outstanding
Common Shares available for resale under applicable securities laws currently
trade on The Toronto Stock Exchange under the symbol "SLX.s", carry a legend
reflecting the Company's reliance, in connection with the Canadian IPO, on the
exemption from the registration requirements of the U.S. Securities Act set
forth in Regulation S thereunder and are not presently available for resale in
the United States or to "U.S. Persons" (as defined in Regulation S) in the
absence of an exemption from registration under the U.S. Securities Act. It is
the Company's current intention to authorize the removal of the Regulation S
legend from all shares currently bearing the legend on May 28, 1998. After May
28, 1998, all shares that are then freely tradeable on The Toronto Stock
Exchange will trade under the symbol "SLX". Prior to May 28, 1998,
shareholders may request that the Company remove applicable legends in
connection with resales on The Toronto Stock Exchange, subject to the
shareholder's ability to establish, to the satisfaction of the Company and its
legal counsel, that such shares may be resold in the United States in
compliance with the requirements of the
17
<PAGE>
U.S. Securities Act. Following removal of the legend, such Common Shares will
be freely tradeable in the United States without restriction or further
registration under the U.S. Securities Act, except for shares held by
"affiliates" of the Company as that term is defined in Rule 144 under the U.S.
Securities Act.
Of the 7,118,173 Common Shares outstanding prior to the completion of this
offering, except for shares purchased by affiliates of the Company, (i) the
2,200,000 Common Shares issued in connection with the Canadian IPO and
approximately 500,000 Common Shares issued in other transactions will be
available for resale in accordance with Regulation S at any time on The
Toronto Stock Exchange, subject to the legend removal conditions set forth
above, and (ii) approximately 1,165,000 Common Shares will be available for
resale only in compliance with Rule 144(k) or another exemption under the U.S.
Securities Act. Approximately 3,259,000 Common Shares are held by affiliates
of the Company and are subject to additional legal and contractual
restrictions on resale. See "--Price Volatility; Limited Trading Volume" and
"Shares Eligible for Future Sale".
Price Volatility; Limited Trading Volume. The securities markets have from
time to time experienced significant price and volume fluctuations that may be
unrelated to the operating performance of particular companies. In addition,
the market prices of the common stock of many publicly traded pharmaceutical
and biotechnology companies have in the past and can in the future be expected
to be especially volatile. Announcements of technological innovations or new
products by the Company or its competitors, developments or disputes
concerning proprietary rights, publicity regarding actual or potential medical
results relating to products under development by the Company or its
competitors, regulatory developments in both the United States and other
countries, public concern as to the safety of pharmaceutical products and
economic and other external factors, as well as period-to-period fluctuations
in the Company's financial results, may have a significant impact on the
market price of the Company's Common Shares. The Company's Common Shares have
been traded on The Toronto Stock Exchange since May 1996. Prior to this
offering, the Common Shares have not been freely tradable in the United
States, and after this offering, no public trading market will exist for the
Common Shares in the United States. In addition, trading volume in the Common
Shares on The Toronto Stock Exchange has been low, and there can be no
assurances that an active trading market will develop or be sustained on The
Toronto Stock Exchange, or any other exchange or dealer quotation system,
following this offering. See "Price Range of Common Shares".
Currency Risk to Non-Canadian Investors. The Common Shares offered hereby
will be sold in Canadian dollars and will trade in Canadian dollars on The
Toronto Stock Exchange. In addition to the general market risks associated
with ownership of equity securities and the more specific risks of ownership
of the Common Shares as set forth herein, non-Canadian purchasers will also
bear exchange rate risks resulting from fluctuations in the relative values of
the Canadian dollar and foreign currencies. The value of the Canadian dollar
has fluctuated substantially in the past relative to the United States dollar
and other currencies and may continue to do so in the future. As a result, for
non-Canadian investors, the value of the Common Shares in United States
dollars and other currencies may vary independent of changes in the trading
price of the Common Shares on The Toronto Stock Exchange and for reasons
unrelated to the Company or its business, results of operations, or financial
condition.
Foreign Corporation Risks. The Company is an International Business Company
incorporated under the laws of the British Virgin Islands. Accordingly,
principles of law relating to such matters as the validity of corporate
procedures, the fiduciary duties of management and the rights of the Company's
shareholders and other stakeholders may differ from those that would apply if
the Company were incorporated in a jurisdiction within the United States or
Canada. The shareholders and other stakeholders of Salix may have more
difficulty in protecting their interests in the face of actions by the Board
of Directors of the Company or a majority shareholder than they might have
with respect to a corporation incorporated in a jurisdiction in the United
States or Canada. See "Comparison of Canadian, United States and British
Virgin Islands Corporate Laws".
18
<PAGE>
Immediate and Substantial Dilution. The estimated offering price of the
Company's Common Shares in this offering is substantially higher than the book
value per Common Share. Investors purchasing shares in this offering will,
therefore, incur immediate dilution of Cdn. $5.83 (U.S. $ 4.18) in net
tangible book value per Common Share from the estimated offering price after
deducting estimated underwriting discounts and commissions and estimated
offering expenses payable by the Company and will be subject to additional
dilution upon the exercise of outstanding stock options. See "Dilution".
Discretion as to Use of Proceeds. Although the Company presently intends to
apply the net proceeds of this offering in the manner described under "Use of
Proceeds", it has broad discretion within such proposed uses as to the
allocation of the net proceeds, the timing of expenditures, and all other
aspects relating to the application of such proceeds. The Company reserves the
right to reallocate the net proceeds of this offering as management, in its
discretion, deems necessary or advisable. There can be no assurance that the
actual allocation of the offering proceeds will not differ materially from
their currently anticipated use.
19
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,000,000 Common Shares
offered hereby are estimated to be approximately Cdn. $22,622,575
(approximately Cdn. $26,198,950 if the Underwriters' over-allotment option is
exercised in full) at an assumed public offering price (which is not
indicative of the actual offering price of the Common Shares) of Cdn. $8.50
per share and after deducting estimated underwriting discounts and commissions
and offering expenses payable by the Company. The Underwriters will pay the
proceeds of the offering to the Company in Canadian dollars. The Company will
convert such proceeds to United States dollars as soon as practicable after
the offering. Based on an assumed exchange rate of Cdn. $1.3942 per U.S.$1.00,
the net proceeds to the Company from the sale of the 3,000,000 Common Shares
offered hereby are estimated to be approximately U.S.$16,226,205
(approximately U.S.$18,791,386 if the Underwriters' over-allotment option is
exercised in full).
The Company intends to use the net proceeds of the offering for working
capital and other general corporate purposes, including to fund research and
development activities and capital expenditures. Of the offering proceeds, the
Company expects to apply approximately Cdn. $4,000,000 (U.S.$2,869,029) toward
the commercialization of Colazide in the United Kingdom and obtaining
regulatory approval in the United States, approximately Cdn. $15,622,575
(U.S.$11,205,404) toward the Company's other product development and clinical
programs, and approximately Cdn. $3,000,000 (U.S.$2,151,772) for other working
capital and general corporate purposes. The Company's allocation of offering
proceeds to other product development and clinical programs will be increased
by the amount of any net proceeds resulting from the exercise of the
Underwriters' over-allotment option. The amount and timing of these
expenditures will depend on numerous factors either outside of or only
partially within the Company's control, including the results of the Company's
research and development programs, the regulatory approval process,
technological advances by the Company and other pharmaceutical companies, the
terms of collaborative agreements entered into by the Company and the status
of competitive products. As a result, there can be no assurance that the
actual allocation of the net proceeds of this offering will not differ
materially from their currently anticipated use. The Company may also use a
portion of the net proceeds for the acquisition of technologies, businesses or
products that are complementary to those of the Company, although the Company
does not presently have any agreements to effect any such acquisitions, and no
portion of the net proceeds has been allocated for any specific acquisition.
Pending such uses, the net proceeds of this offering will be invested in
short-term, interest-bearing, investment grade securities. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources".
20
<PAGE>
PRICE RANGE OF COMMON SHARES
The Company's Common Shares have been quoted on The Toronto Stock Exchange
under the symbol "SLX.s" since the Company's Canadian IPO in May 1996. The
3,000,000 Common Shares offered hereby will be quoted on The Toronto Stock
Exchange under the symbol "SLX". Beginning on May 28, 1998, all the Company's
Common Shares available for resale on The Toronto Stock Exchange will trade
under the symbol "SLX". See "Shares Eligible for Future Sale". The following
is a summary of the market price range in Canadian dollars and the aggregate
volume for the Common Shares as reported on The Toronto Stock Exchange for the
periods indicated.
<TABLE>
<CAPTION>
SHARE
HIGH (CDN.$) LOW (CDN.$) VOLUME
------------ ----------- ---------
<S> <C> <C> <C>
Fiscal Year ending December 31, 1997
August 1, 1997 to August 13, 1997.......... $8.80 $8.40 24,550
July 1997.................................. 9.00 7.75 129,479
June 1997.................................. 9.25 7.60 267,860
May 1997................................... 9.95 8.80 207,761
April 1997................................. 9.40 8.90 164,662
Second Quarter 1997........................ 9.95 7.60 640,283
First Quarter 1997......................... 9.35 4.25 1,016,263
Fiscal Year ended December 31, 1996
Fourth Quarter............................. 5.95 4.50 625,388
Third Quarter.............................. 6.60 5.00 428,425
Second Quarter (from May 27, 1996)......... 7.50 6.20 241,800
</TABLE>
On August 13, 1997, the closing price for the Common Shares as reported on
The Toronto Stock Exchange was Cdn. $8.50 per share. As of July 31, 1997,
there were 76 shareholders of record.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its share capital.
The Company currently expects to retain future earnings, if any, for use in
the operation and expansion of its business and does not anticipate paying any
cash dividends in the foreseeable future.
21
<PAGE>
CAPITALIZATION
The following table sets forth, as of June 30, 1997, the capitalization of
the Company, both actual and as adjusted to give effect to the Company's
receipt of net proceeds from the sale of the 3,000,000 Common Shares offered
hereby at an assumed public offering price (which is not indicative of the
actual offering price of the Common Shares) of Cdn. $8.50 per share (and an
assumed exchange rate of Cdn. $1.3942 per U.S. $1.00) and the application of
the estimated net proceeds therefrom. The capitalization information set forth
below should be read in conjunction with the Consolidated Financial Statements
and Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1997
---------------------
ACTUAL AS ADJUSTED
-------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Shareholders' equity:
Common shares, no par value; 20,000,000 shares
authorized, 7,118,173 shares issued and outstanding,
actual; 20,000,000 shares authorized, 10,118,173
shares issued and outstanding, as adjusted(/1/)....... $ 14,257 $ 30,483
Accumulated deficit.................................... (11,076) (11,076)
-------- --------
Total shareholders' equity........................... 3,181 19,407
-------- --------
Total capitalization............................... $ 3,181 $ 19,407
======== ========
</TABLE>
- --------
(1) Excludes (i) 713,500 Common Shares issuable upon exercise of options
outstanding as of June 30, 1997 under the Stock Plans, with a weighted
average exercise price of $3.72 per Common Share, (ii) 303,362 Common
Shares reserved for issuance under future option grants as of June 30,
1997 under the Stock Plans, and (iii) 602,331 Common Shares issuable upon
exercise of outstanding warrants as of June 30, 1997 at an exercise price
of $3.00 per Common Share. See "Management--Stock Plans", "Description of
Share Capital" and Notes 8 and 10 of Notes to Consolidated Financial
Statements.
22
<PAGE>
DILUTION
The net tangible book value of the Company as of June 30, 1997 was
approximately $3.2 million or $0.45 per Common Share. "Net tangible book
value" per share represents the amount of total tangible assets less total
liabilities, divided by the number of Common Shares outstanding. After giving
effect to the receipt of the net proceeds from the sale of the 3,000,000
Common Shares offered by the Company hereby at an assumed public offering
price (which is not indicative of the actual offering price of the Common
Shares) of Cdn. $8.50 per Common Share, equal to approximately U.S. $6.10, the
Company's net tangible book value as of June 30, 1997 would have been $19.4
million, or $1.92 per Common Share (after deducting estimated underwriting
discounts and commissions and offering expenses payable by the Company). This
represents an immediate increase in net tangible book value of $1.47 per
Common Share to existing shareholders and an immediate dilution of $4.18 per
Common Share to new investors. The following table illustrates this per share
dilution (in both U.S. and Canadian dollars, based on an assumed exchange rate
of Cdn. $1.3942 per U.S. $1.00):(/1/)
<TABLE>
<CAPTION>
U.S. $ CDN. $
----------- -----------
<S> <C> <C> <C> <C>
Assumed public offering price per Common Share....... $6.10 $8.50
Net tangible book value per share as of
June 30, 1997..................................... $0.45 $0.62
----- -----
Increase in net tangible book value per share
attributable to the offering...................... 1.47 2.05
----- -----
Pro forma net tangible book value per share after
the offering........................................ 1.92 2.67
----- -----
Dilution per share to new investors.................. $4.18 $5.83
===== =====
Percentage dilution in relation to offering price.... 68.5% 68.5%
</TABLE>
The following table summarizes, on a pro forma basis as of June 30, 1997,
the difference between the number of Common Shares purchased from the Company,
the total consideration paid and the average price per Common Share paid by
the existing shareholders and by new public investors purchasing Common Shares
in this offering at an assumed public offering price (which is not indicative
of the actual offering price of the Common Shares) of Cdn. $8.50 per share,
equal to approximately U.S. $6.10 (before deducting estimated underwriting
discounts and commissions and offering expenses payable by the Company).
<TABLE>
<CAPTION>
AVERAGE PRICE
SHARES PURCHASED(/1/) TOTAL CONSIDERATION PER SHARE
------------------------------------------------ -------------
NUMBER PERCENT AMOUNT (U.S. $) PERCENT U.S. $ CDN. $
------------- -------------------------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Existing shareholders... 7,118,173 70.4% $15,729,934 46.2% $2.21 $3.08
New investors........... 3,000,000 29.6 18,300,000 53.8 6.10 8.50
------------- -------- ----------- -----
Total................. 10,118,173 100.0% $34,029,934 100.0%
============= ======== =========== =====
</TABLE>
- --------
(1)The foregoing computations assume no exercise of stock options after June
30, 1997. As of June 30, 1997, there were outstanding options to purchase
713,500 Common Shares, with a weighted average exercise price of $3.72 per
Common Share. In addition, as of June 30, 1997, there were 303,362 Common
Shares reserved for issuance under future option grants under the Company's
Stock Plans, and 602,331 Common Shares issuable upon exercise of outstanding
warrants at an exercise price of $3.00 per Common Share. To the extent that
any shares available for issuance upon exercise of outstanding options or
warrants or reserved for future issuance under the Company's Stock Plans are
issued, there will be further dilution to new public investors. See
"Management--Stock Plans" and "Description of Share Capital".
23
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and the
Notes thereto included elsewhere in this Prospectus. The statement of
operations data for each of the five years in the period ended December 31,
1996, and the balance sheet data as of December 31, 1996 and 1995, are derived
from financial statements of the Company that have been audited by Ernst &
Young LLP, independent auditors, and are included elsewhere in this
Prospectus. The balance sheet data as of December 31, 1994, 1993 and 1992 are
derived from audited financial statements of the Company that are not included
in this Prospectus. The consolidated statement of operations data for the six-
month periods ended June 30, 1997 and 1996 and the balance sheet data as of
June 30, 1997 are derived from unaudited financial statements included
elsewhere in this Prospectus. The unaudited consolidated financial statements
have been prepared on the same basis as the audited consolidated financial
statements and, in the opinion of management, contain all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the Company's consolidated operating results and financial
position for such periods. The consolidated operating results for the six
months ended June 30, 1997 are not necessarily indicative of the results to be
expected for any other interim period or any future fiscal year. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations". The Company has paid no cash dividends.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
---------------- ------------------------------------------
1997 1996 1996 1995 1994 1993 1992
------- ------- ------- ------- ------- ------ -------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Revenues:
License revenue...... $ -- $ -- $ 1,186 $ -- $ -- $1,000 $ 1,712
Revenues from
collaborative
agreements
and other........... 21 384 634 1,990 2,827 3,439 1,212
------- ------- ------- ------- ------- ------ -------
Total revenues..... 21 384 1,820 1,990 2,827 4,439 2,924
Expenses:
License fees......... 50 50 605 100 -- -- --
Research and
development......... 1,315 1,037 2,053 2,888 3,199 4,321 3,539
General and
administrative...... 1,231 740 1,731 1,334 1,125 873 408
------- ------- ------- ------- ------- ------ -------
Total expenses..... 2,596 1,827 4,389 4,322 4,324 5,194 3,947
------- ------- ------- ------- ------- ------ -------
Loss from operations... (2,575) (1,443) (2,569) (2,332) (1,497) (755) (1,023)
Interest income........ 122 45 290 18 48 48 15
Interest expense....... (22) (173) (172) (106) (3) (7) (3)
------- ------- ------- ------- ------- ------ -------
Net loss............... $(2,475) $(1,571) $(2,451) $(2,420) $(1,452) $ (714) $(1,011)
======= ======= ======= ======= ======= ====== =======
Net loss per
share(/1/)............ $ (0.35) $ (0.41) $ (0.46) $ (0.77) $ (0.46) $(0.23) $ (0.38)
======= ======= ======= ======= ======= ====== =======
Shares used in
computing net loss
per share(/1/)........ 6,975 3,877 5,365 3,149 3,144 3,144 2,688
======= ======= ======= ======= ======= ====== =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, -------------------------------------------
1997 1996 1995 1994 1993 1992
----------- ------- ------- ------- ------- -------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Cash and cash
equivalents........... $ 3,657 $ 5,624 $ 188 $ 329 $ 1,552 $ 929
Working capital
(deficit)............. 2,986 4,438 (3,432) (3,061) (1,570) (729)
Total assets........... 4,250 5,858 433 593 1,967 1,013
Long-term liabilities.. -- -- 2,005 -- -- --
Accumulated deficit.... (11,076) (8,601) (6,150) (3,729) (2,278) (1,564)
Shareholders' equity
(net capital
deficiency)........... 3,181 4,593 (5,226) (2,813) (1,372) (659)
</TABLE>
- --------
(1) See Note 1 of Notes to Consolidated Financial Statements for an
explanation of shares used in computing net loss per share.
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements relating to
future events or the future financial performance of the Company, which
involve risks and uncertainties. The Company's actual results and the timing
of certain events could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those set
forth under "Risk Factors" and elsewhere in this Prospectus.
OVERVIEW
The Company's principal focus is to identify and acquire gastrointestinal
products that have near-term commercial potential and to apply its product
development expertise to commercialize these products. The Company selects
products that it believes serve a gastrointestinal disease in need of new
treatments, have the potential for rapid regulatory approval, and are
marketable to a small group of specialized physicians. Salix believes this
strategy will reduce the expense, time and risk normally associated with
pharmaceutical development. The Company believes that its first two products,
Colazide and rifaximin, will demonstrate the Company's ability to execute this
strategy.
The Company has generated no revenues to date from the sales of products,
and it has been unprofitable since inception. The Company expects to continue
to incur substantial and increasing losses and expects its operating expenses
to increase as the Company commences its Colazide commercialization efforts in
the United Kingdom and, subject to regulatory approval, elsewhere in Europe
and continues its product development and clinical programs for other
products. The Company does not expect to achieve profitability on an annual
basis before 2000. As of June 30, 1997, the Company had accumulated losses of
approximately $11.1 million. Over the five and a half years ended on June 30,
1997, the Company has financed its operations principally through
reimbursement payments, license fees and milestone revenues, totaling
approximately $14.0 million under collaborative research and licensing
agreements, and sales of equity and convertible debt securities totaling
approximately $14.2 million. Over the same period, the Company has recorded
expenses totaling $24.8 million, of which $17.3 million were in research and
development expenses and $0.8 million in license fees to licensors. The
Company's alliances with AB Astra ("Astra") and a division of Menarini
Pharmaceutical Industries s.r.l. ("Menarini") have allowed Salix to fund the
development of Colazide, to in-license other gastrointestinal products, and to
help establish itself with a relatively small amount of outside capital.
The Company's collaborative research and licensing agreements provide for
payments in support of the Company's research activities, as well as
additional payments for licensing fees and upon the attainment of specified
milestones. Research reimbursements under these agreements are recorded when
earned based on contract costs incurred to date compared with total estimated
contract costs. License fees and milestone revenues are recognized according
to contract terms. Amounts received in advance of the applicable research
activities are deferred as unearned revenue. Amounts received which are
refundable until the milestones are achieved are deferred as advances from
licensees until earned.
The Company licensed balsalazide from Biorex Laboratories Limited ("Biorex")
in exchange for participation in future milestone revenues and profits. The
Company will sell Colazide, the disodium salt of balsalazide, which is
manufactured by third parties under contract with the Company, to its
distribution partners, Astra and Menarini, at a formula price. The Company
received approval in July 1997 to market Colazide in the United Kingdom for
the treatment of acute ulcerative colitis. The commercial launch of Colazide
by Astra in the United Kingdom is expected in October 1997, with launches in
other European countries by Astra and Menarini in 1998, subject to receipt of
necessary regulatory approvals. The Company expects to realize product
revenues from Astra's sales of Colazide in 1997 and sales of
25
<PAGE>
Colazide by Menarini in 1998. The selling price of Colazide to Astra outside
the United Kingdom has not been determined, and the Company will be obligated
to pay to Biorex, the original licensor of the product, a portion of any gross
profit on Colazide sales to Astra and Menarini outside the United States. In
addition, the Company anticipates high initial product launch costs due to the
cost of scaling up manufacturing processes for commercial distribution.
The Company's second product, rifaximin, is currently under development. The
Company obtained the rights to develop, make, use and sell rifaximin in Canada
and the United States from Alfa Wassermann S.p.A. ("Alfa Wassermann") in
exchange for future royalties and milestone payments. Under a separate
agreement, Alfa Wassermann will supply Salix with bulk active ingredient
rifaximin at a fixed price. If regulatory approvals are obtained, the Company
intends to establish its own direct sales force to market rifaximin. This
strategy for rifaximin represents the business model that the Company intends
to adopt for future product development and commercialization. Although the
creation of an independent sales organization will require a substantial
investment by the Company, the Company anticipates that the financial results
from rifaximin and future products will be more favorable to the Company than
those anticipated from the sale of Colazide by Astra and Menarini.
The Company intends to pursue regulatory approvals for two initial
indications for rifaximin, hepatic encephalopathy and antibiotic associated
colitis. The Company plans further development of rifaximin for several other
possible indications. The Company plans to submit an application to the FDA
seeking Orphan Drug Status for rifaximin to treat hepatic encephalopathy.
Orphan Drug Status, if granted, can entail certain possible advantages in the
testing and approval process for the drug. See "Business--Products Under
Development" and "Business--Government Regulation". Should rifaximin be
designated Orphan Drug Status, costs incurred through submission of an NDA for
the hepatic encephalopathy indication may be expected to be significantly
reduced. Salix also intends to begin clinical trials using rifaximin to treat
antibiotic associated colitis later this year with the full costs to be borne
by Salix.
RESULTS OF OPERATIONS
Six Months Ended June 30, 1997 and 1996
Because certain clinical trials for Colazide were completed in 1996, product
development revenues for the six months ended June 30, 1997 were minimal.
Revenues for the six months ended June 30, 1996 were comprised primarily of
revenue recognized from collaborative agreements for product development of
Colazide.
Operating expenses were $2.6 million and $1.8 million for the six months
ended June 30, 1997 and 1996, respectively. The increase in operating expenses
is due to increases of $0.3 million in research and development expenses and
$0.5 million in general and administrative expenses. The increase in research
and development expenses is due primarily to increased regulatory affairs
activities for the preparation of the NDA filing in the United States. The
increase in general and administrative expenses of $0.5 million is due mainly
to the addition of key personnel and the increased administrative costs
related to becoming a public company in Canada.
Interest expense decreased from $173,000 to $22,000, and interest income
increased from $45,000 to $122,000 due primarily to interest income derived
from the Company's initial public offering in Canada and the conversion of
outstanding debentures as a result of the public offering.
The Company incurred net losses of $2.5 million and $1.6 million for the six
months ended June 30, 1997 and 1996, respectively.
Years Ended December 31, 1996, 1995, and 1994
Revenues totaled $1.8 million, $2.0 million and $2.8 million for 1996, 1995
and 1994, respectively. For 1996, license revenues were $1.2 million and
revenue from collaborative agreements for product
26
<PAGE>
development was $0.6 million. In 1996 revenues from collaborative agreements
for product development decreased as certain clinical trials for Colazide were
completed. Revenues in 1994 and 1995 were comprised primarily of revenue
recognized from collaborative agreements for product development. The decline
in revenues over the three fiscal periods corresponds to the reductions in the
level of the clinical trial efforts in the United States and Europe.
License fee expenses in 1996 of $0.6 million relate primarily to payments
made to Biorex under the terms of the Colazide license agreement.
Research and development expenses through 1996 are primarily for clinical
trials and both domestic and foreign regulatory affairs activities related to
the development of Colazide. Research and development expenditures were $2.1
million, $2.9 million and $3.2 million for 1996, 1995 and 1994, respectively.
The decrease in research and development expenses of $0.8 million from 1995 to
1996 is due to the completion of certain clinical trials for Colazide in 1996,
partially offset by increased regulatory affairs activities for the
preparation of the NDA filing in the United States. The $0.3 million decrease
in research and development expenditures from 1994 to 1995 relates to
decreased regulatory affairs activities, as the Company had filed a marketing
authorization application in the United Kingdom in early 1995, which
expenditures were partially offset by increased clinical trial expenses
associated with the United States development efforts.
General and administrative expenses were $1.7 million, $1.3 million and $1.1
million for 1996, 1995 and 1994, respectively. The increase of $0.4 million in
1996 from 1995 was due mainly to the addition of key personnel throughout the
year and the increased administrative costs related to being a public company.
The $0.2 million increase in 1995 from 1994 was comprised of personnel-related
expenses and professional fees related to corporate development activities.
The Company has experienced net losses of $2.5 million, $2.4 million and
$1.5 million for 1996, 1995 and 1994, respectively.
At December 31, 1996, the Company had net operating loss carryforwards of
approximately $5.6 million for United States income tax purposes. These
carryforwards will expire in varying amounts through 2011. As the Company adds
new investors, utilization of the current loss carryforwards may be limited
if, under United States Internal Revenue Code Section 382, a change in
ownership is deemed to have occurred within the three most recent fiscal
years.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed product development, operations
and capital expenditures primarily from funding arrangements with
collaborative partners and from public and private sales of debt and equity
securities.
As of June 30, 1997, the Company had approximately $3.7 million in cash and
cash equivalents. The decrease of $1.9 million from December 31, 1996 was due
primarily to cash used in operating activities of $3.0 million partially
offset by cash provided by financing activities of $1.1 million from issuance
of Common Shares upon exercise of warrants.
As of June 30, 1997, the Company had no long term obligations. The Company
has non-cancelable purchase order commitments for inventory purchases of $0.4
million.
The Company's purchases of raw materials are, and its future product sales
to its European distribution partners will be, denominated in Pounds Sterling.
Translation into the Company's reporting currency, the United States dollar,
has not historically had a material impact on the Company's financial
position. Additionally, the Company's net assets denominated in currencies
other than the functional
27
<PAGE>
currency have not exposed the Company to material risk associated with
fluctuations in currency rates. Given these facts, the Company has not
considered it necessary to use foreign currency contracts or other derivative
instruments to manage changes in currency rates.
The Company has sustained continuing operating losses and expects to incur
substantial and increasing losses until product approvals are obtained and
product revenues reach a sufficient level to support ongoing operations. The
Company believes that the anticipated net proceeds from this offering,
together with the Company's existing cash reserves and cash flow from
operations, should be sufficient to satisfy the cash requirements of the
Company's product development programs through at least 1998. The Company's
actual cash requirements may vary materially from those now planned because of
a number of factors, including the results of research and development
activities, FDA and foreign regulatory processes, establishment of and changes
in relationships with strategic partners, technological advances by the
Company and other pharmaceutical companies, the terms of the Company's
collaboration arrangements with strategic partners, and the status of
competitive products. The Company anticipates that it will need to raise
additional funds in the form of debt or equity financing to fund future
licensing, development, and commercialization of new products. The Company may
also enter into collaborative arrangements with corporate partners that could
provide the Company with additional funding in the form of equity, debt,
licensing, milestone and/or royalty payments. There can be no assurance that
the Company will be able to enter into such arrangements or raise any
additional funds on terms favorable to the Company.
28
<PAGE>
BUSINESS
The following Business section contains forward-looking statements relating
to future events or the future financial performance of the Company, which
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth under "Risk Factors" and
elsewhere in this Prospectus.
OVERVIEW
The Company identifies and in-licenses gastrointestinal products that have
near-term commercial potential and applies its product development expertise
to accelerate the commercialization of these products. The Company's business
strategy is to select and in-license gastrointestinal products that have the
potential for rapid regulatory approval. By in-licensing drugs with late-stage
clinical data and developing these drugs for diseases that are in need of new
pharmaceutical treatments, the Company believes that it can significantly
reduce the risk, time and investment normally associated with the development
and commercialization of pharmaceuticals products.
The Company's first product, Colazide, recently was approved for marketing
in the United Kingdom for the treatment of acute ulcerative colitis. The
Company currently expects that commercial launch of Colazide in the United
Kingdom will occur in October 1997 and, subject to regulatory approvals, that
Colazide will become commercially available in other countries in Europe in
1998. In addition, the Company has recently submitted to the United States
Food and Drug Administration ("FDA") its New Drug Application ("NDA") for
Colazide for the same indication.
The Company has also in-licensed a second product, rifaximin, and intends to
pursue regulatory approvals for the drug in the treatment of two initial
indications, hepatic encephalopathy and antibiotic associated colitis. The
Company presently expects to submit an application to the FDA in the fourth
quarter of 1997 seeking Orphan Drug Status for rifaximin for the treatment of
hepatic encephalopathy. If the Company's application is approved, rifaximin
could receive priority review from the FDA following completion of clinical
trials for the drug and filing of an NDA for marketing approval. It is not
currently expected that the Company will be in a position to file an NDA for
rifaximin prior to mid-1998.
In the course of its transition to a commercial stage company, the Company
has leveraged its resources by establishing strategic alliances with companies
that have significant resources in clinical monitoring and manufacturing. In
anticipation of the commercial release of Colazide in the United Kingdom in
October 1997, the Company has entered into manufacturing arrangements with
Courtaulds Chemicals (Holdings) Limited and Anabolic, Inc., each of which is a
commercially established pharmaceutical manufacturer.
Colazide will be distributed in all markets except certain countries in
southern Europe and Asia by AB Astra ("Astra"), a Swedish international
pharmaceutical company, under a distribution agreement that provides Astra
with exclusive distribution rights, and in Italy, Spain, Portugal, and Greece
by a division of Menarini Pharmaceutical Industries s.r.l. ("Menarini"), an
Italian manufacturer and distributor of pharmaceutical products. The Company's
distribution arrangements with Astra and Menarini have provided the Company
with funding necessary to complete the late-stage development of Colazide, in-
license other gastrointestinal products and help establish the Company as a
viable gastrointestinal pharmaceutical company.
The Company expects to market and sell rifaximin and other future products
in-licensed and commercialized by the Company through a small, specialized
direct sales force to be established by Salix. The Company believes that a
direct sales model will reflect higher operating margins than the distribution
partner model that the Company will use in connection with sales of Colazide.
29
<PAGE>
The Company was incorporated in the British Virgin Islands in December 1993.
Prior to December 1993, the business of the Company was conducted by Salix
Pharmaceuticals, Inc., a California corporation ("Salix Pharmaceuticals"),
which was incorporated in California in 1989 and which is now a subsidiary of
Salix Holdings, Ltd. Unless the context otherwise requires, references in this
Prospectus to "Salix" and the "Company" refer to Salix Holdings, Ltd., a
corporation organized under the laws of the British Virgin Islands, and its
wholly owned subsidiaries, Salix Pharmaceuticals and Glycyx Pharmaceuticals,
Ltd., a Bermuda corporation ("Glycyx"). The Company's executive offices are
located at 3600 West Bayshore Road, Suite 205, Palo Alto, California 94303,
and its telephone number at that address is (650) 856-1550.
DISEASE BACKGROUND
Gastrointestinal Disease Overview
Gastrointestinal diseases have a major impact in the United States and
across the world. According to the National Institutes of Health, more than 60
million cases of gastrointestinal disease are reported annually in the United
States alone, resulting in more than 200 million days of restricted activity,
50 million visits to physicians, 10 million hospitalizations, and nearly
200,000 deaths. Current treatments for gastrointestinal disease in many
instances either have serious side effects or provide only partial symptomatic
relief. The Company believes there is significant need for new pharmaceutical
therapies to improve treatment of gastrointestinal diseases.
The Company is pursuing product indications for select gastrointestinal
conditions, including ulcerative colitis, hepatic encephalopathy, antibiotic
associated colitis, colonic polyps, familial adenomatous polyposis,
diverticular disease of the colon, infectious diarrhea, and ulcers.
Inflammatory Bowel Disease/Ulcerative Colitis
Inflammatory bowel disease ("IBD") is a condition that covers both
ulcerative colitis and Crohn's disease. The cause of IBD is unknown and onset
can occur at any age but is most prevalent between the ages of 15 and 25. The
symptoms of ulcerative colitis and Crohn's disease are similar, but ulcerative
colitis affects the large colon while Crohn's disease can affect any part of
the gastrointestinal tract. These debilitating diseases are usually lifelong,
and there is currently no cure.
The Crohn's and Colitis Foundation of America estimates that IBD afflicts
two million people in the United States. Sales of drugs used to treat IBD
worldwide totaled approximately $550 million in 1996 and have reflected a
compound annual growth rate of approximately 20% between 1987 and 1996.
Ulcerative colitis is a chronic disease which causes ulceration of the inner
lining of the colon and rectum. Symptoms include diarrhea, abdominal pain,
rectal bleeding and fever. Decreased appetite and weight loss are also common.
As with many chronic illnesses, ulcerative colitis also can have serious
emotional side effects, including depression, anxiety and reduced self-esteem,
typically resulting from the painful and embarrassing symptoms caused by the
disease.
Medical treatment of ulcerative colitis over the past 50 years has generally
consisted of corticosteroids, which are typically unsuitable for long-term
treatment because of their significant side effects, and 5-aminosalicylic-acid
("5-ASA") drugs. To be effective, these drugs must travel through the stomach
and small intestine to the colon and be released in the colon without
significant quantities being absorbed in the bloodstream. Sulfasalazine
("SASP"), which is taken orally, is the original 5-ASA drug and is considered
the current "gold standard" treatment (i.e., the most effective available
treatment). SASP is effective in reaching the colon with only low absorption
rates in the bloodstream. However, SASP also contains a carrier molecule
(sulfapyridine) which is toxic and results in a high incidence of side effects
such as nausea, headache, dizziness, anemia or other blood disorders, and skin
rashes. In approximately
30
<PAGE>
30% of IBD patients who attempt treatment with SASP, these side effects are so
severe that the patient cannot tolerate continued treatment.
In the early 1980s, pharmaceutical companies began developing new drugs
designed to deliver 5-ASA to the colon without the side effect profile of
SASP, and these drugs, including mesalamine, first appeared in the United
States market in the early 1990s. While the new drugs are generally better
tolerated than SASP, they continue to be limited in use because significant
amounts of the drugs may be absorbed in the bloodstream before reaching the
colon. In other cases, the drugs may not dissolve in the body, in which case
they may remain whole when passed through the bowel and are, therefore, not
absorbed in the colon. One of these drugs is mesalamine, the current market
leader when measured by sales of drugs to treat IBD.
An alternative treatment for ulcerative colitis where drug intervention is
ineffective is surgical removal of the large bowel. This procedure effectively
eliminates ulcerative colitis but with substantial physical and emotional
consequences for the patient, who must carry an external bag or have an
internal pouch constructed to collect waste.
Hepatic Encephalopathy
Hepatic encephalopathy, a neuropsychiatric syndrome caused by the build-up
of toxic products, such as ammonia, in the bloodstream, is a common
complication of acute or chronic liver disease. Causes of liver disease
include alcohol abuse and hepatitis due to viruses, drug abuse or toxins. The
liver plays a key role in removing certain toxins found in the digestive tract
from the blood. In severe liver disease, the liver does not effectively remove
ammonia from the blood. As a result, ammonia accumulates in the bloodstream
and travels to the brain, potentially causing personality changes, impaired
consciousness, agitation or mania, and coma. Hepatic encephalopathy affects
approximately 160,000 people in North America. Approximately 30% of hepatic
encephalopathy patients go into coma, which is fatal in up to 80% of these
patients, despite aggressive intervention.
To date, no product has been approved in North America to treat hepatic
encephalopathy. Existing non-approved treatment strategies, including
antibiotics, focus on reducing levels of ammonia in the bloodstream. The
Company believes that current antibiotic therapies, including neomycin and
metronidazole, are inadequate treatments, however, due to their limited
antibacterial spectrum and side effects. Oral lactulose is also used to reduce
the amount of ammonia accumulated in the intestine by increasing the number of
bowel movements per day.
In spite of the small number of people afflicted with hepatic
encephalopathy, the Company believes that a significant market opportunity
exists for a drug that offers a more effective therapy than currently
available treatments. In addition, because hepatic encephalopathy affects a
relatively small number of patients, the Company believes the FDA will permit
drugs that treat hepatic encephalopathy to qualify for Orphan Drug Status. In
practice, Orphan Drug Status is available for therapies addressing indications
affecting less than 200,000 people, may allow the drug to receive a priority
review by the FDA, provides the product seven years of market exclusivity for
the orphan indication regardless of the drug's patent status, and may allow
the FDA to rely only on a single pivotal trial in approving an NDA. See "--
Government Regulation".
Antibiotic Associated Colitis
Antibiotic associated colitis ("AAC") can be caused by taking certain
antibiotics to treat a variety of illnesses. These antibiotics can cause a
reduction in the presence of normal bacteria in the colon, a condition which
promotes overgrowth of the bacterium Clostridium difficile ("C. difficile").
C. difficile produces toxins that cause severe diarrhea and inflammation of
the colon. If untreated, these symptoms can lead to toxic megacolon, colonic
perforation and death. Institutionalized patients, such as patients in
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nursing homes, have a high risk of developing AAC. Independent research
indicates that up to 2,000,000 people develop AAC each year in North America.
Until recently, oral vancomycin was the preferred treatment for AAC.
However, the widespread use of vancomycin for treating enterococcal infections
has resulted in the development of vancomycin-resistant organisms (organisms
that do not respond to vancomycin therapy). Vancomycin resistant genes may
also be transferred to other microorganisms such as Staphylococcus aureus, an
organism responsible for many common infections. The emergence of these
resistant organisms has led the United States Centers for Disease Control and
Prevention to recommend that vancomycin be used for treatment of AAC only in
cases which fail to respond to metronidazole therapy or are severe and
potentially life-threatening.
Metronidazole, although not approved for AAC, is now the preferred treatment
for AAC. Although metronidazole is less costly than vancomycin, the drug is
absorbed not only in the digestive tract but also in the bloodstream following
drug administration. In addition, the safety and effectiveness of
metronidazole in treating AAC has not been confirmed by the FDA through the
NDA clearance process.
Colorectal Cancer/Colonic Polyp
A polyp is a growth that projects, often on a stalk, from the interior
lining of the intestine or rectum. Approximately 30% of individuals in Western
countries have polyps. Based on population indices, this equates to
approximately 80 million persons in the United States and 95 million in
Europe. In addition, the probability of having polyps increases with age. For
individuals age 45, the probability is approximately 45% and increases to
nearly 100% by age 70. When a polyp is diagnosed, it is normally removed
surgically through a procedure known as polypectomy. Polyp recurrence rates
following polypectomy average 45% after 24 months. Currently, no proven
pharmaceutical treatment is available for the common polyp patient.
All colorectal cancer starts as a polyp. Conversion of benign polyps to
neoplastic or metaplastic tissue (cancer) occurs in approximately five percent
of polyp patients. Colorectal cancer includes cancer of the colon and rectum
and is the third most common cancer in men and the fourth most common cancer
in women. Cancers of the colon and rectum may be present for as long as five
years before symptoms appear. Common symptoms include rectal bleeding, anemia,
constipation, abdominal pain, diarrhea, weight loss and fatigue. Patients with
diagnosed colon cancer have a five year survival rate of less than 50%.
Current standard treatment includes surgical removal of the colon combined
with chemotherapy. This treatment regimen has helped improve survival rates
for early and mid-stage cancers but not for late stage, invasive cancers.
The Company believes that managing polyp recurrence will help decrease the
incidence of polyp progression to colorectal cancer.
Familial Adenomatous Polyposis
Familial Adenomatous Polyposis ("FAP") is a hereditary condition that
predisposes patients to a large number of colonic polyps. Studies estimate
that approximately 40,000 people in the United States have the genetic
abnormality that causes FAP. Colorectal cancer is considered an inevitable
consequence in patients with FAP, and most FAP patients develop colorectal
cancer by age 40. Due to the small number of patients with FAP, drugs to treat
FAP may be eligible for Orphan Drug Status by the FDA.
Diverticular Disease of the Colon
Diverticular disease of the colon results from an acquired deformity of the
colon (diverticulosis) that leads to subsequent complications. The deformity
results in a build-up of fecal matter in the colon, which causes symptoms such
as pain and fever. If not treated, these symptoms can progress and result in
32
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additional complications such as intra-abdominal abscess, bowel obstruction
and possible bowel perforation. Because this fecal build-up contains entrapped
bacteria, it creates an environment susceptible to infection, suggesting that
this symptom of diverticulosis can be treated with antibiotic therapy. The
disease is common in Western societies, afflicting more than 25 million people
in the United States and more than 35 million people in Western Europe. Of
those people affected by diverticular disease, approximately 20% will develop
symptoms that require therapy.
Infectious Diarrhea
Diarrhea is a leading cause of death in most developing countries, with the
greatest impact seen in infants and children. In the United States, children
under 5 years of age average two episodes of diarrhea per year. In developing
countries, the rate is two to three times higher. Overall, physicians in the
United States are consulted annually for 8.2 million diarrhea episodes.
Primary therapy for infectious diarrhea is antibiotics, with the choice of
antibiotic made on the basis of effectiveness against the specific bacterial
cause in each case or in similar local cases. Antibiotic development in recent
years has tended to focus on broad spectrum antibiotics to cover the widest
possible range of bacterial forms. As new bacterial forms mutate and develop
resistance to currently available antibiotics, there is ongoing effort to
develop more effective antibiotic therapies.
Ulcers
Peptic ulcer is a chronic inflammatory condition of the stomach and small
intestine. The bacterium Helicobacter pylori ("H. pylori") is considered to be
the underlying cause of most peptic ulcers, suggesting that antibiotics could
be used to treat infected ulcer patients. It is estimated that at least half
of the world's population and 25% of people in the United States are infected
with the H. pylori organism. Studies have shown that eradication of H. pylori
may reduce the rate of ulcer recurrence.
BUSINESS STRATEGY
The Company's objective is to become a leading gastrointestinal
pharmaceutical company. The Company believes that by implementing the
strategies summarized below it will reduce significantly the risk, time and
investment normally associated with development and commercialization of
pharmaceuticals.
In-license proprietary gastrointestinal products with near-term commercial
potential. The Company's principal focus is to identify and in-license
gastrointestinal products that have near-term commercial potential, and to
apply its product development expertise to commercialize these products. In
pursuing this strategy, the Company evaluates each product based on the
following:
. The product must treat gastrointestinal diseases that are in need of new
pharmaceutical therapies. The Company believes the gastrointestinal disease
market is in need of new or more effective pharmaceutical treatments and
will provide the Company with a significant return on investment. The
Company also believes that by establishing itself as a recognized leader in
the gastrointestinal disease market, it will enhance its ability to attract
future in-licensing product opportunities.
. The product must have a substantial base of positive late-stage clinical
research data in humans and have the potential for rapid regulatory
approval. The Company will carefully evaluate and in-license only products
that have an existing base of positive late-stage data in humans and that
the Company believes demonstrate safety and efficacy. By in-licensing drugs
with a substantial base of late-stage clinical data and developing these
drugs for diseases that are in need of new or more effective pharmaceutical
treatments, the Company believes that it will be able to minimize the costs
and risk associated with inventing a drug and conducting early-stage
clinical trials needed to
33
<PAGE>
determine if a drug is safe and effective in humans. The Company also
believes that its strategy can significantly reduce the time and risk of
obtaining regulatory clearances.
. The product must be available to the Company on acceptable licensing
terms. The Company believes that there are significant opportunities to in-
license or acquire gastrointestinal products from pharmaceutical companies
in the United States and internationally. This includes products developed
by companies that lack either the expertise or resources to pursue
regulatory approvals in the United States and certain other territories. In
addition, the Company believes that large pharmaceutical companies are
willing to out-license or sell products and technologies that do not fit
their product portfolios or fail to meet their business or market criteria.
Establish a small, specialized sales force to market to a targeted group of
physicians. Of the 738,000 physicians in the United States, gastrointestinal
diseases are treated primarily by approximately 9,700 gastroenterologists. The
Company believes that it can effectively reach this small number of physicians
through a small, specialized sales and marketing group, without the investment
needed to develop and maintain the large sales force typically required in the
pharmaceutical industry. This direct sales force model will be the basis for
the Company's commercialization of rifaximin and future products in the United
States. The Company expects that, once fully established and operational, a
sales and marketing model premised on a domestic direct sales force will
result in higher operating margins than the distribution partner model that
the Company has established for Colazide sales. See "--Marketing and Sales".
In the case of Colazide, the alliances with Astra and Menarini have provided
the Company funding needed to complete late-stage development of Colazide, to
in-license other gastrointestinal products and to help establish the Company
as a viable gastrointestinal pharmaceutical company. The Company received the
necessary funding in exchange for the grant of exclusive distribution rights
in certain territories to Astra and Menarini. The Company plans to implement
future North American product sales and marketing based on the direct sales
force model. See "--Strategic Alliances".
Enhance market potential of products through development of additional
indications. Where appropriate, the Company intends to conduct clinical trials
for multiple indications to expand the approved use of its products. The
Company believes that both balsalazide and rifaximin have potential
applications in other disease indications which, if developed by the Company
and approved by regulatory authorities, will significantly enhance the
commercial potential of such products. In the case of Colazide, which has been
approved in the United Kingdom for the treatment of acute ulcerative colitis
and for which the Company has submitted an NDA with the FDA for the same
indication, the Company believes that balsalazide, the active ingredient in
Colazide, may also have therapeutic applications for reduction of colonic
polyps. Similarly, rifaximin may be developed in the future for potential use
in treating infectious diarrhea, diverticular disease and other
gastrointestinal diseases. Currently, Alfa Wassermann, one of the Company's
partners, is conducting a Phase III clinical trial in Spain relating to
rifaximin as a therapy for hepatic encephalopathy, and the Company expects to
commence Phase II/III clinical trials in the United States for rifaximin as a
treatment for AAC in the fourth quarter of 1997. The Company believes that the
strategy of commercializing products for initial indications will enable it to
begin realizing product revenues while completing the development of multiple
indications. See "--Products Under Development".
Enhance research and manufacturing capabilities through strategic
partnerships. The Company has established strategic relationships with
companies it believes have proven expertise in clinical monitoring and
manufacturing. The Company uses CROs to manage its clinical trials, thus
enabling the Company to reduce its fixed overhead costs and to leverage its
management resources. In anticipation of the commercial release of Colazide in
the United Kingdom in October 1997, the Company has entered into
pharmaceutical manufacturing arrangements with Courtaulds Chemical (Holdings)
Limited for bulk drug substance and Anabolic, Inc. for finished dosage forms.
See "--Manufacturing".
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PRODUCTS UNDER DEVELOPMENT
The Company's principal focus is on gastrointestinal products with late-
stage clinical data on human safety and efficacy. The following table
summarizes Salix's current products in development.
<TABLE>
<CAPTION>
PRODUCT INDICATION STATUS
- -------------------------------------------------------------------------------
<C> <C> <S>
. Approved in United Kingdom in
Colazide(/1/) Acute ulcerative colitis July 1997
. NDA submitted in United States
on June 23, 1997(/2/)
. European submissions to occur
through mutual recognition
procedure of European Union in
1997 and 1998
. Additional Phase III/IV
clinical study scheduled to
commence in the fourth quarter
of 1997
- -------------------------------------------------------------------------------
. European clinical studies
Colazide(/1/) Ulcerative colitis maintenance ongoing
- -------------------------------------------------------------------------------
. Phase III clinical trial
Rifaximin Hepatic encephalopathy ongoing(/3/)
. Orphan drug application to be
submitted in the fourth
quarter of 1997 as supplement
to IND
- -------------------------------------------------------------------------------
Rifaximin Antibiotic associated colitis . IND submitted in April 1997
. Phase II/III clinical trials
scheduled to commence in the
fourth quarter of 1997
- -------------------------------------------------------------------------------
Rifaximin H. pylori . IND planned for later date
- -------------------------------------------------------------------------------
Rifaximin Diverticulitis . IND planned for later date
- -------------------------------------------------------------------------------
Rifaximin Infectious diarrhea . IND planned for later date
- -------------------------------------------------------------------------------
BX-661A Familial adenomatous polyposis . Orphan Drug Status application
to be submitted in 1998
. IND filing and Phase II/III
clinical trials planned in
1998
- -------------------------------------------------------------------------------
BX-661C Colonic polyp reduction . Pre-clinical development
- -------------------------------------------------------------------------------
</TABLE>
(1) Astra has exclusive commercial rights in all countries excluding Italy,
Spain, Portugal, Greece, Japan, Taiwan, and Korea. Menarini has
exclusive commercial rights in Italy, Spain, Portugal and Greece. See
"--Strategic Alliances" and "--Marketing and Sales".
(2) The NDA for Colazide is subject to acceptance for filing by the FDA to
determine whether it can be substantively reviewed. The FDA has 60 days
following the Company's submission of the NDA to make its determination.
(3) This trial is being conducted by Alfa Wassermann in Spain. The data
obtained in this trial may be used in partial support of an NDA filing,
subject to the Company's audit of the clinical protocols, data
collection procedures and methodology established by Alfa Wassermann as
well as the outcome of the trial.
Colazide
Colazide (balsalazide disodium) is an orally administered, anti-inflammatory
drug designed to act in the gastrointestinal tract and specifically in the
colon. The Company recently obtained authorization to market Colazide in the
United Kingdom for the treatment of acute ulcerative colitis. The Company
believes that Colazide is also a potential treatment for large bowel Crohn's
disease and other inflammatory bowel disease conditions. Salix licensed
Colazide from Biorex and will sell Colazide, manufactured by third parties
under contract with the Company, to its distribution partners, Astra and
Menarini. Astra has announced that Colazide will be one of its major product
launches in 1997. Sales of drugs used to treat
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IBD worldwide totaled approximately $550 million in 1996 and have reflected a
compound annual growth rate of approximately 20% between 1987 and 1996. See
"--Strategic Alliances".
Colazide was developed after careful evaluation of the benefits and side
effects of existing therapies. Colazide is an orally administered drug therapy
that the Company believes is superior in delivering drug directly to the
colon. Medical treatment of ulcerative colitis over the past 50 years has
consisted of corticosteroids, which are typically unsuited for long-term
treatments because of their significant side effect profile, and 5-ASA drugs.
To be effective, these drugs must travel through the stomach and small
intestine to the colon and be released in the colon without significant
quantities being absorbed in the bloodstream. SASP, which is taken orally, is
the original 5-ASA drug and is effective in reaching the colon with only low
absorption rates in the bloodstream. However, SASP also contains a carrier
molecule (sulfapyridine) which is toxic and results in a high incidence of
side effects such as nausea, headache, dizziness, anemia or other blood
disorders, and skin rashes. In approximately 30% of IBD patients who attempt
treatment with SASP, these side effects are so severe that the patient cannot
tolerate continued treatment.
In the early 1980s, pharmaceutical companies began developing new drugs to
deliver 5-ASA to the colon without the side effect profile of SASP. These
drugs first appeared in the United States market in the early 1990s. While the
new drugs, including mesalamine, are generally better tolerated than SASP,
they continue to be limited in use because significant amounts of the drugs
may be absorbed in the bloodstream before reaching the colon. In other cases,
the drugs may not dissolve in the body, in which case they may remain whole
when passed through the bowel and are therefore not absorbed in the colon. See
"--Inflammatory Bowel Disease/Ulcerative Colitis".
Colazide is a new chemical entity that consists of two molecular structures.
The first molecule, 5-ASA, is the active drug and responsible for the actual
therapeutic effect. The second molecule, 4-ABA, is a non-toxic carrier
molecule that enables the 5-ASA molecule to travel to the colon without being
absorbed in the bloodstream. The combination of these two molecules into one
chemical compound is designed to deliver the therapeutic agent to the disease
site and has a favorable side effect profile.
In June 1997, the Company submitted an NDA to the FDA seeking approval in
the United States for Colazide as a treatment for acute ulcerative colitis. In
July 1997, the Company received marketing authorization in the United Kingdom
for acute ulcerative colitis from the Medicines Control Agency (the "MCA").
Under new mutual recognition procedures of the European Union, the Company's
marketing partners, Astra and Menarini, have informed the Company that they
will file submissions during 1997 and 1998, based on the MCA authorization,
seeking marketing approval for Colazide in Germany, France, Italy, Spain and
certain other member countries of the European Union. The Company believes
that approvals through these mutual recognition procedures will be received in
1998.
The FDA is in the process of reviewing the Company's NDA, which was filed in
June 1997, to determine if it can be accepted for filing. The FDA has 60 days
following submission of the NDA to make its determination. Once filed, this
NDA can be approved only if the FDA determines that the NDA contains
substantial evidence from clinical trials that the drug is safe and effective
for its intended use. The Company submitted the NDA following completion of
five double-blind, randomized, controlled, safety and efficacy studies
evaluating Colazide as a treatment for acute ulcerative colitis. Two pivotal
Phase III studies were completed in March 1995 and March 1996, respectively.
The multi-center Phase III study conducted in the United States, which
evaluated 150 recently relapsed patients with long-standing disease symptoms,
was completed in March 1996. The proposed marketing dose (6.75 grams per day)
of Colazide was compared to a lower dose of Colazide (2.25 grams per day) and
to mesalamine over an eight week treatment period. The study demonstrated a
statistically significant dose-response between the two Colazide doses for the
primary endpoint of symptom improvement, including stool frequency, rectal
bleeding, sigmoidoscopic score and physician's global
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assessment. Although the primary measure of symptom improvement was not
statistically significantly different between Colazide and mesalamine, symptom
improvement was noticeably favorable for Colazide. Secondary measures of
study-end symptom scores were also significantly more favorable for Colazide
than mesalamine with respect to rectal bleeding, sigmoidoscopic score and
physician's global assessment.
A trial completed in March 1995 evaluated 100 patients, most of whom had
been recently diagnosed with acute ulcerative colitis, over a 12 week
treatment period at multiple centers in the United Kingdom. The primary study
endpoint measured patient tolerance of Colazide versus mesalamine. While only
one patient in each group withdrew due to intolerance, patients treated with
Colazide had statistically significantly fewer side effects than those treated
with mesalamine. The secondary endpoint of the trial measured the efficacy of
Colazide relative to mesalamine and included primary measures of complete
remission, symptomatic remission, and median time to complete relief of
symptoms. Colazide proved statistically significantly more effective than
mesalamine for the endpoints of complete remission, symptomatic remission, and
median time to complete relief of symptoms.
In addition to the two pivotal Phase III trials, the Company completed
another trial in February 1996, comparing two doses of Colazide to placebo and
evaluating 180 patients at multiple centers in the United States. Due to
ethical concerns regarding treatment of active-disease patients with placebo,
the Company limited the study to four weeks, which reduced the opportunity for
Colazide to demonstrate its full therapeutic effect and no significant
difference between placebo and Colazide for the primary efficacy endpoint was
found. However, patients treated with Colazide showed statistically
significantly fewer side effects than patients treated with placebo. In
addition, the Company believes the lack of difference in efficacy between the
two treatments is attributable to the nature of the patients enrolled and the
short duration of the trial. Many of the patients enrolled had previously
failed treatment with other therapies, including 5-ASA containing products
such as mesalamine.
The Company and its distribution partners are planning to conduct a Phase
III/IV clinical study of Colazide in the treatment of acute ulcerative
colitis, which is scheduled to begin in the fourth quarter of 1997.
Rifaximin
Rifaximin, a new antibiotic, belongs to the rifamycin class of antibiotics
and distinguishes itself from others of analogous structure due to its almost
complete lack of absorption by gastroenteric mucosa, which allows high
concentrations of the active drug to reach and be maintained in the digestive
tract. The Company licensed rights in the United States and Canada to
rifaximin from Alfa Wassermann, which developed and currently markets the
product in Italy for hepatic encephalopathy and chronic intestinal infections
as well as for prophylactic use with infective complications of
gastrointestinal surgery. The Company currently has full commercial rights for
rifaximin in the United States and Canada and intends to establish an
independent sales and marketing organization for the purpose of fully
exploiting these rights. The Company believes that a business model premised
on a direct sales force will result in higher operating margins than the
distribution partner model that the Company has established for Colazide.
The Company intends to pursue regulatory approvals for rifaximin for two
initial indications, hepatic encephalopathy and AAC. In the future, the
Company plans to develop rifaximin for other potential indications, including
infectious diarrhea, diverticular disease, peptic ulcer treatment through H.
pylori eradication, other gastrointestinal infections, and for perioperative
prophylaxis of septic complications of large bowel surgery.
Hepatic encephalopathy is a neuro-psychiatric syndrome caused by the build-
up of ammonia in the blood. When ammonia is not removed from the body, it
travels to the brain and causes the neuropsychiatric syndrome known as hepatic
encephalopathy. The Company believes that antibiotic treatment for hepatic
encephalopathy may prevent the accumulation of ammonia in the bloodstream.
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The Company plans to submit an application to the FDA in the fourth quarter
of 1997 seeking Orphan Drug Status for rifaximin to treat hepatic
encephalopathy. Orphan drug status is generally available for indications
affecting less than 200,000 patients. In practice, it may allow an NDA to
receive a priority review by the FDA, gives the product seven years of market
exclusivity for the orphan indication regardless of the drug's patent status,
and may allow the FDA to permit approval of an NDA based on a single pivotal
Phase III trial. See "--Government Regulation". The Company believes that
approximately 160,000 persons currently suffer from hepatic encephalopathy in
North America.
As part of its agreement with Alfa Wassermann, the Company obtained clinical
trial data for rifaximin. In addition to previous studies, Alfa Wassermann is
currently conducting a study in Spain which may provide the Company with data
in support of an NDA filing in the United States for hepatic encephalopathy.
The validity of this data is subject to the Company's audit of the clinical
protocol, data collection procedures and methodology established by Alfa
Wassermann in conducting this study. Previous studies in patients with hepatic
encephalopathy include open-label trials and randomized, double-blind,
comparative trials in patients with hepatic encephalopathy. In these studies,
a total of 237 patients were treated with rifaximin and 149 patients with
comparative agents (other antibiotics and lactulose). In the comparative
studies with lactulose, rifaximin was comparable to or more effective than
lactulose for the improvement of signs and symptoms of hepatic encephalopathy
and had a superior side effect profile.
The Company intends to conduct its own clinical trials using rifaximin to
treat AAC caused by C. difficile, a gram negative bacterium for which there
are currently few effective therapies. The Company has received allowance from
the FDA to begin these clinical trials, which the Company expects to begin in
the fourth quarter of 1997. Based on research conducted by Alfa Wassermann,
the Company believes that rifaximin has broad spectrum activity and may be
shown to be effective against C. difficile. Oral vancomycin was until recently
the preferred treatment for AAC. However, the emergence of vancomycin-
resistant bacteria has prompted the United States Centers for Disease Control
and Prevention to recommend limited use of vancomycin. No other therapy has
been approved for the treatment of AAC in the United States. Independent
research indicates that up to 2,000,000 people develop AAC each year in North
America.
Given the extremely low gastrointestinal absorption of rifaximin and a
promising cross-resistance profile, the Company believes rifaximin may be more
effective in eradicating H. pylori than other more commonly used antibiotics.
Alfa Wassermann has conducted a single non-comparative trial in Italy to
assess the efficacy of rifaximin in treating H. pylori induced peptic ulcers
and is currently organizing a co-operative study to supplement the earlier
findings.
BX-661A (Balsalazide Disodium) and BX-661C (Balsalazide Calcium)
Based on a preclinical evaluation of BX-661A, the Company believes that the
drug may be shown to be a chemopreventive agent to reduce colonic polyp growth
and believes that the drug may have potential for this indication. All
colorectal cancer starts as a polyp, and eventually all FAP patients develop
colorectal cancer. There are approximately 40,000 people in the United States
that have the genetic abnormality that causes FAP. Because this patient
population is genetically predisposed to polyp growth consistently throughout
life, they are an important subset of the general population who would be
eligible for therapy to retard polyp growth. Currently, the Company intends to
apply to the FDA for Orphan Drug Status for BX-661A (balsalazide disodium) to
treat FAP. The Company plans to begin Phase III clinical trials of BX-661A in
1998 to measure its ability to prevent the recurrence of rectal polyps in
patients with FAP who have had partial or total colectomy.
Subsequently, the Company intends to pursue the possibility for a broader
indication of colonic polyp reduction in the general population with BX-661C
(balsalazide calcium) should the data from the BX-661A prove positive. The
Company estimates that approximately 80 million persons in the United States
and 95 million persons in Europe have colonic polyps, although the number of
persons who seek diagnosis and treatment for the condition is unknown.
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The Company believes that balsalazide has anti-inflammatory and antioxidant
properties that are similar to non-steroidal anti-inflammatory drugs
("NSAIDs") but lack NSAIDs' upper gastrointestinal ulcerogenic activity. In
addition, the Company believes that the colonic-specific delivery mechanism
for the drug results in very low systemic absorption significantly reducing
the possibility of renal side effects. In clinical studies evaluating a total
of more than 900 patients treated with balsalazide for a mean duration of 1.5
years, no cases of gastrointestinal ulceration or renal side effects have been
reported.
In collaboration with scientists at the University of California at San
Francisco ("UCSF") and the San Francisco Veterans Administration Medical
Center ("VA Medical Center"), balsalazide and a newly discovered metabolite of
balsalazide were shown in early studies to inhibit human colon cancer cell
proliferation in culture and to inhibit in animals one of the earliest steps
in colon polyp and cancer formation.
Further pre-clinical studies performed by the Company, using a genetic
strain of mice which develop multiple intestinal tumors and die before 5
months of age, showed that balsalazide prevented the formation of greater than
75% of these tumors in the colon. Based on these preliminary results, the
Company and scientists at UCSF and the VA Medical Center in San Francisco have
responded to a request from the National Cancer Institute ("NCI") to submit a
grant proposal to fund a clinical trial to test the effectiveness of
balsalazide in patients who are at increased risk of developing colorectal
cancer. The target patients are those who have had polyps removed and are
undergoing surveillance for polyp occurrence. The Company plans to commence
this study after receiving grant approval from the NCI and obtaining necessary
FDA clearance.
STRATEGIC ALLIANCES
The Company enters into various collaborations with corporate partners,
licensors, licensees and others. To date, the Company has entered into the
following strategic alliances:
Biorex Laboratories Limited
The Company in-licensed balsalazide and all its salts, including the
Company's first product, Colazide (balsalazide disodium), from Biorex, a
private, independent drug company headquartered in England. Biorex developed
Colazide and completed limited Phase III clinical trials. Under its agreements
with the Company, Biorex will participate in future milestone revenues and
profits from Colazide.
Pursuant to an agreement between Biorex and the Company, Biorex granted the
Company the exclusive worldwide right (other than Japan, Taiwan, Korea, and
the United States) to develop, manufacture and sell balsalazide for all
disease indications for a period of 15 years from the date of commercial
launch, subject to early termination in certain circumstances. Under a
separate agreement, Biorex granted the Company the exclusive right to develop,
manufacture and sell balsalazide for all disease indications in the United
States for a period of nine years from the date of commercial launch or the
term of the applicable patent, whichever is longer. Under these agreements,
the Company paid Biorex fees upon entering into the agreements and is
obligated to make additional milestone and royalty payments for the drug.
Pursuant to such agreements, the Company is responsible for completion of
preclinical testing, clinical trials and regulatory approvals for balsalazide.
Alfa Wassermann S.p.A.
The Company in-licensed rifaximin from Alfa Wassermann, a privately held
pharmaceutical company headquartered in Italy. Alfa Wassermann has developed
several glycosaminoglycans, rifaximin and alpha-interferon from human
leukocytes. Alfa Wassermann's principal areas of therapeutic focus include
anti-thrombotics, antibiotics, gastrointestinal products, NSAIDs,
immunomodulators, anti-hypertensives, and bronchopulmonary products. During
recent years, Alfa Wassermann has formed alliances with international partners
to expand and strengthen its marketing and research activities.
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Pursuant to an agreement with the Company, Alfa Wassermann granted the
Company, in exchange for certain royalties, the exclusive right in the United
States and Canada to develop, make, use and sell or have sold rifaximin for
the treatment of gastrointestinal and respiratory tract diseases. Alfa
Wassermann has agreed separately to supply the Company with bulk active
ingredient rifaximin at a fixed price.
AB Astra
Astra, an international pharmaceutical company headquartered in Sweden, has
extensive experience developing and marketing therapies for gastrointestinal
diseases. The Company's alliance with Astra partially funded the development
of Colazide. Through June 30, 1997, Salix had received revenues for milestone
payments and product development funding of approximately $10.8 million out of
a total of $16.0 million payable upon achievement of certain milestones under
its agreements with Astra. The remaining milestone revenues relate to European
marketing approvals, the Company's recent NDA submission for Colazide and FDA
approval of the NDA. Under the terms of agreements between the Company and
Astra, the Company will sell encapsulated Colazide to Astra for marketing and
distribution in its territories at a price based on a percentage of Astra's
average ex-factory sales price. Astra has announced that commercial sales of
Colazide will begin in the United Kingdom in October 1997.
Pursuant to contracts between the Company and Astra, the two companies
agreed to collaborate in developing and obtaining regulatory approval of
Colazide in all the countries of the world excluding Italy, Spain, Portugal,
and Greece (collectively, "Southern Europe") and Japan, Taiwan and Korea
(collectively, "East Asia"). Under these agreements, the Company granted Astra
exclusive distribution rights to Colazide disodium in all markets (except for
Southern Europe and East Asia) for specified indications. In addition, the
companies agreed to collaborate on development and promotional plans for
Colazide in the United States market. Astra is obligated to provide the
Company with milestone, license and development payments, and has agreed to
purchase encapsulated product from the Company at a transfer price based on a
percentage of Astra's selling price. In addition, the Company granted Astra
certain rights of first negotiation with respect to the development and
exploitation of additional indications for balsalazide disodium and a right of
first refusal to obtain marketing rights in the United States for
gastrointestinal products for which Salix chooses not to assume the sole and
exclusive responsibility for marketing. For new indications for Colazide, the
agreements provide that the Company cannot market Colazide, either directly or
through third parties, without the prior consent of Astra.
Menarini Pharmaceutical Industries s.r.l.
Menarini, headquartered in Italy, is the largest manufacturer and
distributor of pharmaceuticals in Southern Europe. Menarini also has extensive
experience developing and marketing therapies for gastrointestinal disease in
its markets. Under its agreements with Menarini, the Company granted Menarini
certain manufacturing rights and exclusive distribution rights with respect to
Colazide in Italy, Spain, Portugal and Greece. Through June 30, 1997 the
Company has received revenues as partial contribution to research and
development costs borne by the Company of approximately $1.2 million. The
agreement calls for additional milestone revenues of $0.5 million to be paid
to Salix relating to European marketing approvals in the Menarini territories.
The funding provided through this alliance has allowed Salix to fund partially
the development of Colazide. Under the terms of its agreements, Salix will
sell bulk active ingredient Colazide to Menarini for marketing and
distribution in its territories at cost plus a sales-based royalty.
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MANUFACTURING
The Company has in the past used and will continue to use third party
manufacturers to produce material for use in clinical trials and for
commercial product. This manufacturing strategy enables the Company to direct
its financial resources to product in-licensing and acquisition, product
development, and sales and marketing efforts, without devoting resources to
the time and cost associated with building large manufacturing plants. The
Company chooses manufacturers who have demonstrated the ability to manufacture
products in accordance with Good Manufacturing Practice regulations and who
have manufactured products that have passed an FDA inspection.
Currently, bulk active ingredient Colazide is being manufactured for the
Company by Courtaulds Chemicals (Holdings) Limited in Scotland and is being
encapsulated for the Company by Anabolic, Inc. in Irvine, California.
Under its supply agreement with the Company, Alfa Wassermann is obligated to
supply the Company with bulk active ingredient rifaximin. Currently, Alfa
Wassermann manufactures rifaximin for the Italian and other European markets.
MARKETING AND SALES
The Company has retained marketing rights in the United States and Canada to
rifaximin and plans to establish its own marketing and sales organization for
rifaximin and future products. The Company intends to establish a small,
specialized sales force to market rifaximin to the limited group of
approximately 9,700 gastroenterologists in the United States who are
responsible for treating most gastrointestinal disease. The Company believes
that a domestic direct sales force can effectively reach this small number of
physicians without the investment needed to develop and maintain a large sales
force. This direct sales force model will be the basis for the
commercialization of rifaximin and future products in the United States.
The Company has licensed the exclusive distribution rights for Colazide to
Astra and Menarini. The commercial relationships with Astra and Menarini have
provided the Company money needed to fund the late-stage development of
Colazide, to in-license other gastrointestinal products and to help establish
the Company as a viable gastrointestinal pharmaceutical company. The Company
received the necessary funding in exchange for the grant of exclusive
distribution rights to Astra and Menarini. The Company plans to implement
future North American product sales and marketing based on the direct sales
force model. See "--Strategic Alliances".
PATENTS AND PROPRIETARY RIGHTS
General
As with all pharmaceutical companies, the Company's success will depend on
its ability to maintain patent protection for its products, preserve trade
secrets, prevent third parties from infringing upon its proprietary rights,
and operate without infringing upon the proprietary rights of others, both in
the United States and internationally.
Colazide
The active ingredient of Colazide, balsalazide, and the method of treating
ulcerative colitis with Colazide are the subject of composition of matter
patents which have been issued to Biorex in the United States (expiring July
2001), the United Kingdom (expiring February 2002), France (expiring May
2002), Italy (expiring July 2001), and Germany (expiring April 2002). The
Company holds exclusive worldwide rights under the issued patents, excluding
Japan, Korea and Taiwan. The patents claim balsalazide disodium as well as
several variant molecules.
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Additional patent applications have been filed by the Company in its own
name covering the use of balsalazide or any metabolite thereof for colorectal
cancer chemoprevention. A patent for the method of treating colon cancer was
issued in the United States to the Company in March 1996 and expires in
January 2014. Assuming patents issue for pending applications, patents for the
method of treating colon cancer will expire in January 2015 in various
countries in Europe, Asia, and North America. Claims to additional metabolites
are still pending in subsequent filings worldwide. No assurances can be given
that such additional patents will issue or, if issued, that they will provide
protection against similar or competing products.
Rifaximin
Rifaximin is covered by substance of matter patents which have issued in the
United States and major market territories of Europe. The original United
States composition-of-matter patent, which also covers the process of making
rifaximin and the use of rifaximin for the treatment of gastrointestinal
infectious diseases, expires in May 2001. A related Canadian patent also
expires in May 2001. Additional patents on a manufacturing process and on the
use of rifaximin for the treatment of H. pylori infections have been issued in
the United States to Alfa Wassermann and such patents expire in April 2005 and
June 2013, respectively. Related Canadian patents expire in April 2005 and
February 2014, respectively.
Patent Term Extensions
The Company believes that some of these patents may be eligible for
extensions of up to five years based upon patent term restoration procedures
in Europe and in the United States under the Waxman-Hatch Act. Under the
Waxman-Hatch Act, the United States Patent and Trademark Office is directed to
extend the term of an eligible patent for a time equal to the "regulatory
review period for the approved product". This time period is generally one-
half the length of time between the effective date of the IND and submission
of the NDA, plus the length of time between filing and approval of the NDA, up
to a total possible extension of five years. Periods during which the
applicant did not act with "due diligence" are subtracted from the regulatory
review period. Under this law, the Colazide patent in the United States could
be extended by up to five years, giving the product patent protection until as
late as 2006 if approval in the United States is received before expiration of
the original patent term in 2001. In addition, the Company intends to seek
patent extensions under similar laws in effect in the European Union, which
could give Colazide extended patent protection in these jurisdictions until as
late as 2006.
GOVERNMENT REGULATION
The research, testing, manufacture, marketing and distribution of drug
products are extensively regulated by governmental authorities in the United
States and other countries. In the United States, drugs are subject to
rigorous regulation by the FDA. The Federal Food, Drug and Cosmetic Act, as
amended (the "FDC Act"), and the regulations promulgated thereunder, and other
federal and state statutes and regulations, govern, among other things, the
research, development, testing, manufacture, storage, record keeping,
labeling, promotion and marketing and distribution of pharmaceutical products.
Failure to comply with applicable regulatory requirements may subject a
company to administrative sanctions or judicially imposed sanctions such as
civil penalties, criminal prosecution, injunctions, product seizure or
detention, product recalls, and total or partial suspension of product
marketing and/or approvals. In addition, non-compliance may result in the
FDA's refusal to approve pending NDAs or supplements to approved NDAs or in
the withdrawal of an NDA. Any such sanction could result in adverse publicity,
which could have a material adverse effect on the Company's business,
financial conditions, and results of operation
The steps ordinarily required before a new pharmaceutical product may be
marketed in the United States include: (i) preclinical laboratory tests,
preclinical studies in animals and formulation studies; (ii) the submission to
the FDA of a notice of claimed investigational exemption for a new drug or
antibiotic, which must become effective before clinical testing may commence;
(iii) adequate and well-controlled clinical human trials to establish the
safety and efficacy of the drug for each indication; (iv) the submission of an
NDA to the FDA; and (v) FDA review and approval of the NDA prior to any
commercial sale or shipment of the drug. Preclinical tests include laboratory
evaluation of product chemistry and formulation,
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as well as animal studies to assess the potential safety and efficacy of the
product. Preclinical tests must be conducted in compliance with Good
Laboratory Practice regulations. The results of preclinical testing are
submitted to the FDA as part of an IND. A 30-day waiting period after the
filing of each IND is required prior to the commencement of clinical testing
in humans. In addition, the FDA may, at any time during this 30-day period or
at any time thereafter, impose a clinical hold on proposed or ongoing clinical
trials. If the FDA imposes a clinical hold, clinical trials cannot commence or
recommence without FDA authorization and then only under terms authorized by
the FDA. In some instances, the IND application process can result in
substantial delay and expense.
Clinical trials to support NDAs are typically conducted in three sequential
phases, but the phases may overlap. In Phase I, the initial introduction of
the drug into healthy human subjects or patients, the drug is tested to assess
metabolism, pharmacokinetics and pharmacological actions and safety, including
side effects associated with increasing doses. Phase II usually involves
studies in a limited patient population to (i) assess the efficacy of the drug
in specific, targeted indications, (ii) assess dosage tolerance and optimal
dosage and (iii) identify possible adverse effects and safety risks. If a
compound is found to be potentially effective and to have an acceptable safety
profile in Phase II evaluations, Phase III trials are undertaken to further
demonstrate clinical efficacy and to further test for safety within an
expanded patient population at geographically dispersed clinical study sites.
There can be no assurance that Phase I, Phase II or Phase III testing will be
completed successfully within any specified time period, if at all, with
respect to any of the Company's products subject to such testing.
After successful completion of the required clinical testing, generally an
NDA is submitted. FDA approval of the NDA is required before marketing may
begin in the United States. The FDA reviews all NDAs submitted before it
accepts them for filing and may request additional information rather than
accepting an NDA for filing. In such an event, the NDA must be resubmitted
with the additional information and, again, is subject to review before
filing. Once the submission is accepted for filing, the FDA begins an in-depth
review of the NDA. Under the FDC Act, the FDA has 180 days in which to review
the NDA and respond to the applicant. The review process is often
significantly extended by FDA requests for additional information or
clarification regarding information already provided in the submission. The
FDA may refer the application to an appropriate advisory committee, typically
a panel of clinicians, for review, evaluation and a recommendation as to
whether the application should be approved. The FDA is not bound by the
recommendation of an advisory committee. If FDA evaluations of the NDA and the
manufacturing facilities are favorable, the FDA may issue either an approval
letter or an approvable letter, which usually contains a number of conditions
that must be met in order to secure final approval of the NDA. When and if
those conditions have been met to the FDA's satisfaction, the FDA will issue
an approval letter, authorizing commercial marketing of the drug for certain
indications. If the FDA's evaluation of the NDA submission or manufacturing
facilities is not favorable, the FDA may refuse to approve the NDA or issue a
not approvable letter, outlining the deficiencies in the submission and often
requiring additional testing or information. If regulatory approval of
Colazide or any other product is granted, such approval will be limited to
those disease states and conditions for which the product has been found by
the FDA to be safe and effective, as demonstrated through well controlled
clinical studies. Even if such regulatory approval is obtained, a marketed
product, its manufacturer and its manufacturing facilities are subject to
continual review and periodic inspections. In addition, identification of
certain side effects after a drug is on the market or the occurrence of
manufacturing problems could cause subsequent withdrawal of approval,
reformulation of the drug, additional preclinical testing or clinical trials
and changes in labeling of the product.
For antibiotic drug products such as rifaximin, FDA testing and approval
procedures are analogous to those applicable to non-antibiotic drugs except
that approval also requires the establishment of an antibiotic monograph
setting forth the tests and specifications for the drug, which are published
by the FDA as a regulation and codified in the Code of Federal Regulations.
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On June 23, 1997, the Company submitted an NDA to the FDA covering the use
of Colazide as a therapy for acute ulcerative colitis. The NDA is subject to
acceptance for filing by the FDA by August 22, 1997. If accepted for filing,
the NDA can be approved only if the FDA determines that the NDA contains
substantial evidence from clinical trials that the drug is safe and effective
for its intended use. There can be no assurance that the results of the
Company's preclinical or clinical studies, including its United States Phase
III clinical testing in combination with the results from a European safety
and efficacy study, will demonstrate, to the FDA's satisfaction, substantial
evidence that the drug is safe and effective. If clinical data, in addition to
that filed in the NDA, is requested from the Company to support approval of
Colazide, such a request is likely to significantly delay approval of the
product, if approval is granted at all. If regulatory approval of Colazide or
any other product is granted, such approval will be limited to those disease
states and conditions for which the product has been shown to be safe and
effective, as demonstrated to the FDA's satisfaction through well controlled
clinical studies. Furthermore, approval may entail ongoing requirements for
post-marketing studies. Even if such regulatory approval is obtained, a
marketed product, promotional activities for the product, its manufacturer and
its manufacturing facilities are subject to continual review and periodic
inspections. In addition, identification of certain side effects after a drug
is on the market or the occurrence of manufacturing problems could cause
subsequent withdrawal of approval, reformulation of the drug, additional
preclinical testing or clinical trials and changes in labeling of the product.
The Company does not expect to file an NDA for rifaximin prior to mid-1998 and
will do so only if the clinical trials support such a filing.
Under the Orphan Drug Act, the FDA may designate a product as an orphan drug
if it is a drug intended to treat a "rare disease or condition", which is a
disease or condition that affects populations of fewer than 200,000
individuals in the United States or a disease whose incidence rates number
more than 200,000 where the sponsor establishes that it does not realistically
anticipate that its product sales will be sufficient to recover its costs. The
sponsor that obtains the first marketing approval for a designated orphan drug
for a given rare disease is eligible to receive marketing exclusivity for use
of that drug for the orphan indication for a period of seven years. The
Company may apply for orphan drug designation for some of its products and
indications in development. There is no assurance that the FDA would grant
orphan drug designation or marketing exclusivity for any such indications or
products or that, if granted, such exclusivity would effectively protect the
product from competition.
Drug manufacturing establishments are subject to periodic inspection by
regulatory authorities and must comply with Good Manufacturing Practice
regulations. The Company or its third party manufacturer must pass a
preapproval inspection of its manufacturing facilities by the FDA before
obtaining marketing approval of any products for sale in the United States.
These manufacturers are also subject to periodic FDA inspections. In the event
that violations of applicable standards are found, the Company may be required
to cease distribution of some or all products and may be required to recall
products already distributed.
Outside the United States, the Company's ability to market a product is
contingent upon receiving marketing authorizations from the appropriate
regulatory authorities. The requirements governing the conduct of clinical
trials and marketing authorization vary widely from country to country. At
present, foreign marketing authorizations are applied for at a national level,
although within the European Union procedures are available to companies
wishing to market a product in more than one European Union member state. The
foreign regulatory approval process includes all of the risks associated with
FDA approval set forth above.
44
<PAGE>
COMPETITION
Competition in the pharmaceutical industry is intense and characterized by
extensive research efforts and rapid technological progress. The Company
believes that there are numerous pharmaceutical and biotechnology companies,
both public and private and including large well known pharmaceutical
companies, as well as academic research groups that are engaged in research
and development efforts for gastrointestinal diseases and conditions addressed
by the Company's current and potential products. In particular, the Company is
aware of products in research or development by competitors that address the
diseases being targeted by the Company's products. There can be no assurance
that developments by others will not render the Company's current and
potential products obsolete or noncompetitive. Competitors may be able to
complete the development and regulatory approval process sooner and,
therefore, market their products earlier than the Company. Many of the
Company's competitors have substantially greater financial, marketing and
human resources and development capabilities than the Company. For example,
many large, well capitalized companies already offer products in the United
States and Europe that will compete with the Company's proposed therapeutic
applications of Colazide, including mesalamine (SmithKline Beecham plc, Dr.
Falk Pharma GmbH, Pharmacia & Upjohn, Inc., Solvay S.A., The Procter & Gamble
Company, and Hoechst Marion Roussel, Inc.), sulfasalazine (Pharmacia & Upjohn,
Inc.), and olsalazine (Pharmacia & Upjohn, Inc.). Technological developments
by competitors, earlier regulatory approval for marketing competitive
products, or superior marketing capabilities possessed by competitors could
adversely affect the commercial potential of the Company's products, including
Colazide, and could have a material adverse effect on the Company's business,
financial condition, and results of operations. In addition, manufacturers of
generic drugs may seek to compete directly with the Company's products in the
absence of effective patent protection or non-patent exclusivity protections.
FACILITIES
The Company occupies approximately 7,500 square feet of office space in Palo
Alto, California, approximately 200 square feet of office space in Hamilton,
Bermuda, and approximately 260 square feet of office space in Dorset, England.
The Palo Alto facility's lease extends through August 31, 2001. The Company
considers this space adequate for its anticipated needs into the foreseeable
future.
EMPLOYEES
As of June 30, 1997, the Company had 17 employees. The Company believes that
its future success will depend in part on its continued ability to attract,
hire, and retain qualified personnel. Competition for such personnel is
intense, and there can be no assurance that the Company will be able to
identify, attract, and retain such personnel in the future. None of the
Company's employees is represented by a labor union. The Company has not
experienced any work stoppages and considers its relations with its employees
to be good.
45
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS, AND KEY EMPLOYEES
The following table sets forth certain information concerning the executive
officers, directors, and certain key employees of the Company and its
subsidiaries, including their ages as of July 31, 1997 and their place of
residence:
<TABLE>
<CAPTION>
NAME AGE POSITION RESIDENCE
---- --- -------- ---------
<S> <C> <C> <C>
Randy W. Hamilton....... 44 Chairman, President and Los Altos, California, U.S.A.
Chief Executive Officer
David Boyle............. 43 Vice President, Finance & Cupertino, California, U.S.A.
Administration, and Chief
Financial Officer
John Brough............. 44 President, Glycyx Southampton, Bermuda
Pharmaceuticals, Ltd.
Alvaro E. Carvajal...... 54 Vice President, Information San Francisco, California,
Systems (Salix U.S.A.
Pharmaceuticals)
Lorin K. Johnson, 44 Vice President, Research, Pleasanton, California, U.S.A.
Ph.D................... and Director
Robert P. Ruscher....... 37 Vice President, Business Raleigh, North Carolina, U.S.A.
Development
James G. Shook, Ph.D.... 57 Senior Vice President, Redwood City, California, U.S.A.
Development (Salix
Pharmaceuticals)
Jay A. Lefton........... 41 Corporate Secretary Toronto, Ontario, Canada
Lily Baxendale,
F.R.S.C................ 72 Director London, United Kingdom
Lawrance A. Brown,
Jr.(/1/)(/2/).......... 69 Director Palo Alto, California, U.S.A.
John F. 60 Director Gladwyne, Pennsylvania, U.S.A.
Chappell(/1/)(/2/).....
Nicholas M. Ediger...... 69 Director Fredericton, New Brunswick,
Canada
David E. Lauck.......... 62 Director Florence, Oregon, U.S.A.
</TABLE>
- --------
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
Randy W. Hamilton is a co-founder of the Company and has served as Chairman
of its Board of Directors and President and Chief Executive Officer since
December 1993. From November 1989 to December 1993, Mr. Hamilton served as
President and Chief Executive Officer and as a director of Salix
Pharmaceuticals, Inc. Prior to 1989, Mr. Hamilton served as Director of
Planning and Business Development with SmithKline Diagnostics, Inc., a medical
diagnostic subsidiary of SmithKline Beecham plc, a pharmaceutical company, and
as head of Asian business development for California Biotechnology Inc. (now
Scios, Inc.), a biotechnology company.
David Boyle has served as the Company's Vice President, Finance and
Administration, and Chief Financial Officer since November 1996. From May 1992
to October 1996, Mr. Boyle was employed by Ares Serono Group, a Swiss
pharmaceutical company, most recently as Vice President, Finance and
Administration (North America), and previously as Director, Business Analysis
Group. Prior to joining Ares Serono, Mr. Boyle held various accounting and
finance positions with Ernst & Young LLP.
John Brough has served as President of Glycyx Pharmaceuticals, Ltd. since
July 1996. From April 1995 to April 1996, he served as President, and from May
1989 to April 1995 as Director, Finance and Administration, of Syntex
Pharmaceuticals International Ltd., a subsidiary of Syntex Corporation
("Syntex"), a pharmaceutical company acquired in 1994 by The Roche Group.
46
<PAGE>
Alvaro E. Carvajal has served as the Vice President, Information Systems of
Salix Pharmaceuticals since August 1997. From January 1994 to August 1997, Mr.
Carvajal served as the Director, Information Systems of Salix Pharmaceuticals.
From 1989 to January 1994, he served as an international systems consultant
for Syntex.
Lorin K. Johnson, Ph.D. is a co-founder of the Company and has served as the
Company's Vice President, Research, and as a member of its Board of Directors
since December 1993. From November 1989 to December 1993, Dr. Johnson held the
same positions at Salix Pharmaceuticals, Inc. Prior to co-founding Salix, Dr.
Johnson served as Director of Scientific Operations at California
Biotechnology Inc. Prior to joining California Biotechnology, Dr. Johnson was
assistant Professor of Pathology at Stanford University Medical Center.
Robert P. Ruscher has served as the Company's Vice President, Business
Development, and General Counsel since February 1996. From May 1996 to
November 1996, he also served as the Company's Chief Financial Officer. Since
April 1994, Mr. Ruscher has been associated with the law firm of Wyrick,
Robbins, Yates & Ponton, L.L.P. in Raleigh, North Carolina. From February 1993
to April 1994, Mr. Ruscher was an associate at the law firm Venture Law Group
in Menlo Park, California, and from August 1989 to February 1993, he was an
associate at the law firm Wilson Sonsini Goodrich & Rosati in Palo Alto,
California.
James G. Shook, Ph. D. has served as the Senior Vice President, Development
of Salix Pharmaceuticals, Inc. since April 1997. From August 1994 to April
1997, Dr. Shook served as Vice President, Research and Development of Fujisawa
Pharmaceuticals U.S.A., a pharmaceutical company. From September 1993 to
August 1994, Dr. Shook served as Acting Vice President, Research and
Development, and Vice President, Research and Development Operations at
Fujisawa and from June 1992 to September 1993 as Vice President, Research and
Development Operations and Project Director, Immunology.
Jay A. Lefton has served as the Company's Corporate Secretary since April
1997. Mr. Lefton has been a partner of the law firm of Aird & Berlis in
Toronto, Ontario since 1986, where he specializes in corporate and securities
law. He is also a member of the Board of Directors of International Murex
Technologies Corporation, a publicly-traded company on The Nasdaq National
Market, and Harley Street Software Ltd. and Sumtra Diversified Inc., each of
which is publicly-traded in Canada. Aird & Berlis has and is currently
providing legal counsel to the Company in Canada.
Lily Baxendale, F.R.S.C., has served as a director of the Company since July
1995. Miss Baxendale has served since 1983 as Managing Director of Biorex, a
pharmaceutical development company, which she co-founded in 1950. Prior to
1983, Miss Baxendale served as a director and secretary of Biorex. Miss
Baxendale is a Fellow of the Royal Society of Chemists.
Lawrance A. Brown, Jr. has served as a director of the Company since October
1994 and as a member of its audit and compensation committees since December
1994. Since 1992, Mr. Brown has been a self-employed consultant. Prior to
1992, Mr. Brown was a General Partner of Continental Capital and,
subsequently, a consultant to MBW Ventures. Before his venture capital
activities, Mr. Brown worked for SmithKline Corporation, a pharmaceutical
company, retiring as a Group Vice President.
John F. Chappell has served as a director of the Company since September
1990 and as a member of its audit and compensation committees since December
1994. Since December 1990, Mr. Chappell has been President of Plexus Ventures,
Inc., a private consulting firm specializing in advising early stage
pharmaceutical companies. Prior to 1990, Mr. Chappell served in various
capacities at SmithKline Beecham plc, most recently as Chairman, Worldwide
Pharmaceuticals and a member of its Board of Directors. Mr. Chappell also
serves as a director of Aronex Pharmaceuticals Inc., Neurex Corporation, Ribi
ImmunoChem Research, Inc. and Zynaxis, Inc. Mr. Chappell serves on the
Compensation Committee of the Board of Directors of Aronex Pharmaceuticals
Inc. and Ribi ImmunoChem Research, Inc.
47
<PAGE>
Nicholas M. Ediger has served as a director of the Company since February
1997. Since October 1988, Mr. Ediger has served as Managing Director of
Sentinel Associates, a finance and energy consulting firm. Prior to joining
Sentinel, Mr. Ediger served for 14 years as President and Chief Executive
Officer of Eldorado Resources Ltd., an energy and mineral company. Prior to
joining Eldorado, Mr. Ediger worked for 25 years with Gulf Oil Corporation,
including as Chief Operating Officer of Gulf Minerals Canada Ltd.
David E. Lauck is a co-founder of the Company and has served as a director
since December 1993. Mr. Lauck served as the Company's Vice President,
Development from February 1994 until June 1997 and has been working as a part
time employee with the Company since such time. From December 1993 to January
1994, he was the Company's Director of European Development. Prior to December
1993, Mr. Lauck served as an officer and director of Salix Pharmaceuticals
including in the positions of Director/Europe from October 1992 to December
1993 and Vice President of Regulatory Affairs from November 1989 to September
1992.
All directors are elected at the annual meeting of shareholders and hold
office until the election and qualification of their successors at the next
annual meeting of shareholders. Officers of the Company serve at the
discretion of the Board of Directors.
SCIENTIFIC ADVISORY BOARD
The Company assembles teams of scientific and medical advisors to advise the
Company on issues related to specific pharmaceutical products. The Company's
current group of advisors are experts in gastrointestinal disease and
specifically inflammatory bowel disease and colorectal cancer. The Company
plans to assemble different advisory groups specific to other products under
development. In certain cases, these advisors have agreed to be available for
consultation for a specified number of days each year, but individuals may
consult and meet informally with the Company on a more frequent basis. All of
the Company's scientific and medical advisors are employed by major medical
schools, research institutions, hospitals or other institutions and may have
other commitments that may limit their availability to the Company. Salix's
current advisory group is as follows:
<TABLE>
<CAPTION>
NAME POSITION
---- --------
<C> <S>
Marvin H. Sleisenger, M.D., M.A.C.P... Consulting Medical Director of Salix
and Professor of Medicine, University
of California, San Francisco
J.E. Lennard-Jones, M.D., F.R.C.P..... Professor Emeritus of
Gastroenterology, University of
London, England
Young S. Kim, M.D..................... Professor of Medicine, University of
California,
San Francisco
Stephen B. Hanauer, M.D............... Director, Gastrointestinal Clinical
Research Center, University of Chicago
James L. Madara, M.D.................. Professor of Pathology, Harvard
Medical School
Robert W. Beart, Jr., M.D............. Professor of Surgery, University of
Southern California
James M. Church, M.D.................. Member, Department of Colorectal
Surgery,
Cleveland Clinic
Robert D. Madoff, M.D................. Clinical Assistant Professor of
Surgery, Director of Research,
University of Minnesota Medical School
</TABLE>
Marvin H. Sleisenger, M.D., MACP is the Consulting Medical Director of the
Company and past Chairman of the Company's Scientific and Medical Advisory
Board. Dr. Sleisenger is Professor of Medicine and Director, Cancer Research
Institute at the University of California, San Francisco. He is author of
Gastrointestinal Disease, a widely used medical textbook. Dr. Sleisenger is
past President of the American Gastroenterological Association, a Fellow of
the Royal College of Physicians (London) and a Master of the American College
of Physicians.
48
<PAGE>
J.E. Lennard-Jones, M.D., FRCP, FRCS is Professor Emeritus of
Gastroenterology at the University of London, England. Until recently, Dr.
Lennard-Jones was a consulting gastroenterologist at St. Mark's Hospital in
London, and he is Professor Emeritus at the London Hospital Medical College.
He is past President of the British Society of Gastroenterology and President
of the British Digestive Foundation. He has contributed to numerous scientific
publications, primarily on topics related to inflammatory bowel disease.
Young S. Kim, M.D. is a Professor of Medicine at the University of
California at San Francisco, where he is also Scientific Director of the
Colorectal Cancer Program. Dr. Kim is also Director of the Gastrointestinal
Research Laboratory at the San Francisco Veterans Administration Medical
Center. He has been associated with both of these institutions since 1968. Dr.
Kim's major research interests are in the areas of experimental pathology in
gastrointestinal neoplasms, glycoprotein biochemistry, and enzymology and
membrane biochemistry of the gut. Dr. Kim has authored numerous articles in
his areas of study and currently serves on the editorial boards of The
International Journal of Experimental and Clinical Gastroenterology, Tumor
Biology and Pancreas.
Stephen B. Hanauer, M.D. has served as Director of the Gastrointestinal
Clinical Research Center at the University of Chicago since 1983 and is co-
director of the Inflammatory Bowel Disease Research Center at the University
of Chicago. He was Chairman of the Clinical Affairs/Professional Education
Committee of the Crohns & Colitis Foundation of America and has served on
numerous other national committees in the field of gastroenterology. Dr.
Hanauer served as a member of the FDA Advisory Panel for gastrointestinal
products and has authored the FDA guidelines for the clinical evaluation of
drugs for patients with inflammatory bowel disease. He has authored numerous
articles in the field and is a reviewer for publications including the New
England Journal of Medicine, Gastroenterology, the American Journal of
Gastroenterology and the Annals of Internal Medicine. He is a member of the
editorial board for the American Journal of Gastroenterology, Alimentary
Pharmacology & Therapeutics, and the Journal of Inflammatory Bowel Disease.
James L. Madara, M.D. is Associate Professor of Pathology and Associate
Professor of Health Sciences and Technology at Harvard University. Dr. Madara
has been associated with the Harvard Medical School since 1978. His major
research interests are in the areas of regulation of intestinal epithelial
permeability, inflammation of the intestinal epithelium and repair of
epithelial wounding. He is an author of numerous articles in
gastroenterological research and holds or has held editorial positions with
Gastroenterology, The American Journal of Physiology (Cell), Epithelial Cell
Biology, the Journal of Clinical Investigation and The American Journal of
Pathology.
Robert W. Beart, Jr., M.D. is currently a Professor of Surgery, specializing
in colon and rectal surgery, at the University of Southern California in Los
Angeles. His major research interests include prevention and management of
recurrent colorectal cancer, fecal continence preservation, and related areas
of gastrointestinal medicine. Previous academic appointments have included
several positions with the Mayo Clinic School of Medicine. He has served as
President of the American Society of Colon and Rectal Surgeons and has served
on the editorial board of several medical journals in the fields of surgery,
oncology and gastroenterology.
James M. Church, M.D. is currently a member of the Colorectal Surgery
Department of the Cleveland Clinic in Cleveland, Ohio. His major research
interests include chemoprevention of colonic polyps, familial adenomatous
polyposis, desmoid tumors, management of recurrent colorectal cancer, and
related areas of colorectal surgery and medicine. Previous appointments have
included positions at the University of Auckland in New Zealand. Dr. Church
has been the recipient of numerous fellowships and awards and has published
extensively in the field of colorectal disease and surgery.
49
<PAGE>
Robert D. Madoff, M.D. is currently a Clinical Assistant Professor of
Surgery and Director of Research in the Division of Colon and Rectal Surgery
at the University of Minnesota Medical School. His major research interests
include management of polyps, inflammatory bowel disease, diverticular
disease, colorectal cancer, fecal incontinence, and rectal prolapse. Previous
appointments have included positions at the University of Massachusetts
Medical School. He has served as Chief of the Colorectal Surgery Section of
the Veterans Administration Medical Center in Minneapolis. Dr. Madoff has
published and presented numerous papers in the field of colorectal disease and
surgery.
DIRECTOR COMPENSATION
The Company reimburses each member of the Company's Board of Directors for
out-of-pocket expenses incurred in connection with attending Board meetings.
In addition, directors Nicholas M. Ediger and Lawrance A. Brown are
compensated $1,000 for each meeting of the Board they attend in person. Other
than Messrs. Ediger and Brown, all directors are either employed by the
Company and/or hold a substantial equity position in the Company, and no
member of the Board of Directors currently receives any additional cash
compensation for his or her service as director. In February 1997, Mr. Ediger
was granted a non-qualified stock option under the Company's 1996 Stock Option
Plan to purchase 10,000 Common Shares at an exercise price equal to the fair
market value of the Common Shares on the date of grant. Such option vests at
the rate of 1/36th of the shares subject to option per month. In addition, the
Company paid Mr. Brown $11,500 during the year ended December 31, 1996 in
connection with a consulting arrangement with the Company. Directors may from
time to time provide services as consultants that may provide for additional
consulting services at agreed upon rates.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is responsible for determining salaries,
incentives and other forms of compensation for executive officers of the
Company and administers various incentive compensation and benefit plans. The
Compensation Committee consists of directors Lawrance A. Brown and John F.
Chappell. Randy W. Hamilton, President and Chief Executive Officer of the
Company, participates in all discussions and decisions regarding salaries and
incentive compensation for all executive officers of the Company, except that
he is excluded from discussions regarding his own salary and incentive stock
compensation. No interlocking relationship exists between any member of the
Company's Compensation Committee and any member of any other company's board
of directors or compensation committee.
50
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation
awarded to, earned by, or paid for services rendered to the Company in all
capacities during each of the fiscal years in the three year period ended
December 31, 1996, by (i) the Company's Chief Executive Officer and (ii) the
Company's executive officers whose salary and bonus for fiscal year 1996
exceeded Cdn. $100,000, which totals approximately U.S. $73,000 based on a
December 31, 1996 exchange rate of Cdn. $1.3696 per U.S. $1.00. The officers
of the Company listed on the table set forth below are referred to
collectively in this Prospectus as the "Named Executive Officers".
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION (/1/) SECURITIES ALL OTHER
FISCAL -------------------------------- UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY (U.S. $) BONUS (U.S. $) OPTIONS (#) (U.S. $) (/2/)
- --------------------------- ------ --------------- -------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Randy W. Hamilton......... 1996 $216,000 $-- -- $998
Chairman, President and 1995 78,000 -- -- --
Chief Executive Officer 1994 119,167 -- -- --
Lorin K. Johnson.......... 1996 182,333 -- -- 837
Vice President, Research 1995 66,000 -- -- --
and Director 1994 100,833 -- -- --
David E. Lauck(/3/)....... 1996 181,113 -- -- --
Former Vice President, 1995 63,308 -- -- --
Development 1994 95,854 -- -- --
Robert P. Ruscher(/4/).... 1996 136,086 -- -- 787
Vice President, Business 1995 52,677(/5/) -- 60,000 --
Development 1994 12,500(/6/) -- 2,825 --
</TABLE>
- --------
(/1/) Other than the salary described herein, the Company did not pay any Named
Executive Officer any fringe benefits, perquisites, or other compensation
in excess of 10% of such executive officer's salary and bonus during
fiscal years 1994, 1995 or 1996.
(/2/) Represents matching contributions under the Company's 401(k) retirement
plan.
(/3/) Mr. Lauck resigned as the Company's Vice President, Development in June
1997.
(/4/) Mr. Ruscher became the Company's Vice President, Business Development in
February 1996.
(/5/) Represents compensation paid to Mr. Ruscher as Director of Corporate
Affairs and General Counsel.
(/6/) Represents compensation paid to Mr. Ruscher as a consultant to the
Company.
OPTION GRANTS IN FISCAL YEAR 1996
No stock options were granted to any Named Executive Officer during the
fiscal year ended December 31, 1996.
51
<PAGE>
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
Options to purchase an aggregate of 2,825 Common Shares were exercised by a
Named Executive Officer during the fiscal year ended December 31, 1996. The
following table sets forth certain information regarding the exercise of stock
options by the Named Executive Officers during the fiscal 1996 and stock
options held as of December 31, 1996 by the Named Executive Officers.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
SHARES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
ACQUIRED OPTIONS AT IN-THE-MONEY OPTIONS AT
ON VALUE DECEMBER 31,1996(#) DECEMBER 31, 1996(U.S. $)(/2/)
EXERCISE REALIZED --------------------------- ----------------------------------
NAME (#) (U.S. $)(/1/) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- -------- ------------- ------------ -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Randy W. Hamilton....... -- $ -- -- -- $ -- $ --
Lorin K. Johnson........ -- -- -- -- -- --
David E. Lauck.......... -- -- -- -- -- --
Robert P. Ruscher....... 2,825 2,825 25,000 35,000 66,250 92,750
</TABLE>
- --------
(1) Based on the fair market value of the Common Shares on the date of exercise
minus the exercise price.
(2) Based on the closing sales price in trading on The Toronto Stock Exchange
on December 31, 1996 as converted to U.S. dollars at the exchange rate of
Cdn. $1.3696 to U.S. $1.00 minus the exercise price for the applicable
options.
STOCK PLANS
The Company's 1996 Stock Option Plan (the "1996 Plan") was adopted by the
Board of Directors and approved by the Company's shareholders in February
1996. The 1996 Plan provides for the grant of incentive stock options to
employees (including officers and employee directors) and for the grant of
non-statutory stock options to eligible participants. A total of 1,150,000
Common Shares have been reserved for issuance under the 1996 Plan; provided,
however, that the number of Common Shares that may be optioned and sold under
the 1996 Plan must not exceed the sum of (i) 711,175 Common Shares plus (ii)
such number of Common Shares as are subject to outstanding and unexercised
options under the Company's 1994 Stock Plan (the "1994 Plan"). Unless
terminated sooner, the 1996 Plan will terminate automatically in 2006. The
1996 Plan replaced the 1994 Plan. Options and share purchase rights previously
issued under the 1994 Plan shall be exercisable according to their terms.
The 1996 Plan provides for administration by the Board of Directors of
Company or by a committee approved by the Board (as applicable, the
"Administrator"), in either case, in a manner that complies with requirements
under the applicable state and federal corporate and securities laws, the
Internal Revenue Code of 1986, as amended (the "Code"), and any applicable
stock exchange. If permitted by Rule 16b-3 of the Exchange Act, the 1996 Plan
may be administered by different bodies with respect to directors, officers
and employees who are neither directors nor officers. The interpretation and
construction of any provision of the 1996 Plan will be determined by the
Administrator whose determination will be final and conclusive. The
Administrator has the power to determine the terms of the options granted,
including the exercise price of the option, the number of shares subject to
each option, the exercisability thereof, and the form of consideration payable
upon such exercise. However, no participant may be granted (i) more than 50%
of the total number of shares reserved under the 1996 Plan within any twelve
calendar month period, or (ii) options covering a number of shares that exceed
5% of the issued and outstanding Common Shares at the time of grant. With
respect to grants to officers, the following limitations shall apply: (i) the
maximum number of shares which may be granted under options held by all
officers of the Company may not exceed 10% of the issued and outstanding
shares of Common Shares at the time of grant (excluding shares issued pursuant
to share compensation arrangements over the preceding 12-month period); (ii)
the maximum number of shares which may be granted under options to any one
officer and such officer's associates in any 12-month period shall be 5% of
the issued and outstanding Common Shares at the time
52
<PAGE>
of grant (excluding shares issued pursuant to share compensation arrangements
over the preceding 12-month period); and (iii) the maximum number of shares
which may be granted under options to officers in any 12-month period shall be
10% of the issued and outstanding Common Shares at the time of grant
(excluding shares issued pursuant to share compensation arrangements over the
preceding 12-month period). In addition, the Administrator has the authority
to amend, suspend or terminate the 1996 Plan, provided that no such action may
affect any Common Shares previously issued and sold or any option previously
granted under the 1996 Plan.
Options granted under the 1996 Plan are not transferable by the optionee.
Options granted under the 1996 Plan must generally be exercised within 90 days
after the end of optionee's status as an employee or consultant of the
Company, or within 12 months after such optionee's termination by death or
disability, but in no event later than the expiration of the option's term.
The exercise price of all incentive stock options granted under the 1996
Plan must be at least equal to the fair market value of the Common Shares on
the date of grant. The exercise price of nonstatutory stock options granted
under the 1996 Plan is determined by the Administrator, but with respect to
nonstatutory stock options granted to officers, the exercise price must at
least be equal to the fair market value of the Common Shares on the date of
grant. With respect to any participant who owns shares possessing more than
10% of the voting power of all classes of the Company's outstanding share
capital, the exercise price of any incentive stock option granted must equal
at least 110% of the fair market value on the grant date and the term of such
incentive stock option must not exceed five years. The term of all other
options granted under the 1996 Plan may not exceed 10 years.
The 1996 Plan provides that in the event of a merger of the Company with or
into another corporation, or a sale of substantially all of the Company's
assets, each option shall be assumed or an equivalent option substituted for
by the successor corporation. If the outstanding options are not assumed or
substituted for by the successor corporation, the Administrator shall provide
for the optionee to have the right to exercise the option as to all of the
optioned shares, including shares as to which it would not otherwise be
exercisable. If the Administrator makes an option exercisable in full in the
event of a merger or sale of assets, the Administrator shall notify the
optionee that the option shall be fully exercisable for a period of 10 days
from the date of such notice, and the option will terminate upon the
expiration of such period.
Options granted under the 1994 Plan must generally be exercised within three
months of the end of the Optionee's status as an employee or consultant of the
Company, within six months of such optionee's termination by disability or
within six months after such optionee's death but in no event later than the
expiration of 10 years from the grant of such options. Options granted under
the 1994 Plan provide that in the event of a proposed sale of all or
substantially all of the Company's assets or a merger of the Company with or
into another corporation each outstanding option shall be assumed or an
equivalent option substituted for by the successor corporation. If the
successor corporation does not assume such option or substitute an equivalent
option, the option shall vest in its entirety and become fully exercisable. If
the option becomes fully exercisable in such case, the Board of Directors
shall notify such optionee and the option shall be exercisable for a period of
10 days from the date of such notice, and will terminate upon the expiration
of such period.
As of June 30, 1997, an aggregate of 133,138 Common Shares had been issued
upon exercise of options outstanding under the Stock Plans, and 7,000 Common
Shares had been issued to consultants outside of the Stock Plans. Options to
purchase an aggregate of 713,500 Common Shares at a weighted average exercise
price of $3.72 were outstanding under the Stock Plans as of June 30, 1997. As
of June 30, 1997, 303,362 Common Shares are available for issuance under
future option grants. No share purchase rights remain outstanding under the
1994 Plan.
53
<PAGE>
As of June 30, 1997, there were outstanding options under the Stock Plans
entitling the holders to acquire up to 713,500 Common Shares, all of which
expire 10 years from the date of grant, as set out below:
<TABLE>
<CAPTION>
EXERCISE MARKET VALUE MARKET VALUE OF
NUMBER OF PRICE PER OF SECURITIES SECURITIES
NAME OR DESCRIPTION COMMON SHARES COMMON OPTIONED AT OPTIONED AT
OF OPTION HOLDER DATE OF GRANT UNDER OPTION SHARE(1) DATE OF GRANT JUNE 30, 1997
- ---------------------- -------------- ------------- --------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Executive Officers April 1994 40,000 Cdn.$1.35 Cdn.$1.35 Cdn.$8.50
(5 persons) July 1995 60,000 Cdn.$1.35 Cdn.$1.35 Cdn.$8.50
December 1996 120,000 Cdn.$5.00 Cdn.$5.00 Cdn.$8.50
April 1997 200,000 Cdn.$8.95 Cdn.$8.95 Cdn.$8.50
Directors February 1997 10,000 Cdn.$4.80 Cdn.$4.80 Cdn.$8.50
(1 person)
Employees who are not April 1994 188,000 Cdn.$1.38 Cdn.$1.38 Cdn.$8.50
Executive Officers or May 1996 13,000 Cdn.$7.00 Cdn.$7.00 Cdn.$8.50
Directors May 1997 22,500 Cdn.$9.75 Cdn.$9.75 Cdn.$8.50
June 1997 60,000 Cdn.$8.70 Cdn.$8.70 Cdn.$8.50
Total 713,500
</TABLE>
- --------
(1) The option agreements under the Company's Stock Plans provide for the
payment of the applicable exercise price in United States dollars. For all
options granted after May 1996, the exercise price is based on the fair
market value of the Company's Common Shares on the last business day
preceding the date of grant, as determined in trading on The Toronto Stock
Exchange and converted into U.S. dollars at the then-applicable exchange
rates.
401(k) Plan. Salix Pharmaceuticals participates in a tax-qualified employee
savings and retirement plan (the "401(k) Plan") which covers all of the
Company's full-time employees. Pursuant to the 401(k) Plan, employees may
elect to reduce their current compensation by up to the lower of 15% or the
statutorily prescribed annual limit and have the amount of such reduction
contributed to the 401(k) Plan. The Company makes matching contributions on
behalf of all participants in the 401(k) Plan in the amount of 25% of employee
contributions, provided, however, that for purposes of calculating such
matching contributions, the employee's contribution shall be treated as not
exceeding 6% of the employee's compensation. The Company may make additional
discretionary contributions on an annual basis. The 401(k) Plan is intended to
qualify under Section 401 of the Code so that contributions by employees or by
the Company to the 401(k) Plan, and income earned on plan contributions, are
not taxable to employees until withdrawn from the 401(k) Plan, and so that
contributions by the Company, if any, will be deductible by the Company when
made. The trustee under the 401(k) Plan, at the direction of each participant,
invests the assets of the 401(k) Plan in any of a number of investment
options.
EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL ARRANGEMENTS
The Company does not currently have any employment contracts in effect with
any Named Executive Officer.
Under the Stock Plans, in the event of a merger or a change in control of
the Company, under certain circumstances, vesting of options outstanding under
the Stock Plans will automatically accelerate such that outstanding options
will become fully exercisable, including with respect to shares for which such
shares would be otherwise unvested. See "Stock Plans".
54
<PAGE>
LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS
The Company has adopted provisions in its Memorandum and Articles of
Association that eliminate to the fullest extent permissible under British
Virgin Islands law the liability of its directors to the Company for monetary
damages. Such limitation of liability does not affect the availability of
equitable remedies such as injunctive relief or rescission. The Company has
entered into indemnification agreements with its officers and directors
containing provisions which may require the Company, among other things, to
indemnify the officers and directors against certain liabilities that may
arise by reason of their status or service as directors or officers (other
than liabilities arising from willful misconduct of a culpable nature), and to
advance their expenses incurred as a result of any proceeding against them as
to which they could be indemnified.
At the present time, there is no pending litigation or proceeding involving
a director, officer, employee or other agent of the Company in which
indemnification would be required or permitted. The Company is not aware of
any threatened litigation or proceeding which may result in a claim for such
indemnification.
55
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Shares as of June 30, 1997 and as
adjusted to reflect the sale of the 3,000,000 Common Shares offered by the
Company hereby: (i) by each person or entity who is known by the Company to
own beneficially more than 5% of the Common Shares; (ii) by each director of
the Company; (iii) by the Named Executive Officers; and (iv) by all directors
and executive officers of the Company as a group.
<TABLE>
<CAPTION>
PERCENTAGE TOTAL SHARES(/2/)
NUMBER OF SHARES ------------------------------
NAME AND ADDRESS(/1/) BENEFICIALLY OWNED BEFORE OFFERING AFTER OFFERING
- --------------------- ------------------ --------------- --------------
<S> <C> <C> <C>
Randy W. Hamilton(/3/)....... 1,038,982 14.6% 10.3%
Lorin K. Johnson(/4/)........ 745,693 10.4% 7.3%
David E. Lauck............... 300,000 4.2% 3.0%
Robert P. Ruscher(/5/)....... 39,435 * *
Lily Baxendale(/6/).......... 323,124 4.5% 3.2%
Lawrance A. Brown, Jr........ 37,668 * *
John F. Chappell(/7/)........ 879,494 12.3% 8.7%
Nicholas M. Ediger(/8/)...... 1,667 * *
All current executive
officers and directors
as a group (12
persons)(/9/)............... 3,429,396 47.0% 33.3%
</TABLE>
- ----------------
* Less than 1%.
(1) The address of each listed shareholder is c/o Salix Holdings, Ltd., 3600
West Bayshore Road, Suite 205, Palo Alto, California 94303.
(2) Applicable percentage ownership is based on 7,118,173 Common Shares
outstanding as of June 30, 1997 and 10,118,173 Common Shares outstanding
immediately following the completion of this offering, together with
applicable options for such shareholder. Beneficial ownership is
determined in accordance with the rules of the United States Securities
and Exchange Commission, based on factors including voting and investment
power with respect to shares, subject to community property laws, where
applicable. Common Shares subject to options or warrants currently
exercisable, or exercisable within 60 days after June 30, 1997, are deemed
outstanding for the purpose of computing the percentage ownership of the
person holding such options or warrants, but are not deemed outstanding
for computing the percentage ownership of any other person. To the extent
that any shares are issued upon exercise of options, warrants, or other
rights to acquire the Company's share capital that are presently
outstanding or granted in the future or reserved for future issuance under
the Company's Stock Plans, there will be further dilution to new
investors.
(3) Includes 1,677 Common Shares issuable upon exercise of outstanding
warrants which are presently exercisable or will become exercisable within
60 days of June 30, 1997. Also includes 190,000 shares held by Mr.
Hamilton's spouse, for which Mr. Hamilton disclaims beneficial ownership.
(4) Includes 33,333 Common Shares issuable upon exercise of outstanding
warrants which are presently exercisable or will become exercisable within
60 days of June 30, 1997. Also includes 674,500 shares held by a trust for
the benefit of Dr. Johnson and his wife and 37,860 Common Shares held by a
family trust, the beneficiaries of which include Dr. Johnson's minor
children. Dr. Johnson's wife is the trustee of both trusts.
(5) Includes 35,000 Common Shares issuable upon exercise of outstanding
options and 833 Common Shares issuable upon exercise of outstanding
warrants, which are presently exercisable or will become exercisable
within 60 days of June 30, 1997.
(6) Represents 306,457 Common Shares held by Biorex Laboratories Limited and
16,667 Common Shares issuable upon exercise of outstanding warrants held
by Biorex Laboratories Limited which are presently exercisable or will
become exercisable within 60 days of June 30, 1997. Miss Baxendale is the
Managing Director and a co-founder of Biorex Laboratories Limited.
(7) Includes 10,000 Common Shares issuable upon exercise of outstanding
warrants which are presently exercisable or will become exercisable within
60 days of June 30, 1997.
(8) Represents 1,667 Common Shares issuable upon exercise of outstanding
options which are presently exercisable or will become exercisable within
60 days of June 30, 1997.
(9) Includes 100,000 Common Shares issuable upon exercise of outstanding
options and 70,833 Common Shares issuable upon exercise of outstanding
warrants which are presently exercisable or will become exercisable within
60 days of June 30, 1997.
56
<PAGE>
DESCRIPTION OF SHARE CAPITAL
GENERAL
The Company is authorized to issue 20,000,000 Common Shares, no par value,
and 5,000,000 undesignated Preferred Shares, no par value.
COMMON SHARES
As of June 30, 1997, there were 7,118,173 Common Shares outstanding held of
record by approximately 76 shareholders. As of June 30, 1997, options to
purchase an aggregate of 713,500 Common Shares and warrants to purchase an
aggregate of 602,331 Common Shares were also outstanding. See "Management--
Stock Plans".
The holders of Common Shares are entitled to one vote per share on all
matters to be voted on by shareholders and have cumulative voting rights with
respect to the election of directors. Subject to the prior rights of holders
of Preferred Shares, if any, the holders of Common Shares are entitled to
receive such dividends, if any, as may be declared from time to time by the
Board of Directors in its discretion from funds legally available therefor.
Upon liquidation or dissolution of the Company, the remainder of the assets of
the Company will be distributed ratably among the holders of Common Shares
after payment of liabilities and the liquidation preferences of any
outstanding shares of Preferred Shares. The Common Shares have no preemptive
or other subscription rights and there are no conversion rights or redemption
or sinking fund provisions with respect to such shares. All of the outstanding
Common Shares are, and the shares to be sold in this offering will be, fully
paid and nonassessable.
PREFERRED SHARES
The Company is authorized to issue 5,000,000 undesignated Preferred Shares.
The Board of Directors has the authority to issue the Preferred Shares in one
or more series and to fix the price, rights, preferences, privileges and
restrictions thereof, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting a series or the designation
of such series, without any further vote or action by the Company's
shareholders. The issuance of Preferred Shares, while providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of delaying, deferring or preventing a change
in control of the Company without further action by the shareholders and may
adversely affect the market price of, and the voting and other rights of, the
holders of Common Shares. The Company has no current plans to issue any
Preferred Shares.
WARRANTS
As of June 30, 1997, there were outstanding warrants to purchase an
aggregate of 602,331 Common Shares at an exercise price of $3.00. Warrants to
purchase 399,999 Common Shares may be exercised at any time on or before the
earliest to occur of the following: (i) July 25, 2003 or (ii) the closing of
the Company's sale or acquisition of all or substantially all of its assets or
the acquisition of the Company by another entity by means of a merger or other
transaction the result of which is that shareholders of the Company
immediately prior to such acquisition possess a minority of the voting power
of the acquiring entity immediately following such acquisition (an
"Acquisition"). Warrants to purchase 202,332 Common Shares are exercisable at
any time on or before the earliest to occur of (i) January 17, 2000 or (ii) an
Acquisition. The warrants to purchase 399,999 Common Shares described above
include a net exercise provision that permits the holders to exercise the
warrant without payment of cash by surrendering the warrant and receiving
Common Shares equal to the value of the warrant surrendered in accordance with
a formula set forth in the warrants. The warrants to purchase 202,332 Common
Shares described above may be net exercised only following the Company's
delivery of notice of an Acquisition. All outstanding warrants contain
provisions for the adjustment of the exercise price and the aggregate number
of shares issuable upon exercise under certain circumstances, including share
dividends, share splits, reorganizations, reclassifications or consolidations.
57
<PAGE>
PRIOR SALES OF SECURITIES
The following table sets forth the particulars of prior sales of equity
securities of the Company since July 31, 1996 other than options granted and
the Common Shares offered hereby.
<TABLE>
<CAPTION>
NUMBER OF PRICE PER AGGREGATE
DATE OF ISSUE SECURITY SECURITIES SECURITY PROCEEDS
- ------------- -------- ---------- --------- --------------
<S> <C> <C> <C> <C>
August 1996 and February
1997(/1/).................. Common Shares 70,313 $1.00 $70,313
March and May 1997(/2/)..... Common Shares 200,000 Cdn.$5.25 Cdn.$1,400,000
</TABLE>
- --------
(1) Common Shares issued upon exercise of options to purchase Common Shares
under the Company's Stock Plans.
(2) Common Shares issued upon exercise of warrants to purchase Common Shares
granted to the underwriters in connection with the Canadian initial public
offering in May 1996.
58
<PAGE>
COMPARISON OF CANADIAN, UNITED STATES AND BRITISH VIRGIN ISLANDS CORPORATE
LAWS
Under the laws of many jurisdictions in the United States and Canada,
majority and controlling shareholders generally have certain "fiduciary"
responsibilities to the minority shareholders. Shareholder action must be
taken in good faith and actions by controlling shareholders which are
obviously unreasonable may be declared null and void. British Virgin Islands
law protecting the interests of minority shareholders may not be as protective
in all circumstances as the law protecting minority shareholders in
jurisdictions in the United States and Canada.
While British Virgin Islands law does permit a shareholder of a British
Virgin Islands corporation to sue its directors derivatively (i.e., in the
name of and for the benefit of the corporation) and to sue the corporation and
its directors for the shareholder's benefit and for the benefit of other
similarly situated, the circumstances in which any such action may be brought,
and the procedures and defenses that may be available in respect of any such
action, may result in the rights of shareholders of a British Virgin Islands
corporation being more limited than those of shareholders of a corporation
organized in the United States or Canada.
Directors of the Company have the power to take certain actions without
shareholder approval, including an amendment of the Company's Memorandum of
Association or Articles of Association or an increase or reduction in the
Company's authorized capital, which would require shareholder approval under
the laws of most jurisdictions in Canada and the United States. In addition,
the directors of a British Virgin Islands corporation, subject to court
approval but without shareholder approval (unless the court requires
shareholder approval), may, among other things, implement a reorganization;
certain mergers or consolidations; certain sales, transfers, exchanges or
dispositions of assets, property, parts of the business or securities of the
corporation; the winding-up or dissolution of the corporation, or any
combination thereof, if they determine any such action is in the best
interests of the corporation, its creditors, or its shareholders. The ability
of directors to commence a winding up of a company under British Virgin
Islands law may be restricted by the Company's Memorandum of Association and
Articles of Association so that a company that has issued shares may only
commence to wind-up and dissolve with the approval of the shareholders. In
addition, where there is a proposal to dispose of more than 50% of the assets
of a company (outside the ordinary course of business), British Virgin Islands
law requires shareholder consent to render such disposition valid.
As in most jurisdictions in the United States and Canada, the board of
directors of a British Virgin Islands corporation is charged with the
management of affairs of the corporation. In most jurisdictions in the United
States and Canada, directors owe a fiduciary duty to the corporation and its
shareholders, including a duty of care, pursuant to which directors must
properly apprise themselves of all reasonably available information, and a
duty of loyalty, pursuant to which they must protect the interests of the
corporation and refrain from conduct that injures the corporation or its
shareholders or that deprives the corporation or its shareholders of any
profit or advantage. Many U.S. and Canadian jurisdictions have enacted various
statutory provisions which permit the monetary liability of directors to be
eliminated or limited. Under British Virgin Islands law, the liability of a
corporate director to the corporation is limited to cases where the director
has not acted honestly and in good faith and with a view to the best interests
of the corporation or to cases where the director has not exercised the care,
diligence and skill that a reasonably prudent person would exercise in
comparable circumstances. Under its Articles of Association, the Company is
authorized to indemnify any person who is made or threatened to be made a
party to a legal or administrative proceeding by virtue of being a director,
officer or agent of the Company, provided such person acted honestly and in
good faith and with a view to the best interest of the Company and, in the
case of a criminal proceedings, such person had no reasonable cause to believe
that his conduct was unlawful. The Company's Articles of Association also
obligate the Company to indemnify any director, officer or agent of the
Company who was successful in any proceeding against expenses and judgments,
59
<PAGE>
fines and amounts paid in settlement and reasonably incurred in connection
with the proceeding, regardless of whether such person met the standard of
conduct described in the preceding sentence.
The foregoing description of certain differences between Canadian, United
States and British Virgin Islands corporate laws is only a summary and does
not purport to be complete or to address every applicable aspect of such laws.
APPLICABILITY OF CALIFORNIA LAW
Section 2115 of the California General Corporate Law (the "California
Corporate Law") makes substantial portions of the California Corporate Law
applicable, with limited exceptions, to foreign corporations (i.e., any
corporation domiciled outside the State of California) with more than half of
their outstanding capital stock held of record by persons having addresses in
California and more than half of the corporation's business conducted in the
State of California (as measured by factors based on the corporations levels
of property, payroll, and sales determined for California franchise tax
purposes). Although the Company is incorporated in the British Virgin Islands,
pursuant to Section 2115, certain provisions of the California Corporate Law
apply to the Company. The statutory provisions of the California Corporate Law
to which the Company is subject include, but are not limited to, provisions
governing a director's standard of care in performing the duties of a
director, the right of shareholders to vote cumulatively in the election of
directors, the right of a director or shareholder to inspect corporate
records, the ability of a corporation to indemnify officers, directors, and
others, and the corporate requirements to effect a corporate reorganization
(including mergers and acquisitions). Under Section 2115, the provisions of
the California Corporate law made applicable to a foreign corporation apply to
the exclusion of the law of the jurisdiction of incorporation of the foreign
corporation.
60
<PAGE>
CERTAIN TAX CONSIDERATIONS
The following is a general summary of certain British Virgin Islands,
Canadian and United States federal tax consequences of the purchase, ownership
and disposition of shares by prospective purchasers of Common Shares. This
summary is of a general nature only and prospective purchasers of Common
Shares are advised to consult their own tax advisors with respect to the tax
consequences, as well as with respect to the tax consequences in other
jurisdictions, of the ownership of Common Shares applicable in their
particular tax situations.
The summary set forth below is based on the laws in force and as interpreted
by the relevant taxation authorities as of the date of this Prospectus and are
subject to any changes in such law, or in the interpretation thereof by the
relevant taxation authorities, occurring after such date.
BRITISH VIRGIN ISLANDS TAXATION
At the present time, there is no British Virgin Islands income, corporation
or profits tax, withholding tax, capital gains tax, capital transfer tax,
estate duty or inheritance tax payable by the Company or its shareholders,
other than shareholders that are ordinarily resident in the British Virgin
Islands.
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
The following is a general summary of the principal Canadian federal income
tax consequences under the Income Tax Act (Canada) (the "Canadian Act") to
purchasers of Common Shares pursuant to this offering who, for purposes of the
Canadian Act, are resident in Canada, deal at arm's length with the Company
and acquire and hold their Common Shares as capital property (a "Canadian
Holder"). The Canadian Act contains provisions relating to the tax
consequences to a taxpayer who holds shares in a "foreign affiliate" (the
"Foreign Affiliate Rules"). Generally, a "foreign affiliate" (as defined in
the Canadian Act) is a non-resident corporation in which the taxpayer owns at
least a 1% equity percentage and, either alone, or together with related
persons, owns at least a 10% equity percentage. The Canadian Act also contains
provisions relating to securities held by certain financial instructions (the
"Mark-to-Market Rules"). This summary does not take into account either the
Foreign Affiliate Rules or the Mark-to-Market Rules and Canadian Holders in
respect of which the Company is a "foreign affiliate" or that are "financial
institutions" should consult their own tax advisors.
This summary is based upon and takes into account the current provisions of
the Canadian Act, the regulations thereunder (the "Regulations"), all specific
proposals to amend the Canadian Act and the Regulations publicly announced by
the Minister of Finance prior to the date hereof (the "Amendments"), and the
Company's understanding of the current administrative practices published by
Revenue Canada. This summary does not otherwise take into account or
anticipate any changes in law, whether by judicial, governmental or
legislative decision or action, nor does it take into account tax laws or
considerations of any province or territory of Canada or any jurisdiction
outside Canada. Moreover, there can be no assurance that the Amendments will
be enacted as proposed or that the Canadian Act, the Regulations or
administrative practices of Revenue Canada, respectively, will not change in a
manner which will affect the tax consequences of the transactions to Canadian
Holders.
THIS SUMMARY IS OF A GENERAL NATURE ONLY, IS NOT EXHAUSTIVE OF ALL
POTENTIALLY RELEVANT CANADIAN FEDERAL INCOME TAX CONSIDERATIONS AND IS NOT
INTENDED TO BE, NOR SHOULD IT BE CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY
PARTICULAR HOLDER OF COMMON SHARES. THEREFORE, SUCH PERSONS SHOULD CONSULT
THEIR OWN TAX ADVISERS WITH RESPECT TO THEIR PARTICULAR CIRCUMSTANCES.
Dividends Received on Common Shares
Dividends, if any, received by Canadian Holders on Common Shares must be
included in computing their income. Canadian Holders who are individuals will
not be entitled to the benefit of the gross-up and dividend tax credit rules
in the Canadian Act. Canadian Holders which are corporations will not be
entitled to deduct an amount in respect of such dividends in computing taxable
income.
61
<PAGE>
A refundable tax of 6 2/3% is payable on investment income earned by a
Canadian-controlled private corporation (as defined in the Canadian Act) which
tax will be refunded when the corporation pays taxable dividends (at a rate of
Cdn. $1.00 for every Cdn. $3.00 of taxable dividends paid). For this purpose,
investment income includes dividends on the Common Shares and a portion of any
taxable capital gain arising on a disposition of the Common Shares.
Disposition of Common Shares
A disposition or deemed disposition of a Common Share by a Canadian Holder
will give rise to a capital gain (or a capital loss) equal to the amount by
which the actual or deemed proceeds of disposition, less the reasonable costs
of disposition, exceed (or are exceeded by) the adjusted cost base of the
Common Share to the Canadian Holder at such time. Where a Canadian Holder who
holds previously acquired Common Shares acquires any Common Shares under this
offering all such shares will be considered to be identical properties for the
purposes of the Canadian Act. Accordingly, the cost of all such Common Shares
must be averaged for the purpose of determining their adjusted cost base to
the Canadian Holder.
Generally, three-quarters of any capital gain realized will be required to
be included in income as a taxable capital gain and three-quarters of any
capital loss will be deductible, subject to certain limitations, from taxable
capital gains in the year of disposition or the three preceding years or any
subsequent year.
Information Reporting
Certain Canadian Holders of Common Shares whose total cost amount (as
defined in the Canadian Act) of "specified foreign property" (as defined in
the Canadian Act), including the Common Shares, in a taxation year exceeds
Cdn. $100,000 will be required to file an information return in respect of
such specified foreign property. This reporting requirement applies for
taxation years commencing after 1995; however, information returns are not
required to be filed for the 1996, 1997 and 1998 taxation years before the
later of April 30, 1998 and the day on or before which the return for the
taxation year is otherwise required to be filed. Canadian Holders should
consult their own advisors with respect to the application of this reporting
requirement.
UNITED STATES FEDERAL INCOME TAXATION
The following discussion is applicable to prospective purchasers of the
Common Stock that are "U.S. Holders". For purposes of this discussion, a "U.S.
Holder" means an individual citizen or resident of the United States for
United States federal income tax purposes, a corporation or partnership
created or organized under the laws of the United States or any State thereof,
or an estate or trust the income of which is subject to United States federal
income taxation regardless of its source.
The following summary does not address the tax treatment of U.S. Holders who
own, actually or constructively, 10% or more of the Company's outstanding
voting stock and certain United States Holders (including, but not limited to,
insurance companies, tax-exempt organizations, financial institutions and
persons subject to the alternative minimum tax) who may be subject to special
rules not discussed below.
Taxation of Dividends. For United States federal income tax purposes, a U.S.
Holder receiving a distribution with respect to the Common Stock generally
will be required to include such distribution in gross income as a taxable
foreign source dividend to the extent such distribution is paid from current
or accumulated earnings and profits of the Company. Dividends received by
United States corporate shareholders will not be eligible for the dividends
received deduction allowed to United States corporations.
62
<PAGE>
Taxation of Capital Gains. Subject to the discussion below under the heading
"Passive Foreign Investment Company Considerations", a U.S. Holder will be
liable for United States federal income tax on gains realized from the sale,
exchange or other disposition of Common Stock to the same extent as on any
other gains from sales, exchanges or disposition of shares. If the Common
Stock constitutes a capital asset in the hands of the U.S. Holder, gain or
loss generally will be capital gain or loss.
Under the "Taxpayer Relief Act of 1997" (the "Taxpayer Act") the maximum
rate applicable to long-term capital gains of individuals has been reduced to
20%. However, the Taxpayer Act also extends the holding period for long-term
capital gains to 18 months for capital assets disposed of after July 28, 1997.
Gain on capital assets held between 12 months and 18 months are subject to tax
at a maximum rate of 28%.
Personal Holding Companies. A non-United States corporation may be
classified as a personal holding company (a "PHC") for United States federal
income tax purposes if both of the following two tests are satisfied: (i) if
at any time during the last half of the company's taxable year, five or fewer
individuals (without regard to their citizenship or residency) own or are
deemed to own (under certain attribution rules) more than 50% of the stock of
the corporation by value (the "PHC Ownership Test") and (ii) such non-United
States corporation receives 60% or more of its United States related gross
income, as specifically adjusted, from certain passive sources such as royalty
payments (the "PHC Income Test"). Such a corporation is taxed (currently at a
rate of 39.6%) on certain of its undistributed United States source income
(including certain types of foreign source income which are effectively
connected with the conduct of a United States trade or business) to the extent
amounts at least equal to such income are not distributed to shareholders.
The Company does not believe that it currently satisfies either the PHC
Ownership Test or the PHC Income Test and intends to manage its affairs so as
to avoid becoming a PHC, to the extent consistent with its business goals.
Foreign Personal Holding Companies. A non-United States corporation will be
classified as a foreign personal holding company (an "FPHC") for United States
federal income tax purposes if both of the two following tests are satisfied:
(i) five or fewer individuals who are United States citizens or residents own
or are deemed to own (under certain attribution rules) more than 50% of all
classes of the corporation's stock measured by voting power or value (the
"FPHC Ownership Test") and (ii) the corporation receives at least 60% (50% in
later years) of its gross income (regardless of source), as specifically
adjusted, from certain passive sources (the "FPHC Income Test").
If the Company is classified as an FPHC, a portion of its "undistributed
foreign personal holding company income" (as defined for United States federal
income tax purposes) would be imputed to all of its shareholders who are
United States holders of Common Shares on the last taxable day of the
Company's taxable year, or, if earlier, the last day on which it is classified
as an FPHC. Such income would be taxable as a dividend, even if no cash
dividend is actually paid. United States holders who dispose of their Common
Shares prior to such date would not be subject to tax under these rules.
The Company does not believe that it currently satisfies either the FPHC
Ownership Test or the FPHC Income Test and intends to manage its affairs so as
to avoid becoming a FPHC, to the extent consistent with its business goals.
Passive Foreign Investment Companies. The Company may be classified as a
passive foreign investment company ("PFIC") for United States federal income
tax purposes if certain tests are met. The Company will be a PFIC with respect
to a U.S. Holder if for any taxable year in which the U.S. held the Common
Stock either (i) 75% or more of its gross income is passive income or (ii) on
average for the taxable year, 50% or more of its assets (by value or, if the
Company so elects, by adjusted basis) produce or are held for the production
of passive income.
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<PAGE>
Based on the anticipated sources of revenue of the Company in 1997, the
Company does not believe that it will satisfy either of the tests for PFIC
status for the taxable year ended December 31, 1997. However, there can be no
assurance that the Internal Revenue Service will not challenge the Company's
determination. In addition, because the determination of whether the Common
Shares constitutes shares of a PFIC will be based upon the nature of the
income and assets of the Company from time to time, there can be no assurance
that the Company will not be considered a PFIC for any future taxable year. If
the Company is a PFIC for any taxable year, U.S. Holders would be required to
either (i) pay an interest charge together with tax calculated at maximum
ordinary income rates on certain "excess distributions" (defined to include
gain on a sale or other disposition of Common Shares) or (ii) if a Qualified
Electing Fund ("QEF") election is made, to include in their taxable income
certain undistributed amounts of the Company's income. Each U.S. Holder should
consult its own tax advisor regarding the advisability of making the QEF
election.
United States Information Reporting and Backup Withholding. Generally the
amount of dividends paid to U.S. Holders of Common Shares, the name and
address of the recipient and the amount if any, of tax withheld must be
reported annually to the Internal Revenue Service. A similar report is sent to
the holder.
Backup withholding tax at the rate of 31% will apply to certain payments
made to U.S. Holders who fail to furnish certain identifying information under
the United States information reporting rules. Amounts withheld from payments
will be allowed as a credit against such U.S. Holders' United States Federal
income tax liability.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Although the Common Shares offered hereby will be registered for sale under
the United States Securities Act of 1933, as amended (the "U.S. Securities
Act"), there is no public trading market for the Common Shares of the Company
in the United States. After this offering, the 3,000,000 Common Shares offered
hereby will trade only in Canada on The Toronto Stock Exchange under the
symbol "SLX". No prediction can be made regarding the effect, if any, that
market sales of Common Shares or the availability of Common Shares for sale
will have on the prevailing market price of the Common Shares from time to
time. As described below, certain outstanding Common Shares are subject to
contractual and legal restrictions on resale. Sales of substantial amounts of
Common Shares in the public market after the restrictions lapse could
adversely affect the prevailing market price of the Company's securities on
The Toronto Stock Exchange.
Upon completion of this offering, the Company will have approximately
10,118,173 Common Shares outstanding (assuming no exercise of the
Underwriters' over-allotment option). Of these shares, all of the 3,000,000
Common Shares sold in this offering will be freely tradeable in the United
States without restriction (unless such shares are held by an "affiliate" of
the Company as such term is defined in the U.S. Securities Act). An additional
2,200,000 Common Shares were issued in connection with the Company's initial
public offering in Canada in May 1996 (the "Canadian IPO"). The Common Shares
issued in the Canadian IPO and all other outstanding Common Shares available
for resale under applicable securities laws currently trade on The Toronto
Stock Exchange under the symbol "SLX.s", carry a legend reflecting the
Company's reliance, in connection with the Canadian IPO, on the exemption from
the registration requirements of the U.S. Securities Act set forth in
Regulation S thereunder, and are not presently available for resale in the
United States or to "U.S. Persons" (as defined in Regulation S) in the absence
of an exemption from registration under the U.S. Securities Act. It is the
Company's current intention to authorize the removal of the Regulation S
legend from all shares currently bearing such legend on May 28, 1998. After
May 28, 1998, all shares that are then freely tradeable on The Toronto Stock
Exchange will trade under the symbol "SLX". Prior to May 28, 1998,
shareholders may request that the Company remove applicable legends in
connection with resales on The Toronto Stock Exchange, subject to the
shareholder's ability to establish, to the satisfaction of the Company and its
legal counsel, that such shares may be resold in the United States in
compliance with the requirements of the U.S. Securities Act. Following removal
of the legend, such Common Shares will be freely tradeable in the United
States without restriction or further registration under the U.S. Securities
Act (except for shares that are held by an affiliate of the Company as that
term is defined in Rule 144 under the U.S. Securities Act).
Of the 7,118,173 Common Shares outstanding prior to the completion of this
offering, except for shares purchased by affiliates of the Company, (i) the
2,200,000 Common Shares issued in connection with the Canadian IPO and
approximately 500,000 Common Shares issued in other transactions will be
available for resale in accordance with Regulation S at any time on The
Toronto Stock Exchange, subject to the legend removal conditions set forth
above, and (ii) approximately 1,165,000 Common Shares will be available for
resale only in compliance with Rule 144(k) or another exemption under the U.S.
Securities Act. Approximately 3,259,000 Common Shares are held by affiliates
of the Company and are subject to additional legal and contractual
restrictions on resale. See "Risk Factors--Price Volatility; Limited Trading
Volume".
Outstanding Common Shares will generally be available for resale pursuant to
Rule 144(k) under the U.S. Securities Act if the holder is not an affiliate of
the Company and has held the Common Shares for at least two years (including
the holding period of any prior holder other than an affiliate) from the later
to occur of the date on which the shares were purchased or the date on which
the purchaser paid the full consideration for the shares. In general, under
Regulation S as currently in effect, outstanding Common Shares issued and sold
by the Company in reliance on the exemption under Regulation S will be
eligible for legend removal and resale in the United States or to U.S. Persons
if the Common Shares have been held for at least one year from the date of
purchase in a transaction meeting the requirements of
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<PAGE>
Regulation S. The United States Securities and Exchange Commission (the "SEC")
is currently evaluating a proposal that would, among other things, classify
all equity securities of domestic issuers placed offshore under Regulation S
as "restricted securities" under Rule 144 of the U.S. Securities Act. Such a
proposal, if adopted, would reinforce the SEC's current view that any person
who would be considered an "underwriter" within the meaning of the U.S.
Securities Act may not resell securities sold in reliance on Regulation S
following expiration of the applicable Regulation S restricted period in the
absence of registration or an exemption therefrom. In particular, such persons
may not assume the availability of the exemption set forth in Section 4(1) of
the U.S. Securities Act with respect to resales of securities in the United
States or to U.S. Persons. The Company's decision to refrain from removing any
Regulation S legend on the Common Shares prior to May 28, 1998 except upon
satisfaction of the conditions described above is subject to change in the
event of further regulation or guidance from the SEC.
In connection with the completion of this offering, Biorex and certain
executive officers and directors of the Company holding 3,035,626 Common
Shares are expected to agree with the Underwriters not to sell, transfer, or
assign any Common Shares or any securities convertible or exercisable or
exchangeable for Common Shares, held or controlled, directly or indirectly, by
such shareholders, without the prior written consent of Levesque Beaubien
Geoffrion Inc. on behalf of the Underwriters, which consent will not be
unreasonably withheld, for a period of 90 days following the anticipated
closing date of the offering. The Company has agreed to a similar 90-day
restriction with respect to the issuance of new Common Shares. The Company
may, however, grant options to purchase Common Shares pursuant to the Stock
Plans and may issue Common Shares pursuant to the exercise of granted options
and outstanding warrants, as well as in connection with licensing arrangements
or other acquisitions by the Company of assets or rights in the ordinary
course of business.
In addition to the foregoing restrictions, pursuant to an escrow agreement
dated May 10, 1996, among Randy W. Hamilton, Lorin K. Johnson, David E. Lauck,
John F. Chappell and Biorex (collectively, the "Escrowed Shareholders"), the
Company and Montreal Trust Company of Canada (the "Escrow Agent"), 2,747,753
Common Shares (the "Escrowed Shares") were placed in escrow by the Escrowed
Shareholders. The Escrowed Shares are subject to release from escrow as
follows: 10% of the Escrowed Shares were released nine months after May 17,
1996, (the date of the issuance by the securities regulatory authorities in
the applicable provinces of a receipt for the Prospectus relating to the
Company's initial public offering of shares in Canada (the "Initial Release
Date"); a further 20% of the Escrowed Shares will be released on each of the
first, second and third anniversaries of the Initial Release Date; and 30% of
the Escrowed Shares will be released on the fourth anniversary date of the
Initial Release Date.
OPTIONS
As of June 30, 1997, options to purchase 713,500 Common Shares were
outstanding, of which options to purchase approximately 264,111 Common Shares
were then vested and exercisable. In addition, 133,138 Common Shares were
issued and outstanding under the Stock Plans, and an additional 7,000 Common
Shares had been issued to consultants outside of the Stock Plans. Concurrently
with the effectiveness of the offering contemplated by this Prospectus, the
Company intends to file a Registration Statement on Form S-8/S-3 covering the
1,150,000 Common Shares reserved for issuance under the Stock Plans and
covering for resale approximately 1,960,000 Common Shares issued under the
Stock Plans or to consultants outside of the Stock Plans and pursuant to
founders' Stock Purchase Agreements.
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<PAGE>
PLAN OF DISTRIBUTION
Pursuant to an underwriting agreement (the "Underwriting Agreement") dated
, 1997 between the Company and Levesque Beaubien Geoffrion Inc., Yorkton
Securities Inc., Marleau, Lemire Securities Inc. and Midland Walwyn Capital
Inc. (collectively, the "Underwriters"), the Company has agreed to issue and
sell and the Underwriters have severally agreed to purchase on , 1997, or on
such other date, not later than , 1997, as may be agreed upon, subject to
the terms and conditions stated therein, the number of Common Shares (the
"Offered Shares") set forth opposite their names below at a price of Cdn.$
per Common Share, payable against delivery of certificates for such Common
Shares. The Company has agreed to pay the Underwriters a fee of Cdn.$ per
share for their services in connection with this offering.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Levesque Beaubien Geoffrion Inc...................................
Yorkton Securities Inc............................................
Marleau, Lemire Securities Inc....................................
Midland Walwyn Capital Inc........................................
---------
Total............................................................ 3,000,000
=========
</TABLE>
The Underwriters will offer the Offered Shares in Canada and elsewhere
outside the United States, and, through their respective United States broker-
dealer affiliates, in the United States. The respective United States broker-
dealer affiliates of the Underwriters are NBC Levesque International Ltd.,
Yorkton Capital Inc., Marleau Lemire Securities (USA), Inc., and Midland
Walwyn Capital Corporation.
The obligations of the Underwriters under the Underwriting Agreement are
several and may be terminated at their discretion on the basis of their
assessment of the state of the financial markets and may also be terminated
upon the occurrence of certain stated events. If any of the Offered Shares are
purchased pursuant to the Underwriting Agreement, the Underwriters will be
obligated to take up and pay for all of the Offered Shares.
Pursuant to policy statements of the Ontario Securities Commission and the
Commission des valeurs mobilieres du Quebec, the Underwriters may not, during
the period of distribution under this Prospectus, bid for or purchase Common
Shares. The foregoing restriction is subject to certain exceptions, as long as
the bid of purchase is not engaged in for the purpose of creating actual or
apparent active trading in or raising the market price of the Common Shares.
These exceptions include a bid or purchase permitted under the rules and by-
laws of The Toronto Stock Exchange relating to market stabilization and
passive market making activities and a bid or purchase made for and on behalf
of a customer where the order was not solicited during the period of
distribution. Pursuant to the first mentioned exception, in connection with
this offering, the Underwriters may over-allot or effect transactions which
stabilize or maintain the market price of the Common Shares at levels other
than those which otherwise might prevail on the open market. Such transactions
may be commenced or interrupted at any time during the period of distribution.
The Underwriters have further advised the Company that, pursuant to
Regulation M under the U.S. Securities Act, certain persons participating in
the offering may engage in transactions, including stabilizing bids, syndicate
covering transactions or the imposition of penalty bids, which may have the
effect of stabilizing or maintaining the market price of Common Shares at a
level above that which might otherwise prevail in the open market. A
"stabilizing bid" is a bid for or the purchase of the Common Shares on behalf
of the Underwriters for the purpose of fixing or maintaining the price of the
Common Shares. A "syndicate covering transaction" is the bid for or the
purchase of the Common Shares on behalf of the Underwriters to reduce a short
position incurred by the Underwriters in connection with the offering. A
"penalty bid" is an arrangement permitting the Underwriters to reclaim the
selling concession
67
<PAGE>
otherwise accruing to an Underwriter or syndicate member in connection with
the offering if the Common Shares originally sold by such Underwriter or
syndicate member is purchased by the Underwriters in a syndicate covering
transaction and has therefore not been effectively placed by such Underwriter
or syndicate member. The Underwriters have advised the Company that such
transactions may be effected on The Toronto Stock Exchange or otherwise and,
if commenced, may be discontinued at any time.
The Company has granted to the Underwriters, an option, exercisable during
the 60-day period following the date of closing of this offering, to purchase
up to 450,000 additional Common Shares at the price set forth on the front
cover page of this Prospectus payable in cash to the Company against delivery
of the certificates representing those Common Shares, to cover over-
allotments, if any. Such option may be exercised in whole or in part at any
time until the close of business on the 60th day after the date of the closing
of this offering. The Company has agreed to pay the Underwriters a fee of
Cdn.$ per Common Share in respect of such additional Common Shares. The
Common Shares received by the Underwriters on exercise of the over-allotment
option will be qualified in Canada by this Prospectus and registered in the
United States pursuant to the registration statement of which this Prospectus
forms a part.
In connection with the completion of this offering, Biorex and certain
executive officers and directors of the Company holding 3,035,626 Common
Shares are expected to agree with the Underwriters not to sell, transfer, or
assign any Common Shares or any securities convertible or exercisable or
exchangeable for Common Shares, held or controlled, directly or indirectly, by
such shareholders, without the prior written consent of Levesque Beaubien
Geoffrion Inc. on behalf of the Underwriters, which consent will not be
unreasonably withheld, for a period of 90 days following the anticipated
closing date of the offering. The Company has agreed to a similar 90-day
restriction with respect to the issuance of new Common Shares. The Company
may, however, grant options to purchase Common Shares pursuant to the Stock
Plans and may issue Common Shares pursuant to the exercise of granted options
and outstanding warrants, as well as in connection with licensing arrangements
or other acquisitions by the Company of assets or rights in the ordinary
course of business.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the U.S. Securities Act and under
Canadian securities legislation, and to contribute to payments that the
Underwriters may be required to make in respect thereof.
The Underwriters have advised the Company that they do not intend to confirm
sales to any accounts over which they exercise discretionary authority in
excess of 5% of the number of Common Shares offered hereby.
Purchasers are required to pay for the Common Shares in Canadian dollars.
The Underwriters have arranged, subject to applicable laws or regulations, for
the conversion of United States dollars into Canadian dollars to enable United
States purchasers to pay for the Common Shares. Such conversion will be made
by the Underwriters on such terms and subject to such conditions, limitations
and charges as the Underwriters establish in accordance with their foreign
exchange practices. All costs of exchange will be borne by the purchasers of
the Common Shares.
The foregoing is a brief summary of the Underwriting Agreement and is
qualified in its entirety by the Underwriting Agreement.
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<PAGE>
LEGAL MATTERS
Certain legal matters relating to the distribution of the Common Shares in
Canada will be passed upon for the Company by Aird & Berlis, Barristers and
Solicitors, Toronto, Ontario and for the Underwriters by McCarthy Tetrault,
Barristers and Solicitors, Toronto, Ontario.
The validity of the Common Shares offered hereby will be passed upon for the
Company by Harney, Westwood and Riegels, Road Town, Tortola, British Virgin
Islands. Certain U.S. legal matters in connection with this offering will be
passed upon for the Company by Wilson Sonsini Goodrich & Rosati, P.C., Palo
Alto, California and for the Underwriters by Skadden, Arps, Slate, Meagher &
Flom LLP, Toronto, Ontario.
EXPERTS
The consolidated financial statements of the Company at December 31, 1995
and 1996 and for each of the five years in the period ended December 31, 1996,
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein and in the Registration Statement, and are included
in reliance upon such report given upon the authority of such firm as experts
in accounting and auditing.
TRANSFER AGENT
The transfer agent for the Common Shares is Montreal Trust Company of
Canada, at its principal offices in Toronto, Ontario and Vancouver, British
Columbia.
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<PAGE>
MATERIAL CONTRACTS
Except as indicated below, each of the following contracts is material to
the Company's business and has been filed as an exhibit to the Company's
Registration Statement on Form S-1 with the SEC in accordance with the rules
and regulations of the SEC. In addition, the material contracts identified in
items 1 through 3 below were entered into outside the ordinary course of the
Company's business within the prior two years and are required to be disclosed
and made available to Canadian investors in accordance with the rules of
certain Canadian securities regulators:
1. Underwriting Agreement dated as of , 1997 by and among the Company,
Levesque Beaubien Geoffrion Inc., Yorkton Securities Inc., Marleau,
Lemire Securities Inc., and Midland Walwyn Capital Inc;**
2. Agency Agreement dated May 15, 1996 among the Company and Haywood
Securities Inc., Dlouhy Investments Inc., and Moss, Lawson & Co.
Limited;+
3. Warrant Indenture between the Company and the Trustee, dated as of
January 12, 1996;+
4. Form of Indemnification Agreement between the Company and each of its
officers and directors;
5. Form of 1994 Stock Plan for Salix Holdings, Ltd. and form of Stock
Option and Restricted Stock Purchase Agreements thereunder;
6. Form of 1996 Stock Plan for Salix Holdings, Ltd. and form of Stock
Option Agreement thereunder;
7. Amendment Agreement effective as of September 17, 1992 by and among
Glycyx Pharmaceuticals, Ltd., Salix Pharmaceuticals, Inc. and Biorex
Laboratories Limited;*
8. License Agreement dated September 17, 1992, between Biorex Laboratories
Limited and Glycyx Pharmaceuticals, Limited, and letter agreement
amendments thereto;*
9. Research and Development Agreement dated September 21, 1992 between
Glycyx Pharmaceuticals, Ltd. and AB Astra and letter agreement
amendments thereto;*
10. Distribution Agreement dated September 21, 1992 between Glycyx
Pharmaceuticals, Ltd. and AB Astra;*
11. Amended and Restated License Agreement by and between Salix
Pharmaceuticals, Inc. and Biorex Laboratories Limited, dated April 16,
1993;*
12. Co-Participation Agreement dated April 30, 1993, between Salix
Pharmaceuticals, Inc. and AB Astra, as amended by Amendment No. 1
thereto, effective September 30, 1993;*
13. Manufacturing Agreement dated September 15, 1993 between Courtaulds
Chemicals (Holdings) Limited and Glycyx Pharmaceuticals, Ltd.;*
14. Distribution Agreement dated September 23, 1994, between Glycyx
Pharmaceuticals, Ltd, and Menarini International Operations Luxembourg
SA and amendments thereto;*
15. License Agreement dated June 24, 1996 between Alfa Wassermann S.p.A. and
Salix Pharmaceuticals, Inc.;*
16. Supply Agreement dated June 24, 1996 between Alfa Wassermann S.p.A. and
Salix Pharmaceuticals, Inc.;* and
17. Forms of Warrant issued by the Company January 17, 1995 and July 25,
1995.
- --------
+ This agreement has not been filed with the SEC.
* Confidential treatment has been requested with respect to certain portions
of this agreement pursuant to a request for confidential treatment filed
with the SEC. Portions omitted from the Company's SEC filing have been
submitted separately to the SEC.
** To be filed with the SEC by amendment.
70
<PAGE>
Copies of each of the foregoing agreements filed with the SEC are available
on the SEC's worldwide web site at http://www.sec.gov, at the offices of the
SEC, and at the offices of the National Association of Securities Dealers,
Inc. See "Additional Information". Copies of the agreements numbered 1-3
above, being material contracts entered into outside the ordinary course of
the Company's business within the prior two years, will be made available to
Canadian investors during normal business hours at any time during the period
of the distribution of the Common Shares offered by this Prospectus and for a
period of 30 days thereafter at the offices of Aird & Berlis, Barristers and
Solicitors, BCE Place, Suite 1800, Box 754, 181 Bay Street, Toronto, Ontario
M5J 2T9.
CANADIAN PURCHASERS' STATUTORY RIGHTS
Securities legislation in certain of the provinces of Canada provides
purchasers with the right to withdraw from an agreement to purchase securities
within two business days after receipt or deemed receipt of a prospectus and
any amendment. In several of the provinces, securities legislation further
provides a purchaser with remedies for rescission or, in some jurisdictions,
damages where the prospectus and any amendment contains a misrepresentation or
is not delivered to the purchasers, but such remedies must be exercised by the
purchaser within the time limit prescribed by the securities legislation of
his or her Province. The purchaser should refer to the applicable provisions
of the securities legislation of his or her Province for the particulars of
these rights or consult with a legal advisor.
ADDITIONAL INFORMATION
The Company has filed with the SEC a Registration Statement on Form S-1 (the
"Registration Statement") under the U.S. Securities Act, with respect to the
securities offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
Common Shares, reference is made to the Registration Statement and the
exhibits and schedules filed as a part thereof. Statements contained in this
Prospectus as to the contents of any contract or any other document referred
to are not necessarily complete. In each instance, reference is made to the
copy of such contract or document filed as an exhibit to the Registration
Statement, and each such statement is qualified in all respects by such
reference. The Registration Statement, including exhibits and schedules
thereto, may be inspected without charge at the public reference facilities
maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 and at
the regional offices of the SEC located at Seven World Trade Center, 13th
Floor, New York, New York 10048 and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of such materials may be
obtained from the Public Reference Section of the SEC at 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates and through the National
Association of Securities Dealers, Inc. located at 1735 K Street, N.W.,
Washington, D.C. 20006. The SEC maintains a World Wide Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the SEC. The address of the SEC's
Web site is http://www.sec.gov.
71
<PAGE>
GLOSSARY
<TABLE>
<S> <C>
4-ABA................... 4 aminobenzoyl alanine, the carrier molecule in
Colazide.
5-ASA................... 5-aminosalicylic-acid, the active ingredient in
Colazide and some other Inflammatory Bowel Disease
drugs.
Acute ulcerative An acute episode of ulcerative colitis often associated
colitis................ with diarrhea, rectal bleeding and abdominal pain.
Antibiotic.............. An agent that kills microorganisms or suppresses their
multiplication or growth.
Antibiotic associated An acute inflammatory bowel disorder associated with
colitis (AAC).......... antibiotic use.
C. difficile............ Clostridium difficile, a bacterium that is associated
with certain infectious gastrointestinal diseases.
Balsalazide............. The generic name for the Company's initial licensed
inflammatory bowel disease product, of which the first
drug developed therefrom is balsalazide disodium.
Chronic ulcerative
colitis................ See Ulcerative Colitis.
Colazide................ Trade name of the Company's initial licensed and
developed drug, balsalazide disodium.
Colectomy............... Surgical removal of the entire colon.
Colonic Polyps ......... Polyps occurring in the colon.
Corticosteriods......... Any of the steroid chemical compounds produced by the
adrenal cortex, or their synthetic equivalents.
Crohn's disease......... A disease characterized by chronic inflammation of the
colon, small intestine, and gastrointestinal tract,
often associated with diarrhea, rectal bleeding and
abdominal pain.
Diverticular disease.... Sacs or pouches of variable size created by herniations
of the inner lining of the colon through defects in the
outer muscular wall of the colon.
Diverticulitis.......... Inflammation of a diverticulum which may undergo
perforation and abscess formation.
Familial adenomatous
polyposis (FAP)........ A hereditary condition associated with the rapid
development of vast numbers of colonic polyps.
FDA..................... The United States Food and Drug Administration.
Good Clinical Practice Good Clinical Practice regulations--the minimum
(GCP).................. standards as set by the FDA required in the conduct and
monitoring of clinical trials to ensure the protection
of the rights and safety of subjects.
Good Manufacturing Good Manufacturing Practice regulations--the minimum
Practice (GMP)......... standards as set by the FDA required for the
manufacture, processing, packaging or holding of a drug
to ensure that the drug meets the requirements of
safety, identity, strength, quality and purity.
</TABLE>
72
<PAGE>
<TABLE>
<S> <C>
Hepatic encephalopathy.. A neuropsychiatric syndrome due to liver disease.
H. pylori............... Helicobacter pylori, the bacterium that is believed to
be the underlying cause of most peptic ulcers.
Immunosuppressive Drugs that artificially prevent or diminish the body's
drugs.................. immune response; can be used to prevent organ
transplant rejection and to treat certain inflammation
disease.
Investigational New Drug Investigational New Drug application--the application
(IND).................. required in order to conduct clinical trials with an
investigational drug in the United States.
Inflammatory Bowel A collective term for two chronic diseases of the
Disease (IBD).......... gastrointestinal tract: ulcerative colitis and Crohn's
disease.
Infectious diarrhea..... Increased volume, fluidity or frequency of bowel
movements caused by the presence of pathogenic bacteria
in the gastrointestinal tract.
MCA..................... The Medicines Control Agency, an administrative agency
regulating the marketing of pharmaceutical products in
the United Kingdom.
New Drug Application An application requesting approval from the FDA to
(NDA).................. market a drug in the United States.
NSAIDs.................. Non-steroidal anti-inflammatory drugs.
Peptic ulcer............ An erosion of the lining of the stomach, esophagus, or
duodenum (upper portion of the small bowel) caused by
the action of stomach acids.
Perioperative Measures taken before, during and immediately after a
prophylaxis............ surgical procedure to prevent or minimize the infection
of a surgical wound.
Polyp................... Benign or cancerous growths, protruding from a mucous
membrane.
Polypectomy............. Surgical removal of polyps from the colon.
Rifaximin .............. The generic name for a broad spectrum, bactericidal,
semi-synthetic antibiotic used to treat various
gastrointestinal infections.
Rifamycin class of A class of antibiotics with broad spectrum
antibiotics............ antibacterial activity.
Sulfasalazine........... The original azo-bonded, 5-ASA-containing therapeutic
used to treat ulcerative colitis.
Ulcerative colitis...... A disease characterized by chronic inflammation of the
colon, often associated with diarrhea, rectal bleeding
and abdominal pain.
</TABLE>
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<PAGE>
SALIX HOLDINGS, LTD.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE FIVE YEARS ENDED
DECEMBER 31, 1996
Report of Independent Auditors........................................... F-2
Consolidated Balance Sheets.............................................. F-3
Consolidated Statements of Operations.................................... F-4
Consolidated Statement of Shareholders' Equity (Net Capital Deficiency).. F-5
Consolidated Statements of Cash Flows.................................... F-6
Notes to Consolidated Financial Statements............................... F-7
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX-MONTH
PERIODS ENDED JUNE 30, 1997 AND 1996
Condensed Consolidated Balance Sheets.................................... F-17
Condensed Consolidated Statements of Operations.......................... F-18
Condensed Consolidated Statement of Shareholders' Equity................. F-19
Condensed Consolidated Statements of Cash Flows.......................... F-20
Notes to Condensed Consolidated Financial Statements..................... F-21
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Salix Holdings, Ltd.
We have audited the accompanying consolidated balance sheets of Salix
Holdings, Ltd. as of December 31, 1996 and 1995 and the related consolidated
statements of operations, shareholders' equity (net capital deficiency), and
cash flows for each of the five years in the period ended December 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Salix
Holdings, Ltd. at December 31, 1996 and 1995, and the consolidated results of
its operations and its cash flows for each of the five years in the period
ended December 31, 1996, in conformity with accounting principles generally
accepted in the United States.
(Signed) Ernst & Young LLP
Palo Alto, California
March 18, 1997
F-2
<PAGE>
SALIX HOLDINGS, LTD.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1995
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (Note 2)......................... $ 5,624 $ 188
Other current assets....................................... 79 34
------- -------
Total current assets..................................... 5,703 222
Property and equipment, net (Note 2)......................... 145 179
Other assets................................................. 10 32
------- -------
$ 5,858 $ 433
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
Current liabilities:
Accounts payable........................................... $ 667 $ 881
Secured promissory note.................................... -- 363
Accrued salaries........................................... -- 297
Other current liabilities.................................. 43 328
Advances from licensees (Note 6)........................... -- 1,186
Unearned revenue (Note 6).................................. -- 599
Amount due licensor (Note 5)............................... 555 --
------- -------
Total current liabilities................................ 1,265 3,654
Convertible unsecured promissory notes (Note 10)............. -- 607
Unsecured promissory notes (Note 10)......................... -- 1,200
Accrued interest............................................. -- 98
Amount due to licensor (Note 5).............................. -- 100
Commitments (Note 7)
Shareholders' equity (net capital deficiency) (Note 8):
Preferred stock, issuable in series, no par value;
5,000,000 shares authorized; 466,445 convertible preferred
shares, issued and outstanding at December 31, 1995 (none
at December 31, 1996)..................................... -- 845
Common stock, no par value; 20,000,000 and 15,000,000
shares authorized at December 31, 1996 and 1995,
respectively; 6,858,173 shares and 3,150,965 shares issued
and outstanding at December 31, 1996 and 1995,
respectively.............................................. 13,194 79
Accumulated deficit........................................ (8,601) (6,150)
------- -------
Shareholders' equity (net capital deficiency)............ 4,593 (5,226)
------- -------
$ 5,858 $ 433
======= =======
</TABLE>
ON BEHALF OF THE BOARD:
(Signed) LAWRANCE A. BROWN, JR. (Signed) NICHOLAS M. EDIGER
Director Director
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
SALIX HOLDINGS, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------ -------
<S> <C> <C> <C> <C> <C>
Revenues:
License revenue (Note 6)......... $ 1,186 $ -- $ -- $1,000 $ 1,712
Revenue from collaborative
agreements (Note 6)............. 634 1,990 2,827 3,439 1,212
------- ------- ------- ------ -------
Total revenues................. 1,820 1,990 2,827 4,439 2,924
------- ------- ------- ------ -------
Expenses:
License fees (Note 5)............ 605 100 -- -- --
Research and development (Note
2).............................. 2,053 2,888 3,199 4,321 3,539
General and administrative....... 1,731 1,334 1,125 873 408
------- ------- ------- ------ -------
Total expenses................. 4,389 4,322 4,324 5,194 3,947
------- ------- ------- ------ -------
Loss from operations............... (2,569) (2,332) (1,497) (755) (1,023)
Interest income.................... 290 18 48 48 15
Interest expense................... (172) (106) (3) (7) (3)
------- ------- ------- ------ -------
Net loss....................... $(2,451) $(2,420) $(1,452) (714) (1,011)
======= ======= ======= ====== =======
Net loss per share................. $ (0.46) $ (0.77) $ (0.46) $(0.23) $ (0.38)
======= ======= ======= ====== =======
Shares used in computing net loss
per share......................... 5,365 3,149 3,144 3,144 2,688
======= ======= ======= ====== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
SALIX HOLDINGS, LTD.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
PREFERRED SHAREHOLDERS'
STOCK COMMON STOCK NOTE EQUITY
--------- ----------------- RECEIVABLE ACCUMULATED (NET CAPITAL
AMOUNTS SHARES AMOUNTS FROM OFFICER DEFICIT DEFICIENCY)
--------- --------- ------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1991................... $ 395 1,207,500 $ 32 $ -- $ (553) $ (126)
Issuance of Salix
common stock for cash
and notes receivable.. -- 131,260 26 (11) -- 15
Issuance of Salix
Series C preferred
stock for cash........ 450 -- -- -- -- 450
Issuance of Glycyx
common stock for
cash.................. -- 1,805,205 14 -- -- 14
Net loss............... -- -- -- -- (1,011) (1,011)
----- --------- ------- ----- ------- -------
Balance at December 31,
1992................... 845 3,143,965 72 (11) (1,564) (658)
Net loss............... -- -- -- -- (714) (714)
----- --------- ------- ----- ------- -------
Balance at December 31,
1993................... 845 3,143,965 72 (11) (2,278) (1,372)
Repayment of note
receivable............ -- -- -- 11 -- 11
Net loss............... -- -- -- -- (1,452) (1,452)
----- --------- ------- ----- ------- -------
Balance at December 31,
1994................... 845 3,143,965 72 -- (3,730) (2,813)
Issuance of common
stock................. -- 7,000 7 -- -- 7
Net loss............... -- -- -- -- (2,420) (2,420)
----- --------- ------- ----- ------- -------
Balance at December 31,
1995................... 845 3,150,965 79 -- (6,150) (5,226)
Issuance of common
stock for conversion
of debentures,
including accrued
interest.............. -- 1,167,625 3,503 -- -- 3,503
Issuance of common
stock for conversion
of Series A, B and C
convertible preferred
stock................. (845) 466,445 845 -- -- --
Issuance of common
stock in connection
with the Company's
initial public
offering of
securities, net of
issuance costs of
$1,473................ -- 2,000,000 8,694 -- -- 8,694
Issuance of common
stock upon exercise of
stock options......... -- 73,138 73 -- -- 73
Net loss............... -- -- -- -- (2,451) (2,451)
----- --------- ------- ----- ------- -------
Balance at December 31,
1996................... $ -- 6,858,173 $13,194 $ -- $(8,601) $ 4,593
===== ========= ======= ===== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
SALIX HOLDINGS, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(IN THOUSANDS)
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------ -------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net loss.......................... $(2,451) $(2,420) $(1,452) $ (714) $(1,011)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Depreciation and amortization.... 55 59 42 27 2
Changes in assets and
liabilities:
Refundable income tax........... -- -- 130 (130) --
Other current assets and other
assets......................... (22) (37) 72 (81) (13)
Accounts payable and other
current liabilities............ (673) 1,223 (27) 459 172
Advances from licensees......... (1,186) 910 -- 76 200
Unearned revenue................ (599) (1,687) 94 1,133 1,059
Amount due licensor............. 555 -- -- -- --
------- ------- ------- ------ -------
Net cash provided by (used in)
operating activities.......... (4,321) (1,952) (1,141) 770 409
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchases of property and
equipment........................ (21) (3) (93) (148) (64)
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from issuance of
convertible promissory notes..... -- 607 -- -- --
Proceeds from issuance of
promissory notes................. -- 1,200 -- -- --
Proceeds from issuance of
convertible debentures........... 1,375 -- -- -- --
Proceeds from issuance of
convertible preferred stock...... -- -- -- -- 450
Proceeds from issuance of common
stock............................ 8,767 7 -- -- 29
Repayment of note receivable from
officer.......................... -- -- 11 -- --
Payments of principal on secured
promissory note.................. (364) -- -- -- --
------- ------- ------- ------ -------
Net cash provided by financing
activities.................... 9,778 1,814 11 -- 479
------- ------- ------- ------ -------
Net increase (decrease) in cash and
cash equivalents.................. 5,436 (141) (1,223) 622 824
Cash and cash equivalents at
beginning of year................. 188 329 1,552 930 105
------- ------- ------- ------ -------
Cash and cash equivalents at end of
year.............................. $ 5,624 $ 188 $ 329 $1,552 $ 929
======= ======= ======= ====== =======
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Cash paid for interest............ $ 13 $ 5 $ 9 $ 7 $ --
======= ======= ======= ====== =======
NONCASH FINANCING ACTIVITIES
Issuance of common stock in
exchange for note receivable..... $ -- $ -- $ -- $ -- $ 11
======= ======= ======= ====== =======
Issuance of convertible debentures
for promissory notes............. $ 1,807 $ -- $ -- $ -- $ --
======= ======= ======= ====== =======
Issuance of convertible debentures
for interest on promissory
notes............................ $ 98 $ -- $ -- $ -- $ --
======= ======= ======= ====== =======
Issuance of convertible debentures
for amount due licensor.......... $ 100 $ -- $ -- $ -- $ --
======= ======= ======= ====== =======
Issuance of common stock for
convertible debentures........... $ 3,380 $ -- $ -- $ -- $ --
======= ======= ======= ====== =======
Issuance of common stock for
interest on convertible
debentures....................... $ 123 $ -- $ -- $ -- $ --
======= ======= ======= ====== =======
Issuance of common stock for
preferred stock.................. $ 845 $ -- $ -- $ -- $ --
======= ======= ======= ====== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
SALIX HOLDINGS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(EXPRESSED IN U.S. DOLLARS)
1. Organization and Basis of Presentation
Salix Holdings, Ltd. (the "Company") was incorporated in the British
Virgin Islands in December 1993 for the purpose of acquiring all of the
outstanding capital stock of Salix Pharmaceuticals, Inc., a California
corporation ("Salix"), and Glycyx Pharmaceuticals, Ltd., a Bermuda
corporation ("Glycyx"). Salix was incorporated in California in 1989 and
Glycyx was incorporated in Bermuda in 1992. The Company is developing new
pharmaceuticals, primarily focused in the area of gastrointestinal disease.
In March 1994, Salix Holdings, Ltd. entered into an agreement with the
shareholders of Salix and Glycyx, whereby it issued shares in exchange for
the shareholders' interests in Salix and Glycyx. As a result of the
exchange, Salix and Glycyx became wholly owned subsidiaries of the Company.
Each share of Salix common and preferred stock was exchanged on a one-for-
one basis for a similar share of the Company's common and preferred stock,
respectively. Each share of Glycyx common stock was exchanged on a one-for-
one basis for a share of the Company's common stock plus $0.001 per share
of Glycyx common stock exchanged. These transactions have been accounted
for in a manner similar to a pooling of interests to reflect the continuity
of the Company's shareholders' interests in Salix and Glycyx. Accordingly,
the consolidated balance sheets include the assets and liabilities of the
combined companies and the consolidated statements of operations,
shareholders' equity (net capital deficiency) and cash flows include their
operations for all of the years presented. The Company, as used herein,
refers to Salix Holdings, Ltd. and its subsidiaries.
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. These statements are stated in United
States dollars and are prepared under accounting principles generally
accepted in the United States. All significant intercompany balances and
transactions have been eliminated. In 1992 and 1993, Salix and Glycyx were
presented as combined entities, which included the elimination of all
intercompany transactions, due to common ownership.
The Company has sustained continuing operating losses and expects such
losses to continue until product approvals are obtained and product
revenues reach a sufficient level to support ongoing operations. There can
be no assurance that such product approvals and revenues will be obtained
on a timely basis, if at all. The Company believes that its current cash
reserves should be sufficient to satisfy the cash requirements of product
development programs for at least the next year. The Company's actual cash
requirements may vary materially from those now planned because of results
of research and development activities, establishment of and changes in
relationships with strategic partners, changes in focus and direction of
the Company's research and development programs, the FDA regulatory
process, and other factors. To the extent that the Company proceeds with
the development and licensing of new products, the Company anticipates that
it will need to raise additional funds in the form of debt or equity
financing to fund its future operations. The Company may also enter into
collaborative arrangements with corporate partners that could provide the
Company with additional funding in the form of equity, debt, licensing,
milestone and/or royalty payments. There can be no assurance that the
Company will be able to enter into such arrangements or raise any
additional funds on terms favorable to the Company, or at all. If adequate
capital is unavailable, the Company may have to reduce substantially or
eliminate expenditures for research and development of new products and
indications.
F-7
<PAGE>
SALIX HOLDINGS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
(EXPRESSED IN U.S. DOLLARS)
2. Summary of Significant Accounting Policies
These statements have been prepared in accordance with accounting
principles generally accepted in the United States. The application of
these principles conforms in all material respects with financial
statements prepared using accounting principles generally accepted in
Canada.
USES OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
FAIR VALUE OF CASH AND CASH EQUIVALENTS AND PROMISSORY NOTES
For these short-term instruments, the carrying value approximates fair
value at December 31, 1995 and 1996, respectively.
REVENUE RECOGNITION
The Company's collaborative research and licensing agreements with its
license partners provide for payments in support of the Company's research
activities and additional payments upon the attainment of specified
milestones. Research reimbursements under these agreements are recorded
when earned based on contract costs incurred to date compared with total
estimated contract costs. License fees and milestone revenues are
recognized according to contract terms. Amounts received in advance of the
applicable research activities are deferred as unearned revenue. Amounts
received which are subject to refundability until the point at which
milestones are achieved are deferred as advances from licensees, until
earned.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred. Research and
development expense included a payment to a licensor totaling $1,064,000 in
1992.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with maturities from
date of purchase of three months or less to be cash equivalents. The
Company maintains its cash and cash equivalents in several different
instruments with various banks and brokerage houses. This diversification
of risk is consistent with Company policy to maintain liquidity and ensure
the safety of principal.
F-8
<PAGE>
SALIX HOLDINGS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
(EXPRESSED IN U.S. DOLLARS)
2. Summary of Significant Accounting Policies, continued
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated over the
estimated useful lives of the assets, generally five years, using the
straight-line method. Property and equipment consist of the following at
December 31 (in thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cost:
Furniture and equipment......................................... $105 $101
Computer equipment.............................................. 122 105
Laboratory equipment............................................ 106 106
---- ----
333 312
Accumulated depreciation:
Furniture and equipment......................................... 64 37
Computer equipment.............................................. 67 54
Laboratory equipment............................................ 57 42
---- ----
188 133
---- ----
Net property and equipment........................................ $145 $179
==== ====
</TABLE>
FOREIGN CURRENCY TRANSLATION
The functional currency for the Company is the United States dollar. The
adjustment resulting from translating the financial statements of the
Company and its foreign subsidiaries is reflected in operations. A foreign
currency transaction gain of $78,717 was incurred in the year ended
December 31, 1996. Foreign currency transaction losses of $7,066, $45,072,
$36,166 and $76,554 were incurred in the years ended December 31, 1995,
1994, 1993 and 1992, respectively, and are included in the results of
operations.
RECLASSIFICATIONS
Certain previously reported amounts have been reclassified to conform to
the 1996 consolidated financial statement presentation.
NET LOSS PER COMMON SHARE
Net loss per common share is computed using the weighted-average number
of common shares outstanding during each year. Common equivalent shares are
excluded from the computation as their effect is antidilutive.
3. Initial Public Offering
In May 1996, the Company completed its initial public offering, listed on
The Toronto Stock Exchange, and issued 2,000,000 shares of its common stock
at a price of Cdn. $7.00 (U.S. $5.25) per share. The Company received
approximately $8.7 million in cash, net of underwriting discounts,
commissions and other offering costs. Simultaneously with the closing of
the initial public offering, each outstanding share of convertible
preferred stock was automatically converted into one share of
F-9
<PAGE>
SALIX HOLDINGS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
(EXPRESSED IN U.S. DOLLARS)
3. Initial Public Offering, continued
common stock, and $3.5 million principal and accrued interest of
convertible debentures issued in January and February 1996 were converted
into 1,167,625 "units" consisting of one common share and one-half of one
common share purchase warrant (see Note 10).
4. Foreign Subsidiaries
Glycyx, a wholly owned subsidiary incorporated in Bermuda, recognized net
losses of $38,567, $1,617,050, $1,213,621, $1,169,777 and $750,296 in the
years ended December 31, 1996, 1995, 1994, 1993 and 1992, respectively.
Salix, a wholly owned subsidiary incorporated in the United States,
recognized net losses (income) of $2,053,899, $498,752, $238,016,
$(456,259) and $260,593 in the years ended December 31, 1996, 1995, 1994,
1993 and 1992, respectively.
5. Technology Licensing
In January 1991 and March 1992, the Company entered into license
agreements with a company possessing certain patents relating to
balsalazide, a therapeutic agent with potential use in the treatment of
ulcerative colitis and other diseases. Under the agreements, the Company
will pay the licensor, which is also a shareholder in the Company, a
royalty based on a percentage of gross profit on the drug in one defined
territory and a sales-based royalty in other territories. In addition,
milestone payments from the Company to the licensor will be paid to the
licensor based upon development efforts. In the January 1991 agreement, as
amended, the Company obtained the exclusive right to develop and market
balsalazide in the United States. In the March 1992 agreement, as amended,
the Company licensed the exclusive right to develop, manufacture and market
the same drug in the rest of the world excluding Japan, Taiwan and Korea.
The first product under development pursuant to these licenses is Colazide,
a form of balsalazide proposed for the treatment of ulcerative colitis. At
December 31, 1995, a total of $100,000 was due to the licensor. Such amount
was converted to convertible debentures issued in January 1996. At December
31, 1996, a total of $555,000 was due the licensor. Such amount was paid in
February 1997.
6. License Revenue and Revenue from Collaborative Agreements
In September 1992, the Company entered into research, development and
distribution agreements whereby the Company granted its partner an
exclusive right to promote, market, distribute and sell Colazide in certain
territories outside of the United States. The research under this agreement
took place through December 1993 and revenue from research funding was
recognized as earned.
In 1992, the Company received a portion of the license fees payable under
the agreement, with the remaining payments due upon the receipt of approval
to market the product by the relevant regulatory authorities in five
principal territories. Under the distribution agreement, the partner will
purchase product from the Company at an agreed upon price based on a
percentage of the partner's selling price of the product. The licensee has
the right to offset (Pounds)750,000 (approximately $1,284,000 at December
31, 1996 exchange rates) previously paid to the Company against future
royalties.
F-10
<PAGE>
SALIX HOLDINGS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
(EXPRESSED IN U.S. DOLLARS)
6. License Revenue and Revenue from Collaborative Agreements, continued
In April 1993, Salix entered into a collaborative agreement with the
above-mentioned partner covering pharmaceutical product development and
marketing of Colazide in the United States. In consideration for the rights
granted, the partner agreed to pay the Company a specified licensing fee
and to fund development up to a specified amount. The Company recognized
development revenue of $599,000, $1,687,000, $2,252,000, $962,000 and
$1,212,190 in 1996, 1995, 1994, 1993 and 1992, respectively, under these
agreements. License fee revenue of $1,000,00 and $1,712,000 was recognized
in 1993 and 1992, respectively.
In October 1992, the Company entered into a distribution agreement with a
second licensee for Colazide in southern Europe. This agreement calls for
payments to the Company in support of clinical trials and upon the
achievement of certain milestones. Under this agreement, the partner will
purchase product when approved from the Company at an agreed upon price.
Revenues recognized under this arrangement were $78,000 in 1994 (none in
1992, 1993, 1995 or 1996). Additional monies received under this agreement
were deferred as advances from licensees pending achievement of specified
technological milestones. The amount deferred was $1,186,400 at December
31, 1995. Such milestones were achieved and accepted by the licensee in
1996 and revenue of $1,186,400 was recognized.
In July 1993, the Company entered into a collaborative relationship with
a company which owns the rights to balsalazide in Japan, Taiwan and Korea.
In return for access to drug data the Company received milestone payments
of $170,000, $296,000 and $452,000, which were recognized as revenue in
1995, 1994 and 1993, respectively.
7. Commitments
The Company leases an office facility. Rent expense was approximately
$112,000, $81,000, $85,000, $98,000 and $19,000 for the years ended
December 31, 1996, 1995, 1994, 1993 and 1992, respectively.
In June 1996, the Company amended the lease related to its office
facility to extend through July 2000. Future payments for operating leases
at December 31, 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
OPERATING
LEASES
---------
<S> <C>
Years ending December 31,
1997............................................................. $140
1998............................................................. 144
1999............................................................. 159
2000............................................................. 93
----
Total minimum payments required.................................... $536
====
</TABLE>
In October 1996, the Company entered into a binding purchase order
commitment for inventory purchases aggregating $674,000 to be delivered in
1997.
F-11
<PAGE>
SALIX HOLDINGS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
(EXPRESSED IN U.S. DOLLARS)
8. Shareholders' Equity (Net Capital Deficiency)
PREFERRED STOCK
On May 15, 1996, the Company closed its initial public offering of its
common stock. At that time, all issued and outstanding shares of the
Company's Series A, B and C convertible preferred stock were converted into
466,445 shares of the Company's common stock. A total of 5,000,000 shares
of preferred stock are authorized and issuable in series. No shares of
preferred stock were issued as of December 31, 1996.
STOCK OPTION PLANS
The Company's 1994 Stock Plan (the "Plan") was adopted by the board of
directors in March 1994 and approved by the shareholders in March 1995. The
Company's 1996 Stock Option Plan (the "1996 Plan") was adopted by the board
of directors and approved by the Company's shareholders in February 1996.
The options granted under the Plan and the 1996 Plan may be either
incentive stock options or nonstatutory stock options. Options granted
expire no later than ten years from the date of grant. For incentive stock
options, the option price shall be at least 100% of the fair market value
on the date of grant, and no less than 85% of the fair market value for
nonqualified stock options. If, at the time the Company grants an option,
the optionee directly or by attribution owns stock possessing more than 10%
of the total combined voting power of all classes of stock of the Company,
the option price shall be at least 110% of the fair market value and shall
not be exercisable more than five years after the date of grant. The
options generally become exercisable in increments of 1/48th per month over
a period of 48 months from the date of grant. Options may be granted with
different vesting terms as determined by the board of directors.
At December 31, 1996, the Company has reserved 1,076,862 shares of common
stock for issuance to eligible participants under the two plans.
F-12
<PAGE>
SALIX HOLDINGS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
(EXPRESSED IN U.S. DOLLARS)
8. Shareholders' Equity (Net Capital Deficiency), continued
Aggregate option activity is as follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
------------------------
SHARES WEIGHTED-
AVAILABLE NUMBER OF AVERAGE
FOR GRANT SHARES EXERCISE PRICE
--------- --------- --------------
<S> <C> <C> <C>
Shares authorized...................... 400,000 -- --
Options granted........................ (365,825) 365,825 $1.00
-------- ------- -----
Balance at December 31, 1994............. 34,175 365,825 $1.00
Additional shares authorized........... 100,000 -- --
Options granted........................ (60,000) 60,000 $1.00
-------- ------- -----
Balance at December 31, 1995............. 74,175 425,825 $1.00
Additional shares authorized........... 650,000 -- --
Options granted........................ (133,000) 133,000 $3.82
Options exercised...................... -- (73,138) $1.00
Options canceled....................... 4,687 (4,687) $1.00
-------- ------- -----
Balance at December 31, 1996............. 595,862 481,000 $1.78
======== ======= =====
</TABLE>
At December 31, 1995, options were exercisable to purchase 240,013 shares
at a weighted-average exercise price of $1.00 per share. At December 31,
1996, options were exercisable to purchase 272,167 shares at a weighted-
average exercise price of $1.21 per share.
Exercise prices for options outstanding as of December 31, 1996 ranged
from $1.00 to $5.25 per share. The weighted-average remaining contractual
life of those options is 7.8 years.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING EXERCISABLE OPTIONS
-------------------------------------------------------- --------------------------
WEIGHTED-
WEIGHTED- AVERAGE WEIGHTED-
EXERCISE AVERAGE REMAINING AVERAGE
PRICE EXERCISE CONTRACTUAL EXERCISE
RANGE NUMBER PRICE LIFE NUMBER PRICE
-------------------------------------------------------- --------------------------
(IN YEARS)
<S> <C> <C> <C> <C> <C>
$1.00 348,000 $1.00 7.0 256,000 $1.00
$3.67 120,000 $3.67 10.0 7,500 $3.67
$5.25 13,000 $5.25 9.1 8,667 $5.25
--------------------------------------------------------------------------
481,000 $1.78 7.8 272,167 $1.21
==========================================================================
</TABLE>
The weighted-average fair value of options granted in fiscal 1996 and
1995 was $2.01 and $0.29, respectively.
STOCK-BASED COMPENSATION
As permitted under FASB Statement No. 123, "Accounting for Stock-Based
Compensation" ("FASB 123"), the Company has elected to follow Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25") in accounting for stock-based awards to employees. Under APB 25,
the Company generally recognizes no compensation expense with respect to
such awards.
Pro forma information regarding net loss and net loss per share is
required by FASB 123 for awards granted after December 31, 1994 as if the
Company had accounted for its stock-based awards
F-13
<PAGE>
SALIX HOLDINGS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
(EXPRESSED IN U.S. DOLLARS)
8. Shareholders' Equity (Net Capital Deficiency), continued
to employees under the fair value method of FASB 123. The fair value of the
Company's stock-based awards to employees was estimated using a Black-
Scholes option pricing model (minimum value model for awards prior to the
Company's initial public offering). The Black-Scholes option valuation
model was developed for use in estimating the fair value of traded options
which have no vesting restrictions and are fully transferable. In addition,
the Black-Scholes model requires the input of highly subjective assumptions
including the expected stock price volatility. Because the Company's stock-
based awards to employees have characteristics significantly different from
those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its stock-based awards to employees. The fair
value of the Company's stock-based awards to employees was estimated
assuming no expected dividends and the following weighted-average
assumptions:
<TABLE>
<CAPTION>
OPTIONS
----------
1996 1995
---- ----
<S> <C> <C>
Expected life (years)..................... 5 5
Expected volatility....................... 0.6 --
Risk-free interest rate................... 6.13% 7.00%
</TABLE>
The effect of applying the FASB 123 Black-Scholes option valuation model
(minimum value model for awards prior to the Company's initial public
offering) to the Company's stock option grants did not result in pro forma
net loss and loss per share amounts that are materially different from
historical amounts reported. Therefore, such pro forma information is not
separately presented herein. Because FASB 123 is applicable only to awards
granted subsequent to December 31, 1994, its pro forma effect will not be
fully reflected until approximately 1998. Future pro forma net income
(loss) and earnings (loss) per share results may be materially different
from actual amounts reported.
401(k) Plan
In 1996, the Company adopted the Salix Pharmaceuticals, Inc. 401(k)
Retirement Plan. Eligible participants may elect to defer a percentage of
their compensation. The Company matches up to 25% of such participant
deferrals, provided that such deferrals do not exceed 6% of the
participant's compensation. The Company's total matching contribution for
all participants in fiscal 1996 was $4,333. Additional discretionary
employer contributions may be made on an annual basis.
9. Income Taxes
As of December 31, 1996, the Company has a U.S. federal net operating
loss carryforward of approximately $5,600,000 related to its U.S.
subsidiary, Salix Pharmaceuticals, Inc. This will expire on various dates
beginning in 2004 through 2011, if not utilized.
F-14
<PAGE>
SALIX HOLDINGS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
(EXPRESSED IN U.S. DOLLARS)
9. Income Taxes, continued
Significant components of the Company's deferred tax assets and
liabilities for federal and state income taxes are as follows (in
thousands):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards........................ $ 2,000 $ 900
Research credit carryforwards (expiring 2004 to 2010)... 100 150
Capitalized research and development expenses........... 100 100
Deferred revenue........................................ -- 200
Other................................................... 100 100
------- -------
Total deferred tax assets............................. 2,300 1,450
Valuation allowance....................................... (2,300) (1,450)
------- -------
Net deferred taxes $ -- $ --
======= =======
</TABLE>
Because of the Company's lack of earnings history, the deferred tax asset
has been fully offset by a valuation allowance. The valuation allowance
increased by $113,000 during the year ended December 31, 1995.
Utilization of the federal net operating loss and credit carryforwards
may be subject to a substantial annual limitation due to the "change in
ownership" provisions of the Internal Revenue Code of 1986. The annual
limitation may result in the expiration of net operating losses and credits
before utilization.
The Company's Bermuda subsidiary, Glycyx, has a cumulative loss of
approximately $2,200,000. Because Glycyx is domiciled in Bermuda where the
effective tax rate is zero, the Company expects to receive no future tax
benefit from these net operating losses.
10.Promissory Notes and Warrants
In January and March 1995, the Company issued $607,000 of convertible
promissory notes to certain investors. In connection with the issuance of
the above convertible promissory notes, the Company issued to the note
holders warrants to purchase up to 202,332 shares of common stock at a
purchase price of $0.001 per share of common stock exercisable thereunder.
These warrants are immediately exercisable at $3.00 per share and expire in
2000.
In July and October 1995, the Company issued additional promissory notes
in the amount of $1,200,000 together with warrants to purchase 399,999
shares of common stock. Each of the warrants allow for the purchase of one
share of common stock at an exercise price of $3.00 per share, subject to
adjustment in certain circumstances, and expire in 2003.
On January 12, 1996 and February 2, 1996, the Company completed the
private placement of an aggregate principal amount of $3,379,500 of 10%
convertible secured debentures maturing on December 31, 1998 to certain new
and existing investors. As part of the financing, holders of all of the
outstanding $607,000 of convertible promissory notes and $1,200,000
promissory notes
F-15
<PAGE>
SALIX HOLDINGS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
(EXPRESSED IN U.S. DOLLARS)
10. Promissory Notes and Warrants, continued
previously issued by the Company converted the principal and accrued
interest on such notes into debentures. In addition, $100,000 owed by the
Company to a licensor as of December 31, 1995 was converted into debentures
as part of this financing.
Upon the completion of the initial public offering, the debentures were
converted at the option of the holder into units comprised of one share of
common stock and one-half of one common stock purchase warrant, as referred
to in Note 3. The conversion price for such units was Cdn. $4.00 (U.S.
$3.00 at the May 15, 1996 exchange rate). The 583,851 common stock purchase
warrants were immediately exercisable at Cdn. $7.00 (U.S. $5.25) per share
and expired unexercised in January 1997. Also, in connection with the
initial public offering, the Company issued to the underwriters common
share purchase warrants, exercisable into 200,000 common shares at a price
of Cdn $7.00 (U.S. $5.25). Such purchase warrants are exercisable through
May 1997.
At December 31, 1996, 1,386,182 shares of common stock are reserved for
issuance upon the exercise of the aforementioned warrants.
SECURED PROMISSORY NOTE
In June 1995, the Company provided a vendor with a secured promissory
note and related security agreement, wherein the Company agreed to pay
(Pounds)234,036 ($363,458 at December 31, 1995 exchange rates) at specified
times in payment of trade debts incurred for services provided. The
collateral that was subject to the security interest created consisted of
future milestone payments due the Company from one of its distribution
partners. This secured promissory note was paid-in-full in September 1996.
11. Revenues From Significant Customers
Revenues from three customers represented the following percentages of
total revenues during fiscal 1996, 1995, 1994, 1993 and 1992:
<TABLE>
<CAPTION>
CUSTOMER 1996 1995 1994 1993 1992
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
A 32.8% 85.5% 79.7% 75.2% 41.5%
B -- % 10.1% 10.4% 10.1% -- %
C 65.2% 1.1% -- % 14.7% 58.5%
</TABLE>
All revenue is associated with the development of a single product,
Colazide.
F-16
<PAGE>
SALIX HOLDINGS, LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
-------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $ 3,657 $ 5,624
Other current assets.................................. 398 79
-------- -------
Total current assets................................ 4,055 5,703
Property and equipment, net............................. 152 145
Other assets............................................ 43 10
-------- -------
$ 4,250 $ 5,858
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable...................................... $ 954 $ 667
Other current liabilities............................. 65 43
Amount due licensor................................... 50 555
-------- -------
Total current liabilities........................... 1,069 1,265
Shareholders' equity:
Preferred stock, issuable in series, no par value;
5,000,000 shares authorized; none issued and
outstanding.......................................... -- --
Common stock, no par value; 20,000,000 shares autho-
rized; 7,118,173 shares and 6,858,173 shares issued
and outstanding at June 30, 1997 and December 31,
1996, respectively................................... 14,257 13,194
Accumulated deficit................................... (11,076) (8,601)
-------- -------
Shareholders' equity................................ 3,181 4,593
-------- -------
$ 4,250 $ 5,858
======== =======
</TABLE>
ON BEHALF OF THE BOARD:
(Signed) LAWRANCE A. BROWN, JR. (Signed) NICHOLAS M. EDIGER
Director Director
The accompanying notes are an integral part of these financial statements.
F-17
<PAGE>
SALIX HOLDINGS, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
SIX MONTHS ENDING
JUNE 30,
------------------
1997 1996
-------- --------
(UNAUDITED)
<S> <C> <C>
Revenue:
Revenue from collaborative agreements and other.......... $ 21 $ 384
Expenses:
License fees............................................. 50 50
Research and development................................. 1,315 1,037
General and administrative............................... 1,231 740
-------- --------
Total expenses......................................... 2,596 1,827
-------- --------
Loss from operations....................................... (2,575) (1,443)
Interest income............................................ 122 45
Interest expense and other................................. (22) (173)
-------- --------
Net loss............................................... $ (2,475) $ (1,571)
======== ========
Net loss per share......................................... $ (0.35) $ (0.41)
======== ========
Shares used in computing net loss per share................ 6,975 3,877
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-18
<PAGE>
SALIX HOLDINGS, LTD.
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
COMMON STOCK
----------------- ACCUMULATED SHAREHOLDERS'
SHARES AMOUNTS DEFICIT EQUITY
--------- ------- ----------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1996...... 6,858,173 $13,194 $ (8,601) $4,593
Issuance of common stock upon
exercise of warrants
(unaudited)...................... 200,000 1,003 -- 1,003
Issuance of common stock upon
exercise of stock options
(unaudited)...................... 60,000 60 -- 60
Net loss (unaudited).............. -- -- (2,475) (2,475)
========= ======= ======== ======
Balance at June 30, 1997
(unaudited)...................... 7,118,173 $14,257 $(11,076) $3,181
========= ======= ======== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE>
SALIX HOLDINGS, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
SIX MONTHS ENDING
JUNE 30,
------------------
1997 1996
-------- --------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss................................................. $ (2,475) $ (1,571)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 32 27
Changes in assets and liabilities:
Other current assets and other assets.................. (352) (29)
Accounts payable and other current liabilities......... 309 (125)
Unearned revenue....................................... -- (374)
Amount due licensor.................................... (505) --
-------- --------
Net cash used in operating activities................ (2,991) (2,072)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment...................... (39) (6)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of stock (net of offering costs).. 1,063 8,697
Proceeds from issuance of convertible secured
debentures.............................................. -- 1,375
-------- --------
Net cash provided by financing activities............ 1,063 10,072
-------- --------
Net increase (decrease) in cash and cash equivalents....... (1,967) 7,994
Cash and cash equivalents at beginning of period........... 5,624 188
-------- --------
Cash and cash equivalents at end of period................. $ 3,657 $ 8,182
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest................................... $ -- $ 13
======== ========
NONCASH FINANCING ACTIVITIES
Issuance of convertible debentures for promissory notes.. $ -- $ 1,807
======== ========
Issuance of convertible debentures for interest on
promissory notes........................................ $ -- $ 98
======== ========
Issuance of convertible debentures for amount due
licensor................................................ $ -- $ 100
======== ========
Issuance of common stock for convertible debentures...... $ -- $ 3,380
======== ========
Issuance of common stock for interest on convertible
debentures.............................................. $ -- $ 123
======== ========
Issuance of common stock for preferred stock............. $ -- $ 845
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE>
SALIX HOLDINGS, LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1997
(UNAUDITED)
1. Organization and Basis of Presentation
Salix Holdings, Ltd. (the "Company") was incorporated in the British
Virgin Islands in December 1993 for the purpose of acquiring all of the
outstanding capital stock of Salix Pharmaceuticals, Inc., a California
corporation ("Salix"), and Glycyx Pharmaceuticals, Ltd., a Bermuda
corporation ("Glycyx"). Salix was incorporated in California in 1989 and
Glycyx was incorporated in Bermuda in 1992. The Company is developing new
pharmaceuticals, primarily focused in the area of gastrointestinal disease.
The condensed consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All significant intercompany
balances and transactions have been eliminated. These statements are stated
in United States dollars.
The accompanying unaudited condensed consolidated financial statements
include all adjustments (consisting only of normal recurring items) which,
in the opinion of management, are necessary for a fair presentation of
financial position, results of operations and cash flows. These financial
statements should be read in conjunction with the Management's Discussion
and Analysis of Financial Condition and Results of Operations and the
audited financial statements for the fiscal year ended December 31, 1996
included elsewhere in this Prospectus. The results of operations for
interim periods are not necessarily indicative of results to be expected
for a full year.
These statements have been prepared in accordance with accounting
principles generally accepted in the United States. The application of
these principles conforms in all material respects with financial
statements prepared using accounting principles generally accepted in
Canada.
2. Net Loss Per Common Share
Net loss per common share is computed using the weighted-average number
of common shares outstanding during each year. Common equivalent shares are
excluded from the computation as their effect is antidilutive.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings Per Share" ("SFAS 128"). The Statement is
effective for both interim and annual financial statements for periods
ending after December 15, 1997. Under the Statement, primary earnings per
share ("EPS") computed in accordance with Accounting Principle Board
Opinion No. 25 will be replaced with a new simpler calculation called
"basic EPS" and the Company will be required to restate EPS amounts for all
prior periods. Under the new requirements, basic loss per share for the six
months ended June 30, 1997 and 1996 would be unchanged from the reported
loss per share amounts.
3. License Revenue and Revenue from Collaborative Agreements
In April 1993, Salix entered into a collaborative agreement with a
partner covering pharmaceutical product development and marketing of
Colazide in the United States. In consideration for the rights granted, the
partner agreed to pay the Company a specified licensing fee and to fund
development up to a specified amount. The Company recognized development
revenue of $374,000 in the six-month period ending June 30, 1996, under
this agreement.
F-21
<PAGE>
SALIX HOLDINGS, LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1997
(UNAUDITED)
4. Commitments
In October 1996, the Company entered into a binding purchase order
commitment for inventory purchases aggregating $674,000 to be delivered in
1997. At June 30, 1997, inventory of approximately $249,000 had been
received against this commitment.
5. Shareholders' Equity
In May 1996, the Company closed its initial public offering of its common
stock. In connection with that offering, the Company issued to the
underwriters common share purchase warrants, exercisable into 200,000
common shares at a price of Cdn $7.00. All such purchase warrants were
exercised in 1997 raising proceeds to the Company of approximately Cdn
$1,400,000 (U.S. $1,003,000).
In addition, an option for 60,000 shares of common stock was exercised in
February 1997.
6. Revenues from Significant Customers
One customer represented 97% of total revenues during the six-month
period ended June 30, 1996.
7. Subsequent Event
On August 11, 1997, the Company's Board of Directors authorized
management to commence a public offering of securities in Canada together
with a concurrent offering in the United States.
F-22
<PAGE>
[LOGO]
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+THIS IS A PRELIMINARY PROSPECTUS RELATING TO THESE SECURITIES, A COPY OF +
+WHICH HAS BEEN FILED WITH THE APPROPRIATE SECURITIES COMMISSION OR SIMILAR +
+REGULATORY AUTHORITY IN EACH OF THE PROVINCES OF CANADA BUT WHICH HAS NOT YET +
+BECOME FINAL FOR THE PURPOSE OF A DISTRIBUTION TO THE PUBLIC. INFORMATION +
+CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. THESE SECURITIES MAY +
+NOT BE SOLD, NOR MAY OFFERS TO BUY BE ACCEPTED IN ANY SUCH PROVINCE, PRIOR TO +
+THE TIME A RECEIPT IS OBTAINED FOR THE FINAL PROSPECTUS FROM THE APPROPRIATE +
+SECURITIES COMMISSION OR SIMILAR REGULATORY AUTHORITY OF SUCH PROVINCE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PRELIMINARY PROSPECTUS DATED AUGUST 15, 1997
THIS PROSPECTUS HAS BEEN FILED UNDER PROCEDURES IN THE PROVINCES OF BRITISH
COLUMBIA, ALBERTA, SASKATCHEWAN, MANITOBA, ONTARIO, QUEBEC, NOVA SCOTIA, NEW
BRUNSWICK, NEWFOUNDLAND AND PRINCE EDWARD ISLAND WHICH PERMIT CERTAIN
INFORMATION WITH RESPECT TO THESE SECURITIES TO BE DETERMINED AFTER THE
PROSPECTUS HAS BECOME FINAL AND PERMIT THE OMISSION FROM THIS PROSPECTUS OF
SUCH INFORMATION. SUCH PROCEDURES REQUIRE THE DELIVERY TO PURCHASERS OF A
PROSPECTUS OR A PROSPECTUS SUPPLEMENT CONTAINING THIS OMITTED INFORMATION
WITHIN A SPECIFIED PERIOD OF TIME AFTER AGREEING TO PURCHASE ANY OF THESE
SECURITIES.
This prospectus constitutes a public offering of these securities only in those
jurisdictions where they may be lawfully offered for sale and therein only by
persons permitted to sell such securities. No securities commission or similar
authority in Canada has in any way passed upon the merits of the securities
offered hereunder and any representation to the contrary is an offence.
--------
New Issue
- ---------
[LOGO]
Cdn. $
Common Shares
--------
This prospectus offering consists of an offering of common shares (the
"Common Shares") issued by Salix Holdings, Ltd. (the "Company") at a price of
Cdn. $ per Common Share. The price at which the Common Shares are offered
hereby was established by negotiation between the Company and Levesque Beaubien
Geoffrion Inc., Yorkton Securities Inc., Marleau, Lemire Securities Inc. and
Midland Walwyn Capital Inc. (collectively, the "Underwriters"). See "Plan of
Distribution".
AN INVESTMENT IN THE COMMON SHARES MAY BE REGARDED AS SPECULATIVE AND SUBJECT
TO A HIGH DEGREE OF RISK. AFTER GIVING EFFECT TO THIS OFFERING, THE OFFERING
PRICE FOR EACH COMMON SHARE EXCEEDS THE CONSOLIDATED NET TANGIBLE BOOK VALUE
PER COMMON SHARE AS AT JUNE 30, 1997 BY $ , REPRESENTING A DILUTION OF %.
SEE "DILUTION".
-------------------------
PRICE: CDN. $ PER COMMON SHARE
-------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITERS' NET PROCEEDS
THE PUBLIC FEE TO THE COMPANY(/1/)
---------- ------------- -------------------
<S> <C> <C> <C>
Per Common Share................... Cdn. $ Cdn. $ Cdn. $
Total(/2/)......................... Cdn. $ Cdn. $ Cdn. $
</TABLE>
NOTES:
- ---
(1) The Company has granted to the Underwriters a 60-day option to purchase up
to an additional Common Shares, solely to cover over-allotments, if
any. See "Plan of Distribution". If such option is exercised in full, the
total Price to the Public, Underwriters' Fee and Net Proceeds to the
Company will be Cdn. $ , Cdn. $ and Cdn. $ , respectively.
(2) Before deducting expenses payable by the Company, estimated at Cdn. $ .
The Underwriters, as principals, conditionally offer the Common Shares, subject
to prior sale, if, as and when issued and sold by the Company and accepted by
the Underwriters in accordance with the terms and conditions contained in the
Underwriting Agreement referred to under "Plan of Distribution" and subject to
the approval of certain Canadian legal matters on behalf of the Company by Aird
& Berlis and on behalf of the Underwriters by McCarthy Tetrault and of certain
United States legal matters on behalf of the Company by Wilson Sonsini Goodrich
& Rosati, P.C. and on behalf of the Underwriters by Skadden, Arps, Slate,
Meagher & Flom LLP.
Subscriptions for the Common Shares will be received subject to rejection or
allotment in whole or in part and the right is reserved to close the
subscription books at any time without notice. It is expected that the
definitive certificates evidencing the Common Shares will be available for
delivery on the closing of the offering, which is anticipated to occur on or
about , 1997, or on such later date as the Company and the Underwriters may
agree, but in any event no later than , 1997.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Exchange Rates........................................................... 4
Eligibility for Investment............................................... 4
Summary.................................................................. 5
Risk Factors............................................................. 9
Use of Proceeds.......................................................... 20
Price Range of Common Shares............................................. 21
Dividend Policy.......................................................... 21
Capitalization........................................................... 22
Dilution................................................................. 23
Selected Consolidated Financial Data..................................... 24
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 25
Business................................................................. 29
Management............................................................... 46
Principal Shareholders................................................... 56
Description of Share Capital............................................. 57
Prior Sales of Securities................................................ 58
Comparison of Canadian, United States and British Virgin Islands
Corporate Law........................................................... 59
Certain Tax Considerations............................................... 61
Shares Eligible for Future Sale.......................................... 65
Plan of Distribution..................................................... 67
Legal Matters............................................................ 69
Experts.................................................................. 69
Transfer Agent........................................................... 69
Material Contracts....................................................... 70
Canadian Purchasers' Statutory Rights.................................... 71
Additional Information................................................... 71
Glossary................................................................. 72
Index to Consolidated Financial Statements............................... F-1
Certificate of the Company............................................... C-1
Certificate of the Underwriters.......................................... C-2
</TABLE>
------------
The Company exists under the laws of the British Virgin Islands and its
principal office is located in Palo Alto, California. Most of the directors
and officers of the Company reside outside of Canada and substantially all of
their assets and those of the Company are located there. The Company and the
directors submit to the non-exclusive jurisdiction of the courts of each of
the Provinces of Canada and have appointed or will appoint Aird & Berlis as
agent for service of process in Canada. Service of process may be effected at
the offices of Aird & Berlis in Toronto, Ontario at Suite 1800, BCE Place, 181
Bay Street, Toronto, Ontario, Attention: Jay A. Lefton. However, it may not be
possible for purchasers of securities hereunder to effect service of process
within Canada upon directors and officers who reside outside of Canada. It may
also not be possible to enforce judgments obtained in Canadian courts
predicated on the civil liability provisions of the securities laws of certain
provinces of Canada against the Company or its directors and officers who
reside outside of Canada. The Company intends to comply with all relevant
requirements of Canadian securities legislation.
------------
<PAGE>
CERTIFICATE OF THE COMPANY
DATED: AUGUST 15, 1997
The foregoing, together with the documents incorporated herein by reference
and the information deemed to be incorporated herein by reference, as of the
date of the supplemented prospectus providing the information permitted to be
omitted from this prospectus, will constitute full, true and plain disclosure
of all material facts relating to the securities offered by this prospectus as
required by Part 7 of the Securities Act (British Columbia), by Part 8 of the
Securities Act (Alberta), by Part XI of the Securities Act, 1988
(Saskatchewan), by Part VII of The Securities Act (Manitoba), by Part XV of
the Securities Act (Ontario), by the Securities Act (Nova Scotia), by section
13 of the Securities Act (New Brunswick), by Part II of the Securities Act
(Prince Edward Island) and by Part XIV of The Securities Act, 1990
(Newfoundland) and the respective regulations thereunder. This prospectus, as
required by the Securities Act (Quebec) and the regulations thereunder, will
not contain any misrepresentation likely to affect the value of the market
price of the securities to be distributed.
"Randy W. Hamilton" (Signed) RANDY W. "David Boyle" (Signed) DAVID BOYLE
HAMILTON
Chairman, President and Chief Vice President, Finance and
Executive Officer Administration and Chief Financial
Officer
ON BEHALF OF THE BOARD OF DIRECTORS
"Lawrance A. Brown, Jr." (Signed) "Nicholas M. Ediger" (Signed) NICHOLAS
LAWRANCE A. BROWN, JR. M. EDIGER
Director Director
C-1
<PAGE>
CERTIFICATE OF THE UNDERWRITERS
DATED: AUGUST 15, 1997
To the best of our knowledge, information and belief, the foregoing, together
with the documents incorporated herein by reference and the information deemed
to be incorporated herein by reference, as of the date of the supplemented
prospectus providing the information permitted to be omitted from this
prospectus, will constitute full, true and plain disclosure of all material
facts relating to the securities offered by this prospectus as required by
Part 7 of the Securities Act (British Columbia), by Part 8 of the Securities
Act (Alberta), by Part XI of The Securities Act, 1988 (Saskatchewan), by Part
VII of The Securities Act (Manitoba), by Part XV of the Securities Act
(Ontario), by the Securities Act (Nova Scotia), by section 13 of the
Securities Act (New Brunswick), by Part II of the Securities Act (Prince
Edward Island) and by Part XIV of The Securities Act, 1990 (Newfoundland) and
the respective regulations thereunder. To the best of our knowledge, this
prospectus, as required by the Securities Act (Quebec) and the regulations
thereunder, will not contain any misrepresentation likely to affect the value
or the market price of the securities to be distributed.
LEVESQUE BEAUBIEN GEOFFRION INC. YORKTON SECURITIES INC.
"Jacques Lemay" Per: (Signed) JACQUES "Cathy R. Steiner" Per: (Signed) CATHY
LEMAY R. STEINER
MARLEAU, LEMIRE SECURITIES INC. MIDLAND WALWYN CAPITAL INC.
"William A. Tebbutt" Per: (Signed) "John D. Grant" Per: (Signed) JOHN D.
WILLIAM A. TEBBUTT GRANT
The following includes the name of each person having an interest, either
directly or indirectly, to the extent of not less than 5% in the capital of:
LEVESQUE BEAUBIEN GEOFFRION INC.: a wholly-owned subsidiary of Levesque,
Beaubien and Company Inc., a majority-owned subsidiary of a Canadian chartered
bank.
YORKTON SECURITIES INC.: a wholly-owned subsidiary of Yorkton Holdings
Limited.
MARLEAU, LEMIRE SECURITIES INC.: a wholly-owned subsidiary of Marleau, Lemire
Inc.
MIDLAND WALWYN CAPITAL INC.: a wholly-owned subsidiary of Midland Walwyn Inc.
C-2
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses, other than underwriting
discounts and commissions, payable by the Company in connection with the sale
of the Common Shares being registered. All of the amounts shown are estimates
except for the SEC registration fee.
<TABLE>
<CAPTION>
AMOUNT
TO BE PAID
----------
<S> <C>
SEC Registration Fee.............................................. $ 6,409
Fees payable in connection with Canadian filings.................. 18,100
NASD Filing Fee................................................... 2,615
The Toronto Stock Exchange Listing Fee............................ 11,575
Blue Sky Qualification Fees and Expenses.......................... 10,000
Printing and Engraving Expenses................................... 200,000
Legal Fees and Expenses........................................... 425,000
Accounting Fees and Expenses...................................... 110,000
Directors' and Officers' Insurance................................ 25,000
Miscellaneous..................................................... 66,301
--------
TOTAL.......................................................... $875,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Articles of Association provide that the Registrant may
indemnify against all expenses, including legal fees, and against all
judgments, fines and amounts paid in settlement and reasonably incurred in
connection with legal, administrative or investigate proceedings of any person
who is or was a party or is threatened to be made a party to any threatened,
pending or completed proceedings, whether civil, criminal, or administrative
or investigative, by reason of the fact that the person is or was a director,
an officer or a liquidator of the Registrant; or is or was, at the request of
the Registrant, serving as a director, officer or liquidator of, or in any
other capacity is or was acting for, another company or a partnership, joint
venture, trust or other enterprise. The Registrant may only indemnify a person
if the person acted honestly and in good faith and with a view to the best
interests of the Registrant and, in the case of criminal proceedings, the
person had no reasonable cause to believe that his or her conduct was
unlawful.
In addition to the foregoing, the Underwriting Agreement provides for
indemnification by the Underwriters of the Registrant, its directors and
officers, and by the Registrant of the several Underwriters, against certain
liabilities, including liabilities arising under the Securities Act.
At present, there is no pending litigation or proceeding involving a
director, officer, employee or other agent of the Registrant in which
indemnification is being sought, nor is the Registrant aware of any threatened
litigation that may result in a claim for indemnification by any director,
officer, employee or other agent of the Registrant.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since July 1994, the Registrant has issued and sold the following
unregistered securities:
1. On May 26, 1996, the Registrant sold 2,000,000 Common Shares (the
"IPO") for an aggregate offering price of Cdn. $7.00 in a public offering
in Canada. The offering was managed by Haywood Securities, Inc., Dlouhy
Investments Inc. and Moss, Lawson & Co. Limited.
II-1
<PAGE>
2. In March and May 1997 the Registrant issued an aggregate of 200,000
Common Shares to the principal underwriters of its Canadian public offering
upon exercise of warrants to purchase such Common Shares at an exercise
price of Cdn. $7.00 issued to the Underwriters at the time of and in
connection with the IPO.
3. In January 1996, the Registrant sold in two transactions to a group of
private investors 10% Convertible Debentures in the aggregate principal
amount of $4,506,000. In connection with the IPO, all such Debentures
converted into an aggregate of 1,167,625 Common Shares.
4. In July and October 1995, the Registrant sold notes and warrants with
an exercise price of $3.00 to private investors and venture capitalists for
an aggregate purchase price of approximately $1.2 million.
5. In January and March 1995, the Registrant sold notes and warrants with
an exercise price of $3.00 to private investors and venture capitalists for
an aggregate purchase price of approximately $607,202.
6. Between April 1994 and June 1997, the Registrant issued and sold
140,138 Common Shares to employees, directors and consultants at a price of
U.S. $1.00 per share upon exercise of stock options pursuant to the
Registrant's stock plans.
The sales of the above securities were deemed to be exempt from registration
under the Securities Act in reliance on Section 4(2) of the Securities Act, or
Regulation D promulgated thereunder, or Rule 701 promulgated under Section
3(b) of the Securities Act, as transactions by an issuer not involving a
public offering or transactions pursuant to compensatory benefit plans and
contracts relating to compensation as provided under such Rule 701. The
recipients of securities in each such transaction represented their intention
to acquire the securities for investment only and not with a view to or for
sale in connection with any distribution thereof. All recipients either
received adequate information about the Registrant or had access through
employment or other relationships, to such information. In addition in
connection with the transactions described in items 1, 2, 3, 4 and 5 above,
certain of the sales and issuances were deemed to be exempt from registration
under the Securities Act in reliance on Regulation S promulgated thereunder.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<S> <C>
1.1* Form of Underwriting Agreement.
3.1 Memorandum of Association of Salix Holdings, Ltd.
3.2 Articles of Association of Salix Holdings, Ltd.
4.1* Form of Common Share Certificate.
4.2 Form of Warrant to purchase Common Shares.
4.3 Form of Warrant to purchase Common Shares.
5.1* Opinion of counsel regarding legality of the Common Shares.
10.1 Form of Indemnification Agreement between the Registrant and each of its officers
and directors.
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
10.2 Form of 1994 Stock Plan for Salix Holdings, Ltd. and form of Stock Option and
Restricted Stock Purchase Agreements thereunder.
10.3 Form of 1996 Stock Plan for Salix Holdings, Ltd. and form of Notice of Stock Option
Grant and Stock Option Agreement thereunder.
10.4+ Amendment Agreement effective as of September 17, 1992 by and among Glycyx
Pharmaceuticals, Ltd., Salix Pharmaceuticals, Inc. and Biorex Laboratories, Ltd.
10.5+ License Agreement, dated September 17, 1992 between Biorex Laboratories Limited and
Glycyx Pharmaceuticals Limited and letter agreement amendments thereto.
10.6+ Research and Development Agreement dated September 21, 1992 between Glycyx
Pharmaceuticals, Ltd. and AB Astra and letter agreement amendments thereto.
10.7+ Distribution Agreement dated September 21, 1992 between Glycyx Pharmaceuticals, Ltd.
and
AB Astra.
10.8+ Amended and Restated License Agreement by and between Salix Pharmaceuticals, Inc.
and Biorex Laboratories, Limited, dated April 16, 1993.
10.9+ Co-Participation Agreement, dated April 30, 1993 between Salix Pharmaceutical, Inc.
and AB Astra as amended by Amendment No. 1 thereto effective September 30, 1993.
10.10+ Manufacturing Agreement, dated September 15, 1993 between Courtaulds Chemicals
Limited and Glycyx Pharmaceuticals, Limited.
10.11+ Distribution Agreement, dated September 23, 1994 between Glycyx Pharmaceuticals,
Ltd. and Menarini International Operations Luxembourg SA and amendments thereto.
10.12+ License Agreement, dated June 24, 1996 between Alfa Wassermann S.p.A. and Salix
Pharmaceuticals, Inc.
10.13+ Supply Agreement, dated June 24, 1996 between Alfa Wassermann S.p.A. and Salix
Pharmaceuticals, Inc.
10.14 Lease dated January 1, 1992 by and between Kontrabecki-Mason Developers and Salix
Pharmaceuticals, Inc., as amended.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2* Consent of Counsel (included in Exhibit 5.1).
24.1 Power of Attorney (see page II-5).
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be supplied by amendment.
+ Confidential treatment has been requested with respect to certain portions
of this exhibit pursuant to a request for confidential treatment filed with
the Securities and Exchange Commission. Omitted portions have been filed
separately with the Commission.
(b) Financial Statement Schedules:
All Schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable, and therefore have been omitted.
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each Purchaser.
II-3
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the California General Corporation Law, the Articles of
Incorporation or the Bylaws of the Registrant, the Underwriting Agreement, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act, and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer, or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer of
controlling person in connection with the securities being registered
hereunder, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of Prospectus shall be
deemed to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-1 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Palo Alto, State of California, on the 15th day of August, 1997.
Salix Holding Ltd
/s/ Randy W. Hamilton
By: _________________________________
(RANDY W. HAMILTON)
CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Randy W. Hamilton and David Boyle, and
each one of them, acting individually and without the other, as his or her
attorney-in-fact, each with full power of substitution, for him or her in any
and all capacities, to sign any and all amendments to this Registration
Statement (including post-effective amendments), and to sign any registration
statement for the same offering covered by this Registration Statement that is
to be effective upon filing pursuant to Rule 462(b) promulgated under the
Securities Act of 1933, and all post-effective amendments thereto, and to file
the same, with exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, hereby ratifying and confirming
all that each of said attorneys-in-fact, or his substitute or substitutes may
do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Randy W. Hamilton Chairman of the Board of August 15, 1997
- --------------------------------- Directors, President and
(RANDY W. HAMILTON) Chief Executive Officer
(Principal Executive Officer)
/s/ David Boyle Vice President, Finance & August 15, 1997
- --------------------------------- Administration, and Chief
(DAVID BOYLE) Financial Officer (Principal
Financial and Accounting
Officer)
/s/ Lorin K. Johnson Vice President, Research, August 15, 1997
- --------------------------------- and Director
(LORIN K. JOHNSON)
/s/ David E. Lauck Director August 15, 1997
- ---------------------------------
(DAVID E. LAUCK)
II-5
<PAGE>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Lily Baxendale Director August 15, 1997
- ---------------------------------
(LILY BAXENDALE)
/s/ Nicholas M. Ediger Director August 15, 1997
- ---------------------------------
(NICHOLAS M. EDIGER)
/s/ Lawrance A. Brown, Jr. Director August 15, 1997
- ---------------------------------
(LAWRANCE A. BROWN, JR.)
/s/ John F. Chappell Director August 15, 1997
- ---------------------------------
(JOHN F. CHAPPELL)
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C>
1.1* Form of Underwriting Agreement.
3.1 Memorandum of Association of Salix Holdings, Ltd.
3.2 Articles of Association of Salix Holdings, Ltd.
4.1* Form of Common Share Certificate.
4.2 Form of Warrant to purchase Common Shares.
4.3 Form of Warrant to purchase Common Shares.
5.1* Opinion of counsel regarding legality of the Common Shares.
10.1 Form of Indemnification Agreement between the Registrant and each of its officers
and directors.
10.2 Form of 1994 Stock Plan for Salix Holdings, Ltd. and form of Stock Option and
Restricted Stock Purchase Agreements thereunder.
10.3 Form of 1996 Stock Plan for Salix Holdings, Ltd. and form of Notice of Stock Option
Grant and Stock Option Agreement thereunder.
10.4+ Amendment Agreement effective as of September 17, 1992 by and among Glycyx
Pharmaceuticals, Ltd., Salix Pharmaceuticals, Inc. and Biorex Laboratories, Ltd.
10.5+ License Agreement, dated September 17, 1992 between Biorex Laboratories Limited and
Glycyx Pharmaceuticals Limited and letter agreement amendments thereto.
10.6+ Research and Development Agreement dated September 21, 1992 between Glycyx
Pharmaceuticals, Ltd. and AB Astra and letter agreement amendments thereto.
10.7+ Distribution Agreement dated September 21, 1992 between Glycyx Pharmaceuticals, Ltd.
and AB Astra.
10.8+ Amended and Restated License Agreement by and between Salix Pharmaceuticals, Inc.
and Biorex Laboratories, Limited, dated April 16, 1993.
10.9+ Co-Participation Agreement, dated April 30, 1993 between Salix Pharmaceutical, Inc.
and AB Astra as amended by Amendment No. 1 thereto effective September 30, 1993.
10.10+ Manufacturing Agreement, dated September 15, 1993 between Courtaulds Chemicals
Limited and Glycyx Pharmaceuticals, Limited.
10.11+ Distribution Agreement, dated September 23, 1994 between Glycyx Pharmaceuticals,
Ltd. and Menarini International Operations Luxembourg SA and amendments thereto.
10.12+ License Agreement, dated June 24, 1996 between Alfa Wassermann S.p.A. and Salix
Pharmaceuticals, Inc.
10.13+ Supply Agreement, dated June 24, 1996 between Alfa Wassermann S.p.A. and Salix
Pharmaceuticals, Inc.
10.14 Lease dated January 1, 1992 by and between Kontrabecki-Mason Developers and Salix
Pharmaceuticals, Inc., as amended.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2* Consent of Counsel (included in Exhibit 5.1).
24.1 Power of Attorney (see page II-5).
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be supplied by amendment.
+ Confidential treatment has been requested with respect to certain portions
of this exhibit pursuant to a request for confidential treatment filed with
the Securities and Exchange Commission. Omitted portions have been filed
separately with the Commission.
<PAGE>
EXHIBIT 3.1
SALIX HOLDINGS, LTD.
(IBC No. 103705)
CERTIFIED COPY OF RESOLUTIONS OF THE DIRECTORS AND
SHAREHOLDERS
ADOPTED ON 7TH FEBRUARY, 1996
"AMENDMENT TO THE MEMORANDUM OF ASSOCIATION- Preferred Stock
------------------------------------------------------------
RESOLVED: It is deemed to be in the best interests of this Company and its
- --------
stockholders that the Company amend its Memorandum of Association to provide
that the outstanding shares of Preferred Stock shall automatically convert into
shares of the Company's Common Stock upon the closing of a public offering of
the Company's Common Stock (the "PUBLIC OFFERING"), and to make certain other
changes.
RESOLVED FURTHER: That the amended and restated Memorandum of Association in
- ----------------
substantially the form attached hereto as Exhibit A, together with any changes
----------
thereto determined by the President or any Vice President of the Company to be
desirable, is hereby approved."
Dated the 29th day of February, 1996.
[SIGNATURE ILLEGIBLE]
---------------------
HWR Services Limited
Registered Agent
<PAGE>
EXHIBIT B
TERRITORY OF THE BRITISH VIRGIN ISLANDS,
THE INTERNATIONAL BUSINESS COMPANIES ACT
(CAP 291)
AMENDED AND RESTATED MEMORANDUM OF ASSOCIATION
OF
SALIX HOLDINGS LTD.
NAME
1. The name of the Company is Salix Holdings, Ltd.
REGISTERED OFFICE
2. The Registered Office of the Company will be at Craigmuir Chambers, P.O.
Box 71, Road Town, Tortola, British Virgin Islands.
REGISTERED AGENT
3. The Registered Agent of the Company will be HWR Services Limited of
Craigmuir Chambers, P.O. Box 71, Road Town, Tortola, British Virgin
Islands.
GENERAL OBJECTS AND POWERS
4. (1) The object of the Company is to engage in any act or activity that is
not prohibited under any law for the time being in force in the
British Virgin Islands.
(2) The Company may not
(a) carry on business with persons resident in the British Virgin
Islands;
(b) own an interest in real property situate in the British Virgin
Islands, other than a lease referred to in paragraph (e) of
subclause (3);
(c) carry on banking or trust business, unless it is licensed to do
so under the Banks and Trust Companies Act, 1990;
(d) carry on business as an insurance or reinsurance company,
insurance agent or insurance broker, unless it is licensed under
an enactment authorizing it to carry on that business;
(e) carry on the business of company management, unless it is
licensed under the Company Management Act, 1990; or
1
<PAGE>
(f) carry on the business of providing the registered office or the
registered agent for companies incorporated in the British Virgin
Islands.
(3) For purposes of paragraph (a) of subclause, (2), the Company shall not
be treated as carrying on business with persons resident in the
British Virgin Islands if
(a) it makes or maintains deposits with a person carrying on banking
business within the British Virgin Islands;
(b) it makes or maintains professional contact with solicitors,
barristers, accountants, bookkeepers, trust companies,
administration companies, investment advisers or other similar
persons carrying on business within the British Virgin Islands;
(c) it prepares or maintains books and records within the British
Virgin Islands;
(d) it holds, within the British Virgin Islands, meetings of its
directors or members;
(e) it holds a lease of property for use as an office from which to
communicate with members or where books and records of the
Company are prepared or maintained;
(f) it holds shares, debt obligations or other securities in a
company incorporated under the International Business Companies
Act or under the Companies Act; or
(g) shares, debt obligations or other securities in the Company are
owned by any person resident in the British Virgin Islands or by
any company incorporated under the International Business
Companies Act or under the Companies Act.
(h) The Company shall have all such powers as are permitted by law
for the time being in force in the British Virgin Islands,
irrespective of corporate benefit, to perform all acts and engage
in all activities necessary or conducive to the conduct,
promotion or attainment of the object of the Company.
CURRENCY
5. Shares in the Company shall be issued in the currency of United States of
America.
NO AUTHORIZED CAPITAL
6. The Company shall have no authorized capital.
2
<PAGE>
CLASSES, NUMBER AND PAR VALUE OF SHARES
7. The Company is authorized to issue two classes of shares designated
"Preferred Stock" and "Common Stock," respectively. The total number of
shares which the Company shall have authority to issue is Twenty Five
Million (25,000,000), none of which has any par value. The number of
shares of Preferred Stock authorized to be issued is Five Million
(5,000,000), and the number of shares of Common Stock authorized to be
issued is Twenty Million (20,000,000). The Preferred Stock may be issued
from time to time in three series. The first series shall be designated
Series A Preferred Stock (the "Series A Preferred") and shall consist of
One Hundred Fifteen Thousand (115,000) shares with the rights, preferences,
privileges and restrictions set forth in clause 8. The second series shall
be designated Series B Preferred Stock (the "Series B Preferred") and shall
consist of One Hundred Twenty-Six Thousand Four Hundred Forty-Five
(126,445) shares with the rights, preferences, privileges restrictions set
forth in Clause 8. The third series shall be designated Series C Preferred
Stock (the "Series C Preferred") and shall consist of five hundred thousand
(500,000) shares with the rights, preferences, privileges and restrictions
set forth in Clause 8.
DESIGNATIONS, POWERS, PREFERENCES, ETC. OF PREFERRED SHARES
8. The definitions, powers, preferences, privileges, rights, qualifications,
limitations and restrictions granted to or imposed an the Preferred Stock
and the holders thereof are as follows:
(1) Dividends
---------
(a) The holders of outstanding Preferred Stock shall be entitled to
receive in any fiscal year, when and as declared by the Board of
Directors, out of any assets at the time legally available
therefor, dividends in cash at the rate of $0.0957 per share of
Series A Preferred, $0.225 per share of series B Preferred and
$0.20 per share of Series C Preferred, per annum, before any cash
dividend is paid on Common Stock. Such dividend may be payable
annually or otherwise as the Company may from time to time by
resolution of directors determine. Dividends may be declared and
paid upon shares of Preferred Stock in any fiscal year of the
Company only if dividends shall have been paid on or declared and
set apart upon all shares of Preferred Stock at such annual
rates; and no further dividends shall be paid to holders of
shares of Preferred Stock in excess of such annual rate in any
fiscal year unless at the same time equivalent dividends are paid
to holders of Common Stock. The right to such dividends on shares
of Preferred Stock shall not be cumulative and no right shall
accrue to holders of shares of Preferred Stock by reason of the
fact that dividends on such shares are not declared in any prior
year, nor shall any undeclared or unpaid dividend bear or accrue
interest.
3
<PAGE>
(b) In the event the Company shall declare a dividend payable in
securities of other persons, evidences of indebtedness issued by
the Company or other persons, assets (excluding cash dividends)
or options or rights to purchase any such securities or evidences
of indebtedness, then, in each such case the holders of the
Preferred Stock shall be entitled to a proportionate share of any
such distribution as though the holders of the Preferred Stock
were the holders of the number of shares of Common Stock of the
Company into which their respective shares of Preferred Stock are
convertible as of the record date fixed for the determination of
the holders of Common Stock of the Company entitled to receive
such dividend.
(2) Voting Rights
-------------
Each holder of shares of Preferred Stock shall be entitled to the number of
votes equal to the number oft shares of Common Stock into which such shares
of Preferred Stock could be converted on the record date for the vote or
consent of shareholders and shall have voting rights and powers equal to
the voting rights and powers of the Common Stock. The holder of each share
of Preferred Stock shall be entitled to notice of any shareholder's,
meeting in accordance with the Articles of Association annexed hereto (the
"Articles of Association") and shall vote with holders of the Common Stock
upon any matter submitted to a vote of shareholders, except those matters
required by law to be submitted to a class vote. Fractional votes by the
holders of Preferred Stock shall not, however, be permitted and any
fractional voting rights resulting from the above formula (after
aggregating all shares into which shares of Preferred Stock held by each
holder could be converted) shall be rounded to the nearest whole number.
(3) Conversion
----------
The holders of the Preferred Stock shall have conversion rights as follows
(the "Conversion Rights"):
(a) Right to Convert
----------------
(i) Each share of Preferred Stock shall be convertible, at the
option of the holder thereof, at any time after the date of
issuance of such share, at the office of the company or any
transfer agent for the Preferred Stock, into Common Stock at
the initial conversion rate of one fully paid and nonassessable
share of Common Stock for each share of Preferred Stock
subject, however, to the adjustments described below. (The
number of shares of Common Stock into which each
4
<PAGE>
share of Series A Preferred may be converted is hereinafter
referred to as the "Series A Conversion Rate," the number of
shares of Common stock into which each share of Series B
Preferred may be converted is hereinafter referred to as the
"Series B Conversion Rate" and the number of shares of Common
Stock into which each share of Series C Preferred may be
converted is hereinafter referred to as the "Series C
Conversion Rate.")
(ii) Each share of Preferred Stock shall automatically converted
into shares of Common Stock at the then effective Applicable
Conversion Rate immediately upon the consummation of the
Company's initial public offering of Common Stock.
(iii) No fractional shares of Common Stock shall be issued upon
conversion of the Preferred Stock and any shares of Preferred
Stock surrendered for conversion which would otherwise result
in a fractional share of Common Stock shall be redeemed for the
then fair market value thereof, as determined by the Company's
Board of Directors in good faith, payable as promptly as
possible whenever funds are legally available therefor. If more
than one share of Preferred Stock is surrendered for conversion
at any one time by the same holder, the number of full shares
of Common Stock to be issued upon conversion shall be computed
on the basis of the aggregate number of shares of Preferred
Stock so surrendered.
(b) Mechanics of Conversion
-----------------------
Before any holder of Preferred Stock shall be entitled to convert the
same into shares of Common Stock, such holder shall surrender the
certificate or certificates therefor, duly endorsed, at the office of
the Company or of any transfer agent for the Preferred Stock and shall
give written notice to the Company at such office that such holder
elects to convert the same and shall state therein the name or names
in which such holder wishes the certificate or certificates for shares
of Common Stock to be issued. The Company shall, as soon as
practicable thereafter, issue and deliver at such office to such
holder of Preferred stock, or to such holder's nominee or nominees, a
certificate or certificates for the number of shares of Common Stock
to which such holder shall be entitled as aforesaid. Such conversion
shall be deemed to have been made immediately prior to the close of
business on the date of such surrender of the shares of Preferred
Stock to be converted, and the
5
<PAGE>
person or persons entitled to receive the shares of common Stock
issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock on such date.
If the conversion is in connection with an initial public offering of
securities, the conversion may, at the option of any holder tendering
Preferred Stock for conversion, be conditioned upon the closing of the
sale of securities pursuant to such offering, in which event the
person(s) entitled to receive the Common Stock issuable upon such
conversion of the Preferred Stock shall not be deemed to have
converted such Preferred Stock until immediately prior to the closing
of such sale of securities.
(c) Adjustment of Conversion Rate for Subdivisions or Combinations of
-----------------------------------------------------------------
Common Stock
------------
In the event the Company at any time or from time to time after the
date of the initial issuance of Series A Preferred (hereinafter
referred to as the "Series A Original Issue Date"), the initial
issuance of Series B Preferred (hereinafter referred to as the "Series
B Original Issue Date") or the initial issuance of Series C Preferred
(hereinafter referred to as the "Series C Original Issue Date"), as
applicable, effects a subdivision or combination of its outstanding
Common Stock into a greater or lesser number of shares without a
proportionate and corresponding subdivision or combination of its
outstanding Series A Preferred, Series B Preferred or Series C
Preferred, as applicable, then and in each such event the Series A
Conversion Rate, Series B Conversion Rate and/or the Series C
conversion Rate, as applicable, shall be increased or decreased
proportionately.
(d) Adjustment of Conversion Rate for Dividends, and Common Stock
-------------------------------------------------------------
Equivalents
-----------
In the event the Company at any time or from time to time after the
Series A Original Issue Date, Series B Original Issue Date or Series C
Original Issue Date, as applicable, shall make or issue, or fix a
record date for the determination of holders of Common Stock entitled
to receive, a dividend or other distribution payable in additional
shares of Common Stock or other securities or rights (hereinafter
referred to as "Common Stock Equivalents") convertible into or
entitling the holder thereof to receive additional shares of Common
Stock without payment of any consideration by, such holder, for such
Common Stock Equivalents or the additional shares of Common Stock,
then and in each such event the maximum number of shares (as set forth
in the instrument relating thereto without regard to any provisions
contained therein for a subsequent adjustment
6
<PAGE>
of such number) of Common Stock issuable in payment of such dividend
or upon conversion or exercise of such Common Stock Equivalents shall
be deemed to be issued and outstanding as of the time of such issuance
or, in the event such a record date shall have been fixed, as of the
close of business on such record date. In each such event the Series A
Conversion Rate, Series B Conversion Rate and/or the Series C
Conversion Rate, an applicable, shall be increased as of the time of
such issuance or, in the event such a record date shall have been
fixed, as of the close of business on such record date, by multiplying
the applicable Conversion Rate for the series of Preferred Stock by a
fraction,
(i) the numerator of which shall be the total number of shares of
Common Stock issued and outstanding or deemed to be issued and
outstanding immediately prior to the time of such issuance or
the close of business on such record date plus the number of
shares of Common Stock issuable in payment of such dividend or
upon conversion or exercise of such Common Stock Equivalents;
and
(ii) the denominator of which shall be the total number of shares of
Common Stock issued and outstanding or deemed to be issued and
outstanding immediately prior to the time of such issuance or
the close of business on such record date provided, however,
(A) if such record date shall have been fixed and such dividend
is not fully paid or fully made on the date fixed therefor, the
Conversion Rate for the Preferred Stock being adjusted shall be
recomputed accordingly as of the close of business on such
record date and thereafter the Conversion Rate for the series
of Preferred stock being adjusted shall be adjusted pursuant to
this paragraph as of the time of actual payment of such
dividends or distribution; (B) if Common Stock Equivalents
provide, with the passage of time or otherwise, for any
decrease in the number of shares of Common Stock issuable upon
conversion or exercise thereof, the applicable Conversion Rate
for the Preferred Stock shall, upon any such decrease becoming
effective, be recomputed to reflect such decrease insofar it
affects the rights of conversion or exercise of the Common
Stock Equivalents then outstanding, and (C) upon the expiration
of any rights of conversion or exercise under Common Stock
Equivalents, the applicable Conversion Rate for the Preferred
Stock computed upon the original issue thereof
7
<PAGE>
shall, upon such expiration, be recomputed as if the only
additional shares of Common Stock issued were the shares
of such stock, if any, actually issued upon the conversion
or exercise of such Common Stock Equivalents.
(e) Certificate as to Adjustments
-----------------------------
Upon the occurrence of each adjustment or readjustment of any
Conversion Rate pursuant to this subsection, the Company at its
expense shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and furnish to each holder of
Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Company shall, upon the
written request at any time of any holder of Preferred Stock,
furnish or cause to be furnished to such holder a like
certificate setting forth
(i) such adjustments and readjustments,
(ii) the Conversion Rates at the time in effect, and
(iii) the number of shares of Common Stock and the amount, if
any, of other property which at the time would be received
upon the-conversion of Preferred Stock.
(f) Notices of Record Date
----------------------
In the event that the Company shall propose at any time:
(i) to declare any dividend upon its common Stock, whether in
cash, property, stock or other securities, whether or not
a regular cash dividend and whether or not out of earnings
or earned surplus;
(ii) to offer for subscription pro rata to the holders of any
class or series of its shares any additional shares of
stock of any class or series or other rights;
(iii) to effect any reclassification or recapitalization of its
Common stock outstanding (excluding stock splits or
reverse stock splits) involving a change in the Common
Stock; or
(iv) to merge with or into any other corporation, or sell.
lease or convey all or substantially
8
<PAGE>
all its property or business, or to liquidate dissolve or
wind up;
then, in connection with each such event, the Company shall send
to the holders of the Preferred Stock
(A) at least 20 days' prior written notice of the date on which
a record shall be taken for such dividend or subscription
rights (and specifying the date on which the holders of
Common Stock shall be entitled thereto) or for determining
rights to vote in respect of the matters referred to in
(iii) and (iv) above; and
(B) in the case of the matters referred to in paragraphs (iii)
and (iv) , at least 20 days' prior written notice of the
date when the same shall take place (and specifying the date
on which the holders of Common Stock shall be entitled to
exchange their Common Stock for securities or other property
deliverable upon the occurrence of such event).
Each such written notice shall be given postage prepaid,
addressed to the holders of Preferred Stock at the address
for each such holder as shown on the books of the Company.
(g) Reservation of Stock Issuable Upon Conversion
---------------------------------------------
The company shall at all times reserve and keep available out of
its authorized but unissued shares of Common Stock, solely for
the purpose of effecting the conversion of the shares of the
Preferred Stock, such number of its shares of Common Stock as
shall from time to time be sufficient to effect the conversion of
all then outstanding shares of the Preferred Stock; and if at any
time the number of authorized but unissued shares of Common Stock
shall not be sufficient to effect the conversion of all then
outstanding shares of the Preferred Stock, the Company will take
such corporate action as may, in the opinion of its counsel, be
necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for
such purpose.
(4) Liquidation Preference
----------------------
In the event of any liquidation, dissolution and winding up of the
Company, either voluntary or involuntary, distributions to the
shareholders of the Company shall be made in the following manner:
(a) The holders of the Preferred Stock shall be entitled to receive,
prior and in preference to any distribution of
9
<PAGE>
any of the assets or surplus funds of the Company to the holders
of the Common Stock by reason of their ownership of such stock,
the amount of $0.957 per share for each share of Series A
Preferred then held by them, the amount of $2.25 per share for
each share or Series B Preferred then held by them and the amount
of $2.00 per share for each share of Series C Preferred then held
by them (in each case, appropriately adjusted for any
combinations, stock splits or stock dividends with respect to
such shares) plus, an amount equal to all declared but unpaid
dividends, if any, on the respective shares of Series A, Series B
and Series C Preferred Stock then held by them. If, upon the
occurrence of such event, the assets and property legally
available to be distributed among the holders of the Series A,
Preferred, Series B Preferred and Series C Preferred shall be
insufficient to permit the payment to such holders of the full
preferential amount an aforesaid, then the entire assets and
property of the Company legally available for distribution shall
be distributed ratably among the holders of Preferred Stock as
follows:
(i) as among the series of Preferred Stock, the entire assets
and property of the Company legally available for
distribution shall be distributed among the respective
series in proportion to the aggregate preferential amount
fixed for the then outstanding shares of each series upon
a liquidation, dissolution or winding up, and
(ii) as among the holders of Preferred Stock of any one series,
the aggregate amount of assets and property available for
distribution to such holders in accordance with
subparagraph (i) shall be distributed among such holders
pro rata based on the number of shares then held; and no
amount shall be paid or set apart for payment on any
series of Preferred Stock unless, at the same time,
amounts in proportion to the respective preferential
amounts to which the other series of Preferred Stock are
entitled (in accordance with subparagraph (i)) shall be
paid or set apart for payment.
(b) After payment has been made to the holders of the Preferred
Stock of the full preferential amounts to which they shall
be entitled, if any, as aforesaid, the holders of the Common
Stock shall be entitled to share rateably in all remaining
assets to be distributed, based upon the number of shares of
Common Stock then held.
10
<PAGE>
(c) For purposes of this subclause, a merger of the Company with
or into any other corporations or companies into the
Company, in which merger the shareholders of the Company
receive distributions in cash or securities of another
corporation or corporations as a result of such merger
(unless the shareholders of the Company hold more than a
majority of the voting equity securities of the surviving
corporation), or a sale, conveyance or disposition of all or
substantially all of the assets of the Company shall not be
treated as a liquidation, dissolution or winding up of the
Company.
(5) Covenants
---------
In addition to any other rights provided by law, so long as any Preferred
Stock shall be outstanding, the Company shall not, without first obtaining
the affirmative vote or written consent of the holders of not less than a
majority (determined on the basis of assumed conversion of all Preferred
Stock into Common Stock) of the outstanding shares of Preferred Stock,
voting together as a class:
(a) amend or repeal any provision of, or add any provision to, this
Company's Memorandum of Association or the Articles of Association if
such action would materially and adversely alter or change the rights,
preferences, privileges or restrictions of any outstanding Preferred
Stock;
(b) authorize or issue shares of any class having any preference or
priority as to dividends or assets superior to or on a parity with any
such preference or priority of the outstanding Preferred Stock or
authorize or issue shares of any class or any bonds, debentures, notes
or other obligations convertible into or exchangeable for, or having
option rights to purchase, any shares of the Company having any
preference or priority as to dividends or assets superior to or on a
parity with any such preference or priority of the outstanding
Preferred Stock;
(c) reclassify any shares of Common Stock into shares having any
preference or priority as to dividends or assets superior to or on a
parity with any such preference or priority of the outstanding
Preferred Stock;
(d) apply any of its assets to the redemption, retirement, purchase or
acquisition, directly or indirectly, through subsidiaries or
otherwise, of any shares of Common Stock, except from officers,
directors, employees or consultants of the Company upon termination of
the employment or consulting relationship between the Company or its
subsidiaries and such persons pursuant to
11
<PAGE>
the terms of restrictive stock agreements providing for such
repurchase of such shares of Common Stock between the Company and such
persons; or
(e) increase the authorized number of shares of Preferred Stock.
Any of the foregoing obligations may be amended or waived only by the
holders of not less than a majority of the outstanding shares of
Preferred Stock, voting together as a class.
DESIGNATIONS, POWERS, PREFERENCES, ETC. OF COMMON SHARES
9. All rights accruing to the outstanding shares Of the Company not expressly
provided for to the contrary in this Memorandum of Association shall be
vested in the Common Stock. The holder or each share of Common Stock shall
have the right to one vote per share.
REGISTERED SHARES
10. Shares in the Company may only be issued as registered shares and may not
be exchanged for shares issued to bearer.
AMENDMENT OF MEMORANDUM AND ARTICLES OF ASSOCIATION
11. Subject to the provisions of Clause 8(5), the Company may amend its
Memorandum of Association and Articles of Association by a resolution of
shareholders or by a resolution of directors.
DEFINITIONS
12. The meanings of words in this Memorandum of Association are as defined in
the Articles of Association,
We, HWR SERVICES LIMITED of Craigmuir Chambers, Road Town, Tortola, British
Virgin Islands for the purpose of incorporating an International Business
Company under the laws or the British Virgin Islands hereby subscribe our name
to this Memorandum of Association the 24th day of December, 1993 in the presence
of:
Witness Subscriber
Sgd. Lavida Cottoy Sgd. Richard A. Peters
........................ ............................
Craigmuir Chambers Authorised Signatory
Road Town, Tortola HWR Services Limited
Company Administrator
12
<PAGE>
EXHIBIT 3.2
TERRITORY OF THE BRITISH VIRGIN ISLANDS
THE INTERNATIONAL BUSINESS COMPANIES ACT
(CAP 291)
ARTICLES OF ASSOCIATION
OF
SALIX HOLDINGS, LTD.
ARTICLE I
CORPORATE OFFICES
1.1 PRINCIPAL OFFICE
----------------
The Board of Directors shall fix the location of a principal executive
office of the Company at any place within or outside the British Virgin
Islands.
1.2 OTHER OFFICES
-------------
The Board of Directors may at any time establish branch or subordinate
offices at any place or places where the Company is qualified to do
business.
ARTICLE II
MEETINGS OF SHAREHOLDERS
------------------------
2.1 PLACE OF MEETINGS
-----------------
Meetings of shareholders shall be held at any place within or outside the
British Virgin Islands designated by the Board of Directors. In the absence
of any such designation, meetings of shareholders shall be held at the
principal executive office of the Company.
2.2 ANNUAL MEETING
--------------
An annual meeting of shareholders shall be held each year on a date and at
a time designated by the Board of Directors. In the absence of such
designation, the annual meetings shareholders shall be held on the second
Tuesday of May in each year at 2:00 p.m. However, if such day falls on a
legal holiday, then the meeting shall be held at the same time and place on
the next succeeding full business day. At the annual meeting of
shareholders directors shall be elected, and any other proper business may
be transacted.
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<PAGE>
2.3 SPECIAL MEETING
---------------
A special meeting of shareholders may be called at any time by the Board of
Directors, by the Chairman of the Board, the President or by one or more
shareholders holding shares in the aggregate entitled to cast not less than
ten percent (10%) of the votes at that meeting.
If a special meeting is called by any person or persons other than the
Board of Directors, the President or the Chairman of the Board, then the
request shall be in writing, specifying the time of such meeting and the
general nature of the business proposed to be transacted and shall be
delivered personally or sent by registered mail or by telegraphic or other
facsimile transmission to the Chairman of the Board, the President, any
Vice-president or the Secretary of the Company. The officer receiving the
request shall cause notice to be given promptly to the shareholders
entitled to vote, in accordance with the provisions of Sections 2.4 and 2.5
of these Articles, that a meeting will be held at the time requested by the
person or persons calling the meeting, so long as that time is not less
than thirty-five (35) nor more than sixty (60) days after the receipt of
the request. If the notice is not given within twenty (20) days after
receipt of the request, then the person or persons requesting the meeting
may give the notice. Nothing contained in this paragraph of this Section
2.3 shall be construed as limiting, fixing or affecting the time when a
meeting of shareholders called by action of the Board of Directors may be
held.
2.4 NOTICE OF SHAREHOLDERS' MEETINGS
--------------------------------
All notices of meetings of shareholders shall be given not less than ten
(10) nor more than sixty (60) days before the date of the meeting. The
notice shall specify the place, date, and hour of the meeting and (i) in
the case of a special meeting, the general nature of the business to be
transacted (no business other than that specified in the notice may be
transacted) or (ii) in the case of the annual meeting, those matters which
the Board of Directors, at the time of giving the notice, intends to
present for action by the shareholders (but subject to the Act any proper
matter may be presented at the meeting for such action). The notice of any
meeting at which directors are to be elected shall include the name of any
nominee or nominees who, at the time of the notice, the Board of Directors
intends to present for election.
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
--------------------------------------------
Written notice of any meeting of shareholders shall be given (i)
personally, (ii) by mail or (iii) by telegraphic or other written
communication. Notices not personally delivered shall be sent charges
prepaid and shall be addressed to the shareholder at the address of that
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<PAGE>
shareholder appearing in the share register of the Company or given by the
shareholder to the Company for the purpose of notice. If no such address
appears on the Company's books or is given, notice shall be deemed to have
been given if sent to that shareholder by mail, telegraphic or other
written communication to the Company's principal executive office, or if
published at least once in a newspaper of general circulation in the
country where that office is located. Notice shall be deemed to have been
given at the time when delivered personally or deposited in the mail or
sent by telegram or other means of written communication.
If any notice addressed to a shareholder at the address of that shareholder
appearing in the share register of the Company is returned to the Company
by the postal service marked to indicate that the postal service is unable
to deliver the notice to the shareholder at that address, then all future
notices or reports shall be deemed to have been duly given without further
mailing if the same shall be available to the shareholder on written demand
of the shareholder at the principal executive office of the Company for a
period of one (1) year from the date of the giving of the notice.
An affidavit of the mailing or other means of giving any notice of any
shareholders' meeting, executed by the Secretary, Assistant Secretary or
any Transfer Agent of the Company giving the notice, shall be prima facie
evidence of the giving of such notice.
2.6 QUORUM
------
The presence in person or by proxy of the holders of a majority of the
shares entitled to vote thereat constitutes a quorum for the transaction of
business at all meetings of shareholders. The shareholders present at a
duly called or held meeting at which a quorum is present may continue to do
business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum, if any action taken (other than
adjournment) is approved by at least a majority of the shares required to
constitute a quorum.
2.7 ADJOURNED MEETING; NOTICE
-------------------------
Any meeting of shareholders, annual or special, whether or not a quorum is
present, may be adjourned from time to time by the vote of the majority of
the shares represented at that meeting, either in person or by proxy. In
the absence of a quorum, no other business may be transacted at that
meeting except as provided in Section 2.6 of these Articles.
When any meeting of shareholders, either annual or special is adjourned to
another time or place, notice need not be given of the adjourned meeting if
the time and place are announced at the meeting at which the adjournment is
taken.
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<PAGE>
However, if a new record date for the adjourned meeting is fixed or if the
adjournment is for more than forty-five (45) days from the date set for the
original meeting, then notice of the adjourned meeting shall be given.
Notice of any such adjourned meeting shall be given to each shareholder of
record entitled to vote at the adjourned meeting in accordance with the
provisions of Sections 2.4 and 2.5 of these Articles. At any adjourned
meeting the Company may transact any business which might have been
transacted at the original meeting.
2.8 VOTING
------
The shareholders entitled to vote at any meeting of shareholders shall be
determined in accordance with the provisions of the Act.
The shareholders' vote may be by voice vote or by ballot; provided,
however, that any election for directors must be by ballot if demanded by
any shareholder at the meeting and before the voting has begun.
Except as provided in the last paragraph of this Section 2.8, or as may be
otherwise provided in the Memorandum, each outstanding share, regardless of
class, shall be entitled to one vote an each matter submitted to a vote of
the shareholders. Shareholders entitled to vote on any matter may vote part
of the shares in favour of the proposal and refrain from voting the
remaining shares or, except when the matter is the election of directors,
may vote them against the proposal; but, if the shareholder fails to
specify the number of shares which the shareholder is voting affirmatively,
it will be conclusively presumed that the shareholder's approving vote is
with respect to all shares which the shareholder is entitled to vote.
If a quorum is present, the affirmative vote of the majority of the shares
represented and voting at a duly held meeting (which shares voting
affirmatively also constitute at least a majority of the required quorum)
shall be the act of the shareholders, unless the vote of a greater number
or a vote by classes is required by the Act or by the Memorandum.
At a meeting of shareholders at which directors are to be elected, a
shareholder shall be entitled to cumulate votes (i.e. cast for any
candidate a number of votes greater than the number of votes which such
shareholder normally is entitled to cast) if the candidates, names have
been placed in nomination prior to commencement of the voting and the
shareholder has given notice prior to commencement of the voting of the
shareholder's intention to cumulate votes. If any shareholder has given
such a notice, then every shareholder entitled to vote may cumulate votes
for candidates in nomination either (i) by giving one candidate a number of
votes equal to the number of directors to be elected multiplied by the
number of votes to which that
4
<PAGE>
shareholder's shares are normally- entitled or (ii) by distributing the
shareholder's votes on the same principle among any or all of the
candidates, as the shareholder thinks fit. The candidates receiving the
highest number of affirmative votes, up to the number of directors to be
elected, shall be elected; votes against any candidate and votes withheld
shall have no legal effect.
2.9 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT
-------------------------------------------------
The transactions of any meeting of shareholders, either annual or special,
however called and however notice thereof was given, and wherever held,
shall be as valid as though they had been taken at a meeting duly held
after regular call and notice, if a quorum be present either in person or
by proxy, and if, either before or after the meeting, each person entitled
to vote, who was not present in person or by proxy, signs a written waiver
of notice or a consent to the holding (of the meeting or an approval of the
minutes thereof. The waiver of notice or approval need not specify either
the business to be transacted or the purpose of any annual or special
meeting of shareholders, except as required by the Act. All such waivers,
consents and approvals shall be filed with the corporate records or made a
part of the minutes of the meeting.
Attendance by a person at a meeting shall also constitute a waiver of
notice of and presence at that meeting, except when the person objects at
the beginning of the meeting to the transaction of any business because the
meeting is not lawfully called or convened. Attendance at a meeting is not
a waiver of any right to object to the consideration of matters required by
the Act to be included in the notice of the meeting but not so included, if
that objection is expressly made at the meeting.
2.10 SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
-------------------------------------------------------
Any action which may be taken at any annual or special meeting of
shareholders may be taken without a meeting and without prior notice, if a
consent in writing, setting forth the action to be taken, is signed by the
requisite number of outstanding shares as described in Section 8.6 of
Article VIII.
In the case of election of directors, such a consent shall be effective
only if signed by the holders of all outstanding shares entitled to vote
for the election of directors. However, a director may be elected at any
time to fill any vacancy on the Board of Directors by the written consent
of the holders of a majority of the outstanding shares entitled to vote for
the election of directors provided that it was not created by removal of a
director and that it has not been filled by the directors.
5
<PAGE>
All such consents shall be maintained in the corporate records of the
Company. Any shareholder giving a written consent, or the shareholder's
proxy holders, or a transferee of the shares, or a personal representative
of the shareholder, or their respective proxy holders, may revoke the
consent by a written instrument received by the Secretary of the Company-
before written consents of the 'number of shares required to authorize the
proposed action have been filed with the Secretary.
If the consents of all shareholders entitled to vote have not been
solicited in writing and if the unanimous written consents of all such
shareholders have not been received, then the Secretary shall give prompt
notice of the corporate action approved by the shareholders without a
meeting. Such notice shall be given to those shareholders entitled to vote
who have not consented in writing and shall be given in the manner
specified in Section 2.5 of these Articles.
2.11 RECORD DATE FOR SHAREHOLDER NOTICE; VOTING; GIVING CONSENTS
-----------------------------------------------------------
For purposes of determining the shareholders entitled to notice of any
meeting or to vote thereat or entitled to give consent to corporate action
without a meeting, the Board of Directors may fix, in advance, the date
notice is given as the record date, which shall not be more than sixty (60)
days nor less than ten (10) days before the date of any such meeting nor
more than sixty (60) days before any such action without a meeting, and in
such event only shareholders of record on the date so fixed are entitled to
notice and to vote or to give consents, as the case may be, notwithstanding
any transfer of any shares in the share register of the Company after the
record date, except as otherwise provided in the Act.
If the Board of Directors does not so fix a record date:
(a) the record date for determining shareholders entitled to notice of or
to vote at a meeting of shareholders shall be at the close of business
on the business day next preceding the day on which notice is given
or, if notice is waived, at the close of business on the business day
next preceding the day on which the meeting is held; and
(b) the record date for determining shareholders entitled to give consent
to corporate action in writing without a meeting (i) when no prior
action by the Board has been taken, shall be the day on which the
first written consent is given, or (ii) when prior action by the Board
has been taken, shall be at the close of business on the day on which
the Board adopts the resolution relating to that action, or the
sixtieth (60th) day before the date of such other action, whichever is
later.
6
<PAGE>
The record date for any other purpose shall be as provided in Article VIII
of these Articles.
The following shall apply in respect of joint ownership of shares:
(a) if two or more persons hold shares jointly each of them may be present
in person or by proxy at a meeting of shareholders and may speak as a
shareholder;
(b) if only one of the joint owners is present in person or by proxy he
may vote on behalf of all joint owners, and
(c) if two or more of the joint owners are present in person or by proxy
they must vote as one.
2.12 PROXIES
-------
Every shareholder entitled to vote shall have the right to do so either in
person or by one or more agents authorized by a written proxy signed by the
person and filed with the secretary of the Company. A proxy shall be deemed
signed if the shareholder's name is placed on the proxy (whether by manual
signature, typewriting, telegraphic transmission or otherwise) by the
shareholder or the shareholder's attorney-in-fact. A validly executed proxy
which does not state that it is irrevocable shall continue in full force
and effect unless (i) the person who executed the proxy revokes it prior to
the time of voting by delivering an instrument in writing to the Company
stating that the proxy is revoked or by executing a subsequent proxy and
presenting it to the meeting or by voting in person at the meeting, or (ii)
written notice of the death or incapacity of the maker of that proxy is
received by the Company before the vote pursuant to that proxy is counted;
provided, however that no proxy shall be valid after the expiration of
eleven (11) months from the date of the proxy, unless otherwise provided in
the proxy. The dates contained on the forms of proxy presumptively
determine the order of execution, regardless of the postmark dates on the
envelopes in which they are mailed.
2.13 INSPECTORS OF ELECTION
----------------------
Before any meeting of shareholders, the board of directors may appoint an
inspector or inspectors of election to act at the meeting or its
adjournment. If no inspector of election is so appointed, then the chairman
of the meeting may and on the request of any shareholder or a shareholder's
proxy shall, appoint an inspector of election to act at the meeting. The
number of inspectors shall be either one (1) or three (3). If an inspector
is appointed at a meeting pursuant to the request of one (1) or more
shareholders or proxies, then the holders of a majority of shares or their
proxies present at the meeting shall determine whether one
7
<PAGE>
(1) or three (3) inspectors are to be appointed. If any person appointed as
inspector fails to appear or fails or refuses to act, then the chairman of
the meeting may and upon the request of any shareholder or a shareholder's
proxy shall, appoint a person to fill that vacancy.
Such inspectors shall:
(a) determine the number of shares outstanding and the voting power of
each, the number of shares represented at the meeting, the existence
of a quorum, and the authenticity, validity, and effect of proxies;
(b) receive votes, ballots or consents;
(c) hear and determine all challenges and questions in any way arising in
connection with the right to vote;
(d) count and tabulate all votes or consents;
(e) determine when the polls shall close;
(f) determine the result; and
(g) do any other acts that may be proper to conduct the election or vote
with fairness to all shareholders.
ARTICLE III
DIRECTORS
---------
3.1 POWERS
------
Subject to the provisions of the Act and any limitations in the Memorandum
and these Articles relating to action required to be approved by the
shareholders or by the outstanding shares, the business and affairs of the
Company shall be managed and all corporate powers shall be exercised by or
under the direction of the Board of Directors.
3.2 NUMBER OF DIRECTORS
-------------------
The number of directors of the Company shall be four (4). This number may
be changed by a duly adopted amendment to this Section 3.2 adopted by
resolution of shareholders or by resolution of directors.
No reduction of the authorized number of directors shall have the effect of
removing any director before that director's term of office expires.
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS
----------------------------------------
Directors shall be elected at each annual meeting of shareholders to hold
office until the next annual meeting. Each director, including a director
elected to fill a
8
<PAGE>
vacancy, shall hold office until the expiration of the term for which
elected and until a successor has been elected and qualified.
3.4. RESIGNATION AND VACANCIES
-------------------------
Any director may resign effective on giving written notice to the Chairman
of the Board, the President, the Secretary or the Board of Directors,
unless the notice specifies a later time for that resignation to become
effective. If the resignation of a director is effective at a future time,
the Board of Directors may elect a successor to take office when the
resignation becomes effective.
Vacancies in the Board of Directors may be filled by a majority of the
remaining directors, even if less than a quorum, or by a sole remaining
director; however, a vacancy created by the removal of the director by the
vote or written consent of the shareholders or by court order may be filled
only by the affirmative vote of a majority of the shares represented and
voting at a duly held meeting at which a quorum is present (which shares
voting affirmatively also constitute a majority of the required quorum) ,
or by the unanimous written consent of all shares entitled to vote thereon.
Each director so elected shall hold office until the next annual meeting of
the shareholders and until a successor has been elected and qualified.
A vacancy or vacancies in the Board of Directors shall be deemed to exist
(i) in the event of the death, resignation or removal of any director, (ii)
if the Board of Directors by resolution of directors declares vacant the
office of a director who has been declared of unsound mind by an order of
court or convicted of a felony, (iii) if the authorized number of directors
is increased or (iv) if the shareholders fail, at any meeting of
shareholders at which any director or directors are elected, to elect the
number of directors to be elected at that meeting,
The shareholders may elect a director at any time to fill any vacancy not
filled by the directors, but any such election other than to fill a vacancy
created by removal, if by written consent, shall require the consent of the
holders of a majority of the outstanding shares entitled to vote thereon.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
----------------------------------------
Regular meetings of the Board of Directors may be held at any place within
or outside the British Virgin Islands that has been designated from time to
time by resolution of the Board. In the absence of such a designation,
regular meetings shall be held at the principal executive office of the
Company. Special meetings of the Board may be held at any place within or
outside the British Virgin Islands that
9
<PAGE>
has been designated in the notice of the meeting or, if not stated in the
notice or if there is no notice, at the principal executive office of the
Company.
Any meeting, regular or special, may be held by conference telephone or
similar communication equipment, so long as all directors participating in
the meeting can hear one another; and all such directors shall be deemed to
be present in person at the meeting.
3.6 REGULAR MEETINGS
----------------
Regular meetings of the Board of Directors may be held without notice if
the times of such meetings are fixed by the Board of Directors.
3.7 SPECIAL MEETINGS; NOTICE
------------------------
Special meetings of the Board of Directors for any purpose or purposes may
be called at any time by the Chairman of the Board, the President, any Vice
President, the Secretary or any two directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by mail or telegram,
charges prepaid, addressed to each director at that director's address as
it is shown on the records of the Company. Notice of meetings of directors
shall be given at least three (3) days prior to the Meeting. Any oral
notice given personally or by telephone may be communicated either to the
director or to a person at the office of the director who the person giving
the notice has reason to believe will promptly communicate it to the
director. The notice need not specify the purpose or the place of the
meeting, if the meeting is to be held at the principal executive office of
the Company.
3.8 QUORUM
------
A majority of the authorized number of directors shall constitute a quorum
for the transaction of business, except to adjourn as provided in Section
3.10 of these Articles. Every act or decision done or made by a majority of
the directors present at a duly held meeting at which a quorum is present
shall be regarded as the act of the Board of Directors, subject to the
provisions of the Act.
A meeting at which a quorum is initially present may continue to transact
business notwithstanding the withdrawal of directors, if any action taken
is approved by at least a of the required quorum for that meeting.
10
<PAGE>
3.9. WAIVER OF NOTICE
----------------
A meeting of directors is valid without the requisite notice having been
given to any director (i) who sign a waiver of notice or a consent to
holding the meeting or an approval of the minutes thereof, whether before
or after the meeting, or (ii) who attends the meeting without protesting,
prior thereto or at its commencement, the lack of notice to such directors.
All such waivers, consents, and approvals shall be filed with the corporate
records or made part of the minutes of the meeting. A waiver of notice need
not specify the purpose of any regular or special meeting of the Board of
Directors.
3.10 ADJOURNMENT
-----------
A majority of the directors present, whether or not constituting a quorum,
may adjourn any meeting to another time or place.
3.11 NOTICE OF ADJOURNMENT
---------------------
Notice of the time and place of holding an adjourned meeting need not be
given unless the meeting is adjourned for more than twenty-four (24) hours.
If the meeting is adjourned for more than twenty-four (24) hours, then
notice of the time and place of the adjourned meeting shall be given before
the adjourned meeting takes place, in the manner specified in Section 3.7
of these Articles, to the directors who were not present at the time of the
adjournment.
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
-------------------------------------------------
Any action required or permitted to be taken by the Board of Directors may
be taken without a meeting, provided that all members of the Board
individually or collectively consent in writing to that action. Such action
by written consent shall have the same force and effect as a unanimous vote
of the Board of Directors. Such written consent and any counterparts
thereof shall be filed with the minutes of the proceedings of the Board.
3.13 FEES AND COMPENSATION OF DIRECTORS
----------------------------------
Directors and members of committees may receive such compensation, if any,
for their services and such reimbursement of expenses as may be fixed or
determined by resolution of directors. This Section 3.13 shall not be
construed to preclude any director from serving the Company in any other
capacity as an officer, agent, employee or otherwise and receiving
compensation for those services.
11
<PAGE>
3.14 APPROVAL OF LOANS TO OFFICERS
-----------------------------
The Company may by resolution of directors make loans of money or property
to, or guarantee the obligations of, any officer of the Company or its
parent or subsidiary, whether or not a director, or adopt an employee
benefit plan or plans authorizing such loans or guarantees provided that
(i) the Board of Directors determines that such a loan or guaranty or plan
may reasonably be expected to benefit the Company, and (ii) the approval of
resolution of directors with respect to such loans or guarantees is by a
vote sufficient without counting the vote of any interested director or
directors.
ARTICLE IV
COMMITTEES
----------
4.1 COMMITTEES OF DIRECTORS
-----------------------
The Company may by resolution of directors designate one (1) or more
committees, each consisting of one (1) or more directors to serve at the
pleasure of the Board. The Board may designate one (1) or more directors as
alternate members of any committee, who may replace any absent member at
any meeting of the committee. The appointment of members or alternate
members of a committee requires the vote of a majority of the authorized
number of directors. Any committee, to the extent provided in the
resolution of the board, shall have all the authority of the Board, except
with respect to:
(a) the approval of any action which, under the Act, also requires
approval by resolution of shareholders;
(b) the filling of vacancies on the Board of Directors or in any
committee;
(c) the fixing of compensation of the directors for serving on the Board
or any committee;
(d) the amendment or repeal of these Articles or the adoption of new
Articles;
(e) the amendment or repeal of any resolution of directors which by its
express terms is not so amendable or repealable;
(f) a distribution to the shareholders of the Company, except at a rate or
in a periodic amount or within a price range determined by the Board
of Directors; or
(g) the appointment of any other committees of the Board of Directors or
the members of such committees.
12
<PAGE>
4.2 MEETINGS AND ACTION OF COMMITTEES
---------------------------------
Meetings and actions of committees shall be governed by, and held and taken
in accordance with, the provisions of Article III of these Articles,
Section 3.5 (place of meetings), Section 3.6 (regular meetings), Section
3.7 (special meetings and notice) , Section 3.8 (quorum) Section 3.9
(waiver of notice), Section 3.10 (adjournment) Section 3.11 (notice of
adjournment), and Section 3.12 (action without meeting), with such changes
in the context of those Articles as are necessary to substitute the
committee and its members for the Board of Directors and its members;
provided, however, that the time of regular meetings of committees may be
determined either by resolution of directors or by resolution of the
committee of directors, that special meetings of committees may also be
called by resolution of directors, and that notice of special meetings of
committees of directors shall also be given to all alternate members, who
shall have the right to attend all meetings of the committee. The Board of
Directors may adopt rules for the government of any committee not
inconsistent with the provisions of these Articles and the Act.
ARTICLE V
OFFICERS
--------
5.1 OFFICERS
--------
The officers of the Company shall be a President, a Secretary and a Chief
Financial Officer. The Company may also have, at the discretion of the
Board of Directors, a Chairman of the Board, one or more Vice Presidents,
one or more Assistant Secretaries, one or more Assistant Treasurers and
such other officers as may be appointed in accordance with the provisions
or Section 5.3 of these Articles. Any number of offices may be held by the
same person.
5.2 ELECTION OF OFFICERS
--------------------
The officers of the Company, except such officers as may be appointed in
accordance with the provisions of Section 5.3 or Section 5.5 of these
Articles, shall be appointed by resolution of directors, subject to the
rights, if any, of an officer under any contract of employment.
5.3 SUBORDINATE OFFICERS
--------------------
The Board of Directors may by resolution of directors appoint such other
officers as the business of the Company may require, each of whom shall
hold office for such period have such authority and perform such duties as
are provided in these Articles or as the Board of Directors.
13
<PAGE>
5.4. REMOVAL AND RESIGNATION OF OFFICERS
-----------------------------------
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by
resolution of directors.
Any officer may resign at any time by giving written notice to the Company.
Any resignation shall take effect at the date of the receipt of that notice
or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the Company under any contract to which the officer is a
party.
5.5 VACANCIES IN OFFICES
--------------------
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner
prescribed in these articles for regular appointments to that office.
5.6 CHAIRMAN OF THE BOARD
---------------------
The Chairman of the Board, if such an officer be elected, shall, if
present, preside at meetings of the Board of Directors and exercise and
perform such other powers and duties as may from time to time be assigned
to him by resolution of directors or as may be prescribed by these
Articles. If there is no President, then the Chairman of the Board shall
also be the President of the Company and shall have the powers and duties
prescribed in Section 5.7 of these Articles.
5.7 PRESIDENT
---------
Subject to such supervisory powers, if any, as may be given by resolution
of directors to the Chairman of the Board, if there be such an officer, the
President shall be the Chief Executive Officer of the Company and shall,
subject to the control of the Board of Directors, have general supervision,
direction and control of the business and the officers of the Company. He
shall preside at all meetings of the shareholders and, in the absence or
nonexistence of a Chairman of the Board, at all meetings of the directors.
He shall have the general powers and duties of management usually vested in
the office of President of a corporation and shall have such other powers
and duties as may be prescribed by resolution of directors or these
Articles.
5.8 VICE PRESIDENTS
---------------
In the absence or disability of the President, the Vice Presidents, if any,
in order of their rank as fixed by resolution of directors or, if not
ranked, a Vice President
14
<PAGE>
designated by resolution of directors, shall perform all the duties of the
President and when so acting shall have all the powers of, and be subject
to all the restrictions upon, the President. The Vice Presidents shall have
such other powers and perform such other duties as from time to time may be
prescribed for them respectively by resolution of directors or these
Articles.
5.9 SECRETARY
---------
The Secretary shall keep or cause to be kept, at the principal executive
office of the Company or such other place as the Board of Directors may
direct, a book of minutes of all meetings and actions of directors,
committees of directors and shareholders. The minutes shall show the time
and place of each meeting, whether regular or special (and, if special, how
authorized and the notice given), the names of those present at meetings of
directors or committee meetings, the number of shares present or
represented at shareholders, meetings of shareholders, and the proceedings
thereof.
The Secretary shall keep, or cause to be kept at the registered office and
at the principal executive office of the Company or at the office of the
Company's transfer agent or registrar, as determined by resolution of
directors, a share register, or a duplicate share register, showing the
names of all shareholders and their addresses, the number and classes of
shares held by each, the date on which the name of each shareholder was
entered in the register and the date on which any shareholder ceased to be
a shareholder.
The Secretary shall give, or cause to be given, notice of all meetings of
the shareholders and of the Board of Directors required to be given by law
or by these Articles. He shall keep the seal of the Company in safe custody
and shall have such other powers and perform such other duties as may be
prescribed by resolution of directors or by these Articles.
5.10 CHIEF FINANCIAL OFFICER
-----------------------
The Chief Financial Officer shall keep and maintain, or cause to be kept
and maintained, adequate and correct books and records accounts of the
properties and business transactions of the Company, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings and shares. The books of account shall at all reasonable
times be open to inspection by any director.
The Chief Financial Officer shall deposit all money and other valuables in
the name and to the credit of the company with such depositors as may be
designated by the Board of Directors. He shall disburse the funds of the
Company's as may be ordered by the Board of Directors, shall render to the
15
<PAGE>
President and directors, whenever they request it, an account of all of his
transactions as Chief Financial Officer and of the financial condition of
the Company and shall have such other powers and perform such other duties
as may be prescribed by the Board of Directors or these Articles
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, LIQUIDATORS,
----------------------------------------------------
EMPLOYEES AND OTHER AGENTS
--------------------------
6.1 INDEMNIFICATION OF DIRECTORS, OFFICERS AND LIQUIDATORS
------------------------------------------------------
Subject to the limitations hereinafter provided the Company may indemnify
against all expenses, including legal fees, and against all judgments,
fines and amounts paid in settlement and reasonably incurred in connection
with legal, administrative or investigative proceedings any person who
(a) is or was a party or is threatened to be made a party to any
threatened, pending or completed proceedings, whether civil, criminal,
administrative or investigative, by reason of the fact that the person
is or was a director, an officer or a liquidator of the Company; or
(b) is or was, at the request of the Company, serving as a director,
officer or liquidator of, or in any other capacity is or was acting
for, another company or a partnership, joint venture, trust or other
enterprise.
6.2 CONDITIONS FOR INDEMNIFICATION
------------------------------
The Company may only indemnify a person if the person acted honestly and in
good faith with a view to the best interests of the Company and, in the
case of criminal proceedings, the person had no reasonable cause to believe
that his conduct was unlawful.
6.3 DIRECTOR TO DETERMINE IF PERSON MEETS CONDITIONS
------------------------------------------------
The decision of the directors as to whether the person acted honestly and
in good faith and with a view to the best interests of the Company and as
to whether the person had no reasonable cause to believe that his conduct
was unlawful is, in the absence of fraud, sufficient for the purposes of
these Articles, unless a question of law is involved.
6.4 TERMINATION OF PROCEEDINGS
--------------------------
The termination of any proceedings by any judgment, order, settlement,
conviction or the entering of a nolle prosequi does not, by itself, create
a presumption that the person
16
<PAGE>
did not act honestly and in good faith and with a view to the best
interests of the Company or that the person had reasonable cause to believe
that his conduct was unlawful.
6.5 SUCCESS IN PROCEEDINGS
----------------------
If a person to be indemnified has been successful in defence of any
proceedings referred to above the person is entitled to be indemnified
against all expenses, including legal fees, and against all amounts
reasonably incurred by the person in connection with the proceedings.
6.6 INDEMNITY NOT EXCLUSIVE
-----------------------
The indemnification provided by this Article VI shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in an official capacity and as to
action in another capacity while holding such office.
6.7. INDEMNIFICATION OF OTHERS
-------------------------
The company shall save the power, to the extent and in the manner permitted
by the Act to indemnify each of its employees and agents (other than
directors, officers and liquidators) against expenses, judgments, fines,
settlements, and other amounts actually and reasonably incurred in
connection with any proceeding arising by reason of the fact that such
person is or was an employee or agent of the Company.
6.8 INSURANCE
---------
The Company may purchase and maintain insurance in relation to any person
who is or was a director, an officer, employee, agent or a liquidator of
the Company, or who at the request of the Company is or was serving as a
director, an officer, employee, agent or a liquidator of, or in any other
capacity is or was acting for, another company or a partnership, joint
venture, trust or other enterprise, against any liability asserted against
the person and incurred by the person in that capacity, whether or not the
Company has or would have had the power to indemnify the person against the
liability as provided in these Articles.
ARTICLE VII
RECORDS AND REPORTS
-------------------
7.1 MAINTENANCE AND INSPECTION OF SHARE REGISTER
--------------------------------------------
The Company shall keep at its principal executive office or at the office
of its transfer agent or registrar (if either be appointed), as determined
by resolution of directors, a share register listing the names and address
of all
17
<PAGE>
shareholders, the number and class of shares held by each shareholder, the
date on which the name of each shareholder was entered in the register and
the date on which any shareholder ceased to be a shareholder.
A shareholder or shareholders of the Company who hold or holds at least
five percent (5%) in the aggregate of the outstanding voting shares of the
Company or who holds at least one percent (1%) of such voting shares and
has filed a Schedule 14B with the Securities and Exchange Commission of the
United States of America relating to the election of directors, may (i)
inspect and copy the records of shareholders' names, addresses and
shareholdings during usual business hours on five (5) days prior written
demand on the Company, (ii) obtain from the transfer agent of the Company,
on written demand and on the tender of such transfer agent's usual charges
for such list, a list of the names and addresses of the shareholders who
are entitled to vote for the election of directors, and their
shareholdings, as of the most recent record date for which that list has
been compiled or as of a date specified by the shareholder after the date
of demand. Such list shall be made available to any such shareholder by the
transfer agent on or before the later of five (5) days after the demand is
received or five (5) days after the date specified in the demand as the
date as of which the list is to be compiled.
The record of shareholders shall also be open to inspection on the written
demand of any shareholder or holder of a voting trust certificate, at any
time during usual business hours, for a purpose reasonably related to the
holder's interests as a shareholder or as the holder of a voting trust
certificate.
Any inspection and copying under this Section 7.1 may be made in person or
by an agent or attorney of the shareholder or holder of a voting trust
certificate making the demand.
7.2 MAINTENANCE AND INSPECTION OF MEMORANDUM AND ARTICLES
-----------------------------------------------------
The Company shall keep at its principal executive office the original or a
copy of the Memorandum and these Articles as amended to date, which
Memorandum and Articles shall be open to inspection by the shareholders at
all reasonable times during office hours. The Secretary shall, upon the
written request of any shareholder, furnish to that shareholder a copy of
the Memorandum and these Articles as amended to date.
7.3 MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS
-----------------------------------------------------
The accounting books and records and the minutes of meetings of the
shareholders, of the Board of Directors and of any committee on committees
of the Board of Directors shall be kept at such place or places as are
designated by resolution of directors or, in absence of such designation,
at the
18
<PAGE>
principal executive office of the Company. The minutes shall be kept in
written form, and the accounting books and records shall be kept either in
written form or in any other form capable of being converted into written
form.
The minutes and accounting books and records shall be open to inspection
upon the written demand of any shareholder or holder of a voting trust
certificate, at any reasonable time during usual business hours, for a
purpose reasonably related to the interests as a shareholder or as the
holder of a voting trust certificate. The inspection may be made in person
or by an agent or attorney and shall include the right to copy and make
extracts. Such rights of inspection shall extend to the records of each
subsidiary corporation of the Company.
7.4 INSPECTION BY DIRECTORS
-----------------------
Every director shall have the absolute right at any reasonable time to
inspect all books, records and documents of every kind as well as the
physical properties of the
Company and each of its subsidiary corporations. Such inspection by a
director may be made in person or by an agent or attorney, The right of
inspection includes the right to copy and make extracts of documents.
7.5 ANNUAL REPORT TO SHAREHOLDERS; WAIVER
------------------------------------
The Board of Directors shall cause an annual report to be sent to the
shareholders not later than one hundred twenty (120) days after the close
of the fiscal year adopted by the Company. Such report shall be sent at
least fifteen (15) days before the annual meeting of shareholders to be
held during the next fiscal year and in the manner specified in Section 2.5
of these Articles for giving notice to shareholders of the Company,
The annual report shall contain (i) a balance sheet as of the end of the
fiscal year, (ii) an income statement, (iii) a statement of cash flow for
the fiscal year, and (iv) any report of independent accountants or, if
there is no such report, the certificate of an authorized officer of the
Company that the statements were prepared without audit from the books and
records of the Company.
The foregoing requirement of an annual report shall be waived so long as
the shares of the Company are held by fewer than one hundred (100) holders
of record.
7.6 FINANCIAL STATEMENTS
--------------------
If no annual report for the fiscal year has been sent to shareholders, then
the Company shall, upon the written request of any shareholder made more
than one (120) days after the close of such fiscal year, deliver or mail to
the person making the request, within thirty (30)
19
<PAGE>
days thereafter, a copy of a balance sheet as of the end of such fiscal
year and an income statement and statement of changes in financial position
for such fiscal year.
If a shareholder or shareholders holding at least five percent (5%) of the
outstanding shares of any class of stock of the Company makes a written
request to the Company for an income statement of the Company for the
three-month, six-month or nine-month period of the then current fiscal year
ended more than thirty (30) days before the date of the request, and for a
balance sheet of the Company as of the end of that period, then the Chief
Financial Officer shall cause that statement to be prepared, if not already
prepared, and shall deliver personally or- mail that statement or
statements to the person making the request within thirty (30) days after
the receipt of the request. If the Company has not sent to the
shareholders its annual report for the last fiscal year, the statements
referred to in the first paragraph of this Section 7.6 shall likewise be
delivered or mailed to the shareholder or shareholders within thirty (30)
days after the request.
The quarterly income statements and balance sheets referred to in this
section shall be accompanied by the report, if any, of any independent
accountants engaged by the company or by the certificate of an authorized
officer of the Company that the financial statements were prepared without
audit from the books and records of the Company.
7.7 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
----------------------------------------------
The Chairman of the Board, the President, any Vice President, the Chief
Financial Officer, the Secretary or any Assistant Secretary of this
Company, or any other person authorized by resolution of directors is
authorized to vote, represent and exercise on behalf of the Company all
rights incident to any and all shares of any other corporation standing in
the name of the Company. The authority herein granted may be exercised
either by such person directly or by any other person authorized to do go
by proxy or power of attorney duly executed by such person having the
authority.
ARTICLE VIII
GENERAL MATTERS
---------------
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING
-----------------------------------------------------
For purposes of determining the shareholders entitled to receive payment of
any dividend or other distribution or assignment of any rights or the
shareholders entitled to exercise and rights in respect of any other lawful
action (other than action by shareholders by written consent without a
meeting), the Board of Directors may fix, in advance a record date which
shall not be more than sixty
20
<PAGE>
(60) days before any such action. In that case only shareholders of record
at the close of business on the date so fixed shall be entitled to receive
the dividend or allotment of rights, or to exercise such rights, as the
case may be, notwithstanding any transfer of any shares an the books of the
Company after the record date so fixed, except as otherwise provided in the
Act.
If the Board of Directors does not so fix a record date, then the record
date for determining shareholders for any such purpose shall be at the
close of business an the date on which the board adopts the applicable
resolution or the sixtieth (60th) day before the date of that action,
whichever is later.
8.2 CHEQUES, DRAFTS; EVIDENCES OF INDEBTEDNESS
------------------------------------------
From time to time the Board of Directors shall determine by resolution of
directors which person or persons may sign or endorse all cheques, drafts,
other orders for payment of money, notes or other evidences of indebtedness
that are issued in the name of or payable to the Company, and only the
persons so authorized shall sign or endorse those instruments.
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED
-------------------------------------------------
The Board of Directors, except as otherwise provided in these Articles, may
by resolution of directors authorize any officer or agent to enter into any
contract or execute any instrument in the name of and on behalf of the
Company; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee shall have any
power or authority to bind the Company by any contract or engagement or to
pledge its credit or to render it liable for any purpose or for any amount.
8.4 CERTIFICATES FOR SHARES
-----------------------
A certificate for shares of the company shall be issued to each shareholder
when any of such shares are issued. All certificates shall be signed in the
name of the Company by the Chairman of the Board, the Vice Chairman of the
Board, the President or a Vice President and by the Chief Financial
Officer, an Assistant Treasurer, the Secretary or an Assistant Secretary,
certifying the number of shares and the class or series of shares owned by
the shareholder. Any or all of the signatures on the certificate may be
facsimile.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed on a certificate ceases to be an
officer, transfer agent or registrar before that certificate is issued, it
may be
21
<PAGE>
issued by the Company with the same effect as if that person were an
officer, transfer agent or registrar at the date of issue.
8.5 LOST CERTIFICATES
-----------------
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the
latter is surrendered to the Company and canceled at the same time. The
Board of Directors may, in case any share certificate or certificate for
any other security is lost, stolen or destroyed, authorize the issuance of
replacement certificates on such terms and conditions as the Board may
require; the Board may require indemnification of the Company secured a
bond or other adequate security sufficient to protect the Company against
any claim that may be made against it, including any expense or liability,
on account of the alleged loss, theft or destruction of the certificate or
the issuance of the replacement certificate.
8.6 PRELIMINARY
-----------
In these Articles, if not inconsistent with the subject or context, the
words and expressions standing in the first column of the following table
shall bear the meanings set opposite them respectively in the second column
thereof.
Words Meaning
----- -------
capital The sum of the aggregate par value of all
outstanding shares with par value of the
Company and shares with par value held by
the Company as treasury shares plus
(a) the aggregate of the amounts designated
as capital of all outstanding shares
without par value of the Company and
shares without par value held by the
Company as treasury shares, and
(b) the amounts as are from time to time
transferred from surplus to capital by
a resolution of directors.
member A person who holds shares in the Company.
person An individual, a corporation, a trust, the
estate of a deceased individual, a
partnership or an unincorporated association
of persons.
22
<PAGE>
resolution of (a) A resolution approved at a duly
directors convened and constituted meeting of
directors of the or of a committee of
directors of the Company by the
affirmative vote of a simple majority
of the directors present at the meeting
who voted and did not abstain; or
(b) a resolution consented to in writing by
all directors or of all members of the
committee, as the case may be;
except that where a director is given more
than one vote, he shall be counted by the
number of votes he casts for the purpose of
establishing a majority.
resolution of (a) A resolution approved at a duly
shareholders convened and constituted meeting of the
shareholders of the Company by the
affirmative vote of
(i) a simple majority of the votes of
the shares entitled to vote
thereon which were present at the
meeting and were voted and not
abstained, or
(ii) a simple majority of the votes of
each class or series of shares
which were present at the meeting
and entitled to vote thereon as a
class or series and were voted and
not abstained and of a simple
majority of the votes of the
remaining shares entitled to vote
thereon which were present at the
meeting and were voted and not
abstained; or
(b) a resolution consented to in writing by
(i) an absolute majority of the votes
of shares entitled to vote
thereon, or
(ii) an absolute majority of the votes
of each class or series of shares
entitled to vote thereon as a
class or series and of an absolute
majority of
23
<PAGE>
the votes of the remaining shares
entitled to vote thereon;
reverse stock Where the number of shares is reduced to a
split number of shares thereby increasing the
value of each share which involves calling
in all shares that are issued.
securities Shares and debt obligations of every kind,
and options, warrants and rights to acquire
shares, or debt obligations.
shareholder A member.
stock split where one share is split into a larger
number of shares by reducing the value of
each individual share.
surplus The excess, if any, at the time of the
determination of the total assets of the
Company over the aggregate of its total
liabilities, as shown in its books of
account, plus the Company's capital.
the Act The International Business Companies Act
(Cap. 291) including any modification,
extension, re-enactment or renewal thereof
and any regulations made thereunder.
the Memorandum The Memorandum of Association of the company
as originally framed or as from time to time
amended.
the Seal Any Seal which has been duly adopted as the
Seal of the Company.
these Articles These Articles of Association as originally
framed or as from time to time amended.
treasury shares Shares in the Company that were previously
issued but were repurchased, redeemed or
otherwise acquired by the Company and not
canceled.
"Written" or any term of like import includes words typewritten, printed,
painted engraved, lithographed, photographed or represented or reproduced by any
mode of reproducing words in a visible form including telex, facsimile,
telegram, cable or other from of writing produced by electronic communication.
24
<PAGE>
Save as aforesaid any words or expressions defined in the Act shall bear the
same meaning in these Articles.
Whenever the singular or plural number, or the masculine, feminine or neuter
gender is used in these Articles, it shall equally, where the context admits,
include the others.
A reference in these Articles to voting in relation to shares shall be construed
as a reference to voting by members holding the shares except that it is the
votes allocated to the shares that shall be counted and not the number of
members who actually voted and a reference to shares being present at a meeting
shall be given a corresponding construction.
A reference to money in these Articles is, unless otherwise stated, a reference
to the currency in which shares in the Company, shall be issued according to the
provisions of the Memorandum.
ARTICLE IX
9.1 AMENDMENT BY SHAREHOLDERS
-------------------------
New Articles may be adopted or these Articles may be amended or repealed by
the vote or written consent of holders of a majority of the outstanding
shares entitled to vote.
9.2 AMENDMENT BY DIRECTORS
----------------------
Subject to the rights of the shareholders as provided in Section 9.1 of
these Articles, new Articles may be adopted or these Articles may be
amended or repealed by the resolution of directors.
We, HWR SERVICES LIMITED, of Craigmuir Chambers, Road Town, Tortola, British
Virgin Islands for the purpose of incorporating an International Business
Company under the laws of the British Virgin Islands hereby subscribe our name
to these Articles of Association the 24th day of December, 1993 in the presence
of:
Witness Subscriber
(Sgd.) Lavida Cottoy (Sgd.) Richard A. Peters
........................ ...........................
Craigmuir Chambers Authorized Signatory
Road Town, Tortola HWR Services
Company Administrator
25
<PAGE>
EXHIBIT 4.2
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
APPLICABLE STATE SECURITIES LAWS, OR APPLICABLE LAWS OF ANY FOREIGN
JURISDICTION. THIS WARRANT AND SUCH UNDERLYING SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT BE
OFFERED, SOLD, PLEDGED, HYPOTHECATED, RENOUNCED OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND ANY
APPLICABLE STATE SECURITIES LAWS AND IN THE ABSENCE OF COMPLIANCE WITH
APPLICABLE LAWS OF ANY FOREIGN JURISDICTION, OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IN NOT REQUIRED AND SUCH
FOREIGN JURISDICTION LAWS HAVE BEEN SATISFIED.
SALIX HOLDINGS, LTD.
COMMON STOCK PURCHASE WARRANT
1. Number and Price of Shares Subject to Warrant. Subject to the terms
---------------------------------------------
and conditions herein set forth, __________(the "HOLDER"), is entitled to
purchase from SALIX HOLDINGS, LTD, a British Virgin Islands corporation (the
"COMPANY"), at any time on or before the earliest to occur of the following: (i)
January 17, 2000, or (ii) the closing of the Company's sale of all or
substantially all of its assets or the acquisition of the Company by another
entity by means of merger or other transaction as a result of which shareholders
of the Company immediately prior to such acquisition possess a minority of the
voting power of the acquiring entity immediately following such acquisition (the
"ACQUISITION"), _________ shares (which number of shares is subject to
adjustment as described below) of fully paid and nonassessable Common Stock of
the Company (the "SHARES") upon surrender hereof at the principal office of the
Company, and upon payment of the purchase price at said office in cash, by
check, by wire transfer or by cancellation of indebtedness. The Company shall
give notice to the Holder of an Acquisition at least thirty (30) days prior to
the closing of such Acquisition. Subject to adjustment as hereinafter provided,
the exercise price for one share of Common Stock (or such securities as may be
substituted for one share of Common Stock pursuant to the provisions hereinafter
set forth) shall be $3.00. The exercise price for one share of Common Stock (or
such securities as may be substituted for one share of Common Stock pursuant to
the provisions hereinafter set forth) payable from time to time upon the
exercise of this Warrant (whether such price be the price specified above or an
adjusted price determined as hereinafter provided) is referred to herein as the
"WARRANT PRICE."
2. Adjustment of Warrant Price and Number of Shares. The number and kind
------------------------------------------------
of securities issuable upon the exercise of this Warrant shall be subject to
adjustment from time to time and the
<PAGE>
Company agrees to provide notice upon the happening of certain events as
follows:
(a) Adjustment for Dividends in Stock. In case at any time or from
---------------------------------
time to time on or after the date hereof the holders of the Common Stock of the
Company (or any shares of stock or other securities at the time receivable upon
the exercise of this Warrant) shall have received, or, on or after the record
date fixed for the determination of eligible stockholders, shall have become
entitled to receive, without payment therefor, other or additional securities or
other property of the Company by way of dividend or distribution, then and in
each case, the holder of this Warrant shall, upon the exercise hereof, be
entitled to receive, in addition to the number of shares of Common Stock
receivable thereupon, and without payment of any additional consideration
therefor, the amount of such other or additional securities or other property of
the Company which such holder would hold on the date of such exercise had it
been the holder of record of such Common Stock on the date hereof and had
thereafter, during the period from the date hereof to and including the date of
such exercise, retained such shares and/or all other additional securities or
other property receivable by it as aforesaid during such period, giving effect
to all adjustments called for during such period by this paragraph (a) and
paragraphs (b) and (c) of this paragraph 2.
(b) Adjustment for Reclassification or Reorganization. In case of
-------------------------------------------------
any reclassification or change of the outstanding securities of the Company or
of any reorganization of the Company (or any other corporation the stock or
securities of which are at the time receivable upon the exercise of this
Warrant) on or after the date hereof, then and in each such case the Company
shall give the holder of this Warrant at least thirty (30) days notice of the
proposed effective date of such transaction, and the holder of this Warrant,
upon the exercise hereof at any time after the consummation of such
reclassification, change or reorganization, shall be entitled to receive, in
lieu of the stock or other securities and property receivable upon the exercise
hereof prior to such consummation, the stock or other securities or property to
which such holder would have been entitled upon such consummation if such holder
had exercised this Warrant immediately prior thereto, all subject to further
adjustment as provided in paragraphs (a) and (c).
(c) Stock Splits and Reverse Stock Splits. If at any time on or
-------------------------------------
after the date hereof the Company shall subdivide its outstanding shares of
Common Stock into a greater number of shares, the Warrant Price in effect
immediately prior to such subdivision shall thereby be proportionately reduced
and the number of shares receivable upon exercise of this Warrant shall thereby
be proportionately increased; and, conversely, if at any time on or after the
date hereof the outstanding number Of shares of Common Stock shall be combined
into a smaller number of shares, the Warrant Price in effect immediately prior
to such
2
<PAGE>
combination shall thereby be proportionately increased and the number of shares
receivable upon exercise of this Warrant shall thereby be proportionately
decreased.
3. No Fractional Shares. No fractional shares of Common Stock will be
--------------------
issued in connection with any subscription hereunder. In lieu of any fractional
shares which would otherwise be issuable, the Company shall pay cash equal to
the product of such fraction multiplied by the fair market value of one share of
Common Stock on the date of exercise, as determined in good faith by the
Company's Board of Directors.
4. No Stockholder Rights. This Warrant as such shall not entitle its
---------------------
holder to any of the rights of a stockholder of the company until the holder has
exercised this Warrant in accordance with Section 6 or Section 7 hereof.
5. Reservation of Stock. The Company covenants that during the period
--------------------
this Warrant is exercisable, the Company will reserve from its authorized and
unissued Common Stock a sufficient number of shares to provide for the issuance
of Common Stock upon the exercise of this Warrant, The Company agrees that its
issuance of this Warrant shall constitute full authority to its officers who are
charged with the duty of executing stock certificates to execute and issue the
necessary certificates for shares of Common Stock upon the exercise of this
Warrant.
6. Exercise of Warrant.
-------------------
(a) This Warrant may be exercised by Holder by the surrender of this
Warrant at the principal office of the Company, accompanied by payment in full
of the purchase price of the Shares purchased thereby, as described above. This
Warrant shall be deemed to have been exercised immediately prior to the close of
business on the date of its surrender for exercise as provided above, and the
person entitled to receive the Shares or other securities issuable upon such
exercise shall be treated for all purposes as the holder of such shares of
record as of the close of business on such date. As promptly as practicable, the
Company shall issue and deliver to the person or persons entitled to receive the
same a certificate or certificates for the number of full shares of Common Stock
issuable upon such exercise, together with cash in lieu of any fraction of a
share as provided above.
7. Right to Convert Warrant for Common Stock.
-----------------------------------------
(a) Right to Convert. In addition to and without limiting the rights
----------------
of the Holder under the terms of this Warrant, the Holder shall have the right
to convert this Warrant or any portion hereof (the "CONVERSION RIGHT") into
shares of Common Stock as provided in this Section 7 immediately prior to its
expiration after the Company has given the Holder notice pursuant to Section 1
of an Acquisition, subject to the
3
<PAGE>
restrictions set forth in subsection (c) hereof. Upon exercise of the Conversion
Rightwith respect to a particular number of shares subject to this Warrant (the
"CONVERTED WARRANT SHARES"), the Company shall deliver to the Holder (without
payment by the Holder of any cash or other consideration) that number of shares
of Common stock equal to the quotient obtained by dividing (x) the value of this
Warrant (or the specified portion hereof) on the Conversion Date (as defined in
subsection (b) hereof ), which value shall be determined by subtracting (A) the
aggregate Warrant Price of the Converted Warrant Shares immediately prior to the
exercise of the Conversion Right from (B) the aggregate fair market value of the
Converted Warrant Shares issuable upon exercise of this Warrant (or the
specified portion hereof) on the Conversion Date (as herein defined) by (y) the
fair market value of one share of Common Stock on the Conversion Date (as herein
defined). No fractional shares shall be issuable upon exercise of the Conversion
Right, and if the number of shares to be issued determined in accordance with
the foregoing formula is other than a whole number, the Company shall pay to the
Holder an amount in cash equal to the fair market value of the resulting
fractional share on the Conversion Date (as herein defined).
(b) Method of Exercise. The Conversion Right may be exercised by the
------------------
Holder by the surrender of this Warrant prior to its expiration and after the
Company shall have given the Holder notice pursuant to Section 1 of an
Acquisition, at the principal office of the Company together with a written
statement specifying that the Holder thereby intends to exercise the Conversion
Right immediately prior to the expiration of this Warrant and indicating the
number of shares subject to this Warrant which are being surrendered (referred
to in subsection (a) hereof as the Converted Warrant Shares) in exercise of the
Conversion Right. Such conversion shall be effective immediately prior to the
expiration of this Warrant (the "CONVERSION DATE"). Certificates for the shares
of Common Stock issuable upon exercise of the Conversion Right (or any other
securities deliverable in lieu thereof under Section 2 (b)) shall be issued as
of the Conversion Date and shall be delivered to the Holder immediately
following the Conversion Date.
(c) Restrictions on Conversion Right. In the event that the
--------------------------------
Conversion Right contained herein would, at any time this Warrant remains
outstanding, be deemed by the Company's independent certified public accountants
to trigger a charge to the Company's earnings for financial reporting purposes,
then the Conversion Right shall automatically terminate upon the Company's
written notice to the Holder of such adverse accounting treatment.
(d) Determination of Fair Market Value. For purposes of this Section
----------------------------------
7, fair market value of a share of Common Stock as of a particular date (the
"DETERMINATION DATE") shall mean the effective per share consideration to be
received in an Acquisition by holders of the Common Stock, which price shall be
4
<PAGE>
as specified in the agreement entered into with respect to such Acquisition and
determined assuming receipt of the aggregate exercise price of all outstanding
warrants to purchase Common Stock (the "OUTSTANDING WARRANTS"), or if no such
price is set forth in the agreement concerning the Acquisition, then as
determined in good faith by the Company's Board of Directors upon a review of
relevant factors, including the aggregate exercise price of all Outstanding
Warrants.
8. Certificate of Adjustment. Whenever the Warrant Price or number or
-------------------------
type of securities issuable upon exercise of this Warrant is adjusted, as herein
provided, the Company shall promptly deliver to the record holder of this
Warrant a certificate of an officer of the Company setting forth the nature of
such adjustment and a brief statement of the facts requiring such adjustment.
9. Notice of Proposed Transfers. Prior to any proposed transfer of this
----------------------------
Warrant or the shares of Common Stock received on the exercise of this Warrant
(the "SECURITIES"), unless there is in effect a registration statement under the
Securities Act of 1933, as amended (the "SECURITIES ACT"), covering the proposed
transfer, the Holder thereof shall give written notice to the Company of such
Holder's intention to effect such transfer. Each such notice shall describe the
manner and circumstances of the proposed transfer in sufficient detail, and
shall, if the Company so requests, be accompanied (except in transactions in
compliance with Rule 144) by either (i) an unqualified written opinion of legal
counsel who shall be reasonably satisfactory to the Company addressed to the
Company and reasonably satisfactory in form and substance to the Company's
counsel, to the effect that the proposed transfer of the Securities may be
effected without registration under the Securities Act, or (ii) a "no action"
letter from the Securities Exchange Commission (the "COMMISSION") to the effect
that the transfer of such Securities without registration will not result in a
recommendation by the staff of the Commission that action be taken with respect
thereto, whereupon the Holder of the Securities shall be entitled to transfer
the Securities in accordance with the terms of the notice delivered by the
Holder to the Company; provided, however, no such registration statement or
------------------
opinion of counsel shall be necessary for a transfer by a Holder to any
affiliate of such Holder, or a transfer by a Holder which is a partnership to a
partner of such partnership or a retired partner of such partnership who retires
after the date hereof, or to the estate of any such partner or retired partner
or the transfer by gift, will or intestate succession of any partner to his
spouse or lineal descendants or ancestors, if the transferee agrees in writing
to be subject to the terms hereof to the same extent as if such transferee were
the original Holder hereunder. Each certificate evidencing the Securities
transferred as above provided shall bear the appropriate restrictive legend set
forth above, except that such certificate shall not bear such restrictive legend
if in the opinion of counsel for the Company
5
<PAGE>
such legend is not required in order to establish compliance with any provisions
of the Securities Act.
10. Miscellaneous. This Warrant is issued under, and is subject to the
-------------
terms of, that certain Note and Warrant Purchase Agreement dated January 17,
1995 between the Company and Purchasers described therein, as amended (the
"AGREEMENT"). This Warrant shall be governed by the laws of the State of
California. The headings in this Warrant are for purposes of convenience of
reference only, and shall not be deemed to constitute a part hereof. All notices
and other communications from the Company to the holder of this Warrant shall be
delivered personally or mailed by first class mail, postage prepaid, to the
address furnished to the Company in writing by the last holder of this warrant
who shall have furnished an address to the Company in writing, and if mailed
shall be deemed given three days after deposit in the U.S. Mail.
11. Taxes. The Company shall pay all taxes and other governmental charges
-----
that may be imposed in respect of the issuance or delivery of the Shares or any
portion thereof.
12. Amendment. Any term of this Warrant may be amended with the written
---------
consent of the Company and the holders of warrants representing not less than
seventy-five percent (75%) of the shares of Common Stock issuable upon exercise
of any and all outstanding warrants issued pursuant to the Agreement (the
"BRIDGE WARRANTS"), even without the consent of the holder hereof. Any amendment
effected in accordance with this Section 12 shall be binding upon each holder of
any Bridge Warrant, each future holder of all such Bridge Warrants, and the
Company; provided, however, that no special consideration or inducement may be
-----------------
given to any such holder in connection with such consent that is not given
ratably to all such holders, and that such amendment must apply to all such
holders ratably in accordance with the number of shares of Common Stock issuable
upon exercise of their outstanding Bridge Warrants. The Company shall promptly
give notice to all holders of outstanding Bridge Warrants of any amendment
effected in accordance with this Section 12.
ISSUED this ______ day of ___________, 1995.
SALIX HOLDINGS, LTD.,
a British Virgin Islands corporation
By:_________________________________
Randy W. Hamilton, President
6
<PAGE>
EXHIBIT 4.3
EXHIBIT C
FORM OF WARRANT
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT").
APPLICABLE STATE SECURITIES LAWS, OR APPLICABLE LAWS OF ANY FOREIGN
JURISDICTION. THIS WARRANT AND SUCH UNDERLYING SECURITIES HAVE BEEN ACQUIRED
FOR INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT BE
OFFERED, SOLD PLEDGED, HYPOTHECATED, RENOUNCED OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND ANY
APPLICABLE STATE SECURITIES LAWS AND IN THE ABSENCE OF COMPLIANCE WITH
APPLICABLE LAWS OF ANY FOREIGN JURISDICTION, OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED AND SUCH
FOREIGN JURISDICTION LAWS HAVE BEEN SATISFIED.
SALIX HOLDINGS, LTD.
COMMON STOCK PURCHASE WARRANT
NO. W- Shares
_____ ____
1. Number and Price of Shares Subject to Warrant. Subject to the terms
---------------------------------------------
and conditions herein set forth, ___________ or permitted assigns (the "HOLDER")
is entitled to purchase from SALIX HOLDINGS, LTD., a British Virgin Islands
corporation (the "COMPANY"), at any time on or before the earliest to occur of
the following: (i) July 25, 2003, or (ii) the closing of the Company's sale of
all or substantially all of its assets or the acquisition of the Company by
another entity by means of merger or other transaction as a result of which
shareholders of the Company immediately prior to such acquisition possess a
minority of the voting power of the acquiring entity immediately following such
acquisition (the "ACQUISITION"), ________________ (_____) shares(which number
of shares is subject to adjustment as described below) of fully paid and
nonassessable Common Stock of the Company (the "SHARES") upon surrender hereof
at the principal office of the Company, and upon payment of the aggregate
Warrant Price (as hereafter defined) of the Shares so purchased, at said office
in cash, by check, by wire transfer or by cancellation of indebtedness. The
Company shall give notice to the Holder of an Acquisition at least thirty (30)
days prior to the closing of such Acquisition. Subject to adjustment as
hereinafter provided, the exercise price for one share of Common Stock (or such
securities as may be substituted for one share of Common Stock pursuant to the
provisions hereinafter set forth) shall be $3.00. The exercise price for one
share of Common Stock (or such securities as may be substituted for one share of
Common Stock pursuant to the provisions hereinafter set forth) payable from time
to time upon the exercise of this Warrant (whether such price be the price
specified above or an adjusted price determined as hereinafter provided) is
referred to herein as the "WARRANT PRICE."
2. Adjustment of Warrant Price and Number of Shares. The Warrant Price
------------------------------------------------
and the number and kind of securities issuable upon the exercise of this Warrant
shall be subject to adjustment from time to time, and the Company agrees to
provide notice upon the happening of certain events, as follows:
(a) Adjustment for Dividends in Stock. In case at any time or from
time to time on or after the date hereof the holders of the Common Stock of the
Company (or any shares of stock or other securities at the time receivable upon
the exercise of this Warrant) shall have received, or, on or after the record
date fixed for the determination of eligible stockholders, shall have become
entitled to receive, without payment therefor, other or additional securities or
other property of the Company by way of dividend or distribution, then and in
each case, the Holder of this Warrant shall, upon the exercise hereof be
entitled to receive, in addition to the number of shares of Common Stock
receivable thereupon, and without payment of any additional consideration
therefor, the amount of such
<PAGE>
other or additional securities or other property of the Company which such
holder would hold on the date of such exercise had it been the holder of record
of such Common Stock on the date hereof and had thereafter, during the period
from the date hereof to and including the date of such exercise, retained such
shares and/or all other additional securities or other property receivable by it
as aforesaid during such period, giving effect to all adjustments called for
during such period by this paragraph (a) and paragraphs (b) and (c) of this
paragraph 2.
(b) Adjustment for Reclassification or Reorganization. In case of any
-------------------------------------------------
reclassification or similar change of the outstanding securities of the Company
or of any reorganization of the Company (or any other corporation the stock or
securities of which are at the time receivable upon the exercise of this
Warrant) on or after the date hereof (excluding an Acquisition), then and in
each such case the Company shall give the Holder of this Warrant at least thirty
(30) days notice of the proposed effective date of such transaction, and the
Holder of this Warrant, upon the exercise hereof at any time after the
consummation of such reclassification, change or reorganization, shall be
entitled to receive in lieu of the stock or other securities and property
receivable upon the exercise hereof prior to such consummation, the stock or
other securities or property to which such holder would have been entitled upon
such consummation if such holder had exercised this Warrant immediately prior
thereto, all subject to further adjustment as provided in paragraphs (a) and
(c).
(c) Stock Splits and Reverse Stock Splits. If at any time on or after
-------------------------------------
the date hereof the Company shall subdivide its outstanding shares of Common
Stock into a greater number of shares, the Warrant Price in effect immediately
prior to such subdivision shall thereby be proportionately reduced and the
number of shares receivable upon exercise of this Warrant shall thereby be
proportionately increased; and, conversely, if at any time on or after the date
hereof the outstanding number of shares of Common Stock shall be combined into a
smaller number of shares, the Warrant Price in effect immediately prior to such
combination shall thereby be proportionately increased and the number of shares
receivable upon exercise of this Warrant shall thereby be proportionately
decreased.
(d) Price-Based Anti-dilution. If, at any time within the two (2) year
-------------------------
period commencing on the date thereof the Company shall issue or sell any shares
of its capital stock or debt securities convertible into shares of its Capital
stock (excluding any shares or options issued to employees, officers, agents or
consultants) in a financing resulting in gross proceeds to the Company of at
least $250,000 and at a purchase price per share of capital stock or conversion
price in the case of convertible debt (in either case calculated as set forth
below, hereafter referred to as the "FINANCING PRICE") less than the Warrant
Price in effect immediately prior to such financing (a "DILUTIVE FINANCING"),
the Warrant Price shall be adjusted to a number equal to the lesser of (1) $3.00
or (2) one hundred ten percent (110%) of the Financing Price in such Dilutive
Financing, and the number of shares issuable upon exercise of this Warrant shall
thereby be increased to a number equal to (i) three (3) times the number of
Shares originally set forth in Section 1 above, divided by (ii) the Financing
Price for the Dilutive Financing giving rise to such calculation. The Financing
Price in connection with a Dilutive Financing shall equal:
(1) the total amount, if any, received by the Company in consideration
of the capital stock and/or convertible debt issued in such Dilutive Financing,
plus the consideration payable to the Company upon the exercise of any options,
warrants or other securities convertible or exercisable into shares of the
Company's capital stock and which were issued in connection with the Dilutive
Financing (excluding options, warrants or other securities issued to financial
intermediaries for services rendered in connection with such Dilutive
Financing), divided by
(2) the number of shares issued in connection with such Dilutive
Financing, plus the number of shares issuable upon the exercise of any options,
warrants or other securities convertible or exercisable into shares of the
Company's capital stock which were issued in connection with the Dilutive
Financing (excluding options, warrants or other securities issued to financial
intermediaries for services rendered in connection with such Dilutive
Financing).
<PAGE>
3. Partial Exercise, Fractional Shares.
-----------------------------------
(a) If this Warrant is exercised in part, this Warrant must be
exercised for a whole number of shares of Common Stock, and the Holder shall be
entitled to receive a new Warrant covering the Shares which have not be
exercised.
(b) No fractional shares of Common Stock will be issued in connection
with any exercise hereunder. In lieu of any fractional shares which would
otherwise be issuable, the Company shall pay cash equal to the product of such
fraction multiplied by the fair market value of one share of Common Stock on the
date of exercise, as determined in good faith by the Company's Board of
Directors.
4. No Stockholder Rights. This Warrant as such shall not entitle its
---------------------
holder to any of the rights of a stockholder of the Company until the holder has
exercised this Warrant in accordance with Section 6 or Section 7 hereof.
5. Reservation of Stock. The Company covenants that during the period
--------------------
this Warrant is exercisable, the Company will reserve from its authorized and
unissued Common Stock a sufficient number of shares to provide for the issuance
of Common Stock upon the exercise of this Warrant. The Company agrees that its
issuance of this Warrant shall constitute full authority to its officers who are
charged with the duty of executing stock certificates to execute and issue the
necessary certificates for shares of Common Stock upon the exercise of this
Warrant.
6. Exercise of Warrant. This Warrant may be exercised by Holder by the
-------------------
surrender of this Warrant at the principal office of the Company, accompanied by
payment in full of the Warrant Price of the Shares purchased thereby, as
described above. This Warrant shall be deemed to have been exercised immediately
prior to the close of business on the date of its surrender for exercise as
provided above, and the person entitled to receive the Shares or other
securities issuable upon such exercise shall be treated for all purposes as the
holder of such shares of record as of the close of business on such date. As
promptly as practicable, the Company shall issue and deliver to the person or
persons entitled to receive the same a certificate or certificates for the
number of full shares of Common Stock or other securities issuable upon such
exercise, together with cash in lieu of any fraction of a share as provided
above.
7. Right to Convert Warrant for Common Stock.
-----------------------------------------
(a) Right to Convert. In addition to and without limiting the rights
----------------
of the Holder under the terms of this Warrant, the Holder shall have the right
to convert this Warrant or any portion hereof (the "CONVERSION RIGHT") into
shares of Common Stock as provided in this Section 7 prior to its expiration and
after the earlier to occur of (i) the Company's delivery to the Holder of the
notice of an Acquisition pursuant to Section 1 or (ii) the closing of an initial
public offering of shares of the Company's capital stock pursuant a registration
statement filed pursuant to the Securities Act of 1933, as amended (the
"SECURITIES ACT"), or similar registration and public offering outside of the
United States (collectively, a "PUBLIC OFFERING"), subject to the restrictions
set forth in subsection (c) hereof. Upon exercise of the Conversion Right with
respect to a particular number of shares subject to this Warrant (the "CONVERTED
WARRANT SHARES"), the Company shall deliver to the Holder (without payment by
the Holder of any cash or other consideration) that number of shares of Common
stock equal to the quotient obtained by dividing (x) the value of this Warrant
(or the specified portion hereof) on the Conversion Date (as defined in
subsection (b) hereof ), which value shall be determined by subtracting (A) the
aggregate Warrant Price of the Converted Warrant Shares immediately prior to the
exercise of the Conversion Right from (B) the aggregate fair market value of the
Converted Warrant Shares issuable upon exercise of this Warrant (or the
specified portion hereof) on the Conversion Date (as herein defined) by (y) the
fair market value of one share of Common Stock on the Conversion Date (as herein
defined). No fractional shares shall be issuable upon exercise of the Conversion
Right, and if the number of shares to be issued determined in accordance with
the foregoing formula is other than a whole number, the Company shall pay to the
Holder an amount in cash equal to the fair market value of the resulting
fractional share on the Conversion Date (as herein defined).
<PAGE>
(b) Method of Exercise. The Conversion Right may be exercised by the
------------------
Holder by the surrender of this Warrant, within the time frames set forth above,
at the principal office of the Company, together with a written statement
specifying that the Holder thereby intends to exercise the Conversion Right and
indicating the number of shares subject to this Warrant which are being
surrendered (referred to in subsection (a) hereof as the Converted warrant
Shares) in exercise of the Conversion Right. Such conversion shall be effective
immediately upon delivery of this Warrant and such written statement (the
"CONVERSION DATE"). Certificates for the shares of Common Stock issuable upon
exercise of the Conversion Right (or any other securities deliverable in lieu
thereof under Section 2(b)) shall be issued as of the Conversion Date and shall
be delivered to the Holder immediately following the Conversion Date.
(c) Restrictions on Conversion Right. In the event that the Conversion
--------------------------------
Right contained herein would, at any time this Warrant remains outstanding, be
deemed by the Company's independent certified public accountants to trigger a
charge to the Company's earnings for financial reporting purposes, then the
Conversion Right shall automatically terminate upon the Company's written notice
to the Holder of such adverse accounting treatment.
(d) Determination of Fair Market Value. For purposes of this Section
----------------------------------
7, fair market value of a share of Common Stock as of a particular date (the
"DETERMINATION DATE") shall mean:
(1) the average of the last sale prices of the Company's Common
Stock for the five trading days prior to the Determination Date, or in case no
such reported sales take place on any such day, the average of the last reported
bid and asked prices of the Common Stock on such day, in either case on the
principal national securities exchange on which the Company's Common Stock is
admitted to trading or listed, or if not listed or admitted to trading on any
such exchange, the representative closing bid price of the Common Stock as
reported by NASDAQ or similar organization), or, if the Common Stock is not
reported on NASDAQ (or similar organization), the high per share bid price for
the Common Stock in the over-the-counter market as reported by the National
Quotation Bureau or similar organization, or if not so available, then as
determined in good faith by the Company's Board of Directors upon a view of
relevant factors, or:
(2) in the case of the termination of this Warrant due to an
Acquisition, the effective per share consideration to be received in such
Acquisition by holders of the Common Stock, which price shall be as specified in
the agreement entered into with respect to such Acquisition and determined
assuming receipt of the aggregate exercise price of all outstanding warrants to
purchase Common Stock (the "OUTSTANDING WARRANTS"), or if no such price is set
forth in the agreement concerning the Acquisition, then as determined in good
faith by the Company's Board of Directors upon a review of relevant factors,
including the aggregate exercise price of all Outstanding Warrants.
8. Certificate of Adjustment. Whenever the Warrant Price or number or
-------------------------
type of securities issuable upon exercise of this Warrant is adjusted, as herein
provided, the Company shall promptly deliver to the record holder of this
Warrant a certificate of an officer of the Company setting forth the nature of
such adjustment and a brief statement of the facts requiring such adjustment.
9. Restriction on Transfers. Prior to any proposed transfer of this
------------------------
Warrant or the shares of Common Stock or other securities received on the
exercise of this Warrant (collectively, the "SECURITIES"), unless there is in
effect a registration statement under the Securities Act covering the proposed
transfer, the Holder thereof shall give written notice to the Company of such
Holder's intention to effect such transfer. Each such notice shall describe the
manner and circumstances of the proposed transfer in sufficient detail, and
shall, if the Company so requests, be accompanied (except in transactions in
compliance with Rule 144) by either (i) an unqualified written opinion of legal
counsel who shall be reasonably satisfactory to the Company, addressed to the
Company and reasonably satisfactory in form and substance to the Company's
counsel, to the effect that the proposed transfer of the Securities may be
effected without registration under the Securities Act, or (ii) a "no action"
letter from the Securities Exchange Commission (the "COMMISSION") to the effect
that the transfer of such Securities without registration will not result in a
recommendation
<PAGE>
by the staff of the Commission that action be taken with respect thereto,
whereupon the Holder of the Securities shall be entitled to transfer the
Securities in accordance with the terms of the notice delivered by the Holder to
the Company, provided, however, no such registration statement or opinion of
------------------
counsel shall be necessary for a transfer by a Holder to any affiliate of such
Holder, or a transfer by a Holder which is a partnership to a partner of such
partnership or a retire partner of such partnership who retires after the date
hereof, or to the estate of any such partner or retired partner or the transfer
by gift, will or intestate succession of any Holder to his or her spouse or
lineal descendants or ancestors, if the transferee agrees in writing to be
subject to the terms hereof to the same extent as if such transferee were the
original Holder hereunder. Notwithstanding the foregoing, this Warrant shall be
transferred only one time, if the transferee agrees in writing to be subject to
the terms hereof to the same extent as if such transferee were the original
Holder hereunder; provided that, subject to the provisions of the prior
--------
sentence, this Warrant will also be transferable by will or the laws of descent
and distribution. Each certificate evidencing the Securities transferred as
above provided shall bear the appropriate restrictive legend set forth above,
except that such certificate shall not bear such restrictive legend if in the
opinion of counsel for the Company such legend is not required in order to
establish compliance with any provisions of the Securities Act.
10 Miscellaneous. This Warrant is issued under, and is subject to the
-------------
terms of, that certain Note and Warrant Purchase Agreement dated July 25, 1995
between the Company and Purchasers described therein, as amended (the
"AGREEMENT"). This Warrant shall be governed by the laws of the State of
California. The headings in this Warrant are for purposes of convenience of
reference only, and shall not be deemed to constitute a part hereof. All notices
and other communications from the Company to the Holder of this Warrant shall be
delivered personally or mailed by first class mail, postage prepaid, to the
address furnished to the Company in writing by the last Holder of this Warrant
who shall have furnished an address to the Company in writing, and if mailed
shall be deemed given three days after deposit in the U.S. Mail.
11 Taxes. The Company shall pay all taxes and other governmental charges
-----
that may be imposed in respect of the issuance or delivery of the Shares or any
portion thereof
12 Amendment. Any term of this Warrant may be amended with the written
---------
consent of the Company and the holders of warrants representing not less than
seventy-five percent (75%) of the shares of Common Stock issuable upon exercise
of any and all outstanding warrants issued pursuant to the Agreement (the
"SENIOR DEBT WARRANTS"), even without the consent of the Holder hereof. Any
amendment effected in accordance with this Section 12 shall be binding upon each
holder of any Senior Debt Warrant, each future holder of all such Senior Debt
Warrants, and the Company provided, however, that no special consideration or
------------------
inducement may be given to any such holder in connection with such consent that
is not given ratably to all such holders, and that such amendment must apply to
all such holders ratably in accordance with the number of shares of Common Stock
issuable upon exercise of their outsanding Senior Debt Warrants. The Company
shall promptly give notice to all holders of outstanding Senior Debt Warrants of
any amendment effected in accordance with this Section 12.
ISSUED this ________ day of ________ 1995.
SALIX HOLDINGS, LTD.,
a British Virgin Islands corporation
By:______________________________________
Randy W. Hamilton, President
<PAGE>
EXHIBIT 10.1
SALIX HOLDINGS, LTD.
INDEMNIFICATION AGREEMENT
-------------------------
This Indemnification Agreement (the "AGREEMENT") is made as of __________
by and between Salix Holdings, Ltd. (the "COMPANY"), a corporation
incorporated in the Territory of the British Virgin Islands ("BVI"), and
________________________ ("INDEMNITEE").
WHEREAS, the Company and Indemnitee recognize the increasing difficulty in
obtaining directors' and officers' liability insurance, the significant
increases in the cost of such insurance and the general reductions in the
coverage of such insurance;
WHEREAS, the Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting officers and directors
to expensive litigation risks at the same time as the availability and coverage
of liability insurance has been severely limited.
WHEREAS, Indemnitee does not regard the current protection available as
adequate under the present circumstances, and Indemnitee and other officers and
directors of the Company may not be willing to continue to serve as officers and
directors without additional protection; and
WHEREAS, the Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, to serve as officers and directors of
the Company and to indemnify its officers and directors so as to provide them
with the maximum protection permitted by law.
NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:
1. INDEMNIFICATION.
---------------
(a) Third Party Proceedings. The Company shall indemnify Indemnitee
-----------------------
if Indemnitee is or was a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Company) by reason of the fact that Indemnitee is or was a
director, officer, employee or agent of the Company, or any subsidiary of the
Company, by reason of any action or inaction on the part of Indemnitee while an
officer or director or by reason of the fact that Indemnitee is or was serving
at the request of the Company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement (if such settlement is approved in advance by the Company, which
approval shall not be unreasonably withheld) actually and reasonably incurred by
Indemnitee in connection with such action, suit or proceeding if Indemnitee
acted in good faith and in a manner Indemnitee reasonably believed to be in or
not opposed to the best interests of the Company, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe Indemnitee's
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a
<PAGE>
presumption that Indemnitee did not act in good faith and in a manner which
Indemnitee reasonably believed to be in or not opposed to the best interests of
the Company, or, with respect to any criminal action or proceeding, that
Indemnitee had reasonable cause to believe that Indemnitee's conduct was
unlawful.
(b) Proceedings By or in the Right of the Company. The Company shall
---------------------------------------------
indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made
a party to any threatened, pending or completed action or proceeding by or in
the right of the Company or any subsidiary of the Company to procure a judgment
in its favor by reason of the fact that Indemnitee is or was a director,
officer, employee or agent of the Company, or any subsidiary of the Company, by
reason of any action or inaction on the part of Indemnitee while an officer or
director or by reason of the fact that Indemnitee is or was serving at the
request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees) and, to the fullest extent permitted by
law, amounts paid in settlement (if such settlement is approved in advance by
the Company, which approval shall not be unreasonably withheld), in each case to
the extent actually and reasonably incurred by Indemnitee in connection with the
defense or settlement of such action or suit if Indemnitee acted in good faith
and in a manner Indemnitee reasonably believed to be in or not opposed to the
best interests of the Company and its shareholders, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which Indemnitee shall have been finally adjudicated by court order or judgment
to be liable to the Company in the performance of Indemnitee's duty to the
Company and its shareholders unless and only to the extent that the court in
which such action or proceeding is or was pending shall determine upon
application that, in view of all the circumstances of the case, Indemnitee is
fairly and reasonably entitled to indemnity for such expenses which such court
shall deem proper.
(c) Mandatory Payment of Expenses. To the extent that Indemnitee has
-----------------------------
been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Section 1 (a) or Section 1 (b) or the defense of any
claim, issue or matter therein, Indemnitee shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by Indemnitee in
connection therewith.
2. AGREEMENT TO SERVE. In consideration of the protection afforded by
------------------
this Agreement, if Indemnitee is a director of the Company he or she agrees to
serve at least for the balance of the current term as a director and not to
resign voluntarily during such period without the written consent of a majority
of the Board of Directors. If Indemnitee is an officer of the Company not
serving under an employment contract, he or she agrees to serve in such capacity
at least for the balance of the current fiscal year of the Company and not to
resign voluntarily during such period without the written consent of a majority
of the Board of Directors. Following the applicable period set forth above,
Indemnitee agrees to continue to serve in such capacity at the will of the
Company (or under separate agreement, if such agreement exists) so long as he is
duly appointed or elected and qualified in accordance with the applicable
provisions of the Articles of Association of the Company or any subsidiary of
the Company or until such time as he or she tenders his or her resignation in
writing. Nothing contained in this Agreement is intended to create in Indemnitee
any right to continued employment.
-2-
<PAGE>
3. EXPENSES; INDEMNIFICATION PROCEDURE.
-----------------------------------
(a) Advancement of Expenses. The Company shall advance all expenses
-----------------------
incurred by Indemnitee in connection with the investigation, defense, settlement
or appeal of any civil or criminal action, suit or proceeding referred to in
Section 1(a) or Section 1 (b) hereof (but not amounts actually paid in
settlement of any such action, suit or proceeding). Indemnitee hereby
undertakes to repay such amounts advanced only if, and to the extent that, it
shall ultimately be determined that Indemnitee is not entitled to be indemnified
by the Company as authorized hereby. The advances to be made hereunder shall be
paid by the Company to Indemnitee within twenty (20) days following delivery of
a written request therefor by Indemnitee to the Company.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a
--------------------------------
condition precedent to his or her right to be indemnified under this Agreement,
give the Company notice in writing as soon as practicable of any claim made
against Indemnitee for which indemnification will or could be sought under this
Agreement. Notice to the Company shall be directed to the Chief Executive Office
of the Company at the address shown on the signature page of this Agreement (or
such other address as the Company shall designate in writing to Indemnitee).
Notice shall be deemed received on the third business day after the date
postmarked if sent by domestic certified or registered mail, properly addressed;
otherwise notice shall be deemed received when such notice shall actually be
received by the Company. In addition, Indemnitee shall give the Company such
information and cooperation as it may reasonably require and as shall be within
Indemnitee's power.
(c) Procedure. Any indemnification and advances provided for in
---------
Section 1 and this Section 3 shall be made no later than forty-five (45) days
after receipt of the written request of Indemnitee. If a claim under this
Agreement, under any statute, or under any provision of the Company's charter
documents providing for indemnification, is not paid in full by the Company
within forty-five (45) days after a written request for payment thereof has
first been received by the Company, Indemnitee may, but need not, at any time
thereafter bring an action against the Company to recover the unpaid amount of
the claim and, subject to Section 13 of this Agreement, Indemnitee shall also be
entitled to be paid for the expenses (including attorneys' fees) of bringing
such action. It shall be a defense to any such action (other than an action
brought to enforce a claim for expenses incurred in connection with any action,
suit or proceeding in advance of its final disposition) that Indemnitee has not
met the standards of conduct which make it permissible under applicable law for
the Company to indemnify Indemnitee for the amount claimed, but the burden of
proving such defense shall be on the Company and Indemnitee shall be entitled to
receive interim payments of expenses pursuant to Section 3(a) unless and until
such defense may be finally adjudicated by court order or judgment from which no
further right of appeal exists. It is the parties' intention that if the Company
contests Indemnitee's right to indemnification, the question of Indemnitee's
right to indemnification shall be for the court to decide, and neither the
failure of the Company (including its Board of Directors, any committee or
subgroup of the Board of Directors, independent legal counsel, or its
shareholders) to have made a determination that indemnification of Indemnitee is
proper in the circumstances because Indemnitee has met the applicable standard
of conduct required by applicable law, nor an actual determination by the
Company (including its Board of Directors, any committee or subgroup of
-3-
<PAGE>
the Board of Directors, independent legal counsel, or its shareholders) that
Indemnitee has not met such applicable standard of conduct, shall create a
presumption that Indemnitee has or has not met the applicable standard of
conduct.
(d) Notice to Insurers. If, at the time of the receipt of a notice of
------------------
a claim pursuant to Section 3(b) hereof, the Company has director and officer
liability insurance in effect, the Company shall give prompt notice of the
commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of the Indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such policies.
(e) Selection of Counsel. In the event the Company shall be obligated
--------------------
under Section 3(a) hereof to pay the expenses of any proceeding against
Indemnitee, the Company, if appropriate, shall be entitled to assume the defense
of such proceeding, with counsel approved by Indemnitee, upon the delivery to
Indemnitee of written notice of its election so to do. After delivery of such
notice, approval of such counsel by Indemnitee and the retention of such counsel
by the Company, the Company will not be liable to Indemnitee under this
Agreement for any fees of counsel subsequently incurred by Indemnitee with
respect to the same proceeding, provided that (i) Indemnitee shall have the
right to employ counsel in any such proceeding at Indemnitee's expense; and (ii)
if (A) the employment of counsel by Indemnitee has been previously authorized by
the Company, (B) Indemnitee shall have reasonably concluded that there may be a
conflict of interest between the Company and Indemnitee in the conduct of any
such defense or (C) the Company shall not, in fact, have employed counsel to
assume the defense of such proceeding, then the fees and expenses of
Indemnitee's counsel shall be at the expense of the Company.
4. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY.
-------------------------------------------------
(a) Scope. Notwithstanding any other provision of this Agreement, the
-----
Company hereby agrees to indemnify the Indemnitee to the fullest extent
permitted by law, notwithstanding that such indemnification is not specifically
authorized by the other provisions of this Agreement, the Company's Memorandum
and Articles of Association or by statute. In the event of any change, after the
date of this Agreement, in any applicable law, statute, or rule which expands
the right of a BVI corporation to indemnify a member of its board of directors
or an officer, such changes shall be, ipso facto, within the purview of
Indemnitee's rights and the Company's obligations under this Agreement. In the
event of any change in any applicable law, statute or rule which narrows the
right of a BVI corporation to indemnify a member of its board of directors or an
officer, such changes, to the extent not otherwise required by such law, statute
or rule to be applied to this Agreement shall have no effect on this Agreement
or the parties' rights and obligations hereunder.
(b) Nonexclusivity. The indemnification provided by this Agreement
--------------
shall not be deemed exclusive of any rights to which Indemnitee may be entitled
under the Company's Memorandum and Articles of Association, any agreement, any
vote of shareholders or disinterested members of the Company's Board of
Directors, the corporation law of the Territory of BVI, or otherwise, both as to
action in Indemnitee's official capacity and as to action in another capacity
while holding such office. The indemnification provided under this Agreement
shall
-4-
<PAGE>
continue as to Indemnitee for any action taken or not taken while serving in an
indemnified capacity even though he may have ceased to serve in an such capacity
at the time of any action, suit or other covered proceeding.
5. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any
-----------------------
provision of this Agreement to indemnification by the Company for some or a
portion of the expenses, judgments, fines or penalties actually or reasonably
incurred in the investigation, defense, appeal or settlement of any civil or
criminal action, suit or proceeding, but not, however, for the total amount
thereof, the Company shall nevertheless indemnify Indemnitee for the portion of
such expenses, judgments, fines or penalties to which Indemnitee is entitled.
6. MUTUAL ACKNOWLEDGMENT. Both the Company and Indemnitee acknowledge
---------------------
that in certain instances, Federal law of the United States or of any foreign
jurisdiction or public policy may override applicable law and prohibit the
Company from indemnifying its directors and officers under this Agreement or
otherwise. For example, the Company and Indemnitee acknowledge that the
Securities and Exchange Commission of the United States (the "SEC") has taken
the position that indemnification is not permissible for liabilities arising
under certain federal securities laws, and federal legislation prohibits
indemnification for certain ERISA violations. Indemnitee understands and
acknowledges that the Company has undertaken or may be required in the future to
undertake with the SEC to submit the question of indemnification to a court in
certain circumstances for a determination of the Company's right under public
policy to indemnify Indemnitee.
7. OFFICER AND DIRECTOR LIABILITY INSURANCE. The Company shall, from
----------------------------------------
time to time, make the good faith determination whether or not it is practicable
for the Company to obtain and maintain a policy or policies of insurance with
reputable insurance companies providing the officers and directors of the
Company with coverage for losses from wrongful acts, or to ensure the Company's
performance of its indemnification obligations under this Agreement. Among other
considerations, the Company will weigh the costs of obtaining such insurance
coverage against the protection afforded by such coverage. In all policies of
director and officer liability insurance, Indemnitee shall be named as an
insured in such a manner as to provide Indemnitee the same rights and benefits
as are accorded to the most favorably insured of the Company's directors, if
Indemnitee is a director; or of the Company's officers, if Indemnitee is not a
director of the Company but is an officer; or of the Company's key employees, if
Indemnitee is not an officer or director but is a key employee. Notwithstanding
the foregoing, the Company shall have no obligation to obtain or maintain such
insurance if the Company determines in good faith that such insurance is not
reasonably available, if the premium costs for such insurance are
disproportionate to the amount of coverage provided, if the coverage provided by
such insurance is limited by exclusions so as to provide an insufficient
benefit, or if Indemnitee is covered by similar insurance maintained by a parent
or subsidiary of the Company.
8. SEVERABILITY. Nothing in this Agreement is intended to require or
------------
shall be construed as requiring the Company to do or fail to do any act in
violation of applicable law. The Company's inability, pursuant to court order,
to perform its obligations under this Agreement shall not constitute a breach of
this Agreement. The provisions of this Agreement shall be severable as provided
in this Section 8. If this Agreement or any portion hereof shall be invalidated
on any
-5-
<PAGE>
ground by any court of competent jurisdiction, then the Company shall
nevertheless indemnify Indemnitee to the full extent permitted by any applicable
portion of this Agreement that shall not have been invalidated, and the balance
of this Agreement not so invalidated shall be enforceable in accordance with its
terms.
9. EXCEPTIONS. Any other provision herein to the contrary
----------
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) Claims Initiated by Indemnitee. To indemnify or advance expenses
------------------------------
to Indemnitee with respect to proceedings or claims initiated or brought
voluntarily by Indemnitee and not by way of defense, except with respect to
proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other statute or law or otherwise as required under
applicable law, but such indemnification or advancement of expenses may be
provided by the Company in specific cases if the Board of Directors finds it to
be appropriate; or
(b) Lack of Good Faith. To indemnify Indemnitee for any expenses
------------------
incurred by Indemnitee with respect to any proceeding instituted by Indemnitee
to enforce or interpret this Agreement, if a court of competent jurisdiction
determines that each of the material assertions made by Indemnitee in such
proceeding was not made in good faith or was frivolous;
(c) Insured Claims. To indemnify Indemnitee for expenses or
--------------
liabilities of any type whatsoever (including, but not limited to, judgments,
fines, ERISA excise taxes or penalties, and amounts paid in settlement) which
have been paid directly to Indemnitee by an insurance carrier under a policy of
officers' and directors' liability insurance maintained by the Company.
(d) Claims under Section 16(b). To indemnify Indemnitee for expenses
--------------------------
or the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities Exchange Act of 1934
of the United States, as amended, or any similar successor statute.
10. CONSTRUCTION OF CERTAIN PHRASES.
-------------------------------
(a) For purposes of this Agreement, references to the "Company" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
if Indemnitee is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, Indemnitee shall stand in
the same position under the provisions of this Agreement with respect to the
resulting or surviving corporation as Indemnitee would have with respect to such
constituent corporation if its separate existence had continued.
(b) For purposes of this Agreement, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on Indemnitee with respect to an employee benefit plan;
and references to "serving at the request of
-6-
<PAGE>
the Company" shall include any service as a director, officer, employee or agent
of the Company which imposes duties on, or involves services by, such director,
officer, employee or agent with respect to an employee benefit plan, its
participants, or beneficiaries; and if Indemnitee acted in good faith and in a
manner Indemnitee reasonably believed to be in the interest of the participants
and beneficiaries of an employee benefit plan, Indemnitee shall be deemed to
have acted in a manner "not opposed to the best interests of the Company" as
referred to in this Agreement.
11. COUNTERPARTS. This Agreement may be executed in one or more
------------
counterparts, each of which shall constitute an original.
12. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
----------------------
Company and its successors and assigns, and shall inure to the benefit of
Indemnitee and Indemnitee's estate, heirs, legal representatives and assigns.
13. ATTORNEYS' FEES. In the event that any action is instituted by
---------------
Indemnitee under this Agreement to enforce or interpret any of the terms hereof,
Indemnitee shall be entitled to be paid all court costs and expenses, including
reasonable attorneys' fees, incurred by Indemnitee with respect to such action,
unless as a part of such action, the court of competent jurisdiction determines
that each of the material assertions made by Indemnitee as a basis for such
action were not made in good faith or were frivolous. In the event of an action
instituted by or in the name of the Company under this Agreement or to enforce
or interpret any of the terms of this Agreement, Indemnitee shall be entitled to
be paid all court costs and expenses, including attorneys' fees, incurred by
Indemnitee in defense of such action (including with respect to Indemnitee's
counterclaims and cross-claims made in such action), unless as a part of such
action the court determines that each of Indemnitee's material defenses to such
action were made in bad faith or were frivolous.
14. NOTICE. All notices, requests, demands and other communications under
------
this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and a receipt is signed by the party addressee, on the date of
such receipt, or (ii) if mailed by certified or registered mail with postage
prepaid, on the tenth business day after the date postmarked. Addresses for
notice to either party are as shown on the signature page of this Agreement, or
as subsequently modified by written notice.
15. CONSENT TO JURISDICTION. The Company and the Indemnitee each hereby
-----------------------
irrevocably consent to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be brought only in the courts of the State of Delaware.
16. CHOICE OF LAW. This Agreement shall be governed by and its provisions
-------------
construed in accordance with the laws of the State of Delaware.
-7-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
SALIX HOLDINGS, LTD.
By:______________________________
Its:_____________________________
3600 W. Bayshore Blvd., Suite 205
Palo Alto, CA 94306
AGREED TO AND ACCEPTED:
INDEMNITEE: [Indemnitee]
___________________________________
(Signature)
Address: _________________________
_________________________
_________________________
-8-
<PAGE>
EXHIBIT 10.2
SALIX HOLDINGS, LTD.
1994 STOCK PLAN
1. Purposes of the Plan. The purposes of this 1994 Stock Plan are to
--------------------
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees and Consultants of
the Company and its Subsidiaries, and to promote the success of the Company's
business. Options granted under the Plan may be incentive stock options (as
defined under Section 422 of the Code) or non-statutory stock options, as
determined by the Administrator at the time of grant of an option and subject to
the applicable provisions of Section 422 of the Code, as amended, and the
regulations promulgated thereunder. Stock purchase rights may also be granted
under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Board or any of its Committees appointed
-------------
pursuant to Section 4 of the Plan.
(b) "Board" means the Board of Directors of the Company.
-----
(c) "Code" means the Internal Revenue Code of 1986, as amended.
----
(d) "Committee" means the Committee appointed by the Board of
---------
Directors in accordance with Section 4(a) of the Plan.
(e) "Common Stock" means the Common Stock of the Company.
------------
(f) "Company" means Salix Holdings, Ltd., a British Virgin Islands
--------
corporation.
(g) "Consultant" means any person, including an advisor, who is
-----------
engaged by the Company or any Parent or Subsidiary of the Company to render
services and is compensated for such services, and any director of the Company
whether compensated for such services or not, provided that if and in the event
the Company registers any class of any equity security pursuant to the Exchange
Act, the term Consultant shall thereafter not include directors who are not
compensated for their services or are paid only a director's fee by the Company.
(h) "Continuous Status as an Employee or Consultant" means the absence
-----------------------------------------------
of any interruption or termination of service as an Employee or Consultant.
Continuous Status as an Employee or Consultant shall not be considered
interrupted in the case of: (i) sick leave; (ii) military leave; (iii) any other
leave of absence approved by the Administrator, provided that such leave is for
--------
a period of not more than ninety (90) days, unless reemployment upon the
expiration of such leave is guaranteed by contract or statute, or unless
provided otherwise pursuant to Company policy adopted from time to time; or (iv)
transfers between locations of the Company or between the Company, its
Subsidiaries or their respective successors. For purposes of this Plan, a change
in status from an Employee to a consultant or from a consultant to an Employee
will not constitute a termination of employment.
-1-
<PAGE>
(i) "Employee" means any person, including officers and directors,
---------
employed by the Company or any Parent or Subsidiary of the Company, with the
status of employment determined based upon such minimum number of hours or
periods worked as shall be determined by the Administrator in its discretion,
subject to any requirements of the Code. The payment of a director's fee by the
Company shall not be sufficient to constitute "employment" by the Company.
(j) "Exchange Act" means the Securities Exchange Act of 1934, as
-------------
amended.
(k) "Fair Market Value" means, as of any date, the fair market value
------------------
of Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including, without limitation, the
National Market System of the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") System, its Fair Market Value shall be the
closing sales price for such stock (or the closing bid, if no sales were
reported), as quoted on such system or exchange, or the exchange with the
greatest volume of trading in Common Stock for the last market trading day prior
to the time of determination, as reported in The Wall Street Journal or such
other source as the Administrator deems reliable;
(ii) If the Common Stock is quoted on the NASDAQ System (but not
on the National Market System thereof) or regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean between the high bid and low asked prices for the Common Stock
for the last market trading day prior to the time of determination, as reported
in The Wall Street Journal or such other source as the Administrator deems
reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(1) "Incentive Stock Option" means an Option intended to qualify as an
-----------------------
incentive stock option within the meaning of Section 422 of the Code, or any
successor provision.
(m) "Nonstatutory Stock Option" means an Option not intended to
--------------------------
qualify as an Incentive Stock Option.
(n) "Option" means a stock option granted pursuant to the Plan.
-------
(o) "Optioned Stock" means the Common Stock subject to an Option or a
---------------
Stock Purchase Right.
(p) "Optionee" means an Employee or Consultant who receives an Option
---------
or a Stock Purchase Right.
(q) "Parent" means a "parent corporation", whether now or hereafter
-------
existing, as defined in Section 424(e) of the Code, or any successor provision.
(r) "Plan" means this 1994 Stock Plan.
-----
-2-
<PAGE>
(s) "Reporting Person" means an officer, director, or greater than ten
-----------------
percent shareholder of the Company within the meaning of Rule 16a-2 under the
Exchange Act, who is required to file reports pursuant to Rule 16a-3 under the
Exchange Act, or any successor provision.
(t) "Restricted Stock" means shares of Common Stock acquired pursuant
-----------------
to a grant of a Stock Purchase Right under Section 10 below.
(u) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act,
-----------
as the same may be amended from time to time, or any successor provision.
(v) "Share" means a share of the Common Stock, as adjusted in
------
accordance with Section 12 of the Plan.
(w) "Stock Exchange" means any stock exchange or consolidated stock
---------------
price reporting system on which prices for the Common Stock are quoted at any
given time.
(x) "Stock Purchase Right" means the right to purchase Common Stock
---------------------
pursuant to Section 10 below.
(y) "Subsidiary" means a "subsidiary corporation," whether now or
-----------
hereafter existing, as defined in Section 424(f) of the Code, or any successor
provision.
3. Stock Subject to the Plan. Subject to the provisions of Section 12 of
-------------------------
the Plan, the maximum aggregate number of shares that may be optioned and sold
under the Plan is 400,000 shares of Common Stock. The shares may be authorized,
but unissued, or reacquired Common Stock. If an Option should expire or become
unexercisable for any reason without having been exercised in full, the
unpurchased Shares that were subject thereto shall, unless the Plan shall have
been terminated, become available for future grant under the Plan. If the
Company shall repurchase unvested shares of Restricted Stock, such repurchased
Shares that were subject thereto shall, unless the Plan shall have been
terminated, become available for future grant under the Plan. In addition, any
shares of Common Stock which are retained by the Company upon exercise of an
Option or Stock Purchase Right in order to satisfy the exercise or purchase
price for such Option or Stock Purchase Right or any withholding taxes due with
respect to such exercise shall be treated as not issued and shall continue to be
available under the Plan.
-3-
<PAGE>
4. Administration of the Plan.
--------------------------
(a) Procedure.
---------
(i) Multiple Administrative Bodies. If permitted by Rule 16b-3,
------------------------------
the Plan may be administered by different bodies with respect to directors, non-
director officers and Employees or Consultants who are not Reporting Persons.
(ii) Administration With Respect to Reporting Persons. With
------------------------------------------------
respect to grants of Options or Stock Purchase Rights to Employees who are
Reporting Persons, the Plan shall be administered by (A) the Board if the Board
may administer the Plan in compliance with Rule l6b-3 with respect to a plan
intended to qualify thereunder as a discretionary plan, or (B) a committee
designated by the Board to administer the Plan, which committee shall be
constituted in such a manner as to permit the Plan to comply with Rule 16b-3
with respect to a plan intended to qualify thereunder as a discretionary plan.
Once appointed, such committee shall continue to serve in its designated
capacity until otherwise directed by the Board. From time to time the Board may
increase the size of the committee and appoint additional members thereof,
remove members (with or without cause) and appoint new members in substitution
therefor, fill vacancies, however caused, and remove all members of the
committee and thereafter directly administer the Plan, all to the extent
permitted by Rule 16b-3 with respect to a plan intended to qualify thereunder as
a discretionary plan. No person serving as a member of an Administrator that has
authority with respect to grants to Reporting Persons shall be eligible to
receive any grant under the Plan which would cause such member to cease to be
"disinterested" within the meaning of Rule 16b-3.
(iii) Administration With Respect to Consultants and Other
----------------------------------------------------
Employees. With respect to grants of Options or Stock Purchase Rights to
- ---------
Employees or Consultants who are not Reporting Persons, the Plan shall be
administered by (A) the Board or (B) a committee designated by the Board, which
committee shall be constituted in such a manner as to satisfy the legal
requirements relating to the administration of incentive stock option plans, if
any, of applicable state and federal corporate and securities laws, of the Code
and of any applicable Stock Exchange (collectively, the "APPLICABLE LAWS"). Once
appointed, such Committee shall continue to serve in its designated capacity
until otherwise directed by the Board. From time to time the Board may increase
the size of the Committee and appoint additional members thereof, remove members
(with or without cause) and appoint new members in substitution therefor, fill
vacancies, however caused, and remove all members of the Committee and
thereafter directly administer the Plan, all to the extent permitted by the
Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the
---------------------------
Plan and in the case of a Committee, the specific duties delegated by the Board
to such Committee, and subject to the approval of any relevant authorities,
including the approval, if required, of any Stock Exchange, the Administrator
shall have the authority, in its discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(k) of the Plan;
-4-
<PAGE>
(ii) to select the Consultants and Employees to whom Options
and Stock Purchase Rights may from time to time be granted hereunder;
(iii) to determine whether and to what extent Options and Stock
Purchase Rights or any combination thereof are granted hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each such award granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsis tent
with the terms of the Plan, of any award granted hereunder;
(vii) to determine whether and under what circumstances an
Option may be settled in cash under Section 9(f) instead of Common Stock;
(viii) to accelerate the exercisability of any Option or Stock
Purchase Right;
(ix) to determine the terms and restrictions applicable to
Stock Purchase Rights and the Restricted Stock purchased by exercising such
Stock Purchase Rights;
(x) in order to fulfill the purposes of the Plan and without
amending the Plan, to modify grants of Options or Stock Purchase Rights to
participants who are foreign nationals or employed outside of the United States
in order to recognize differences in local law, tax policies or customs;
(xi) to accelerate the vesting of any Option or Stock Purchase
Right or waive forfeiture restrictions with respect thereto; and
(xii) to make all other determinations, not inconsistent with
the terms of the Plan, deemed necessary or advisable for administering the Plan.
(c) Effect of Administrator's Decision. All decisions, determinations
----------------------------------
and interpretations of the Administrator shall be final and binding on all
holders of Options or Stock Purchase Rights.
5. Eligibility.
-----------
(a) Nonstatutory Stock Options and Stock Purchase Rights may be
granted to Employees and Consultants. Incentive Stock Options may be granted
only to Employees. An Employee or Consultant who has been granted an Option or
Stock Purchase Right may, if he or she is otherwise eligible, be granted
additional Options or Stock Purchase Rights.
(b) Each Option shall be designated in the written option agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such
-5-
<PAGE>
designations, to the extent that the aggregate Fair Market Value of the Shares
with respect to which Options designated as Incentive Stock Options are
exercisable for the first time by any Optionee during any calendar year (under
all plans of the Company or any Parent or Subsidiary) exceeds $100,000, such
excess Options shall be treated as Nonstatutory Stock Options.
(c) For purposes of Section 5(b), Incentive Stock Options shall be
taken into account in the order in which they were granted, and the Fair Market
Value of the Shares subject to an Incentive Stock Option shall be determined as
of the date of the grant of such Option.
(d) The Plan shall not confer upon any Optionee any right with respect
to continuation of employment or consulting relationship with the Company, nor
shall it interfere in any way with such Optionee's right or the Company's right
to terminate his or her employment or consulting relationship at any time, with
or without cause.
6. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company as described in Section 19 of the Plan. It shall
continue in effect for a term of ten (10) years unless sooner terminated under
Section 15 of the Plan.
7. Term of Option. The term of each Option shall be the term stated in
--------------
the Option Agreement; provided, however, that the term shall be no more than ten
-----------------
(10) years from the date of grant thereof or such shorter term as may be
provided in the Option Agreement. However, in the case of an Option granted to
an Optionee who, at the time the Option is granted, owns stock representing more
than ten percent (10%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary, the term of the Option shall be five (5)
years from the date of grant thereof or such shorter term as may be provided in
the Option Agreement.
8. Option Exercise Price and Consideration.
---------------------------------------
(a) The per share exercise price for the Shares to be issued pursuant
to exercise of an Option shall be such price as is determined by the Board, but
shall be subject to the following:
(i) In the case of an Incentive Stock Option that is:
(A) granted to an Employee who, at the time of the grant of
such Incentive Stock Option, owns stock representing more than ten percent (10%)
of the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant.
(B) granted to any other Employee, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on the date
of grant.
(ii) In the case of a Nonstatutory Stock Option that is:
(A) granted to a person who, at the time of the grant of such
Option, owns stock representing more than ten percent (10%) of the voting power
of all classes
-6-
<PAGE>
of stock of the Company or any Parent or Subsidiary, the per Share exercise
price shall be no less than 110% of the Fair Market Value per Share on the date
of the grant.
(B) granted to any other person, the per Share exercise price
shall be no less than 85% of the Fair Market Value per Share on the date of
grant.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of (1) cash, (2)
check, (3) promissory note, (4) other Shares that (x) in the case of Shares
acquired upon exercise of an Option, have been owned by the Optionee for more
than six months on the date of surrender or such other period as may be required
to avoid a charge to the Company's earnings, and (y) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which such Option shall be exercised, (5) authorization for the Company to
retain from the total number of Shares as to which the Option is exercised that
number of Shares having a Fair Market Value on the date of exercise equal to the
exercise price for the total number of Shares as to which the Option is
exercised, (6) delivery of a properly executed exercise notice together with
such other documentation as the Administrator and the broker, if applicable,
shall require to effect an exercise of the Option and delivery to the Company of
the sale or loan proceeds required to pay the exercise price and any applicable
income or employment taxes, (7) delivery of an irrevocable subscription
agreement for the Shares that irrevocably obligates the option holder to take
and pay for the Shares not more than twelve months after the date of delivery of
the subscription agreement, (8) any combination of the foregoing methods of
payment, or (9) such other consideration and method of payment for the issuance
of Shares to the extent permitted under Applicable Laws. In making its
determination as to the type of consideration to accept, the Administrator shall
consider if acceptance of such consideration may be reasonably expected to
benefit the Company.
9. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Administrator, including performance criteria with respect
to the Company and/or the Optionee, and as shall be permissible under the terms
of the Plan; provided that such Option shall become exercisable at the rate of
--------
at least twenty percent (20%) per year over five (5) years from the date the
Option is granted.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and the Company has
received full payment for the Shares with respect to which the Option is
exercised. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under Section 8(b) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no
-7-
<PAGE>
right to vote or receive dividends or any other rights as a shareholder shall
exist with respect to the Optioned Stock, notwithstanding the exercise of the
Option. The Company shall issue (or cause to be issued) such stock certificate
promptly upon exercise of the Option. No adjustment will be made for a dividend
or other right for which the record date is prior to the date the stock
certificate is issued, except as provided in Section 12 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares that thereafter may be available, both for purposes of the Plan
and for sale under the Option, by the number of Shares as to which the Option is
exercised.
(b) Termination of Employment or Consulting Relationship. Subject to
---------------------------------------------------
Section 9(c), in the event of termination of an Optionee's consulting
relationship or Continuous Status as an Employee with the Company, such Optionee
may, but only within three (3) months (or such other period of time not less
than thirty (30) days as is determined by the Administrator, with such
determination in the case of an Incentive Stock Option being made at the time of
grant of the Option and not exceeding three (3) months) after the date of such
termination (but in no event later than the expiration date of the term of such
Option as set forth in the Option Agreement), exercise his or her Option to the
extent that the Optionee was entitled to exercise it at the date of such
termination. To the extent that Optionee was not entitled to exercise the
Option at the date of such termination, or if Optionee does not exercise such
Option to the extent so entitled within the time specified herein, the Option
shall terminate. No termination shall be deemed to occur and this Section 9(b)
shall not apply if (i) the Optionee is a Consultant who becomes an Employee
within the time specified herein; or (ii) the Optionee is an Employee who
becomes a Consultant within the time specified herein.
(c) Disability of Optionee. Notwithstanding the provisions of Section
----------------------
9(b) above, in the event of termination of an Optionee's consulting relationship
or Continuous Status as an Employee as a result of his or her total and
permanent disability (as defined in Section 22(e)(3) of the Code, or any
successor provision), the Optionee may, but only within six (6) months (or such
other period of time not exceeding twelve (12) months as is determined by the
Board, with such determination in the case of an Incentive Stock Option being
made at the time of the grant of the option) from the date of such termination
(but in no event later than the expiration date of the term of such Option as
set forth in the Option Agreement), exercise the Option to the extent otherwise
entitled to exercise it at the date of such termination. To the extent that
Optionee was not entitled to exercise the Option at the date of termination, or
if Optionee does not exercise such Option to the extent so entitled within the
time specified herein, the Option shall terminate.
(d) Death of Optionee. In the event of the death of an Optionee (i)
-----------------
during the period of Continuous Status as an Employee or any consulting
relationship or (ii) within thirty (30) days following the termination of the
Optionee's Continuous Status as an Employee or consulting relationship, the
Option may be exercised, at any time within six (6) months (or such other period
of time not exceeding twelve (12) months as is determined by the Board, with
such determination in the case of an Incentive Stock Option being made at the
time of the grant of the option) following the date of death (but in no event
later than the expiration date of the term of such Option as set forth in the
Option Agreement), by the Optionee's estate or by a person who
-8-
<PAGE>
acquired the right to exercise the Option by bequest or inheritance, but only to
the extent the Optionee was entitled to exercise the Option at the date of death
or, if earlier, the date of termination of the consulting relationship or
Continuous Status as an Employee. To the extent that Optionee was not entitled
to exercise the Option at the date of death or termination, as the case may be,
or if Optionee does not exercise such Option to the extent so entitled within
the time specified herein, the Option shall terminate.
(e) Rule 16b-3. Options granted to Reporting Persons shall comply
----------
with Rule l6b-3 and shall contain such additional conditions or restrictions as
may be required thereunder to qualify for the maximum exemption for Plan
transactions.
(f) Buyout Provisions. The Administrator may at any time offer to buy
-----------------
out for a payment in cash or Shares, an Option previously granted, based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.
10. Stock Purchase Rights.
---------------------
(a) Rights to Purchase. Stock Purchase Rights may be issued either
------------------
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing of the terms, conditions and restrictions related to the
offer, including the number of Shares that such person shall be entitled to
purchase, the price to be paid (which price shall not be less than 85% of the
Fair Market Value of the Shares as of the date of the offer), and the time
within which such person must accept such offer, which shall in no event exceed
thirty (30) days from the date upon which the Administrator made the
determination to grant the Stock Purchase Right. The offer shall be accepted by
execution of a Restricted Stock purchase agreement in the form determined by the
Administrator.
(b) Repurchase Option. Unless the Administrator determines otherwise,
-----------------
the Restricted Stock purchase agreement shall grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's employment with the Company for any reason (including death or
disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock purchase agreement shall be the original purchase price paid by
the purchaser and may be paid by cancellation of any indebtedness of the
purchaser to the Company.
(c) Other Provisions. The Restricted Stock purchase agreement shall
----------------
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion. In
addition, the provisions of Restricted Stock purchase agreements need not be the
same with respect to each purchaser.
(d) Rights as a Shareholder. Once the Stock Purchase Right is
-----------------------
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is
-9-
<PAGE>
prior to the date the Stock Purchase Right is exercised, except as provided in
Section 12 of the Plan.
11. Stock Withholding to Satisfy Withholding Tax Obligations. At the
--------------------------------------------------------
discretion of the Administrator, Optionees may satisfy withholding obligations
as provided in this paragraph. When an Optionee incurs tax liability in
connection with an Option or Stock Purchase Right, which tax liability is
subject to tax withholding under applicable tax laws, and the Optionee is
obligated to pay the Company an amount required to be withheld under applicable
tax laws, the Optionee may satisfy the withholding tax obligation by one or some
combination of the following methods: (a) by cash payment, or (b) out of
Optionee's current compensation, (c) if permitted by the Administrator, in its
discretion, by surrendering to the Company Shares that (i) in the case of Shares
previously acquired from the Company, have been owned by the Optionee for more
than six months on the date of surrender, and (ii) have a fair market value on
the date of surrender equal to or greater than Optionee's marginal tax rate
times the ordinary income recognized, or (d) by electing to have the Company
withhold from the Shares to be issued upon exercise of the Option, or the Shares
to be issued in connection with the Stock Purchase Right, if any, that number
of Shares having a fair market value equal to the amount required to be
withheld. For this purpose, the fair market value of the Shares to be withheld
shall be determined on the date that the amount of tax to be withheld is to be
determined (the "TAX DATE").
Any surrender by a Reporting Person of previously owned Shares to
satisfy tax withholding obligations arising upon exercise of this Option must
comply with the applicable provisions of Rule l6b-3 and shall be subject to such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
All elections by an Optionee to have Shares withheld to satisfy tax
withholding obligations shall be made in writing in a form acceptable to the
Administrator and shall be subject to the following restrictions:
(a) the election must be made on or prior to the applicable Tax Date;
(b) once made, the election shall be irrevocable as to the particular
Shares of the Option or Stock Purchase Right as to which the election is made;
(c) all elections shall be subject to the consent or disapproval of
the Administrator; and
(d) if the Optionee is a Reporting Person, the election must comply
with the applicable provisions of Rule 16b-3 and shall be subject to such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
In the event the election to have Shares withheld is made by an
Optionee and the Tax Date is deferred under Section 83 of the Code because no
election is filed under Section 83(b) of the Code, the Optionee shall receive
the full number of Shares with respect to
-10-
<PAGE>
which the Option or Stock Purchase Right is exercised but such Optionee shall be
unconditionally obligated to tender back to the Company the proper number of
Shares on the Tax Date.
12. Adjustments Upon Changes in Capitalization, Merger or Certain Other
-------------------------------------------------------------------
Transactions.
- ------------
(a) Changes in Capitalization. Subject to any required action by the
------------------------
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option or Stock Purchase Right, and the number of shares of
Common Stock that have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or that have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination, recapitalization or reclassification of the Common Stock, or any
other increase or decrease in the number of issued shares of Common Stock
effected without receipt of consideration by the Company; provided, however,
-------- -------
that conversion of any convertible securities of the Company shall not be deemed
to have been "effected without receipt of consideration." Such adjustment shall
be made by the Board, whose determination in that respect shall be final,
binding and conclusive. Except as expressly provided herein, no issuance by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock subject
to an Option or Stock Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Board shall notify the Optionee
at least fifteen (15) days prior to such proposed action. To the extent it has
not been previously exercised, the Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.
(c) Merger or Sale of Assets. In the event of a proposed sale of all
------------------------
or substantially all of the Company's assets or a merger of the Company with or
into another corporation where the successor corporation issues its securities
to the Company's shareholders, each outstanding Option or Stock Purchase Right
shall be assumed or an equivalent option or right shall be substituted by such
successor corporation or a parent or subsidiary of such successor corporation,
unless the successor corporation does not agree to assume the Option or Stock
Purchase Right or to substitute an equivalent option or right, in which case
such Option or Stock Purchase Right shall vest in its entirety and become
exercisable as follows prior to the consummation of the merger or sale of
assets. If the Option becomes fully exerciseable in lieu of assumption or
substitution in the event of a merger or sale of assets in as provided in the
preceding sentence, the Board shall notify the Optionee and the Option shall be
fully exerciseable for a period of ten (10) days from the date of such notice,
and will terminate upon the expiration of such period.
(d) Certain Distributions. In the event of any distribution to the
---------------------
Company's shareholders of securities of any other entity or other assets (other
than dividends payable in cash
-11-
<PAGE>
or stock of the Company) without receipt of consideration by the Company, the
Administrator may, in its discretion, appropriately adjust the price per share
of Common Stock covered by each outstanding Option or Stock Purchase Right to
reflect the effect of such distribution.
13. Non-Transferability of Options, Stock Purchase Rights and Restricted
--------------------------------------------------------------------
Stock. Options and Stock Purchase Rights may not be sold, pledged, assigned,
- -----
hypothecated, transferred, or disposed of in any manner other than by will or by
the laws of descent or distribution and may be exercised or purchased during the
lifetime of the Optionee only by the Optionee.
14. Time of Granting Options and Shock Purchase Rights. The date of a
--------------------------------------------------
grant of an Option or Stock Purchase Right shall, for all purposes, be the date
on which the Administrator makes the determination granting such Option or Stock
Purchase Right, or such other date as is determined by the Board. Notice of the
determination shall be given to each Employee or Consultant to whom an Option or
Stock Purchase Right is so granted within a reasonable time after the date of
such grant.
15. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time amend,
-------------------------
alter, suspend or discontinue the Plan, but no amendment, alteration, suspension
or discontinuation shall be made that would impair the rights of any Optionee
under any grant theretofore made, without his or her consent. In addition, to
the extent necessary and desirable to comply with Rule l6b-3 or with Section 422
of the Code (or any other applicable law or regulation, including the
requirements of any Stock Exchange), the Company shall obtain shareholder
approval of any Plan amendment in such a manner and to such a degree as
required.
(b) Effect of Amendment or Termination. No amendment or termination
----------------------------------
of the Plan shall adversely affect Options or Stock Purchase Rights already
granted, unless mutually agreed otherwise between the Optionee and the Board,
which agreement must be in writing and signed by the Optionee and the Company.
16. Conditions Upon Issuance of Shares. Shares shall not be issued
----------------------------------
pursuant to the exercise of an Option or Stock Purchase Right unless the
exercise of such Option or Stock Purchase Right and the issuance and delivery of
such Shares pursuant thereto shall comply with all relevant provisions of law,
including, without limitation, the Securities Act of 1933, as amended, the
Exchange Act, the rules and regulations promulgated thereunder, and the
requirements of any Stock Exchange.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by law.
-12-
<PAGE>
17. Reservation of Shares. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan. The inability of the Company
to obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
18. Agreements. Options and Stock Purchase Rights shall be evidenced by
----------
written agreements in such form as the Administrator shall approve from time to
time.
19. Shareholder Approval. Continuance of the Plan shall be subject to
--------------------
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such shareholder approval shall be obtained
in the degree and manner required under applicable state and federal law and the
rules of any applicable Stock Exchange. All Options and Stock Purchase Rights
issued under the Plan shall become void in the event such approval is not
obtained.
-13-
<PAGE>
SALIX HOLDINGS, LTD.
1994 STOCK PLAN
NOTICE OF STOCK OPTION GRANT
Optionee's Name and Address:
[name]
____________________________
____________________________
____________________________
You have been granted an option to purchase Common Stock of Salix Holdings,
Ltd., a British Virgin Islands corporation (the "COMPANY") as follows:
Date of Grant: [date]
Option Price Per Share: $[price]
Total Number of Shares Granted: [number]
Total Price of Shares Granted: $[price2]
Type of Option: ___ Incentive Stock Option
___ Nonstatutory Stock Option
Term/Expiration Date: [date2]
Vesting Commencement Date: [date3]
Vesting Schedule: [vesting]
<PAGE>
Termination Period: Option may be exercised for a period of
______________(3 months maximum for Incentive Stock
Options) after termination of employment or consulting
relationship except as set out in Sections 7 and 8 of
the Stock Option Agreement (but in no event later than
the Expiration Date).
By your signature and the signature of the Company's representative below,
you and the Company agree that this option is granted under and governed by the
terms and conditions of the 1994 Stock Plan and the Stock Option Agreement, all
of which are attached and made a part of this document.
OPTIONEE: SALIX HOLDINGS, LTD.
________________________________ By:______________________________
Signature
________________________________ Title:___________________________
Print Name
-2-
<PAGE>
SALIX HOLDINGS, LTD.
1994 STOCK PLAN
STOCK OPTION AGREEMENT
1. Grant of Option. Salix Holdings, Ltd., a British Virgin Islands
---------------
corporation (the "COMPANY"), hereby grants to the Optionee named in the Notice
of Grant (the "OPTIONEE"), an option (the "OPTION") to purchase a total number
of shares of Common Stock (the "SHARES") set forth in the Notice of Grant, at
the exercise price per share set forth in the Notice of Grant (the "EXERCISE
PRICE") subject to the terms, definitions and provisions of the Company's 1994
Stock Plan (the "PLAN") adopted by the Company, which is incorporated herein by
reference. Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Option.
If designated an Incentive Stock Option, this Option is intended to
qualify as an Incentive Stock Option as defined in Section 422 of the Code.
2. Exercise of Option. This Option shall be exercisable during its term
------------------
in accordance with the Vesting Schedule set out in the Notice of Grant and with
the provisions of Section 9 of be Plan as follows:
(i) Right to Exercise.
-----------------
(a) This Option may not be exercised for a fraction of a share.
(b) In the event of Optionee's death, disability or other
termination of employment, the exercisability of the Option is governed by
Sections 6, 7 and 8 below, subject to the limitation contained in subsection
2(i)(c).
(c) In no event may this Option be exercised after the date of
expiration of the term of this Option as set forth in the Notice of Grant.
(ii) Method of Exercise. This Option shall be exercisable by written
------------------
notice (in the form attached as EXHIBIT A) which shall state the election to
exercise the Option, the number of Shares in respect of which the Option is
being exercised, and such other representations and agreements as to the
holder's investment intent with respect to such shares of Common Stock as may be
required by the Company pursuant to the provisions of the Plan. Such written
notice shall be signed by the Optionee and shall be delivered in person or by
certified mail to the President of the Company. The written notice shall be
accompanied by payment of the Exercise Price. This Option shall be deemed to be
exercised upon receipt by the Company of such written notice accompanied by the
Exercise Price.
<PAGE>
No Shares will be issued pursuant to the exercise of an Option unless
such issuance and such exercise shall comply with all relevant provisions of law
and the requirements of any stock exchange upon which the Shares may then be
listed. Assuming such compliance, for income tax purposes the Shares shall be
considered transferred to the Optionee on the date on which the Option is
exercised with respect to such Shares.
3. Optionee's Representations. In the event the Shares purchasable
--------------------------
pursuant to the exercise of this Option have not been registered under the
Securities Act of 1933, as amended, at the time this Option is exercised,
Optionee shall, if required by the Company, concurrently with the exercise of
all or any portion of this Option, deliver to the Company Optionee's Investment
Representation Statement in the form attached hereto as Exhibit B, and, if
applicable, shall read the rules of the Commissioner of Corporations attached to
such Investment Representation Statement.
4. Method of Payment. Payment of the Exercise Price shall be by any of
-----------------
the following, or a combination thereof, at the election of the Optionee:
(i) cash; or
(ii) check; or
(iii) surrender of other shares of Common Stock of the Company which
(A) in the case of Shares acquired pursuant to the exercise of a Company option,
have been owned by the Optionee for more than six (6) months on the date of
surrender, and (B) have a fair market value on the date of surrender equal to
the Exercise Price of the Shares as to which the Option is being exercised; or
(iv) delivery of a properly executed exercise notice together with
such other documentation as the Administrator and the broker, if applicable,
shall require to effect an exercise of the Option and delivery to the Company of
the sale or loan proceeds required to pay the exercise price.
5. Restrictions on Exercise. This Option may not be exercised until such
------------------------
time as the Plan has been approved by the shareholders of the Company, or if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations ("REGULATION G") as
promulgated by the Federal Reserve Board. As a condition to the exercise of this
Option, the Company may require Optionee to make any representation and warranty
to the Company as may be required by any applicable law or regulation.
6. Termination of Relationship. In the event of termination of
---------------------------
Optionee's consulting relationship or Continuous Status as an Employee, Optionee
may, to the extent otherwise so entitled at the date of such termination (the
"TERMINATION DATE"), exercise this Option during the Termination Period set out
in the Notice of Grant. To the extent that Optionee was not entitled to
-2-
<PAGE>
exercise this Option at the date of such termination, or if Optionee does not
exercise this Option within the time specified herein, the Option shall
terminate.
7. Disability of Optionee. Notwithstanding the provisions of Section 6
----------------------
above, in the event of termination of Optionee's consulting relationship or
Continuous Status as an Employee as a result of total and permanent disability
(as defined in Section 22(e)(3) of the Code), Optionee may, but only within six
(6) months from the date of termination of employment (but in no event later
than the date of expiration of the term of this Option as set forth in Section
10 below), exercise the Option to the extent otherwise so entitled at the date
of such termination. To the extent that Optionee was not entitled to exercise
the Option at the date of termination, or if Optionee does not exercise such
Option (to the extent otherwise so entitled) within the time specified herein,
the Option shall terminate.
8. Death of Optionee. In the event of the death of Optionee, the Option
-----------------
may be exercised at any time within six (6) months following the date of death
(but in no event later than the date of expiration of the term of this Option as
set forth in Section 10 below), by Optionee's estate or by a person who acquired
the right to exercise the Option by bequest or inheritance, but only to the
extent the Optionee could exercise the Option at the date of death. To the
extent that Optionee was not entitled to exercise the Option at the date of
death, or if Optionee does not exercise such Option (to the extent otherwise so
entitled) within the time specified herein, the Option shall terminate.
9. Non-Transferability of Option. This Option may not be transferred in
-----------------------------
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by Optionee. The terms of
this Option shall be binding upon the executors, administrators, heirs,
successors and assigns of the Optionee.
10. Term of Option. This Option may be exercised only within the term set
--------------
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option. The limitations set out
in Section 7 of the Plan regarding Options designated as Incentive Stock Options
and Options granted to more than ten percent (10%) shareholders shall apply to
this Option.
11. Taxation Upon Exercise of Option. Optionee understands that, upon
--------------------------------
exercising a Nonstatutory Stock Option, he or she will recognize income for tax
purposes in an amount equal to the excess of the then fair market value of the
Shares over the exercise price. However, the timing of this income recognition
may be deferred for up to six months if Optionee is subject to Section 16 of the
Securities EXCHANGE ACT of 1934, as amended (the "EXCHANGE ACT"). If the
Optionee is an employee, the Company will be required to withhold from
Optionee's compensation, or collect from Optionee and pay to the applicable
taxing authorities an amount equal to a percentage of this compensation income.
Additionally, the Optionee may at some point be required to satisfy tax
withholding obligations with respect to the disqualifying disposition of an
Incentive Stock Option. The Optionee shall satisfy his or her tax withholding
obligation arising upon the exercise of this Option by one or some combination
of the following methods: (i) by cash payment, or (ii) out of Optionee's current
compensation, or (iii) if permitted by the Administrator, in its discretion, by
-3-
<PAGE>
surrendering to the Company Shares which (a) in the case of Shares previously
acquired from the Company, have been owned by the Optionee for more than six
months on the date of surrender, and (b) have a fair market value on the date of
surrender equal to or greater than Optionee's marginal tax rate times the
ordinary income recognized, or (iv) by electing to have the Company withhold
from the Shares to be issued upon exercise of the Option that number of Shares
having a fair market value equal to the amount required to be withheld. For
this purpose, the fair market value of the Shares to be withheld shall be
determined on the date that the amount of tax to be withheld is to be determined
(the "TAX DATE").
If the Optionee is subject to Section 16 of the Exchange Act (an
"INSIDER"), any surrender of previously owned Shares to satisfy tax withholding
obligations arising upon exercise of this Option must comply with the applicable
provisions of Rule l6b-3 promulgated under the Exchange Act ("RULE 16B-3") and
shall be subject to such additional conditions or restrictions as may be
required thereunder to qualify for the maximum exemption from Section 16 of the
Exchange Act with respect to Plan transactions.
All elections by an Optionee to have Shares withheld to satisfy tax
withholding obligations shall be made in writing in a form acceptable to the
Administrator and shall be subject to the following restrictions:
(1) the election must be made on or prior to the applicable Tax Date;
(2) once made, the election shall be irrevocable as to the particular
Shares of the Option as to which the election is made;
(3) all elections shall be subject to the consent or disapproval of
the Administrator;
(4) if the Optionee is an Insider, the election must comply with the
applicable provisions of Rule 16b-3 and shall be subject to such additional
conditions or restrictions as may be required thereunder to qualify for the
maximum exemption from Section 16 of the Exchange Act with respect to Plan
transactions.
12. Tax Consequences. Set forth below is a brief summary as of the date
----------------
of this Option of some of the federal and California tax consequences of
exercise of this Option and disposition of the Shares. THIS SUMMARY IS
NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE.
OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING
OF THE SHARES.
-4-
<PAGE>
(i) Exercise of Incentive Stock Option. If this Option qualifies as
---------------------------------
an Incentive Stock Option, there will be no regular federal income tax liability
or California income tax liability upon the exercise of the Option, although the
excess, if any, of the fair market value of the Shares on the date of exercise
over the Exercise Price will be treated as an adjustment to the alternative
minimum tax for federal tax purposes and may subject the Optionee to the
alternative minimum tax in the year of exercise.
(ii) Exercise of Nonstatutory Stock Option. If this Option does not
-------------------------------------
qualify as an Incentive Stock Option, there may be a regular federal income tax
liability and a California income tax liability upon the exercise of the Option.
The Optionee will be treated as having received compensation income (taxable at
ordinary income tax rates) equal to the excess, if any, of the fair market value
of the Shares on the date of exercise over the Exercise Price. If Optionee is an
employee, the Company will be required to withhold from Optionee's compensation
or collect from Optionee and pay to the applicable taxing authorities an amount
equal to a percentage of this compensation income at the time of exercise.
(iii) Disposition of Shares. In the case of a Nonstatutory Stock
---------------------
Option, if Shares are held for at least one year, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
and California income tax purposes. In the case of an Incentive Stock Option, if
Shares transferred pursuant to the Option are held for at least one year after
exercise and are disposed of at least two years after the Date of Grant, any
gain realized on disposition of the Shares will also be treated as long-term
capital gain for federal and California income tax purposes. If Shares purchased
under an Incentive Stock Option are disposed of within such one-year period or
within two years after the Date of Grant, any gain realized on such disposition
will be treated as compensation income (taxable at ordinary income rates) to the
extent of the difference between the Exercise Price and the lesser of (1) the
fair market value of the Shares on the date of exercise, or (2) the sale price
of the Shares.
(iv) Notice of Disqualifying Disposition of Incentive Stock Option
-------------------------------------------------------------
Shares. If the Option granted to Optionee herein is an Incentive Stock Option,
- ------
and if Optionee sells or otherwise disposes of any of the Shares acquired
pursuant to the Incentive Stock Option on or before the later of (1) the date
two years after the Date of Grant, or (2) the date one year after the date of
exercise, the Optionee shall immediately notify the Company in writing of such
disposition. Optionee agrees that Optionee may be subject to income tax
withholding by the Company on the compensation income recognized by the Optionee
from the early disposition by payment in cash or out of the current earnings
paid to the Optionee.
SALIX HOLDINGS, LTD.
a British Virgin Islands corporation
By:_______________________________
Title:____________________________
-5-
<PAGE>
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE
OPTION HEREOF IS EARNED ONLY BY CONTINUING CONSULTANCY OR EMPLOYMENT AT THE WILL
OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR
ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT
NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S STOCK OPTION PLAN WHICH IS
INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH
RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR SHALL
IT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE OPTIONEE'S EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT
CAUSE.
Optionee acknowledges receipt of a copy of the Plan and represents that
Optionee is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof. Optionee has
reviewed the Plan and this Option in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Option and fully
understands all provisions of the Option. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Option.
Dated:_________________________ ________________________________
Optionee
-6-
<PAGE>
EXHIBIT A
---------
1994 STOCK PLAN
EXERCISE NOTICE
Salix Holdings, Ltd.
3600 W. Bayshore Road
Suite 205
Palo Alto, California 94303
Attention: Chief Financial Officer
-----------------------
1. Exercise of Option. Effective as of today, ____________________19___,
------------------
the undersigned ("Optionee") hereby elects to exercise Optionee's option to
----------
purchase __________ shares of the Common Stock (the "Shares") of Salix Holdings,
--------
Ltd. (the "Company") under and pursuant to the Company's 1994 Stock Plan, as
---------
amended (the "Plan") and the [ ] Incentive [ ] Nonstatutory Stock Option
------
Agreement dated ___________________ (the "Option Agreement").
-----------------
2. Representations of Optionee. Optionee acknowledges that Optionee has
---------------------------
received, read and understood the Plan and the Option Agreement and agrees to
abide by and be bound by their terms and conditions. Optionee represents that
Optionee is purchasing the Shares for Optionee's own account for investment and
not with a view to, or for sale in connection with, a distribution of any of
such Shares.
3. Compliance with Securities Laws. Optionee understands and
-------------------------------
acknowledges that the Shares may not have been registered under the Securities
Act of 1933, as amended (the "1933 Act"), and, notwithstanding any other
----------
provision of the Option Agreement to the contrary, the exercise of any rights to
purchase any Shares is expressly conditioned upon compliance with the 1933 Act,
all applicable state securities laws and all applicable requirements of any
stock exchange or over the counter market on which the Company's Common Stock
may be listed or traded at the time of exercise and transfer. Optionee agrees to
cooperate with the Company to ensure compliance with such laws.
4. Federal Restrictions on Transfer. Optionee understands that the
--------------------------------
Shares have not been registered under the 1933 Act and therefore cannot be
resold and must be held indefinitely unless they are registered under the 1933
Act or unless an exemption from such registration is available and that the
certificate(s) representing the Shares may bear a legend to that effect.
Optionee understands that the Company is under no obligation to register the
Shares and that an exemption may not be available or may not permit Optionee to
transfer Shares in the amounts or at the times proposed by Optionee.
Specifically, Optionee has been advised that Rule 144 promulgated under the 1933
Act, which permits certain resales of unregistered securities, is not presently
available with respect to the Shares and, in any event requires that the Shares
be paid for and then be held for at least two years (and in some cases three
years) before they may be resold under Rule 144.
<PAGE>
5. Rights as Shareholder. Until the stock certificate evidencing such
---------------------
Shares is issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), no right to vote
or receive dividends or any other rights as a shareholder shall exist with
respect to the optioned Stock, notwithstanding the exercise of the Option. The
Company shall issue (or cause to be issued) such stock certificate promptly
after the Option is exercised. No adjustment will be made for a dividend or
other right for which the record date is prior to the date the stock certificate
is issued, except as provided in Section 12 of the Plan.
Optionee shall enjoy rights as a shareholder until such time as
Optionee disposes of the Shares or the Company and/or its assignee(s) exercises
the Right of First Refusal hereunder and delivers payment for such Shares. Upon
such exercise, Optionee shall forthwith cause the certificate(s) evidencing the
Shares so purchased to be surrendered to the Company for transfer or
cancellation upon delivery of payment thereafter, after which transfer or
cancellation Optionee shall have no further rights as a holder of the Shares.
6. Company's Right of First Refusal. Before any Shares held by Optionee
--------------------------------
or any transferee (either being sometimes referred to herein as the "Holder")
--------
may be sold or otherwise transferred (including transfer by gift or operation of
law), the Company or its assignee(s) shall have a right of first refusal to
purchase the Shares on the terms and conditions set forth in this Section (the
"Right of First Refusal").
- -----------------------
(a) Notice of Proposed Transfer. The Holder of the Shares shall
---------------------------
deliver to the Company a written notice (the "Notice") stating: (i) the Holder's
bona fide intention to sell or otherwise transfer such Shares; (ii) the name of
each proposed purchaser or other transferee ("Proposed Transferee"); (iii) the
--------------------
number of Shares to be transferred to each Proposed Transferee; and (iv) the
bona fide cash price or other consideration for which the Holder proposes to
transfer the Shares (the "Offered Price"), and the Holder shall offer the Shares
--------------
at the Offered Price to the Company or its assignee(s).
(b) Exercise of Right of First Refusal. At any time within thirty
----------------------------------
(30) days after receipt of the Notice, the Company and/or its assignee(s) may,
by giving written notice to the Holder, elect to purchase all, but not less than
all, of the Shares proposed to be transferred to any one or more of the Proposed
Transferees, at the purchase price determined in accordance with subsection (c)
below.
(c) Purchase Price. The purchase price ("Purchase Price") for the
-------------- ---------------
Shares purchased by the Company or its assignee(s) under this Section shall be
the Offered Price. If the Offered Price includes consideration other than cash,
the cash equivalent value of the non-cash consideration shall be determined by
the Board of Directors of the Company in good faith; provided, however, that if
-------- -------
the Holder does not agree with the valuation of the consideration as determined
by the Board of Directors of the Company, the Holder shall be entitled to have
the valuation determined by an independent appraiser to be mutually agreed upon
by the Company and the Holder and whose fees shall be borne equally by the
Company and the Holder.
-2-
<PAGE>
(d) Payment. Payment of the Purchase Price shall be made, at the
-------
option of the Company or its assignee(s), in cash (by check), by cancellation
(with the prior written consent of the Holder) of all or a portion of any
outstanding indebtedness of the Holder to the Company (or, in the case of
repurchase by an assignee, to the assignee), or by any combination thereof
within 30 days after receipt of the Notice or in the manner and at the times set
forth in the Notice.
(e) Holder's Right to Transfer. If the Shares proposed in the Notice
--------------------------
to be transferred are not purchased by the Company and/or its assignee(s) as
provided in this Section, then the Holder may sell or otherwise transfer such
Shares to the Proposed Transferee(s) at the Offered Price or at a higher price,
provided that such sale or other transfer is consummated within 120 days after
- --------
the date of the Notice and, provided further, that any such sale or other
-------- -------
transfer is effected in accordance with any applicable securities laws and the
Proposed Transferee agrees in writing that the provisions of this Section shall
continue to apply to the Shares in the hands of such Proposed Transferee. If the
Shares described in the Notice are not transferred to the Proposed Transferee
within such period, a new Notice shall be given to the Company, and the Company
and/or its assignees shall again be offered the Right of First Refusal before
any Shares held by the Holder may be sold or otherwise transferred.
(f) Exception for Certain Family Transfers. Anything to the contrary
--------------------------------------
contained in this Section notwithstanding, the transfer of any or all of the
Shares during the Optionee's lifetime or on the Opionee's death by will or
intestacy to the Optionee's immediate family or a trust for the benefit of the
Optionee's immediate family shall be exempt from the provisions of this Section.
"Immediate Family" as used herein shall mean spouse, lineal descendant or
- -----------------
antecedent, father, mother, brother or sister. In such case, the transferee or
other recipient shall receive and hold the Shares so transferred subject to the
provisions of this Section, and there shall be no further transfer of such
Shares except in accordance with the terms of this Section.
(g) Termination of Right of First Refusal. The Right of First Refusal
-------------------------------------
shall terminate as to any Shares ninety (90) days after the first sale of Common
Stock of the Company to the general public pursuant to a registration statement
filed with and declared effective by the Securities and Exchange Commission
under the 1933 Act.
7. Tax Consultation. Optionee understands that Optionee may suffer
----------------
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultants Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.
-3-
<PAGE>
8. Restrictive Legends and Stop-Transfer Orders.
--------------------------------------------
(a) Legends. Optionee understands and agrees that the Company shall
-------
cause the legends set forth below, or legends substantially equivalent thereto,
to be placed upon any certificate(s) evidencing ownership of the Shares together
with any other legends that may be required by state or federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE ACT OF, IN THE OPINION OF COUNSEL IN FORM AND
SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER,
SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AND RIGHT OF FIRST REFUSAL OPTIONS HELD BY
THE ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN THE EXERCISE NOTICE
BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF
WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH
TRANSFER RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON
TRANSFEREES OF THESE SHARES.
(b) Stop-Transfer Notices. Optionee agrees that, in order to ensure
---------------------
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and that
if the Company transfers its own securities, it may make appropriate notations
to the same effect in its own records.
(c) Refusal to Transfer. The Company shall not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
9. Market Standoff Agreement. In connection with the initial public
-------------------------
offering of the Company's securities and upon request of the Company or the
underwriters managing any underwritten offering of the Company's securities,
Optionee hereby agrees not to sell, make any short sale of, loan, grant any
option for the purchase of, or otherwise dispose of any Shares (other than those
included in the registration) without the prior written consent of the Company
or such underwriters, as the case may be, for such period of time (not to exceed
180 days) from the effective date of such registration as may be requested by
the Company or such managing underwriters; provided, however, that the Optionee
-------- -------
need not so agree unless a majority of the Company's officers
-4-
<PAGE>
and directors and a majority of the holders of at least 5% of the Company's
outstanding securities also agree to be similarly bound.
10. Successors and Assigns. The Company may assign any of its rights
----------------------
under this Agreement to single or multiple assignees, and this Agreement shall
inure to the benefit of the successors and assigns of the Company. Subject to
the restrictions on transfer herein set forth, this Agreement shall be binding
upon Optionee and his or her heirs, executors, administrators, successors and
assigns.
11. Interpretation. Any dispute regarding the interpretation of this
--------------
Agreement shall be submitted by Optionee or by the Company forthwith to the
Company's Board of Directors or the committee thereof that administers the Plan,
which shall review such dispute at its next regular meeting. The resolution of
such a dispute by the Board or committee shall be final and binding on the
Company and on Optionee.
12. Governing Law; Severability. This Agreement shall be governed by and
---------------------------
construed in accordance with the laws of the State of California excluding that
body of law pertaining to conflicts of law. Should any provision of this
Agreement be determined by a court of law to be illegal or unenforceable, the
other provisions shall nevertheless remain effective and shall remain
enforceable.
13. Notices. Any notice required or permitted hereunder shall be given in
-------
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail by certified mail, with postage and fees
prepaid, addressed to the other party at its address as shown below beneath its
signature, or to such other address as such party may designate in writing from
time to time to the other party.
14. Further Instruments. The parties agree to execute such further
-------------------
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Agreement.
15. Delivery of Payment. Optionee herewith delivers to the Company the
-------------------
full Exercise Price for the Shares.
16. Entire Agreement. The Plan and Notice of Grant/Option Agreement are
----------------
incorporated herein by reference. This Agreement, the Plan and the Notice of
Grant/Option Agreement constitute the entire agreement of the parties and
supersede in their entirety all prior undertakings and agreements of the Company
and Optionee with respect to the subject matter hereof, and is governed by
California law except for that body of law pertaining to conflict of laws.
Submitted by: Accepted by:
OPTIONEE: SALIX HOLDINGS, LTD.
-5-
<PAGE>
__________________________________ By:____________________________________
Signature
Its:___________________________________
Name:_____________________________
Address:__________________________ Address: 3600 W. Bayshore Road,Suite 205
__________________________________ Palo Alto, CA 94303
__________________________________ Attn: Chief Financial Officer
-6-
<PAGE>
EXHIBIT B
---------
INVESTMENT REPRESENTATION STATEMENT
OPTIONEE :
COMPANY : SALIX HOLDINGS, LTD.
SECURITY : COMMON STOCK
AMOUNT :
DATE :
In connection With the purchase of the above-listed Securities, I, the Optionee,
represent to Salix Holdings, Ltd. (the "COMPANY") the following:
(a) I am aware of the Company's business affairs and financial condition,
and have acquired sufficient information about the Company to reach an informed
and knowledgeable decision to acquire the Securities. I am purchasing these
Securities for my own account for investment purposes only and not with a view
to, or for the resale in connection with, any "distribution" thereof for
purposes of the Securities Act of 1933, as amended (the "SECURITIES ACT").
(b) I understand that the Securities have not been registered under the
Securities Act in reliance upon a specific exemption therefrom, which exemption
depends upon, among other things, the bona fide nature of my investment intent
as expressed herein. In this connection, I understand that, in the view of the
Securities and Exchange Commission (the "SEC"), the statutory basis for such
exemption may be unavailable if my representation was predicated solely upon a
present intention to hold these Securities for the minimum capital gains period
specified under tax statutes, for a deferred sale, for or until an increase or
decrease in the market price of the Securities, or for a period of one year or
any other fixed period in the future.
(c) I further understand that the Securities must be held indefinitely
unless subsequently registered under the Securities Act or unless an exemption
from registration is otherwise available. Moreover, I understand that the
Company is under no obligation to register the Securities. In addition, I
understand that the certificate evidencing the Securities will be imprinted with
a legend which prohibits the transfer of the Securities unless they are
registered or such registration is not required in the opinion of counsel for
the Company.
(d) I am familiar with the provisions of Rule 701 and Rule 144, each
promulgated under the Securities Act, which, in substance, permit limited public
resale of "restricted securities" acquired, directly or indirectly, from the
issuer thereof, in a non-public offering subject to the satisfaction of certain
conditions. Rule 701 provides that if the issuer qualifies under Rule 701 at
the time of issuance of the Securities, such issuance will be exempt from
registration under the Securities
<PAGE>
Act. In the event the Company later becomes subject to the reporting
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
ninety (90) days thereafter the securities exempt under Rule 701 may be resold,
subject to the satisfaction of certain of the conditions specified by Rule 144,
including among other things: (1) the sale being made through a broker in an
unsolicited "broker's transaction" or in transactions directly with a market
maker (as said term is defined under the Securities Exchange Act of 1934); and,
in the case of an affiliate, (2) the availability of certain public information
about the Company, and the amount of securities being sold during any three
month period not exceeding the limitations specified in Rule 144(e), if
applicable. Notwithstanding this paragraph (d), I acknowledge and agree to the
restrictions set forth in paragraph (e) hereof.
In the event that the Company does not qualify under Rule 701 at the
time of issuance of the Securities, then the Securities may be resold in certain
limited circumstances subject to the provisions of Rule 144, which requires
among other things: (1) the availability of certain public information about the
Company, (2) the resale occurring not less than two years after the party has
purchased, and made full payment for, within the meaning of Rule 144, the
securities to be sold; and, in the case of an affiliate, or of a non-affiliate
who has held the securities less than three years, (3) the sale being made
though a broker in an unsolicited "broker's transaction" or in transactions
directly with a market maker (as said term is defined under the Securities
Exchange Act of 1934) and the amount of securities being sold during any three
month period not exceeding the specified limitations stated therein, if
applicable.
(e) I further understand that in the event all of the applicable
requirements of Rule 144 or Rule 701 are not satisfied, registration under the
Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rule 144 and
Rule 701 are not exclusive, the Staff of the SEC has expressed its opinion that
persons proposing to sell private placement securities other than in a
registered offering and otherwise than pursuant to Rule 144 or Rule 701 will
have a substantial burden of proof in establishing that an exemption from
registration is available for such offers or sales, and that such persons and
their respective brokers who participate in such transactions do so at their own
risk.
(f) I understand that the certificate evidencing the Securities may be
imprinted with a legend which prohibits the transfer of the Securities without
the consent of the Commissioner of Corporations of California. I have read the
applicable Commissioner's Rules with respect to such restriction, a copy of
which is attached.
Signature of Optionee:
________________________________
-2-
<PAGE>
TITLE 10. INVESTMENT - CHAPTER 3. COMMISSIONER OF CORPORATIONS
260.141.11: Restriction on Transfer. (a) The issuer of any security upon
---------- -----------------------
which a restriction on transfer has been imposed pursuant to Sections 260.102.6,
260.141.10 or 260.534 shall cause a copy of this section to be delivered to each
issuee or transferee of such security at the time the certificate evidencing
the security is delivered to the issuee or transferee.
(b) STATE OF CALIFORNIA - CALIFORNIA ADMINISTRATIVE CODE
----------------------------------------------------
It is unlawful for the holder of any such security to consummate a sale or
transfer of such security, or any interest therein, without the prior written
consent of the Commissioner (until this condition is removed pursuant to Section
260.141.12 of these rules), except:
(1) to the issuer;
(2) pursuant to the order or process of any court;
(3) to any person described in Subdivision (i) of Section 25102 of the Code
or Section 260.105.14 of these rules;
(4) to the transferor's ancestors, descendants or spouse, or any custodian
or trustee for the account of the transferor or the transferor's ancestors,
descendants, or spouse; or to a transferee by a trustee or custodian for the
account of the transferee or the transferee's ancestors, descendants or spouse;
(5) to holders of securities of the same class of the same issuer;
(6) by way of gift or donation inter vivos or on death;
(7) by or through a broker-dealer licensed under the Code (either acting as
such or as a finder) to a resident of a foreign state, territory or country who
is neither domiciled in this state to the knowledge of the broker-dealer, nor
actually present in this state if the sale of such securities is not in
violation of any securities law of the foreign state, territory or country
concerned;
(8) to a broker-dealer licensed under the Code in a principal transaction,
or as an underwriter or member of an underwriting syndicate or selling group;
(9) if the interest sold or transferred is a pledge or other lien given by
the purchaser to the seller upon a sale of the security for which the
Commissioner's written consent is obtained or under this rule not required;
(10) by may of a sale qualified under Sections 25111, 25112, 25113 or 25121
of the Code, of the securities to be transferred, provided that no order under
Section 25140 or Subdivision (a) of Section 25143 is in effect with respect to
such qualification;
(11) by a corporation to a wholly owned subsidiary of such corporation, or
by a wholly owned subsidiary of a corporation to such corporation;
(12) by way of an exchange qualified under Section 25ll1, 25112 or 25113 of
the Code, provided that no order under Section 25140 or Subdivision (a) of
Section 25143 is in effect with respect to such qualification;
(13) between residents of foreign states, territories or countries who are
neither domiciled nor actually present in this state;
(14) to the State Controller pursuant to the Unclaimed Property Law or to
the administrator of the unclaimed property law, of another state;
(15) by the State Controller pursuant to the Unclaimed Property Law or by
the administrator of the unclaimed law of another state if, in either such case,
such person (i) discloses to potential purchasers at the sale the transfer of
the securities is restricted under this rule, (ii) delivers to each purchaser a
copy of this rule, and (iii) advises the Commissioner of the name of each
purchaser;
(16) by a trustee to a successor trustee when such transfer does not
involve a change in the beneficial ownership of the securities; or
(17) by way of an offer and sale of outstanding securities in an issuer
transaction that is subject to the qualification requirement of Section 25110 of
the Code but exempt from that qualification requirement by subdivision (f) of
Section 25102; provided that any such transfer is on the condition that any
certificate evidencing the security issued to such transferee shall contain the
legend required by this section.
(c) The certificates representing all such securities subject to such a
restriction on transfer, whether upon initial issuance or upon any transfer
thereof, shall bear on their face a legend, prominently stamped or printed
thereon in capital letters of not less than 10-point size, reading as follows:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE
PRIOR WRITTEN CONSENT OF THE COMMISSIONER OR CORPORATIONS OF THE STATE OF
CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."
-3-
<PAGE>
SALIX HOLDINGS, LTD.
1994 STOCK PLAN
RESTRICTED STOCK PURCHASE AGREEMENT
This Restricted Stock Purchase Agreement ("AGREEMENT") is made as
of__________,19__, by and between Salix Holdings, Ltd., a British Virgin Islands
corporation (the "COMPANY"), and [nameofpurchaser] ("PURCHASER") pursuant to
the Company's 1994 Stock Plan.
1. Sale of Stock. Subject to the terms and conditions of this Agreement,
-------------
on the Closing Date the Company will issue and sell to Purchaser, and Purchaser
agrees to purchase from the Company, [numberofshares] shares of the Company's
Common Stock (the "SHARES") at a purchase price of $[pricepershare] per Share
for a total purchase price of $[totalpurchaseprice]. The term "Shares" refers
to the purchased Shares and all securities received in replacement of Shares or
as stock dividends or splits, all securities received in replacement of the
Shares in a recapitalization, merger, reorganization, exchange or the like, and
all new, substituted or additional securities or other properties to which
Purchaser is entitled by reason of Purchaser's ownership of the Shares.
2. Closing; Security Interest.
--------------------------
(a) The closing of the purchase and sale of the Shares under this
Agreement (the "CLOSING") shall be held at the principal office of the Company
simultaneously with the execution of this Agreement by the parties or on such
other date as they agree (the "CLOSING DATE").
(b) At the Closing, the Company will deliver to Purchaser a
certificate representing the Shares to be purchased by him or her (which shall
be issued in Purchaser's name) against payment of the purchase price therefor.
The purchase price for the Shares shall be paid to the Company by check rendered
to the Company in the amount of $[amountofcheck] and by delivery to the
Company of Purchaser's full recourse promissory note (the "NOTE") for the
balance of the purchase price, if any, in the form attached to this Agreement as
Exhibit A.
(c) With respect to the Note, the parties agree to the following:
(1) The Note shall become payable in full upon the voluntary or
involuntary termination or cessation of Purchaser's employment or consulting
relationship with the Company, for any reason, with or without cause (including
death or disability).
(2) Purchaser shall deliver to the Secretary of the Company, or
his or her designee (hereinafter referred to as the "Pledge Holder"), all
certificates representing the Shares, together with (i) an Assignment Separate
from Certificate in the form attached to this Agreement as Exhibit B executed by
Purchaser and by Purchaser's spouse (if required for transfer), in blank, for
use in transferring all or a portion of said Shares to the Company if, as and
<PAGE>
when required under this Section 2(c) or under any other provision of this
Agreement including, without limitation, Section 3. In addition, Purchaser's
spouse, if any, shall execute and deliver to the Company the Consent of Spouse
attached to this Agreement as Exhibit C.
(3) As security for the payment of the Note and any renewal,
extension or modification of the Note, Purchaser hereby grants to the Company a
security interest in and pledges with and delivers to the Company Purchaser's
Shares (sometimes referred to herein as the "COLLATERAL").
In the event that Purchaser prepays all or a portion of the Note, in
accordance with the provisions thereof, Purchaser intends, unless written notice
to the contrary is delivered to the Pledge Holder, that the Shares represented
by the portion of the Note so repaid, including annual interest thereon, shall
continue to be so held by the Pledge Holder, to serve as independent collateral
for the outstanding portion of the Note for the purpose of commencing the
holding period set forth in Rule 144(d) promulgated under the Securities Act of
1933, as amended (the "SECURITIES ACT").
(4) In the event of any foreclosure of the security interest, the
Company may sell the Shares at a private sale or may repurchase the Shares
itself. The parties agree that, prior to the establishment of a public market
for the Shares of the Company, the securities laws affecting sale of the Shares
make a public sale of the Shares commercially unreasonable. The parties further
agree that the repurchasing of such Shares by the Company, or by any person to
whom the Company may have assigned its rights under this Agreement is
commercially reasonable if made at a price determined by the Board of Directors
in its discretion, fairly exercised, representing what would be the fair market
value of the Shares reduced by any limitation on transferability, whether due to
the size of the block of Shares or the restrictions of applicable securities
laws.
(5) In the event of default in payment when due of any
indebtedness under Purchaser's Note, the Company may elect then, or at any time
thereafter, to exercise all rights available to a Secured Party under the
California Commercial Code including the right to sell the Collateral at a
private or public sale or repurchase the Shares as provided above. The proceeds
of any sale shall be applied in the following order:
(i) To the extent necessary, proceeds shall be used to pay
all reasonable expenses of the Company in enforcing
this Agreement, including, without limitation,
reasonable attorney's fees and legal expenses incurred
by the Company.
(ii) To the extent necessary, proceeds shall be used to
satisfy any remaining indebtedness under Purchaser's
Note.
(iii) Any remaining proceeds shall be delivered to
Purchaser.
-2-
<PAGE>
(6) Upon full payment by Purchaser of all amounts due on the Now,
Pledge Holder shall deliver to Purchaser a Shares in Pledge Holder's possession
belonging to Purchaser, and Pledge Holder shall thereupon be discharged of all
further obligations under this Agreement; provided, however, that Pledge Holder
shall nevertheless retain said Shares as escrow agent if at the time of full
payment by Purchaser said Shares are still subject to restrictions under Section
3 of this Agreement.
3. Limitations on Transfer.
-----------------------
In addition to any other limitation on transfer created by applicable
securities laws, Purchaser shall not assign, encumber or dispose of any interest
in the Shares while the Shares are subject to the Company's repurchase option,
except as provided in Section 3(h) below. After any Shares have been released
from such repurchase option, Purchaser shall not assign, encumber or dispose of
any interest in such Shares except in compliance with Sections 3(b) and 3(c)
below and applicable securities laws:
(a) Repurchase Option. In the event of the voluntary or involuntary
-----------------
termination of Purchaser's employment or consulting relationship with the
Company for any reason, with or without cause (including death or disability),
the Company shall, upon the date of such termination, have an irrevocable,
exclusive option for a period of 60 days from such date to repurchase all or
none of the Shares held by Purchaser as of such date which have not yet been
released from the Company's repurchase option, at the original purchase price
per Share specified in Section 1. The option shall be exercised by the Company
by written notice to Purchaser or Purchaser's executor and, at the Company's
option, (i) by delivery to the Purchaser or Purchaser's executor with such
notice of a check in the amount of the purchase price for the Shares being
purchased, or (ii) in the event the Purchaser is indebted to the Company, by
cancellation by the Company of an amount of such indebtedness equal to the
purchase price for the Shares being repurchased, or (iii) by a combination of
(i) and (ii) so that the combined payment and cancellation of indebtedness
equals such purchase price. Upon delivery of such notice and payment of the
purchase price in any of the ways described above, the Company shall become the
legal and beneficial owner of the Shares being repurchased and all rights and
interest therein or related thereto, and the Company shall have the right to
transfer to its own name the number of Shares being repurchased by the Company,
without further action by Purchaser. One hundred percent (100%) of the Shares
purchased by Purchaser shall initially be subject to the Company's repurchase
option as set forth above. Thereafter, the Shares held by Purchaser shall be
released from the Company's repurchase option under this Section 3(a) as follows
(provided in each case that Purchaser's employment or consulting relationship
with the Company has not been terminated prior to the date of any such release):
___ of the total number of Shares shall be released from the repurchase option
on the ___-month anniversary of the Vesting Commencement Date (as set forth on
the signature page of this Agreement), and an additional ___ of the total number
of Shares shall be released from the repurchase option each month thereafter on
the Monthly Vesting Date (as set forth on the signature page of this Agreement),
until all Shares are released from the repurchase option. Fractional shares
shall be rounded to the nearest whole share.
(b) Right of First Refusal. In the event, at any time after the date
----------------------
of this Agreement, the Purchaser or Purchaser's transferee desires to sell or
transfer in any manner the
-3-
<PAGE>
Shares as to which the option provided in Section 3(a) above is not applicable
or has not been exercised, Purchaser shall first offer such Shares for sale to
the Company at the same price, and upon the same terms (or terms as similar as
reasonably possible) upon which Purchaser is proposing or is to dispose of said
Share. Said right of first refusal shall be provided to the Company for a period
of thirty (30) days following receipt by the Company of written notice by the
Purchaser of the terms and conditions of said proposed sale or transfer and the
name, address and phone number of each proposed buyer or transferee. If the
Company desires to exercise such right of first refusal as to all but not less
than all of the Shares proposed to be transferred, it shall notify Purchaser in
writing within such thirty day period. In the event the Shares are not disposed
of on such terms within thirty (30) days following lapse of the period of the
right of first refusal provided to the Company, or if the Purchaser proposes to
change the price or other terms to make them more favorable to the buyer, they
shall once again be subject to the right of first refusal herein provided.
(c) Involuntary Transfer. In the event, at any time after the date of
--------------------
this Agreement, of any transfer by operation of law or other involuntary
transfer (including death or divorce) of all or a portion of the Shares by the
record holder thereof, the Company shall have an option to purchase all of the
Shares transferred at the greater of the purchase price paid by Purchaser
pursuant to this Agreement or the fair market value of the Shares on the date of
transfer. Upon such a transfer, the person acquiring the Shares shall promptly
notify the Secretary of the Company of such transfer. The right to purchase such
Shares shall be provided to the Company for a period of thirty (30) days
following receipt by the Company of written notice by the person acquiring the
Shares.
(d) Price for Involuntary Transfer. With respect to any stock to be
------------------------------
transferred pursuant to Section 3(c), the price per Share shall be a price set
by the Board of Directors of the Company that will reflect the current value of
the stock in terms of present earnings and future prospects of the Company. The
Company shall notify Purchaser or his or her executor of the price so determined
within thirty (30) days after receipt by it of written notice of the transfer or
proposed transfer of Shares. The decision of the Board of Directors as to the
purchase price shall be final.
(e) Assignment. The right of the Company to purchase any part of the
----------
Shares may be assigned in whole or in part to any shareholder or shareholders of
the Company or other persons or organizations.
(f) Restrictions Binding on Transferees. All transferees of Shares or
-----------------------------------
any interest therein will receive and hold such Shares or interest subject to
the provisions of this Agreement, including, insofar as applicable, the
Company's option to repurchase under Section 3 and the Company's rights under
Section 2. Any sale or transfer of the Company's Shares shall be void unless the
provisions of this Agreement are met.
(g) Termination of Rights. The right of first refusal granted the
---------------------
Company by Section 3(b) above and the option to repurchase the Shares in the
event of an involuntary transfer granted the Company by Section 3(c) above shall
terminate at such time as a public market exists for the Company's capital stock
(or any other stock issued to purchasers in exchange for the
-4-
<PAGE>
Shares purchased under this Agreement). For the purpose of this Agreement, a
"PUBLIC MARKET" shall be deemed to exist if (i) such stock is listed on a
national securities exchange (as that term is used in the Securities Exchange
Act of 1934) or (ii) such stock is traded on the over-the-counter market and
prices are published daily on business days in a recognized financial journal.
Upon termination of the right of first refusal imposed by this
Agreement and the expiration or exercise of the Company's repurchase option
described in Section 3(a) above, a new certificate or certificates representing
the Shares not repurchased shall be issued, on request, without the legend
referred to in Section 6(b) herein and delivered to Purchaser.
(h) Exempt Transfers. The restrictions on transfer of this Section 3
----------------
shall not apply to a transfer to Purchaser's ancestors or descendants or spouse
or to a trustee for their benefit, provided that such transferee shall agree in
writing to take such Shares subject to all the terms of this Agreement,
including restrictions on further transfer.
4. Escrow. For purposes of facilitating the enforcement of the
------
provisions of Section 3 above, Purchaser agrees, immediately upon receipt of the
certificate(s) for Purchaser's Shares, to deliver such certificate(s), together
with an Assignment Separate from Certificate in the form attached to this
Agreement as Exhibit B executed by Purchaser and by Purchaser's spouse (if
required for transfer), in blank, to the Secretary of the Company, or
Purchaser's designee, to hold such certificate(s) and Assignment Separate from
Certificate in escrow and to take all such actions and to effectuate all such
transfers and/or releases as are in accordance with the terms hereof. Purchaser
hereby acknowledges that the Secretary of the Company, or his or her designee,
is so appointed as the escrow holder with the foregoing authorities as a
material inducement to make this Agreement and that said appointment is coupled
with an interest and is accordingly irrevocable. Purchaser agrees that said
escrow holder shall not be liable to any party hereof (or to any other party)
for any actions or omissions unless such escrow holders grossly negligent
relative thereto. The escrow holder may rely upon any letter, notice or other
document executed by any signature purported to be genuine and may resign at any
time. Purchaser agrees that if the Secretary of the Company, or his or her
designee, resigns as escrow holder for any or no reason, the Board of Directors
of the Company shall have the power to appoint a successor to serve as escrow
holder pursuant to the terms of this Agreement.
5. Investment Representations
--------------------------
In connection with the purchase of the Shares, Purchaser represents to
the Company the following:
(a) Purchaser is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the securities. Purchaser is
purchasing these securities for investment for his or her own account only and
not with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act.
-5-
<PAGE>
(b) Purchaser understands that the securities have not been registered
under the Securities Act by reason of a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of Purchaser's
investment intent as expressed herein.
(c) Purchaser further acknowledges and understands that the securities
must be held indefinitely unless they are subsequently registered under the
Securities Act or an exemption from such registration is available. Purchaser
further acknowledges and understands that the Company is under no obligation to
register the securities. Purchaser understands that the certificate evidencing
the securities will be imprinted with a legend which prohibits the transfer of
the securities unless they are registered or such registration is not required
in the opinion of counsel for the Company.
(d) Purchaser is familiar with the provisions of Rules 144 and 701,
each promulgated under the Securities Act, which, in substance, permit limited
public resale of "restricted securities" acquired, directly or indirectly, from
the issuer thereof (or from an affiliate of such issuer), in a non-public
offering subject to the satisfaction of certain conditions. In the event the
Company becomes subject to the reporting requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the securities exempt under Rule 701 may be
resold by the Purchaser ninety (90) days thereafter, subject to the satisfaction
of certain of the conditions specified by Rule 144, including, among other
things: (1) the sale being made through a broker in an unsolicited "broker's
transaction" or in transactions directly with a market maker (as said term is
defined under the Securities Exchange Act of 1934); and (2) in the case of an
affiliate, the availability of certain public information about the Company, and
the amount of securities being sold during any three month period not exceeding
the limitations specified in Rule 144(e), if applicable.
If the Company does not qualify under Rule 701 at the time of
purchase, then the securities may be resold by the Purchaser in certain limited
circumstances subject to the provisions of Rule 144, which requires, among other
things: (1) the availability of certain public information about the Company;
(2) the resale occurring not less than two years after the party has purchased,
and made full payment of (within the meaning of Rule 144), the securities to be
sold; and (3) in the case of an affiliate, or of a non-affiliate who has held
the securities less than three years, the sale being made through a broker in an
unsolicited "broker's transaction" or in transactions directly with a market
maker (as said term is defined under the Securities Exchange Act of 1934) and
the amount of securities being sold during any three month period not exceeding
the specified limitations stated therein, if applicable. PURCHASER UNDERSTANDS
THAT PAYMENT BY NOTE IS NOT DEEMED TO BE FULL PAYMENT UNDER RULE 144 UNLESS IT
IS SECURED BY ASSETS OTHER THAN THE SHARES.
(e) Purchaser further understands that at the time he or she wishes to
sell the securities there may be no public market upon which to make such a
sale, and that, even if such a public market then exists, the Company may not be
satisfying the current public information requirements of Rule 144 or 701, and
that, in such event, Purchaser would be precluded from selling the securities
under Rule 144 or 701 even if the two-year minimum holding period had been
satisfied.
-6-
<PAGE>
(f) Purchaser farther understands that in the event all of the
applicable requirements of Rule 144 or 701 are not satisfied, registration under
the Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are not exclusive, the Staff of the SEC has expressed its opinion that
persons proposing to sell private placement securities other than in a
registered offering and otherwise than pursuant to Rule 144 or 701 will have a
substantial burden of proof in establishing that an exemption from registration
is available for such offers or sales, and that such persons and their
respective brokers who participate in such transactions do so at their own risk.
6. Legends.
-------
The certificate or certificates representing the Shares shall bear the
following legends (as well as any legends required by applicable state and
federal corporate and securities laws):
(a) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT
AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF
COUNSEL FOR THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE
SECURITIES ACT OF 1933."
(b) "THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED
ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND
THE SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE
COMPANY."
7. No Employment Rights.
--------------------
Nothing in this Agreement shall affect in any manner whatsoever the
right or power of the Company, or a parent or subsidiary of the Company, to
terminate Purchaser's employment or consulting relationship, for any reason,
with or without cause.
8. Section 83(b) Election.
----------------------
Purchaser understands that Section 83(a) of the Internal Revenue Code
of 1986, as amended (the "Code"), taxes as ordinary income the difference
between the amount paid for the Shares and the fair market value of the Shares
as of the date any restrictions on the Shares lapse. In this context,
"restriction" means the right of the Company to buy back the Shares pursuant to
the repurchase option set forth in Section 3(a) of this Agreement. Purchaser
understands that Purchaser may elect to be taxed at the time the Shares are
purchased, rather than when and as the repurchase option expires, by filing an
election under Section 83(b) of the Code with the Internal Revenue Service
within 30 days from the date of purchase. Even if the fair market value of the
Shares at the time of the execution of this Agreement equals the amount paid for
the Shares, the
-7-
<PAGE>
election must be made to avoid tax treatment under Section 83(a) in the future.
The form for making Purchaser's election is attached to this Agreement.
Purchaser understands that his or her failure to file such an election in a
timely manner may result in adverse tax consequences for Purchaser. Purchaser
further understands that an additional copy of such election form should be
filed with his or her federal income tax return for the calendar year in which
the date of this Agreement falls.
9. Stand-off Agreement. In connection with the initial public offering
-------------------
of the Company's securities and upon request of the Company or the underwriters
managing any underwritten offering of the Company's securities, Purchaser agrees
not to sell, make any short sale of, loan, grant any option for the purchase of,
or otherwise dispose of any Shares (other than those included in the
registration) without the prior written consent of the Company or such
underwriters, as the case may be, for such period of time (not to exceed 180
days) from the effective date of such registration as may be requested by the
Company or such managing underwriters; provided, however, that Purchaser need
not so agree unless a majority of the Company's officers and directors and a
majority of the holders of at least 5% of the Company's outstanding securities
also agree to be similarly bound.
10. Miscellaneous.
-------------
(a) This Agreement may be amended by written agreement between the
Company and Purchaser.
(b) Any notice, demand or request required or permitted to be given
under this Agreement shall be in writing and shall be deemed sufficient when
delivered personally or sent by telecopy or forty-eight (48) hours after being
deposited in the U.S. mail, as certified or registered mail, with postage
prepaid, and addressed, if to the Company, at its principal place of business,
attention the President, and if to Purchaser, at Purchaser's address as shown on
the stock records of the Company.
(c) The rights and benefits of this Agreement shall inure to the
benefit of, and be enforceable by the Company's successors and assigns. The
rights and obligations of Purchaser under this Agreement may only be assigned
with the prior written consent of the Company.
(d) Both parties agree to execute any additional documents necessary
to carry out the purposes of this Agreement.
-8-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first set forth above.
SALIX HOLDINGS, LTD,
BY:_______________________________
Title:____________________________
PURCHASER:
[nameofpurchaser]
_________________________________
(Signature)
Address:
[addpurch1]
[addpurch2]
Vesting Commencement
Date: [vestcomdate]
Monthly Vesting
Date: [movestdate]
-9-
<PAGE>
EXHIBIT A
PROMISSORY NOTE
$_________ _____________________, California
________________, 19___
At the times hereinafter stated, for value received, the undersigned
promises to pay Salix Holdings, Ltd., a British Virgin Islands corporation (the
"Company"), or order, at its principal office the principal sum of
$_____________ with interest from the date hereof at a rate of__% per annum,
compounded semi-annually, on the unpaid balance of said principal sum. Said
principal and interest shall be due and payable on ___________, 19____.
If the undersigned's employment by or association with the Company is
terminated prior to payment in full of this Note, this Note shall be immediately
due and payable.
Principal and interest are payable in lawful money of the United States of
America. AT ANY TIME, THE PRIVILEGE IS RESERVED TO PAY MORE THAN THE SUM DUE.
Should suit be commenced to collect this Note or any portion thereof, such
sum as the Court may deem reasonable shall be added hereto as attorneys' fees.
The makers and endorsers have severally waived presentment for payment, protest,
notice of protest, and notice of nonpayment of this Note.
This Note, which is full recourse, is secured by a pledge of certain shares
of Common Stock of the Company and is subject to the terms of a Restricted Stock
Purchase Agreement between the undersigned and the Company of even date
herewith.
_________________________________
_________________________________
<PAGE>
PROMISSORY NOTE
$((amountofpromote)) ______________, California
_____________, 19____
At the times hereinafter stated, for value received, the undersigned
promises to pay to Salix Holdings, Ltd., a British Virgin Islands corporation
(the "Company"), or order, at its principal office the principal sum of
$((amountofpromnote)) with interest from the date hereof at a rate of
((intonnote))% per annum, compounded semi-annually, on the unpaid balance of
said principal sum. Said principal and interest shall be due and payable on
((duedateonnote)).
If the undersigned's employment by or association with the Company is
terminated prior to payment in full of this Note, this Note shall be immediately
due and payable.
Principal and interest are payable in lawful money of the United States of
America. AT ANY TIME, THE PRIVILEGE IS RESERVED TO PAY MORE THAN THE SUM DUE.
Should suit be commenced to collect this Note or any portion thereof, such
sum as the Court may deem reasonable shall be added hereto as attorneys' fees.
The makers and endorsers have severally waived presentment for payment, protest,
notice of protest, and notice of non-payment of this Note.
This Note, which is full recourse, is secured by a pledge of certain shares
of Common Stock of the Company and is subject to the terms of a Restricted Stock
Purchase Agreement between the undersigned and the Company of even date
herewith.
_______________________________
[nameofpurchaser]
<PAGE>
EXHIBIT B
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Restricted Stock Purchase
Agreement between the undersigned ("Purchaser") and Salix Holdings, Ltd. dated
___________, 19__ (the "Agreement"), Purchaser hereby sells, assigns and
transfers unto ____________________________ (__________) shares of the Common
Stock of Salix Holdings, Ltd. standing in Purchaser's name on the books of said
corporation represented by Certificate No.__ herewith and does hereby
irrevocably constitute and appoint ____________________________________________
to transfer said stock on the books of be within-named corporation with full
power of substitution in the premises. THIS ASSIGNMENT MAY ONLY BE USED AS
AUTHORIZED BY THE AGREEMENT AND THE EXHIBITS THERETO.
Dated:________________, 19 ___.
Signature:
_________________________________
_________________________________
Instruction: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Company to exercise its
repurchase option set forth in the Agreement without requiring additional
signatures on the part of Purchaser.
<PAGE>
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Restricted Stock Purchase
Agreement between the undersigned ("Purchaser") and Salix Holdings, Ltd. dated
_________, 19__ (the "Agreement"), Purchaser hereby sells, assigns and transfers
unto ______________________________________________ (_____________) shares of
the Common Stock of Salix Holdings, Ltd. standing in Purchaser's name on the
books of said corporation represented by Certificate No.___ herewith and does
hereby irrevocably constitute and appoint ______________________________ to
transfer said stock on the books of the within-named corporation with full power
of substitution in the premises. THIS ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED
BY THE AGREEMENT AND THE EXHIBITS THERETO.
Dated:________________, 19 ___
Signature:
_________________________________
[nameofpurchaser]
Instruction: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Company to exercise its
repurchase option set forth in the Agreement without requiring additional
signatures on the part of Purchaser.
<PAGE>
EXHIBIT C
CONSENT OF SPOUSE
I, _________________________________, spouse of ________________________,
have read and hereby approve the foregoing Agreement. In consideration of the
Company's granting my spouse the right to purchase the Shares as set forth in
the Agreement, I hereby agree to be irrevocably bound by the Agreement and
further agree that any community property or other such interest shall be
similarly bound by the Agreement. I hereby appoint my spouse as my attorney-in-
fact with respect to any amendment or exercise of any rights under the
Agreement.
_________________________________
Spouse of Purchaser
<PAGE>
CONSENT OF SPOUSE
I, [nameofspouse], spouse of [nameofpurchaser], have read and hereby
approve the foregoing Agreement. In consideration of the Company's granting my
spouse the right to purchase the Shares as set forth in the Agreement, I hereby
agree to be irrevocably bound by the Agreement and further agree that any
community property or other such interest shall be similarly bound by the
Agreement. I hereby appoint my spouse as my attorney-in-fact with respect to any
amendment or exercise of any rights under the Agreement.
_________________________________
Spouse of Purchaser
<PAGE>
ELECTION UNDER SECTION 83(b)
----------------------------
OF THE INTERNAL REVENUE CODE OF 1986
-----------------------------------
The undersigned taxpayer hereby elects, pursuant to the Internal Revenue Code,
to include in his or her gross income for the current taxable year, the amount
of any compensation taxable to him or her in connection with his or her receipt
of the property described below:
1. The name, address, taxpayer identification number and taxable year of the
undersigned are as follows:
NAME : TAXPAYER: [nameofpurchaser] SPOUSE: [nameofspouse]
ADDRESS: [addpurchl]
[addpurch2]
IDENTIFICATION NO.: TAXPAYER: [idpurch] SPOUSE: [idofspouse]
TAXABLE YEAR: 19___
2. The property with respect to which the election is made is described as
follows:
[numberofshares] shares of the Common Stock (the "Shares"), $0.001 par
value, of Salix Holdings, Ltd., a British Virgin Islands corporation.
3. The date on which the property was transferred is: _____________, 19__
4. The property is subject to the following restrictions:
Repurchase option at cost in favor of Salix Holdings, Ltd. upon termination
of taxpayer's employment, consulting, officer or director relationship.
5. The fair market value at the time of transfer, determined without regard to
any restriction other than a restriction which by its terms will never
lapse, of such property is: $[totalpurchaseprice]
6. The amount (if any) paid for such property: $[totalpurchaseprice]
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked
- --------------------------------------------------------------------------
except with the consent of the Commissioner.
- --------------------------------------------
_________________________________
Dated:_________, 19 ___ Taxpayer
The undersigned spouse of taxpayer joins in this election.
Dated:_________, 19 ___ __________________________________
Spouse of Taxpayer
<PAGE>
RECEIPT
-------
Salix Holdings, Ltd. hereby acknowledges receipt of a check for
$[amountofcheck] and a promissory note for $[amountofpromnote] (if applicable)
given by [nameofpurchaser] as consideration for certificate number [certnumber]
for [numberofshares] shares of Common Stock of Salix Holdings, Ltd.
Dated:____________, 19 ____
SALIX HOLDINGS,LTD.
By:_______________________________
Title:____________________________
<PAGE>
RECEIPT AND CONSENT
-------------------
The undersigned hereby acknowledges receipt of a photocopy of certificate
number [certnumber] for [numberofshares] shares of Common Stock of Salix
Holdings, Ltd. (the "Company").
The undersigned further acknowledges that the Secretary of the Company, or
his or her designee, is acting as escrow holder pursuant to the Restricted Stock
Purchase Agreement he/she has previously entered into with the Company. As
escrow holder, the Secretary of the Company, or his or her designee, holds the
original of the aforementioned certificate issued in the undersigned's name.
Dated:_____________, 19 ____
__________________________________
[nameofpurchaser]
<PAGE>
SALIX HOLDINGS, LTD.
CHECKLIST
STOCK ISSUANCE FOR
[nameofpurchaser]
____ Stock Issuance Code Form received
____ Documents prepared in word processing
____ Documents reviewed
____ Board consent obtained
____ Securities issued pursuant to valid permit
____ Stock Certificate prepared
____ Stock Package sent to Client for signature (see below)
____ Documents received back from Client
____ Documents reviewed
____ 83(b) filing made
____ Copies of documents sent to Client
____ Documents filed in escrow
STOCK PACKAGE CHECKLIST
____ Corporate summary updated
____ Cover Letter (1 original)
____ Stock Purchase Agreement (2 originals)
and Consent of Spouse
____ Assignment Separate (2 originals)
from Certificate
____ Employment or Consulting Agreement (2 originals)
____ 83(b) Election (4 originals)
____ Receipt (2 originals)
____ Stock Certificate (1 original)
____ Promissory Note (if applicable) (1 original)
Legends to be used:
____ '33 Act
____ Agreement
____ Commissioner's
____ ROFR
____ Articles
<PAGE>
SALIX HOLDINGS, LTD.
MERGE INFORMATION
[nameofpurchaser] [Name of Purchaser]
[numberofshares] [Number of Shares)
[pricepershare] [Price Per Share]
[totalpurchaseprice] [Total Purchase Price]
[amountofcheck] [Amount of Check]
[amountofpromnote] [Amount of Promissory Note]
[addpurch1] [Street Address of Purchaser]
[addpurch2] [City, State and Zip Code of Purchaser]
[idpurch] [Purchaser's Taxpayer Identification Number]
[vestcomdate] [Vesting Commencement Date]
[movestdate] [Monthly Vesting Date]
[certnumber] [Certificate Number]
[nameofspouse] [Name of Purchaser's Spouse]
[idofspouse] [Taxpayer Identification Number of Spouse]
[intonnote] [Interest Rate on Promissory Note]
[duedateonnote] [Due Date of Promissory Note]
<PAGE>
SALIX HOLDINGS, LTD.
STOCK PURCHASE ISSUANCE FORM
<TABLE>
<S> <C> <C>
(1) Purchaser's Name ____________________________
(state as first, initial, last)
(2) Number of Shares Purchased Share Quantity:_____________
(3) Price per Share Share Price:$_______________
(4) Total Purchase Price Aggregate Price:$___________
(2) x (3)
(5) Amount Paid by Check Check Amount:$______________
(6) Amount Paid by Promissory Note Note Amount:________________
(7)& Taxpayer (home) address Address:____________________
(8) State as: Street Address ____________________________
City, State, Zip ____________________________
(9) Purchaser Social Security Number of S.S.#:______________________
(10) Vesting Commencement Date Date:_______________________
(state as month, day, year)
(11) Certificate Number Number:_____________________
(12) Spouse's Name Full Name:__________________
(State as first, initial, last)
(13) Spouse's Social Security No. S.S.#:______________________
(14) Interest Rate ____________________________%
(15) Note Payment Date ____________________________
(Item 10+4 years)
(state as month, day, year)
(16) Status of Purchaser ____________________________
(employee, consultant,
officer, director, etc.)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
(17) How will title to the Company's _________________________
securities be taken? (Please show _________________________
----------- _________________________
exactly)
-------
</TABLE>
-2-
<PAGE>
STATE OF CALIFORNIA - CALIFORNIA ADMINISTRATIVE CODE
----------------------------------------------------
Title 10. Investment - Chapter 3. Commissioner of Corporations
260.141.11: Restriction on Transfer.
----------- ------------------------
(a) The issuer of any security upon which a restriction on transfer has
been imposed pursuant to Sections 260.102.6, 260.141.10 or 260.534 shall cause a
copy of this section to be delivered to each issuee or transferee of such
security at be time the certificate evidencing the security is delivered to the
issuee or transferee.
(b) It is unlawful for the holder of any such security to consummate a sale
or transfer of such security, or any interest therein, without the prior written
consent of the Commissioner (until this condition is removed pursuant to Section
260.141.12 of these rules), except:
(1) to the issuer;
(2) pursuant to the order or process of any court;
(3) to any person described in Subdivision (i) of Section 25102 of the
Code or Section 260.105.14 of these rules;
(4) to the transferor's ancestors, descendants or spouse, or any
custodian or trustee for the account of the transferor or the transferor's
ancestors, descendants, or spouse; or to a transferee by a trustee or
custodian for the account of the transferee or the transferee's ancestors,
descendants or spouse;
(5) to holders of securities of the same class of the same issuer;
(6) by way of gift or donation inter vivos or on death;
(7) by or through a broker-dealer licensed under the Code (either
acting as such or as a finder) to a resident of a foreign state, territory
or country who is neither domiciled in the state to the knowledge of the
broker-dealer, nor actually present in this state if the sale of such
securities is not in violation of any securities law of the foreign state,
territory or country concerned;
(8) to a broker-dealer licensed under the Code in a principal
transaction, or as an underwriter or member of an underwriting syndicate or
selling group;
(9) if the interest sold or transferred is a pledge or other lien
given by the purchaser to the seller upon a sale of the security for which
the Commissioner's written consent is obtained or under this rule not
required;
(10) by way of a sale qualified under Sections 25111, 25112, 25113 or
25121 of the Code, of the securities to be transferred, provided that no
order under Section 25140 or Subdivision (a) of Section 25143 is in effect
with respect to such qualification;
(11) by a corporation to a wholly owned subsidiary of such corporation,
or by a wholly owned subsidiary of a corporation to such corporation;
(12) by way of an exchange qualified under Section 25lll, 25112 or
25113 of the Code, provided that no order under Section 25140 or
Subdivision (a) of Section 25143 is in effect with respect to such
qualification;
(13) between residents of foreign states, territories or countries who
are neither domiciled nor actually present in this state;
(14) to the State Controller pursuant to the Unclaimed Property Law or
to the administrator of the unclaimed property law of another state;
(15) by the State Controller pursuant to the Unclaimed Property Law or
by the administrator of the unclaimed property law of another state if, in
either such case, such person (i) discloses to potential purchasers at the
sale that transfer of the securities is restricted under his rule, (ii)
delivers to each purchaser a copy of this rule, and (iii) advises the
Commissioner of the name of each purchaser;
(16) by a trustee to a successor trustee when such transfer does not
involve a change in the beneficial ownership of the securities; or
(17) by way of an offer and sale of outstanding securities in an issuer
transaction that is subject to the qualification requirement of Section
25110 of the Code but exempt from that qualification requirement by
subdivision (f) of Section 25102;
provided that any such transfer is on the condition that any certificate
evidencing the security issued to such transferee shall contain the legend
required by this section.
(c) The certificates representing all such securities subject to such a
restriction on transfer, whether upon initial issuance or upon any transfer
thereof, shall bear on their face a legend, prominently stamped or printed
thereon in capital letters of not less than 10-point size, reading as follows:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR
ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE
PRIOR WRITTEN CONSENT OF THE COMMISSIONER OR CORPORATIONS OF THE STATE OF
CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."
<PAGE>
EXHIBIT 10.3
SALIX HOLDINGS, LTD.
1996 STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of this 1996 Stock Option Plan are
--------------------
to attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to the Employees and Consultants
of the Company and to promote the success of the Company's business.
Options granted hereunder may be either Incentive Stock Options or
Nonstatutory Stock Options, at the discretion of the Board and as reflected in
the terms of the written option agreement.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" shall mean the Board or any of its Committees
-------------
appointed pursuant to Section 4 of the Plan.
(b) "Applicable Laws" shall have the meaning set forth in
---------------
Section 4(a) below.
(c) "Board" shall mean the Board of Directors of the Company.
-----
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended,
----
or any successor thereto.
(e) "Committee" shall mean the Committee appointed by the Board of
---------
Directors in accordance with Section 4(a) of the Plan, if one is appointed.
(f) "Common Stock" shall mean the Common Stock of the Company.
------------
(g) "Company" shall mean Salix Holdings, Ltd., a British Virgin
-------
Islands International Business Company.
(h) "Consultant" shall mean any person who is engaged by the Company
----------
or any Parent or Subsidiary to render consulting services and is compensated for
such consulting services, and any director of the Company whether compensated
for such services or not; provided that if and in the event the Company
--------
registers any class of any equity security pursuant to Section 12 of the
Exchange Act, the term Consultant shall thereafter not include directors who are
not compensated for their services or are paid only a director's fee by the
Company.
(i) "Continuous Status as an Employee or Consultant" shall mean the
----------------------------------------------
absence of any interruption or termination of service as an Employee or
Consultant. Continuous Status as an Employee or Consultant shall not be
considered interrupted in the case of sick leave, military leave, or any other
leave of absence approved by the Administrator; provided that such leave is for
--------
a period of not more than 90 days or reemployment upon the expiration of such
leave is
<PAGE>
guaranteed by contract or statute. For purposes of this Plan, a change in
status from an Employee to a Consultant or from a Consultant to an Employee will
not constitute a termination of employment.
(j) "Director" shall mean a member of the Board.
--------
(k) "Employee" shall mean any person, including officers and Named
--------
Executives (including officers and Named Executives who are also directors),
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a director's fee by the Company shall not be sufficient to constitute
"employment" by the Company.
(l) "Exchange Act" shall mean the Securities Exchange Act of 1934,
------------
as amended.
(m) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(i) The fair market value shall be determined by the Board in
its discretion; provided, however, that where there is a public market for the
-------- -------
Common Stock, the fair market value per Share shall not be less than the closing
price of the Common Stock on the Toronto Stock Exchange on the last business day
preceding the date of grant. Such fair market value shall be priced in United
States dollars converted at the then prevailing exchange rate between Canada and
the United States.
(ii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(n) "Incentive Stock Option" shall mean an Option intended to
----------------------
qualify as an incentive stock option within the meaning of Section 422 of the
Code.
(o) "Named Executive" shall mean any individual who, on the last
---------------
day of the Company's fiscal year, is the chief executive officer of the Company
(or is acting in such capacity) or among the four highest compensated officers
of the Company (other than the chief executive officer). Such officer status
shall be determined pursuant to the executive compensation disclosure rules
under the Exchange Act.
(p) "Nonstatutory Stock Option" shall mean an Option not intended
-------------------------
to qualify as an Incentive Stock Option.
(q) "Officer" shall mean a person who is an officer of the Company
-------
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder, or any successor thereto.
(r) "Option" shall mean a stock option granted pursuant to the
------
Plan.
(s) "Optioned Stock" shall mean the Common Stock subject to an
--------------
Option.
-2-
<PAGE>
(t) "Optionee" shall mean an Employee or Consultant who receives
--------
an Option.
(u) "Parent" shall mean a "parent corporation," whether now or
------
hereafter existing, as defined in Section 424(e) of the Code.
(v) "Plan" shall mean this 1996 Stock Option Plan.
----
(w) "Rule 16b-3" shall mean Rule 16b-3 promulgated under the
----------
Exchange Act as the same may be amended from time to time, or any successor
provision.
(x) "Share" shall mean a share of the Common Stock, as adjusted
-----
in accordance with Section 14 of the Plan.
(y) "Subsidiary" shall mean a "subsidiary corporation," whether
----------
now or hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 14
-------------------------
of the Plan, the maximum aggregate number of shares that may be optioned and
sold under the Pl an is 1,150,000; provided that in no event shall the number of
--------
shares that may be optioned and sold under the Plan exceed the sum of (i)
711,175 shares of Common Stock plus (ii) such number of shares as are subject to
outstanding and unexercised stock options under the Company's 1994 Stock Plan,
as of the date of adoption of this Plan by the stockholders, which options are
thereafter canceled or otherwise terminated without exercise. The Shares may be
authorized, but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason
without having been exercised in full, the unpurchased Shares that were subject
thereto shall, unless the Plan shall have been terminated, become available for
future grant under the Plan. Notwithstanding any other provision of the Plan,
shares issued under the Plan and later repurchased by the Company shall not
become available for future grant or sale under the Plan.
4. Administration of the Plan.
---------------------------
(a) Composition of Administrator.
----------------------------
(i) Multiple Administrative Bodies. If permitted by Rule 16b-3,
------------------------------
and by the legal requirements relating to the administration of incentive stock
option plans, if any, of applicable securities laws and the Code (collectively,
the "APPLICABLE LAWS"), the Plan may (but need not) be administered by different
administrative bodies with respect to directors, officers who are not directors
and Employees who are neither directors nor officers.
(ii) Administration with respect to Directors and Officers. With
-----------------------------------------------------
respect to grants of Options to Employees or Consultants who are also officers
or directors of the Company, the Plan shall be administered by (A) the Board, if
the Board may administer the Plan
-3-
<PAGE>
in compliance with Rule 16b-3 as it applies to a plan intended to qualify
thereunder as a discretionary plan and Section 162(m) of the Code as it app lies
so as to qualify grants of Options to Named Executives as performance-based
compensation, or (B) a Committee designated by the Board to administer the Plan,
which Committee shall be constituted (I) in such a manner as to permit the Plan
to comply with Rule 16b-3 as it applies to a plan intended to qualify thereunder
as a discretionary plan, (II) in such a manner as to qualify grants of Options
to Named Executives as performance-based compensation under Section 162(m) of
the Code and (III) in such a manner as to satisfy the Applicable Laws.
(iii) Administration with respect to Other Persons. With
--------------------------------------------
respect to grants of Options to Employees or Consultants who are neither
directors nor officers of the Company, the Plan shall be administered by (A) the
Board or (B) a Committee designated by the Board, which Committee shall be
constituted in such a manner as to satisfy the Applicable Laws.
(iv) General. Once a Committee has been appointed pursuant to
-------
subsection (ii) or (iii) of this Section 4(a), such Committee shall continue to
serve in its designated capacity until otherwise directed by the Board. From
time to time the Board may increase the size of any Committee and appoint
additional members thereof, remove members (with or without cause) and appoint
new members in substitution therefor, fill vacancies (however caused) and remove
all members of a Committee and thereafter directly administer the Plan, all to
the extent permitted by the Applicable Laws and, in the case of a Committee
appointed under subsection (ii), to the extent permitted by Rule 16b-3 as it
applies to a plan intended to qualify thereunder as a discretionary plan, and to
the extent required under Section 162(m) of the Code to qualify grants of
Options to Named Executives as performance-based compensation.
(b) Powers of the Administrator. Subject to compliance with the
---------------------------
bylaws, rules, policies and requirements of the Alberta Stock Exchange or the
Toronto Stock Exchange, as applicable, and further subject to the provisions of
the Plan and in the case of a Committee, the specific duties delegated by the
Board to such Committee, the Administrator shall have the authority, in its
discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(m) of the Plan;
(ii) to select the Employees and Consultants to whom Options
may from time to time be granted hereunder;
(iii) to determine whether and to what extent Options are
granted hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each such award granted hereunder;
(v) to approve forms of agreement for use under the Plan;
-4-
<PAGE>
(vi) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder (including, but not
limited to, the share price and any restriction or limitation, or any vesting
acceleration or waiver of forfeiture restrictions regarding any Option and/or
the shares of Common Stock relating thereto, based in each case on such factors
as the Administrator shall determine, in its sole discretion);
(vii) to determine whether, to what extent and under what
circumstances Common Stock and other amounts payable with respect to an award
under this Plan shall be deferred either automatically or at the election of the
participant (including providing for and determining the amount, if any, of any
deemed earnings on any deferred amount during any deferral period); and
(viii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option shall have declined since the date the Option was granted;
(c) Effect of Administrator's Decision. All decisions, determinations
----------------------------------
and interpretations of the Administrator shall be final and binding on all
Optionees and any other holders of any Options.
5. Eligibility.
-----------
(a) Nonstatutory Stock Options may be granted only to Employees and
Consultants. Incentive Stock Options may be granted only to Employees. An
Employee or Consultant who has been granted an Option may, if he or she is
otherwise eligible, be granted an additional Option or Options.
(b) Each Option shall be designated in the written option agreement
as either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designations, to the extent that the aggregate Fair Market
Value of Stock Options are exercisable for the first time by an Optionee during
any calendar year (under all plans of the Company or any Parent or Subsidiary)
exceeds $100,000, such excess Options shall be treated as Nonstatutory Stock
Options.
(c) For purposes of Section 5(b), Incentive Stock Options shall be
taken into account in the order in which they were granted, and the Fair Market
Value of the Shares shall be determined as of the time the Option with respect
to such Shares is granted.
(d) The Plan shall not confer upon any Optionee any right with
respect to continuation of employment or consulting relationship with the
Company, nor shall it interfere in any way with his or her right or the
Company's right to terminate his or her employment or consulting relationship at
any time, with or without cause.
-5-
<PAGE>
(e) The terms of any Option shall comply with the rules and policies
of any stock exchange on which the shares of the Company are then listed.
(f) Not more than 50% of the total number of shares reserved under
the Plan shall be allocated to any one participant under the Plan within any
twelve calendar month period.
(g) The maximum number of shares that may be allocated to any one
participant upon the grant of stock Options may not exceed 5% of the issued and
outstanding Common Stock at the time of grant.
6. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board of Directors or its approval by the
stockholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 16 of the Plan.
7. Term of Option. The term of each Option shall be the term stated in
--------------
the Option Agreement; provided, however, that in the case of an Incentive Stock
-------- -------
Option, the term shall be no more than ten (10) years from the date of grant
thereof or such shorter term as may be provided in the Option Agreement or as
may be prescribed in the rules and policies of any stock exchange on which the
shares of the Company are then listed. However, in the case of an Option
granted to an Optionee who, at the time the Option is granted, owns stock
representing more than ten percent (10%) of the voting power of all classes of
stock of the Company or any Parent or Subsidiary, the term of the Option shall
be five (5) years from the date of grant thereof or such shorter term as may be
provided in the Option Agreement.
8. Limitation on Grants to Officers. Subject to adjustment as provided
--------------------------------
in this Plan and subject to the other limitations set forth herein:
(a) The maximum number of Shares which may be granted under Options
held by all Officers of the Company may not exceed 10% of the issued and
outstanding shares of Common Stock at the time of grant (excluding shares issued
pursuant to share compensation arrangements over the preceding 12-month period).
(b) The maximum number of Shares which may be granted under Options
to any one Officer and such Officer's associates in any 12 month period shall be
5% of the issued and outstanding Common Stock at the time of grant (excluding
shares issued pursuant to share compensation arrangements over the preceding 12-
month period).
(c) The maximum number of Shares which may be granted under Options
to Officers in any 12 month period shall be 10% of the issued and outstanding
Common Stock at the time of grant (excluding shares issued pursuant to share
compensation arrangements over the preceding 12-month period).
-6-
<PAGE>
9. Option Exercise Price and Consideration.
---------------------------------------
(a) The per Share exercise price for the Shares to be issued
pursuant to exercise of an Option shall be such price as is determined by the
Administrator, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of the grant of
such Incentive Stock Option, owns stock representing more than ten percent (10%)
of the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant;
(B) granted to any Employee, the per Share exercise price
shall be no less than 100% of the Fair Market Value per Share on the date of
grant.
(ii) In the case of a Nonstatutory Stock Option granted to a
person who, at the time of the grant of such Option, is a Named Executive of the
Company, the per share Exercise Price shall be no less than 100% of the Fair
Market Value on the date of grant;
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of (1) cash, (2)
check, (3) other Shares that (x) in the case of Shares acquired upon exercise of
an Option either have been owned by the Optionee for more than six months on the
date of surrender or were not acquired, directly or indirectly, from the
Company, and (y) have a Fair Market Value on the date of surrender equal to the
aggregate exercise price of the Shares as to which said Option shall be
exercised, (4) authorization from the Company to retain from the total number of
Shares as to which the Option is exercised that number of Shares having a Fair
Market Value on the date of exercise equal to the exercise price for the total
number of Shares as to which the Option is exercised, (5) delivery of a properly
executed exercise notice together with irrevocable instructions to a broker to
deliver promptly to the Company the amount of sale or loan proceeds required to
pay the exercise price, (6) any combination of the foregoing methods of payment,
or (7) such other consideration and method of payment for the issuance of Shares
to the extent permitted under Applicable Laws. No Optionee shall receive
financial assistance from the Company in connection with the exercise of any
Option and the purchase price of the Common Stock issuable pursuant to any
Option shall be paid in full prior to the issuance of such Common Stock. In
making its determination as to the type of consideration to accept, the
Administrator shall consider if acceptance of such consideration may be
reasonably expected to benefit the Company.
10. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Stockholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times and under such conditions
as determined by the
-7-
<PAGE>
Administrator, including performance criteria with respect to the Company and/or
the Optionee, and as shall be permissible under the terms of the Plan.
An Option may not be exercised for a fraction of a Share .
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Administrator, consist of any
consideration and method of payment allowable under Section 9(b) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a stockholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause
to be issued) such stock certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 14 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Status as an Employee or Consultant. In the event
--------------------------------------------------
of termination of an Optionee's Continuous Status as an Employee or Consultant,
such Optionee may, but only within thirty (30) days (or such other period of
time, not exceeding three (3) months in the case of an Incentive Stock Option or
six (6) months in the case of a Nonstatutory Stock Option, as is determined by
the Administrator, with such determination in the case of an Incentive Stock
Option being made at the time of grant of the Option) after the date of such
termination (but in no event later than the date of expiration of the term of
such Option as set forth in the Option Agreement), exercise his or her Option to
the extent that he or she was entitled to exercise it at the date of such
termination. To the extent that the Optionee was not entitled to exercise the
Option at the date of such termination, or if the optionee does not exercise
such Option (which he or she was entitled to exercise) within the time specified
herein, the Option shall terminate.
(c) Disability of Optionee. Notwithstanding the provisions of Section
----------------------
10(b) above, in the event of termination of an Optionee's Continuous Status as
an Employee or Consultant as a result of his or her disability, he or she may,
but only within twelve (12) months (or such other period of time not exceeding
twelve (12) months as is determined by the Administrator, with such
determination in the case of an Incentive Stock Option being made at the time of
grant of the Option) from the date of such termination (but in no event later
than the date of expiration of the term of such Option as set forth in the
Option Agreement), exercise his or her Option to the extent he or she was
entitled to exercise it at the date of such termination. To the extent that he
or she was not entitled to exercise the Option at the date of termination, or if
-8-
<PAGE>
he does not exercise such Option (which he was entitled to exercise) within the
time specified herein, the Option shall terminate.
(d) Death of Optionee. In the event of the death of an Optionee:
-----------------
(i) during the term of the Option who is at the time of his
death an Employee or Consultant of the Company and who shall have been in
Continuous Status as an Employee or Consultant since the date of grant of the
Option, the Option may be exercised, at any time within six (6) months (or such
other period of time, not exceeding six (6) months, as is determined by the
Administrator, with such determination in the case of an Incentive Stock Option
being made at the time of grant of the Option) following the date of death (but
in no event later than the date of expiration of the term of such Option as set
forth in the Option Agreement), by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance but only to
the extent of the right to exercise that would have accrued had the Optionee
continued living and remained in Continuous Status as an Employee or Consultant
three (3) months (or such other period of time as is determined by the
Administrator as provided above) after the date of death, subject to the
limitation set forth in Section 5(b); or
(ii) within thirty (30) days (or such other period of time not
exceeding three (3) months as is determined by the Administrator, with such
determination in the case of an Incentive Stock Option being made at the time of
grant of the Option) after the termination of Continuous Status as an Employee
or Consultant, the Option may be exercised, at any time within twelve (12)
months following the date of death (but in no event later than the date of
expiration of the term of such Option as set forth in the Option Agreement), by
the Optionee's estate or by a person who acquired the right to exercise the
Option by bequest or inheritance, but only to the extent of the right to
exercise that had accrued at the date of termination.
(e) Rule 16b-3. Options granted to persons subject to Section 16(b) of
----------
the Exchange Act must comply with Rule 16b-3 and shall contain such additional
conditions or restrictions as may be required thereunder to qualify for the
maximum exemption from Section 16 of the Exchange Act with respect to Plan
transactions.
11. Withholding Taxes. As a condition to the exercise of Options granted
-----------------
hereunder, the Optionee shall make such arrangements as the Administrator may
require for the satisfaction of any federal, state, local or foreign withholding
tax obligations that may arise in connection with the exercise, receipt or
vesting of such Option. The Company shall not be required to issue any Shares
under the Plan until such obligations are satisfied.
12. Stock Withholding to Satisfy Withholding Tax Obligations. At the
--------------------------------------------------------
discretion of the Administrator, Optionees may satisfy withholding obligations
as provided in this paragraph. When an Optionee incurs tax liability in
connection with an Option which tax liability is subject to tax withholding
under applicable tax laws, and the Optionee is obligated to pay the Company an
amount required to be withheld under applicable tax laws, the Optionee may
satisfy the withholding tax obligation by one or some combination of the
following methods: (a) by cash payment, or (b) out of Optionee's current
compensation, (c) if permitted by the Administrator, in
-9-
<PAGE>
its discretion, by surrendering to the Company Shares that (i) in the case of
Shares previously acquired from the Company, have been owned by the Optionee for
more than six months on the date of surrender, and (ii) have a fair market value
on the date of surrender equal to or less than Optionee's marginal tax rate
times the ordinary income recognized, or (d) by electing to have the Company
withhold from the Shares to be issued upon exercise of the Option that number of
Shares having a fair market value equal to the amount required to be withheld.
For this purpose, the fair market value of the Shares to be withheld shall be
determined on the date that the amount of tax to be withheld is to be determined
(the "TAX DATE").
Any surrender by an Officer or Director of previously owned Shares to
satisfy tax withholding obligations arising upon exercise of this Option must
comply with the applicable provisions of Rule 16b-3 and shall be subject to such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
All elections by an Optionee to have Shares withheld to satisfy tax
withholding obligations shall be made in writing in a form acceptable to the
Administrator and shall be subject to the following restrictions:
(a) the election must be made on or prior to the applicable Tax Date;
(b) once made, the election shall be irrevocable as to the particular
Shares of the Option as to which the election is made;
(c) all elections shall be subject to the consent or disapproval of
the Administrator;
(d) if the Optionee is an Officer or Director, the election must comply
with the applicable provisions of Rule 16b-3 and shall be subject to such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
In the event the election to have Shares withheld is made by an
Optionee and the Tax Date is deferred under Section 83 of the Code because no
election is filed under Section 83(b) of the Code, the Optionee shall receive
the full number of Shares with respect to which the Option is exercised but such
Optionee shall be unconditionally obligated to tender back to the Company the
proper number of Shares on the Tax Date.
13. Non-Transferability of Options. The Option may not be sold,
------------------------------
pledged,assigned, hypothecated, transferred, or disposed of in any manner.
-10-
<PAGE>
14. Adjustments Upon Changes in Capitalization or Merger.
-----------------------------------------------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
stockholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, the number of shares of Common Stock that have been
authorized for issuance under the Plan but as to which no Options have yet been
granted or which have been returned to the Plan upon cancellation or expiration
of an Option, the maximum number of shares of Common Stock for which Options may
be granted to any employee under Section 8 of the Plan, and the price per share
of Common Stock covered by each such outstanding Option, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any other
increase or decrease in the number of issued shares of Common Stock effected
without receipt of consideration by the Company; provided, however, that
-------- -------
conversion of any convertible securities of the Company shall not be deemed to
have been "effected without receipt of consideration." Such adjustment shall be
made by the Administrator, whose determination in that respect shall be final,
binding and conclusive. Except as expressly provided herein, no issuance by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock subject
to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Board shall notify the Optionee
at least fifteen (15) days prior to such proposed action. To the extent it has
not been previously exercised, the Option will terminate immediately prior to
the consummation of such proposed action.
(c) Merger or Sale of Assets. In the event of a proposed sale of all
------------------------
or substantially all of the Company's assets or a merger of the Company with or
into another corporation where the successor corporation issues its securities
to the Company's shareholders, each outstanding Option shall be assumed or an
equivalent option or right shall be substituted by such successor corporation or
a parent or subsidiary of such successor corporation, unless the successor
corporation does not agree to assume the Option or to substitute an equivalent
option or right, in which case such Option shall vest in its entirety and become
exercisable as follows prior to the consummation of the merger or sale of
assets. If the Option becomes fully exerciseable in lieu of assumption or
substitution in the event of a merger or sale of assets in as provided in the
preceding sentence, the Administrator shall notify the Optionee and the Option
shall be fully exerciseable for a period of ten (10) days from the date of such
notice, and will terminate upon the expiration of such period.
(d) Certain Distributions. In the event of any distribution to the
---------------------
Company's shareholders of securities of any other entity or other assets (other
than dividends payable in cash or stock of the Company) without receipt of
consideration by the Company, the Administrator may, in its discretion,
appropriately adjust the price per share of Common Stock covered by each
outstanding Option to reflect the effect of such distribution.
-11-
<PAGE>
15. Time of Granting Options. The date of grant of an Option shall, for
------------------------
all purposes, be the date on which the Administrator makes the determination
granting such Option or such other date as is determined by the Administrator.
Notice of the determination shall be given to each Employee or Consultant to
whom an Option is so granted within a reasonable time after the date of such
grant.
16. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination.
-------------------------
(i) The Board may amend or terminate the Plan from time to time
in such respects as the Board may deem advisable; provided that, the following
--------
revisions or amendments shall require approval of the stockholders of the
Company in the manner described in Section 20 of the Plan:
(1) any revision or amendment requiring stockholder
approval in order to preserve the qualification of the Plan under
Rule 16b-3; or
(2) any change in the limitation on grants to employees as
described in Section 8 of the Plan or other changes which would
require stockholder approval to qualify Options granted hereunder
as performance-based compensation under Section 162(m) of the Code.
(ii) The President and Chief Financial Officer may amend the
Plan without approval of the Board in order to comply with the requirements of
any stock exchange on which the Common Stock is listed, provided that any
--------
necessary prior approval of such stock exchange or under applicable securities
laws is obtained.
(b) Stockholder Approval. If any amendment requiring stockholder
--------------------
approval under Section 13(a) of the Plan is made subsequent to the first
registration of any class of equity securities by the Company under Section 12
of the Exchange Act, such stockholder approval shall be solicited as described
in Section 20 of the Plan.
(c) Effect of Amendment or Termination. Any such amendment or
----------------------------------
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Board, which agreement must be in writing and signed by the Optionee and the
Company.
17. Conditions Upon Issuance of Shares. Shares shall not be issued
----------------------------------
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended (or any successor thereto), the Exchange Act, the rules and
regulations promulgated thereunder, and the requirements of any stock exchange
-12-
<PAGE>
upon which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
18. Reservation of Shares. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.
19. Option Agreement. Options shall be evidenced by written option
----------------
agreements in such form as the Board shall approve.
20. Stockholder Approval.
--------------------
(a) Continuance of the Plan shall be subject to approval by the
stockholders of the Company within twelve (12) months before or after the date
the Plan is adopted. Such stockholder approval shall be obtained in the manner
and to the degree required under applicable federal and state law.
(b) In the event that the Company registers any class of equity
securities pursuant to Section 12 of the Exchange Act, any required approval of
the stockholders of the Company obtained after such registration shall be
solicited substantially in accordance with Section 14(a) of the Exchange Act and
the rules and regulations promulgated thereunder.
(c) If any required approval by the stockholders of the Plan itself
or of any amendment thereto is solicited at any time otherwise than in the
manner described in Section 20(b) hereof, then the Company shall, at or prior to
the first annual meeting of stockholders held subsequent to the later of (1) the
first registration of any class of equity securities of the Company under
Section 12 of the Exchange Act or (2) the granting of an Option hereunder to an
officer or director after such registration, do the following:
(i) furnish in writing to the holders entitled to vote for the
Plan substantially the same information that would be required (if proxies to be
voted with respect to approval or disapproval of the Plan or amendment were then
being solicited) by the rules and
-13-
<PAGE>
regulations in effect under Section 14(a) of the Exchange Act at the time such
information is furnished; and
(ii) file with, or mail for filing to, the Securities and
Exchange Commission four copies of the written information referred to in
subsection (i) hereof not later than the date on which such information is first
sent or given to stockholders.
-14-
<PAGE>
SALIX HOLDINGS, LTD.
1996 STOCK OPTION PLAN
NOTICE OF STOCK OPTION GRANT
______________________________
______________________________
______________________________
You have been granted an option to purchase Common Stock of Salix
Holdings, Ltd. (the "COMPANY") as follows:
Date of Grant ______________________
Vesting Commencement Date ______________________
Exercise Price per Share US$ __________________
Total Number of Shares Granted ______________________
Total Exercise Price US$ __________________
Type of Option: _________ Incentive Stock Option ("ISO")
_________ Nonstatutory Stock Option ("NSO")
Term/ Expiration Date: ____________________________________________
Vesting Schedule: This Option may be exercised, in whole or in part, in
accordance with the following schedule: _________________
__________________________________________________________
__________________________________________________________
Termination Period: Option may be exercised for 90 days after termination of
Continuous Status as an Employee or Consultant except as
set out in Sections 7 and 8 of the Stock Option Agreement
(but in no event later than the Expiration Date).
By your signature and the signature of the Company's representative below,
you and the Company agree that this option is granted under and governed by the
terms and conditions of the 1996 Stock Option Plan and the Stock Option
Agreement, all of which are attached and made a part of this document.
OPTIONEE: SALIX HOLDINGS, LTD.
By:
________________________ ______________________________
Title:
________________________ ___________________________
Print Name
<PAGE>
SALIX HOLDINGS, LTD.
1996 STOCK OPTION PLAN
STOCK OPTION AGREEMENT
1. Grant of Option. Salix Holdings, Ltd. a British Virgin Islands
---------------
International Business Company (the "COMPANY"), hereby grants to the Optionee
named in the Notice of Grant (the "OPTIONEE"), an option (the "OPTION") to
purchase a total number of shares of Common Stock (the "SHARES") set forth in
the Notice of Grant, at the exercise price per share set forth in the Notice of
Grant (the "EXERCISE PRICE") subject to the terms, definitions and provisions of
the Salix Holdings, Ltd. 1996 Stock Option Plan (the "PLAN") adopted by the
Company, which is incorporated herein by reference. Unless otherwise defined
herein, the terms defined in the Plan shall have the same defined meanings in
this Option.
If designated an Incentive Stock Option, this Option is intended to
qualify as an Incentive Stock Option as defined in Section 422 of the Code.
2. Exercise of Option. This Option shall be exercisable during its term
------------------
in accordance with the Vesting Schedule set out in the Notice of Grant and with
the provisions of Section 10 of the Plan as follows:
(i) Right to Exercise.
-----------------
(a) This Option may not be exercised for a fraction of a share.
(b) In the event of Optionee's death, disability or other
termination of employment or consulting relationship, the exercisability of
the Option is governed by Sections 5, 6 and 7 below, subject to the limitation
contained in subsection 2(i)(c).
(c) In no event may this Option be exercised after the date of
expiration of the term of this Option as set forth in the Notice of Grant.
(ii) Method of Exercise. This Option shall be exercisable by written
------------------
notice (in the form attached as EXHIBIT A) which shall state the election to
exercise the Option, the number of Shares in respect of which the Option is
being exercised, and such other representations and agreements as to the
holder's investment intent with respect to such shares of Common Stock as may be
required by the Company pursuant to the provisions of the Plan. Such written
notice shall be signed by the Optionee and shall be delivered in person or by
certified mail to the Chief Financial Officer of the Company. The written
notice shall be accompanied by payment of the Exercise Price. This Option
shall be deemed to be exercised upon receipt by the Company of such written
notice accompanied by the Exercise Price.
No Shares will be issued pursuant to the exercise of an Option unless
such issuance and such exercise shall comply with all relevant provisions of law
and the requirements of any stock
<PAGE>
exchange upon which the Shares may then be listed. Assuming such compliance,
for income tax purposes the Shares shall be considered transferred to the
Optionee on the date on which the Option is exercised with respect to such
Shares.
3. Method of Payment. Payment of the Exercise Price shall be by any of
-----------------
the following, or a combination thereof, at the election of the Optionee:
i. cash; or
ii. check; or
iii. surrender of other shares of Common Stock of the Company which
(A) in the case of Shares acquired pursuant to the exercise of a Company option,
either have been owned by the Optionee for more than six (6) months on the date
of surrender or were not acquired, directly or indirectly, from the Company, and
(B) have a fair market value on the date of surrender equal to the Exercise
Price of the Shares as to which the Option is being exercised; or
iv. authorization from the Company to retain from the total number of
Shares as to which the Option is exercised that number of Shares having a Fair
Market Value on the date of exercise equal to the exercise price for the total
number of Shares as to which the Option is exercised; or
v. delivery of a properly executed exercise notice together with
irrevocable instructions to a broker to deliver promptly to the Company the
amount of sale or loan proceeds required to pay the exercise price, or
vi. any combination of the foregoing methods of payment.
4. Restrictions on Exercise. This Option may not be exercised until such
------------------------
time as the Plan has been approved by the shareholders of the Company, or if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations ("REGULATION G")as
promulgated by the Federal Reserve Board. As a condition to the exercise of
this Option, the Company may require Optionee to make any representation and
warranty to the Company as may be required by any applicable law or regulation.
5. Termination of Relationship. In the event of termination of
---------------------------
Optionee's Continuous Status as an Employee or Consultant, Optionee may, to the
extent otherwise so entitled at the date of such termination (the "TERMINATION
DATE"), exercise this Option during the Termination Period set out in the Notice
of Grant. To the extent that Optionee was not entitled to exercise this Option
at the date of such termination, or if Optionee does not exercise this Option
within the time specified herein, the Option shall terminate.
-2-
<PAGE>
6. Disability of Optionee. Notwithstanding the provisions of Section 5
----------------------
above, in the event of termination of Optionee's Continuous Status as an
Employee or Consultant as a result of his or her disability, Optionee may, but
only within twelve (12) months from the date of termination of employment (but
in no event later than the date of expiration of the term of this Option as set
forth in Section 9 below), exercise this Option to the extent he or she was
entitled to exercise it at the date of such termination. To the extent that
Optionee was not entitled to exercise the Option at the date of termination, or
if Optionee does not exercise such Option (which he was entitled to exercise)
within the time specified herein, the Option shall terminate.
7. Death of Optionee. In the event of the death of Optionee:
-----------------
(i) during the term of this Option and while an Employee or
Consultant of the Company and having been in Continuous Status as an Employee
or Consultant since the date of grant of the Option, the Option may be
exercised at any time within six (6) months following the date of death (but
in no event later than the date of expiration of the term of this Option as
set forth in Section 9 below), by Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance, but only
to the extent of the right to exercise that would have accrued had the
Optionee continued living and remained in Continuous Status as an Employee or
Consultant three (3) months after the date of death; or
(ii) within thirty (30) days after the termination of Optionee's
Continuous Status as an Employee or Consultant, the Option may be exercised,
at any time within twelve (12) months following the date of death (but in no
event later than the date of expiration of the term of this Option as set
forth in Section 9 below), by Optionee's estate or by a person who acquired
the right to exercise the Option by bequest or inheritance, but only to the
extent of the right to exercise that had accrued at the date of termination.
8. Non-Transferability of Option. This option may not be transferred
-----------------------------
in any manner and may be exercised during the lifetime of Optionee only by
Optionee. The terms of this Option shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
9. Term of Option. This Option may be exercised only within the term set
--------------
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option. The limitations set out
in Section 8 of the Plan regarding Options designated as Incentive Stock
Options and Options granted to more than ten percent (10%) shareholders shall
apply to this Option.
10. Taxation Upon Exercise of Option. Optionee understands that, upon
--------------------------------
exercising a Nonstatutory Stock Option, he or she will recognize income for tax
purposes in an amount equal to the excess of the then fair market value of the
Shares over the exercise price. However, the timing of this income recognition
may be deferred for up to six months if Optionee is subject to Section 16 of the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"). If the
Optionee is an employee, the Company will be required to withhold from
Optionee's compensation, or collect from Optionee and pay to the applicable
taxing authorities, an amount equal to a percentage of this compensation income.
Additionally, the Optionee may at some point be required to satisfy tax
-3-
<PAGE>
withholding obligations with respect to the disqualifying disposition of an
Incentive Stock Option. The Optionee shall satisfy his or her tax withholding
obligation arising upon the exercise of this Option by one or some combination
of the following methods: (i) by cash payment, or (ii) out of Optionee's
current compensation, or (iii) if permitted by the Administrator, in its
discretion, by surrendering to the Company Shares which (a) in the case of
Shares previously acquired from the Company, have been owned by the Optionee for
more than six months on the date of surrender, and (b) have a fair market value
on the date of surrender equal to or greater than Optionee's marginal tax rate
times the ordinary income recognized, or (iv) by electing to have the Company
withhold from the Shares to be issued upon exercise of the Option that number of
Shares having a fair market value equal to the amount required to be withheld.
For this purpose, the fair market value of the Shares to be withheld shall be
determined on the date that the amount of tax to be withheld is to be determined
(the "TAX DATE").
If the Optionee is subject to Section 16 of the Exchange Act (an "INSIDER"),
any surrender of previously owned Shares to satisfy tax withholding obligations
arising upon exercise of this Option must comply with the applicable provisions
of Rule 16b-3 promulgated under the Exchange Act ("RULE 16B-3") and shall be
subject to such additional conditions or restrictions as may be required
thereunder to qualify for the maximum exemption from Section 16 of the Exchange
Act with respect to Plan transactions.
All elections by an Optionee to have Shares withheld to satisfy tax
withholding obligations shall be made in writing in a form acceptable to the
Administrator and shall be subject to the following restrictions:
(1) the election must be made on or prior to the applicable Tax Date;
(2) once made, the election shall be irrevocable as to the particular
Shares of the Option as to which the election is made;
(3) all elections shall be subject to the consent or disapproval of
the Administrator;
(4) if the Optionee is an Insider, the election must comply with the
applicable provisions of Rule 16b-3 and shall be subject to such additional
conditions or restrictions as may be required thereunder to qualify for the
maximum exemption from Section 16 of the Exchange Act with respect to Plan
transactions.
11. Tax Consequences. Set forth below is a brief summary as of the date
----------------
of this Option of some of the U.S. federal and California tax consequences of
exercise of this Option and disposition of the Shares. THIS SUMMARY IS
NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE.
OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING
OF THE SHARES.
(i) Exercise of ISO. If this Option qualifies as an ISO, there will
---------------
be no regular U.S. federal income tax liability or California income tax
liability upon the exercise of the
-4-
<PAGE>
Option, although the excess, if any, of the fair market value of the Shares on
the date of exercise over the Exercise Price will be treated as an adjustment to
the alternative minimum tax for federal tax purposes and may subject the
Optionee to the alternative minimum tax in the year of exercise.
(ii) Exercise of Nonstatutory Stock Option. If this Option does not
-------------------------------------
qualify as an ISO, there may be a regular U.S. federal income tax liability and
a California income tax liability upon the exercise of the Option. The Optionee
will be treated as having received compensation income (taxable at ordinary
income tax rates) equal to the excess, if any, of the fair market value of the
Shares on the date of exercise over the Exercise Price. If Optionee is an
employee, the Company will be required to withhold from Optionee's compensation
or collect from Optionee and pay to the applicable taxing authorities an amount
equal to a percentage of this compensation income at the time of exercise.
(iii) Disposition of Shares. In the case of an NSO, if Shares are
---------------------
held for at least one year, any gain realized on disposition of the Shares
will be treated as long-term capital gain for U.S. federal and California
income tax purposes. In the case of an ISO, if Shares transferred pursuant to
the Option are held for at least one year after exercise and are disposed of
at least two years after the Date of Grant, any gain realized on disposition
of the Shares will also be treated as long-term capital gain for U.S. federal
and California income tax purposes. If Shares purchased under an ISO are
disposed of within such one-year period or within two years after the Date of
Grant, any gain realized on such disposition will be treated as compensation
income (taxable at ordinary income rates) to the extent of the difference
between the Exercise Price and the lesser of (1) the fair market value of the
Shares on the date of exercise, or (2) the sale price of the Shares.
(iv) Notice of Disqualifying Disposition of ISO Shares. If the
-------------------------------------------------
Option granted to Optionee herein is an ISO, and if Optionee sells or otherwise
disposes of any of the Shares acquired pursuant to the ISO on or before the
later of (1) the date two years after the Date of Grant, or (2) the date one
year after the date of exercise, the Optionee shall immediately notify the
Company in writing of such disposition. Optionee agrees that Optionee may be
subject to income tax withholding by the Company on the compensation income
recognized by the Optionee from the early disposition by payment in cash or out
of the current earnings paid to the Optionee.
Salix Holdings, Ltd.
a British Virgin Islands International Business
Company
By:
-------------------------------------------------
Title:
----------------------------------------------
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE
OPTION HEREOF IS EARNED ONLY BY CONTINUING CONSULTANCY OR EMPLOYMENT AT THE WILL
OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR
ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT
NOTHING
-5-
<PAGE>
IN THIS AGREEMENT, NOR IN THE COMPANY'S STOCK OPTION PLAN WHICH IS INCORPORATED
HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH RESPECT TO
CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR SHALL IT INTERFERE
IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S
EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT CAUSE.
Optionee acknowledges receipt of a copy of the Plan and represents that he or
she is familiar with the terms and provisions thereof, and hereby accepts this
Option subject to all of the terms and provisions thereof. Optionee has
reviewed the Plan and this Option in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Option and fully
understands all provisions of the Option. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Option.
Dated:
________________________
________________________________
Signature of Optionee
-6-
<PAGE>
EXHIBIT A
---------
SALIX HOLDINGS, LTD.
1996 STOCK OPTION PLAN
EXERCISE NOTICE
Salix Holdings, Ltd.
3600 W. Bayshore Road, Suite 205
Palo Alto, CA 94303
Attention: Chief Financial Officer
1. Exercise of Option. Effective as of today, __________________________,
------------------
19__, the undersigned ("Optionee") hereby elects to exercise Optionee's option
--------
to purchase ___________ shares of the Common Stock (the "Shares") of Salix
------
Holdings, Ltd. (the "Company") under and pursuant to the Company's 1996 Stock
-------
Option Plan, as amended (the "Plan") and the [ ] Incentive [ ] Nonstatutory
----
Stock Option Agreement dated _____________________________ (the "Option
------
Agreement").
- ---------
2. Representations of Optionees. Optionee acknowledges that Optionee has
----------------------------
received, read and understood the Plan and the Option Agreement and agrees to
abide by and be bound by their terms and conditions. Optionee represents that
Optionee is purchasing the Shares for Optionee's own account for investment and
not with a view to, or for sale in connection with, a distribution of any of
such Shares.
3. Compliance with Securities Laws. Optionee understands and acknowledges
-------------------------------
that the Shares may not have been registered under the Securities Act of 1933,
as amended (the "1933 Act"), and, notwithstanding any other provision of the
--------
Option Agreement to the contrary, the exercise of any rights to purchase any
Shares is expressly conditioned upon compliance with the 1933 Act, all
applicable state securities laws and all applicable requirements of any stock
exchange or over the counter market on which the Company's Common Stock may be
listed or traded at the time of exercise and transfer. Optionee agrees to
cooperate with the Company to ensure compliance with such laws.
4. Federal Restrictions on Transfer. Optionee understands that if the
--------------------------------
Shares have not been registered under the 1933 Act, they cannot be resold and
must be held indefinitely unless they are registered under the 1933 Act or
unless an exemption from such registration is available and that the
certificate(s) representing the Shares may bear a legend to that effect.
Optionee understands that the Company is under no obligation to register the
Shares and that an exemption may not be available or may not permit Optionee
to transfer Shares in the amounts or at the times proposed by Optionee.
Specifically, Optionee has been advised that Rule 144 promulgated under the
1933 Act, which permits certain resales of unregistered securities, is not
presently available with respect to the Shares and, in any event requires that
the Shares be paid for and then be held for at a specified period before they
may be resold under Rule 144.
<PAGE>
5. Rights as Shareholder. Until the stock certificate evidencing such
---------------------
Shares is issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), no right to
vote or receive dividends or any other rights as a shareholder shall exist
with respect to the optioned Stock, notwithstanding the exercise of the
Option. The Company shall issue (or cause to be issued) such stock certificate
promptly after the Option is exercised. No adjustment will be made for a
dividend or other right for which the record date is prior to the date the
stock certificate is issued, except as provided in the Plan.
6. Tax Consultation. Optionee understands that Optionee may suffer adverse
----------------
tax consequences as a result of Optionee's purchase or disposition of the
Shares. Optionee represents that Optionee has consulted with any tax
consultants Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.
7. Restrictive Legends and Stop-Transfer Orders.
--------------------------------------------
(a) Legends. Optionee understands and agrees that the Company shall
-------
cause the legends set forth below, or legends substantially equivalent
thereto, to be placed upon any certificate(s) evidencing ownership of the
Shares together with any other legends that may be required by state or
federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL IN FORM AND
SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER,
SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.
(b) Stop-Transfer Notices. Optionee agrees that, in order to ensure
------------------
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) Refusal to Transfer. The Company shall not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
8. Market Standoff Agreement. In connection with an underwritten public
-------------------------
offering of the Company's securities and upon request of the Company or the
underwriters managing any underwritten offering of the Company's securities,
Optionee hereby agrees not to sell, make any short sale of, loan, grant any
option for the purchase of, or otherwise dispose of any Shares (other than
-2-
<PAGE>
those included in the registration) without the prior written consent of the
Company or such underwriters, as the case may be, for such period of time (not
to exceed 180 days) from the effective date of such registration as may be
requested by the Company or such managing underwriters; provided, however, that
-------- -------
the Optionee need not so agree unless a majority of the Company's officers and
directors and a majority of the holders of at least 5% of the Company's
outstanding securities also agree to be similarly bound.
9. Successors and Assigns. The Company may assign any of its rights under
----------------------
this Agreement to single or multiple assignees, and this Agreement shall inure
to the benefit of the successors and assigns of the Company. Subject to the
restrictions on transfer herein set forth, this Agreement shall be binding upon
Optionee and his or her heirs, executors, administrators, successors and
assigns.
10. Interpretation. Any dispute regarding the interpretation of this
--------------
Agreement shall be submitted by Optionee or by the Company forthwith to the
Company's Board of Directors or the committee thereof that administers the
Plan, which shall review such dispute at its next regular meeting. The
resolution of such a dispute by the Board or committee shall be final and
binding on the Company and on Optionee.
11. Governing Law; Severability. This Agreement shall be governed by and
---------------------------
construed in accordance with the laws of the State of California excluding that
body of law pertaining to conflicts of law. Should any provision of this
Agreement be determined by a court of law to be illegal or unenforceable, the
other provisions shall nevertheless remain effective and shall remain
enforceable.
12. Notices. Any notice required or permitted hereunder shall be given in
-------
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail by certified mail, with postage and fees
prepaid, addressed to the other party at its address as shown below beneath its
signature, or to such other address as such party may designate in writing from
time to time to the other party.
13. Further Instruments. The parties agree to execute such further
-------------------
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Agreement.
14. Delivery of Payment. Optionee herewith delivers to the Company the full
-------------------
Exercise Price for the Shares.
15. Entire Agreement. The Plan and Notice of Grant/Option Agreement are
----------------
incorporated herein by reference. This Agreement, the Plan and the Notice of
Grant/Option Agreement constitute
-3-
<PAGE>
the entire agreement of the parties and supersede in their entirety all prior
undertakings and agreements of the Company and Optionee with respect to the
subject matter hereof, and is governed by California law except for that body of
law pertaining to conflict of laws.
Submitted by: Accepted by:
OPTIONEE: SALIX HOLDINGS, LTD.
__________________________________ By:
Signature _____________________________
Its:
____________________________
Name:
_____________________________
Address: 3600 W. Bayshore Rd, Suite 205
Address: _________________________ Palo Alto, CA 94303
Attn: Chief Financial Officer
-4-
<PAGE>
EXHIBIT 10.4
DATED 17th SEPTEMBER 1992
-------------------------
GLYCYX PHARMACEUTICALS, LTD
SALIX PHARMACEUTICALS, INC.
BIOREX LABORATORIES, LTD
_______________________________
AMENDMENT AGREEMENT
_______________________________
HEWITSON BECKE + SHAW
4/5 Church Street
Peterborough
PE1 1XB
* CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
- 1 -
THIS AMENDMENT AGREEMENT, effective as of September 17th 1992 by and among
GLYCYX PHARMACEUTICALS, LTD., a Bermuda corporation having its registered
offices at Cedar House, 41 Cedar Avenue, Hamilton, HM-12, Bermuda, ("Glycyx"),
SALIX PHARMACEUTICALS, INC., a California corporation having its principal place
of business at 3600 W. Bayshore Road, Palo Alto, California 94303 ("Salix") and
BIOREX LABORATORIES, LTD, a United Kingdom corporation having its principal
place of business at 2 Crossfield Chambers, Gladbeck Way, Enfield, Middlesex EN2
7HT ("Biorex").
WITNESSETH:
WHEREAS, Salix has licensed from Biorex the right to make, use and sell in the
United States, Canada and Mexico a therapeutic pharmaceutical product based upon
the compound Balsalazide pursuant to the terms of a License Agreement dated as
of January 17, 1991 between Biorex and Salix (the "Salix License Agreement");
and
WHEREAS, Glycyx has licensed from Biorex the right to make, use and sell in
territories throughout the world (excluding the United States, Canada, Mexico,
Japan, Korea and Taiwan) a therapeutic pharmaceutical product based upon the
compound Balsalazide pursuant to the terms of a License Agreement dated as of
March 18, 1992 between Biorex and Glycyx (the "Original Agreement"); and
- --------------
WHEREAS, Glycyx is interested in licensing to AB Astra ("Astra") certain rights
to distribute in certain territories therapeutic pharmaceutical products based
upon the compound Balsalazide upon the terms contained in a Distribution
Agreement and a Research and Development both between Glycyx and Astra and Astra
has requested that such territories include Mexico and Canada, the rights of
which currently belong to Salix; and
WHEREAS, Biorex and Glycyx have agreed to supersede and replace in its entirety
the Original Agreement by an agreement of even date hereof (the "Glycyx License
Agreement"); and
WHEREAS, Salix and Biorex desire to amend the Salix License Agreement to provide
that the territories of Canada and Mexico shall be removed from the Salix
License Agreement and Glycyx and Biorex desire to have Canada and Mexico added
to the Glycyx License Agreement.
NOW, THEREFORE, in consideration of good and valuable consideration, the receipt
of which is hereby acknowledged, the parties hereto mutually agree as follows:
1. AMENDMENT TO SALIX LICENSE AGREEMENT
------------------------------------
1.1 Salix and Biorex acknowledge and agree that Section 1.10 of the Salix
License Agreement is hereby amended and restated in its entirety to read as
follows:-
1.10 "Territory" means the United States (including its territories,
possessions and the Commonwealth of Puerto
<PAGE>
- 2 -
Rico).
1.2 Salix and Biorex acknowledge and agree that the calculation of royalties
payable by Salix to Biorex pursuant to Section 7 of the Salix License
Agreement shall not include amounts attributable to sales of Products (as
defined therein) by any person in Canada or Mexico.
2. AMENDMENT TO GLYCYX LICENSE AGREEMENT
-------------------------------------
2.1 Definitions
-----------
2.1.1 "Profits", "Initial License Fees" and "Biorex Profits" shall have
the meaning given to them in the Glycyx License Agreement.
2.1.2 "Astra Territory" shall mean all countries throughout the world
(excluding the United States, Japan, Korea, Taiwan, Italy, Spain,
Portugal and Greece.
2.1.3 "Canada-Mexico Fees" small mean [*] of Initial Licence Fees paid
to Glycyx in respect of all (and not part of) the Astra
Territory.
2.1.4 "Canada-Mexico Profit" shall mean [*] of Profits realized by
Glycyx attributable to the Astra Territory.
2.1.5 "Net Canada Mexico Profit" shall mean [*] of Canada Mexico
Profit.
2.2 Glycyx and Biorex acknowledge and agree that the definition of Territory in
the Glycyx License Agreement is hereby amended and restated in its entirety
to read as follows:
"Territory" means the entire world, but excluding the following
countries: United States (including its territories, possessions and
the Commonwealth of Puerto Rico), Japan, Korea and Taiwan.
2.3 For the purposes of section 7.1 of the Glycyx Licence Agreement the term
"Initial Licence Fees" shall mean Initial Licence Fees (as defined in
Article 1 of the Glycyx Licence Agreement) less the Canada-Mexico Fees, and
Biorex Fees shall be calculated accordingly.
2.4 The amount of Net Canada-Mexico Profit paid to Salix by Glycyx pursuant to
section 3.2.2 shall be paid out of Glycyx [*] under section 7.2 of the
Glycyx Licence Agreement. Biorex Profit shall not be reduced as a result of
any payments made pursuant to section 3.1 and/or section 3.2.2.
3. PAYMENTS FROM GLYCYX TO SALIX
-----------------------------
In consideration for Salix agreeing to give up its rights under the Salix
License Agreement to the territories of
* CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
- 3 -
Mexico and Canada and in consideration for Glycyx agreeing to assume the
obligations under the Glycyx License Agreement with respect to such
territories, Glycyx hereby agrees to pay to Salix the amounts set forth
below:-
3.l Milestone Payments
------------------
[*]
[*]
[*]
3.2 Sublicense Fees: Profit Sharing
-------------------------------
3.2.1 Sublicense Fees: Glycyx shall pay to Salix the Canada-Mexico Fees
---------------
arising from the Astra Territory (the "Salix Fees").
3.2.2 Profit Sharing: In addition to the Salix Fees to be paid to Salix
--------------
under 3.2.1 above, Glycyx agrees to pay to Salix [*]. Such
payments shall be payable for so long as Glycyx is making
payments to Biorex pursuant to Section 7.2.2 of the Glycyx
License Agreement. Such amounts shall be paid to Salix quarterly
in accordance with Section 5.1 below, on the basis of unaudited
financial statements of Glycyx for the applicable quarter.
However, the payment to Salix for the final quarter of a Glycyx
fiscal year shall be made on the basis of Glycyx's audited
financial statements for such fiscal year, and such payment shall
be adjusted for the difference between the Profit as calculated
during the year and as reflected in such audited financial
statements. Notwithstanding Section 5.1 below, the report and
payment due under this Section 3.2.2 for the final quarter of a
Glycyx fiscal year shall not be due until ninety (90) days after
the end of such quarter.
3.3 Combination Product: In the event a Product (as defined in the Glycyx
-------------------
License Agreement) is sold in a combination product with other biologically
active components, Profits, for purposes of calculating payments due to
Salix on the combination product, shall be calculated by multiplying the
Profits of that combination product by the fraction A/B, where A is the
gross selling price of the Product sold separately and B is the gross
selling price of the combination product. In the event that no such
separate sales are made by Glycyx or a permitted sublicensee, Profits
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
- 4 -
shall be reasonably allocated between such Product and such other
component, as mutually agreed by Glycyx and Salix. In the event Glycyx
receives Sublicense Fees from such a combination product, the amounts
attributable to the Product shall be reasonably allocated by Glycyx on a
similar basis.
4. REPRESENTATIONS AND WARRANTIES
------------------------------
4.1 Authorization: Each of Salix, Glycyx and Biorex represents and warrants
-------------
that it has the full right and authority to enter into this Agreement and
perform its obligations hereunder.
4.2 No Other Representations: Except to the extent provided in this Clause 4 or
------------------------
as contained in the Salix License Agreement and the Glycyx License
Agreement, Salix, Glycyx and Biorex make no representations and extend no
warranties of any kind, either expressed or implied Provided That the
representations and warranties and indemnities given by Biorex in the
Glycyx License Agreement shall be extended in favour of Glycyx in relation
to Canada and Mexico. THE WARRANTIES EXPRESSLY SET FORTH IN THIS CLAUSE 4
BY EACH PARTY ARE EXCLUSIVE AND NO OTHER WARRANTY, WRITTEN OR ORAL,
INCLUDING WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE, IS EXPRESSED OR IMPLIED.
5. REPORTS AND ACCOUNTING
----------------------
5.1 Reports: During the term during which Glycyx is obligated to make payments
--------
to Salix pursuant to Section 3.2.2 of this Agreement, after the Commercial
Introduction of a Product (as defined in the Glycyx License Agreement),
Glycyx shall furnish to Salix on a quarterly basis a written report
covering Glycyx's fiscal quarters showing, on a country by country basis,
(i) the Sublicense Fees received by Glycyx during the reporting period;
(ii) the Salix Fees and Profits payable in US Dollars which shall have
accrued hereunder in respect of such quarter; (iii) withhold taxes, if any,
required by law to be deducted in respect of such amounts; and (iv) the
dates of the Commercial Introductions of any Products in any country in the
Territory during the reporting period (as such terms are defined in the
Glycyx License Agreement). Except as provided in 3.2.2 above, reports shall
be due forty-five (45) days following the close of each respective quarter.
in case no payments are due for any payment period hereunder, Glycyx shall
so report. Glycyx shall keep accurate records in sufficient detail to
enable the amounts payable hereunder to be determined.
5.2 Audits:
-------
5.2.1 Upon the written request of Salix, at Salix's expense and not
more than once each Glycyx fiscal year, Glycyx shall permit or
procure an independent public accountant selected by Salix and
reasonably acceptable to Glycyx to have access during normal
business hours to such of the
<PAGE>
- 5 -
records of Glycyx, its sub-licensees and Affiliates as may be
reasonably necessary to verify the accuracy of the reports
hereunder made not more than thirty-six (36) months prior to the
date of such request.
5.2.2 In the event such accountant concludes that additional amounts
were owed during such period, the additional amount shall be paid
promptly. The fees charged by such accountant shall be paid by
Salix unless the audit establishes that the amounts payable by
Glycyx for the audited period are more than one hundred and five
percent (105%) of the amounts actually paid for such period, in
which case Glycyx shall pay the reasonable fees and expenses
charged by the accountant.
5.2.3 Upon the expiration of thirty-six (36) months following the date
of any payment report hereunder, the calculation of amounts
payable with respect to the quarter covered by such report shall
be binding and conclusive upon Salix; and Glycyx shall be
released from any liability or accountability with respect to
payments for such year.
5.3 Confidential Financial Information: Salix agrees that all information
-----------------------------------
subject to review under this Clause 5 is confidential and shall cause its
accountant to retail all such information in confidence except for
discussions with Glycyx.
6. PAYMENTS
--------
6.1 Payment Terms: Amounts shown to have accrued by each report provided for
--------------
under Clause 5 of this Agreement shall be due and payable on the date such
report is due; provided, however that payments of Salix's share of Profits
under Section 3.2.2 shall not be due until such Profits are actually
received by Glycyx. Glycyx shall use commercially reasonable efforts to
ensure prompt receipt of such Profits. Payment of such amounts in whole or
in part may be made in advance of such due date. Amounts determined to be
owing, and any overpayments to be credited, with respect to any prior
quarter shall be added, together with interest thereon under Section 6.4
below from the date of the report for the quarter for which such amounts
are owing, or the date of such overpayment, as the case may be, to the next
quarterly payment hereunder.
6.2 Currency: All payments to Salix shall be made in US Dollars. Sublicense
---------
Fees shall be first determined in the currency in which such amounts are
received by Glycyx and then converted to its equivalent in US Dollars. The
midpoint between the buying and selling rates of exchange for such currency
in US Dollars, as quoted in The Wall Street Journal (US edition) as of the
-----------------------
last business day of the quarter for which the calculation is made, shall
be used
<PAGE>
- 6 -
for such conversion.
6.3 Exchange control: Notwithstanding sections 6.1 and 6.2 above, if at any
-----------------
time legal restrictions prevent the prompt remittance of part or all
royalties or other payments with respect to any country of the Territory
where the Product is sold (as such terms are defined in the Glycyx License
Agreement), payment shall be made through such lawful means or methods as
Salix may designate.
6.4 Late Payments: Any payments that are not paid on or before the date such
-------------
payments are due under this Agreement shall bear interest to the extent
permitted by applicable law at the time by the prime rate laid down from
time to time by the Bank of England plus one percent, calculated on the
number of days such payment is delinquent. This Section 6.4 shall in no
way limit any other remedy available to either party.
6.5 Terms of this Agreement: Glycyx, Salix and Biorex agree not to discuss the
------------------------
financial terms or conditions of this Agreement to any third party without
the prior written consent of the other parties hereto (which consent shall
not be unreasonably withheld), except as required by applicable law, or to
professional advisers, or to persons with whom Biorex, Salix or Glycyx has
entered into or proposes to enter into a business relationship for the
purposes of raising capital to run their business, and then only under
conditions of confidence.
7. FORCE MAJEURE
-------------
No party shall be held liable or responsible to the other parties nor be
deemed to have defaulted under or breached this Agreement for failure or
delay in fulfilling or performing any term of this Agreement when such
failure or delay is caused by or results from causes beyond the reasonable
control of the affected party or from fire, floods, embargoes, war, acts of
war (whether war be declared or not), insurrections, riots, civil
commotions, strikes, lockouts or other labor disturbances, acts of God or
acts, omissions or delays in acting by any governmental authority or the
other parties.
8. MISCELLANEOUS
-------------
8.1 Notices. Any notice or report required or permitted to be given or made
-------
under this Agreement by one of the parties hereto to the other shall be in
writing, delivered personally or by facsimile (and promptly confirmed by
personal delivery or courier) or courier, postage prepaid, addressed to
such other party at its address indicated above, or to such other address
as the addressee shall have last furnished in writing to the addressor and
shall be effective upon receipt by the addressee.
8.2 Applicable Law. This Agreement shall be governed by and construed in
--------------
accordance with the laws of England, without
<PAGE>
- 7 -
regard to conflicts of laws provisions.
8.3 No Consequential Damages. IN NO EVENT SHALL EITHER SALIX, GLYCYX OR BIOREX
------------------------
OR THEIR AFFILIATES BE LIABLE FOR SPECIAL INDIRECT, INCIDENTAL OR
CONSEQUENTIAL DAMAGES (INCLUDING WITHOUT LIMITATION DAMAGES FOR LOSS OF
PROFITS, PRODUCTION, USE OR SALES) BASED ON CONTRACT, TORT OR ANY OTHER
LEGAL THEORY.
8.4 Entire Agreement. This Agreement contains the entire understanding of the
----------------
parties with respect to the subject matter hereof. All express or implied
agreements and understandings, either oral or written, heretofore made are
expressly excluded. This Agreement may be amended, or any term hereof
modified, only by a written instrument duly executed by all of the parties
hereto.
8.5 Headings. The captions to the several Articles and Sections hereof are not
--------
a part of this Agreement, but are merely guides or labels to assist in
locating and reading the several Articles and Sections hereof.
8.6 Independent Contractors. It is expressly agreed that Glycyx, Salix and
-----------------------
Biorex shall be independent contractors and that the relationship between
the three parties shall not constitute a partnership, joint venture or
agency. Neither Glycyx, Salix nor Biorex shall have the authority to make
any statements, representations or commitments of any king, or to take any
action, which shall be binding on the other, without the prior written
authorisation of the other party to do so.
8.7 Waiver. The waiver by a party hereto of any right hereunder or the failure
------
to perform or of a breach by the other parties shall not be deemed a waiver
of any other right hereunder or of any other breach or failure by said
other parties whether of a similar nature or otherwise.
8.8 Further Assurances. Glycyx shall use commercially reasonable efforts to
------------------
ensure that each of its sublicensees and subcontractors shall observe and
perform all the obligations and restrictions applicable to it under this
Agreement.
8.9 Severability. In case any one or more of the provisions contained in this
------------
Agreement shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions hereof, but this
Agreement shall be construed as if such invalid or illegal or unenforceable
provisions had never been contained herein.
8.10 Effect of Agreement. Except as specifically amended by Sections 1.1 and
-------------------
2.2 the rights, obligations and provisions of the Salix License Agreement
and Glycyx License Agreement shall remain in full force and effect.
<PAGE>
- 8 -
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
- ------------------
year first above written.
BIOREX LABORATORIES, LTD
By /s/ Lily Baxendale
-------------------------
Title /s/ Managing Director
----------------------
GLYCYX PHARMACEUTICALS, LTD
By /s/ Randy Hamilton
-------------------------
Title /s/ President
----------------------
SALIX PHARMACEUTICALS, INC.
By /s/ Randy Hamilton
-------------------------
Title /s/ President
----------------------
<PAGE>
EXHIBIT 10.5
DATED 17th September 1992
---------------------------------
BIOREX LABORATORIES LIMITED
- and -
GLYCYX PHARMACEUTICALS LIMITED
------------------------------
LICENSE AGREEMENT
------------------------------
Bristows, Cooke & Carpmael
10 Lincoln's Inn Fields
London WC2A 3BP
Ref: 382/M/0089-001-2
WP Ref: LICAGR3N/MW
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
I N D E X
---------
<TABLE>
<CAPTION>
Page No.
---------
<S> <C>
PARTIES 1
RECITALS 1
1. DEFINITIONS 1 - 5
2. REPRESENTATIONS AND WARRANTIES
2.1 Authorisation 5
2.2 No Other Representations 6
3. GRANT
3.1 Grant 6
3.2 Sublicenses 6 - 7
3.3 Documentation 7
4. DEVELOPMENT
4.1 Clinical Development and
Regulatory Approvals 7 - 8
4.2 Technical Information 8
4.3 Exchange of Data 8 - 9
4.4 Visit of Facilities 9
4.5 Conferences 9
4.6 Technical Assistance 9 - 10
4.7 Progress Reports 10
5. COMMERCIALISATION
5.1 Marketing 10
5.2 Termination for Failure to Market 10 - 11
5.3 Sole Remedy for Failure to Market 11
5.4 Excused Performance 11
6. MANUFACTURING: TRADE MARK LICENSE
6.1 Clinical Materials 11
6.2 Manufacturing Technology 12
6.3 Trade Marks 12 - 13
7. PAYMENTS TO BIOREX
7.1 Biorex Fees 13
7.2 Profit Sharing 13 - 14
7.3 Sublicensee Retentions 14
7.4 Minumum Payments 14 - 17
7.5 Combination Product 17
7.6 No Patent Protection 17
7.7 Third Party Royalties 17
8. REPORTS AND ACCOUNTING
8.1 Reports 18
8.2 Audits 18 - 19
8.3 Confidential Financial Information 19
</TABLE>
<PAGE>
<TABLE>
<S> <C>
9. PAYMENT TERMS
9.1 Payment of Biorex Profit 19
9.2 Payment of Biorex Fees 19
9.3 Currency Conversion 19 - 20
9.4 Exchange Control 20
9.5 Late Payments 20
10. INFRINGEMENT
10.1 Infringement Rights 20
10.2 Enforcement of Patent Rights 20 - 21
10.3 Third Party Claims 21
ll. CONFIDENTIALITY
11.1 General 21 - 22
11.2 Exceptions 22
11.3 Licensed Information 22
11.4 Terms of this Agreement 22 - 23
12. PATENT PROSECUTION AND MAINTENANCE
12.1 Control 23
12.2 Expenses 23
12.3 Co-operation 23
13. TERM AND TERMINATION
13.1 Expiration 23 - 24
13.2 Termination for Cause 24
13.3 Termination by Glycyx 24
13.4 Termination by Biorex 24 - 25
13.5 Effect of Termination 25 - 26
14. INDEMNITY
14.1 Glyxyx 26 - 27
14.2 Biorex 27
14.3 Procedure 27 - 28
15. FORCE MAJEURE 28
16. ASSIGNMENT 28 - 29
17. MISCELLANEOUS
17.1 Notices 29
17.2 Applicable Law 29
17.3 Export Laws 29
17.4 No Consequential Damages 29
17.5 Entire Agreement 30
17.6 Headings 30
17.7 Independent Contractors 30
17.8 Waiver 30
17.9 Further Assurances 30
17.10 Severability 31
SIGNATURES 31
EXHIBIT A - Patents and Patent Applications 32
EXHIBIT B - Regional Minimums 33
EXHIBIT C - Trade Mark Registrations and
Applications 34
</TABLE>
<PAGE>
This Agreement is made the 17th day of September 1992
B E T W E E N:
(1) BIOREX LABORATORIES LIMITED ("Biorex") a company incorporated in
England and Wales having its registered office at 2 Crossfield
Chambers, Gladbeck Way, Enfield, Middlesex, EN2 7HP, England; and
(2) GLYCYX PHARMACEUTICALS LIMITED ("Glycyx") a company incorporated in
Bermuda having its registered office at Cedar House, 41 Cedar Avenue,
Hamilton, HM12, Bermuda.
W H E R E A S:
A. By an agreement dated 18th March 1992 between Biorex and Glycyx (the
"Original Agreement"), Biorex granted to Glycyx an exclusive licence
to make, have made, use, sell and have sold products in the territory
(the terms products and territory being defined in the Original
Agreement).
B. Biorex and Glycyx now wish to replace the provisions of the Original
Agreement in their entirety with the provisions of this Agreement.
IT IS AGREED AS FOLLOWS:
1. DEFINITIONS
-----------
For the purposes of this Agreement, the terms defined in this Article shall have
the meanings specified below:
1.1 "Affiliate" means any corporation or other entity which controls, is
controlled by, or is under common control with, a party to this
Agreement. A corporation or other entity shall be regarded as in
control of another corporation or entity if it owns or directly or
indirectly controls more than fifty percent (50%) of the voting stock
or other ownership interest of the other corporation or entity, or if
it possesses, directly or indirectly, the power to direct or cause the
direction of the management and policies of the corporation or other
entity.
1.2 "Balsalazide" means 5-[4(2-Carboxyethelcarbamoyl)-phenylazo]-
salicylic acid disodium salt dihydrate.
1.3 "Biorex Fees" means the fees payable to Biorex under Section 7.1.
1.4 "Biorex Profit" shall mean the share of the Profit payable to Biorex
under Section 7.2.
1
<PAGE>
1.5 "Canada-Mexico Agreement" means an agreement of even date with this
Agreement between Salix, Glycyx and Biorex.
1.6 "Commercial Introduction" of any Product shall mean the first sale for
use or consumption by the general public of such Product in a country
within the Territory after required marketing and, if required,
pricing approval has been granted by the governing health authority of
such country.
1.7 "Development Payments" means payments made to Glycyx by Third Parties
exclusively for
(a) development work and/or
(b) supply of materials provided by Glycyx
provided that such development work and/or supply
of materials are exclusively for the purposes of
(a) obtaining regulatory approval of the Products and/or
(b) conducting clinical trials or clinical studies to promote the
Products
in any region within the Territory.
1.8 "Factory Sale Price" means the ex factory sales price of each Product
actually charged by Glycyx or its Sublicensees (or any Affiliate of
Glycyx or its Sublicensees) for each shipment of Product on an arms
length open market basis to any Third Party (other than a Sublicensee
or Affiliate of a Sublicensee) net only of sales and purchase taxes,
customs or import duties, delivery charges and returns and allowances,
actually charged on each such shipment.
1.9 "Initial License Fees" shall mean any initial license fees received by
Glycyx in consideration of the grant of a Sublicense in the Territory
and shall not include Development Payments.
1.10 "Launch" means a commercial launch of the Product in a Principal
Market supported by such marketing expense and support and launched in
such quantities as may be appropriate for the Product to have a
significant effect on total sales of any similar or competitive
product in such Principal Market.
1.11 "MAA" means a product license application filed with the Medicines
Control Agency in the United Kingdom, or counterpart application for
marketing approval in any other country in the Territory, with respect
to a Product.
1.12 "Manufacturing Technology" shall mean all methods, processes, designs,
data, procedures and other
2
<PAGE>
information owned by or licensed to Biorex or its Affiliates during
the term of this Agreement that are reasonably required for pilot
production or commercial manufacturing of Products, including, without
limitation, final quality assurance-quality control procedures,
manufacturing procedures (including conditions times, temperatures,
pressures and rates), product and raw material specifications, and
other technology related thereto, including all patent and other
intellectual property rights thereto.
1.13 "Patent Rights" means all rights of Biorex in the Territory to any
subject matter claimed in or covered by any of the following:
1.13.1 The patents and applications listed in Exhibit A hereto, and any
continuations, continuations-in-part, divisions, substitutions,
renewals, reissues and extensions thereof.
1.13.2 Any and all other patent rights, now existing or hereafter acquired
(including applications therefore), pertaining to the subject matter
described in Section 1.13.1 above, or that are otherwise related to
Balsalazide, or to prodrugs, analogs or isomers thereof or
improvements of any of the foregoing, obtained in any country within
the Territory.
1.14 "Principal Markets" means United Kingdom, Sweden, Finland, Norway,
Switzerland, Austria, Denmark, Germany, Belgium, Netherlands,
Luxembourg, France, Republic of Ireland, South Africa, Australia, New
Zealand, Canada, Italy and Spain.
1.15 "Products" means products incorporating Balsalazide, whether or not
such products are covered by the Patent Rights, or any other material
whose manufacture, use or sale by an unlicensed third party would
constitute an infringement of any valid Claim (as defined below)
included within the Patent Rights.
1.16 "Profit" shall mean Glycyx' Net Sales Value of Supplies plus any
royalties or other fees or sums paid to Glycyx by Third Parties
relating to manufacture, use and/or sales of Products and/or use of
the Trade Marks, within the Territory; less Glycyx' Manufacturing
Costs of such Supplies. Notwithstanding the foregoing, "Profit" shall
not include Initial Licence Fees or Development Payments.
1.16.1 In Section 1.16, "Net Sales Value" means Glycyx' sales to Third
Parties, less, to the extent such amounts are included in the invoiced
sales price:
(a) actual credited allowance to such Third Parties
3
<PAGE>
for spoiled, damaged, out-dated and returned Supplies; (b) freight and
insurance costs incurred in transporting such Supplies to such Third
Party: (c) value-added and other direct taxes; and (d) customs duties
and surcharges and other governmental charges.
1.16.2 In Section 1.16, "Manufacturing Costs" of Supplies shall mean (i)
reasonable amounts paid by Glycyx to Third Party manufacturers for
such Supplies and (ii) those costs incurred by Glycyx in its own
manufacture of such Supplies which could be capitalised as inventory,
including raw material and actual direct labour costs and a proper
accounting of actual manufacturing overhead allocated to such units.
In each case, manufacturing costs shall also include costs incurred by
Glycyx in the processing of orders, shipments, and accounting for
Supplies sold by Glycyx.
1.17 "Report" means any report prepared pursuant to Section 8.1.
1.18 "Salix" means Salix Pharmaceuticals Inc., a company incorporated under
the laws of California having its principal place of business at 3600
W. Bayshore Road, Palo Alto, California 94303.
1.19 "Sublicense" and "Sublicensee" have the meanings given by Sections
3.2.3 and 3.2.4.
1.20 "Sublicensee Retention" has the meaning given in Section 7.3.
1.21 "Supplies" means any and all of the following:-
(a) Products, and
(b) components of Products including without limitation ingredients,
intermediates, Balsalazide chemical or pharmaceutical dosage
forms of Products sold by Glycyx to Third Parties for (i) further
processing or packaging, and/or (ii) sale by Third Parties.
1.22 "Technical Information" means all formulae, raw material and product
specifications, designs and procedures, formulation data, processes
and methods, pharmacology, toxicology and other preclinical tests
results, clinical trials data and results, know-how, trade secrets,
inventions and other scientific, medical, technical and marketing data
and information, including all patent and other intellectual property
rights thereto, which: (a) are owned or controlled by, or licensed to,
Biorex or its Affiliates during the term of this Agreement, and (b)
that are reasonably necessary for the development, manufacture, sale
or use of Products. Technical Information shall include
4
<PAGE>
information and methods relating to the characterisation, synthesis,
formulation, stability, manufacture or assay of Balsalazide.
1.23 "Territory" means the entire world, but excluding the following
countries: United States (including its territories, possessions and
the Commonwealth of Puerto Rico), Japan, Korea and Taiwan. Subject to
the terms of Canada-Mexico Agreement, Canada and Mexico are included
in the Territory.
1.24 "Third Party" means any entity other than Glycyx or Biorex and their
respective Affiliates.
1.25 "Trade Mark" means the trade mark "Colazide" which Biorex has register
as a trade mark within the Territory in the countries set out in
Exhibit C.
1.26 "Trade Mark Royalties" shall mean the royalties payable to Biorex by
Glycyx pursuant to Section 6.3.5.1.
1.27 "Valid Claim" means a Claim of an issued and unexpired patent included
within the Patent Rights, which has not been held permanently revoked,
unenforceable or invalid by a decision of a court or other
governmental agency of competent jurisdiction, unappealable or
unappealed within the time allowed for appeal, and which has not been
admitted to be invalid or unenforceable through reissue or disclaimer
or otherwise.
2. REPRESENTATIONS AND WARRANTIES
------------------------------
Authorisation
- -------------
2.1 Biorex represents and warrants that (i) it has the full right and
authority to grant the licenses provided in the Agreement and perform
its obligations hereunder; (ii) to the best of Biorex's knowledge,
Glycyx may exercise the licenses granted to it under the Agreement
without conflict with or infringement of any rights or alleged rights
of any person or entity; (iii) Biorex has not, and will not during the
term of this Agreement, make any commitment or incur any obligation in
conflict with the licenses granted in the Agreement; (iv) Biorex is,
at the date of this Agreement, the sole legal owner of the patents and
patent applications set out in Exhibit A and the trade mark
registrations and applications set out in Exhibit C; and (v) as of the
date of this Agreement, Biorex and its Affiliates have no patents or
patent applications within the Territory, other than those listed in
Exhibit A hereto, related to Balsalazide, or to prodrugs, analogs or
isomers thereof, or improvements or any of the foregoing.
5
<PAGE>
No Other Representations
- ------------------------
2.2 Except to the extent provided in this Article 2, Biorex makes no
representations, extends no warranties of any kind, either expressed
or implied, with respect to use, sale, or other disposition by Glycyx
or its Sublicensees or its vendees or other transferees of Products
incorporating or made by use or subject matter licensed under this
Agreement. THE WARRANTIES EXPRESSLY SET FORTH IN THIS ARTICLE 2 BY
EITHER PARTY ARE EXCLUSIVE AND NO OTHER WARRANTY, WRITTEN OR ORAL,
INCLUDING WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE, IS EXPRESSED OR IMPLIED.
3. GRANT
-----
Grant
- -----
3.1 Biorex hereby grants to Glycyx the exclusive right and license under
the Patent Rights, the Technical Information and Manufacturing
Technology to develop, have developed, make, have made, use, sell and
have sold Products within the Territory. Notwithstanding the
foregoing, Biorex may authorise third parties to manufacture
Balsalazide within the Territory solely for sale and use outside of
the Territory.
3.2 Sublicenses
-----------
3.2.1 The license granted to Glycyx under Section 3.1 above shall include
the right to grant Sublicenses within the Territory. Glycyx shall
provide Biorex with a copy of any Sublicense issued hereunder, which
copy shall be maintained in confidence pursuant to Section 11 hereof.
Notwithstanding the foregoing, except as provided in Section 3.2.4
below Glycyx shall not grant to any Third Party a Sublicence or
marketing rights for the manufacture or sale of a Product in any other
country within the Territory without first obtaining Biorex's consent,
which shall not be withheld unreasonably.
3.2.2 In the event that Glycyx receives from a Sublicensee hereunder notice
of a default by Glycyx that would give rise to a termination of the
Sublicense agreement, Glycyx shall promptly provide such notice to
Biorex. Except where Biorex enters into an agreement with the
Sublicensee to provide an alternative arrangement in such
circumstances, Glycyx shall ensure that the Sublicense agreement shall
provide that, in the event of such a breach by Glycyx and a failure
by, Glycyx to cure the breach within the cure period specified in the
Sublicense agreement, Biorex will have an additional period to cure
the breach and to assume
6
<PAGE>
Glycyx's rights and obligations under the Sublicense agreement.
3.2.3 Subject to Clause 3.2.4, in this Agreement the term "Sublicense" shall
mean any agreement under which Glycyx grants to a Third Party (the
"Sublicensee") rights to
(a) market, promote, and/or distribute Products in the Territory
using Supplies purchased from Glycyx; and/or
(b) make, have made, use and/or sell or have sold Products in the
Territory.
3.2.4 The following types of arrangements shall not be Sublicenses
hereunder:
(a) subcontracting of Third Parties to develop the Product or new
Products for Glycyx; or
(b) subcontracting of Third Parties to manufacture the Products or
ingredients for supply to Glycyx or its Sublicensees only.
Documentation
- -------------
3.3 Glycyx and Biorex agree to execute and file such formal patent
licenses and similar instruments as the other party may reasonably
request to evidence or perfect the licenses granted herein.
4. DEVELOPMENT
-----------
4.1 Clinical Development and Regulatory Approvals
---------------------------------------------
4.1.1 Biorex shall assist in the completion of the clinical development and
in the obtaining of the necessary regulatory approvals in Biorex's
name to market a Product containing Balsalazide for the treatment of
ulcerative colitis in the United Kingdom; provided that Glycyx shall
be responsible for the preparation of all necessary experts' reports
to be included in any application for regulatory approval of a Product
pursuant to this paragraph. Glycyx shall procure that it and its
Sublicensees shall use commercially reasonable efforts to obtain all
necessary regulatory approvals to market a Product in each other
country within the Territory.
4.1.2 Subject to Section 5.4 below, if Glycyx or its Sublicensee has not
sought regulatory approval to market one or more Products in a country
within five (5) years after approval of the first MAA within the
Territory, and Glycyx does not, within one hundred and eighty (180)
days after receiving a written request from Biorex to do so, undertake
7
<PAGE>
commercially reasonable efforts to obtain such approval and thereafter
continue such efforts, Biorex shall have the right to terminate
Glycyx's license under Section 3.1 above in respect of such country
upon written notice to Glycyx. The foregoing sets forth Biorex's sole
remedy for a failure by Glycyx to meet its obligations under this
Section 4.1.
4.1.3 Biorex and Glycyx acknowledge that additional pre-clinical and
clinical studies may be necessary in order to apply for and obtain
regulatory approvals in any country in the Territory, and hereby agree
to discuss plans for such studies should they be necessary and to
negotiate in good faith their respective rights and obligations
relative to conducting or having such studies conducted.
Technical Information
- ---------------------
4.2 Biorex shall promptly provide to Glycyx, and in any event at least
semi-annually, all Technical Information (including such regulatory
filings) and information that it develops or acquires after the date
hereof. In addition Biorex shall use all reasonable efforts to so
provide to Glycyx all similar items and information generated or
developed by or for other licensees of Biorex and to permit Glycyx to
use such items and information to the same extent it may use Technical
Information hereunder. Glycyx and Sublicensees hereunder shall have a
right to use all such Technical Information and information of such
other licensees for purposes of this Agreement, and to cross-reference
all such regulatory filings. In the event that Biorex does not obtain
from any other licensee of Biorex the right to permit Glycyx to use
such items or information, Biorex shall not provide to such licensee
any information of Glycyx provided to Biorex under Section 4.3 below.
Exchange of Data
- -----------------
4.3 Each party shall keep the other informed as to its progress in the
development and testing of all Products and the preparing, filing and
obtaining of the approvals necessary for marketing such Products. Each
party shall notify the other at least thirty (30) days in advance of,
and make available to the other party for review prior to submittal,
all filings and correspondence to be submitted by such party (but not
by Third Parties) to regulatory authorities with respect to marketing
approval of such a Product, and all proposed publications by such
party of test data or results related to such Products. Such items
shall be made available at such party's principal place of
8
<PAGE>
business, or if reasonable to do so, they shall be sent to the other
party. Glycyx will provide Biorex with copies of any similar filings,
correspondence and proposed publications which it receives from its
Sublicensees. In addition, each party shall provide the other with
copies of such other documents as it reasonably requests promptly
after such request. Until the date of the Commercial Introduction of
each such Product, each party shall provide to the other semi-annual
reports summarising in reasonable detail its activities related to the
development and securing of the requisite marketing and other
regulatory approvals for such Products. After the Commercial
Introduction of any such Product, each party shall keep the other
informed of any further communications or activities concerning such
Products by, with or involving governmental health agencies.
Throughout the term of this Agreement, each party shall promptly
supply the other with all information regarding adverse drug
experiences.
Visit of Facilities
- -------------------
4.4 Representatives of Glycyx and Biorex may, upon reasonable notice and
at times reasonably acceptable to the other party (a) visit the
facilities where the preclinical tests or clinical trials are being
conducted with respect to Products, and the facilities where the other
party manufactures any Product, or active compound contained therein
(or has such a product or compound manufactured, but subject always to
the consent of the relevant Sublicensee or subcontractor) to the
extent relating to such product or compound; and (b) consult
informally, during such visits and by telephone, with personnel of the
other party performing work on such tests, trials or manufacturing.
Conferences
- -----------
4.5 The parties shall meet periodically, at times and locations to be
agreed, to discuss their respective development programmes with
respect to such Product.
Technical Assistance
- --------------------
4.6 Biorex shall provide to Glycyx such reasonable technical assistance as
is in Biorex's control, with respect to the development, preclinical
and clinical testing and manufacturing of Products. In addition,
Biorex agrees to use all reasonable efforts to provide technical
support and assistance to Sublicensees hereunder, including assisting
in prospective Sublicensees' evaluation of the Products. Biorex will
be reimbursed by Glycyx or
9
<PAGE>
such Sublicensee for its out-of-pocket expenses incurred in rendering
such assistance.
Progress Reports
- ----------------
4.7 Glycyx shall provide to Biorex quarterly reports describing in
reasonable detail its progress and its Sublicensees' progress in
developing and securing marketing and regulatory approval of Products
hereunder. Such obligation shall continue until the Commercial
Introduction of the first Product, after which such reports shall be
provided semi-annually.
5. COMMERCIALISATION
-----------------
Marketing
- ---------
5.1 Subject to Sections 5.2 and 5.3 below, with respect to each Product
for which Glycyx or its relevant Sublicensee has received necessary
regulatory approvals to market such Product in a country within the
Territory, Glycyx shall itself or shall procure that its relevant
Sublicensee uses commercially reasonable efforts to procure:
5.1.1 the commencement of marketing of such Product in such country within
one hundred and eighty days (180) days of receiving approval
(including, if required, pricing and reimbursement approval) to market
such Product in that country; and
5.1.2 after commencing marketing of such Product in such country, to meet
and develop the market demand for such Product in such country.
Termination for Failure to Market
- ---------------------------------
5.2 If Glycyx or its relevant Sublicensee fails to fulfil the Section 5.1
obligations with respect to any Principal Market for which Glycyx or
its relevant Sublicensee has received necessary regulatory approvals
to market the Products then:-
5.2.1 If Glycyx or its relevant Sublicensee does not remedy such failure
within one hundred and twenty (120) days after receiving a written
request to do so, Biorex shall have the right to terminate Glycyx's
exclusive rights (other than Glycyx's exclusive right under Section
6.3 to use the Trade Mark) in that Principal Market upon written
notice to Glycyx; provided that this provision shall not apply to
countries in respect of which a minimum royalty or payment is being
paid under Section 7.4 as specified in Exhibit B; and
5.2.2 If Glycyx or its relevant Sublicensee has not fulfilled the Section
5.1 obligations within twelve
10
<PAGE>
(12) months after receiving approvals, Biorex may terminate Glycyx's
rights in that Principal Market, including rights to use the Trade
Mark, provided that Biorex will not grant use of the Trade Mark by a
Third Party within that Principal Market.
Sole Remedy for Failure to Market
- ---------------------------------
5.3 Section 5.2 sets forth Biorex's sole remedies for a failure by Glycyx
to meet its obligations under Section 5.2.
Excused Performance
- -------------------
5.4 In addition to the provisions of Article 15, Glycyx's obligations with
respect to any Product under Section 4.1. 7,4 or this Article 5 are
expressly conditioned upon the continuing absence of any adverse
condition relating to the safety, quality or efficacy of that Product
or any other restrictions or delays imposed or caused by governmental
authorities, or other condition or event beyond Glycyx's control that
would reasonably justify Glycyx, after consulting with Biorex, in
exercising prudent and justifiable business judgment, to conclude that
development or marketing of such Product should be delayed, suspended
or stopped altogether, and Glycyx's obligation to develop or market
any such Product shall be delayed or suspended so long as any such
condition or event exist, but for a maximum of five (5) years from the
commencement of such delay or suspension. In addition, Glycyx shall
not be responsible for any delays caused by failure of any health
regulatory agency to accept data provided by Biorex or by inability of
Glycyx to obtain, or delays in obtaining, sufficient quantities of
clinical materials on reasonable terms.
6. MANUFACTURING: TRADE MARK LICENSE
----------------------------------
Clinical Materials
- ------------------
6.1 Prior to the time that Glycyx has received adequate supply of
Products, Biorex shall use its commercially reasonable efforts to
supply, or to arrange for others to supply, Glycyx's requirements of
Products for preclinical tests and human clinical trails on reasonable
terms and conditions. In the event that Biorex arranges for Third
Parties to develop formulations of, or supply, Products to Biorex
under this Section 6.1, Biorex shall use commercially reasonable
efforts to acquire the right to include the manufacturing processes
and technology used by such Third Party for such Product in the
Technical Information, Manufacturing Technology or the Patent Rights,
so that Glycyx may use such process to manufacture such Product.
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<PAGE>
Manufacturing Technology
- ------------------------
6.2 As soon as practicable following a request by Glycyx, Biorex shall
disclose to Glycyx all Manufacturing Technology in existence at such
time, and shall hereafter promptly (and in any event at least
quarterly) provide Glycyx with updates or additions to such
Manufacturing Technology that are subsequently developed or acquired
by Biorex or its Affiliates. In addition, Biorex shall use all
reasonable efforts to so provide to Glycyx all similar items and
information generated or developed by or for other licensees of Biorex
and to permit Glycyx to use such items and information to the same
extent it may use Manufacturing Technology hereunder.
6.3 Trade Marks
-----------
6.3.1 Subject to the provisions of this Agreement, Biorex hereby grants to
Glycyx the exclusive right and license to use the Trade Mark in
connection with the exploitation of the Products in the Territory
throughout the term of this Agreement.
6.3.2 Glycyx shall have the right to grant Sublicensees the right to use the
Trade Mark in connection with the exploitation of the Products in the
Territory throughout the terms of this Agreement, subject to the
provisions of this Agreement.
6.3.3 Subject to the laws of the country concerned, Glycyx shall have an
exclusive right to institute and pursue actions to prevent misuse of
the Trade Mark throughout the Territory.
6.3.4 Biorex, Glycyx and its Sublicensees shall at the expense of Glycyx
execute such instruments and trade mark user agreements as are
necessary to enable Glycyx to exercise its rights under Clause 6.3.1
and to satisfy the requirements of national trade mark laws in respect
of trade mark user agreements.
6.3.5 The following provisions shall apply on the expiry of this Agreement
pursuant to Section 13.1.
6.3.5.1 Glycyx shall (subject to Section 6.3.5.2) pay to Biorex a royalty
equal to [*] of all Products supplied by Glycyx, Affiliates of Glycyx,
Sublicensees, or Affiliates of Sublicensees for consumption in the
Territory which are supplied by reference to the Trade Mark (the
"Trade Mark Royalties"). These Trade Mark Royalties shall continue to
be paid for as long as the Trade Mark is registered in any country in
the Territory.
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<PAGE>
6.3.5.2 Glycyx shall not be under any obligation to pay Trade Mark Royalties
in respect of Products supplied by a Sublicensee until Glycyx has
received equivalent royalties in respect of such Products from its
Sublicensee. Provided that Glycyx shall use all reasonable commercial
efforts to obtain prompt payment from its Sublicensees of such
equivalent royalties.
6.3.5.3 Glycyx shall itself, and shall procure that its Sublicensees, keep
true and accurate records of all Products supplied bearing the Trade
Mark and Glycyx shall within ninety days of the end of each semi-
annual period ending on 30th June and 31st December send Glycyx a full
statement showing the calculation of the Trade Mark Royalties due and
owing to Biorex.
6.3.5.4 Glycyx shall on the date such statement is due pay to Biorex the Trade
Mark Royalties due in respect of the semi-annual period covered by the
statement, in pounds sterling by express payment through the banking
system in such bank account as Biorex shall designate from time to
time for the purposes of receiving such payment.
6.3.5.5 The provisions of Sections 8.2.1, 8.2.2, 9.3, 9.4 and 9.5 shall apply
in relation to payment of the Trade Mark Royalties.
7. PAYMENTS TO BIOREX
------------------
Biorex Fees
- -----------
7.1 Subject to Clause 2.3 of the Canada-Mexico Agreement Glycyx shall pay
to Biorex [*] received by Glycyx. The share of Initial License Fees
payable to Biorex under this Section 7.1 shall be referred to in this
Agreement as "Biorex Fees". It is understood that Glycyx may permit
Sublicensees to credit [*] against other amounts owing to Glycyx under
the Sublicense, provided that such credits are taken within the first
[*] after Commercial Introduction of the applicable Product by the
Sublicensee.
Profit Sharing
- --------------
7.2 In addition to the Biorex Fees to be paid to Biorex under 7.1 above
and subject to Clause 7.3, Glycyx shall pay to Biorex [*] from the
sale of Supplies for consumption in countries within the Territory.
The share of the Profit payable to Biorex under this Section 7.2 shall
be referred to in this Agreement as "Biorex Profit". Biorex Profit
shall
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<PAGE>
be paid to Biorex quarterly in accordance with Sections 8.1 and 9.1
below, on the basis of unaudited financial statements of Glycyx for
the applicable quarter. However, the payment to Biorex for the final
quarter of a Glycyx fiscal year shall be made on the basis of Glycyx's
audited financial statements for such fiscal year, and such payment
shall be adjusted for the difference between the Profit as calculated
during the year and as reflected in such audited financial statements.
Notwithstanding Section 8.1 below, the Report and payment due under
this Section 7.2 for the final quarter of a Glycyx fiscal year shall
not be due until ninety (90) days after the end of such quarter.
Sublicensee Retentions
- ----------------------
7.3 Where Development Payments are made by a Sublicensee, Glycyx may allow
that Sublicensee to credit a proportion of such Development Payments
[*] against amounts owing to Glycyx under the Sublicense. Such amounts
credited in any quarter period shall be referred to in this Agreement
as "Sublicensee Retention". In such cases:-
(a) For the purpose of Clause 7.2 the term "Profit" shall mean the
Profit (as defined in Section 1.16) plus the Sublicensee
Retention, and Biorex Profit shall be calculated accordingly.
(b) Glycyx shall be entitled to deduct [*] the Sublicensee Retention
in respect of the relevant quarter from Biorex Profit.
[*]
7.4 Minimum Payments
----------------
Aggregate Minimum
- -----------------
7.4.1 Glycyx shall pay to Biorex the amounts set forth in the table below
upon the earlier to occur of the corresponding Glycyx milestone or
date in such table, subject to Section 7.4.3 below. However, if Biorex
does not meet its corresponding obligation, the date by which the
milestone payment (and any
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<PAGE>
subsequent milestone payments) must be paid shall be delayed by the
amount of time of Biorex's delay.
MILESTONE/OBLIGATION
--------------------
<TABLE>
<CAPTION>
Amount Date Glycyx Milestone Biorex Obligation
- ------ ---- ---------------- -----------------
<S> <C> <C> <C>
[*]
</TABLE>
In the event that Glycyx fails to meet the minimum payment obligations
under this Section 7.4.1, Glycyx shall pay to Biorex [*] (and pro rata
for any lesser period) until such failure is cured. In the event that
Glycyx fails to pay any of the amounts specified in this Section 7.4.1
within six (6) months of the due date, Biorex shall have the right to
terminate this Agreement on thirty (30) days written notice, with
respect to all countries in the Territory.
Regional Minimums
- -----------------
7.4.2 Glycyx agrees that the aggregate Biorex Fees and Biorex Profit paid to
Biorex under Section 7.1 and 7.2 above (as the case may be) for each
region within the Territory shall equal at least the amounts set forth
in Exhibit B hereto. In the event Glycyx grants a single Sublicense
which includes rights to more than one region the amounts set forth in
Exhibit B shall be aggregated in respect of all regions under such
Sublicense for
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<PAGE>
the purposes of determining Glycyx's obligation and performance under
this Section 7.4.2. In the event that such Biorex Fees and Biorex Prof
it in any Glycyx fiscal year for a particular region do not equal or
exceed the minimum amounts for such year, the Report provided for the
final quarter of such year shall include a payment so that the total
amount paid for such region equals the minimum amounts for such year.
In the event that Glycyx does not pay such amount by the date such
Report is due, Biorex shall have the right to terminate Glycyx's
licenses in that region by giving Glycyx at least thirty (30) days
written termination notice within ninety (90) days after the due date
of such report. Glycyx may cure any such failure by paying the minimum
amount within such ninety (90) day period (or if longer, within the
30-day notice period), in which case Biorex's right to so terminate
Glycyx's license as a result of such nonpayment shall cease.
Credits
- -------
7.4.3 Payments under this Section 7.4 and the Biorex Fees and Biorex Profit
paid to Biorex under Section 7.1 and 7.2 above, shall be offset
against each other as follows:
(a) Aggregate Minimums. The payments made to Biorex under Section 7.4.1
------------------
above may be carried forward and offset by Glycyx against Biorex Fees
and Biorex Profit. Similarly, any amounts actually paid to Biorex
under Sections 7.1 and 7.2 (net of such offsets) or 7.4.2 may be
carried forward and offset against payments subsequently due under
Section 7.4.1.
(b) Regional Minimums. Any amount paid to Biorex under Section 7.4.2
------------------
above with respect to a particular region may be carried forward and
offset by Glycyx against any Biorex Fees and Biorex Profit owing to
Biorex under Section 7.1 or 7,2 for the same region in any of the
three subsequent years which are in excess of the applicable minimum.
It is understood that amounts paid under Sections 7.1, 7.2 and 7.4.2
may be used as a credit under both subparagraphs (a) and (b) of this
Section 7.4.3 except as provided for in subparagraph (a).
No Other Remedies
- -----------------
7.4.4. The remedies specified in this Section 7.4 are Biorex's sole remedies
with respect to Glycyx's failure to meet the agreed minimum payments.
In addition, Glycyx's obligation to meet the minimum payments set
forth in this Section 7.4 shall be
16
<PAGE>
conditioned upon Biorex not unreasonably withholding or delaying
consent to any Sublicense proposed by Glycyx under Section 3.2 above.
Combination Product
- -------------------
7.5 In the event a Product is sold in a combination product with other
biologically active components, Profit, for purposes of calculating
Biorex Profit on the combination product, shall be calculated by
multiplying the Profit (as the case may be) of the combination by the
fraction A/B, where A is the gross selling price of the Product sold
separately and B is the gross selling price of the combination
product. In the event that no such separate sales are made by Glycyx
or a permitted Sublicensee, Profit shall be reasonably allocated
between such Product and such other component, as mutually agreed by
Glycyx and Biorex. In the event Glycyx receives Initial License Fees
from such a combination product, the amounts attributable to the
Product shall be reasonably allocated by Glycyx on a similar basis.
No Patent Protection
- --------------------
7.6 If Glycyx's first Product in a region is not covered by a Valid Claim
within the Patent Rights in any year, and significant sales are being
made by Third Parties (other than Sublicensees) in such region of a
substantially equivalent product that would infringe a Valid Claim in
another country within the Territory, [*] (even though the Product is
made in a country in which such manufacture infringes a Valid Claim)
provided that such significant sales of the substantially equivalent
product continue throughout the year in question.
Third Party Royalties
- ---------------------
7.7 In the event that Glycyx is required to pay to a Third Party any
royalties on a Product with respect to technology incorporated in such
Product other than the technology licensed hereunder, Glycyx may
deduct from Biorex Profit with respect to such Product [*] with
respect to such Product in any quarter period. For the avoidance of
doubt any such royalties paid to Third Parties shall not be included
as Manufacturing Costs as defined in Section 1.16.2.
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<PAGE>
8. REPORTS AND ACCOUNTING
----------------------
Reports
- -------
8.1 After the Commercial Introduction of a Product, Glycyx shall furnish
to Biorex on a quarterly basis a written report-covering Glycyx's
fiscal quarters showing, on a country by country basis, (i) the
initial License Fees and the Development Payments received by Glycyx
during the reporting period; (ii) Biorex Profit payable in British
Pounds Sterling, which shall have accrued hereunder in respect of such
quarter; (iii) withholding taxes, if any, required by law to be
deducted in respect of such amounts; and (iv) the dates of the
Commercial Introductions of any Products in any country in the
Territory during the reporting period. Except as provided in 7.2
above, Reports shall be due forty-five (45) days following the close
of each respective quarter. Glycyx shall keep accurate records in
sufficient detail to enable the Profit to be determined. For the
avoidance of doubt, Glycyx shall be entitled to enter into Sublicenses
in which the Sublicensee is required to pay royalties on a semi-annual
basis. In case no Biorex Profit is due for any quarter period
hereunder, Glycyx shall so report.
8.2 Audits
------
8.2.1 Upon the written request of Biorex, at Biorex's expense and not more
than once each Glycyx fiscal year, Glycyx shall permit or procure an
independent public accountant selected by Biorex and reasonably
acceptable to Glycyx to have access during normal business hours to
such of the records of Glycyx, its Sublicensees and Affiliates as may
be reasonably necessary to verify the accuracy of the Reports made not
more than thirty-six (36) months prior to the date of such request.
Biorex may, at its discretion, require Glycyx to arrange such
verification of Sublicensee reports, Provided that Biorex shall only
have the above right of access to a Sublicensee's records in
circumstances where the amount of payments to be made by Glycyx to
Biorex is calculated wholly or partly by reference to the quantity or
price of Product manufactured or supplied by the Sublicensee (and/or
in the case of Trade Mark Royalties supplied by reference to the Trade
Mark).
8.2.2 In the event such accountant concludes that additional amounts were
owed daring such period, the additional amounts shall be paid
promptly, The fees charged by such accountant shall be paid by Biorex
unless the audit establishes that the amounts payable by Glycyx for
the audited period are more than one hundred and five percent (105%)
18
<PAGE>
of the amounts actually paid for such period, in which case Glycyx
shall pay the reasonable fees and expenses charged by the accountant.
8.2.3 Upon the expiration of thirty-six (36) months following the date of
any Report, the calculation of Biorex Fees and Biorex Profit payable
with respect to the quarter covered by such Report shall be binding
and conclusive upon Biorex; and Glycyx shall be released from any
liability or accountability with respect to Biorex Fees and Biorex
Profit for such year.
Confidential Financial Information
- ----------------------------------
8.3 Biorex agrees that all information subject to review under this
Article 8 is confidential and shall cause its accountant to retain all
such information in confidence except for discussions with Biorex.
9. PAYMENT TERMS
-------------
Payment of Biorex Profit
- ------------------------
9.1 Subject to Section 9.2, amounts shown to have accrued by each Report
shall be due and payable on the date such Report is due; provided that
payments of Biorex Profit shall not be due until such Profit is
actually received by Glycyx. Glycyx shall use commercially reasonable
efforts to ensure prompt receipt of such Profits, Payment of such
amounts in whole or in part may be made in advance of such due date.
Amounts determined to be owing, and any overpayments to be credited,
with respect to any prior quarter shall be added, together with
interest thereon under Section 9.5 below from the date of the report
for the quarter for which such amounts are owing, or the date of such
overpayment, as the case may be, to the next quarterly payment
hereunder.
Payment of Biorex Fees
- ----------------------
9.2 Glycyx shall forthwith upon receipt of any Initial Licence Fees pay to
Biorex the corresponding Biorex Fees by express payment through the
banking system into such bank account as Biorex shall designate from
time to time for the receipt of such payments. In the period between
the receipt of any Initial License Fees by Glycyx and the despatch to
Biorex of the corresponding Biorex Fees, Glycyx shall hold Biorex Fees
as trustee for Biorex.
Currency Conversion
- -------------------
9.3 All payments to Biorex shall be made in British
19
<PAGE>
Pounds. Biorex Fees shall be first determined in the currency in which
such amounts are received by Glycyx and then converted to its
equivalent in British Pounds. The midpoint between the buying and
selling rates of exchange for such currency in British Pounds, as
quoted, in The Wall Street Journal (U.S. edition) as of the last
----------------------
business day of the quarter for which the calculation is made, shall
be used for such conversion, or such other benchmark as may be agreed
in writing between Biorex and Glycyx from time to time.
Exchange Control
- ----------------
9.4 Notwithstanding 9.1, 9.2 and 9.3 above, if at any time legal
restrictions prevent the prompt remittance of part or all payments
with respect to any country of the Territory where the Product is
sold, payment shall be node through such lawful means or methods as
Biorex may designate.
Late Payments
- -------------
9.5 Any payments that are not paid on or before the date such payments are
due under this Agreement shall bear interest to the extent permitted
by applicable law at the time by the prime rate laid down from time to
time by the Bank of England plus one percent, calculated on the number
of days such payment is delinquent. This Section 9.5 shall in no way
limit any other remedy available to either party.
10. INFRINGEMENT
------------
Infringement Rights
- -------------------
10.1 The provisions of this Article 10 shall govern the parties' rights and
obligations, as between themselves, with respect to actions Against
and by Third Parties for infringement of patents licensed under this
Agreement or owned by such Third Parties, In the event that either
party learns of a significant infringement of the Patent Rights within
the Territory, it shall promptly notify the other party.
10.2 Enforcement of Patent Rights
----------------------------
10.2.1 Glycyx and its Sublicensees shall have the exclusive right to bring,
direct and control any action to enforce the Patent Rights against
infringers within the Territory.
10.2.2 Glycyx nay deduct from Biorex Fees owing under Section 7.1 above for a
particular region all of its costs and expenses incurred in any
quarterly
20
<PAGE>
period in enforcing the Patent Rights in such region, up to [*]
amounts owing to Biorex for that region in that period. Any remaining
undeducted costs and expenses may be carried forward and deducted
under the same conditions, for up to four (4) subsequent quarters
after the quarter in which they were incurred, from the Biorex Fees
owed under Section 7.1 with respect to such region in such subsequent
quarters. Thereafter, such costs and expenses shall be deducted from
Profits from such region prior to calculating the amounts owed to
Biorex under 7.2 above.
10.2.3 After reimbursement to Glycyx for its unreimbursed expenses, all
damages and other payments recovered by Glycyx from such infringing
parties shall be included in Profits, Biorex shall cooperate with
Glycyx, at Glycyx's expense, in connection with any such litigation,
including without limitation by joining as a party if necessary or
appropriate and executing such documents as Glycyx may reasonably
request.
Third Party Claims
- ------------------
10.3 In the event that Glycyx is sued by a Third Party alleging that the
manufacture, sale or use of a Product infringes patent rights of such
Third Party, then Glycyx may withhold up to [*] payable in any quarter
with respect to the region involved in such suit and apply such
amounts to any damages, costs, liabilities or expenses (including the
reasonable fees of attorneys and other professionals) incurred as a
result of such claim, up to [*] of such damages, costs, liabilities
and expenses. All unreimbursed damages, costs liabilities and expenses
shall thereafter be deducted from Profit earned in such region for
purposes of determining Biorex Profit.
11. CONFIDENTIALITY
---------------
General
- -------
11.1 Except as expressly otherwise provided in this Agreement, each party
shall hold in confidence and not use or disclose to any Third Party
(other than employees, consultants, advisors, permitted Sublicensees
and Third Parties with whom such party is considering entering into a
business relationship who are similarly bound in writing) any product,
technical, manufacturing, process, marketing, financial, business or
other information, ideas, or know-how of the other party that is
identified in writing by the other party as confidential ("Proprietary
Information") at the
21
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
time of its disclosure or within thirty (30) days thereafter;
provided, however, that Proprietary Information of a party shall not
include:
11.1.1 Items which at the time of disclosure are published or otherwise
generally available to the public;
11.1.2 Items which, after disclosure to the other party, are published or
become generally available to the public through no breach of this
Agreement by the other party or the other party's employees or agents;
or
11.1.3 Items which the other can document were or are (i) in its possession
at the time of disclosure and was not acquired directly or indirectly
from such party, (ii) independently developed.
Exceptions
- ----------
11.2 A party may disclose Proprietary Information of the other:
11.2.1 In connection with the order of a court of law or in compliance with
laws or regulations relating to registrations or sale of securities or
product approval, or
11.2.2 If such information is also rightfully acquired from a Third Party
who, to the best of such party's knowledge and belief, is entitled to
rightfully make such disclosure, but only to the extent such party
complies with any restrictions imposed by the Third Party
11.2.3 After five (5) years from the date such information is disclosed to it
hereunder.
Licensed Information
- --------------------
11.3 Any Proprietary Information of or used by Biorex which is or may be
subject to an exclusive licence to Glycyx hereunder, shall not be
disclosed by Biorex to any Third Party for use in the Territory except
for purposes not inconsistent with such exclusive license and only
pursuant to confidentiality and non-use restrictions at least as
restrictive as those provided herein.
Terms of this Agreement
- -----------------------
11.4 Glycyx and Biorex agree not to disclose the financial terms or
conditions of this Agreement to any Third Party without the prior
written consent of the other party hereto (which consent shall not be
unreasonably withheld), except as required by applicable law, or to
professional advisers, or to persons with whom Biorex or Glycyx has
entered into
22
<PAGE>
or proposes to enter into a business relationship for the purposes of
raising capital to run their business, and then only under conditions
of confidence.
12. PATENT PROSECUTION AND MAINTENANCE
----------------------------------
Control
- -------
12.1 Glycyx shall have the right to take such actions as are necessary or
appropriate, with counsel of its choosing, to effect the patent
applications within the Patent Rights and to obtain patent protection
with respect to the subject matter therein in any country within the
Territory. In the event that Glycyx or a Sublicensee elects not to
prosecute or maintain a patent application or patent within the Patent
Rights, Biorex shall have the right to do so at its own expense.
Expenses
- --------
12.2 The cost of Glycyx's preparing, filing, prosecuting and maintaining
all patent applications and patents contemplated by this Agreement
shall be borne by Glycyx.
Co-operation
- ------------
12.3 Glycyx shall provide Biorex with copies of all material documentation
after Glycyx's receipt from or prior to submission to any governmental
agency with jurisdiction to issue such patents, as appropriate, so
that Biorex may be informed and appraised of the continuing
prosecution. Glycyx shall consult with Biorex and its counsel
concerning prosecution of any patent application and adopt reasonable
suggestions made with respect thereto, and shall use its best efforts
to amend any patent application to include claims reasonably requested
by Biorex and required to protect the product contemplated to be sold
under this Agreement. Biorex shall make available to Glycyx or its
authorised attorneys, agents or representatives, Biorex's employees,
agents or consultants necessary or appropriate to enable Glycyx to
file, prosecute and maintain patent applications and resulting patents
within the Patent Rights. Biorex shall sign or cause to have signed
all documents relating to said patent applications or patents at no
charge to Glycyx.
13. TERM AND TERMINATION
--------------------
Expiration
- ----------
13.1 Unless terminated earlier pursuant to Section 13.2, 13.3 or 13.4
below, this Agreement shall expire
23
<PAGE>
fifteen (15 years) from the date of Launch. Upon expiration of this
Agreement, Glycyx shall have the following irrevocable, licences (with
right to sublicense): (a) a non-exclusive royalty-free licence under
the Technical Information and Manufacturing Technology to make, have
made, use, sell and have sold Products in the Territory; and (b) the
exclusive right and license to use the Trade Mark in accordance with
the terms of Sections 6.3.2, 6.3.3 and 6.3.4 in connection with the
marketing and sale of such Products in the Territory, subject to the
provisions of Section 6.3.5.
Termination for Cause
- ---------------------
13.2 Either party may terminate this Agreement following the material
breach of any material provision of this Agreement by the other party
if the breaching party has not commenced to cure such breach within
ninety (90) days after written notice thereof by the other party and
thereafter proceeded diligently to cure such breach within a
reasonable time; provided, that in no event shall such reasonable time
--------
to cure such breach exceed one hundred eighty (180) days from the date
of such notice. In determining whether there has been a material
breach of a material provision of this Agreement for purposes of this
Section 13.2, all of the circumstances of the breach shall be
considered, including the breaching party's conduct, the hardship of
termination, the extent to which the breaching party has performed its
obligations, the extent to which the non-breaching party will obtain
the benefits it reasonably anticipated, and similar factors.
Termination by Glycyx
- ---------------------
13.3 Glycyx shall have the right to terminate this Agreement and the
licences granted herein, in whole or as to any specified Product or
country, at any time, and from time to time, by giving notice in
writing to Biorex. Such termination shall be effective ninety (90)
days from the date Biorex receives such notice and all Glycyx's rights
associated therewith shall cease as of that date; provided, however,
that if Glycyx revokes in writing its notice of termination before the
end of such 90 day period, such notice of termination shall have no
effect and the rights specified in such notice of termination shall
not terminate.
Termination by Biorex
- ---------------------
13.4 Without prejudice to any other rights Biorex may have to terminate
under this Agreement, in the event that:-
24
<PAGE>
13.4.1 Salix ceases business or seeks protection from its creditors pursuant
to Chapter 11 of the U.S. Bankruptcy Code or files or has filed
against it a voluntary or involuntary bankruptcy procedure that is not
dismissed within sixty (60) days or a receiver or assignee is
appointed for the benefit of its creditors or if it takes or suffers
any similar action in consequence of debt with respect to all or
substantially all of its assets; THEN Biorex shall have the right to
terminate this Agreement forthwith.
13.4.2 (a) a Sublicensee terminates its Sublicense with Glycyx and
(b) Biorex and the Sublicensee have either:
(i) prior to the date of the relevant Sublicense agreement; or
(ii) on the same day as the date of the relevant Sublicense
agreement; or
(iii) after the date of the relevant Sublicense agreement and with
the consent of Glycyx, such consent not to be delayed or
unreasonably withheld
entered into an agreement under which Biorex agrees, in the event
of termination of the Sublicense, to grant a licence directly to
the Sublicensee;
THEN Glycyx's rights and licenses under this Agreement shall terminate
forthwith automatically in respect of the region covered by the
relevant Sublicense.
13.4.3 (a) by reason of any act or omission on the part of Glycyx, a
Sublicensee is entitled to a royalty-free licence to manufacture
Products; and
(b) the Sublicensee exercises such right, and such licence continues
for more than 180 days
THEN Biorex shall have the right to terminate Glycyx's rights and
licenses under this Agreement forthwith in respect of the region
covered by the relevant Sublicense.
13.5 Effect of Termination
---------------------
13.5.1 Upon a termination of this Agreement by Glycyx under Section 13.3
above, or by Biorex under Section 13.4 above, or by reason of a
material breach by Glycyx, all licenses granted to Glycyx hereunder
(or in the event of a partial termination the licenses to the Products
and countries to which such termination pertains) shall terminate. In
the event of such a termination, Glycyx shall (to the
25
<PAGE>
extent that any applicable Sublicense agreement allows) assign to
Biorex filings made in Glycyx's or its Sublicensees name with the
health regulatory authorities within the terminated country that
pertain to the Products.
13.5.2 Expiration or termination of this Agreement shall not relieve the
parties of any obligation accruing prior to such expiration or
termination.
13.5.3 Upon termination of this Agreement by either party Glycyx shall
provide Biorex with a written inventory of all Products in process of
manufacture or in stock, and Glycyx (and its Affiliates and
Sublicensees) shall have the privilege of disposing of such Products
within a period of one hundred eighty (180) days; provided, however,
that Glycyx shall pay Biorex Profit on any sales of such Products at
the rate and at the time herein provided and shall render Reports
thereon.
13.5.4 In event of any termination of this Agreement or any licenses granted
hereunder, whether in whole or in part, any Sublicense, marketing or
other distribution rights granted by Glycyx hereunder shall survive,
and the relevant Sublicense and/or distribution agreements, if any,
shall be deemed assigned to Biorex, except where Biorex and the
relevant Sublicensee enter into an agreement to provide an alternative
arrangement in the event of such termination.
13.5.5 Upon the expiration or termination of this Agreement for any reason,
the parties' rights and obligations under the following provisions
shall survive: Article 1, Sections 6.3, 8.2, 8.3 and Articles 9, 11,
13, 14 and 17; provided that the indemnification provision of Article
14 shall survive only with respect to claims that are made prior to
three (3) years after expiration or termination of this Agreement. In
addition, upon expiration of this Agreement under Section 13.1 above,
the parties rights and obligations under Article 4 and Section 6.2
shall survive.
14. INDEMNITY
---------
Glycyx
- ------
14.1 Subject to Biorex's compliance with its obligations set forth in
Section 14.3 below, Glycyx agrees to indemnify and hold Biorex, its
Affiliates and their employees and agents harmless from and against
any losses, claims, damages, liabilities or actions (including
reasonable attorneys' fees and court and other expenses of litigation)
(collectively, the "Liabilities") suffered or incurred in connection
with Third Party claims for personal injuries or
26
<PAGE>
any product recall to the extent caused by: (a) any failure to test
for or provide adequate warnings of adverse side effects to the extent
such failure arises out of acts or omissions in connection with the
performance of Glycyx's preclinical or clinical testing obligations
hereunder, (b) any manufacturing defect in any Product or other
material manufactured by Glycyx or its subcontractors, or (c) any
other act or omission (without regard to culpable conduct) of Glycyx
or its subcontractors in connection with the activities contemplated
under this Agreement, except to the extent such Liabilities resulted
from negligence, recklessness or intentional misconduct of Biorex.
Biorex
- ------
14.2 Subject to Glycyx's compliance with its obligations set forth in
Section 14.3, Biorex agrees to indemnify and hold Glycyx, its
Affiliates, and Sublicensees and their employees and agents harmless
from and against any Liabilities suffered or incurred in connection
with third party claims for personal injuries or any product recall to
the extent caused by: (a) any failure to test for or provide adequate
warnings of adverse side effects to the extent such failure arises out
of acts or omissions in connection with Biorex's preclinical or
clinical testing obligations hereunder, (b) any manufacturing defect
in any Product or other material manufactured by Biorex or its
subcontractors, or (c) any other act or omission (without regard to
culpable conduct) of Biorex or its subcontractors in connection with
the activities contemplated under this Agreement, except to the extent
such Liabilities resulted from negligence, recklessness or intentional
misconduct of Glycyx or its Affiliates, sublicensees or
subcontractors. Notwithstanding the foregoing, Biorex shall not be
obligated to indemnify Glycyx or its Affiliates, Sublicensees or
subcontractors with respect to Liabilities incurred in the course of
human clinical trials conducted by Glycyx (itself or through
subcontractors), or with respect to Liabilities resulting from the use
of Products supplied by Biorex as clinical trials materials for use in
such clinical trials.
Procedure
- ---------
14.3 A party (the "Indemnitee") that intends to claim indemnification under
this Article 14 shall promptly notify the other party (the
"Indemnitor") in writing of any loss, claim, damage, liability or
action in respect of which the Indemnitee or any of its Affiliates,
employees or agents intend to claim such indemnification, and the
Indemnitor shall have
27
<PAGE>
the right to participate in, and, to the extent the Indemnitor so
desires, jointly with any other Indemnitor similarly noticed, to
assume the defence thereof with counsel mutually satisfactory to the
parties; provided, however, that an Indemnitee shall have the right to
--------
retain its own counsel, with the fees and expenses to be paid by the
Indemnitee, if representation of such Indemnitee by the counsel
retained by the Indemnitor would be inappropriate due to actual or
potential differing interests between such Indemnitee and any other
party represented by such counsel in such proceeding. The indemnity
agreement in this Article 14 shall not apply to amounts paid in
settlement of any loss, claim, damage, liability or action if such
settlement is effected without the consent of the Indemnitor, which
consent shall not be withheld unreasonably. The failure to deliver
written notice to the Indemnitor within a reasonable time after the
commencement of any such action, if prejudicial to its ability to
defend such action, shall relieve such Indemnitor of any liability to
the Indemnitee under this Article 14, but the omission so to deliver
written notice to the Indemnitor shall not relieve it of any liability
that it may have to any Indemnitee otherwise than under this Article
14. The Indemnitee under this Article 14, its employees and agents,
shall cooperate fully with the Indemnitor and its legal
representatives in the investigation of any action, claim or liability
covered by this indemnification.
15. FORCE MAJEURE
-------------
Neither party shall be held liable or responsible to the other party nor be
deemed to have defaulted under or breached this Agreement for failure or delay
in fulfilling or performing any term of this Agreement when such failure or
delay is caused by or results from causes beyond the reasonable control of the
affected party or from fire, floods, embargoes, war, acts of war (whether war be
declared or not), insurrections, riots, civil commotions, strikes, lockouts or
other labour disturbances, acts of God or acts, omissions or delays in acting by
any governmental authority or the other party.
16. ASSIGNMENT
----------
This Agreement may not be assigned or otherwise transferred, nor, except as
expressly provided hereunder, may any right or obligations hereunder to assigned
or transferred, by either party without the written consent of the other party;
provided, however that either Biorex or Glycyx may, without such consent, assign
- --------
this Agreement and its rights and obligations hereunder in connection with the
transfer or sale of all or substantially all of its business, if such assets
include substantially all of the assets relating to
28
<PAGE>
its performance of its respective obligations hereunder, or in the event of its
merger or consolidation with another company at any time during the term of this
Agreement. Any purported assignment in violation of the preceding sentence shall
be void. Any permitted assignee shall assume all obligations of its assignor
under this Agreement. No assignment shall relieve either party of responsibility
for the performance of any accrued obligation which such party then has
hereunder.
17. MISCELLANEOUS
-------------
Notices
- -------
17.1 Any notice or report required or permitted to be given or made under
this Agreement by one of the parties hereto to the other shall be in
writing, delivered personally or by facsimile (and promptly confirmed
by personal delivery or courier) or courier, postage prepaid,
addressed to such other party at its address indicated below, or to
such other address a the addressee shall have last furnished in
writing to the addressor and shall be effective upon receipt by the
addressee.
Glycyx Pharmaceuticals Ltd
Cedar House
41 Cedar Avenue
Hamilton, Hm-12, Bermuda
Attention: Managing Director
Biorex Laboratories, Ltd
2 Crossfield Chambers
Gladbeck Way
Enfield, Middlesex EN2 7HT
Attention: Managing Director
Applicable Law
- --------------
17.2 This Agreement shall be governed by and construed in accordance with
the laws of England, without regard to conflicts of laws provisions.
Export Laws
- -----------
17.3 Biorex shall procure and maintain all U.K. export licenses required
for it to transfer to Glycyx and its Sublicensees all Technical
Information, Patent Rights, Manufacturing Technology and other
technical data, and shall comply with all other U.K. laws, regulations
and governmental directives relating to the export of technical data,
goods and services.
No Consequential Damages
- ------------------------
17.4 EXCEPT AS PROVIDED IN SECTION 14 IN NO EVENT SHALL EITHER GLYCX OR
BIOREX OR THEIR AFFILIATES BE
29
<PAGE>
LIABLE FOR SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES
(INCLUDING WITHOUT LIMITATION DAMAGES FOR LOSS OF PROFITS, PRODUCTION,
USE OR SALES) BASED ON CONTRACT, TORT OR ANY OTHER LEGAL THEORY.
Entire Agreement
- ----------------
17.5 This Agreement contains the entire understanding of the parties with
respect to the subject matter hereof. All express or implied
agreements and understandings, either oral or written heretofore made
(including without limitation the Original Agreement which is
superseded in its entirety by this Agreement) are expressly excluded.
This Agreement may be amended, or any term hereof modified, only by a
written instrument duly executed by both parties hereto.
Headings
- --------
17.6 The captions to the several Articles and Sections hereof are not a
part of this Agreement, but are merely guides or labels to assist in
locating and reading the several Articles and sections hereof.
Independent Contractors
- -----------------------
17.7 It is expressly agreed that Glycyx and Biorex B shall be independent
contractors and that the relationship between the two parties shall
not constitute a partnership, joint venture or agency. Neither Glycyx
nor Biorex shall have the authority to make any statements,
representations or commitments of any hand, or to take any action,
which shall be binding on the other, without the prior written
authorisation of the other party to do so.
Waiver
- ------
17.8 The waiver by either party of any right hereunder or the failure to
perform or of a breach by the other party shall not be deemed a waiver
of any other right hereunder or of any other breach or failure by said
other party whether of a similar nature or otherwise.
Further Assurances
- ------------------
17.9 Glycyx shall use commercially reasonable efforts to ensure that each
of its Sublicensees and subcontractors shall observe and perform all
the obligations and restrictions applicable to it under this
Agreement.
30
<PAGE>
Severability
- ------------
17.10 In case any one or more of the provisions contained in this Agreement
shall for any reason be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall
not affect any other provisions hereof, but this Agreement shall be
construed as if such invalid or illegal or unenforceable provisions
had never been contained herein.
IN WITNESS WHEREOF the parties have executed this Agreement as of the day and
year first above written.
GLYCYX PHARMACEUTICALS LTD BIOREX LABORATORIES LTD
/s/ Randy Hamilton /s/ Lily Baxendale
- ---------------------------- -------------------------
SIGNED SIGNED
President Managing Director
- ---------------------------- -------------------------
TITLE TITLE
31
<PAGE>
EXHIBIT A
---------
Patents and Patent Applications
<TABLE>
<CAPTION>
Patent Number Filing Date Grant Date Due to Expire
- ------ ------ ----------- ---------- -------------
<S> <C> <C> <C> <C>
UK 2,080,796 Complete 7 July 2001
Specification
7 July 1981
France 1,493,313 21 July 1981 21 July 2001
Italy 1,138,450 10 July 1981 17 December 1986 10 July 2001
F.R.G. 3,120,019 21 July 1981 15 February 1990 21 July 2001
</TABLE>
32
<PAGE>
EXHIBIT B
---------
Regional Minimums
Year After Commercial Introduction of
First Product in Corresponding Region
-------------------------------------
<TABLE>
<CAPTION>
First Year Second Year Third, Fourth, and
Fifth Years
((POUNDS)000) ((POUNDS)000) ((POUNDS)000)
------------- ------------- -------------
<S> <C> <C> <C>
Region
- ------
[*]
</TABLE>
33
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
EXHIBIT C
---------
Trade Mark "COLAZIDE"
REGISTRATIONS
- -------------
<TABLE>
<CAPTION>
Country Number
- ------- ------
<S> <C>
Australia A455069
Benelux 428853
Denmark 04083-1988
Finland 103862
German FR 1157517
Great Britain 1234695
Greece 93779
Iceland 837/1989
Ireland 120566
Italy 512161
New Zealand 168967
Norway 138374
South Africa 867518
Sweden 221326
Switzerland 371887
Applications
- ------------
Country Number
- ------- ------
Austria 117587
Canada 643826
France 1396079
</TABLE>
34
<PAGE>
[LETTER HEAD OF BIOREX]
Glycyx Pharmaceuticals Ltd
Cedar House
41 Cedar Avenue
Hamilton HM12
Bermuda
LETTER OF AGREEMENT
-------------------
Background
- ----------
A. By an agreement dated 18th March 1992 between Glycyx Pharmaceuticals, Ltd.
("Glycyx") and Biorex Laboratories Limited ("Biorex"), Biorex granted to
Glycyx an exclusive licence to make, have made, use, sell and have sold
Products in the Territory (the terms "Products" and Territory" being
defined in the agreement).
B. An agreement dated 17th September 1992 (the "Agreement") between Biorex and
Glycyx replaced the agreement dated 18th March 1992 in its entirety.
C. Section 4.1.1 of the Agreement provides as follows:-
"4.1.1 Biorex shall assist in the completion of the clinical
development and in the obtaining of the necessary regulatory
approvals in Biorex's name to market a Product containing
Balsalazide for the treatment of ulcerative colitis in the
United Kingdom;..."
<PAGE>
D. Notwithstanding the provisions of section 4.1 1 of the Agreement referred
to in C. above,, Biorex prepared to permit Glycyx to obtain in its own name
the necessary regulatory approvals to market a Product containing
Balsalazide for the treatment of ulcerative colitis in the United Kingdom
on and subject to the provisions of this Letter of Agreement. The terms
"Product" and "Balsalazide" having the meanings given to them in the
Agreement.
It is agreed that:-
1. Biorex shall waive its right under section 4.1.1 of the Agreement to have
the necessary regulatory approvals to market a Product containing
Balsalazide for the treatment of ulcerative colitis in the United Kingdom
in its (own name, and agrees that Glycyx shall be entitled to obtain such
approval in Glycyx's name on and subject to the provisions of this Letter
of Agreement.
2. If, and only if:-
i) the Agreement is terminated by Biorex pursuant to section 13.2 and/or
section 13.4 of the Agreement; and/or
ii) during such time as:-
(a) Glycyx is required to make payments to Biorex under the
Agreement; or
(b) Glycyx would be required to make payments to Biorex under the
Agreement were Glycyx and/or its, Sublicensees to make, have
made, use, sell and/or have sold Products within the Territory.
Salix Holdings, Ltd. and/or Glycyx shall cease business or seek protection
from their creditors pursuant to Chapter 11 of the US Bankruptcy Code or
file or have filed against them voluntary or involuntary bankruptcy
procedure that is not dismissed within 60 days or if a receiver or assignee
is appointed for the benefit of their creditors or if they take or suffer
any similar action in consequence of debt with respect to all or
substantially all of their assets;
<PAGE>
then Biorex, upon 30 days notice to Glycyx, shall be entitled to fill ill
in the Product Licence Number to date and send the letter attached to this
Letter of Agreement (the "Letter of Authority") to the Medicines Control
Agency (or its successor)
3. If Biorex shall be entitled to send the Letter of Authority pursuant to
paragraph 2 above, then at the cost of Biorex, Glycyx shall promptly do all
things necessary and provide Biorex with all reasonable assistance to
enable Biorex or its nominee to obtain regulatory approvals in the United
Kingdom equivalent to those obtained by Glycyx pursuant to paragraph 1 of
this Letter of Agreement.
4. Glycyx shall not do anything to reduce or limit the effectiveness of the
Letter of Authority and in particular shall not purport to withdraw or
cancel the Letter of Authority.
5. Except as specifically stated in paragraph 1 of this Letter of Agreement,
all the provisions of the Agreement shall continue in full force and
effect.
6. The provisions of this Letter of Agreement shall take effect on the date
set out at the start of this Letter of Agreement.
7. This Letter of Agreement shall be governed by and construed in accordance
with the laws of England.
Agreed for and on behalf of Agreed for and on behalf of
Glycyx Pharmaceuticals, Ltd Biorex Laboratories Limited
by its duly authorised by its duly authorised
representative representative
/s/ Randy Hamilton /s/ Lily Baxendale
.......................... ............................
Signed Signed
President Managing Director
.......................... ............................
Title Title
<PAGE>
[LETTER HEAD OF GLYCYX PHARMACEUTICALS, LTD]
Dated:
The Medicines Control Agency
Dear Sir:
PRODUCT LICENCE NUMBER
----------------------
We, the proprietors of the above product licence, hereby authorise the Medicines
Control Agency (or its successor) to refer to the information and data supplied
to the Medicines Control Agency in respect of our product licence when assessing
product licence applications made by Biorex Laboratories Limited or its nominee.
We hereby request and authorise the Medicines Control Agency (or its successor)
to cancel our product licence once Biorex Laboratories Limited or its nominee
has been granted a product licence equivalent to our product licence.
We confirm that once our product licence has been cancelled we shall no longer
supply products covered by it or any products under the name "Colazide".
Yours faithfully,
/s/ Randy Hamilton
- ---------------------------------------
President, Glycyx Pharmaceuticals, Ltd.
<PAGE>
[LETTER HEAD OF GLYCYX PHARMACEUTICALS, LTD]
From: Glycyx Pharmaceuticals Ltd.
To: Biorex Laboratories Limited
Dear Sirs:
RE: License Agreement dated 17th September 1992 between Biorex Laboratories
-----------------------------------------------------------------------
Limited ("Biorex") and Glycyx Pharmaceuticals, Ltd. ("Glycyx")
--------------------------------------------------------------
I write for and on behalf of Glycyx in connection with the above license
agreement ("the License") and in particular, in connection with Section 13 of
the Agreement concerning term and termination.
Glycyx and Biorex agree as follows:-
(i) That the first word of section 13.4.1, "Salix" shall be deleted and
replaced by word "Glycyx; and
(ii) That Section 13.4 of the License shall be amended by the addition of the
new section 13.4.4 to read as follows:-
"13.4.4(a) by reason of any act or omission of Glycyx (including
without limitation any breach of the provisions of any Sublicense)
any Sublicensee appointed in respect of the territory of Italy,
Spain, Greece and/or Portugal is entitled (or otherwise obtains any
right) to manufacture or have manufactured on its behalf by a third
party Products and/or sell in such part or parts of the Territory
such Products manufactured by it or an its behalf upon terms whereby
Biorex is to receive a royalty of [*] of each Product manufactured
and/or sold by such Sublicensee; and
(b) The Sublicensee or a third party for and on behalf of the
Sublicensee commences manufacture of Products;
THEN Biorex shall have the right to terminate Glycyx's rights and
licenses under this Agreement forthwith in respect of such part or
parts of the Territory.
For the avoidance of doubt for the purposes of this Section 13.4.4
"manufacture" shall mean the manufacture of Bulk Balsalazide or the
Bulk Active Ingredient for Balsalazide (4ABA) by such Sublicensee or
an behalf of any such Sublicensee by a third party."
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
Please confirm your agreement to the amendment to the License as set out in this
letter by signing and returning the enclosed copy letter.
Yours faithfully,
/s/ Randy Hamilton
Randy Hamilton, President
Signed for an on behalf of
Glycyx Pharmaceuticals Ltd.
Biorex Laboratories Limited hereby confirms its agreement to the amendment to
the License set out above.
Lily Baxendale
Signed for an on behalf of
Biorex Laboratories Limited.
<PAGE>
EXHIBIT 10.6
Dated 1992
------------------------------------------
GLYCYX PHARMACEUTICALS, LTD (1)
-and-
AB ASTRA (2)
--------------------------------------------
RESEARCH AND DEVELOPMENT
AGREEMENT
--------------------------------------------
Hewitson Becke + Shaw
4/5 Church Street
Peterborough
PE1 1XB
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
- 1 -
THIS AGREEMENT is made the 21st day of September 1992
BETWEEN:
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(1) GLYCYX PHARMACEUTICALS, LTD a company incorporated under the laws of
Bermuda and whose registered office is at 41 Cedar Avenue, Hamilton, HM12,
Bermuda ("Glycyx"); and
(2) AB ASTRA a company incorporated under the laws of Sweden whose principal
place of business is at Kvarnbergagatan 16, S-151 85 Sodertalje, Sweden
("Astra").
WHEREAS:
A. By an agreement dated 18th March, 1992 and made between Glycyx of the one
part and Biorex Laboratories Limited ("Biorex") of the other part Biorex
granted Glycyx an exclusive license to develop, manufacture use and sell
pharmaceutical products incorporating Balsalazide under patents granted to
Biorex upon the terms of such licence.
B. Glycyx and Astra have agreed to collaborate in the programme of development
of such pharmaceutical products for the creation of a Dossier to be
registered in the countries within the Territory (as hereinafter defined).
NOW IT IS HEREBY AGREED as follows:
1. DEFINITIONS
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1.1 In this Agreement the following words shall have the following meanings:
"the Applications" means:-
(1) the remission of acute relapse in
ulcerative colitis; and
(2) the maintenance of remission in
ulcerative colitis
"the Astra Specialists" shall mean three specialists nominated and
appointed from time to time by Astra to the
Project Team
"Balsalazide" means 5- [4(2- Carboxyethyl carbamoyl) -
phenylazo]-salicylic acid disodium salt
dihydrate
"Biorex" shall mean Biorex Laboratories Limited a
company incorporated in England under
Company Registration Number 390233
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whose registered office is at 2 Crossfield
Chambers, Gladbeck Way, Enfield, Middlesex
EN2 7HT
"Biorex Agreement" means an agreement dated 18th March 1992
between Glycyx and Biorex
"Biorex/Astra Agreement" means an agreement of even date herewith
entered into between Biorex and Astra
"Distribution Agreement" means the agreement entered into on even
date herewith between Glycyx and Astra in
the approved form
"the Dossier" means the Master Regulatory Dossier relating
to the Product which shall be prepared
during the Project and which shall in the
reasonable opinion of Glycyx and the Project
Team be
(1) in accordance with the published
standards required for master regulatory
dossiers by the European Commission as at
the date of completion of the Dossier; and
(2) in a form suitable for submission to and
suitable for approval by the relevant
regulatory authorities in connection with
obtaining health registration for the
Product in each of the Principal Markets
"the Excluded Territory" shall mean the United States of America,
Italy, Spain, Portugal and Greece
"Force Majeure" means in relation to either party any
circumstances beyond the reasonable control
of that party (including but not limited to
strike, lock out or other form of industrial
action, act of God, war, riot, accident,
breakdown in plant or machinery, fire,
flood, explosion, government action)
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"Patents" shall mean the patents and applications
therefor for Balsalazide listed in Schedule
1
"the Principal Markets" means United Kingdom, Sweden, Finland,
Norway, Switzerland, Austria, Denmark,
Germany, the Benelux countries, France,
Eire, South Africa, Australia, New Zealand
and Canada
"Product" means a pharmaceutical preparation for the
Applications containing Balsalazide
previously developed by Biorex and licensed
to Glycyx pursuant to the Biorex Agreement
"Product Information" means the chemical, pharmaceutical, pre-
clinical, clinical and other information
relating to the Product and Balsalazide
delivered to Astra by Glycyx in full or in
summary form or as expert opinion of the
data prior to the date hereof as identified
and listed in Schedule 2
"the Project" means the development programme in
connection with the development of the
Product the preparation and completion of
the Dossier and obtaining the grant of
approval to market the Product in at least
one Principal Market conducted in accordance
with the terms of this Agreement and as
summarised in Schedule 2
"the Project Team" means the team of experts appointed by
Glycyx from time to time in connection with
the Project and the Astra Specialists
"the Territory" means all the countries in the world
excluding only Italy, Spain, Portugal,
Greece, United States of America, Japan,
Taiwan and
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Korea
"the Trademark" means the trade name "Colazide" registered
as a trademark for use on pharmaceutical
preparations in the United Kingdom and
elsewhere and any other tradename designated
by Glycyx for use in connection with the
Product in any part of the Territory where
use of the tradename 'Colazide' is
inappropriate for such part of the Territory
or where Astra reasonably considers that the
use of another tradename (in addition to the
tradename "Colazide") may be commercially
advantageous.
1.2 The headings in this Agreement are for convenience only and shall not
affect its interpretation.
1.3 Reference to any document in the approved form shall be reference to the
document agreed between the parties and initialled for the purposes of
identification by each party.
2. GLYCYX'S OBLIGATIONS AND THE PRODUCT
------------------------------------
2.1 Glycyx shall manage the Project Team and conduct or procure the conduct of
the Project in a competent manner and shall use all reasonable endevours
to prepare and/or procure the preparation of the Dossier.
2.2 The Project shall be conducted in respect of and relate only to the Product
as defined herein (and notwithstanding the wider definition of the Product
contained in the Distribution Agreement).
2.3 Glycyx shall conduct and manage the Project in close liaison with the
Project Team and Glycyx shall keep Astra fully informed of the progress
costs and conduct of the Project and shall take account of comments and
proposals made by the Project Team with regard to the scientific content
and methods involved in the Project.
2.4 Without prejudice to the generality of the foregoing Glycyx hereby agrees:-
2.4.1 that Glycyx shall use all reasonable endeavours to complete the
Project on or before 31st December 1993; and
2.4.2 that the nature and procedures of any clinical trials conducted
or required to be conducted as part of the Project by Glycyx (or
by any third party duly authorised by Glycyx) will be agreed in
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advance with Astra and Glycyx shall procure that the results of
any such trials or other clinical data relating to such trials
shall be made freely available to Astra as soon as is reasonably
practicable; and
2.4.3 to manage the Project Team and to procure that the Project Team
shall meet at least once in every twelve (12) week period during
the Project to review and co-ordinate the Project and to share
and exchange all information relating to the Project; and
2.4.4 to prepare a quarterly written report on the progress of the
Project and to submit such report to Astra each calendar quarter.
(The first report shall be submitted to Astra within one calendar
quarter from the date of this Agreement); and
2.4.5 to use reasonable endevours to procure that all the contractors
working in the Project (including without limitation the members
of the Project Team (excluding the Astra Specialists)) at the
date of this Agreement are either recruited as employees of
Glycyx or enter into contracts for the supply of their services
to Glycyx; and
2.4.6 to co-ordinate all documentation in connection with the Project.
2.5 Astra hereby confirms and acknowledges that any information, assistance,
representation or warranty given or made by Astra or any of its
representatives or any Astra Specialists may be accepted by and used by
Glycyx in the performance of the Project Provided Always that Glycyx shall
remain solely responsible for the performance of the Project and shall not
be entitled to rely upon any representation warranty or information
supplied by any such Astra representative or any Astra Specialist.
2.6 Upon completion of the Dossier Glycyx shall file the Dossier with the
relevant regulatory authorities in at least one Principal Market and shall
apply for and pursue to grant approval to the marketing and sale of the
Product in such Principal Market.
2.7 The conduct of the Project and the preparation of the Dossier in accordance
with the terms hereof shall include the undertaking by Glycyx to perform
all pre-clinical trials and human pharmacokinetics trials and such limited
clinical trials for the Product as defined in Schedule 2 necessary to
obtain approval in any Principal Market pursuant to Clause 2.6 but shall
not include any obligation on Glycyx to undertake any other clinical trials
whatsoever.
3. COMPLETION OF THE PROJECT
-------------------------
3.1 Upon any application for approval in a Principal Market made
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by Glycyx under Clause 2.6 Glycyx (or any nominee appointed by it,
including Biorex) shall be named as applicant and shall name in such
application Astra as assembler and distributor for the Product in such
Principal market and shall supply confirmation to Astra that the interests
of Astra in the Product pursuant to the Distribution Agreement shall have
been notified to the relevant regulatory authorities in such Principal
Market upon such submission and application.
3.2 Glycyx shall use all reasonable endeavours to procure that the relevant
regulatory authorities in such Principal Market shall (in addition to the
product licence issued to the applicant) issue a duplicate product license
in favour of Astra.
3.3 Glycyx shall procure that the applicant named pursuant to Clause 3.1 in
connection with the submission of the Dossier to such regulatory
authorities shall not during the term of the Distribution Agreement use any
product license issued to it as applicant for the Product in any manner
which may be in derogation of the rights granted to Astra under the
Distribution Agreement.
4. ASTRA'S OBLIGATIONS
-------------------
4.1 Astra shall be solely responsible for all costs and expenses incurred by or
payable to any Astra Specialist in connection with the Project.
4.2 Astra acknowledges that the Project meetings under Clause 2.4.3 shall take
place in the United Kingdom at such places as shall be reasonably nominated
by Glycyx. Astra hereby agrees to bear the entire cost and expense in
connection with the attendance at such meetings of any Astra representative
and the Astra Specialists.
4.3 In the event that by agreement between the parties Astra shall during the
term of the Project conduct any clinical trial work for registration
purposes in connection with the Project Astra confirms that it shall bear
all direct internal costs incurred by it in the performance of such
clinical work but shall be entitled to invoice Glycyx [*] for those
expenses and costs actually paid to any third party, upon terms to be
agreed between the parties.
5. CLINICAL TRIALS
---------------
5.1 Astra agrees to undertake any human clinical trials for the Product (beyond
the clinical trials conducted as part of the Project as specified in Clause
2.6) in connection with the submission of the Dossier in any part of the
Territory or otherwise in connection with the application for or obtaining
regulatory approval for the Product from any relevant regulatory
authorities in any Part of the Territory (including but not limited to
Phase III and Phase IV studies) at Astra's sole cost and expense Provided
Always
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
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that:
5.1.1 the trials, are planned, organised and carried out solely by Astra;
and
5.1.2 prior to the conduct of the trials the clinical trial objectives and
the clinical trial protocols are agreed in writing between Astra and
Glycyx (such agreement not to be unreasonably withheld or delayed
and Provided Always that such agreement shall be deemed to have been
given by Glycyx in the event that no response is received by Astra
from Glycyx within 20 working days of receipt by Glycyx of any
request from Astra for approval); and
5.1.3 Astra shall provide all medical resources and clinical trials
monitors at its own cost and expense; and
5.1.4 Astra shall bear all the costs and expenses associated with such
clinical trials including but without limitation the costs of
documentation and administrative payments to trialists; and
5.1.5 Glycyx shall [*] provide such supplies of finished capsules of
Product to Astra as Astra may reasonably require for the conduct of
such trials; and
5.1.6 Unless otherwise agreed by Glycyx, Astra shall use and promote the
Trademark in connection with such trials.
5.2 In the event that any clinical trials are conducted by Astra pursuant to
Clause 5.1 Astra undertakes:-
5.2.1 to keep Glycyx fully informed as to the conduct of such clinical
trials and to provide to Glycyx full unrestricted access to such
results; and
5.2.2 to permit Glycyx to use such results and to disclose the same to
third parties in connection with the use and sale of the Product
in the Excluded Territory
Provided Always that Glycyx shall procure full unrestricted access to Astra
to the results of any clinical trials and other studies conducted by Glycyx
and/or any authorized third party in connection with the use and sale of
the Product in the Excluded Territory.
6. COSTS AND FUNDING
-----------------
6.1 Schedule 3 contains an estimate prepared by Glycyx of the costs which may
be incurred in the performance of the Project. Glycyx acknowledges that the
total estimated costs for completion of the Project is [*] (as at 31st
August 1992) which is in accordance with the cost scheme in
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
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Schedule 3.
6.2 Astra hereby agrees that it shall be responsible for all the costs and
expenses of whatsoever nature and by whomsoever incurred in connection with
the Project up to [*] and Astra agrees to remit monies to
Glycyx (for such costs and expenses incurred by Glycyx in the performance
of the Project) into Glycyx's bank account (details of which are set out
below) in respect of such costs and expenses in accordance with Schedule 3
to this Agreement
[*]
Glycyx confirms and acknowledges the receipt of [*] paid by Astra on July
3, 1992 as an advance payment hereunder and [*]
Provided Always that any payments costs and expenses expressly stated in
this Agreement to be the sole responsibility of Astra shall be paid over
and above such [*] and such costs shall not be taken into account in
calculating such maximum.
6.3 Glycyx shall be solely responsible for funding the difference between the
actual costs for completion of the Project and Astra's contribution under
Article 6.2.
6.4 Glycyx represents that all payments made by Astra to the bank account under
Article 6.2 will be used exclusively for payments to third parties in
connection with the Project and Glycyx is solely responsible for the
maintenance of this Account. Glycyx shall be solely responsible for making
all payments to all third parties working in the Project and Glycyx shall
maintain detailed and accurate accounts and records in connection with all
such payments.
6.5 Glycyx shall submit a copy of all accounts and records maintained by it in
connection with the conduct of the Project on a calendar quarterly basis.
The first set of accounts and records shall be submitted to Astra three
calendar months from the date of this Agreement.
6.6 In the event that the actual costs incurred by Glycyx in the performance of
the Project shall exceed the total estimated costs under Clause 6.1 Glycyx
shall be solely liable for any excess costs incurred Provided Always that
in the event that
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
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Glycyx shall at any time (in its sole discretion) decide that it is unable
or unwilling to incur expenses in excess of such estimate and to complete
the Project in accordance with the terms of this Agreement it shall
forthwith notify Astra in writing and Astra may at its sole option
(exercised by 30 days notice in writing to Glycyx served within 15 days of
receipt of any such notice from Glycyx) assume all obligations in
connection with the conduct and completion of the Project the filing of the
Dossier in accordance with Clause 3.1 hereof and obtaining regulatory
approval under Clause 2.6 whereupon;
6.6.1 this Agreement shall terminate; and
6.6.2 the rights of Astra to distribute the Product under the
Distribution Agreement will remain and for the avoidance of doubt
payments under Clause 7.1.2 of the Distribution Agreement shall
remain due and payable in accordance with the terms of such
Clause 7.1.2; and
6.6.3 the right of Astra to manufacture Product pursuant to Clause 13
of the Distribution Agreement shall be deemed to be granted
pursuant to Clause 13.2.2 thereof; and
6.6.4 Astra shall have no claim against Glycyx and Glycyx shall not be
liable for any breach by it of its obligations to complete the
Project in accordance with the terms of this Agreement; and
6.6.5 Astra may in its sole discretion supply information relating to
or arising in the Project to third parties exploiting the Product
in the Excluded Territory but shall not be under any obligation
to do so and such supply may be upon such terms as may be agreed
between Astra and such third party.
7. TERM
----
7.1 This Agreement shall have effect from the date hereof unless and until
terminated pursuant to this Clause 7.
7.2 This Agreement shall terminate
7.2.1 upon completion of the Project by Glycyx in accordance with the
terms of this Agreement (and in particular the terms of Clause
2.6) and payment by Astra to Glycyx of all sums due hereunder;
and
7.2.2 Forthwith upon written notice from Astra of the exercise of its
option under Clause 6.6.
7.3 This Agreement may be terminated at any time during the Project by the
mutual agreement of Astra and Glycyx provided always that the Distribution
Agreement shall terminate forthwith upon any such termination.
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7.4 Either party to this Agreement shall be entitled to terminate this
Agreement forthwith by notice in writing to the other in the event that:-
7.4.1 the other party shall fail to pay any sum due hereunder on the due
date and shall fail to remedy such breach within 30 days of being
required in writing by the other party so to do; or
7.4.2 the other party shall commit a material breach of any of the terms
and conditions of this agreement and shall fail to remedy the same
(if capable of remedy) within ninety (90) days of being required in
writing by the other party so to do; or
7.4.3 the other party shall enter into liquidation (either voluntary or
compulsory) or shall be the subject of any petition for winding up;
or
7.4.4 the other party shall make any assignment or arrangement for the
benefit of its creditors or cease or threaten to cease to carry on
its business in the ordinary course; or
7.4.5 a receiver, administrative receiver, or receiver and manager, or
judicial manager or administrator is appointed over the whole or any
part of the assets of either party or if any court proceedings are
commenced for the appointment of an administrator or receiver to
either party; or
7.4.6 the other party shall become unable to pay its debts as they become
due in the ordinary course of business or shall otherwise become
subject to or seek relief under any law relating to insolvency in
any jurisdiction relevant to such other party.
7.5 Any waiver by either party of a breach of any provision of this agreement
shall not be considered as a waiver of any subsequent breach of the same or
any provisions of this Agreement.
7.6 Any termination of this Agreement shall be without prejudice to the right
of either party to recover any monies due to it under this Agreement or to
the rights or remedies of either party in respect of any breach prior to
the date of termination of this Agreement.
7.7 Glycyx undertakes that during the term of this Agreement it shall not
exercise any right which it may have (or may acquire) to terminate the
Biorex Agreement without prior consultation with Astra and without taking
such action as may be appropriate to ensure that the rights granted to
Astra hereunder are not prejudiced to any material extent by any such
termination of the Biorex Agreement by Glycyx.
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8. CONSEQUENCES OF TERMINATION
---------------------------
8.1 In the event of termination of this Agreement pursuant to Clause 7.3 or
termination by Glycyx pursuant to Clause 7.4 (howsoever arising or caused)
each party shall immediately
8.1.1 return to the other all material information, data, or samples
(including without limitation all scientific medical and safety
data relating to the Product) relating to the Product or the
Project which is of a confidential nature and shall have been
supplied to it in confidence in connection with this Agreement
together with all copies thereof (other than correspondence
between the parties) which either party may have in its
possession or under its control as at the date of termination;
and
8.1.2 cease all use of any such confidential information of the other
party supplied to or obtained by it in connection with the
Project or this Agreement; and
8.1.3 undertake a full financial audit of the accounts of the Project
and agree such payments and reimbursements as may be required to
give effect to the provisions of Clause 6 and to ensure that
Glycyx obtains reimbursement of all costs incurred by or
committed to Glycyx prior to the date of termination (subject to
the maximum in Clause 6.2). If the parties cannot agree on the
amounts of any payments or re-imbursements within 28 days of the
date of termination of this Agreement then either party may
instruct the President for the time being of the Pharmaceutical
Society of Great Britain to appoint an independent auditor
(acting as an expert and not an arbitrator) to prepare the said
audit and his determination as to payments or re-imbursements to
either party, shall (in the absence of manifest error), be final
and binding on the parties and his costs and expenses shall be
borne by the parties hereto in such proportions as he shall in
his absolute discretion determine
8.2 In the event of termination of this Agreement by Astra under the provisions
of Clause 7.4 the rights and obligations of Astra under this Agreement
shall continue subject always to the terms of the Biorex/Astra Agreement.
8.3 In the event of termination under Clause 7.2 it is acknowledged that
Clauses 3.3, and 11 and any provision which by its nature is intended to
survive termination of this Agreement will survive any such termination.
9. CONFIDENTIAL INFORMATION
------------------------
9.1 Astra hereby agrees and undertakes that during the term of this Agreement
and for a period of ten years thereafter
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(howsoever termination may be caused or arise) it shall keep confidential
and shall not without the prior written consent of Glycyx disclose to any
third party any information of a confidential nature belonging to Glycyx or
Biorex including trade secrets and information of commercial value) which
may become known to Astra from Glycyx in connection with this Agreement
Provided Always that such obligation of confidentiality shall not extend to
any part of such confidential information which:
9.1.1 shall otherwise than by reason of any default by Astra became
freely available to the general public; or
9.1.2 Astra can show by documentary evidence was in its possession or
control prior to disclosure free of any obligation of
confidentiality; or
9.1.3 Astra can show by documentary evidence shall have come into the
possession or control of Astra from a third party free of any
obligation of confidentiality subsequent to disclosure hereunder;
or
9.1.4 Astra is obliged by law or regulation to disclose to a third
party provided that such disclosure shall only be made to the
extent actually required by law or regulation.
9.2 Astra shall ensure that the Astra Specialists, or any other employee of or
consultant to Astra who shall obtain any confidential information in
connection with the Project or otherwise the performance of this Agreement
shall be bound by obligations of confidentiality substantially similar to
the provisions of Clause 9.1.
10. ASSIGNMENT
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10.1 The benefit of this Agreement is personal to Astra and to Glycyx and shall
not be capable of assignment by either of them under any circumstances
without the prior consent in writing of the other party (such consent not
to be unreasonably withheld or delayed) save only for an assignment made
between Glycyx and Salix Pharmaceuticals Inc which may be effected without
the prior consent or approval of Astra.
10.2 Performance of any of Astra's obligations hereunder may be effected by any
wholly-owned subsidiary of Astra within the Territory Provided Always that
Astra shall remain solely liable for the proper performance of all such
obligations.
11. INTELLECTUAL PROPERTY RIGHTS AND WARRANTIES
-------------------------------------------
11.1 Glycyx hereby represents and warrants to Astra as at the date of this
Agreement (with the intent that Astra has relied upon such representations
and warranties in entering into this Agreement and the Distribution
Agreement) that:-
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11.1.1 the Biorex Agreement (which has been disclosed to Astra) contains
all the terms concerning the arrangements between Biorex and
Glycyx and that there is no other fact or circumstances relating
to the Biorex Agreement that is material to the Project and/or
the Distribution Agreement and which might reasonably be expected
to affect the decision of Astra to enter into this agreement or
the Distribution Agreement which has not been disclosed to Astra
by Glycyx; and
11.1.2 Biorex is the sole legal owner of the Patents; and
11.1.3 so far as Glycyx is aware the Patents are valid and subsisting;
and
11.1.4 so far as Glycyx is aware and save as indicated therein the
Product Information is accurate and complete in all material
respects and there is nothing contained therein which might
render the Product Information misleading in any material
respect; and
11.1.5 so far as Glycyx is aware the Trademark is available for use in
connection with the Product in each of the Principal Markets and
does not infringe the rights of any third party;
Provided Always That Glycyx shall not be liable in any respect for any
breach of the warranties contained in clauses 11.1.1 to 11.1.5 unless
notice in writing specifying details of such breach shall have been served
on Glycyx by Astra prior to the twelfth anniversary of the date of this
Agreement.
11.2 Astra acknowledges that save as expressly provided in the Distribution
Agreement or as may be required in connection with the performance by Astra
of its obligations hereunder, Astra shall have no right title interest or
licence in or to the Patents or otherwise any intellectual property rights
of Biorex or Glycyx in Balsalazide or the Product.
12. COSTS
-----
12.1 Each party hereto shall bear its own costs in relation to the negotiation,
drafting, preparation and, execution of this Agreement.
13. CONFIDENTIALITY OF THIS AGREEMENT
---------------------------------
13.1 The contents of this Agreement shall remain confidential as between the
parties. Neither party shall, without the prior written consent of the
other (such consent not to be unreasonably withheld without justification)
reveal any of the financial terms of this Agreement to any other person,
firm or company save for:-
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13.1.1 disclosure by Glycyx to Biorex or Salix Pharmaceuticals Inc in
circumstances where such third party shall have accepted
obligations of confidentiality in respect of the information
disclosed; or
13.1.2 such disclosure as may be required to be made by either party by
any relevant law or regulatory authority to the extent required
by such relevant or regulatory authority.
14. FORCE MAJEURE
-------------
14.1 If the performance of any obligations under the Agreement by either party
is affected by Force Majeure such party shall forthwith notify the other
party of the nature and extent thereof.
14.2 Neither party shall be deemed to be in breach of this Agreement or
otherwise be liable to the other by reason of any delay in performance or
non-performance of any of its obligations hereunder to the extent that such
delay or non-performance is due to any Force Majeure which has been
notified to the other party in writing.
15. NATURE OF THE AGREEMENT
-----------------------
15.1 Nothing in this Agreement shall create or be deemed to create any
partnership, joint venture or the relationship of principal and agent
between the parties.
15.2 Each party acknowledges that, in entering into this Agreement, it does not
do so on the basis of, and does not rely on, any representation, warranty
or other provision (except as expressly provided herein or in the
Distribution Agreement) and all conditions, warranties or other terms
implied by Statute or common law are hereby excluded to the fullest extent
permitted by law.
15.3 This Agreement (including the Schedules) together with the Distribution
Agreement (and any agreements entered into pursuant to the Distribution
Agreement) constitutes the entire understanding and agreement between the
parties with respect to the subject matter of this Agreement and supersedes
all prior agreements, negotiations and discussions between the parties
relating to this Agreement.
15.4 This Agreement may not be released, discharged, abandoned, charged or
modified, in any manner, except by an instrument in writing signed by a
duly authorised officer or representative from each of the parties hereto.
15.5 This Agreement shall be governed by and construed in all respects in
accordance with the laws of England and each party hereby submits to the
exclusive jurisdiction of the English courts. For the purpose of accepting
service of process in connection with any action commenced before the
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High Court in England the parties hereto hereby absolutely, unconditionally
and irrevocably appoint the following agents to accept process on their
behalf it being unconditionally agreed that for this purpose such process
will be properly and effectively served if the same is left at the offices
of the agent at the address set out below
Astra: F.A.O. The Managing Director
Astra Pharmaceuticals Limited
Home Park Estate
Kings Langley
Herts
WD4 8DH
Glycyx: F.A.O. Glycyx Pharmaceuticals Limited
Camas Partners Limited
Camas House
23 Park Lane
Blunham
Bedfordshire
MK44 3NH
15.6 Any dispute arising out of or in connection with this Agreement as shall
relate to technical quality specification or otherwise to any defect in the
Product only shall be referred to arbitration in London before an
arbitrator (with suitable technical knowledge) appointed by agreement
between the parties or, in default of agreement, nominated on the
application of either party by the President for the time being of the
Royal Pharmaceutical Society of Great Britain.
16. NOTICES
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16.1 All notices to be served by the parties to this Agreement shall be served
only in the English language.
16.2 Notices shall be sufficiently served if dispatched by first class or
express post (meaning the fastest normal method of mail transmit in the
country of dispatch) to the address of the receiving party set out below;
Glycyx 3600 W Bayshore Road
Suite 202
Palo Alto
CA 94303 U.S.A.
F.A.O. R W Hamilton
Astra Kvarnbergagatan 16
S-151 85 Sodertalje
Sweden
F.A.O. Vice President Legal Affairs
Any modification to this address must in itself be notified in writing to
the other party in accordance with the terms of this sub-clause.
16.3 In the absence of proof to the contrary notices properly sent hereunder
shall be deemed to have been duly served five
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-16-
working days after the date of dispatch.
16.4 It shall be permitted for notices to be served hereunder by facsimile
transmission and for this purpose the fax numbers below shall apply:
16.4.1 in the case of Glycyx at 3600 W Bayshore Road Suite 202 Palo Alto
CA 94303 USA facsimile transmission number 415-856-1555 and marked
for the attention of R W Hamilton
16.4.2 in the case of Astra at Kvarnbergagatan 16, S-151 85 Sodertalje,
Sweden facsimile transmission number +46 855 32 90 00 and marked
for the attention of Vice President Legal Affairs
provided that receipt of such facsimile transmission is confirmed by return
facsimile and shall be deemed served 24 hours after the time of receipt of
the return facsimile.
AS WITNESS the hands of the duly authorised representatives of the parties
hereto the date and year first above written
<PAGE>
-17-
SCHEDULE 1
PATENTS
<TABLE>
<CAPTION>
PATENT NUMBER FILING DATE GRANT DATE DUE TO EXPIRE
<S> <C> <C> <C> <C>
UK 2,080,796 Complete 07/07/2001
Specification
07.07.1981
France 1,493,313 21.07.1981 21.07.2001
Italy 1,138,450 10.07.1981 10.07.2001
Japan 1,433,303 16.07.1981 07.04.2001
U.S.A. 4,412,992 08.07.1981 01.11.2000
F.R.G. 3,120,019 21.07.1981 15.02.90 21.07.2001
</TABLE>
<PAGE>
R&D Schedule 1 (continued) (pages 1 to 27)
(after one page patents list)
- -------------------------------------------
[SEAL OF THE PATENT OFFICE]
(12) UK Patent (19) GB (11) 2 080 796 B
- -------------------------------------------
(54) Title of invention
2-hydroxy-5-phenylazobenzoic acid derivatives and pharmaceutical
compositions containing them
(51) INTCL/3/;C07C107/06 A61K 31/60 31/63 C07C l43/54 143/78
- --------------------------------------------------------------------------------
(21) Application No (73) Proprietor
8120914 Biorex Laboratories Limited.
Biorex House,
Canonbury Villas,
(22) Date of filing London N1 2HB.
7 Jul 1981
(30) Priority data
(31) 8023826
(32) 21 Jul 1980
(33) United Kingdom (GB)
(72) Inventors
Rosalind Po Kuen Chan
(43) Application published
10 Feb 1982
(45) Patent published
12 Oct 1983
- --------------------------------------
(52) Domestic classification
C2C 220 227 22Y 270 280 292 29X
29Y 30Y 321 323 325 32Y 332 342
34Y 360 361 365 366 367 368 36Y (74) Agent and/or Address for Service
385 394 39Y 510 51X 534 583 60Y Venner Shipley and Co.,
620 621 623 628 62X 630 638 650 368, City Road,
652 658 660 661 662 668 699 802 London EC1V 2QA.
80Y AA KH KJ KN KR KT RC SG
U1S 1318 C2C
(56) Documents cited
None
(58) Field of search
C2C
LONDON THE PATENT OFFICE
<PAGE>
(R&D Schedule 1 cont ...)
"2-Hydroxy-5-phenylazobenzoic acid derivatives
and pharmaceutical compositions containing them."
-------------------------------------------------
<PAGE>
(R&D Schedule 1 cont...)
-2-
The present invention is concerned with new pharmaceutical compositions
containing derivatives of 2-hydroxy-5-phenylazobenzoic acid, most of which are
new.
Ulcerative colitis is a disease of increasing prevalence for which at
present the only satisfactory treatment is the administration of salazopyrin,
which has the following structural formula:
[FORMULA OMITTED]
However, one serious disadvantage of salazopyrin is that it is broken down
in the intestinal tract to give sulphapyridine which gives rise to undesirable
side effects. Furthermore, salazopyrin is insoluble in water.
We have now found that when the pyridylsulphamoyl moiety of salazopyrin is
replaced by certain nonheterocyclic organic radicals, compounds are obtained
which are very useful for the treatment of ulcerative colitis, and have the
great advantage that breakdown thereof in the intestinal tract does not give
rise to undesirable metabolic products. Furthermore, many of them are soluble
in water, which is advantageous for ease of administration, and have a very low
acute toxicity.
<PAGE>
(R&D Schedule 1 cont...)
-3-
Thus, according to the present invention, there are provided pharmaceutical
compositions containing at least one compound of the general formula:-
[FORMULA OMITTED]
wherein X is an -SO2 or -CO- group and R is either a non-heterocyclic aromatic
ring system, preferably a benzene ring, optionally substituted by a radical of
the general formula -(CH2)-n-Y or is a radical of the general formula -(CH2)n-Y,
in which Y is a hydroxyl group, an unsubstituted or substituted amino group or a
carboxylic or sulphonic acid group and n is a whole number of from 1 to 6 and in
-
which one or more hydrogen atoms in the alkylene radical can be replaced by
unsubstituted or substituted amino groups or alkyl radicals; and/or containing
at least one ester thereof and/or at least one non-toxic, pharmaceutically
acceptable salt thereof, in admixture with a solid or liquid pharmaceutical
diluent or carrier.
Most of the compounds of general formula (I) are new. Consequently, the
present invention also provides new compounds of the general formula:-
[FORMULA OMITTED]
<PAGE>
(R&D Schedule 1 cont...)
-4-
wherein X is an -SO\2\- or -CO- group and R is either a non-heterocyclic
aromatic ring system, preferably a benzene ring, optionally substituted by a
radical of the general formula -(CH\2\)\n\-Y or is a radical of the general
formula -(CH\2\)\n\-Y, in which Y is a hydroxyl group or an unsubstituted or
substituted amino group or a carboxylic or sulphonic acid group and n is a whole
number of from 1 to 6 and
-
in which one or more of the hydrogen atoms in the alkylene radical can be
replaced by unsubstituted or substituted amino groups or alkyl radicals, with
the proviso that R-NH-X- is other than a -CO-NH-CH\2\-COOH radical: and the
esters and the non-toxic, pharmacologically acceptable salts thereof, for
example the salts with alkali metals and alkaline earth metals or with non-toxic
amines.
Substituted amino groups present in the compounds according to the present
invention are preferably mono- or dialkylamino radicals, the alkyl moieties of
which contain up to 6 and preferably up to 3 carbon atoms, methyl and ethyl
being especially preferred.
The compounds of general formula (I) can be prepared by diazotising an
amine of the general formula:-
[Formula OMITTED]
<PAGE>
(R&D Schedule 1 cont...)
-5-
in which R and X have the same meaning as above, followed by coupling with
salicylic acid, whereafter, if desired, the compound obtained is salified with a
non-toxic inorganic or organic base.
The following Examples are given for the purpose of illustrating the
present invention:-
Example 1.
- ---------
a) A mixture of 100 g. N-acetylsulphanilyl chloride, 80 g. aniline sulphate
and 80 g. sodium carbonate in 500 ml. acetone was heated under reflux while
stirring, for 5 hours, cooled and then added to a mixture of dilute hydrochloric
acid and ice. The precipitate obtained was filtered off, washed with water and
diethyl ether and dried in a vacuum at 50 degrees C. to give 110 g. of almost
pure N-acetylsulphanilylanilide; m.p. 212 - 215 degrees C.
b) 100 g. N-Acetylsulphanilylanilide was heated under reflux for 3 hours in
150 ml. aqueous hydrochloric acid (1:1 v/v). After cooling, the reaction
mixture was diluted with water and further cooled to 0 degrees C. The 90 g. of
sulphanilylanilide hydrochloride which deposited were filtered off, washed with
ice-cold water and recrystallised from ethanol: m.p. 191 - 193.5 degrees C.
c) 10 g. Sulphanilylanilide hydrochloride and 10 ml. concentrated
hydrochloric acid in 600 ml. ethanol were gently warmed to dissolve, then cooled
to 5 degrees C. and treated dropwise with 30 ml. of a 10% aqueous solution
<PAGE>
(R&D Schedule 1 cont...)
-6-
of sodium nitrite. The reaction mixture was left to stand for 1 hour at 0 to 5
degrees C. and then filtered. While maintaining the temperature at 0 to 5
degrees C., the filtrate was added dropwise to a solution of 5 g. salicylic acid
in 100 ml. of an aqueous solution containing 4 g. sodium carbonate and 7 g.
sodium hydroxide cooled to 0 degrees C. The reaction mixture was left to stand
for 3 hours at 0 degrees C. and at ambient temperature for 20 hours, while
maintaining a pH of greater than 8, whereafter it was concentrated on a
rotavapor apparatus and acidified. The gummy precipitate obtained was separated
off and boiled with water several times to remove excess salicylic acid. The
residue was dissolved in diethyl ether and the ethereal solution was washed with
water, dried over anhydrous sodium sulphate and treated with charcoal. After
filtering and removing the diethyl ether, the crude product obtained was
dissolved in the minimum amount of acetone and ten times the volume of diethyl
ether added thereto. Upon cooling, there were obtained 3.5 g. 5-(4-
phenylsulphamoylphenylazo)-salicylic acid; m.p. 232 -234 degrees C.
d) 11 g. 5-(4- Phenysulphamoylphenylazo)-salicylic acid in 100 ml. ethanol
were treated with an ethanolic solution of an equivalent amount of sodium
hydroxide. The resulting solution was concentrated to a small volume at 30
degrees C. and 20 mm.Hg, whereafter an equal volume of diethyl ether was added
to the concentrate. Upon
<PAGE>
(R&D Schedule 1 cont...)
-7-
cooling, sodium 5-(4-phenylsulphamoylphenylazo)-salicylate deposited, which was
filtered off, washed with diethyl ether and petroleum ether (b.p. 40 - 60
degrees C.) and dried at 50 degrees C. in a vacuum m.p. 257 - 259 degrees C. The
yield was 12 g.
Example 2
- ---------
a) A solution of 22 g. 4-aminohippuric acid in 20 ml. hydrochloric acid and
200 ml. water was cooled to 0 degrees C. and treated dropwise, while stirring,
with 80 ml. of a 10% aqueous solution of sodium nitrite. The reaction mixture
was then stirred for 1 hour, whereafter a solution of 14 g. salicylic acid in
150 ml. 2N aqueous sodium hydroxide solution containing 15 g. sodium carbonate
and cooled to 0 degrees C. was added dropwise thereto. The reaction mixture was
left to stand overnight at ambient temperature and then poured into a mixture of
ice and dilute hydrochloric acid. The fine precipitate obtained was extracted
with boiling ethyl acetate and the solution treated with charcoal. After
filtering, the filtrate was evaporated to remove the solvent and the residue was
crystallised from boiling ethanol to give 30 g. 5-(4-
carboxymethylcarbamoylphenylazo)-salicylic acid; m.p. 260 - 262 degrees C.
b) A solution of 11 g. 5-(4-carboxymethylcarbamoylphenylazo)-salicylic acid in
500 ml. warm ethanol was treated with an ethanolic solution containing two
equivalents of sodium hydroxide and the deposit obtained
<PAGE>
(R&D Schedule 1 cont...)
-8-
was filtered off, washed with ethanol and diethyl ether and dried in a vacuum at
50 degrees C. There were obtained 12.5 g of the disodium salt 5-(4-
carboxymethylcarbamoylphenylazo)-salicylic acid; m.p. greater than 360 degrees
C.
Example 3.
- ----------
9.71 g. Aminohippuric acid were dissolved in a mixture of 40 ml. 2.5N
hydrochloric acid and 10 ml. 2.5N sulphuric acid and 50 g. ice added thereto. A
solution of 3.5 g. sodium nitrite in 15 ml. water were added steadily at
0 degrees C., the reaction mixture being well stirred during the addition. After
75 minutes at 0 degrees C., the reaction mixture was added to a solution of 6.9
g. salicylic acid in 37 ml. of a mixture of 9 parts by volume of 5N aqueous
sodium hydroxide solution and 1 part by volume of 5N aqueous sodium carbonate
solution, the temperature being kept at 0 degrees C. by the addition of ice.
After 15 minutes, 23 ml. of a mixture of 4 parts by volume of 5N
hydrochloric acid and 1 part by volume of 5N acetic acid was slowly added, while
stirring. The precipitate obtained was filtered off, washed with distilled water
and dried in a vacuum at 30 degrees C. to give 17.2 g. (100% of theory) 5-(4-
carboxymethylcarbamoylphenylazo)-salicylic acid, which can be recrystallised
from 80% acetic acid, aqueous acetone or aqueous dimethylformamide to give a
yellow, crystalline product of at least 99% purity in a yield of so to 95%; m.p.
260 - 262 degrees C.
<PAGE>
(R&D Schedule 1 cont...)
-9-
Example 4.
- ----------
a) 125 g, Finely powdered 4-nitrobenzoyl chloride were added portionwise while
stirring, to a solution of 70 g, (B)-alanine in 500 ml. water containing 65 g.
sodium hydroxide and cooled to 5 degrees C. The reaction mixture was stirred for
3 hours and then added to a mixture of ice and hydrochloric acid. The
precipitate obtained was filtered off, washed with water and dried by suction.
After crystallisation of the dried product from hot acetone, there were obtained
130 g. 4-nitro-benzoyl-(B)-alanine; m.p. 164 - 166 degrees C.
b) A suspension of 15 g. finely powdered 4-nitrobenzoyl-8-alanine in 200 ml.
ethanol was stirred in an atmosphere of hydrogen in the presence of 1 g. of
palladium-charcoal (5%), while cooling gently. When the absorption of hydrogen
had ceased, the reaction mixture was filtered and the filtrate concentrated to a
small volume. Upon adding diethyl ether and cooling, 4-aminobenzoyl-(B)-alanine
was obtained. The yield was 11.5 g.; m.p. 156 - 158 degrees C.
c) 8.8g. 4-Aminobenzoyl-B-alanine were triturated with 12 ml. hydrochloric
acid and the paste obtained was dissolved in 100 ml. water. The solution was
cooled to -5 degrees C. and a solution of 3 g. sodium nitrite in 20 ml. water,
cooled to 0 degrees C., was added dropwise, while stirring. The diazotised
solution was left for 1 hour at 0 degrees C. and was then added dropwise at -5
degrees C. to a solution
<PAGE>
(R&D Schedule 1 cont...)
-10-
of 6 g. salicylic acid in 70 ml. water containing 3.6 g. sodium hydroxide and 7
g. sodium carbonate. The final reaction mixture was adjusted to a pH of about
8, stirred for 2 to 3 hours and added to a mixture of dilute hydrochloric acid
and ice. The precipitate obtained was filtered off, washed with water and
suction dried. Crystallisation from hot ethanol gave 11.9 g. 5-(4-
carboxyethylcarbamoylphenylazo)-salicylic acid; m.p. 254 - 255 degrees C.
10.7 g. of the free acid were dissolved in 300 ml. warm ethanol and treated
with a solution of 2.4 g. sodium hydroxide in 25 ml. ethanol. The precipitate
obtained was filtered off, washed with ethanol and diethyl ether and dried in a
vacuum at 50 degrees C. to give 11.5 g. of the disodium salt of 5-(4-
carboxyethylcarbamoylphenylazo)-salicylic acid; m.p. greater than 350 degrees C.
Example 5.
- ----------
a) 20 g. Finely powdered 4-nitrobenzoyl chloride were added portionwise to
12.5 g. taurine in a solution of 8 g. sodium hydroxide in 50 ml. water. The
reaction mixture was stirred for 3 hours and then acidified. Precipitated 4-
nitrobenzoic acid was filtered off and the filtrate distilled to dryness at a
pressure of 15 mm.Hg. The residue was extracted with boiling ethanol and the
extract then cooled to give a yield of 23.6 g. 4-nitrobenzoyltaurine; m.p. 278 -
280 degrees C.
<PAGE>
(R&D Schedule 1 cont...)
-11-
b) A solution of 17 g. 4-nitrobenzoyltaurine in 100 ml. water was stirred in
an atmosphere of hydrogen in the presence of 1 g. palladium-charcoal (5%) until
the absorption of hydrogen ceased. The reaction mixture was then filtered, the
filtrate was mixed with 20 ml. hydrochloric acid and the suspension of the
hydrochloride obtained cooled to -5 degrees C. This was added dropwise, while
stirring, to a solution of 5 g. sodium nitrite in 30 ml. water. The diazotised
solution thus obtained was stirred for 30 minutes and then added to 9.5 g.
salicylic acid in a solution of 11 g. sodium hydroxide in 100 ml. water, cooled
to -2 degrees C. The mixture was stirred for 3 hours, poured into a mixture of
ice and 15 ml. hydrochloric acid and stirred at 0 degrees C. for 30 minutes. The
precipitate obtained was filtered off and washed with ice-cold water.
Crystallisation from 20% aqueous ethanol gave 18.2 g. 5-(4-
sulphoethylcarbamoylphenylazo)-salicylic acid; m.p. greater than 350 degrees C.
(decomp.).
Example 6
- ---------
a) A solution of 10 ml. ethanolamine in 120 ml. 10% aqueous sodium hydroxide
solution was cooled to 5 degrees C. and 30 g. finely powdered 4-nitrobenzoyl
chloride added thereto portionwise. The reaction mixture was stirred for 24
hours and filtered. The solid obtained, which mainly consisted of bis-(4-
nitrobenzoyl)-ethanol-amine, was hydrolysed with 200 ml. of 4% aqueous
<PAGE>
(R&D Schedule 1 cont...)
-12-
ethanolic sodium hydroxide at ambient temperature for 24 hours. The reaction
mixture was added to the above filtrate, acidified and the precipitated 4-
nitrobenzoic acid was filtered off. The filtrate was concentrated and the 13 g.
of precipitated N-(4-nitrobenzoyl)ethanolamine isolated. The mother liquor was
distilled to dryness and the residue was boiled with ethanol. Concentration of
the ethanolic extract gave a further 5.3 g. of product; m.p. 134 - 135 degrees
C.
b) A solution of 21 g. of N-(4-nitrobenzoyl)ethanolamine in 400 ml. ethanol
was stirred in an atmosphere of hydrogen in the presence of 1 g. palladium-
charcoal (5%) until the absorption of hydrogen had ceased. The catalyst was
filtered off and the ethanolic solution was evaporated to dryness to give a
thick oil which slowly solidified. Thin layer chromatography showed that the N-
(4-aminobenzoyl)-ethanolamine thus obtained had a purity of more than 99%: it
was used as such for the next stage of the synthesis.
c) A solution of 16 g. N-(4- aminobenzoyl)-ethanol-amine in 20 ml.
hydrochloric acid and 150 ml. water was cooled to -5 degrees C. and treated
dropwise, while stirring, with a solution of 7 g. sodium nitrite in 50 ml.
water. The reaction mixture was further stirred for 1 hour and then added
dropwise to 120 ml. of 10% aqueous sodium hydroxide solution containing 13 g.
salicylic acid and cooled to -2 degrees C. The reaction mixture was
<PAGE>
(R&D Schedule 1 cont...)
-13-
stirred for 3 hours and the precipitate obtained filtered off, washed with ice-
cold water, suction dried and crystallised from hot ethanol to give 11 g. sodium
5-(4-hydroxyethylcarbamoylphenylazo)-salicylate; m.p. 286 - 288 degrees C.
(decomp.).
The filtrate from which the sodium salt had been removed was acidified.
The precipitate obtained was filtered off, washed with water, suction dried,
charcoaled in ethyl acetate-methanol (2:1 v/v) and concentrated to give 2.7 g.
5-(4-hydroxyethylcarbamoylphenylazo)-salicylic acid which was identical in all
respects to the free acid regenerated from the sodium salt; m.p. 225 - 226
degrees C. (decomp.).
Example 7.
- ----------
a) A solution of 7 g. alanine in 65 ml. of 10% aqueous sodium hydroxide
solution was treated portionwise, while stirring, with 12.5 g. finely powdered
4-nitrobenzoyl chloride. The reaction mixture was stirred at 5 degrees C.
for 20 hours, acidified and the precipitate isolated, washed with water and
suction dried. Repeated fractional crystallisation from acetone-diethyl ether
(2:1 v/v) gave 4-nitrobenzoylalanine; m.p. 199 - 200 degrees C.
b) 2 g. 4-Nitrobenzoylalanine in 50 ml. ethanol were hydrogenated in the
presence of 0.2 g. palladium-charcoal (5%). Removal of the catalyst and of the
solvent gave a solid which was crystallised from
<PAGE>
(R&D Schedule 1 cont...)
-14-
ethanol-diethyl ether (1:2 v/v) to give 4-aminobenzoyl alanine; m.p. 198 -
199 degrees C.
c) A solution of 0.8 g. 4-aminobenzoyl alanine in 15 ml. 1N hydrochloric acid
was cooled to -5 degrees C. and diazotised with 5 ml. of 10% aqueous sodium
nitrite solution for 30 minutes. The reaction mixture was then added to a
solution of O.7 g. salicylic acid in 15 ml. of water containing 0.8 g. sodium
hydroxide and 0.5 g. sodium carbonate. After 2 hours, the reaction mixture was
acidified and the precipitate obtained was isolated, dissolved in ethyl acetate
and the solution was washed, dried and charcoaled. The solution was then
concentrated and cooled to give 0.9 g. 5-[4-(a-methylcarboxymethylcarbamoyl)-
phenylazo]-salicylic acid; m.p. 252 - 254 degrees C.
Example 8.
- ---------
a) 20 g. Acetylsulphanilyl chloride were added portionwise at 5 degrees C.,
with stirring, to a solution of 15 g. 4-aminophenylacetic acid in 10% aqueous
sodium hydroxide solution. The reaction mixture was further stirred for 4 hours
and then added to a mixture of dilute hydrochloric acid and ice. The precipitate
obtained was isolated, taken up in ethyl acetate, washed with water, dried and
evaporated to give 22 g. acetylsulphanilyl-4-(carboxymethyl)-anilide.
b) 3.5 g. Acetylsulphanilyl-4-(carboxymethyl)-anilide in 7 ml. 5N
hydrochloric acid were heated under
<PAGE>
(R&D Schedule 1 cont...)
-15-
reflux for 2 hours, cooled, diluted with 20 ml. ice and water and cooled to -5
degrees C. 8 ml. of 10% aqueous sodium nitrite solution were added thereto and
after 30 minutes the diazotised solution was added to 1.4 g. salicylic acid in
20 ml. of an aqueous solution of 2 g. sodium hydroxide and 2 g. sodium carbonate
cooled to below 0 degrees C. The reaction mixture was stirred for 2 hours and
then added to a mixture of hydrochloric acid and ice. The precipitate obtained
was isolated and dissolved in ethyl acetate and the solution washed with water,
dried and charcoaled. Upon concentrating the filtered solution and adding an
equal volume of diethyl ether to the filtrate, the desired product slowly
crystallised out. There were obtained 3 g. 5-[4-(4-carboxymethylphenyl)-
isulphamoylphenylazo]-salicylic acid; m.p. 252 - 254 degrees C.
Example 9.
- ----------
a) A solution of 12 g. 6-aminohexanoic acid in 60 ml. of 10% aqueous sodium
hydroxide solution was treated portionwise with 9 g. finely powdered 4-
nitrobenzoyl chloride. After 4 hours, the reaction mixture was added to a
mixture of dilute hydrochloric acid and ice. The precipitate obtained was
isolated, washed with water and crystallised from acetone to give 12.6 g. 6-(4-
nitrobenzoylamino)-hexanoic acid; m.p. 148 - 150 degrees C.
<PAGE>
(R&D Schedule 1 cont...)
-16-
b) A solution of 6 g. 6-(4-nitrobenzoylamino)-hexanoic acid in 150 ml. ethanol
was hydrogenated in the presence of 0.5 g. palladium-charcoal (5%) until the
reaction was complete. The catalyst and solvent were removed and the residue
was crystallised from ethanol-diethyl ether (1:1 v/v) to give 4.7 g. 6-(4-
aminobenzoylamino)-hexanoic acid; m.p. 132 - 134 degrees C.
c) A solution of 2.5 g. 6-(4-aminobenzoylamino)-hexanoic acid in 15 ml. 2N
hydrochloric acid was cooled to -5 degrees C. and treated dropwise, while
stirring, with 8 ml. of a 10% aqueous solution of sodium nitrite. The reaction
mixture was stirred for 30 minutes and then added at -5 degrees C. to salicylic
acid in 20 ml. of water containing 2 g. sodium hydroxide and 1 g. sodium
carbonate. After 3 hours, the reaction mixture was acidified and the precipitate
obtained was isolated by centrifuging, dissolved in ethyl acetate, washed, dried
and concentrated to a small volume. Upon cooling, there were obtained 2.7 g. 5-
(4-carboxypentylcarbamoylphenylazo)-salicylic acid; m.p. 238 - 239 degrees C.
Example 10.
- -----------
a) A solution of 13 g. copper sulphate in 60 ml. water and a solution of 2 g.
sodium hydroxide in 30 ml. water were added simultaneously to a solution of 7.5
g. lysine in 50 ml. water, followed by the addition of 50 ml. of 10% aqueous
sodium bicarbonate solution.
<PAGE>
(R&D Schedule 1 cont...)
-17-
The precipitated salt was filtered off and the blue filtrate was added, with
vigorous stirring, to a solution of 7 g. 4-nitrobenzoyl chloride in 50 ml.
acetone. The reaction mixture was stirred for 20 hours and the precipitate
obtained was filtered off, washed with water, methanol and diethyl ether and
dried in a vacuum at 50 degrees C. to give the copper salt of (E)-(4-
nitrobenzoyl)-lysine.
b) A suspension of 7 g. of the copper salt of (E)-(4-nitrobenzoyl)-lysine in
30 ml. water was stirred with 6 ml. hydrochloric acid until dissolution was
complete. Hydrogen sulphide was passed in for 1 hour and precipitated copper
sulphide then filtered off. The filtrate was evaporated to dryness and the
residue was taken up in 20 ml. methanolic hydrogen chloride and heated under
reflux for 3 hours. The cooled reaction mixture was diluted with water, rendered
alkaline with sodium carbonate and extracted with ethyl acetate to give 4.8 g.
(E)-(4-nitrobenzoyl)-lysine methyl ester in the form of a yellow oil.
c) A solution of 1 g. (E)-(4-nitrobenzoyl)-lysine methyl ester in 2 ml. methyl
iodide and 0.2 ml. acetone was left to stand for 20 hours at ambient
temperature, whereafter the NMR showed the reaction to be complete. The volatile
materials were evaporated off to leave (E)-(4-nitrobenzoyl)-(a),(a)-dimethyl
lysine methyl ester in the form of an oil.
<PAGE>
(R&D Schedule 1 cont...)
-18-
d) 1 g. (E)-(4-nitrobenzoyl)-a,a-dimethyllysine methyl ester in 20 ml. ethanol
was hydrogenated in the presence of 0.1 g. palladium-charcoal (5%) until the
absorption of hydrogen had ceased. The catalyst was filtered off and the
filtrate evaporated to dryness. The residue was taken up in 5 ml. 2N
hydrochloric acid, cooled to -5 degrees C. and treated with 2.5 ml. of 10%
aqueous sodium nitrite solution. After standing for 30 minutes, the clear
solution was added at -5 degrees C. to a solution of 0.5 g. salicylic acid in
20 ml. of a 1N aqueous sodium hydroxide solution. After subsequently standing
for 3 hours at 20 degrees C., the reaction mixture was acidified and extracted
with diethyl ether to remove unreacted salicylic acid. The aqueous phase was
adjusted to pH 7 by adding 1N aqueous sodium hydroxide solution and the
resulting solution was evaporated to dryness. The residue was further dried by
adding toluene and subsequently evaporating it and the residue then extracted
with methanol. The methanolic solution was concentrated to a small volume. After
adding diethyl ether and cooling, the disodium salt of 5-(4-(a-
dimethylaminocarboxypentylcarbamoyl)-phenylazo]-salicylic acid separated out;
m.p. (greater than) 210 degrees C. (decomp.).
Example 11.
- -----------
a) A solution of 30 ml. N,N-diethylethylenediamine in 100 ml. water was
treated portionwise, while
<PAGE>
(R&D Schedule 1 cont...)
-19-
stirring, with 15 g. finely powdered 4-nitrobenzoyl chloride. The reaction
mixture was stirred for 20 hours and the precipitate obtained was filtered off,
washed with water and aqueous sodium carbonate solution and crystallised from
petroleum ether-diethyl ether (1:1 v/v) to give 6 g. N,N-diethyl-N'-(4-
nitrobenzoyl)-ethylenediamine; m.p. 49 - 51 degrees C.
b) A solution of 5 g. N,N-diethyl-N'-(4-nitrobenzoyl)-ethylenediamine in 40
ml. ethanol was hydrogenated in the presence of 0.3 g. palladium-charcoal (5%)
until the reaction was complete. The catalyst and solvent were removed to give
5 g. N,N-diethyl-N'-(4-aminobenzoyl)-ethylenediamine in the form of an oil.
c) A solution of 2.35 g. N,N-diethyl-N'-(4-aminobenzoyl)-ethylenediamine in 20
ml. 2N hydrochloric acid was cooled to -5 degrees C. and treated with 8 ml.
of a 10% aqueous solution of sodium nitrite. The reaction mixture was stirred
for 30 minutes and added to 1.4 g. salicylic acid in a solution of 1.6 g. sodium
hydroxide and 2 g. sodium carbonate in 20 ml. water. After 3 hours at 0 to
20 degrees C., sodium chloride was added to the reaction mixture to salt out
the desired diazo compound. This was filtered off, washed with water and hot
methanol and dried to give 2.3 g. 5-(4-diethyl-aminoethylcarbamoylphenylazo)-
salicylic acid; m.p. 252 - 254 degrees C. (decomp.).
The pharmaceutical compositions according to the present invention contain
at least one of the compounds
<PAGE>
(R&D Schedule 1 cont...)
-20-
(I) in admixture with a solid or liquid pharmaceutical carrier.
Solid compositions for oral administration include compressed tablets,
pills, dispersible powders and granules. In such solid compositions, one of the
compounds (I) is admixed with at least one inert diluent, such as calcium
carbonate, starch, alginic acid or lactose. The compositions may also comprise,
as is normal practice, additional substances other than inert diluents, for
example, lubricating agents, such as magnesium stearate.
Liquid compositions for oral administration include pharmaceutically
acceptable emulsions, solutions, suspensions, syrups and elixirs containing
inert diluents commonly used in the art, such as water and liquid paraffin.
Besides inert diluents, such compositions may also comprise adjuvants, such as
wetting and suspension agents, and sweetening and flavouring agents.
The compositions according to the present invention for oral
administration, include capsules of absorbable material, such as gelatine,
containing at least one of the compounds (I), with or without the addition of
diluents or excipients.
The percentage of active material in the compositions of the present
invention may be varied, it being necessary that it should constitute a
proportion such that a suitable dosage for the desired therapeutic
<PAGE>
(R&D Schedule 1 cont...)
-21-
effect shall be obtained. In general, the preparations of the present invention
should be administered orally or parenterally to humans to give 500 to 5000 mg.
and preferably 500 to 2000 mg. of active substance per day.
The following Examples illustrate pharmaceutical compositions according to
the present invention:
Example 12.
- -----------
600 mg. tablets are prepared containing:
disodium salt of 5-(4-carboxyethyl-
carbamoylphenylazo)-salicylic acid 500 mg.
starch 50 mg.
lactose 45 mg.
magnesium stearate 5 mg.
Example 13.
- -----------
450 mg. tablets are prepared containing:
disodium salt of 5-(4-carboxymethyl-
carbamoylphenylazo)-salicylic acid 250 mg.
starch 100 mg.
lactose 95 mg.
magnesium stearate 5 mg.
The tablets according to Examples 12 and 13 are intended for administration
to humans for the treatment of ulcerative colitis.
An attempt was made to establish an acute oral toxicity profile for the
disodium salts of 5-(4-carboxymethylcarbamoylphenylazo)-salicylic acid and of 5-
(4-carboxyethylcarbamoylphenylazo)-salicylic
<PAGE>
(R&D Schedule 1 cont...)
-22-
acid, using rats and mice as experimental animals but this was not possible due
to their low toxicity. No deaths were observed with the carboxymethyl compound
when administered to mice at a dosage of 3 g./kg. and to rats at a dosage of 2
g./kg. and no deaths were observed with the carboxy-ethyl compound when
administered to mice at a dosage of 4 g.Pkg. and to rats at a dosage of 2 g./kg.
Experiments have also been carried out on groups of 6 male Wistar rats in
order to ascertain whether the new compounds according to the present invention
split in the same manner as sulphasalazine to liberate 5-aminosalicylic acid (5-
ASA). The test compounds were administered in an amount of 45 to 50 mg./kg.
The results obtained are set out in the following Table:-
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
test compound % of dose measured as 5-ASA
-----------------------------------------------------------------
faeces urine total
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
sulphasalazine 26 plus minus 4 17 plus minus 2 43 plus minus 4
======================================================================================
Example 1 24 plus minus 3 19 plus minus 3 43 plus minus 3
Example 2 17 plus minus 3 17 plus minus 6 34 plus minus 5
Example 4 22 plus minus 2 14 plus minus 2 36 plus minus 3
Example 5 26 plus minus 3 15 plus minus 2 41 plus minus 5
Example 6 22 plus minus 2 19 plus minus 3 41 plus minus 4
- --------------------------------------------------------------------------------------
</TABLE>
<PAGE>
(R&D Schedule 1 cont...)
-23-
The above results clearly demonstrate that the new compounds of the present
invention split in the same manner as sulphasalazine and can be expected to
exert at least as beneficial an effect as sulphasalazine but without the
disadvantage of giving rise to other compounds which exert undesirable side
effects, such as the sulphapyridine formed from sulphasalazine.
<PAGE>
(R&D Schedule 1 cont...)
-24-
Patent Claims
-------------
1. 2-Hydroxy-5-phenylazobenzoic acid derivatives of the general formula:-
[FORMULA OMITTED]
wherein X is an -SO\\2\\- or -CO- group and R is either a non-heterocyclic
aromatic ring system optionally substituted by a radical of the general formula-
(CH\\2\\)\\n\\-Y or is a radical of the general formula -(CH\\2\\)\\n\\-Y, in
which Y is a hydroxyl group, an unsubstituted or substituted amino group or a
carboxylic or sulphonic acid group and n is a whole number of from l to 6 and in
which one or more of -
the hydrogen atoms in the alkylene radical can be replaced by unsubstituted or
substituted amino groups or alkyl radicals, with the proviso that R-NH-X- is
other than a -CO-NH-CH\\2\\-COOH radical; and the esters and non-toxic,
pharmacologically acceptable salts thereof.
2. 5-(4-Phenylsulphamoylphenylazo)-salicylic acid and the sodium salt thereof.
3. Disodium salt of 5-(4-darboxymethylcarbamoylphenylazo)-salicylic acid.
4. 5-(4-Carboxyethylcarbamoylphenylazo)-salicylic acid and the disodium salt
thereof.
<PAGE>
(R&D Schedule 1 cont...)
-25-
5. 5-(4-Sulphoethylcarbamoylphenylazo)-salicylic acid.
6. 5-(4-Hydroxyethylcarbamoylphenylazo)-salicylic acid and the sodium salt
thereof.
7. 5-[4-(4-Methylcarboxymethylcarbamoyl)-phenylazo]-salicylic acid.
8. 5-[4-(4-Carboxymethylphenyl)-sulphamoylphenylazo salicylic acid.
9. 5-(4-Carboxypentylcarbamoylphenylazo)-salicylic acid.
10. 5-[4-(a-Dimethylaminocarboxypentylcarbamoyl)-phenylazo]-salicylic acid and
the disodium salt thereof.
l1. 5-(4-Diethylaminoethylcarbamoylphenylazo)-salicylic acid.
12. A pharmaceutical composition containing at least one compound of the
general formula:-
[FORMULA OMITTED]
wherein X is an -SO\\2\\-or -CO- group and R is either a non-heterocyclic
aromatic ring system optionally substituted by a radical of the general formula-
(CH\\2\\)\\n\\-Y- or is a radical of the general formula -(CH\\2\\)\\n\\-Y, in
which Y is a hydroxyl group, an unsubstituted or substituted amino group or a
carboxylic or sulphonic acid group and n is a whole number of from 1 to 6 and
-
<PAGE>
(R&D Schedule 1 cont...)
-26-
in which one or more hydrogen atoms in the alkylene radical can be replaced by
unsubstituted or substituted amino groups or alky1 radicals, and/or containing
at least one ester thereof and/or at least one non-toxic, pharmaceutically
acceptable salt thereof, in admixture with a solid or liquid pharmaceutical
diluent or carrier.
13. Pharmaceutical compositions according to claim 12, substantially as
hereinbefore described and exemplified.
14. Process for the preparation of compounds of the general formula given in
claim 12, wherein an amine of the general formula:-
[FORMULA OMITTED]
in which R and X have the same meanings as above, is diazotised and coupled with
salicylic acid, whereafter, if desired, the compound obtained is salified with a
non-toxic inorganic or organic base.
15. Process for the preparation of compounds of the general formula given in
claim 12 and of the salts thereof, substantially as hereinbefore described and
exemplified.
16. Compounds of the general formula given in claim 12, whenever prepared by
the process according to claim 14 or 15.
<PAGE>
-18-
SCHEDULE 2
LIST OF DATA SUPPLIED BY GLYCYX TO ASTRA
<PAGE>
R&D Schedule 2 (page 1 to 10)
LISTING OF COMPLETED AND PLANNED PHARMACOKINETIC STUDIES WITH BALSALAZIDE.
- --------------------------------------------------------------------------
Requested by R. A. Onyett, CAMAS Partners, 31 August 1992.
Prepared by J. G. Allen, Pharmac Consultants, 1 September 1992.
1. A list of the non-clinical studies "completed by Biorex" has been prepared
by Glycyx Pharmaceuticals Ltd., in their COLAZIDE - INVENTORY OF STUDIES,
(annotated copy attached). None of these have, in fact, been written up as
formal reports; therefore, they all need to be "reconstructed". The
possible use of a standard format for the preclinical reports has been
discussed with T. L. Hardy Consultancy, who are exploring this. When they
are complete, however, the kinetic reports will only provide limited
support the NDA. All of the studies listed as "pharmacokinetics and
distribution" under PART IIIG (categories 1-3) only involve the measurement
of radioactivity, and in many cases this is complicated by the simultaneous
use of two different /3/H-forms of BSZ and/or failure to separate out the
tritiated water. Reports of all the studies are however required to
provide some data for the ferret, mouse and rabbit, and supportive
information for the new rat data.
2. The Biorex results in rats and ferrets suggest that both balsalazide and 4-
ABA are highly cleared; therefore, the exposure of organs and tissues
should be low. Data in the rat also suggest that the systemic exposure to
balsalazide and its metabolites, after administration of the lowest dose
used in the toxicity studies, may be lower than that achieved with
therapeutic doses in patients. New ADME studies are planned in the rat to
confirm this. Similar studies are planned to determine whether this will
also apply to the dog, which has been selected as an additional "non-
rodent" for toxicology. These are listed, as an attachment. Limited
studies may also be required in the mouse and rabbit, depending upon the
rewrites.
3. If it is confirmed that the clearance of balsalazide and/or metabolites is
higher in laboratory animals than humans, reasoned arguments to justify the
validity of the toxicology will need to be included in the NDA [e.g.
exposure of the colon (the primary target organ) is related to total dose
and the expected secondary effect is the salicylate-like action of 5-ASA on
the kidney, which will be determined by species sensitivity and/or total
renal clearance of active metabolite rather than plasma concentrations].
Comparative protein binding data ("free drug fractions") may also need to
be determined in this context.
<PAGE>
(R&D Schedule 2 cont...)
Listing of Completed and Planned Pharmacokinetic Studies with Balsalazide
- -------------------------------------------------------------------------
cont.
4. The dog was selected as the "non-rodent" for toxicology on the basis that
it is one of the species recommended by various regulatory authorities, and
because it was used for the recently submitted applications for olsalazine
and mesalazine (FDA Summary Basis of Approval). However the metabolism of
both 5-ASA and 4-ABA in this species is unlikely to reflect that in man,
where N-acetylation is expected to be the major route. This can probably
be justified for 5-ASA, because the dog's lack of secondary metabolism will
maximise exposure to the active and potentially (salicylate) toxic moiety.
Exposure to the N-acetyl metabolite of 4-ABA is likely, however, to only be
covered in the rat. If this proves to be very low relative to that in
humans, additional (short-term) toxicology, either with this metabolite or
in a further species, may need to be considered.
5. I am aware of 3 Biorex human pharmacokinetic studies: (i) the comparative
study with sulphasalazine (which was written up as a publication, and for
the UK submission in 1985) (ii) a single dose bioequivalence comparison of
solution and capsules and (iii) monitoring of Nottingham study, in patients
receiving escalating doses. The last two studies also need to be reported
formally, as supportive data for the NDA.
6. To date, two new human studies (shown in the Glycyx inventory) have been
planned. The need for further kinetic studies will depend upon the outcome
of this program; for example, a randomised dose proportionality study could
be required, if the repeat dose fails to reassure authorities (especially
the FDA). In addition: further patient monitoring data will be required,
plus possibly a single dose human radiolabelled study (depending upon
results from the metabolic studies in animals). Bioequivalence studies may
also be needed, depending upon changes in formulations, suppliers etc.
/s/ J. G. ALLEN
-------------------------------
<PAGE>
(R&D Schedule 2 cont...)
Summary of Preclinical ADME Studies planned for Balsalazide.
------------------------------------------------------------
Balsalazide and 4-ABA, randomly labelled with Carbon-14 in the aromatic ring are
being prepared by Amersham International, for ADME studies at Hazleton U. K.
These materials will be used for:
1. A quantitative whole body autoradiographic study with /14/C-balsalazide in
pregnant pigmented rats, to determine (i) general distribution after oral
administration, (ii) placental transfer and foetal penetration and (iii)
melanin binding after a single oral administration by gavage.
2. Absorption, distribution, metabolism and excretion of single doses of
/14/C-balsalazide administered to male rats intravenously (one dose level)
and orally by gavage (two dose levels, corresponding to the high and low
doses used for 26 week toxicology).
3. Absorption, distribution, metabolism and excretion of single doses of
/14/C-ABA administered to male rats intravenously (one dose level) and
orally by gavage (one dose level, equivalent to the low dose used for 26
week toxicology).
4. Absorption, distribution, metabolism and excretion of single doses of
/14/C-balsalazide administered to beagles intravenously (one dose level)
and orally by gavage (two dose levels, corresponding to the high and low
doses used for 26 week toxicology).
In addition, monitoring of the rat and dog MTD, 26 week toxicology and rat
carcinogenicity will be used to assess dose-proportionality of absorption and
elimination during repeated oral administration. Notification has also been
received recently from Biorex that 30 mCi of tritiated balsalazide were held at
University of Surrey; arrangements to transfer this material to HUK have been
made, as a contingency measure.
<PAGE>
(R&D Schedule 2 cont...)
T. L. HARDY CONSULTANCY
- --------------------------------------------------------------------------------
Tel: (0929) 48 1197 "Badgers"
Fax: (0929) 48 1197 South Street,
Kingston,
Corfe Castle,
Wareham,
Dorset BH20 5LL
England
re: Balsalazide
Non-Clinical Safety Evaluation Studies - Toxicology
_______________________
I have examined the animal toxicology studies and genetic toxicology conducted
by and on behalf of Biorex laboratories Ltd. of Crossfield Chambers, Gladbeck
Way, Enfield, Mddx. England and which were conducted to December 1991.
Although many of the studies were not conducted to the format and conditions now
expected by Regulatory Agencies, it is my opinion that the data shows that
balsalazide has a low order of toxicity and that the signs and reactions to
dosage as seen in the animal species studied are compatible with the
pharmacology of the product administered. No adverse toxicities are clearly
apparent within the reports which I have examined which are aberrant in
consideration of the chemical nature of the principal metabolite, 5. ASA. The
studies refered to include long term administration to rats and ferrets and
carcinogenicity studies in the mouse and rat.
Notwithstanding the above, a programme of toxicological evaluation of
balsalazide has been designed to fulfil the present day requirements of the
major Regulatory Agencies World Wide. This programme includes re-evaluation of
the consequences of repeated administration to rodents and non-rodents,
reproduction toxicology and necessary toxicokinetics to enable overall
evaluation.
To date the initial findings in preliminary studies using high doses of
balslazide at large multiples of the proposed dose for man, are substantiating
the balsalazide has a low order of toxicity.
/s/ Terry Hardy
Terry L.Hardy.
Dated: 31st. August, 1992.
- --------------------------------------------------------------------------------
ADVISOR ON TOXICOLOGY AND SAFETY EVALUATION
<PAGE>
(R&D Schedule 2 cont ...)
<TABLE>
<CAPTION>
COLAZIDE (R) DEVELOPMENT - COMPLETED STUDIES AND ADDITIONAL WORK
----------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
Glycyx
Completed ------------------------
EC Registration Dossier Headings by Biorex Repeat/New Reconstruct
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- -----------------------------------
PART IIIA SINGLE DOSE TOXICITY
- -----------------------------------
- Mouse, oral .
- Mouse, ip .
- Rat, oral . *
- Rat, ip (iv) . *
- Mouse, oral: 4-ABA .
- Rat, oral: 4-ABA .
- Mouse, oral: 5-ASA .
- Rat, oral: 5-ASA .
- Mouse, oral: 5-ASA/4-ABA .
- Rat, oral: 5-ASA/4-ABA .
- Mouse, oral: BSZ impurity .
- Mouse, ip: BSZ impurity .
- Mouse, ip: Colazide .
- -----------------------------------
PART IIIB - REPEATED DOSE TOXICITY
- -----------------------------------
Max. Tolerated Dose
-------------------
- Dog .
Subacute
--------
- Rat, 14 days, oral . . *
- Mouse, 7 days, oral: BSZ . *
- Mouse, 28 day, oral BSZ . *
- Rat, 7 days, oral: BSZ . *
- Rat, 28 day, oral: BSZ . *
- Dog, 28 days, oral .
Chronic
-------
- Rat, 96 week, oral . .
- Ferret, 26 week, oral . .
- Dog, 26 week, gavage .
- Rat 26 week, gavage .
- -----------------------------------
PART IIIC Reproduction Studies
- -----------------------------------
1. Fertility and general reproductive
-------------------------------------
performance
-----------
- Rat fertility, oral . .
- Rat, comparative fertility with .
sulphasalazine oral
- Mouse, comparative fertility with .
sulphasadazine, oral
- ----------------------------------------------------------------------------------------------------------
</TABLE>
PAGE 1 * under consideration
<PAGE>
(R&D Schedule 2 cont ...)
<TABLE>
<CAPTION>
COLAZIDE (R) DEVELOPMENT - COMPLETED STUDIES AND ADDITIONAL WORK
----------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
Glycyx
Completed ------------------------
EC Registration Dossier Headings by Biorex Repeat/New Reconstruct
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2. Embryotoxicity
-----------------
- Mouse teratology, oral .
- Rat teratology .
- Rabbit teratology, oral . .
3. Peri-/postnatal potential
----------------------------
- Mouse perinatal, oral .
- Rat peri-/post natal .
- -----------------------------
PART IIID Mutagenic Potential
- -----------------------------
In vitro
--------
- Ames test .
- Cultured human lymphocytes .
- HGPRT1 locus Chinese hamster V79 cells .
In vivo
-------
- Micronucleus test .
- --------------------------------------------
PART IIIE - Oncogenic/carcinogenic potential
- --------------------------------------------
- Mouse carcinogenicity, oral . .
- Rat carcinogenicity, oral . . .
(new study is 104 week)
- ------------------------------
PART IIIF General Pharmacology
- ------------------------------
1. Pharmacodynamic effects relating to proposed
-----------------------------------------------
indications
-----------
- Carrageenin-induced ulcerative colitis . *
-------------------------------------------------------------------------------------------------------
- Gastrointestinal studies
- Ulcerogenic potential . *
- GI motility and smooth muscle activity . *
- Ethanol-induced gastric necrosis in rats . *
- Effect of BSZ on GSH levels in rectocolonic mucosa . *
- Effect of BSZ on ethanol-induced rectocolonic . *
damage
- Effect of BSZ and metabolites on ethanol- . *
induced gastric necrosis
- Effect of BSZ on eicosanoid release . *
- Effect of BSZ and SASP on rectocolonic lesions . *
-------------------------------------------------------------------------------------------------------
- Anti-inflammatory activity . *
-------------------------------------------------------------------------------------------------------
- Analgesic activity
- Acetic acid-induced writhing test . *
- Hyperalgesia test in rats . *
-------------------------------------------------------------------------------------------------------
- Yeast-induced pyrexia . *
-------------------------------------------------------------------------------------------------------
</TABLE>
PAGE 2 * under consideration
<PAGE>
(R&D Schedule 2 cont ...)
<TABLE>
<CAPTION>
COLAZIDE (R) DEVELOPMENT - COMPLETED STUDIES AND ADDITIONAL WORK
----------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
Glycyx
Completed ------------------------
EC Registration Dossier Headings by Biorex Repeat/New Reconstruct
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2. General Pharmacodynamics
---------------------------
--------------------------------------------------------------------------------------------------------
* Central nervous system
- Barbiturate-induced sleeping time . *
- Spontaneous locomotor activity . *
--------------------------------------------------------------------------------------------------------
* Endocrine system
- Vaginal cornification test . *
- Uterine weight response . *
--------------------------------------------------------------------------------------------------------
* Cardiovascular system
- Effect of BSZ on CV system and respiration in ferrets . *
- Effect of BSZ on cat BP and respiration . *
- Effect of BSZ (I.V.) on BP, HR and respiration . *
in anesthetized male cat
- Effect of BSZ on BP, HR and respiration . *
in anesthetized rats
- Effect of BSZ on BP, HR and respiration . *
of ferrets
- Effect of impurity (BX769A) on rat BP, . *
HR and respiration
- Effect of impurity(BX769A) (I.V.)on BP, . *
FIR and respiration of anesthetized rats
- Effect of BSZ metabolites on BP, HR and . *
respiration of anesthetized cats
--------------------------------------------------------------------------------------------------------
* Electrolyte Excretion
- Diuretic test . *
- Effect of BSZ and related compounds on water . *
induced diuresis in the rat
- ----------------------------------------------------------------------------------------------------------
* Other Systems
- Effects of BSZ on rat peritoneal mast cell . *
degranulation
- Effects of BSZ in vitro on erythrocyte membrane . *
stabilization . *
- Effect of BSZ and its impurity (BX769A) on . *
erythrocyte membrane stabilization
- Effect of SASP and BSZ on cell membrane stability . *
and histamine release
- Possible anti-microbial activity of BSZ and related . *
compounds on organisms of gut microflora
- Comparative suppression of lymphocyte . *
transformation by SASP analogues
2. Drug Interactions
- --------------------
- No studies
- ----------------------------------------------------------------------------------------------------------
</TABLE>
PAGE 3 * under consideration
<PAGE>
(R&D Schedule 2 cont ...)
<TABLE>
<CAPTION>
COLAZIDE (R) DEVELOPMENT - COMPLETED STUDIES AND ADDITIONAL WORK
----------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
Glycyx
Completed ------------------------
EC Registration Dossier Headings by Biorex Repeat/New Reconstruct
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PART IIIG - Pharmacokinetics
- ----------------------------
1. Pharmacokinetics after a single dose
------------------------------------
. Drug excretion in rat and ferret . .
. Rat blood concentrations, oral and iv . .
. Rat bioavailability, oral liquid vs solid dose . .
. Ferret blood concentrations, oral and iv . .
. Ferret blood concentrations, dietary dosing . .
2. Pharmacokinetics after repeated administration
----------------------------------------------
. Rat blood concentrations, oral, 28 days dosing . .
. Ferret blood concentrations, oral 28 days dosing . .
3. Distribution in normal and pregnant animals
-------------------------------------------
. Rat tissue concentrations, oral . .
. Feret tissue concentrations, oral . .
. Rat QWBA .
4. Biotransformation
-----------------
. Mouse excretion, oral . .
. Rat excretion, oral . .
. Rat biliary excretion, oral . .
. Ferret excretion, oral . .
. Ferret biliary excretion, oral . .
. Rat ADME, iv and gavage .
. Rat ADME (4-ABA), iv and gavage .
. Dog ADME, iv and gavage .
Comparison pharmacokinetics rat & ferret .
- -----------------------------------------
PART IIIH -- Local Tolerance
- -----------------------------------------
. No studies
- -----------------------------------------
PART IIIQ - Other Information
- -----------------------------------------
. No studies
- ----------------------------------------------------------------------------------------------------------
</TABLE>
PAGE 4 * under consideration
<PAGE>
R&D Schedule 2 cont ...)
COLAZIDE(R) DEVELOPMENT - COMPLETED STUDIES AND ADDITIONAL WORK
---------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Glycyx
Completed ------------------------
EC Registration Dossier Headings by Biorex Repeat/New Reconstruct
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PART IV A Clinical Pharmacology
- -------------------------------
1. Pharmacodynanics
--------------------
2. Pharmacokinetics
--------------------
. Serum concentrations of BX661A, sulphasalazine and .
metabolites in man
. Comparative tolerability and pharmacokinetic .
study of balsalazide, sulpphasalazine and
mesalazine following a single oral dose
. Single dose bioequivalence . .
. Tolerability and pharmacokinetic study of
balsalazide following repeated oral doses .
. High dose patient monitoring . .
PART IV B - Clinical Experience
- -------------------------------
1. Clinical trials
------------------
DOUBLE BLIND, CONTROLLED STUDIES IN ACUTE
ACTIVE ULCERATIVE COLITIS
. Balsalazide 6.75g/d vs SASP 3g/d in the .
treatment of mild first episode ulcerative
colitis (Protocol 028/011)
. Balsalazide 6.75g/d vs SASP 3g/d in the treatment of .
acute relapse or first episode ulcerative
colitis (Protocol 028/017)
DOUBLE-BLIND, CONTROLLED STUDIES IN MAINTENANCE
OF REMISSION OF ULCERATIVE COLITIS
LOW DOSE PILOT (6 MONTH) STUDY:
. Balsalazide 2g/d vs SASP 2g/d in the maintenance of .
remission of patients with ulcerative colitis.
(Protocol: 028/001)
MEDIUM DOSE SUBCHRONIC (12 MONTH) STUDY:
. Balsalazide 2g/d vs 4g/d in the maintenance of remission .
of patients with ulcerative colitis (Protocol 028/005)
</TABLE>
PAGE 5 * under consideration
<PAGE>
(R&D Schedule 2 cont ...)
COLAZIDE(R) DEVELOPMENT - COMPLETED STUDIES AND ADDITIONAL WORK
---------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Glycyx
Completed ------------------------
EC Registration Dossier Headings by Biorex Repeat/New Reconstruct
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
HIGH DOSE CHRONIC (24 MONTH) STUDY
. Balsabalazide 3g/d vs 6g/d in the maintenance of .
remission of patients with ulcerative colitis.
Protocols 028/010 and 028/016)
OPEN STUDIES IN NAMED PATIENTS
. Open assessment of balsalazide in the .
maintenance of patients with ulcerative colitis
. Male patients infertile on sulfasalazine: .
McIntyre and Lennard-Jones (1980
- ----------------------------------------------------------------------------------------------------------
. Patients intolerant to sulfasalazine .
- ----------------------------------------------------------------------------------------------------------
2. Additional Registration Studies
- ----------------------------------
Comparison in acute U.C. against 'ASACOL'
mesalazine 8 week. Single blinded (UK) .
Comparison in maintenance of remission
against 'SALOFALK' mesalazine. 6 month .
blinded, 6 months open tolerance study.
(Germany & Sweden)
3. Post Marketing Experience.
- -----------------------------
None
</TABLE>
PAGE 6 * under consideration
<PAGE>
-19-
SCHEDULE 3
PROJECT COSTS
<PAGE>
R&D Schedule 3 (pages 1 to 4)
GLYCYX DEVELOPMENT BUDGET AS AT 31.08.92.
=========================================
<TABLE>
<CAPTION>
STUDY NO. STUDY TYPE ESTIMATE INVOICED BALANCE
TO DATE TO PAY
<S> <C> <C> <C> <C>
[*]
</TABLE>
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
(R&D Schedule 3 cont ...)
GLYCYX DEVELOPMENT BUDGET AS AT 31.08.92.
========================================
<TABLE>
<CAPTION>
STUDY NO. STUDY TYPE ESTIMATE INVOICED BALANCE
TO DATE TO PAY
<S> <C> <C> <C> <C>
[*]
</TABLE>
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
(R&D Schedule 3 cont ...)
GLYCYX DEVELOPMENT BUDGET AS AT 31.08.92.
- -----------------------------------------
<TABLE>
<CAPTION>
STUDY NO. STUDY TYPE ESTIMATE INVOICED BALANCE
TO DATE TO PAY
<S> <C> <C> <C> <C>
SUMMARY
=======
[*]
</TABLE>
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
SCHEDULE 1 ASTRA PAYMENTS SCHEDULE
=======================
IN RESPECT OF BALSALAZIDE R & D PROJECT
=======================================
[*]
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
-20-
SIGNED by )
for and on behalf of GLYCYX )
PHARMACEUTICALS, LTD in the ) /s/ Randy Hamilton
presence of:- )
/s/ Lorin K. Johnson
SIGNED by )
for and on behalf of AB ASTRA ) /s/ Haken Mogren
in the presence of:- ) President and Group
Chief Executive Officer
/s/ Olof Ljungstrand
- ----------------------------
Olof Ljungstrand
Legal Counsel
<PAGE>
AB Astra
S-151 85 Sodertalje
Sweden
Salix Pharmaceuticals, Inc.
3600 W. Bayshore Road
Suite 202
Palo Alto
CA 94303
U.S.A.
21st September 1992
Dear Sirs
I write on behalf of AB Astra ("Astra") in connection with a Research and
Development Agreement and a Distribution Agreement proposed to be entered into
between Glycyx Pharmaceuticals Limited and Astra concerning the manufacture and
distribution of a product incorporating Balsalazide in Western Europe and
elsewhere.
Astra is aware that Salix Pharmaceuticals, Inc. ("Salix") has been granted
exclusive rights to product incorporating Balsalazide for marketing and
distribution in the territory of the United States of America.
Under Clause 6.6 of the Research and Development Agreement (a copy of which is
attached) Astra may obtain rights to complete research and development into the
product and to complete and file the relevant dossier in order to obtain
regulatory approval in its territories. In such circumstances, it is
acknowledged that Salix will get access to all data generated in connection with
such research and development and the completion of the dossier in order that
Salix might use such data in obtaining appropriate regulatory approvals within
the territory of the USA.
Astra agrees that in the event that the provisions of Clause 6.6 of the Research
and Development Agreement shall become effective it will supply to Salix copies
of all data, information, trial results and know-how obtained or developed
during the conduct and completion of the Project (as defined in the Research and
Development Agreement) by Astra and such other data, information, trial results
and know-how as may be generated by Astra in connection with Balsalazide or any
product incorporating Balsalazide. Salix agrees that in consideration of the
supply by Astra to it of such valuable information it will pay to Astra a
royalty [*] for the treatment of Diseases of Digestive System according to WHO
classification of diseases Class 52 in the territory of the
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
Continued/... Page 2
United States of America net only of purchase/sales taxes, customs or import
duties, delivery charges, returns and allowances actually charged on each sale
or shipment.
This letter is intended to evidence a binding Agreement between Salix and Astra
in this respect and is intended to become effective forthwith upon execution by
Glycyx and Astra of the proposed Research and Development Agreement and
Distribution Agreement.
Please sign and return the enclosed copy letter in order to evidence your
agreement to the terms as set out in this letter.
Yours faithfully
/s/ Hakan Mogren
Hakan Mogren, President and Group Chief Executive Officer
SIGNED FOR AND BEHALF OF
ASTRA AB
On copy:
Salix Pharmaceuticals, Inc hereby confirms and acknowledges the agreement as set
out in the above letter.
Signed: /s/ Randy W. Hamilton
------------------------
Director
<PAGE>
EXHIBIT 10.7
Dated 21st September 1992
-------------------------
GLYCYX PHARMACEUTICALS, LTD (1)
- and -
AB ASTRA (2)
----------------------------------
DISTRIBUTION AGREEMENT
----------------------------------
Hewitson Becke + Shaw
4/5 Church Street
Peterborough
PE1 1XB
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
-1-
THIS AGREEMENT is made 21st day of September 1992
BETWEEN:
- -------
(1) GLYCYX PHARMACEUTICALS, LTD a company incorporated under the laws of
Bermuda and whose registered office is at 41 Cedar Avenue, Hamilton, HM12,
Bermuda("Glycyx"); and
(2) AB ASTRA a company incorporated under the laws of Sweden whose principal
place of business is at Kvarnbergagatan 16, S-151 85 Sodertalje, Sweden
("Astra").
WHEREAS:
A. Biorex Laboratories Limited ("Biorex") has developed and owns all
intellectual property rights in a therapeutic pharmaceutical product for
treatment and maintenance of colitis based upon the compound Balsalazide
and by an agreement dated 18th March 1992 and made between Biorex and
Glycyx ("the Biorex Agreement") Biorex granted to Glycyx the exclusive
right and licence to manufacture, or have manufactured, use sell or have
sold products incorporating Balsalazide.
B. Glycyx wishes to grant to Astra (who in turn wishes to accept) the
exclusive right to promote market distribute and sell the Product in the
Territory on the terms and subject to the conditions of this Agreement.
NOW IT IS HEREBY AGREED as follows:-
1. DEFINITIONS
-----------
1.1 In this Agreement the following words shall have the following meanings:
"the Applications" means the treatment of Diseases of
Digestive System according to WHO
classification of diseases Class 52
"Astra Associate" means any company which is a holding
company of Astra or a subsidiary of
Astra and any other subsidiary of any
such holding company or subsidiary and
for this purpose:-
- a company shall be deemed to be a
"subsidiary" of another if that other
either:-
(a) is a member of it and controls
the composition of its board of
directors (and for such purpose the
composition of a company's
<PAGE>
-2-
board of directors is deemed to be
controlled by another company if that
other company by the exercise of some
power exercisable by it without the
consent or concurrence of any other
person can appoint or remove the
holders of all or a majority of the
directorships); or
(b) holds more than half in
nominal value of its equity share
capital; and
- a company is deemed to be
another's holding company if the other
is its subsidiary
"Balsalazide" means 5- [4 (2- carboxyethyl
carbamoyl)-phenylazo]-salicylic acid
disodium salt dihydrate
"Biorex" shall mean Biorex Laboratories Limited
a company incorporated in England under
Company Registration Number 390233
whose registered office is at 2
Crossfield Chambers, Gladbeck Way,
Enfield, Middlesex EN2 7HT
"Biorex Agreement" means the agreement dated 18th March
1992 between Glycyx and Biorex
"Biorex/Astra Agreement" means an agreement of even date
herewith entered into between Biorex
and Astra
"Dossier" shall mean the master regulatory
dossier relating to the Product
prepared under and in accordance with
the terms of the Research Agreement
"Excluded Territory" the United States of America, Italy,
Spain, Portugal and Greece
"Factory Sale Price" means the ex factory sales price of
each Product actually charged by Astra
(or any Astra Associate) for each
shipment of Product on an arms length
open market basis to any third party
(being a person firm or
<PAGE>
-3-
company which is not an Astra
Associate) net only of sales and
purchase taxes, customs or import
duties, delivery charges, and returns
and allowances actually charged on each
such shipment
"Filing Date" means the date upon which the Dossier
(completed in accordance with the terms
of the Research Agreement) shall be
submitted by Glycyx for registration
within one of the Principal Markets
under Clause 3.1 of the Research
Agreement
"Force Majeure" means in relation to either party any
circumstances beyond the reasonable
control of that party (including but
not limited to strike, lock out or
other form of industrial action, act of
God, war, riot, accident, breakdown in
plant or machinery, fire, flood,
explosion or government action)
"Launch" means a commercial launch by Astra (or
any Astra Associate) of the Product in
a Principal Market supported by such
marketing expense and support and
launched in such quantities as may
reasonably be appropriate for the
Product to have a significant effect on
total sales of any similar or
competitive product in such Principal
Market
"the Patents" means the patents and applications
therefor relating to Balsalazide listed
in Schedule 1 to this Agreement
"the Principal Markets" means the United Kingdom, Sweden,
Finland, Norway, Switzerland, Austria,
Denmark, Germany, the Benelux
Countries, France, Eire, South Africa,
Australia, New Zealand and Canada
"Product" means a pharmaceutical preparation in
capsule form containing Balsalazide for
the
<PAGE>
-4-
Applications and such other
pharmaceutical preparations containing
Balsalazide for the Applications as may
be developed by Glycyx during the term
of this Agreement
"the Research Agreement" means the research and development
agreement entered into between Astra
and Glycyx on even date herewith in the
approved form
"the Territory" means all the countries in the world
except Italy, Spain, Portugal, Greece,
United States of America, Japan, Taiwan
and Korea
"the Trade Mark" means the trade name "Colazide"
registered as a trademark for use on
pharmaceutical preparations in the
United Kingdom and elsewhere and any
other tradename designated by Glycyx
for use in connection with the Product
in any part of the Territory where use
of the tradename "Colazide" is
inappropriate for such part of the
Territory or where Astra reasonably
considers that the use of another
tradename (in addition to the tradename
"Colazide") may be commercially
advantageous.
1.2 The headings in this Agreement are for convenience only and shall not
affect its interpretation.
1.3 References to documents in the approved form shall be references to
documents in the form agreed between the parties and initialled by both
parties for the purposes of identification.
2. APPOINTMENT OF ASTRA
--------------------
2.1 With effect from the date of this Agreement and in accordance with the
terms and conditions contained in this Agreement Glycyx hereby appoints
Astra as its exclusive distributor for the Product within and throughout
the Territory.
2.2 The rights granted hereunder to Astra shall be in respect of the Product
only. In the event that either party shall become aware of any indications
or applications for Balsalazide other than the Applications it shall
forthwith
<PAGE>
-5-
notify the other party and shall supply the other party with such details
of the other indications and applications as may be available to it
Provided Always That:-
2.2.1 Astra shall have a first option to enter into good faith
negotiations with Glycyx during the period six months from the
supply of such details in respect of an agreement concerning the
development of such other indications and applications and the grant
to Astra of the right to exploit the same in the Territory; and
2.2.2 Astra shall have no right whatsoever to use and exploit Balsalazide
in any such other indications and/or applications unless and until
completion of such good faith negotiations and the execution of a
written agreement in respect thereof; and
2.2.3 during such period in which Astra shall continue to negotiate in
good faith Glycyx shall not disclose details of such other
indications and/or applications to any third party or grant any
third party any rights therein in the Territory provided that Glycyx
shall not be prevented or precluded from disclosing the same to any
third party which shall have entered good faith negotiations for the
acquisition of the right to exploit such other indications and/or
applications outside the Territory; and
2.2.4 in respect of any such other applications and indications disclosed
by Astra to Glycyx Glycyx shall not use or exploit the same (either
itself or through any third party) whether in the Territory or
elsewhere without the prior consent of Astra (such consent not to be
unreasonably withheld or delayed); and
2.2.5 in respect of any such other applications and indications disclosed
by Glycyx to Astra, Glycyx shall not use or exploit the same (either
itself or through any third party) in the Territory without the
prior consent of Astra (such consent not to be unreasonably withheld
or delayed).
3. REGULATORY APPROVALS
--------------------
3.1 It is acknowledged and confirmed by Astra and Glycyx that Astra shall not
be able to exercise its rights hereunder unless and until the Dossier (as
defined in the Research Agreement) shall have been completed and is
available for filing with the relevant regulatory authority in the
Territory.
3.2 Astra undertakes to use all reasonable endeavours to file the Dossier and
to apply for and obtain all relevant regulatory health and price approvals
for the marketing and use of the Product in the Territory as soon as
reasonably
<PAGE>
-6-
practicable after the Filing Date.
3.3 Astra undertakes to use its best endeavours to apply for and obtain all
relevant regulatory health and price approvals for the marketing and use of
the Product in each of the Principal Markets and to effect Launch of the
Product in each of the Principal Markets within 90 days of the Filing Date.
3.4 Astra shall be solely responsible for effecting (at its sole cost and
expense) such amendments and translations to the Dossier as may be required
to procure that the Dossier complies with and satisfies the requirements of
any regulatory or approval authority within any particular part of the
Territory and Glycyx shall not be obliged to incur any cost or conduct any
further test or development work or otherwise amend or translate the
Dossier whether before or after the Filing Date.
3.5 In the event that Astra shall fail to effect Launch in any Principal
Market within a period of 180 days after the grant of all necessary
registrations, approvals, price approvals, and reimbursements, then
Glycyx may in its absolute discretion serve written notice on Astra
(within 30 days of the expiry of such period of 180 days) amending the
rights of Astra granted hereunder in respect of any such Principal Market
to those of a non-exclusive distributor for the Product for such
Principal Market only. Thereafter Glycyx for the avoidance of doubt shall
also be entitled to exploit such rights and to market and exploit the
Product in such Principal Market (whether directly or indirectly through
any agent, contractor or licensee) in such manner as it may in its sole
discretion think fit Provided Always that Astra will retain exclusive
rights to use the Trademark.
3.6 In the event that Astra's failure to effect Launch as stated in Clause
3.5 exceeds a period of twelve months from the grant of all necessary
registrations, approvals, price approvals and reimbursements in any
Principal Market Glycyx may at its sole discretion serve written notice
on Astra (within 90 days of the expiry of such period of 180 days)
terminating all rights granted hereunder to Astra in respect of such
Principal Market only and thereafter Glycyx for the avoidance of doubt
shall be entitled to exploit such rights and to market and exploit the
Product in such Principal Market (whether directly or indirectly through
any agent, contractor or licensee) in such manner as it may in its sole
discretion think fit free of any obligation to Astra Provided Always that
Glycyx shall not use or grant any third party the right to use the
Trademark in such Principal Territory either on the Product or otherwise
and the exclusive rights to such Trademark granted hereunder to Astra
shall continue provided that Astra shall not thereafter use the Trademark
in any manner in such Principal Territory.
<PAGE>
-7-
4. EFFECTIVE DATE
--------------
4.1 This Agreement shall come into effect forthwith upon the date hereof
Provided Always That the rights to distribute the Product in any part of
the Territory shall become exercisable only as provided in Clause 3 hereof.
5. ASTRA'S UNDERTAKINGS
--------------------
5.1 Astra shall use its best endeavours to promote, market and sell the Product
and maximise sales thereof throughout the Principal Markets.
5.2 Astra shall use all reasonable endeavours to promote market and sell the
Product in such parts of the Territory outside the Principal Markets where
the Product in the reasonable opinion of the parties is deemed to have a
sales potential.
5.3 Without prejudice to the generality of Clauses 5.1 and 5.2 Astra undertakes
to allocate such promotional and sales resources and such technical support
for the promotion, marketing and sales of the Product as may reasonably be
required to maximise sales of the Product in all Principal Markets.
5.4 Astra shall promote market and sell the Product in the Territory entirely
in accordance with the terms of any product licence, price approval (where
applicable), and other restrictions and regulations for the Product as may
be relevant and applicable in each country within the Territory.
5.5 Astra further undertakes:-
5.5.1 to promote, market and sell the Product in the Territory under the
Trade Mark only and not to use any other trade name, trademark or
logo for or on the Product (Provided That the name "Balsalazide" may
be used but only as a generic name for the Product in accordance
with and as required by applicable laws and regulations); and
5.5.2 to enter into Trade Mark user agreements and such other agreements
(whether relating to the Trade Mark, Technical Standards or
otherwise) as may reasonably be required by Glycyx or is required by
applicable regulations in any part of the Territory in connection
with the exploitation by Astra of the Product and/or the use by
Astra of the Trade Mark; and
5.5.3 to notify Glycyx immediately of any improper or wrongful use of the
Trade Mark, the Patents or otherwise any proprietary or confidential
information of Glycyx or Biorex relating to the Product coming to
Astra's knowledge; and
5.5.4 forthwith to refer to Glycyx all enquiries
<PAGE>
-8-
received for the supply of the Product outside the Territory; and
5.5.5 not actively to seek customers for the Product outside the
Territory; and
5.5.6 to develop and design packaging for the Product in each part of the
Territory at its sole cost and expense Provided Always That the
general quality design and content of such packaging and any
information supplied with the Product by Astra shall be subject to
prior approval by Glycyx; and
5.5.7 not to use any misleading statements or misrepresentations on the
Product packaging or use any defective packaging materials and to
comply in all respects with all local regulations and laws in
connection with the Product packaging and the information provided
thereon; and
5.5.8 in the sale and use of the Product in each part of the Territory to
comply with all relevant regulatory health and pricing regulations
and approvals in such part of the Territory. For the avoidance of
doubt Glycyx shall not be responsible or liable in any manner
whatsoever for compliance with any such regulations and approvals
(whether or not it shall have assisted Astra in or approved the sale
or use of the Product in such part of the Territory); and
5.5.9 not to use any packaging which may adversely affect the Product in
any way whatsoever including but without limitation the Product's
approved shelf-life; and
5.5.10 not to incur any liability on behalf of Glycyx or in any manner
pledge or purport to pledge Glycyx's credit or accept any order or
make any contract binding on Glycyx or give or make any
representation, warranties or conditions or quantities with
reference to the Product on behalf of Glycyx. Astra is not and shall
not be deemed to be the agent of Glycyx and in all correspondence
and dealings with third parties shall clearly indicate that it is
acting as principal; and
5.5.11 to be solely responsible for the acts and omissions of its
employees and representatives in connection with the performance of
its rights and obligations hereunder.
<PAGE>
-9-
5.6 Astra shall be entirely responsible for the collection of debts due to it
and shall bear all losses owing to its failure so to do.
6. PRODUCT DATABASE AND ADVERSE REACTIONS REPORTING
------------------------------------------------
6.1 Glycyx shall maintain a database of all adverse and other reactions or
events occurring in connection with the Product in any part of the
Territory or the Excluded Territory and shall use reasonable endeavours to
procure that any such adverse and other reactions are notified to it in a
timely manner by any sub-licensee and/or distributor of the Product in the
Territory and the Excluded Territory.
6.2 Astra undertakes to notify Glycyx:-
6.2.1 forthwith in the event that it becomes aware of any serious or
previously unknown adverse reaction or contra indications to the
Product; and
6.2.2 within three months, on a quarterly basis of other adverse reactions
or contra indications to the Product other than stated under 6.2.1.
6.3 Glycyx undertakes to notify Astra:-
6.3.1 forthwith in the event that it becomes aware of any serious or
previously unknown adverse reaction or contra indications to the
Product in any part of the Territory and the Excluded Territory; and
6.3.2 within three months, on a quarterly basis of other adverse reactions
or contra indications to the Product other than stated under 6.2.1.
6.4 In the event that Glycyx or any third party shall conduct clinical studies
in support of any promotional or marketing activities of Glycyx or such
third party within the Territory or the Excluded Territory, Glycyx shall
use reasonable endeavours to grant or procure the grant to Astra of full
unrestricted access to the results of such trials so that Astra shall be
entitled to use such results in connection with the marketing, sale and use
of the Product in the Territory.
7. CONSIDERATION
-------------
7.1 In consideration of the rights hereby granted by Glycyx to Astra Astra
hereby agrees to pay to Glycyx a sum of [*] such sum to be payable to
Glycyx as follows:-
7.1.1 [*]
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
-10-
7.1.2 [*]
7.2 Glycyx hereby agrees that it shall reimburse to Astra the sum of
[*] paid by Astra under the terms of the Research Agreement by way of (and
not otherwise in any manner whatsoever) a retention by Astra of either:-
7.2.1 [*] of the price charged by Glycyx under Clause 10 to Astra on each
of Astra's orders for bulk quantities of capsules containing the
Product (net of all sales taxes, discounts, credits, insurance and
delivery charges); or
7.2.2 in the event that Astra shall have commenced manufacture of the
Product under the provisions of Clause 13.2, [*] of all fees due to
Glycyx from Astra under paragraph 6 of Schedule 2
until the said sum shall have been reimbursed in full to Astra whereupon
all such retentions shall cease forthwith.
8. CLINICAL TRIALS AND DEVELOPMENTS
--------------------------------
8.1 Astra is authorised by Glycyx to undertake clinical studies after the
Filing Date in support of Astra's regulatory, promotional and marketing
activities and to enhance the Product's approval and/or use within the
Applications Provided Always That:-
8.1.1 such trials are conducted solely for such purposes and not for any
other purpose whatsoever; and
8.1.2 prior to the conduct of such trials the trial objectives and
protocols are approved by Glycyx (such approval not to be
unreasonably withheld or delayed and Provided Always That such
approval
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
-11-
shall be deemed given by Glycyx in the event that no response is
received by Astra from Glycyx within 20 working days of receipt by
Glycyx of any request for approval); and
8.1.3 Astra shall keep Glycyx fully informed as to the conduct progress
and results of such trials; and
8.1.4 Glycyx shall have full unrestricted access to the results of such
trials and shall be entitled to disclose the same to third parties
for use in connection with the registration marketing sale and use
of the Product in the Excluded Territory only; and
8.1.5 save as provided in Clause 10.6 Astra shall bear all the costs and
expenses associated with such trials (including but without
limitation the costs of documentation and administrative payments to
trialists); and
8.1.6 such trials shall be conducted only in accordance with any
regulatory permissions and/or approvals granted for the Product in
such part of the Territory in which the trials are conducted.
8.2 It is anticipated that Astra shall support any symposia organised, arranged
or sponsored by Glycyx involving areas of medicine relating to diseases of
the gastrointestinal tract and similar conditions and shall nominate and
sponsor key physicians in the said field of medicine to attend at those
symposia (and in particular shall sponsor those physicians presenting the
results of clinical research studies relating to the Product).
9. SUPPLY OF PRODUCT
-----------------
9.1 Astra shall notify Glycyx in writing of its forecast requirements for
quantities of the Product (in the form of bulk filled capsules) and details
of its proposals for Launch in each of the Principal Markets on or before
June 30th 1993. With such forecast Astra shall deliver a detailed forecast
of its requirements for the Product during 1994 and in January, April, July
and October in each year shall deliver to Glycyx revised forecasts for the
subsequent 12 month period commencing on the subsequent April 1st, July
1st, October 1st and January 1st respectively.
9.2 Glycyx shall fulfill all written orders placed on it by Astra for the
Product in the form of bulk filled capsules.
9.3 Whilst the forecasts delivered by Astra to Glycyx under Clause 9.1 shall be
non-binding and will not place any obligation on either Astra to order such
quantities or Glycyx to deliver such quantities:-
9.3.1 Astra shall use all reasonable endeavours to
<PAGE>
-12-
estimate accurately in such forecasts its requirements for the
Product; and
9.3.2 Astra shall ensure that all written orders are placed permitting a
lead time for manufacturing of the Product of not less than 16
weeks; and
9.3.3 Astra acknowledges that Glycyx shall not be obliged to fulfill any
firm written orders placed on it that may be in excess of [*] of
the last forecast quantities (in accordance with Clause 9.1) for
such period; and
9.3.4 Astra undertakes to place written orders and accept delivery of
quantities of the Product that are not less than [*] of the last
forecast quantities (in accordance with Clause 9.1) for such period.
9.4 During the term of the Research Agreement Glycyx shall supply Astra with
such quantities of the Product as Astra may reasonably require (in bulk
filled capsule form) for clinical trials undertaken by Astra under the
terms of the Research Agreement. Astra shall endeavour to provide Glycyx
with the maximum period of notice of such requirements and in any event
shall place firm written orders on Glycyx therefor not less than 90 days
before any requested delivery date.
9.5 After the termination of the Research Agreement Glycyx shall supply Astra
with such quantities of the Product in bulk filled capsule form as Astra
shall reasonably require for use as product samples and clinical trial
samples and as shall have been forecast and ordered by Astra in accordance
with Clauses 9.1 to 9.3.
9.6 Glycyx hereby warrants and undertakes that all quantities of the Product
(in bulk filled capsule form) supplied by it to Astra under the terms of
this Agreement shall as at the date of delivery be supplied fully in
accordance with the Bulk Product Specification and the Finished Product
Specification contained in Schedule 3 and shall have been manufactured in
accordance with European Community Good Manufacturing Practice and the Drug
Master File for the Product.
9.7 Upon the receipt of any delivery of the Product from Glycyx Astra shall
test such Product (in accordance with the Quality Test Procedures to be
agreed and incorporated into Schedule 4 to this Agreement after execution
of this Agreement) and in the event that such Quality Test Procedures
reveal any breach of the warranty given in Clause 9.6 Astra shall be
entitled to reject the full shipment of the Product within 45 days of
receipt of such shipment by notice in writing to Glycyx.
9.8 In the event of any dispute between the parties concerning any allegation
of breach of the warranty contained in clause 9.6 or concerning any
rejection or purported rejection of
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
-13-
any shipment of the Product a sample quantity of the Product in question
shall (at the joint cost and expense of the parties) be delivered to an
independent laboratory (nominated by the agreement of the parties or in the
absence of agreement on the application of either party by the President
for the time being of the Royal Pharmaceutical Society of Great Britain)
which shall be supplied with copies of the Bulk Product Specification, the
Finished Product Specification and the Drug Master File and shall carry out
testing in accordance with the Quality Test Procedures and whose decision
as to the quality of such Product and as to any breach of warranty by such
Product, shall in the absence of manifest error be final and binding on the
parties.
9.9 The terms and conditions relating to the supply of the Product by Glycyx to
Astra shall be as set out in this Agreement and each written order placed
on Glycyx by Astra shall form a separate contract for the supply of the
Product.
9.10 The parties undertake to execute an agreement relating to the manufacture
and supply of Product for the purpose of disclosure to the relevant
regulatory authorities in the Territory substantially in the form contained
in Schedule 4 on or before the Filing Date. In the event that such
agreement is entered into by any Astra Associate in place of Astra Astra
undertakes to guarantee and procure the proper performance by such Astra
Associate of all its obligations under such agreement.
10. PRICE
-----
10.1 The price charged for the Product by Glycyx to Astra shall (save as
provided in Clause 10.6 and 10.7) be established in Sterling Pounds as
follows:
10.1.1 the price for the Product shall be finally determined by the end of
March and September of each calendar half-year for the preceding
July-December and January-June and shall (subject to Clause 10.1.5)
equal [*] for the Product in the Territory during the calendar
half-year in question;
10.1.2 for the conversion of the relevant currencies into Sterling Pounds
under Article 10.1.1 the official average exchange rates for the
sale and purchase of foreign currency at the SE-Banken, Stockholm on
the last banking day of the calendar half-year in question shall be
applied. With respect to currencies not quoted by the SE-Banken the
average rate for purchasing Sterling Pounds in the respective
country as published by any leading London Bank shall apply;
10.1.3 until the price can be finally determined in accordance with
Article 10.1.1 the Product will be
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
-14-
supplied at provisional prices fixed by Glycyx and Astra based on
historical figures, forecasts and best estimates;
10.1.4 any balance resulting from differences between the provisional and
the final prices shall be settled by April 15 and October 15 of the
calendar half-year in which the final prices are established;
10.1.5 in the event that the [*] of all Product sold by Astra (and any
Astra Associate) in Germany after Launch in Germany shall exceed [*]
the price charged by Glycyx to Astra for supplies of the Product
(for Germany and elsewhere) after the month in which said sales
level for any such [*] is achieved shall be permanently increased
thereafter to equal [*] under Article 10.1.1 above.
10.2 In order to calculate the price charged by Glycyx to Astra pursuant to
Clause 10.1 Astra shall notify Glycyx for a six month period of its best
available estimate of the Factory Sales Prices (calculated by reference to
estimated sales in the Principal Markets and weighted by reference to
estimated quantities to be sold at such prices) which it reasonably
considers will be obtained for total sales of the Product by Astra in the
Territory.
10.3 Astra shall keep Glycyx informed of any material movement in the Factory
Sales Prices for the Product achieved on sales into any Principal Market
during any six month period.
10.4 Astra shall keep full proper and up-to-date books of account and records
showing clearly all transactions relating to the calculation of the Factory
Sales Price.
10.5 Astra shall allow Glycyx or its auditors or representative reasonable
access during normal business hours to inspect the books of account of
Astra (or any Astra Associate) in order to verify the Factory Sales Prices
and the prices changed by Glycyx to Astra under this Clause 10 Provided
That such verification shall be at the sole cost and expense of Glycyx.
10.6 Glycyx shall at its own cost and expense provide such supplies of the
Product to Astra as Astra may reasonably require for the conduct of
clinical trials.
10.7 In each country within the Territory Astra shall use all reasonable
endeavours to obtain the most favourable Factory Sales Price which is
consistent with competitive market characteristics and the demonstrated
advantages of the Product and presenting the Product as a new chemical
entity within such country.
10.8 The Product supplied by Glycyx to Astra in respect of any
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
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Principal Market for the purpose of Product samples shall be supplied to
Astra [*] for a period of [*] from the date of Launch in each such
Principal Market Provided That:-
10.8.1 the quantities so delivered in any one year shall not exceed [*] of
the total aggregate Product sold by Astra in such Principal Market
in such year; and
10.8.2 for the purpose of determining [*] it is understood that this shall
include direct costs of material, labour and interest and direct
manufacturing overhead but shall not in any circumstances exceed [*]
of such Product in such Principal Market; and
10.8.3 Clauses 10.4 and 10.5 shall apply mutatis mutandis with respect to
Glycyx for the purpose of verifying [*] prices charged
Provided Further That for the avoidance of doubt Glycyx shall be entitled
to charge and receive the price calculated in accordance with Clause 10.1
in respect of any supplies of Product samples for any Principal Market made
after such [*] period or made during such [*] period which are in excess of
such [*] figure.
11. TERMS OF PAYMENT
----------------
11.1 Payment is strictly net cash to be paid to Glycyx within thirty (30) days
from the date of invoice in pounds sterling. Such payment shall be made by
express payment through the banking system into such bank account as Glycyx
shall designate for such purpose.
11.2 If payment is not made as set out in Clause 11.1 for any bulk delivery of
the Product to Astra Glycyx reserves the right;
11.2.1 to charge interest to Astra at the rate of 2% (two per cent) per
annum above the base rate for the time being of Barclays Bank plc on
the unpaid balance (such interest to accrue on a day-to-day basis
from the date of payment (as well after as before any judgment));
and
11.2.2 to require payment in advance for any delivery of the Product made
prior to receipt of such payment in full.
12. DELIVERY
--------
12.1 Delivery of the Product to Astra by Glycyx shall be Ex-Works any of the
European manufacturing plants designated by Glycyx (Incoterms 1990) and
otherwise as specified in the agreement entered into pursuant to Clause
9.10.
12.2 The Product shall be shipped to Astra by such method of
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
-16-
transport as Astra shall nominate and such transport shall be arranged and
paid for by Astra. Glycyx does not accept any liability for loss of or
damage to the Product after delivery and whilst in transit.
12.3 Risk in the Product shall pass to Astra on delivery and Astra shall be
responsible for insuring the Product from the date of delivery and in
transit at its own cost and expense.
13. LICENCE TO MANUFACTURE
----------------------
13.1 Save only in the circumstances set out below, Glycyx shall manufacture the
Product and shall supply Astra with such quantities of the Product as it
shall require and (save as expressly provided in this Clause 13) Astra
shall have no right title or interest in any of the Patents or proprietary
rights relating to the Product and is entitled to use the same only under
the terms of this Agreement.
13.2 In the event that Glycyx shall
13.2.1 be in breach of its obligations to supply the Product in the form
and manner specified in Clause 9 or otherwise in accordance with
forecast schedules and written orders placed on it by Astra and
shall fail to remedy such breach within 90 days of written notice
from Astra requiring remedy; or
13.2.2 give Astra 180 days notice in writing of its intention to cease to
supply Astra with the Product; or
13.2.3 by reason of Force Majeure be prevented from supplying the Product
to Astra for a period exceeding 180 days
Astra shall be entitled by service of notice in writing forthwith to
acquire a licence to manufacture the Product. Such licence shall commence
upon the effective date of such notices and shall be granted and continue
upon the terms and conditions contained in Schedule 2.
13.3 In the event that during any period in which Glycyx shall fail to supply
the Product to Astra by reason of:-
13.3.1 any breach by Glycyx in respect of which notice shall have been
served under Clause 13.2.1; or
13.3.2 any Force Majeure notified by Glycyx to Astra under Clause 13.2.3
Astra wishes to manufacture quantities of the Product to satisfy
requirements for the Product in the Territory Astra shall (by notice in
writing to Glycyx) forthwith be entitled to a temporary licence to
manufacture the Product during such period only and Provided That:-
<PAGE>
-17-
13.3.3 such licence shall be upon the terms specified in Schedule 2; and
13.3.4 such licence shall permit manufacture by Astra of only such
quantities of the Product as may reasonably be required to fulfill
actual and reasonably anticipated orders on Astra for the Product
during such period and a reasonable period thereafter.
13.4 In order to satisfy itself of its ability to manufacture the Product Astra
shall be entitled at any time during the term of this Agreement to effect a
trial manufacture of bulk quantity of the Product Provided Always That:-
13.4.1 Glycyx shall provide such assistance and technical information as
Astra may reasonably require for such trial; and
13.4.2 Glycyx shall be entitled to attend and observe such trial; and
13.4.3 such trial shall be conducted at the sole cost and expense of
Astra but Glycyx shall if such trial quantity is used by Astra for
commercial purposes be entitled to charge Astra for the Product
produced as if it were Product sold by Glycyx to Astra under this
Agreement at a price calculated [*] obtained by Glycyx on the
supply of Product under the terms of this agreement [*] in the
Principal Markets or such higher figure as Glycyx may show by
documentary evidence [*].
13.4.4 Astra shall be solely responsible and liable for the quality of the
Product produced in the trial; and
13.4.5 Astra shall be licensed to use the Patents and any intellectual
property rights existing in the Product for such trial only; and
13.4.6 Astra shall not use all or any information received for the purpose
of the trial for any other purpose whatsoever and shall not use the
same after the trial unless and until a licence to manufacture shall
become effective under the terms of Clauses 13.2 or 13.3; and
13.4.7 Glycyx shall procure registration of Astra as a supplier under the
Drug Master File for the Product Provided Always That Astra shall
not exercise any right as such a registered supplier unless and
until a manufacturing licence shall become effective under Clauses
13.2 or 13.3.
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
-18-
14. TRADEMARK LICENCE
-----------------
14.1 Glycyx hereby grants to Astra a sole and exclusive licence to use the
Trademark on the Product and in connection with the marketing and
exploitation of the Product in the Territory only.
14.2 Glycyx undertakes to procure the grant of such rights and licence as may
reasonably be required to give effect to Clause 14.1 from the Trademark
owner, Biorex, and shall obtain Biorex's execution of such agreements as
are referred to in Clause 5.5.2.
14.3 Astra hereby confirms and acknowledges that it is licensed to use the
Trademark only as set out in this Agreement and Astra further
acknowledges:-
14.3.1 that all goodwill in the Trademark in any part of the Territory
(whether or not generated by the activities of Astra under this
Agreement) shall vest in Biorex; and
14.3.2 that any application for registration of the Trademark shall be
made in the name of Biorex only; and
14.3.3 undertakes to transfer and assign to Glycyx (or as it may direct)
any right, title or interest required by Glycyx or Biorex for
registration of the Trademark in any part of the Territory in the
name of Biorex and for all goodwill in the Territory to vest in
Biorex.
14.4 In consideration of the rights and licence granted to Astra by Glycyx in
respect of the Trademark Astra shall pay to Glycyx a licence fee at the
rate of [*] of all Product bearing the Trademark supplied by Astra (or any
Astra Associate) to any third party. Such licence fee shall commence on the
date of this Agreement and shall continue to be payable for such period of
time in which Astra shall continue to use the Trademark under the licence
hereby granted.
15. LICENCE PAYMENT
---------------
15.1 Astra shall keep true and accurate records of the sales of all Product
manufactured by it pursuant to any licence granted under Clauses 13.2 or
13.3 and of all Product sold by it at any time bearing the Trade Mark and
Astra shall within ninety (90) days of the end of each period of six months
(such periods to end on 30 June and 31 December) send Glycyx a full
statement showing the calculation of all sums due and owing to Glycyx
15.1.1 in respect of the manufacturing licence under the provisions of
Clause 6 of Schedule 2; and
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
-19-
15.1.2 in respect of the Trade Mark Licence under the provisions of Clause
14
and with such statement shall make payment in pounds sterling by express
payment through the banking system into such bank account as Glycyx shall
designate for such purpose, of such sum as is shown as due on the
statement. The provisions of Clause 10.1.2 shall apply in calculating the
applicable exchange rate.
15.2 Astra shall allow Glycyx or its auditors or representative reasonable
access during normal business hours to inspect the books of account of
Astra or any Astra Associate in order to verify the accuracy and
calculation of any statements delivered under Clause 15.1 Provided That
such verification shall be at the sole cost and expense of Glycyx.
15.3 In the event of any dispute between the parties concerning the calculation
and/or payment of any fee due under this Clause 15 an independent auditor
shall be appointed by the agreement of the parties or in the absence of
agreement at the request of either party by the President for the time
being of the Institute of Chartered Accountants in England and Wales who
acting as an expert and not as an arbitrator shall have full and free
access to all relevant information and data and shall be asked to determine
and settle any such dispute and in the absence of manifest error his
decision shall be final and binding on the parties. The independent
auditor's fees shall be paid by the parties in such proportions as he shall
direct.
15.4 Interest shall be payable to Glycyx by Astra at a rate of two per cent (2%)
above the base lending rate from time to time of Barclays Bank plc on all
outstanding fees due and payable by Astra to Glycyx under the provisions of
this Clause 15 both before and after judgment.
16. PRODUCT LIABILITY
-----------------
16.1 Glycyx hereby agrees to indemnify Astra against any action, claim, loss and
damage suffered by or awarded against Astra in connection with any claim
against Astra from a third party arising from any breach by Glycyx (or its
subcontractors or nominees) of the warranty and undertaking contained in
clause 9.6 Provided Always That such indemnity shall not extend to any
liability, cost, expense or damage suffered or incurred by reason of any
defect in any Product which was detected or should have been detected by
Astra by means of the Quality Test Procedures applied (or which should have
been applied) by Astra within 45 days of the date of delivery of the
Product under the provisions of Clause 9.7.
16.2 Astra undertakes to indemnify and hold Glycyx harmless against all and any
loss, damage, claim or liability suffered or incurred by Glycyx in any
circumstances
<PAGE>
-20-
whatsoever save only where Glycyx is liable under Clause 16.1.
17. CONFIDENTIAL INFORMATION
------------------------
17.1 Astra hereby agrees and undertakes that during the application of this
Clause 17 and for a period of ten years thereafter (howsoever termination
may be caused or arise) it shall keep confidential and shall not without
the prior written consent of Glycyx disclose to any third party any
information of a confidential nature belonging to Glycyx or Biorex
(including trade secrets and information of commercial value) which may
become known to Astra from Glycyx in connection with this Agreement and/or
the Research Agreement Provided Always That such obligation of
confidentiality shall not extend to any part of such confidential
information which:
17.1.1 shall otherwise than by reason of any default by Astra become
freely available to the general public; or
17.1.2 Astra can show by documentary evidence was in its possession or
control prior to disclosure free of any obligation of
confidentiality; or
17.1.3 Astra can show by documentary evidence shall have come into the
possession or control of Astra from a third party free of any
obligation of confidentiality subsequent to disclosure hereunder; or
17.1.4 Astra is obliged by law or regulation to disclose to a third party
provided that such disclosure shall only be to the extent required
by such law or regulation.
and Provided Further that in the event that this Agreement is terminated by
Glycyx Astra shall forthwith cease any use of such information for any
purpose whatsoever
17.2 Astra shall ensure that any employee of, or consultant to, Astra who shall
obtain any confidential information in connection with the performance of
this Agreement shall be bound by obligations of confidentiality
substantially similar to the provisions of Clause 17.1.
17.3 Glycyx acknowledges the importance of keeping all material information
relating to the Product confidential and Glycyx will use all reasonable
endeavours to make sure that no such information is made public or
otherwise made available to third parties in any manner which would
jeopardize the exclusivity in the Territory granted to Astra hereunder.
18. INTELLECTUAL PROPERTY
---------------------
18.1 Astra acknowledges that save as expressly provided herein or as may be
required in connection with the performance by
<PAGE>
-21-
Astra of any obligations under the Research Agreement Astra shall have no
right, title, interest or licence in or to the Patents or otherwise any
intellectual property rights of Biorex or Glycyx in Balsalazide or the
Product,
18.2 In the event that either party becomes aware of any infringement by any
third party within the Territory of any intellectual property rights of
Glycyx and/or Biorex in the Patents, Balsalazide, the Product or the
Trademark it shall forthwith notify the other party. Glycyx shall be
entitled to take such action (or procure such action by Biorex) as it may
in its sole discretion consider appropriate against any such third party
infringer Provided Always That:-
18.2.1 Astra shall give such assistance as Glycyx may reasonably require
in connection with any such action (subject to reimbursement by
Glycyx of all costs reasonably incurred by Astra); and
18.2.2 Glycyx shall keep Astra informed of the conduct and progress of
such action but shall be entitled to conduct, pursue and settle such
action in such manner as it shall reasonably consider appropriate
and to retain any damages awarded against any such infringer;
in the event that such infringement shall continue and Glycyx shall fail to
take or procure any action to prevent any continued infringement Astra may
(in its sole discretion) at its sole expense initiate and pursue such
action as it considers appropriate to prevent any continued infringement
Provided Further That:-
18.2.3 Glycyx shall give (and shall use reasonable endeavours to procure
from Biorex) such assistance as Astra may reasonably require in
connection with any such action (subject to reimbursement by Astra
of all costs reasonably incurred by Glycyx and/or Biorex); and
18.2.4 Astra shall keep Glycyx informed of the conduct and progress of
such action but shall be entitled to conduct, pursue and settle such
action in such manner as it shall reasonably consider appropriate
(having regard to the continuing value of any such intellectual
property rights to Glycyx and/or Biorex and the effect which any
such infringement shall have had or will have on the exploitation in
the Territory by Astra of the Product) and to retain any damages
awarded against any such infringer.
18.3 In the event that any claim is made against Astra by any third party
alleging infringement of any rights of any third party by the use and
exploitation of the Product by Astra shall be entitled at its sole cost and
expense to defend any such claim in such manner as it may in its sole
discretion consider appropriate Provided Always That
<PAGE>
-22-
18.3.1 Glycyx shall give (and shall use reasonable endeavours to procure
from Biorex) such assistance as Astra may reasonably require in such
action (subject to reimbursement by Astra of all costs reasonably
incurred by Glycyx and/or Biorex); and
18.3.2 Astra shall keep Glycyx informed of the conduct and progress of
such action but shall be entitled to conduct, pursue and settle such
action in such manner as it shall reasonably consider appropriate
(having regard to the continuing value of any such intellectual
property rights to Glycyx and/or Biorex and the effect which any
such infringement shall have had or will have on the exploitation in
the Territory by Astra of the Product) and to retain any damages
awarded against any such infringer; and
18.3.3 (save only for any liability arising by reason of any breach by
Glycyx of the warranties contained in Clause 11.1 of the Research
Agreement) Glycyx shall not be liable in any manner whatsoever to
Astra for any loss or damages suffered incurred or awarded against
Astra in connection with any such claim.
19. SUB-DISTRIBUTORS AND SUB-LICENSEES
----------------------------------
19.1 Astra is hereby granted the right to appoint sub-distributors for the
Product in countries within the Territory Provided Always That
19.1.1 Astra shall remain solely liable for the performance of its
obligations hereunder in each part of the Territory; and
19.1.2 in any part of the Territory where there is resident an Astra
Associate any sub-distributor appointed shall only be such Astra
Associate.
20. TERMINATION
-----------
20.1 The rights and obligations of the parties contained in Clauses 2, 3, 4, 5,
6, 7, 8, 9, 10, 11, 12, 13, 17, 18, 19 and 22 shall cease forthwith upon
the date of expiry of a period of 15 years from the date of first Launch
Provided Always That
20.1.1 the Trademark Licence granted under Clause 14 shall continue
thereafter in accordance with its terms and Clause 15 will remain
valid with respect to Clause 14; and
20.1.2 any licence granted to Astra to manufacture under Clause 13.2 shall
continue indefinitely thereafter in accordance with Clause 6.4 of
Schedule 2; and
20.1.3 any licence or interest in all or any part of the Patents,
Balsalazide and/or the Product shall continue indefinitely
thereafter.
<PAGE>
-23-
20.2 Either party to this Agreement shall be entitled to terminate this
Agreement forthwith by notice in writing to the other in the event that:-
20.2.1 the other party shall fail to pay any sum due hereunder on the due
date and shall fail to remedy such breach within (30) thirty days of
being required in writing by the other party so to do; or
20.2.2 the other party shall commit a material breach of any of the terms
and conditions of this Agreement and shall fail to remedy the same
(if capable of remedy) within ninety (90) days of being required in
writing by the other party so to do provided that such right of
termination shall not arise in the event of any breach by Glycyx of
its obligations under Clause 9 which circumstance is governed by the
provisions of Clause 13 only; or
20.2.3 the other party goes into liquidation (either voluntary or
compulsory) or shall be the subject of any petition for winding up;
or
20.2.4 the other party shall make any assignment or arrangement for the
benefit of its creditors or cease or threaten to cease to carry on
its business in the ordinary course; or
20.2.5 a receiver, administrative receiver, or receiver and manager, or
judicial manager or administrator is appointed over the whole or any
part of the assets of either party or if any court proceedings are
commenced for the appointment of an administrator or receiver to
either party; or
20.2.6 the other party shall become unable to pay its debts as they become
due in the ordinary course of business or shall otherwise become
subject or seek relief under any law relating to insolvency in any
jurisdiction relevant to such other party; or
20.2.7 the party serving such notice shall have served notice of
termination on such other party under the provisions of Clause 7.4
of the Research Agreement provided that in the event that Astra
assumes all obligations in connection with the conduct and
completion of the Project in accordance with Clause 6.6 of the
Research Agreement no event referred to in such Clause 6.6 shall
constitute grounds for breach under this Agreement or the Research
Agreement.
20.3 Any waiver by either party of a breach of any provision of this Agreement
shall not be considered as a waiver of any subsequent breach of the same or
any provisions of this Agreement.
20.4 Any termination of this Agreement shall be without prejudice
<PAGE>
-24-
to the right of either party to recover any monies due to it under this
Agreement or the rights or remedies of either party in respect of any
breach prior to the effective date of termination of this Agreement.
20.5 Glycyx and Astra each undertake to the other that during the term of this
Agreement it shall not exercise any right which it may have (or may
acquire) to terminate the Biorex Agreement without prior consultation with
the other and without taking such action as may be appropriate to ensure
that the rights granted to such other hereunder are not prejudiced to any
material extent.
21. CONSEQUENCES OF TERMINATION
21.1 In the event of termination of this Agreement under Clause 20.2 by Glycyx
prior to the expiry of a period of 15 years from date of Launch Astra
shall:
21.1.1 forthwith, cease all marketing, sale and promotion of the Product;
and
21.1.2 immediately telegraphically transfer all monies due and payable to
Glycyx as at the date of termination into Glycyx's bank account
designated under Clause 11.1; and
21.1.3 immediately return to Glycyx all information and data of whatsoever
nature relating to the Product together with all copies thereof
(other than correspondence between Glycyx and Astra) which Astra may
have in its possession or under its control including but without
limitation all scientific, medical and safety data relating to the
Product; and
21.1.4 immediately cease use of all or any confidential information of
Glycyx delivered in connection with this Agreement and the
Trademark; and
21.1.5 take all such steps as may reasonably be required to transfer or
procure the transfer to Glycyx (or its nominee) of all such produce
licences and approvals as may have been obtained for the marketing
and sale of the Product in any part of the Territory; and
21.1.6 Glycyx shall purchase such stocks of the Product (inclusive of
packaging) as Astra shall still have in its possession once it has
fulfilled all orders outstanding as at the date of termination at a
price calculated as cost price to Astra Provided That Glycyx shall
not be obliged to purchase any of the stocks of the Product which do
not have at least two thirds of its approved shelf life unexpired or
are otherwise not of merchantable quality.
21.2 In the event of termination of this Agreement under Clause 20.2 by Astra
prior to the expiry of a period of fifteen years from the date of Launch
the rights and obligations of
<PAGE>
-25-
Astra under this Agreement shall continue subject always to the terms of
the Biorex/Astra Agreement.
22. ASSIGNMENT
----------
22.1 The benefit of this Agreement is personal to Astra and to Glycyx and shall
not be capable of assignment by either of them without the prior consent in
writing of the other party (such consent not to be unreasonably withheld or
delayed).
23. FORCE MAJEURE
-------------
23.1 If the performance of any obligations under this Agreement by either party
is affected by Force Majeure it shall forthwith notify the other party of
the nature and extent thereof.
23.2 Neither party shall be deemed to be in breach of this Agreement or
otherwise be liable to the other by reason of any delay in performance or
non-performance of any of its obligations hereunder to the extent that such
delay or non-performance is due to any Force Majeure which has been
notified to the other party in writing.
24. COSTS
-----
24.1 Each party hereto shall bear its own costs in relation to the negotiation,
drafting, preparation, and execution of this Agreement.
25. CONFIDENTIALITY OF THIS AGREEMENT
---------------------------------
25.1 The contents of this Agreement shall remain confidential as between the
parties. Neither party shall, without the prior written consent of the
other (such consent not to be unreasonably withheld without justification),
disclose any of the financial terms of this Agreement to any other person,
firm or company save for
25.1.1 disclosure by Glycyx to Biorex and Salix Pharmaceuticals Inc. in
circumstances where such third party shall have accepted obligations
of confidentiality in respect of the information disclosed; and
25.1.2 such disclosure as may be required by any relevant law or
regulatory authority.
26. NATURE OF THE AGREEMENT
------------------------
26.1 Nothing in this Agreement shall create or be deemed to create any
partnership, joint venture or the relationship of principal and agent
between the parties.
26.2 Each party acknowledges that, in entering into this Agreement, it does not
do so on the basis of, and does not rely on, any representation, warranty
or other provision (except as expressly provided herein or in the Research
<PAGE>
-26-
Agreement) and all conditions, warranties or other terms implied by Statute
or common law are hereby excluded to the fullest extent permitted by law.
26.3 This Agreement (including all the Schedules) together with the Research
Agreement and any agreements entered into pursuant to this Agreement
constitutes the entire understanding and agreement between the parties with
respect to the subject matter of this Agreement and supersedes all prior
agreements, negotiations and discussions between the parties relating to
this Agreement.
26.4 This Agreement may not be released, discharged, abandoned, charged or
modified, in any manner, except by an instrument in writing signed by a
duly authorised officer or representative from each of the parties hereto.
26.5 This Agreement shall be governed by and construed in all respects in
accordance with the laws of England and each party hereby submits to the
exclusive jurisdiction of the English courts. For the purpose of accepting
service of process in connection with any action commenced before the High
Court in England the parties hereto hereby absolutely, unconditionally and
irrevocably appoint the following agents to accept process on their behalf
it being unconditionally agreed that for this purpose such process will be
properly and effectively served if the same is left at the addresses set
out below:-
Astra: F.A.O. The Managing Director
Astra Pharmaceuticals Limited
Home Park Estate
Kings Langley
Herts
WD4 8DH
Glycyx: F.A.O., Glycyx Pharmaceuticals Limited
Camas Partners Limited
Camas House
23 Park Lane
Blunham
Bedfordshire
MK44 3NH
27. NOTICES
-------
27.1 All notices to be served by the parties to this Agreement shall be served
only in the English language.
27.2 Notices shall be sufficiently served if dispatched by first class or
express post (meaning the fastest normal method of mail transmit in the
country of dispatch) to the address of the receiving party set out below
Glycyx 3600 W Bayshore Road
Suite 202
Palo Alto
CA 94303 U.S.A.
<PAGE>
-27-
F.A.O. R W Hamilton
Astra Kvarnbergagatan 16
S-151 85 Sodertalje
Sweden
F.A.O. Vice President Legal Affairs
Any modification to this address must in itself be notified in writing to
the other party in accordance with the terms of this sub-clause.
27.3 In the absence of proof to the contrary notices properly sent hereunder
shall be deemed to have been duly served 10 days after the date of
dispatch.
27.4 It shall be permitted for notices to be served hereunder by facsimile
transmission and for this purpose the following fax number below shall
apply:
27.4.1 in the case of Glycyx at 3600 W Bayshore Road Suite 202 Palo Alto
CA 94303 USA facsimile transmission number 415-856-1555 and marked
for the attention of R W Hamilton
27.4.2 in the case of Astra at Kvarnbergagatan 16, S-151 85 Sodertalje,
Sweden facsimile transmission number +46 855 32 90 00 and marked for
the attention of Vice President Legal Affairs
provided that such notice is confirmed by return facsimile and shall be
deemed served 24 hours after the time of receipt of such return facsimile.
AS WITNESS the hands of the duly authorised representatives of the parties
hereto the day and year first above written.
<PAGE>
-28-
SCHEDULE 1
----------
THE PATENTS
-----------
<PAGE>
Distribution Schedule 1 (Pages 1 to 28)
SCHEDULE I
PATENTS
<TABLE>
<CAPTION>
PATENT NUMBER FILING DATE GRANT DATE DUE TO EXPIRE
<S> <C> <C> <C> <C>
UK 2,080,796 Complete 07/07/2001
Specification
7.07.1981
France 1,493,313 21.07.1981 21.07.2001
Italy 1,138,450 10.07.1981 10.07.2001
Japan 1,433,303 16.07.1981 07.04.2001
U.S.A. 4,412,992 08.07.1981 01.11.2000
F.R.G. 3,120,019 21.07.1981 15.02.90 21.07.2001
</TABLE>
<PAGE>
(Distribution Schedule 1 cont...)
-----------------------------------------------------------------------
[SEAL] (12) UK Patent (19) GB (11) 2 080 796 B
-----------------------------------------------------------------------
(54) Title of invention
2-hydroxy-5-phenylazobenzoic acid derivatives and pharmaceutical
compositions containing them
(51) INTCL/3/:C07C 107/06A61K 31/60 31/63 C07C l43/54 143/78
-----------------------------------------------------------------------
(21) Application No (73) Proprietor
8120914 Biorex laboratories Limited.
Biorex House,
Canonbury Villas,
(22) Date of filing London N1 2HB.
7 Jul 1981
(30) Priority data
(31) 023826
(32) 21 Jul 1980
(33) Untied Kingdom (GB)
(72) Inventors
Rosalind Po Kuen Chan
(43) Application published
10 Feb 1982
--------------------------------
(45) Patent finished
12 Oct 1983
(52) Domestic classification
C2C 220 227 22Y 270 280 292 29X
29Y 30Y 321 323 325 32Y 332 342
34Y 360 361 365 366 367 368 36Y (74) Agent and or Address for
385 394 39Y 510 51X 534 583 60Y Service
620 621 623 628 62X 630 638 650 Venner Shipley and Co.,
652 658 660 661 662 668 699 802 368, City Road,
8OY AA KH KJ KN KR KT RC SG London EC1V 2QA.
U1S 1318 C2C
(56) Documents Cited
None
(58) Field of search
C2C
LONDON THE PATENT OFFICE
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-1-
"2-Hydroxy-5-phenylazobenzoic acid derivatives
and pharmaceutical compositions containing them".
-------------------------------------------------
<PAGE>
(Distribution Schedule 1 cont...)
-2-
The present invention is concerned with new pharmaceutical compositions
containing derivatives of 2-hydroxy-5-phenylazobenzoic acid, most of which are
new.
Ulcerative colitis is a disease of increasing prevalence for which at
present the only satisfactory treatment is the administration of salazopyrin,
which has the following structural formula:
[FORMULA OMITTED]
However, one serious disadvantage of salazopyrin is that it is broken down
in the intestinal tract to give sulphapyridine which gives rise to undesirable
side effects. Furthermore, salazopyrin is insoluble in water.
We have now found that when the pyridylsulphamoyl moiety of salazopyrin is
replaced by certain nonheterocyclic organic radicals, compounds are obtained
which are very useful for the treatment of ulcerative colitis and have the great
advantage that breakdown thereof in the intestinal tract does not give rise to
undesirable metabolic products. Furthermore, many of them are soluble in water,
which is advantageous for ease of administration, and have a very low acute
toxicity.
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-3-
Thus, according to the present invention, there are provided
pharmaceutical compositions containing at least one compound of the general
formula:
[FORMULA OMITTED]
5 wherein X is an -SO\\2\\-or -CO- group and R is either a non-heterocyclic
aromatic ring system, preferably a benzene ring, optionally substituted by
a radical of the general formula -(CH\\2\\)\\n\\-Y or is a radical of the
general formula-(CH\\2\\)\\n\\-Y, in which Y is a hydroxyl group, an
10 unsubstituted or substituted amino group or a carboxylic or sulphonic acid
group and n is a whole number of from 1 to 6 and in which one or more
-
hydrogen atoms in the alkylene radical can be replaced by unsubstituted or
substituted amino groups or alkyl radicals: and/or containing at least one
15 ester thereof and/or at least one non-toxic, pharmaceutically acceptable
salt thereof, in admixture with a solid or liquid pharmaceutical diluent or
carrier.
16 Most of the compounds of general formula (I) are new. Consequently,
the present invention also provides new compounds of the general formula:-
[FORMULA OMITTED]
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-4-
wherein X is an -SO\\2\\- or -CO- group and R is either a non-heterocyclic
aromatic ring system, preferably a benzene ring, optionally substituted by
a radical of the general formula -(CH\\2\\)\\n\\-Y or is a radical of the
5 general formula -(CH\\2\\)-\\n\\-Y, in which Y is a hydroxyl group or an
unsubstituted or substituted amino group or a carboxylic or sulphonic acid
group and n is a whole number of from 1 to 6 and in which one or more of
-
the hydrogen atoms in the alkylene radical can be replaced by unsubstituted
10 or substituted amino groups or alkyl radicals, with the proviso that
R-NH-X-is other than a -CO-NH-CH\\2\\-COOH radical: and the esters and the
non-toxic, pharmacologically acceptable salts thereof, for example the
salts with alkali metals and alkaline earth metals or with non-toxic
15 amines.
Substituted amino groups present in the compounds according to the
present invention are preferably mono or dialkylamino radicals, the alkyl
moieties of which contain up to 6 and preferably up to 3 carbon atoms,
20 methyl and ethyl being especially preferred.
The compounds of general formula (I) can be prepared by diazotising an
amine of the general formula:-
[FORMULA OMITTED]
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-5-
in which R and X have the same meaning as above, followed by coupling with
salicylic acid, whereafter, if desired, the compound obtained is salified
with a non-toxic inorganic or organic base.
The following Examples are given for the purpose of illustrating the
present invention:-
Example 1.
---------
a) A mixture of 100 g. N-acetylsulphanilyl chloride, 80 g. aniline
sulphate and 80 g. sodium carbonate in 500 ml. acetone was heated under
reflux while stirring, for 5 hours, cooled and then added to a mixture of
dilute hydrochloric acid and ice. The precipitate obtained was filtered
off, washed with water and diethyl ether and dried in a vacuum at 50deg.C.
to give 110 g. of almost pure N-acetylsulphanilylanilide; m.p. 212 -
215deg.C.
b) 100 g. N-Acetylsulhanilylanilide was heated under reflux for 3 hours
in 150 ml. aqueous hydrochloric acid (1:1 v/v). After cooling, the reaction
mixture was diluted with water and further cooled to 0deg.C. The 90 g. of
sulphanilylanilide hydrochloride which deposited were filtered off, washed
with ice-cold water and recrystallised from ethanol: m.P. 191 - 193.5deg.C.
c) 10g. Sulphanilylanilide hydrochloride and 10 ml. concentrated
hydrochloric acid in 600 ml. ethanol were gently warmed to dissolve, then
cooled to 5deg.C. and treated dropwise with 30 ml. of a 10% aqueous
solution
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of sodium nitrite. The reaction mixture was left to stand for 1 hour at 0
to 5deg.C. and then filtered while maintaining the temperature at 0 to
50deg.C., the filtrate was added dropwise to a solution of 5 g. salicylic
acid in 100 ml. of an aqueous solution containing 4 g. sodium carbonate and
7 g. sodium hydroxide cooled to 0deg.C. The reaction mixture was left to
stand for 3 hours at 0deg.C. and at ambient temperature for 20 hours, while
maintaining a pH of (greater than) 8 whereafter it was concentrated on a
rotavapor apparatus and acidified. The gummy precipitate obtained was
separated off and boiled with water several times to remove excess
salicylic acid. The residue was dissolved in diethyl ether and the ethereal
solution was washed with water, dried over anhydrous sodium sulphate and
treated with charcoal. After filtering and removing the diethyl ether, the
crude product obtained was dissolved in the minimum amount of acetone and
ten times the volume of diethyl ether added thereto. Upon cooling, there
were obtained 3.5 g. 5-(4-phenylsulphamoylphenylazo)-salicylic acid; m.p:
232-234 deg.C.
d) 11 g. 5-(4-Phenylsulphamoylphenylazo)-salicylic acid in 100 ml.
ethanol were treated with an ethanolic solution of an equivalent amount of
sodium hydroxide. The resulting solution was concentrated to a small volume
at 30deg.C. and 20 mm. Hg, whereafter an equal volume of diethyl ether was
added to the concentrate. Upon
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(Distribution Schedule 1 cont...)
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cooling, sodium 5-(4-phenylsulphamoylphenylazo)-salicylate deposited, which
was filtered off, washed with diethyl ether and petroleum ether (b.p. 40 -
60deg.C.) and dried at 50deg.C. in a vacuum: m.p. 257 - 259deg.C. The yield
was 12 g.
Example 2
---------
a) A solution of 22 g. 4-aminohippuric acid in 20 ml. hydrochloric acid
and 200 ml. water was cooled to 0deg.C. and treated dropwise, while
stirring, with 80 ml. of a 10% aqueous solution of sodium nitrite. The
reaction mixture was then stirred for 1 hour, whereafter a solution of 14
g. salicylic acid in 150 ml. 2N aqueous sodium hydroxide solution
containing 15 g. sodium carbonate and cooled to 0deg.C. was added dropwise
thereto. The reaction mixture was left to stand overnight at ambient
temperature and then poured into a mixture of ice and dilute hydrochloric
acid. The fine precipitate obtained was extracted with boiling ethyl
acetate and the solution treated with charcoal. After filtering, the
filtrate was evaporated to remove the solvent and the residue was
crystallised from boiling ethanol to give 30 g. 5-(4-
carboxymethylcarbamoylphenylazo)salicylic acid; m.p. 260 - 262deg.C.
b) A solution of 11 g. 5-(4-carboxymethylcarbamoylphenylazo)-salicylic
acid in 500 ml. warm ethanol was treated with an ethanolic solution
containing two equivalents of sodium hydroxide and the deposit obtained
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-8-
was filtered off, washed with ethanol and diethyl ether and dried in a
vacuum at 50deg.C. There were obtained 12.5 g of the disodium salt 5-(4-
carboxymethylcarbamoylphenylazo)-salicylic acid; m.p. greater than
360deg.C.
Example 3.
----------
9.71 g. Aminohippuric acid were dissolved in a mixture of 40 ml. 2.5N
hydrochloric acid and 10 ml. 2.5N sulphuric acid and 50 g. ice added
thereto. A solution of 3.5 g. sodium nitrite in 15 ml. water were added
steadily at 0deg.C., the reaction mixture being well stirred during the
addition. After 75 minutes at 0deg.C., the reaction mixture was added to a
solution of 6.9 g. salicylic acid in 37 ml. of a mixture of 9 parts by
volume of 5N aqueous sodium hydroxide solution and 1 part by volume of 5N
aqueous sodium carbonate solution, the temperature being kept at 0deg.C. by
the addition of ice.
After 15 minutes, 23 ml. of a mixture of 4 parts by volume of 5N
hydrochloric acid and 1 part by volume of 5N acetic acid was slowly added,
while stirring. The precipitate obtained was filtered off, washed with
distilled water and dried in a vacuum at 80deg.C. to give 17.2 g. (100% of
theory) 5-(4-carboxymethylcarbamoylphenylazo)-salicylic acid, which can be
recrystallised from 80% acetic acid, aqueous acetone or aqueous
dimethylformamide to give a yellow, crystalline product of at least 99%
purity in a yield of 80 to 95%; m.p. 260 - 262deg.C.
<PAGE>
(Distribution Schedule 1 cont...)
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Example 4.
----------
a) 125 g. Finely powdered 4-nitrobenzoyl chloride were added portionwise
while stirring, to a solution of 70 g, b-alanine in 500 ml, water
containing 65 g. sodium hydroxide and cooled to 50deg.C. The reaction
mixture was stirred for 3 hours and then added to a mixture of ice and
hydrochloric acid. The precipitate obtained was filtered off, washed with
water and dried by suction. After crystallisation of the dried product from
hot acetone, there were obtained 130 g. 4-nitro-benzoyl-B-alanine: m.p.
164 -166deg.C.
b) A suspension of 15 g. finely powdered 4-nitrobenzoyl-B-alanine in 200
ml.ethanol was stirred in an atmosphere of hydrogen in the presence of 1 g.
of palladium-charcoal (5%) while cooling gently. When the absorption of
hydrogen had ceased, the reaction mixture was filtered and the filtrate
concentrated to a small volume. Upon adding diethyl ether and cooling, 4-
aminobenzoyl-B-alanine was obtained. The yield was 11.5 g.; m.p. 156 - 158
deg.C.
c) 8.8g. 4-Aminobenzoyl-B-alanine were triturated with 12 ml.
hydrochloric acid and the paste obtained was dissolved in 100 ml. water.
The solution was cooled to -5deg.C. and a solution of 3 g. sodium nitrite
in 20 ml. water, cooled to 0deg.C., was added dropwise, while stirring. The
diazotised solution was left for 1 hour, at 0deg.C. and was then added
dropwise at -5deg.C. to a solution
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(Distribution Schedule 1 cont...)
-10-
of 6 g. salicylic acid in 70 ml, water containing 3.6 g. sodium hydroxide
and 7 g. sodium carbonate. The final reaction mixture was adjusted to a pH
of about 8, stirred for 2 to 3 hours and added to a mixture of dilute
5 hydrochloric acid and ice. The precipitate obtained was filtered off,
washed with water and suction dried. Crystallisation from hot ethanol gave
11.9 g. 5-(4-carboxyethylcarbamoylphenylazo)-salicylic acid; m.p. 254 -
255deg.C.
10 10.7 g. of the free acid were dissolved in 300 ml. warm ethanol and
treated with a solution of 2.4 g. sodium hydroxide in 25 ml. ethanol. The
precipitate obtained was filtered off, washed with ethanol and diethyl
ether and dried in a vacuum at is 50deg.C. to give 11.5 g. of the disodium
15 salt of 5-(4-carboxyethylcarbamoylphenylazo)-salicylic acid; m.p. (greater
than) 350deg.C.
Example 5.
----------
20 a) 20 g. Finely powdered 4-nitrobenzoyl chloride were added portionwise
to 12.5 g. taurine in a solution of 8 g. sodium hydroxide in 50 ml. water.
The reaction mixture was stirred for 3 hours and then acidified.
Precipitated 4-nitrobenzoic acid was filtered off and the filtrate
25 distilled to dryness at a pressure of 15 mm, Hg. The residue was extracted
with boiling ethanol and the extract then cooled to give a yield of 23.6 g.
4-nitrobenzoyltaurine; m.p. 278 -280deg.C.
<PAGE>
(Distribution Schedule 1 cont...)
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b) A solution of 17 g. 4-nitrobenzoyltaurine in 100 ml. water was stirred
in an atmosphere of hydrogen in the presence of 1 g. palladium-charcoal
(5%) until the absorption of hydrogen ceased. The reaction mixture was then
5 filtered, the filtrate was mixed with 20 ml. hydrochloric acid and the
suspension of the hydrochloride obtained cooled to -5deg.C. This was added
dropwise, while stirring, to a solution of 5 g. sodium nitrite in 30 ml.
water. The diazotised solution thus obtained was stirred for 30 minutes and
10 then added to 9.5 g, salicylic acid in a solution of 11 g. sodium hydroxide
in 100 ml. water, cooled to -2deg.C. The mixture was stirred for 3 hours,
poured into a mixture of ice and 15 ml. hydrochloric acid and stirred at
0deg.C. for 30 minutes. The precipitate obtained was filtered off and
15 washed with ice-cold water. Crystallisation from 20% aqueous ethanol gave
18.2 g. 5-(4-sulphoethylcarbamoylphenylazo)-salicylic acid; m.p. (greater
than) 350deg.C. (decomp.).
20 Example 6
---------
a) A solution of 10 ml. ethanolamine in 120 ml. 10% aqueous sodium
hydroxide solution was cooled to 5deg.C. and 30 g. finely powdered 4-
nitrobenzoyl chloride added thereto portionwise. The reaction mixture was
25 stirred for 24 hours and filtered, The solid obtained, which mainly
consisted of bis-(4-nitrobenzoyl)-ethanol-amine, was hydrolysed with 200
ml, of 4% aqueous
<PAGE>
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-12-
ethanolic sodium hydroxide at ambient temperature for 24 hours. The
reaction mixture was added to the above filtrate, acidified and the
precipitated 4-nitrobenzoic acid was filtered off. The filtrate was
5 concentrated and the 13 g. of precipitated N-(4-nitrobenzoyl)-ethanolamine
isolated. The mother liquor was distilled to dryness and the residue was
boiled with ethanol. Concentration of the ethanolic extract gave a further
5.3 g. of product: m.p. 134 - 135deg.C.
10 b) A solution of 21 g. of N-(4-nitrobenzoyl)-ethanolamine in 400 ml.
ethanol was stirred in an atmosphere of hydrogen in the presence of 1 g.
palladium-charcoal (5%) until the absorption of hydrogen had ceased. The
catalyst was filtered of and the ethanolic solution was evaporated to
15 dryness to give a thick oil which slowly solidified. Thin layer
chromatography showed that the N-(4-aminobenzoyl)-ethanolamine thus
obtained had a purity of more than 99%: it was used as such for the next
stage of the synthesis.
20 c) A solution of 16 g. N-(4- aminobenzoyl)-ethanol-amine in 20 ml.
hydrochloric acid and 150 ml. water was cooled to -5deg.C. and treated
dropwise, while stirring, with a solution of 7 g. sodium nitrite in 50 ml.
water. The reaction mixture was further stirred for 1 hour and then added
25 dropwise to 120 ml. of 10% aqueous sodium hydroxide solution containing 13
g. salicylic acid and cooled to -2deg.C. The reaction mixture was
<PAGE>
(Distribution Schedule 1 cont...)
-13-
stirred for 3 hours and the precipitate obtained filtered off, washed with
ice-cold water, suction dried and crystallised from hot ethanol to give 11
g. sodium 5-(4-hydroxyethylcarbamoylphenylazo)-salicylate: m.p. 286 -
288deg.C. (decomp.).
The filtrate from which the sodium salt had been removed was
acidified. The precipitate obtained was filtered off, washed with water,
suction dried, charcoaled in ethyl acetate-methanol (2:1 v/v) and
concentrated to give 2.7 g. 5-(4-hydroxyethylcarbamoylphenylazo)-salicylic
acid which was identical in all respects to the free acid regenerated from
the sodium salt; m.p. 225 - 226deg.C. (decomp.).
Example 7.
----------
a) A solution of 7 g. alanine in 65 ml. of 10% aqueous sodium hydroxide
solution was treated portionwise, while stirring, with 12.5 g. finely
powdered 4-nitrobenzoyl chloride. The reaction mixture was stirred at
5deg.C. for 20 hours, acidified and the precipitate isolated, washed with
water and suction dried. Repeated fractional crystallisation from acetone-
diethyl ether (2:1 v/v) gave 4-nitrobenzoylalanine: m.p. 199 200deg.C.
b) 2 g. 4-Nitrobenzoylalanine in 50 ml. ethanol were hydrogenated in the
presence of 0.2 g. palladium-charcoal (5%). Removal of the catalyst and of
the solvent gave a solid which was crystallised from
<PAGE>
(Distribution Schedule 1 cont...)
-14-
ethanol-diethyl ether (1:2 v/v) to give 4-aminobenzoyl alanine; m.p, 198 -
199deg.C.
c) A solution of 0.8 g. 4-aminobenzoyl alanine in 15 ml. 1N hydrochloric
acid was cooled to -5deg.C. and diazotised with 5 ml. of 10% aqueous sodium
nitrite solution for 30 minutes. The reaction mixture was then added to a
solution of 0.7 g, salicylic acid in 15 ml. of water containing 0.8 g.
sodium hydroxide and 0.5 g. sodium carbonate. After 2 hours, the reaction
mixture was acidified and the precipitate obtained was isolated, dissolved
in ethyl acetate and the solution was washed, dried and charcoaled. The
solution was then concentrated and cooled to give 0.9 g. 5-[4-(a-
methylcarboxymethylcarbamoyl)-phenylazo]-salicylic acid: m.p. 252 -
254deg.C.
Example 8
---------
a) 20 g. Acetylsulphanilyl chloride were added portionwise at 5deg.C.,
with stirring, to a solution of 15 g. 4-aminophenylacetic acid in 10%
aqueous sodium hydroxide solution. The reaction mixture was further stirred
for 4 hours and then added to a mixture of dilute hydrochloric acid and
ice. The precipitate obtained was isolated, taken up in ethyl acetate,
washed with water, dried and evaporated to give 22 g. acetylsulphanilyl-4-
(carboxymethyl)-anilide.
b) 3.5 g. Acetylsulphanilyl-4-(carboxymethyl)anilide in 7 ml. 5N
hydrochloric acid were heated under
<PAGE>
(Distribution Schedule 1 cont...)
-15-
reflux for 2 hours, cooled, diluted with 20 ml. ice and water and cooled
to -5deg.C. 8 ml. of 10% aqueous sodium nitrite solution were added
thereto and after 30 minutes the diazotised solution was added to 1.4 g.
salicylic acid in 20 ml. of an aqueous solution of 2 g. sodium hydroxide
and 2 g. sodium carbonate cooled to below 0deg.C. The reaction mixture
was stirred for 2 hours and then added to a mixture of hydrochloric acid
and ice. The precipitate obtained was isolated and dissolved in ethyl
acetate and the solution washed with water, dried and charcoaled. Upon
concentrating the filtered solution and adding an equal volume of diethyl
either to the filtrate, the desired product slowly crystallised out.
There were obtained is 3 g. 5-[4-(4-carboxymethylphenyl)-
sulphamoylphenylazo)salicylic acid; m.p. 252 - 254deg.C.
Example 9.
----------
a) A solution of 12 g. 6-aminohexanoic acid in 60 ml. of 10% aqueous
sodium hydroxide solution was treated portionwise with 9 g. finely powdered
4-nitrobenzoyl chloride. After 4 hours, the reaction mixture was added to a
mixture of dilute hydrochloric acid and ice. The precipitate obtained was
isolated, washed with water and crystallised from acetone to give 12.6 g.
6-(4-nitrobenzoylamino)-hexanoic acid; m.p. 148 - 150deg.C.
<PAGE>
(Distribution Schedule 1 cont...)
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b) A solution of 6 g. 6-(4-nitrobenzoylamino)hexanoic acid in 150 ml.
ethanol was hydrogenated in the presence of 0.5 g. palladium-charcoal (5%)
until the reaction was complete. The catalyst and solvent were removed and
the residue was crystallised from ethanol-diethyl ether (1:1 v/v) to give
4.7 g. 6-(4-aminobenzoylamino)-hexanoic acid; m.p. 132 - 134deg.C.
c) A solution of 2.5 g. 6-(4-aminobenzoylamino). hexanoic acid in 15 ml.
2N hydrochloric acid was cooled to -5deg.C. and treated dropwise, while
stirring, with 8 ml. of a 10% aqueous solution of sodium nitrite. The
reaction mixture was stirred for 30 minutes and then added at -5deg.C. to
salicylic acid in 20 ml. of water containing 2 g. sodium hydroxide and 1 g.
sodium carbonate. After 3 hours, the reaction mixture was acidified and the
precipitate obtained was isolated by centrifuging, dissolved in ethyl
acetate, washed, dried and concentrated to a small volume. Upon cooling,
there were obtained 2.7 g. 5-(4-carboxypentylcarbamoylphenylazo)-salicylic
acid: m.p. 238 -239deg.C.
Example 10.
-----------
a) A solution of 13 g. copper sulphate in 60 ml. water and a solution of
2 g. sodium hydroxide in 30 ml. water were added simultaneously to a
solution of 7.5 g. lysine in 50 ml. water, followed by the addition of 50
ml. of 10% aqueous sodium bicarbonate solution.
<PAGE>
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The precipitated salt was filtered off and the blue filtrate was added,
with vigorous stirring, to a solution of 7 g. 4-nitrobenzoyl chloride in 50
ml. acetone. The reaction mixture was stirred for 20 hours and the
precipitate obtained was filtered off, washed with water, methanol and
diethyl ether and dried in a vacuum at 50deg.C. to give the copper salt of
E-(4-nitrobenzoyl)-lysine.
b) A suspension of 7 g. of the copper salt of E-(4-nitrobenzoyl)-lysine
in 30 ml. water was stirred with 6 ml. hydrochloric acid until dissolution
was complete. Hydrogen sulphide was passed in for 1 hour and precipitated
copper sulphide then filtered off. The filtrate was evaporated to dryness
and the residue was taken up in 20 ml, methanolic hydrogen chloride and
heated under reflux for 3 hours. The cooled reaction mixture was diluted
with water, rendered alkaline with sodium carbonate and extracted with
ethyl acetate to give 4.8 g. E-(4-nitrobenzoyl)-lysine methyl ester in the
form of a yellow oil.
c) A solution of 1 g. E -(4-nitrobenzoyl)-lysine methyl ester in 2 ml.
methyl iodide and 0.2 ml. acetone was left to stand for 20 hours at ambient
temperature, whereafter the NMR showed the reaction to be complete. The
volatile materials were evaporated off to leave E:-(4-nitrobenzoyl)-a,a-
dimethyllysine methyl ester in the form of an oil.
<PAGE>
(Distribution Schedule 1 cont...)
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d) 1 g. E -(4-nitrobenzoyl)-a,a-dimethyllysine methyl ester in 20 ml.
ethanol was hydrogenated in the presence of 0.1 g. palladium-charcoal (5%)
until the absorption of hydrogen had ceased. The catalyst was filtered off
and the filtrate evaporated to dry-ness. The residue was taken up in 5 ml.
2N hydrochloric acid, cooled to -5deg.C. and treated with 2.5 ml. of 10%
aqueous sodium nitrite solution. After standing for 30 minutes, the clear
solution was added at -5deg.C. to a solution of 0.5 g. salicylic acid in 20
ml. of a 1N aqueous sodium hydroxide solution. After subsequently standing
for 3 hours at 20deg.C., the reaction mixture was acidified and extracted
with diethyl ether to remove unreacted salicylic acid. The aqueous phase
was adjusted to pH 7 by adding IN aqueous sodium hydroxide solution and the
resulting solution was evaporated to dryness. The residue was further dried
by adding toluene and subsequently evaporating it and the residue then
extracted with methanol. The methanolic solution was concentrated to a
small volume. After adding diethyl ether and cooling, the disodium salt of
5-[4-(a-dimethylaminocarboxypentylcarbamoyl)-phenylazo]-salicylic acid
separated out; m.p. (greater than) 210deg.C. (decomp.).
Example 11.
-----------
a) A solution of 30 ml. N,N-diethylethylenediamine in 100 ml. water was
treated portionwise. while
<PAGE>
(Distribution Schedule 1 cont...)
-19-
stirring, with 15 g. finely powdered 4-nitrobenzoyl chloride. The reaction
mixture was stirred for 20 hours and the precipitate obtained was filtered
off, washed with water and aqueous sodium carbonate solution and
crystallised from petroleum ether-diethyl ether (1:1 v/v) to give 6 g. N,N-
diethyl-N'-(4-nitrobenzoyl)-ethylenediamine; m.p. 49 - 51deg.C.
b) A solution of 5 g. N,N-diethyl-N'-(4-nitrobenzoyl)-ethylenediamine in
40 ml. ethanol was hydrogenated in the presence of 0.3 g. palladium-
charcoal (5%) until the reaction was complete. The catalyst and solvent
were removed to give 5 g. N,N-diethyl-N-(4-aminobenzoyl)-ethylenediamine in
the form of an oil.
c) A solution of 2.35 g, N,N-diethyl-N'-(4-aminobenzoyl)-ethylenediamine
in 20 ml, 2N hydrochloric acid was cooled to -5deg.C. and treated with 8
ml. of a 10% aqueous solution of sodium nitrite. The reaction mixture was
stirred for 30 minutes and added to 1.4 g. salicylic acid in a solution of
1.6 g. sodium hydroxide and 2 g. sodium carbonate in 20 ml. water. After 3
hours at 0 to 20deg.C., sodium chloride was added to the reaction mixture
to salt out the desired diazo compound. This was filtered off, washed with
water and hot methanol and dried to give 2.3 g. 5-(4-
diethylaminoethylcarbamoylphenylazo)-salicylic acid; m.p. 252 - 254deg.C.
(decomp.).
The pharmaceutical compositions according to the present invention
contain at least one of the compounds
<PAGE>
(Distribution Schedule 1 cont...)
-20-
(I) in admixture with a solid or liquid pharmaceutical carrier.
Solid compositions for oral administration include compressed tablets,
pills, dispersible powders and granules. In such solid compositions, one of
the compounds (I) is admixed with at least one inert diluent, such as
calcium carbonate, starch, alginic acid or lactose. The compositions may
also comprise, as is normal practice, additional substances other than
inert diluents, for example, lubricating agents, such as magnesium
stearate,
Liquid compositions for oral administration include pharmaceutically
acceptable emulsions, solutions, suspensions, syrups and elixirs containing
inert diluents commonly used in the art, such as water and liquid paraffin.
Besides inert diluents, such compositions may also comprise adjuvants, such
as wetting and suspension agents, and sweetening and flavouring agents.
The compositions according to the present invention for oral
administration, include capsules of absorbable material, such as gelatine,
containing at least one of the compounds (I), with or without the addition
of diluents or excipients.
The percentage of active material in tire compositions of the present
invention may be varied, it being necessary that it should constitute a
proportion such that a suitable dosage for the desired therapeutic
<PAGE>
(Distribution Schedule 1 cont...)
-21-
effect shall be obtained. In general, the preparations of the present
invention should be administered orally or parenterally to humans to give
500 to 5000 mg. and preferably 500 to 2000 mg. of active substance per day.
The following Examples illustrate pharmaceutical compositions
according to the present invention:
Example 12.
-----------
600 mg, tablets are prepared containing:
disodium salt of 5-(4-carboxyethyl-
carbamoylphenylazo)-salicylic acid 500 mg.
starch 50 mg.
lactose 45 mg.
magnesium stearate 5 mg.
Example 13.
-----------
450 mg. tablets are prepared containing:
disodium salt of 5-(4-carboxymethyl-
carbamoylphenylazo)-salicylic acid 250 mg.
starch 100 mg.
lactose 95 mg.
magnesium stearate 5 mg.
The tablets according to Examples 12 and 13 are intended for
administration to humans for the treatment of ulcerative Colitis.
An attempt was made to establish an acute oral toxicity profile for
the disodium salts of 5-(4-carboxymethylcarbamoylphenylazo)-salicylic acid
and of 5-(4-carboxyethylcarbamoylphenylazo)-salicylic
<PAGE>
(Distribution Schedule 1 cont...)
-22-
acid, using rats and mice as experimental animals but this was not possible
due to their low toxicity. No deaths were observed with the carboxymethyi
compound when administered to mice at a dosage of 3 g./kg. and to rats at a
dosage of 2 g./kg. and no deaths were observed with the carboxy--ethyl
compound when administered to mice at a dosage of 4 g. /kg. and to rats at
a dosage of 2 g./kg.
Experiments have also been carried out on groups of 6 male Wistar rats
in order to ascertain whether the new compounds according to the present
invention split in the same manner as sulphasalazine to liberate 5-
aminosalicylic acid (5-ASA). The test compounds were administered in an
amount of 45 to 50 mg./kg. The results obtained are set out in the
following Table:-
<TABLE>
<CAPTION>
test compound % of dose measured as 5-ASA
-------------------------------------------------------------
faeces urine total
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
sulphasalazine 26 (plus/minus) 4 17 (plus/minus) 2 43 (plus/minus) 4
=======================================================================================================
Example 1 24 (plus/minus) 3 19 (plus/minus) 3 43 (plus/minus) 3
Example 2 17 (plus/minus) 3 17 (plus/minus) 6 34 (plus/minus) 5
Example 4 22 (plus/minus) 2 14 (plus/minus) 2 36 (plus/minus) 3
Example 5 26 (plus/minus) 3 15 (plus/minus) 2 41 (plus/minus) 5
Example 6 22 (plus/minus) 2 19 (plus/minus) 3 41 (plus/minus) 4
</TABLE>
<PAGE>
(Distribution Schedule 1 cont...)
-23-
The above results clearly demonstrate that the new compounds of the
present invention split in the same manner as sulphasalazine and can be
expected to exert at least as beneficial an effect as sulphasalazine but
without the disadvantage of giving rise to other compounds which exert
undesirable side effects, such as the sulphapyridine formed from
sulphasalazine.
<PAGE>
(Distribution Schedule 1 cont...)
-24-
Patent Claims
-------------
1. 2-Hydroxy-5-phenylazobenzoic acid derivatives of the general formula:-
[FORMULA OMITTED]
5 wherein X is an -SO2- or -Co- group and R is either a non-heterocyclic
aromatic ring system optionally substituted by a radical of the general
formula -(CH\\2\\)\\n\\-Y or is a radical of the general formula -
(CH\\2\\)\\n\\-Y, in which Y is a hydroxyl group, an unsubstituted or
10 substituted amino group or a carboxylic or sulphonic acid group and n is a
-
whole number of from 1 to 6 and in which one or more of the hydrogen atoms
in the alkylene radical can be replaced by unsubstituted or substituted
15 amino groups or alkyl radicals, with the proviso that R-NH-X- is other than
a -CO-NH-CH\\2\\-COOH radical; and the esters and non-toxic,
pharmacologically acceptable salts thereof.
2. 5-(4-Phenylsulphamoylphenylazo)-salicylic acid and the sodium salt
thereof.
20 3. Disodium salt of 5-(4-carboxymethylcarbamoylphenylazo)-salicylic acid.
4. 5-(4-Carboxyethylcarbamoylphenylazo)-salicylic acid and the disodium
salt thereof.
<PAGE>
(Distribution Schedule 1 cont...)
-25-
5. 5-(4-Sulphoethylcarbamoylphenylazo)-salicylic acid.
6. 5-(4-Hydroxyethylcarbamoylphenylazo)-salicylic acid and the sodium
salt thereof.
5 7. 5-[(a-Methylcarboxymethylcarbamoyl)-phenylazo]-alicylic acid.
8. 5-[ 4- (4-Carboxymethylphenyl)-sulphamoylphenylazo]-salicylic acid.
10 9. 5-(4-Carboxypentylcarbamoylphenylazo)-salicylic acid.
10. 5-[-(a-Dimethylaminocarboxypentylcarbamoyl)-phenylazo]-salicylic acid
and the disodium salt thereof.
l1. 5-(4-Diethylaminoethylcarbamoylphenylazo)-salicylic acid.
15 12. A pharmaceutical composition containing at least one compound of the
general formula:
[GRAPHICS APPEARS HERE]
wherein X is an -SO2- or -CO- group and R is either a non-heterocylic ring
system optionally substituted by a radical of the general formula -
20 (CH\\2\\)\\n\\-Y-in or is a radical of the general formula -(CH\\2\\)\\n\\-
Y, in which Y is a hydroxyl group, an unsubstituted or substituted amino
group or a carboxylic or sulphonic acid group and n is a whole number of
-
from 1 to 6 and
<PAGE>
(Distribution Schedule 1 cont...)
-26-
in which one or more hydrogen atoms in the alkylene radical can be replaced
by unsubstituted or substituted amino groups or alkyl radicals, and/or
containing at least one ester thereof and/or at least one non-toxic,
5 pharmaceutically acceptable salt thereof, in admixture with a solid or
liquid pharmaceutical diluent or carrier.
13. Pharmaceutical compositions according to claim 12, substantially as
10 hereinbefore described and exemplified.
14. Process for the preparation of compounds of the general formula given
in claim 12, wherein an amine of the general formula:-
[FORMULA OMITTED]
15 in which R and X have the same meanings as above, is diazotised and coupled
with salicylic acid, whereafter, if desired, the compound obtained is
salified with a non-toxic inorganic or organic base.
15. Process for the preparation of compounds of the general formula given
20 in claim 12 and of the salts thereof, substantially as hereinbefore
described and exemplified.
16. Compounds of the general formula given in claim 12, whenever prepared
25 by the process according to claim 14 or 15.
<PAGE>
-29-
SCHEDULE 2
----------
TERMS AND CONDITIONS APPLICABLE TO THE
--------------------------------------
MANUFACTURING LICENCE UNDER CLAUSE 13.2
---------------------------------------
1. With effect from the effective date of notice served by Astra under and in
accordance with Clause 13.2 of the Agreement (and Clause 6.6.3 of the
Research Agreement) Glycyx shall grant Astra a licence to manufacture the
Product in the Territory for sale in the Territory only under the terms of
the Agreement and this Schedule 2.
2. For the avoidance of doubt Glycyx shall not be prevented from manufacturing
or continuing to manufacture the Product or appointing sub-contractors to
manufacture the Product for sale by Glycyx or its customers both inside and
outside the Territory subject to the exclusivity granted to Astra in
respect of the Territory under the terms of the Agreement.
3. Glycyx shall supply Astra with such technical information and assistance as
Astra may reasonably require (and which has not previously been supplied to
Astra pursuant to Clause 13.4) to enable Astra to produce the Product in
commercial quantities Provided Always That Glycyx shall be reimbursed all
costs and expenses incurred by it in supplying such information and
assistance to Astra.
4. Astra undertakes to Glycyx that it will manufacture the Product fully in
accordance with the Bulk Product Specification and the Finished Product
Specification (annexed to the Agreement in the approved form) and with the
Drug Master File for the Product and in accordance with European Community
Good Manufacturing Practice.
5. Astra shall be entitled to market, distribute and sell the Product
manufactured by it only in accordance with the terms and provisions of the
Agreement.
6. In consideration of the licence to manufacture Astra shall pay to Glycyx a
fee calculated as a percentage of the Factory Sales Price of all Product
manufactured by or on behalf of Astra pursuant to this licence and sold by
Astra or any Astra Associate such percentage to be:
6.1 [*]
6.2 [*]
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
-30-
6.3 [*]
6.3.1 [*] Provided Always that
6.3.2 in the event that the [*]
6.3.3 the actual cost of manufacture of the Product incurred by Astra
shall be calculated upon the expiry of 12 months from the date of
service of notice under Clause 13.2 (and fees shall be payable
during such 12 month period on an estimate and shall be adjusted
retrospectively upon such calculation) by Astra which shall produce
to Glycyx full details of all actual direct costs of manufacture
(being materials labour and direct manufacturing overhead and
interest) and its calculation of the average actual cost per
kilogram of Product incurred in such 12 month period and upon
agreement by Glycyx of such actual cost, it shall remain fixed
thereafter for the period in which fees under this Clause 6 shall
remain payable.
6.4 [*]
6.5 [*]
7. Astra shall be solely liable for all losses, damages, costs and expenses
arising out of any claim by any third party in connection with any Product
manufactured by Astra and Astra hereby agrees fully and effectively to
indemnify Glycyx against any claims, damages, costs, expenses, or other
losses incurred by Glycyx arising out of or in connection with any Product
manufactured by Astra,
8. The licence to manufacture granted hereunder shall continue
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
-31-
for such period in which Astra may wish to manufacture the Product provided
always that such licence shall terminate in the event of termination of the
Agreement by Glycyx under the provisions of Clause 20.2.
9. In the event that Astra decides to have the Product manufactured by a sub-
contractor Astra may appoint such sub-contractor provided that Astra shall
ensure that the sub-contractor shall perform in accordance with this
Agreement and Astra shall remain liable for the acts of its sub-contractor
so appointed.
<PAGE>
-32-
SCHEDULE 3
----------
"Bulk Product Specifications"
and
"Finished Product Specifications"
BALSALAZIDE SODIUM
------------------
Specification - "IN-HOUSE"
--------------------------
[*]
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
-33-
BALSALAZIDE SODIUM
------------------
Specification - "PL Submission"
--------------------------------
[*]
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
-34-
COLAZIDETM CAPSULES
-------------------
1. GENERAL CHARACTERISTICS
-----------------------
Red/maroon, hard gelatin lock-fit capsule shells, size 00, containing a dry
orange/yellow powder.
2. FINISHED PRODUCT SPECIFICATION
------------------------------
[*]
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
-35-
SCHEDULE 4
-----------
MANUFACTURING AGREEMENT
-----------------------
TECHNICAL ARRANGEMENTS
between
ASTRA PHARMACEUTICAL PRODUCTION AB a Company incorporated under the laws of
Sweden whose principal place of business is at S-151 85 Sodertalje, Sweden
hereinafter called ASTRA
and
GLYCYX PHARMACEUTICALS LTD a Company incorporated under the laws of Bermuda
whose registered office is at 41 Cedar Avenue Hamilton HM12 Bermuda hereinafter
called GLYCYX
WHEREBY it is agreed as follows:-
Supply of Product
- -----------------
1. GLYCYX will supply the Product specified in the Schedule to this agreement
("the Product") to ASTRA upon the terms and conditions of this agreement
and otherwise as agreed between the parties.
2. GLYCYX will use its site(s) at [ ] for
manufacturing and control activities of the Product.
Quality of manufacturing materials used by GLYCYX
- -------------------------------------------------
3. GLYCYX shall obtain the manufacturing materials specified in Schedule 2.
4. GLYCYX is solely responsible for ensuring that each batch of manufacturing
material used by GLYCYX has been examined and complies with the
specifications in Schedule 2.
GMP standard
- ------------
5. All manufacture and quality control operations of GLYCYX shall be carried
out according to the current Basic Standard of Good Manufacturing Practice
for Pharmaceutical Products - including supplementary recommendations -
adopted by the Pharmaceutical Inspection Convention (PIC) and issued by the
EFTA Secretariat, Geneva.
Changes in quality standards, formula, manufacturing and quality control
- ------------------------------------------------------------------------
procedures
- ----------
6. The procedures of manufacture and quality control shall be as agreed by the
parties and any change in such procedures shall be agreed upon by both
parties in writing.
<PAGE>
-36-
7. GLYCYX may not sub-contract any manufacturing or quality control operations
to any Glycyx site other than that specified in Clause 2 or sub-contractor
without prior notice in writing to ASTRA and providing such period of
notice is reasonably required by ASTRA for ASTRA to meet Drug Regulatory
requirements.
Responsibility for release of product manufactured by GLYCYX
- ---------------------------------------------------------------
8. GLYCYX shall only release batches of Product for shipment to ASTRA which
have been examined and comply with the specifications in Schedule 5
Provided Always that ASTRA shall be solely responsible for the final
approval of batches of Product manufactured by GLYCYX.
Storage
- -------
9. GLYCYX shall store all manufacturing materials and Products in accordance
with GMP recommendations and the storage conditions prescribed therein [and
agreed between the parties].
Documentation
- -------------
10. GLYCYX shall keep:-
10.1 reference samples (solvents excluded) and quality control records for
each batch of manufacturing material used by GLYCYX; and
10.2 manufacturing and quality control records for each batch of the
Product manufactured for ASTRA by GLYCYX
for a period of six years from the date of manufacture or such longer
period as may be agreed upon in writing between ASTRA and GLYCYX.
11. Each shipment of the Products from GLYCYX to ASTRA shall be accompanied by
a certificate of analysis with the following information:-
11.1 the results of such tests as may by agreement of the parties be
carried out by GLYCYX; and
11.2 a statement by GLYCYX that the batch of Products has been released
for shipment to ASTRA in accordance with the following criteria:-
11.2.1 all manufacturing materials used in the manufacture of the
Products have complied with the specification in Schedule 2;
and
11.2.2 all manufacture and quality control operations by GLYCYX have
been carried out according to current GMP, manufacturing, in
process control and testing procedures, as
<PAGE>
-37-
well as Standard Operating Procedures in the form agreed
between the parties.
11.3 the manufacturing date.
12. GLYCYX agrees to submit to ASTRA upon receipt of any request therefor from
Astra:-
12.1 copies of all manufacturing and quality control records of any batch
of the Products manufactured by GLYCYX; and
12.2 copies of the quality control records of any batch of manufacturing
materials used by GLYCYX.
Quality Audit
- -------------
13. During normal working hours and upon reasonable notice ASTRA shall be
entitled to inspect the manufacturing and quality control areas at GLYCYX's
site.
14. During quality audits by ASTRA and upon request, GLYCYX shall inform ASTRA
of the outcome of inspections by the National Drug Inspectorate of GLYCYX's
site.
15. GLYCYX shall supply ASTRA with all relevant information reasonably required
for the investigation of any complaints concerning the quality of the
Products.
Post production product inspection
- ---------------------------------
16. ASTRA is solely responsible for all post production inspection of the
Product.
Contact persons
- ---------------
17. Contact persons in matters relating to manufacture and quality control
under the terms of this Agreement are:-
- on behalf of ASTRA
Folke Ljungner
Senior Manager, Quality Assurance Tablets
Astra Pharmaceutical Production AB
S-151 85 Sodertalje, Sweden
phone: +46-8-553 27072
fax: +46-8-553 28857
- on behalf of GLYCYX
Date: Date:
ASTRA PHARMACEUTICAL PRODUCTION AB GLYCYX
- -----------------------------------------
<PAGE>
-38-
APPENDIX 1
----------
Products to be Manufactured by GLYCYX and supplied to ASTRA
-----------------------------------------------------------
PRODUCT SPECIFICATION NO.
- ------- -----------------
Date: Date:
ASTRA PHARMACEUTICAL PRODUCTION AB GLYCYX
- ----------------------------------- -----------------------------------
<PAGE>
-39-
APPENDIX 2
-----------
Manufacturing materials to be supplied by GLYCYX
------------------------------------------------
NAME SPECIFICATION NO.
- ---- -----------------
Date: Date:
ASTRA PHARMACEUTICAL PRODUCTION AB GLYCYX
- ----------------------------------- ----------------------------------
<PAGE>
-40-
SIGNED by )
for and on behalf of GLYCYX ) /s/ Randy Hamilton
PHARMACEUTICALS LTD in the presence)
of:-
/s/ Lorin K. Johnson
SIGNED by ) /s/ Hakan Mogren
for and on behalf of AB ASTRA in )
the presence of:- )
/s/ Olof Ljungstrand Hakan Mogren
Olof Ljungstrand President and
Legal Counsel Group Chief Executive Officer
<PAGE>
EXHIBIT 10.8
AMENDED AND RESTATED LICENSE AGREEMENT
BY AND BETWEEN
SALIX PHARMACEUTICALS, INC.
AND
BIOREX LABORATORIES LIMITED
-------------------------------------------------
APRIL 16, 1993
--------------------------------------------------
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Article 1. DEFINITIONS................................................................ 1
1.1 Affiliate.............................................................. 1
1.2 Astra.................................................................. 1
1.3 Balsalazide............................................................ 1
1.4 Biorex/Astra Agreement1................................................ 1
1.5 Commercial Introduction................................................ 1
1.6 Launch................................................................. 2
1.7 Manufacturing Technology............................................... 2
1.8 Net Sales.............................................................. 2
1.9 Patent Rights.......................................................... 2
1.10 Products............................................................... 2
1.11 Royalty Term........................................................... 2
1.12 Salix/Astra Agreement.................................................. 2
1.13 Technical Information.................................................. 3
1.14 Territory.............................................................. 3
1.15 Third Party............................................................ 3
1.16 Trademarks............................................................. 3
1.17 Valid Claim............................................................ 3
Article 2. REPRESENTATIVES WARRANTIES................................................. 3
2.1 Authorization.......................................................... 3
2.2 No other Representations............................................... 3
Article 3. GRANT...................................................................... 4
3.1 Grant.................................................................. 4
3.2 Sublicenses............................................................ 4
3.3 Subcontracts........................................................... 4
3.4 Milestone Payments..................................................... 4
Article 4. DEVELOPMENT................................................................ 5
4.1 Technical Information.................................................. 5
4.2 Exchange of Data....................................................... 5
4.3 Visit of Facilities.................................................... 6
4.4 Conferences............................................................ 6
4.5 Technical Assistance................................................... 6
4.6 Progress Report........................................................ 6
Article 5. DUE DILIGENCE; NONCOMPETITION.............................................. 6
5.1 Regulatory Approvals................................................... 6
5.2 Commencement of Marketing.............................................. 6
5.3 Biorex's Remedies ..................................................... 7
5.4 Excused Performance.................................................... 7
5.5 Noncompetition......................................................... 7
5.6 Scientific Advisory Board.............................................. 7
Article 6. MANUFACTURING TRADEMARKS.................................................. 8
6.1 Clinical Materials..................................................... 8
</TABLE>
i
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
6.2 Manufacturing Technology............................................... 8
6.3 Trademarks............................................................. 8
Article 7. ROYALITIES................................................................ 8
7.l Base Royalty Rate...................................................... 8
7.2 Sales to Resellers..................................................... 9
7.3 Minimum Royalties...................................................... 9
7.4 Combination Produc..................................................... 9
7.5 No Patent Protection................................................... 10
7.6 Third Party Royaltie................................................... 10
7.7 Nonexclusivity......................................................... 10
Article 8. ROYALTY REPORTS AND ACCOUNTING............................................ 10
8.1 Reports, Exchange Rates................................................ 10
8.2 Audits................................................................. 11
8.3 Confidential Financial Information..................................... 11
Article 9. ROYALTY PAYMENTS.......................................................... 11
9.1 Payment Terms.......................................................... 11
9.2 Exchange Control....................................................... 12
9.3 Late Payments.......................................................... 12
Article 10. INFRINGEMENT.............................................................. 12
10.1 Infringement Rights.................................................... 12
10.2 Enforcement of Patent Rights........................................... 12
10.3 Third Party Claims..................................................... 12
Article 11. CONFIDENTIALITY........................................................... 12
11.1 General................................................................ 12
11.2 Exceptions............................................................. 13
11.3 Licensed Information................................................... 13
11.4 Terms of this Agreement................................................ 13
Article 12. PATENT PROSECUTION AND MAINTENANCE........................................ 13
12.1 Control................................................................ 13
12.2 Exceptions............................................................. 14
12.3 Cooperation............................................................ 14
Article 13. TERM; TERMINATION......................................................... 14
13.1 Expiration............................................................. 14
13.2 Termination for Cause.................................................. 14
13.3 Termination by Salix................................................... 15
13.4 Effect of Termination.................................................. 15
</TABLE>
ii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Article 14. INDEMNITY................................................................. 15
14.1 Salix.................................................................. 15
14.2 Biorex................................................................. 16
14.3 Procedure.............................................................. 16
Article 15. FORCE MAJEURE............................................................. 17
Article 16. ASSIGNMENT................................................................ 17
Article 17. MISCELLANEOUS............................................................. 17
17.1 Notices................................................................ 17
17.2 Applicable Law; Arbitration............................................ 17
17.3 Export Laws............................................................ 18
17.4 No Consequential Damages............................................... 18
17.5 Entire Agreement....................................................... 18
17.6 Headings............................................................... 18
17.7 Independent Contractors................................................ 18
17.8 Waiver................................................................. 19
17.9 Severability........................................................... 19
</TABLE>
iii
<PAGE>
AMENDED AND RESTATED LICENSE AGREEMENT
---------------------------------------
THIS AMENDED AND RESTATED LICENSE AGREEMENT (the "Agreement") is entered
into effective as of April 16, 1993 between SALIX PHARMACEUTICALS, INC., a
California corporation having its principal place of business at 3600 W.
Bayshore, Suite 205, Palo Alto, California 94303 ("Salix"), and BIOREX
LABORATORIES LIMITED, a United Kingdom corporation having its principal place of
business at 2 Crossfield Chambers, Gladbeck Way, Enfield, Middlesex EN2 7HT
("Biorex"),
RECITALS:
Biorex and Salix have entered into a License Agreement dated as of January
17, 1991, as amended by an Amendment Agreement dated as of September 17, 1992
(collectively, the "Original Agreement"). Salix and Biorex desire to amend and
restate the Original Agreement to make certain modifications thereto as set
forth below.
NOW, THEREFORE, for good and valuable consideration, the sufficiency and
receipt of which is hereby acknowledged, the parties hereto mutually agree to
amend, restate and supersede the Original Agreement in its entirety to read as
set forth below:
Article 1. DEFINITIONS
-----------
For the purposes of this Agreement, the terms defined in this Article
shall have the meanings specified below:
1.1 "AFFILIATE" means any corporation or other entity which controls,
is controlled by, or is under common control with, a party to this Agreement. A
corporation or other entity shall be regarded as in control of another
corporation or entity if it owns or directly or indirectly controls more than
fifty percent (50%) of the voting stock or other ownership interest of the other
corporation or entity, or if it possesses, directly or indirectly, the power to
direct or cause the direction of the management and policies of the corporation
or other entity.
1.2 "ASTRA" means AB Astra, a company incorporated under the laws of
Sweden, whose principal place of business is at Kvarnbengagatan 16, S-151
Sodertalje, Sweden.
1.3 "BALSALAZIDE" means 5-[4(2-Carboxyethylcarbamoyl)-phenylazo]-
salicylic acid disodium salt dihydrate, and prodrugs, analogs and isomers
--------
thereof, and improvements to any of the foregoing, owned by or licensed to
Biorex during the term of this Agreement.
1.4 "BIOREX/ASTRA AGREEMENT" means the Agreement of even date
herewith by and between Astra and Biorex.
1.5 "COMMERCIAL INTRODUCTION" of any Product shall mean the first
sale for use or consumption by the general public of such Product in a country
after required marketing arid, if required, pricing approval has been granted by
the governing health authority of such country.
<PAGE>
1.6 "LAUNCH" means a commercial launch by Salix, its Affiliates
and/or sublicensees of the Product throughout the Territory supported by such
marketing expense and supported and launched in such quantities as may be
reasonably be appropriate for the Product to have a significant effect on total
sales of any similar or competitive product.
1.7 "MANUFACTURING TECHNOLOGY" shall mean all methods, processes.
designs, data. procedures and other information owned by or licensed to Biorex
or its Affiliates during the term of this Agreement that are reasonably required
for pilot production or commercial manufacturing of Products, including, without
limitation, final quality assurance-quality control procedures, manufacturing
procedures (including conditions, times, temperatures, pressures and rates),
product and raw material specifications, and other technology related thereto,
including all patent and other intellectual property rights thereto.
1.8 "NET SALES" with respect to any Product means the invoiced sales
price of such Product received from independent customers (including
distributors) who are not an Affiliate or sublicensee, less, to the extent such
amounts are included in the invoiced sales price: (a) actual credited allowances
to such independent customers for spoiled, damaged, out-dated and returned
Product; (b) freight and insurance costs incurred in transporting such Products
to such customer; (c) quantity and other trade discounts actually allowed and
taken; (d) sales, value-added and other direct taxes; and (e) customs duties and
surcharges and other governmental charges.
1.9 "PATENT RIGHTS" means all rights of Biorex in the Territory to
any subject matter described by, claimed in or covered by any of the following:
1.9.1 United States Patent Number 4,412,992 entitled "2-Hydroxy-
5 Phenylazobenzoic Acid Derivatives and Methods of Treating Ulcerative Colitis
Therewith," issued November 1, 1983, and any substitutions, renewals, reissues,
and extensions of the foregoing.
1.9.2 Any and all other patent rights, now existing or hereafter
acquired (including applications therefor), pertaining to the subject matter
described in Section 1.9.1 above, or that are otherwise related to Balsalazide,
obtained in any country within the Territory.
1.10 "PRODUCTS" means products incorporating Balsalazide, or any
other material whose manufacture, use or sale by an unlicensed third party would
constitute an infringement of any Valid Claim (as defined below) included within
the Patent Rights.
1.11 "ROYALTY TERM" means, with respect to each Product in the
Territory, the period of time equal to the longer of: (a) nine (9) years from
the date of Launch of such Product in the Territory; or (b) if the manufacture,
use or sale of such Product in the Territory is covered by a Valid Claim, the
term of such valid claim.
1.12 "SALIX/ASTRA AGREEMENT" means the Co-Participation Agreement of
even date herewith by and between Salix and Astra.
2
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
1.13 "TECHNICAL INFORMATION" means all formulae, raw material and
product specifications, designs and procedures, formulation data, processes and
methods, pharmacology, toxicology and other preclinical tests results, clinical
trials data and results, know-how, trade secrets, inventions and other
scientific, medical, technical and marketing data and information, including all
patent and other intellectual property rights thereto, which: (a) are owned or
controlled by, or licensed to, Biorex or its Affiliates during the term of this
Agreement, and (b) that are reasonably necessary for the development,
manufacture, sale or use of Products. Technical Information shall include
information and methods relating to the characterization, synthesis,
formulation, stability, manufacture or assay of Balsalazide.
1.14 "TERRITORY" means the United States (including its territories,
possessions and the Commonwealth of Puerto Rico).
1.15 "THIRD PARTY" means any entity other than Salix or Biorex and
their respective Affiliates.
1.16 "TRADEMARKS" means the trade name "Colazide" registered as a
trademark for use on pharmaceutical preparations in the Territory and any other
trade name designated by Biorex for use in the Territory in connection with the
Products.
1.17 "VALID CLAIM" means a claim of an issued and unexpired patent
included within the Patent Rights, which has not been held permanently revoked,
unenforceable or invalid by a decision of a court or other governmental agency
of competent jurisdiction, unappealable or unappealed within the time allowed
for appeal, and which has not been admitted to be invalid or unenforceable
through reissue or disclaimer or otherwise.
Article 2. REPRESENTATIONS AND WARRANTIES
------------------------------
2.1 AUTHORIZATION. Biorex represents and warrants that (i) it has
-------------
the full right and authority to grant the licenses provided in the Agreement and
perform its obligations hereunder; (ii) to the best of Biorex's knowledge, Salix
may exercise the licenses granted to it under the Agreement without conflict
with or infringement of any rights or alleged rights of any person or entity;
(iii) Biorex has not, and will not during the term of this Agreement, make any
commitment or incur any obligation in conflict with the licenses granted in the
Agreement; (iv) Biorex is the sole legal owner of the Patent Rights; and (v)
Biorex has obtained any and all governmental approvals, other than of the United
States, that are required for Biorox: to enter into and perform this Agreement.
2.2 NO OTHER REPRESENTATIONS. Except to the extent provided in this
------------------------
Article 2 Biorex makes no representations and extends no warranties of any kind,
either expressed or implied, with respect to use, sale, or other disposition by
Salix or its sublicensees or its vendees or other transferees of Products
incorporating or made by use of subject matter licensed under this Agreement.
THE WARRANTIES EXPRESSLY SET FORTH IN THIS ARTICLE 2 BY EITHER PARTY ARE
EXCLUSIVE AND NO OTHER WARRANTY, WRITTEN OR ORAL, INCLUDING WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, IS EXPRESSED OR IMPLIED.
3
<PAGE>
Article 3. GRANT
-----
3.1 Grant. Biorex hereby grants to Salix and its Affiliates (a) an
-----
exclusive license under the Patent Rights, the Technical Information and
Manufacturing Technology to develop, use, and sell and have sold Products within
the Territory; and (b) a nonexclusive license under the Patent Rights (including
foreign counterparts thereof), the Technical Information and the Manufacturing
Technology to make and have made Products anywhere in the world, but solely for
sale or use within the Territory. Notwithstanding the foregoing, Salix shall not
manufacture the Product outside the Territory without first obtaining Biorex's
consent, which shall not be unreasonably withheld.
3.2 Sublicenses. The license granted to Salix under Section 3.1
-----------
above shall include the right to grant sublicenses, subject to this Section 3.2.
To the extent applicable, such sublicenses shall include all of the rights and
obligations due Biorex that are contained in this Agreement. Salix shall provide
Biorex with a copy of any sublicense issued hereunder, which copy shall be
maintained in confidence pursuant to Section 11 hereof. Notwithstanding the
foregoing, Salix shall not grant a sublicense for the manufacture, sale and use
of a Product in the Territory without first obtaining Biorex's consent, which
shall not be withheld unreasonably. For the purposes of this Agreement, the
Salix/Astra Agreement shall be deemed to be a sublicense and not a subcontract.
3.3 Subcontracts. The following types of arrangements shall not be
------------
deemed to be sublicenses hereunder:
3.3.1 appointment of third parties to market, sell, use or
otherwise dispose of Products;
3.3.2 subcontracting of third parties to develop new Products;
or
3.3.3 subcontracting of third parties to manufacture the
Products.
3.4 Milestone Payments.
------------------
3.4.1 Salix has paid to Biorex the amounts set forth below:
Milestone Amount
--------- ------
[*] [*]
3.4.2 Salix shall pay to Biorex, within thirty (30) days after
the events described below, the amounts set forth opposite such event:
4
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THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
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<PAGE>
[*]
Article 4. DEVELOPMENT
-----------
4.1 Technical Information. Insofar as it has not already done so,
---------------------
Biorex shall promptly provide to Salix all Technical Information, including all
regulatory filings made by or for Biorex with respect to Balsalazide and any
other products that would be covered by the Patent Rights if made, used or sold
within the Territory ("Biorex Products"), and a description of Biorex's
development program for such products, including without limitation descriptions
of all tests, trials, development steps, protocols, clinical investigators and
the like. Biorex shall promptly provide to Salix, and in any event at least
quarterly, all Technical Information (including such regulatory filings) and
information that it develops or acquires after the date hereof. In addition,
Biorex shall use all reasonable efforts to so provide to Salix all similar items
and information generated or developed by or for other licensees of Biorex and
to permit Salix to use such items and information to the same extent it may use
Technical Information hereunder. Salix shall have a right to use all such
Technical Information and information of such licensees for purposes of this
Agreement, and to cross-reference all such regulatory filings. In the event that
Biorex does not obtain from any other licensee of Biorex the right to permit
Salix to use such items or information, Biorex shall not provide to such
licensee any information of Salix provided to Biorex under Section 4.2 below.
4.2 Exchange of Data. Each party shall keep the other informed as to
----------------
its progress in the development and testing of all Products and Biorex Products
and the preparing, filing and obtaining of the approvals necessary for marketing
such products. Each party shall notify the other at least thirty (30) days in
advance of, and make available to the other party for review prior to submittal
of, all filings and correspondence to be submitted to regulatory authorities
with respect to marketing approval of such a product, and all proposed
publications of test data or results related to such products. Such items shall
be made available at such party's principal place of business, or if reasonable
to do so, they shall be sent to the other party. In addition, each party shall
provide the other with copies of such other documents as it reasonably requests
promptly after such request. Until the date of the Commercial Introduction of
each such product each party shall provide to the other quarterly reports
summarizing in reasonable detail its activities related to the development and
securing of the requisite marketing and other regulatory approvals for such
products. After the Commercial Introduction of any such product, each party
shall keep the other informed of any further communications or activities
concerning such products by, with or involving governmental health agencies.
Throughout the term of this Agreement, each party shall promptly supply the
other with all information regarding adverse drug experiences.
5
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THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
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<PAGE>
4.3 Visit of Facilities. Representatives of Salix and Biorex may,
-------------------
upon reasonable notice and at times reasonably acceptable to the other party (a)
visit the facilities where the preclinical tests or clinical trials are being
conducted with respect to Products or Biorex Products, and the facilities where
the other party manufactures any Product, Biorex Product or active compound
contained therein (or has such a product or compound manufactured, but subject
always to the consent of the relevant subcontractor) to the extent relating to
such product or compound; and (b) consult informally, during such visits and by
telephone, with personnel of the other party performing work on such tests,
trials or manufacturing.
4.4 Conferences. Until the filing of an NDA with respect to a
-----------
Product, the parties shall meet periodically, at times and locations to be
agreed, to discuss their respective development programs with respect to such
Product and related Biorex Products.
4.5 Technical Assistance. Biorex shall provide to Salix such
--------------------
reasonable technical assistance as is in Biorex's control, if appropriate at
Salix's facilities, with respect to the development, preclinical and clinical
testing and manufacturing of Products.
4.6 Progress Reports. Salix shall provide to Biorex semiannual
----------------
reports describing in reasonable detail its progress in developing Products
hereunder. Such obligation shall continue until the Commercial Introduction of
the first Product.
ARTICLE 5. DUE DILIGENCE: NONCOMPETITION
-----------------------------
5.1 Regulatory Approvals. Salix shall use its best efforts to
--------------------
conduct such additional preclinical studies and clinical trials as are necessary
to obtain regulatory approval to market at least one Product in the Territory.
In this connection, and subject to Section 5.4 below, Salix shall use its best
efforts to achieve the following objectives:
5.1.1 Commencing human clinical trials with respect to a
Product on or before June 1, 1993;
5.1.2 Substantially completing human clinical trials necessary
to file with the FDA an NDA with respect to a Product on or before March 31,
1994; and
5.1.3 Filing with the FDA an NDA with respect to a Product on
or before June 30, 1994.
5.2 Commencement of Marketing. Subject to the provisions of Section
-------------------------
5.4 below, with respect to each Product for which Salix has received necessary
regulatory approvals to market such Product in the United States, Salix shall
use commercially reasonable efforts to:
5.2.1 Commence marketing such Product in such country within
four (4) months of receiving approval (including, if required, pricing and
reimbursement approval) to market such Product in that country;
6
<PAGE>
5.2.2 After commencing marketing of such Product in such
country, to meet the market demand for such Product in such country; and
5.3 Biorex's Remedies.
-----------------
5.3.1 Failures Relating to Clinical Development. In the event
-----------------------------------------
that Salix fails to meet its obligations under Section 5.1 above, and does not
remedy such failure within 60 days of notice by Biorex, Salix shall pay to
Biorex [*] until such failure is cured provided, however, that failure to meet
the time schedules set forth in Section 5.1 above shall not alone constitute a
failure to meet Salix's obligations under Section 5.1, so long as Salix is using
its best efforts to meet the objectives set forth therein as soon as is
reasonably practicable. Any amounts paid by Salix hereunder may be carried
forward and offset against royalties or minimum royalties that accrue under
Article 7 below.
5.3.2 Failure to Market. If Salix fails to fulfill its
-----------------
obligations under Section 5.2 with respect to any country, and does not remedy
such failure within one hundred eighty (180) days after receiving a written
request to do so, Salix's rights to sell that Product in such country shall
thereafter be nonexclusive, and Biorex shall have the right to grant one
additional license to sell such Product in such country (which license shall not
include the right to grant further sublicenses), unless Salix promptly commences
to pay the minimum royalties required under Section 7.3.
5.3.3 Sole Remedy. This Section 5.3 sets forth Biorex's sole
-----------
remedies for a failure by Salix to meet its obligations under Sections 5.1 and
5.2 above.
5.4 Excused Performance. In addition to the provisions of Article
-------------------
15, Salix's obligations with respect to any Product under this Article 5 are
expressly conditioned upon the continuing absence of any adverse condition
relating to the safety, quality or efficacy of that Product or any other
restrictions or delays imposed or caused by governmental authorities, or other
condition or event beyond Salix's control that would reasonably justify Salix,
after consulting with Biorex, in exercising prudent and justifiable business
judgment, to conclude that development or marketing of such Product should be
delayed, suspended or stopped altogether, and Salix's obligation to develop or
market any such Product shall be delayed or suspended so long as any such
condition or event exists. In addition, Salix shall not be responsible for any
delays caused by failure of the FDA to accept data provided by Biorex or by
inability of Salix to obtain or delays in obtaining, sufficient quantities of
clinical materials on reasonable terms.
5.5 Noncompetition. During the term of this Agreement, Biorex shall
--------------
not market in the Territory, itself or through licensees, distributors, agents
or Affiliates, any product that competes or would compete with a Product.
5.6 Scientific Advisory Board. Until the Commercial Introduction of a
-------------------------
Product, Salix may appoint to its Scientific Advisory Board one representative
selected by Biorex; provided, however, that such scientific advisor nominated by
Biorex shall enter into Salix's standard form of Scientific Advisor Agreement on
the same terms and conditions generally proposed by Salix for its scientific
advisors.
7
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THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
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<PAGE>
ARTICLE 6. MANUFACTURING: TRADEMARKS
-------------------------
6.1 Clinical Materials. Biorex shall use its best efforts to supply,
------------------
or to arrange for others to supply, Salix's requirements of Products for
preclinical tests and human clinical trials on reasonable terms and conditions.
In the event that Biorex arranges for Third Parties to develop formulations of,
or supply, Products to Biorex under this Section 6.1, Biorex shall use all
reasonable efforts to acquire the right to include the manufacturing processes
and technology used by such Third Party for such Product in the Technical
Information, Manufacturing Technology or the Patent Rights, so that Salix. may
use such process to manufacture such Product.
6.2 Manufacturing Technology. As soon as practicable following a
------------------------
request by Salix, Biorex shall disclose to Salix all Manufacturing Technology in
existence at such time, and shall thereafter promptly (and in any event at least
quarterly) provide Salix with updates or additions to such Manufacturing
Technology that are subsequently developed or acquired by Biorex or its
Affiliates. In addition, Biorex shall use all reasonable efforts to so provide
to Salix all similar items and information generated or developed by or for
other licensees of Biorex and to permit Salix to use such items and information
to the same extent it may use Manufacturing Technology hereunder.
6.3 Trademarks. Biorex hereby grants to Salix an exclusive license,
----------
including the right to grant sublicenses, to use the Trademarks within the
Territory in connection with sales of Products. Such license shall be royalty
free and fully paid for the first six (6) years following Launch; thereafter
Salix shall pay Biorex a royalty fee of [*] of all Products bearing the
Trademarks sold or supplied by Salix, its Affiliates and/or sublicensees in the
Territory. Except as provided below, Salix shall have the exclusive right to
institute and pursue actions to prevent any use of the Trademarks within the
Territory.
ARTICLE 7. ROYALTIES
---------
7.1 Base Royalty Rate. In consideration of licenses granted to Salix
-----------------
herein, Salix shall pay to Biorex the following royalties with respect to Net
Sales by Salix, its Affiliates and sublicensees of Products in the Territory
during the Royalty Term for such Product (except as otherwise set forth in this
Section 7);
<TABLE>
<CAPTION>
Annual Net Sales For All Products Royalty Rate
--------------------------------- ------------
<S> <C>
[*] [*]
</TABLE>
[*]
8
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THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
[*]
7.2 Sales to Resellers. With respect to sales of Products to a
------------------
wholesaler or distributor who are not Affiliates ("Distributors"), Net Sales
shall be calculated based upon the price paid by such Distributor, and no
royalty shall be payable upon the Distributor's sales of such Products by the
Distributor. With respect to sales of Products in bulk form to sublicensees
other than Distributors, royalties shall be payable only upon the sublicensee's
resale of such Products and not upon Salix's sale to the sublicensee. For the
purposes of this Agreement, Astra and any Astra Associates (as defined the
Salix/Astra Agreement) shall be deemed to be sublicensees and not Distributors.
7.3 Minimum Royalties. Beginning with Salix's first full fiscal year
-----------------
after the Commercial Introduction of the first Product incorporating
Balsalazide, and continuing for [*] Salix shall pay to Biorex the following
minimum royalties:
<TABLE>
<CAPTION>
Year After
Commercial Introduction Minimum Royalty
----------------------- ---------------
<S> <C>
[*] [*]
</TABLE>
[*] In the event that earned royalties in any Salix fiscal year in the Territory
do not exceed the minimum royalties for such year, the royalty report provided
under Article 8 below for the final quarter of such year shall include a payment
so that the total royalties paid for such year equals the minimum royalties for
such year. In the event that Salix fails to pay the minimum royalties for any
year within ninety (90) days of the date such payment is due, Biorex shall have
the right to convert Salix's licenses hereunder into nonexclusive licenses. To
exercise such right, Biorex must give Salix at least thirty (30) days prior
written notice within such 90-day period of its intention to do so. Salix may
cure any such failure by paying the minimum royalty within such ninety (90) day
period (or if longer, within the 30-day notice period), in which case Biorex's
right to convert Salix's licenses as a result of such nonpayment shall cease.
Converting such licenses to be nonexclusive shall be Biorex's sole remedy upon a
failure by Salix to pay such minimum royalties.
7.4 Combination Product. In the event a Product is sold in a
-------------------
combination product with other biologically active components, Net Sales, for
purposes of royalty payments on the combination product, shall be calculated by
multiplying the Net Sales of that combination by the fraction A/B, where A is
the gross selling price of the Product sold separately and B is the gross
selling price of the combination product. In the event that no such separate
sales are made by Salix or a permitted sublicensee, Net Sales for royalty
determination shall be reasonably allocated between such Product and such other
compensation, based upon their relative importance and proprietary protection.
9
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THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
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<PAGE>
7.5 No Patent Protection. Notwithstanding anything to the contrary
--------------------
contained in Section 7.1:
7.5.1 In the event that Product is sold in a country in which
the sale would not infringe a Valid Claim within the Patent Rights in the
Territory, and significant sales of a substantially equivalent product are made
by third parties in the Territory, the royalty otherwise applicable to such
Product in the Territory shall be [*](even though the Product is made in a
country in which such manufacture infringes a Valid Claim) for so long as
significant sales of the substantially equivalent product continue.
7.5.2 In the event that any patent or any claim thereof
included within the Patent Rights shall be held invalid in a decision by a court
of competent jurisdiction, Salix shall have the right to withhold [*] of the
royalties payable with respect to such claim accruing after the date of such
decision. In the event that such decision is reversed on appeal, Salix shall
promptly remit to Biorex all such royalties so withheld.
7.5.3 In the event Astra is granted a license to manufacture as
set forth in Schedule 5 of the Salix/Astra Agreement with the royalty rates
specified in Sections 6.1, 6.2 or 6.3 of said Schedule 5, the royalties
otherwise payable by Salix under Article 7 shall be limited the lesser amount
of:
[*]
7.6 Third Party Royalties. In the event that Salix is required to
---------------------
pay to a Third Party any royalties or amounts determined by Net Sales of a
Product with respect to technology incorporated in such Product other than the
technology licensed hereunder, Salix may deduct from the royalty accruing to
Biorex under Section 7.1 or 7.2 above with respect to such Product [*] of the
amount paid to such Third Party, up to [*] of the royalties that would
otherwise accrue to Biorex with respect to such Product under Section 7.1 or
Section 7.2.
7.7 Nonexclusivity. In the event that Salix's licenses under this
--------------
Agreement become nonexclusive under Section 5.3 or Section 7.3 above, and Biorex
grants another license with respect to a Product within the Territory on royalty
terms more favorable than those set forth herein, Salix shall have the right and
option to substitute such royalty terms for the royalty terms provided herein.
In the event Salix's licenses herein become nonexclusive, its obligations to pay
minimum royalties shall thereupon terminate.
ARTICLE 8. ROYALTY REPORTS AND ACCOUNTING
------------------------------
8.1 Reports, Exchange Rates. During the term of this Agreement,
-----------------------
after the Commercial Introduction of a Product, Salix shall furnish to Biorex on
a quarterly basis a written report covering Salix's fiscal quarters
showing(i)the gross sales of all Products sold by Salix its Affiliates.
10
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THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
and its sublicensees in the Territory during the reporting period and the
calculation of Net Sales from such gross sales, (ii) the gross sales of all
Products bearing the Trademark sold by Salix, its Affiliates and its
sublicensees in the Territory during the reporting period and the calculation of
Net Sales from such gross sales;; (iii) the sublicense royalties received by
Salix during the reporting period; (iv) the royalties payable in U.S. dollars,
which shall have accrued hereunder in respect of such sales and sublicense
royalties; (v) withholding taxes, if any, required by law to be deducted in
respect of such royalties, sales and sublicense royalties; and (vi) the dates of
the Commercial Introductions of any Products in the Territory during the
reporting period. Reports shall be due sixty (60) days following the close of
each respective quarter. In case no royalty is due for any royalty period
hereunder, Salix shall so report. Salix shall keep accurate records in
sufficient detail to enable the royalties payable hereunder to be determined.
8.2 Audits.
------
8.2.1 Upon the written request of Biorex, at Biorex's expense
and not more than once each Salix fiscal year, Salix shall permit an independent
public accountant selected by Biorex and reasonably acceptable to Salix to have
access during normal business hours to such of the records of Salix as may be
reasonably necessary to verify the accuracy of the royalty reports hereunder
made not more than thirty-six (36) months prior to the date of such request
8.2.2 In the event such accountant concludes that additional
royalties were owed during such period, the additional royalty shall be paid
promptly. The fees charged by such accountant shall be paid by Biorex unless
the audit establishes that the royalties payable by Salix for the audited period
are more than one hundred five percent (105%) of the royalties actually paid for
such period, in which case Salix shall pay the reasonable fees and expenses
charged by the accountant.
8.2.3 Upon the expiration of thirty-six (36) months following
the date of any royalty report hereunder, the calculation of royalties payable
with respect to the quarter covered by such report shall be binding and
conclusive upon Biorex; and Salix shall be released from any liability or
accountability with respect to royalties for such year.
8.3 Confidential Financial Information. Biorex agrees that all
----------------------------------
information subject to review under this Article 8 is confidential and shall
cause its accountant to retain all such information in confidence.
ARTICLE 9. ROYALTY PAYMENTS
----------------
9.1 Payment Terms. Royalties shown to have accrued by each royalty
-------------
report provided for under Article 8 of this Agreement shall be due and payable
on the date such royalty report is due. Payment of royalties in whole or in part
may be made in advance of such due date. Royalties determined to be owing, and
any overpayments to be credited, with respect to any prior quarter shall be
added, together with interest thereon under Section 9.3 below from the date of
the report for the quarter for which such amounts are: owing, or credited, as
the case may be, to the next quarterly payment hereunder.
11
<PAGE>
9.2 Exchange Control. Except as hereinafter provided in this Section
----------------
9.2, all royalties due shall be paid in U.S. currency. If at any time legal
restrictions prevent the prompt remittance of part or all royalties with respect
to any country of the Territory where the Product is sold, payment shall be made
through such lawful means or methods as Biorex may designate.
9.3 Late Payments. Any payments that are not paid on or before the
-------------
date such payments are due under this Agreement shall bear interest to the
extent permitted by applicable law at the prime rate of interest as reported by
Bank of America NT&SA in San Francisco, California from time to time, calculated
on the number of days such payment is delinquent. This Section 9.3 shall in no
way limit any other remedy available to either party.
ARTICLE 10. INFRINGEMENT
------------
10.1 Infringement Rights. The provisions of this Article l0 shall
-------------------
govern the parties' rights and obligations, as between themselves, with respect
to actions against and by Third Parties for infringement of patents licensed
under this Agreement or owned by such Third Parties. In the event that either
party learns of a significant infringement of the Patent Rights, or
corresponding patent rights outside of the Territory ("Foreign Patent Rights"),
it shall promptly notify the other party.
10.2 Enforcement of Patent Rights.
----------------------------
10.2.1 Salix shall have the exclusive right to bring, direct and
control any action to enforce the Patent Rights against infringers within the
Territory.
10.2.2 Salix may deduct from royalties owing under Article 7
above all of its costs and expenses incurred in enforcing the Patent Rights, up
to [*] of the royalties accruing hereunder. After reimbursement to Salix for its
unreimbursed expenses, all damages and other payments recovered from such
infringing parties shall be retained by Salix and included in Net Sales for the
quarter in which they are received. Biorex shall cooperate with Salix, at
Salix's expense, in connection with any such litigation, including without
limitation by joining as a party if necessary or appropriate and executing such
documents as Salix may reasonably request.
10.3 Third Party Claims. In the event that Salix is sued by an
------------------
unaffiliated third party alleging that the manufacture, sale or use of a Product
infringes patent rights of such third party, then Salix may withhold up to [*]
of the royalties payable hereunder and apply such royalties to any damages,
costs, liabilities or expenses (including the reasonable fees of attorneys and
other professionals) incurred as a result of such claim, up to [*] of such
damages, costs, liabilities and expenses.
ARTICLE 11. CONFIDENTIALITY
---------------
11.1 General. Except as expressly otherwise provided in this
-------
Agreement each party shall hold in confidence and not use or disclose to any
Third Party (other than employees, consultants, advisors, permitted sublicensees
and third parties with whom such party is considering entering into a business
relationship who are similarly bound in writing) any
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THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
product. technical, manufacturing, process, marketing, financial, business or
other information. ideas, cell lines or know-how identified in writing as
confidential ("Proprietary Information") of or used by the other; provided,
however, that Proprietary Information of a party shall not include:
11.1.1 Items which at the time of disclosure are published or
otherwise generally available to the public;
11.1.2 Items which, after disclosure by the other party, are
published or become generally available to the public through no breach of this
Agreement by the other or the other's employees or agents; or
11.1.3 Items which the other can document were or are (i) in
its possession at the time of disclosure and was not acquired directly or
indirectly from such party, or (ii) independently developed.
11.2 Exceptions. A party may disclose Proprietary Information of the
----------
other:
11.2.1 In connection with the order of a court of law or in
compliance with laws or regulations relating to registrations or sale of
securities or product approval, or
11.2.2 If such information is also rightfully acquired from a
third party who, to the best of such party's knowledge and belief, is entitled
to rightfully make such disclosure, but only to the extent such party complies
with any restrictions imposed by the third party.
11.2.3 After five(5)years from the date such information is
disclosed to it hereunder.
11.3 Licensed Information. Any Proprietary Information of or used by
--------------------
Biorex which are or may be subject to an exclusive license to Salix hereunder
shall not be disclosed by Biorex to any third party for use in the Territory
except for purposes not inconsistent with such exclusive license and only
pursuant to confidentiality and non-use restrictions at least as restrictive as
those provided herein.
11.4 Terms of this Agreement. Salix and Biorex agree not to disclose
-----------------------
the financial terms or conditions of this Agreement to any Third Party without
the prior written consent of the other party hereto, except as required by
applicable law or to persons with whom Biorex or Salix has entered into or
proposes to enter into a business relationship.
Article 12. PATENT PROSECUTION AND MAINTENANCE
----------------------------------
12.1 Control. Salix shall have the right to take such actions as are
-------
necessary or appropriate, with counsel of its choosing, to effect the patent
applications within the Patent Rights and to obtain patent protection with
respect to the subject matter therein in any country within the Territory. In
the event that Salix elects not to prosecute or maintain a patent application or
patent within the Patent Rights, Biorex shall have the right to do so at its own
expense.
13
<PAGE>
12.2 Expenses. The cost of Salix's preparing, filing, prosecuting
--------
and maintaining all patent applications and patents contemplated by this
Agreement shall be borne by Salix.
12.3 Cooperation. Salix shall provide Biorex with copies of all
-----------
material documentation after receipt from or prior to submission to any
governmental agency with jurisdiction to issue such patents, as appropriate, so
that Biorex may be informed and apprised of the continuing prosecution. Salix
shall consult with Biorex and its counsel concerning prosecution of any patent
application and adopt reasonable suggestions made with respect thereto, and
shall use its best efforts to amend any patent application to include claims
reasonably requested by Biorex and required to protect the product contemplated
to be sold under this Agreement. Biorex shall make available to Salix or its
authorized attorneys, agents or representatives, Biorex's employees, agents or
consultants necessary or appropriate to enable Salix to file, prosecute -and
maintain patent applications and resulting patents within the Patent Rights.
Biorex shall sign or cause to have signed all documents relating to said patent
applications or patents at no charge to Salix.
ARTICLE 13. TERM: TERMINATION
-----------------
13.l Expiration. Unless terminated earlier pursuant to Section l3.2
----------
or l3.3 below, the provisions of this Agreement with respect to a Product shall
expire on the expiration of the last Royalty Term applicable under this
Agreement with respect to such Product. Upon expiration of each Royalty Term
with respect to each Product in the Territory, Salix shall have the following
irrevocable, royalty-free licenses (with right to sublicense): (a) a
nonexclusive license (with right to grant sublicenses) under the Patent Rights,
Technical Information and Manufacturing Technology to make, have made, use, sell
and have sold such Products in the Territory; and (b) the exclusive license to
use the Trademarks in connection with the marketing and sale of such Products in
the Territory, subject to Salix's payment to Biorex of the royalty stated in
Section 6.3 for so long as Salix, its Affiliates and sublicensees shall continue
to use the Trademarks.
13.2 Termination for Cause. Either party may terminate this
---------------------
Agreement following the material breach of any material provision of this
Agreement by the other party if the breaching party has not commenced to cure
such breach within ninety (90) days after written notice thereof by the other
party and thereafter proceeded diligently to cure such breach within a
reasonable time; provided, that in no event shall such reasonable time to cure
such breach exceed 180 days from the date of such notice. In determining whether
there has been a material breach of a material provision of this Agreement for
purposes of this Section 13.2, all of the circumstances of the breach shall be
considered, including the breaching party's conduct, the hardship of
termination. the extent to which the breaching party has performed its
obligations, the extent to which the nonbreaching party will obtain the benefits
it reasonably anticipated, and similar factors.
14
<PAGE>
13.3 Termination by Salix. Salix shall have the right to terminate
--------------------
this Agreement or the licenses granted herein, in whole or as to any specified
Product, at any time, and from time to time, by giving notice in writing to
Biorex. Such termination shall be effective ninety (90) days from the date
Biorex receives such notice and all Salix's rights associated therewith shall
cease as of that date; provided, however, that if Salix revokes in writing its
notice of termination before the end of such 90-day period, such notice of
termination shall have no effect and the rights specified in such notice of
termination shall not terminate.
13.4 Effect of Termination.
---------------------
13.4.1 Upon a termination of this Agreement by Salix under
Section 13.3 above, or by reason of a material breach by Salix, all licenses
granted to Salix hereunder (or, in the event of a partial termination under
Section 13.3, the licenses to the Products to which such termination pertains)
shall terminate, and Salix shall promptly return to Biorex all tangible
materials provided by Biorex incorporating Technical Information and
Manufacturing Technology pertaining to the terminated Product. In the event of
such a termination, Salix shall assign to Biorex its filings with the FDA and
all other regulatory authorities within the Territory that pertain to the
terminated Products.
13.4.2 Expiration or termination of this Agreement shall not
relieve the parties of any obligation accruing prior to such expiration or
termination.
13.4.3 Upon termination of this Agreement by either party,
Salix shall provide Biorex with a written inventory of all Products in process
of manufacture or in stock, and Salix (and its Affiliates and sublicensees)
shall have the privilege of disposing of such Products within a period of one
hundred eighty (180) days; provided, however, that Salix shall pay royalties on
any Net Sales of such Products at the rate and at the time herein provided and
shall render reports thereon in the manner herein provided.
13.4.4 Upon the expiration or termination of this Agreement
for any reason the parties rights and obligations under the following provisions
shall survive: Sections 8.2, 8.3, and 10.3 and Articles 9, 11, 13, 14 and 17;
provided, that the indemnification provision of Article 14 shall survive only
with respect to claims that are made prior to three (3) years after expiration
or termination of this Agreement. In addition, upon expiration of this Agreement
under Section 13.1 above, the parties rights and obligations under Article 4 and
Sections 6.2 and 6.3 shall survive.
13.4.5 If the Biorex /Astra Agreement comes into force in
accordance with Clause 2.1 thereof, then this Agreement shall terminate
automatically forthwith and the provisions of Clause 13.4.1-13.4.4, inclusive,
of this Agreement shall apply upon such termination.
ARTICLE 14. INDEMNITY
---------
14.1 Salix. Subject to Biorex's compliance with its obligations set
-----
forth in Section 14.3 below, Salix agrees to indemnify and hold Biorex, its
Affiliates and their employees and agents harmless from and against any losses,
claims, damages, liabilities or actions
15
<PAGE>
(including reasonable attorneys' fees and court and other expenses of
litigation) (collectively, the "Liabilities") suffered or incurred in connection
with Third Party claims for personal injuries or any product recall to the
extent caused by: (a) any failure to test for or provide adequate warnings of
adverse side effects to the extent such failure arises out of acts or omissions
in connection with the performance of Salix's preclinical or clinical testing
obligations hereunder, (b) any manufacturing defect in any Product or other
material manufactured by Salix or its sublicensee, or subcontractors, or (c) any
other act or omission (without regard to culpable conduct) of Salix or its
sublicensee, or subcontractors in connection with the activities contemplated
under this Agreement, except to the extent such Liabilities resulted from
negligence, recklessness or intentional misconduct of Biorex.
14.2 Biorex. Subject to Salix's compliance with its; obligations set
------
forth in Section 14.3, Biorex agrees to indemnify and hold Salix, its
Affiliates, and licensees and their employees and agents harmless from and
against any Liabilities suffered or incurred in connection with third party
claims for personal injuries or any product recall to the extent caused by: (a)
any failure to test for or provide adequate warnings of adverse side effects to
the extent such failure arises out of acts or omissions in connection with
Biorex's preclinical or clinical testing obligations hereunder, (b) any
manufacturing defect in any Product or other material manufactured by Biorex or
its sublicensees or subcontractors, or (c) any other act or omission (without
regard to culpable conduct) of Biorex. or its sublicensees or subcontractors in
connection with the activities contemplated under this Agreement, except to the
extent such Liabilities resulted from negligence, recklessness or intentional
misconduct of Salix. Notwithstanding the foregoing, Biorex shall not be
obligated to indemnify Salix with respect to Liabilities incurred in the course
of human clinical trials conducted by Salix (itself or through subcontractors),
or with respect to Liabilities resulting from the use of Products supplied by
Biorex as clinical trials materials for use in such clinical trials.
14.3 Procedure. A party (the "Indemnitee) that intends to claim
---------
indemnification under this Article 14 shall promptly notify the other party (the
"Indemnitor") in writing of any loss, claim, damage, liability or action in
respect of which the Indemnitee or any of its Affiliates, employees or agents
intend to claim such indemnification, and the Indemnitor shall have the right to
participate in, and, to the extent the Indemnitor so desires, jointly with any
other Indemnitor similarly noticed, to assume the defense thereof with counsel
mutually satisfactory to die parties; provided, however, that an Indemnitee
shall have the right to retain its own counsel, with the fees and expenses to be
paid by the Indemnitee, if representation of such indemnitee by the counsel
retained by the Indemnitor would be inappropriate due to actual or potential
differing interests between such Indemnitee and any other party represented by
such counsel in such proceeding. The indemnity agreement in this Article 14
shall not apply to amounts paid in settlement of any loss, claim, damage,
liability or action if such settlement is effected without the consent of the
Indemnitor, which consent shall not be withheld unreasonably. The failure to
deliver written notice to the Indemnitor within a reasonable time after the
commencement of any such action, if prejudicial to its ability to defend such
action, shall relieve such Indemnitor of any liability to the indemnitee under
this Article 16, but the omission so to deliver written notice to the Indemnitor
shall not relieve it of any liability that it may have to any Indemnitee
otherwise than under this Article 14. The Indemnitee under this Article 14, its
employees and agents, shall cooperate fully with the Indemnitor and its legal
representatives in the investigation of any action, claim or liability covered
by this indemnification.
16
<PAGE>
ARTICLE 15. FORCE MAJEURE
-------------
Neither party shall be held liable or responsible to the other party
nor be deemed to have defaulted under or breached this Agreement for failure or
delay in fulfilling or performing any term of this Agreement when such failure
or delay is caused by or results from causes beyond the reasonable control of
the affected party or from fire, floods, embargoes, war, acts of war (whether
war be declared or not), insurrections, rights, civil commotions, strikes,
lockouts or other labor disturbances, acts of God or acts, omissions or delays
in acting by any governmental authority or the other party.
ARTICLE 16. ASSIGNMENT
----------
This Agreement may not be assigned or otherwise transferred, nor,
except as expressly provided hereunder, may any right or obligations hereunder
be assigned or transferred, by either party without the written consent of the
other party; provided, however, that either Biorex or Salix may, without such
consent, assign this Agreement and its rights and obligations hereunder in
connection with the transfer or sale of all or substantially all of its
business, if such assets include substantially all of the assets relating to its
performance of its respective obligations hereunder, or in the event of its
merger or consolidation with another company at any time during the term of this
Agreement. Any purported assignment in violation of the preceding sentence
shall be void. Any permitted assignee shall assume all obligations of its
assignor under this Agreement. No assignment shall relieve either party of
responsibility for the performance of any accrued obligation which such party
then has hereunder.
ARTICLE 17. MISCELLANEOUS
-------------
17.1 Notices. Any notice or report required or permitted to be given
-------
or made under this Agreement by one of the parties hereto to the other shall be
in writing, delivered personally or by facsimile (and promptly confirmed by
personal delivery or courier) or courier, postage prepaid, addressed to such
other party at its address indicated below, or to such other address as the
addressee shall have last furnished in writing to the addressor and shall be
effective upon receipt by the addressee.
Salix Pharmaceuticals, Inc. Biorex Laboratories Limited
3600 W. Bayshore Road 2 Crossfield Chambers
Palo Alto, CA 94303 Gladbeck Way
Attention: Randy W. Hamilton Enfield, Middlesex EN2 7HT
Attention: Miss L. Baxendale
17.2 Applicable Laws' Arbitration.
---------------------------
17.2.1 Applicable Law. This Agreement shall be governed by and
--------------
construed in accordance with the laws of the State of California, without regard
to conflicts of laws provisions.
17
<PAGE>
17.2.2 Arbitration. Any dispute arising between the parties
-----------
relating to, arising out of or in any way connected with this Agreement or any
term or condition hereof, the performance by either party of its obligations
hereunder, whether before or after termination of this Agreement, shall be
finally resolved by binding arbitration. Whenever a party shall decide to
institute arbitration proceedings, it shall give written notice to that effect
to the other party. The party giving such notice shall refrain from instituting
the arbitration proceeding for a period of sixty (60) days following such
notice. Any arbitration hereunder shall be conducted under the UNCITRAL
Arbitration Rules. Each such arbitration shall be conducted in the English
language by a panel of three arbitrators appointed in accordance with such
rules. Any such arbitration initiated by Biorex shall be held in Santa Clara
County California, in which case the appointing authority shall be the American
Arbitration Association, and any such arbitration initiated by Salix shall be in
London, in which case the appointing authority shall be the London Court of
International Arbitration. The arbitrators shall have the authority to grant
specific performance, and to allocate between the parties the costs of
arbitration in such equitable manner as they determine. Any monetary award shall
bear interest at a rate fixed by the arbitrators from the date an arbitration
proceeding is commenced to the date on which the award is paid in full. Judgment
upon the award so rendered may be entered in any court having jurisdiction or
application may be made to such court for judicial acceptance of any award and
an order of enforcement, as the case may be. Neither Salix nor Biorex shall be
entitled to exercise its respective remedies hereunder until the conclusion of
any arbitration proceeding seeking such remedy; provided that the party against
--------
whom the breach is asserted notifies the other party that it disputes the breach
within the time provided to cure the asserted breach under the applicable
Section.
17.3 Export Laws. Biorex shall procure and maintain all export
-----------
licenses required for it to transfer to Salix and its sublicensees all Technical
Information, Patent Rights, Manufacturing Technology and other technical data,
and shall comply with all other laws, regulations and governmental directives
relating to the export of technical data, goods and services including, without
limitation, those enforced by the United States Departments of Commerce and
Defense.
17.4 No Consequential Damages. EXCEPT AS PROVIDED IN SECTION
------------------------
14, IN NO EVENT SHALL EITHER SALIX OR BIOREX OR THEIR AFFILIATES BE LIABLE
FOR SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES BASED ON
CONTRACT, TORT OR ANY OTHER LEGAL THEORY.
17.5 Entire Agreement. This Agreement contains the entire
----------------
understanding of the parties with respect to the subject matter hereof. All
express or implied agreements and understandings, either oral or written,
heretofore made are expressly merged in and made a part of this Agreement. This
Agreement may be amended, or any term hereof modified, only by a written
instrument duly executed by both parties hereto.
17.6 Headings. The captions to the several Articles hereof are
--------
not a part of this Agreement, but are merely guides or labels to assist in
locating and reading the several Articles hereof.
17.7 Independent Contractors. It is expressly agreed that Salix
-----------------------
and Biorex shall be independent contractors and that the relationship between
the two parties shall not constitute a
18
<PAGE>
partnership, joint venture or agency. Neither Salix nor Biorex shall have the
authority to make any statements, representations or commitments of any kind, or
to take any action, which shall be binding on the other, without the prior
written authorization of the party to do so.
17.8 Waiver. The waiver by either party hereto of any right
------
hereunder or the failure to perform or of a breach by the other party shall not
be deemed a waiver or any other right hereunder or of any other breach or
failure by said other party whether of a similar nature or otherwise.
17.9 Severability. In case any one or more of the provisions
------------
contained in this Agreement shall for any reason be held to be invalid, illegal
or unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect an y other provisions hereof, but this Agreement shall be
construed as if such invalid or illegal or unenforceable provisions had never
been contained herein.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
SALIX PHARMACEUTICALS, INC. BIOREX LABORATORIES LIMITED
By: /s/ Randy Hamilton By: /s/ Lily Baxendale
---------------------------- ----------------------------
Randy Hamilton Lily Baxendale
Title: PRESIDENT Title: Managing Director
------------------------- ------------------------
19
<PAGE>
EXHIBIT 10.9
Dated April 30, 1993
SALIX PHARMACEUTICALS, INC (1)
and
AB ASTRA (2)
-------------------------------------------------
CO-PARTICIPATION
AGREEMENT
-------------------------------------------------
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
1. DEFINITIONS...................................... 2
PART A - RESEARCH AND DEVELOPMENT.............................. 5
2. SALIX' OBLIGATIONS AND THE PRODUCT............... 5
3. COMPLETION OF THE PROJECT........................ 8
4. ASTRA'S OBLIGATIONS.............................. 8
5. CLINICAL TRIALS.................................. 8
6 COSTS AND FUNDING................................ 10
PART B - DISTRIBUTION.......................................... 14
7. APPOINTMENT OF ASTRA............................. 14
8. REGULATORY APPROVALS............................. 15
9. PROMOTION, MARKETING AND SALE.................... 17
10. PRODUCT DATABASE AND ADVERSE REACTIONS REPORTING. 20
l1. CONSIDERATION.................................... 22
PART C - SUPPLY AND MANUFACTURE................................ 23
12. SUPPLY OF PRODUCT................................ 23
13. PRICE............................................ 26
14. TERMS OF PAYMENT................................. 29
l5. DELIVERY......................................... 30
16. LICENSE TO MANUFACTURE........................... 30
PART D - TRADEMARK LICENSE..................................... 34
17. TRADEMARK LICENSE................................ 34
18. LICENSE PAYMENT.................................. 35
PART E - MISCELLANEOUS......................................... 36
19. INDEMNIFICATION.................................. 36
20. CONFIDENTIAL INFORMATION......................... 37
21. INTELLECTUAL PROPERTY............................ 39
22. SUB-DISTRIBUTORS AND SUB-LICENSEES............... 43
23. ASSIGNMENT....................................... 43
24. FORCE MAJEURE.................................... 43
25. COSTS............................................ 44
26. CONFIDENTIALITY OF THIS AGREEMENT................ 44
</TABLE>
<PAGE>
<TABLE>
<S> <C>
27. NATURE OF THE AGREEMENT......................... 44
28. NOTICES......................................... 47
PART F - TERMINATION AND EFFECTS THEREOF....................... 48
29. TERMINATION..................................... 48
30. CONSEQUENCES OF TERMINATION..................... 51
PART G - ASTRA OPTION.......................................... 53
31. ASTRA OPTION.................................... 53
</TABLE>
<PAGE>
1 (53)
THIS CO-PARTICIPATION AGREEMENT is made the 30th day of April, 1993
BETWEEN:
- -------
(1) SALIX PHARMACEUTICALS, INC a company incorporated under the laws of
California and whose registered office is at 3600 W. Bayshore Road, Suite
205, Palo Alto, CA 94303, USA ("Salix"); and
(2) AB ASTRA a company incorporated under the laws of Sweden whose principal
place of business is at Kvarnbergagatan 16, S-151 85 Sodertalje, Sweden
("Astra").
WHEREAS:
A. By an agreement dated 17th January, 1991 and made between Salix of the one
part and Biorex Laboratories Limited ("Biorex") of the other part, Biorex
granted Salix an exclusive license to develop, manufacture, use and sell
pharmaceutical products incorporating Balsalazide in the U.S. (as
hereinafter defined) under patents granted to Biorex upon the terms of such
license.
B. Salix and Astra have agreed to collaborate in the programme of development
of such pharmaceutical products for the creation of a Dossier to be
registered in the U.S. and for the commercial exploitation of such products
in the U.S.
NOW IT IS HEREBY AGREED as follows:
<PAGE>
2 (53)
1. DEFINITIONS
1.1 In this Agreement the following words shall have the following meanings:
"Advisory Committee" means the committee consisting of representatives of
Astra and Salix to be formed and function as described in Article 9.1.1.
"Applications" means the treatment of Diseases of the Digestive System
according to WHO classification of diseases Class 52.
"Primary Applications" means the treatment of acute relapse in ulcerative
colitis.
"Astra Associate" means any company which is a holding company of Astra or
a subsidiary of Astra and any other subsidiary of any such holding company
or subsidiary. For this purpose a company shall be deemed to be a
"subsidiary" of another if that other is a member of it and controls the
composition of its Board of Directors.
"Astra Coordinator" means one individual employee of Astra or an Astra
Associate nominated and appointed from time to time by Astra as a member of
the Project Team.
"Balsalazide" means 5- [4(2- Carboxyethylcarbamoyl) - phenylazo]-salicylic
acid disodium salt dihydrate.
"Biorex" means Biorex Laboratories Limited, a company incorporated in
England under Company Registration Number 390233 whose registered office is
at 2 Crossfield Chambers, Gladbeck Way, Enfield, Middlesex EN2 7HT.
"Biorex Agreement" means an agreement dated 17th January, 1991 between
Salix and Biorex, as amended.
"Biorex/Astra Agreement" means the agreement of even date herewith entered
into between Biorex and Astra and attached hereto as Exhibit A.
"Developmental Product" means a pharmaceutical preparation for the Primary
Applications containing
<PAGE>
3 (53)
Balsalazide, as previously developed by Biorex and licensed to Salix
pursuant to the Biorex Agreement.
"Dossier" means the master regulatory dossier relating to the Developmental
Product which shall be prepared during the Project and which shall in the
reasonable opinion of Salix and the Project Team be:
(1) in accordance with the published standard required for master
regulatory dossiers by the FDA as at the date of completion of the Dossier;
and
(2) in a form suitable for submission to and suitable for approval by the
FDA in connection with obtaining health registration for the Developmental
Product in the U.S.
"FDA" means the Food and Drug Administration of the U.S.
"Force Majeure" means in relation to either party any circumstances beyond
the reasonable control of that party (including but not limited to strike,
lock out or other form of industrial action, act of God, war, riot,
accident, breakdown in plant or machinery, fire, flood, explosion or
government action).
"Launch" means a commercial launch by Astra (or any Astra Associate) of the
Product throughout the U.S. supported by such marketing expense and
supported and launched in such quantities as may reasonably be appropriate
for the Product to have a significant effect on total sales of any similar
or competitive product.
"NDA" means a New Drug Application.
"Net Sales" means the ex factory sales price of each individual Product
actually charged by Astra (or any Astra Associate) for each shipment of
Product on an arms length open market basis to any third party (being a
person, firm or company which is not an Astra Associate), net only of sales
and purchase taxes, customs or import duties, delivery charges, returns and
allowances, discounts and chargebacks actually charged on each such
shipment.
"Patents" means the patents and applications therefore for Balsalazide
listed in Schedule 1 and any substitutes, renewals, reissues and extensions
thereof, plus any patent rights, now existing or
<PAGE>
4 (53)
hereafter acquired by Salix (including patent applications therefor) in the
U.S. pertaining to Product and securing the exclusive use and sale in the
U.S. of Product for treatment of ulcerative colitis and Crohn's disease.
"Product" means a pharmaceutical preparation in capsule form containing
Balsalazide for the Applications and such other pharmaceutical preparations
containing Balsalazide for the Applications as may be developed by or on
behalf of Astra or Salix during the term of this Agreement.
"Product Information" means the chemical, pharmaceutical, preclinical,
clinical and other information relating to the Developmental Product and
Balsalazide delivered to Astra by Salix in full or in summary form or as
expert opinion of the data prior to the date hereof as identified and
listed in Schedule 3.
"Project" means the development program in connection with the development
of the Developmental Product, and the preparation and completion of the
Dossier and obtaining the grant of approval to market the Developmental
Product in the U.S. conducted in accordance with the terms of this
Agreement and as summarized in Schedule 2.
"Project Team" means the team of experts appointed by Salix from time to
time in connection with the Project, plus the Astra Coordinator.
"RoW" means the whole world except the U.S., Japan, Korea and Taiwan.
"Trademark" means the trade name "Colazide" registered as a trademark for
use on pharmaceutical preparations in the U.S. and any other tradename
designated by Salix for use in the U.S. in connection with the Product.
"U.S." means the United States of America, its territories and possessions.
1.2 The headings in this Agreement are for convenience only and shall not
affect its interpretation.
<PAGE>
5 (53)
1.3 Reference to any document in the approved form shall be reference to the
document agreed between the parties and initialled for the purposes of
identification by each party.
PART A - RESEARCH AND DEVELOPMENT
2. SALIX' OBLIGATIONS AND THE PRODUCT
2.1 Salix shall manage the Project Team and conduct or procure the conduct of
the Project in a competent manner and shall use all reasonable endeavors to
prepare and/or procure the preparation of the Dossier.
2.2 The Project shall be conducted in respect of and relate only to the
Developmental Product as defined herein and notwithstanding the wider
definition of the Product.
2.3 Salix shall conduct and manage the Project in close liaison with the
Project Team and Salix shall keep Astra fully informed of the progress,
costs and conduct of the Project and shall take account of comments and
proposals made by the Project Team with regard to the scientific content
and methods involved in the Project. Astra may be represented by
additional individuals at Project Team meetings save that only the Astra
Coordinator is a member of the Project Team. The actions of the Project
Team will be governed by the principles of good faith. For the avoidance
of doubt, Salix remains responsible for the conduct of the Project and the
completion of the Dossier and, consequently, Salix will always have the
final say for all matters discussed by the Project Team.
<PAGE>
6 (53)
2.4 Without prejudice to the generality of the foregoing, Salix hereby agrees:
2.4.1 that Salix shall use all reasonable endeavors to complete the
Project without undue delay; and
2.4.2 that the nature and procedures of any clinical trials conducted or
required to be conducted as part of the Project by Salix (or by any
third party duly authorized by Salix) will be agreed in advance with
Astra (subject to the rights of Salix as provided in Section 2.3
regarding final say in all matters) and Salix shall ensure that the
results of any such trials or other clinical data relating to such
trials shall be made freely available to Astra as soon as is
reasonably practicable; and
2.4.3 to manage the Project team and to ensure that the Project Team shall
meet at least once in every twelve (12) week period during the
Project to review and coordinate the Project and to share and
exchange all information relating to the Project; and
2.4.4 to prepare a quarterly written report on the progress of the Project
and to submit such report to Astra each calendar quarter. (The first
report shall be submitted to Astra within one calendar quarter from
the date of this Agreement); and
2.4.5 to use reasonable endeavors to ensure that all the contractors
working on the Project [including without limitation the members of
the Project Team (excluding the Astra Coordinator)] at the date of
this Agreement
<PAGE>
7 (53)
are either recruited as employees of Salix or enter into contracts
for the supply of their services to Salix; and
2.4.6 to coordinate all documentation in connection with the Project.
2.5 Astra hereby confirms and acknowledges that any information, assistance,
representation or warranty given or made by Astra, any Astra Associate or
any of its representatives or the Astra coordinator shall be supplied in
good faith to, and may be accepted by and used by Salix in the performance
of the Project Provided Always that Salix shall remain solely responsible
for the performance of the Project and shall not be entitled to rely upon
any such representation, warranty or information supplied by any such Astra
representative or the Astra Coordinator.
2.6 Upon completion of the Dossier, Salix shall file the NDA for the
Developmental Product with the FDA and shall apply for and pursue obtaining
approval for the marketing and sale of the Developmental Product in the
U.S., which includes the responsibility to fund, perform and complete any
Phase IV studies upon which such approval is conditioned.
2.7 The conduct of the Project and the preparation of the Dossier in accordance
with the terms hereof shall include the undertaking by Salix to perform all
pre-clinical trials and human pharmacokinetics trials and such clinical
trials for the Developmental Product as are necessary to obtain approval in
the U.S. pursuant to Article 2.6.
<PAGE>
8 (53)
3. COMPLETION OF THE PROJECT
Upon any application for approval in the U.S. made by Salix under Article 2.6 or
in addition thereto, Salix shall be named as applicant and shall name Astra in
such application as the distributor for the Product in the U.S.
4. ASTRA'S OBLIGATIONS
4.1 Astra shall be solely responsible for all costs and expenses incurred by or
payable to the Astra Coordinator or any other Astra representative in
connection with the Project.
4.2 Astra acknowledges that the Project meetings under Article 2.4.3 shall take
place in the U.S. at such places as shall be reasonably nominated by Salix.
Astra hereby agrees to bear the entire cost and expense in connection with
the attendance at such meetings of any Astra representative and the Astra
Coordinator.
5. CLINICAL TRIALS
5.1 Astra may undertake clinical trials for the Product (beyond the clinical
trials conducted as part of the Project as specified in Article 2.6) at
Astra's sole cost and expense Provided always that:
5.1.1 the trials are planned, organized and carried out solely by Astra
and shall not interfere with trials conducted or to be conducted by
or on behalf of Salix in connection with the Project; and
5.1.2 prior to the conduct of the trials, the clinical trial objectives
and the clinical trial protocols are agreed in writing between Astra
and Salix (such agreement not
<PAGE>
9 (53)
to be unreasonably withheld or delayed and Provided Always that such
agreement shall be deemed to have been given by Salix in the event
that no response is received by Astra from Salix within 20 working
days of receipt by Salix of any request from Astra for approval);
and
5.l.3 Astra shall provide all medical resources and clinical trials
monitors at its own cost and expense; and
5.l.4 Astra shall bear all the costs and expenses associated with such
clinical trials including but without limitation the costs of
documentation and administrative payments to trialists; and
5.l.5 Salix shall provide such supplies of finished capsules of Product to
Astra as Astra may reasonably require for the conduct of such trials
in accordance with Articles 12.4, 12.6, 12.7, 12.8, 12.9 and 13.5;
and
5.1.6 Unless otherwise agreed by Salix, Astra shall use and promote the
Trademark in connection with such trials,
5.2 In the event that any clinical trials are conducted by Astra pursuant to
Article 5.1, Astra undertakes:
5.2.1 to keep Salix fully informed as to the conduct of such clinical
trials and to provide to Salix full unrestricted access to such
results; and
5.2.2 to permit Salix to use such results and to disclose the same to
third parties in
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10 (53)
connection with the use and sale of the Product in RoW.
Provided Always that Salix shall provide full unrestricted access to Astra
to the results of any clinical trials and other studies conducted by Salix
and/or any third party authorized by Salix or Glycyx (as defined in Article
23.1) in connection with the use and sale of the Product in the RoW.
6. COSTS AND FUNDING
6.1 Astra shall fund the total development cost for the Project with an amount
of [*] Astra agrees to remit monies into Salix' bank account (details of
which are set out below) in respect of such costs and expenses in
accordance with Schedule 2 to this Agreement.
[*]
Provided Always that any payments, costs and expenses expressly stated in
this Agreement to be the sole responsibility of Astra shall be paid over
and above such [*] and such costs shall not be taken into account in
calculating such maximum. It is understood that any monies [*] hereunder
not paid by Astra on the date an approved NDA for the Developmental Product
is granted by the FDA shall be remitted to Salix within 60 days after the
date of such approval.
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
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6.2 Salix shall be solely responsible for funding or obtaining funding for any
excess of the actual costs for completion of the Project above Astra's
contributions as provided in this Agreement.
6.3 Salix shall be solely responsible for making all payments to all third
parties working in the Project and Salix shall maintain detailed and
accurate accounts and records in connection with all such payments.
6.4 Salix shall submit to Astra a summary of the accounts and records
maintained by it in connection with the conduct of the Project on a
calendar quarterly basis. The first summary of accounts and records shall
be submitted to Astra three calendar months from the date of this
Agreement. Salix shall allow Astra or its auditors or representative
reasonable access during normal business hours to inspect the books of
accounts of Salix in order to verify incurred costs in the Project. If such
examination reflects an overpayment of five percent (5%) or more of the
amount that should have been paid for during the period audited, then Salix
will bear the expenses of the audit; otherwise Astra shall bear the
expenses of the audit.
6.5 In the event that the actual costs incurred by Salix in the performance of
the Project exceed the total amount under Article 6.1, Salix shall be
solely liable for any excess costs incurred; Provided Always that in the
event that Salix shall thereafter at any time (in its sole discretion)
decide that it is unable or unwilling to incur expenses in excess of such
amount and to complete the Project in accordance with the terms of this
Agreement, it shall forthwith notify Astra in writing and Astra may at its
sole option (exercised by 30 days notice in writing to Salix served within
90 days of receipt
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of any such notice from Salix) determine whether the Project shall be
continued or discontinued, In Such event:
6.5.l If Astra decides that the Project will be discontinued, this
Agreement will be terminated automatically upon receipt of such
notice by Salix. If Astra determines that the Project shall be
continued and the NDA for the Developmental Product has been filed
and the payment under Article 11.1.2 consequently has been made,
Salix will continue to perform under this Agreement in accordance
with a revised and agreed Schedule 2. Astra will make available
additional funds in accordance with the agreed payment schemes under
such revised Schedule 2 up to a maximum of the total amount not yet
paid under Article 11.1.3. Any amount so used to complete the
Project to an approved NDA for the Developmental Product shall be
subtracted from what is to be paid by Astra under said Article
11.1.3. Any remaining amount not so used will be payable in
accordance with Article 11.1.3.
6.6 In the event that the actual cost incurred by Salix in the performance of
the Project either exceeds the [*] funded by Astra as referred to in
------
Article 6.1 and the total funds referred to under Article 6.5.1 or exceeds
--
the total amount under Article 6.1 and Article 6.5.1 is not applicable,
and, in either case, Salix decides that it is unable or unwilling to incure
expenses in excess of such amounts and to complete the Project, Salix shall
forthwith notify Astra in writing. Astra may at its sole option (exercised
by 30 days notice in writing to Salix served within 90 days of receipt of
any such notice from Salix) either decide to discontinue or continue
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THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
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the Project. If Astra decides to discontinue the Project, this Agreement
will be terminated automatically upon receipt of such notice by Salix. If
Astra decides to continue the Project, Astra will assume all obligations in
connection with the conduct and completion of the Project, the filing of
the Dossier in accordance with Article 3 hereof and obtaining regulatory
approval under Article 2.6; provided however, that Astra will do the NDA
filing and will be the applicant and the following will apply:
6.6.1 The rights of Astra to distribute the Product under this Agreement
will remain and for the avoidance of doubt payments under Article
11.1 shall remain due and payable in accordance with the terms of
such Article 11.1; and
6.6.2 The right of Astra to manufacture Product pursuant to Article 16
shall be deemed to be granted pursuant to Article 16.2.2 thereof;
and
6.6.3 Astra shall have no claims against Salix and Salix shall not be
liable for any breach by it of its obligations to complete the
Project in accordance with the terms of this Agreement; and
6.6.4 Astra may in its sole discretion supply information relating to or
arising in the Project to third parties who are licensed to use the
Patents to exploit the Product in the RoW but shall not be under any
obligation to do so and such supply may be upon such terms as may be
agreed between Astra and such third party.
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14 (53)
PART B - DISTRIBUTION
7 APPOINTMENT OF ASTRA
7.1 With effect from the date of this Agreement and in accordance with the
terms and conditions contained in this Agreement, Salix hereby appoints
Astra as its exclusive distributor for the Product within and throughout
the U.S.
7.2 The rights granted hereunder to Astra shall be in respect of the Product
only. In the event that either party shall become aware of any indications
or applications for Balsalazide other than the Applications, it shall
forthwith notify the other party and shall supply the other party with such
details of the other indications and applications as may be available to it
Provided Always That:
7.2.1 Astra shall have a first option to enter into good faith negotiations
with Salix during the period six months from the supply of such
details in respect of an agreement concerning the development of such
other indications and applications and the grant to Astra of the
right to exploit the same in the U.S.; and
7.2.2 Astra shall have no right whatsoever to use and exploit Balsalazide
in any such other indications and/or applications unless and until
completion of such good faith negotiations and the execution of a
written agreement in respect thereof; and
7.2.3 During such period in which Astra shall continue to negotiate in good
faith Salix shall not disclose details of such other
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15 (53)
indications and/or applications to any third party or grant any third
party any rights therein in the U.S. provided that Salix shall not be
prevented or precluded from disclosing the same to any third party
which shall have entered good faith negotiations for the acquisition
of the right to exploit such other indications and/or applications
outside the U.S.; and
7.2.4 In respect of any such other applications and indications disclosed
by Astra to Salix, Salix shall not use or exploit the same (either
itself or through any third party) whether in the U.S. or elsewhere
without the prior consent of Astra (such consent not to be
unreasonably withheld or delayed); and
7.2.5 In respect of any such other applications and indications disclosed
by Salix to Astra, Salix shall not use or exploit the same (either
itself or through any third party) in the U.S. without the prior
consent of Astra (such consent not to be unreasonably withheld or
delayed).
8. REGULATORY APPROVALS
8.1 As stated in Articles 2.6 and 2.7 Salix undertakes to use all reasonable
endeavors to file the Dossier and to apply for and obtain all relevant
regulatory health approvals for the marketing and use of the Developmental
Product in the U.S. as soon as reasonably practicable.
8.2 Astra undertakes to use all reasonable endeavors to effect Launch of the
Product in the U.S. within
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16 (53)
90 days of the receipt of all necessary approvals for such Launch.
8.3 In the event that Astra shall fail to effect Launch in the U.S. within a
period of 180 days after the grant of necessary registrations and approvals
for such Launch, then Salix may in its absolute discretion serve written
notice on Astra (within 30 days of the expiry of such period of 180 days)
amending the rights of Astra granted hereunder to those of a non-exclusive
distributor for the Product in the U.S. Thereafter Salix for the avoidance
of doubt shall also be entitled to exploit such rights and to market and
exploit the Product in the U.S. (whether directly or indirectly through any
agent, contractor or licensee) in such manner as it may in its sole
discretion think fit Provided Always that Astra will retain exclusive
rights to use the Trademark in the U.S.
8.4 In the event that Astra's failure to effect Launch as stated in Article 8.3
exceeds a period of twelve months from the grant of all necessary
registrations and approvals for such Launch, Salix may at its sole
discretion serve written notice on Astra (within 90 days of the expiry of
such period of twelve months) terminating this Agreement in full in
accordance with Article 29.2. Thereafter Salix for the avoidance of doubt
shall be entitled to exploit such rights and to market and exploit the
Product in the U.S. (whether directly or indirectly through any agent,
contractor or licensee) in such manner as it may in its sole discretion
think fit free of any obligation to Astra and Astra shall have no rights
with respect to Product or the Trademark in the U.S.
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9. PROMOTION, MARKETING AND SALE
9.1 Astra shall use reasonable endeavors to promote, market and sell the
Product throughout the U.S. and undertakes to allocate such promotional and
sales resources and such technical support for the promotion, marketing and
sales of the Product as may reasonably be required to sell the Product.
Astra agrees generally to use the same channels and methods, exercising the
same diligence and adhering to the same standards which it employs with
respect to its other products.
9.1.1 For the purposes of utilizing the support and competence of Salix in
the most efficient way the parties have agreed to form the Advisory
Committee, which will be comprised of two members from Salix and
Astra respectively as determined by the parties separately. The
Advisory Committee will primarily be responsible for the development
of the strategy and promotional plans for the Product. It is
envisaged that Salix will at its own expense agree to perform certain
promotional activities such as symposias and medical, scientific and
technical programs as specified by the Advisory Committee and
accepted by Salix. The actions of the Advisory Committee will be
governed by the principles of good faith. For the avoidance of doubt,
Astra remains responsible for the promotion, marketing and sale of
the Product and consequently Astra will always have the final say in
all matters discussed by the Advisory Committee.
9.2 Astra shall promote, market and sell the Product in the U.S. entirely in
accordance with the terms of
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18 (53)
any product license, price approval (if applicable), and other restrictions
and regulations for the Product as may be relevant and applicable in the
U.S.
9.3 Astra undertakes:
9.3.1 To promote, market and sell the Product solely in the U.S. under the
Trademark only and not to use any other trade name, trademark or
logo for or on the Product (Provided That the name "Balsalazide" may
be used but only as a generic name for the Product in accordance
with and as required by applicable laws and regulations); and
9.3.2 To enter into Trademark user agreements and such other agreements
(whether relating to the Trademark, technical standards or
otherwise) as may reasonably be required by Salix or as required by
applicable regulations in connection with the promotion, marketing
and sale by Astra of the Product and/or the use by Astra of the
Trademark; and
9.3.3 To notify Salix immediately of any improper or wrongful use of the
Trademark, the Patents or otherwise any proprietary or confidential
information of Salix or Biorex relating to the Product coming to
Astra's knowledge; and
9.3.4 Forthwith to refer to Salix all inquiries received for the supply of
the Product outside the U.S.; and
9.3.5 Not to seek or sell to customers for the Product outside the U.S.;
and
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19 (53)
9.3.6 To develop and design packaging for the Product in each part of the
U.S. at its sole cost and expense and further that Astra agrees to
state on packages containing the Product that such Product was
manufactured by Salix Pharmaceuticals, Inc., Palo Alto, California
and distributed by Astra USA, Inc. (provided that such wording is in
compliance with U.S. laws and regulations); and
9.3.7 Not to use any misleading statements or misrepresentations on the
Product packaging or use any defective packaging materials and to
comply in all respects with all regulations and laws in connection
with the Product packaging and the information provided thereon; and
9.3.8 In the sale, use and promotion of the Product in each part of the
U.S. to comply with all relevant regulatory health and pricing
regulations and approvals in the U.S. For the avoidance of doubt,
Salix shall not be responsible or liable in any manner whatsoever
for compliance with any such regulations and approvals (whether or
not it shall have assisted Astra in or approved the sale or use of
the Product in the U.S.); and
9.3.9 Not to use any packaging which may adversely affect the Product in
any way whatsoever including but without limitation the Product's
approved shelf-life; and
9.3.10 Not to incur any liability on behalf of Salix or in any manner
pledge or purport to pledge Salix' credit or accept any order or
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20 (53)
make any contract binding on Salix or give or make any
representation, warranties or conditions with reference to the
Product on behalf of Salix. Astra is not and shall not be deemed to
be the agent of Salix and in all correspondence and dealings with
third parties shall not indicate that it is acting as an agent of
Salix; and
9.3.11 To be solely responsible for the acts and omissions of its employees
and representatives in connection with the performance of its rights
and obligations hereunder; and
9.3.12 To purchase Product for sale in the U.S. solely from Salix during
the term hereof (except as specifically provided in this Agreement).
9.4 Astra shall be entirely responsible for the collection of debts due to it
and shall bear all losses owing to its failure so to do.
9.5 To the extent legal, practical and feasible, Astra and Salix shall agree on
appropriate mentioning in promotional material that the Product has been
developed in collaboration between Salix and Astra.
10. PRODUCT DATABASE AND ADVERSE REACTIONS REPORTING
10.1 Salix shall maintain a database of all adverse and other reactions or
events occurring in connection with the Product in any part of the world
except Japan, Taiwan and Korea and shall use reasonable endeavors to assure
that any such adverse and other reactions are notified to it in a timely
manner by any third party authorized by Salix or Glycyx (as defined in
Article 23.1) who are licensed to use and
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21 (53)
exploit the Product in such countries.
10.2 Astra undertakes to notify Salix:
10.2.1 forthwith (or in any event in sufficient time to allow Salix to
report such information in compliance with applicable regulations)
in the event that it becomes aware of any serious adverse reactions
(as defined by the FDA regulations) or contra indications to the
Product; and
10.2.2 within three months (or in any event in sufficient time to allow
Salix to report such information in compliance with applicable
regulations) after it becomes aware of other adverse reactions, or
contra indications to the Product other than stated under 10.2.1.
10.3 Salix undertakes to notify Astra:
10.3.1 forthwith (or in any event in sufficient time to allow Salix to
report such information in compliance with applicable regulations)
in the event that it becomes aware of any serious adverse reactions
(as defined by the FDA regulations) or contra indications to the
Product in any part of the world; and
10.3.2 within three months (or in any event in sufficient time to allow
Salix to report such information in compliance with applicable
regulations) after it becomes
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aware of other adverse reactions or contra indications to the
Product other than stated under 10.3.1.
10.4 In the event that Salix or any third party authorized by Salix or Glycyx
(as defined in Article 23.1) shall conduct clinical studies of the Product
outside the U.S. in support of any promotional or marketing activities of
Salix or such third party, Salix shall use reasonable endeavors to grant or
procure the grant to Astra of full unrestricted access to the results of
such trials so that Astra shall be entitled to use such results in
connection with the marketing, sale and use of the Product in the U.S.
11. CONSIDERATION
11.1 In consideration of the rights hereby granted by Salix to Astra, Astra
hereby agrees to pay to Salix a sum of [*] such sum to be nonrefundable and
payable to Salix as follows:
11.1.1 [*]
11.1.2 [*]
11.1.3 [*]
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THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
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[*]
PART C - SUPPLY AND MANUFACTURE
12. SUPPLY OF PRODUCT
12.1 Astra shall notify Salix in writing of its forecast requirements for
quantities of the Product (in the form of bulk filled capsules and
including Product to be used as samples) and details of its proposals for
Launch twelve months prior to its expected Launch. With such forecast
Astra shall deliver a detailed forecast of its requirements for the Product
for the twelve month period from the date of such notice. Thereafter,
Astra shall, on a quarterly basis, deliver to Salix revised forecasts for
the subsequent 12 month period commencing on the subsequent April 1st, July
1st, October 1st and January 1st respectively. Astra's ambition is to
provide Salix with forecasts indicating Astra's expected requirements per
month.
12.2 Salix shall fulfill all written orders placed on it by Astra for the
Product in the form of bulk filled capsules, subject to the provisions of
Article 12.3.
12.3 Whilst the forecasts delivered by Astra to Salix under Article 12.1 shall
be non-binding and will not place any obligation on either Astra to order
such quantities or Salix to deliver such quantities:
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12.3.1 Astra shall use all reasonable endeavors to estimate accurately in
such forecasts its requirements for the Product; and
12.3.2 Astra shall ensure that all written orders are placed permitting a
lead time for manufacturing of the Product of not less than 16
weeks; and
12.3.3 Astra acknowledges that Salix shall not be obliged to fulfil any
firm written orders placed on it that may be in excess [*] of the
last forecast quantities (in accordance with Article 12.1) for such
period; and
12.3.4 Astra shall place written orders and accept delivery of quantities
of the Product that are not less [*] of the last forecast quantities
(in accordance with Article 12.1) for such period.
12.4 Salix shall supply Astra with such quantities of the Product as Astra may
reasonably require (in bulk filled capsule form) for clinical trials
undertaken by Astra hereunder. Astra shall endeavor to provide Salix with
the maximum period of notice of such requirements and in any event shall
place firm written orders on Salix therefore not less than 60 days before
any requested delivery date, provided that failure of Salix to deliver
sooner than within 90 days shall not constitute breach under this
Agreement.
12.5 Salix shall supply Astra with such quantities of the Product in bulk filled
capsule form as Astra shall reasonably require for use as product samples
and as shall have been forecasted and ordered by Astra in accordance with
Articles 12.1 and 12.3.
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
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25 (53)
12.6 Salix hereby warrants and undertakes that all quantities of the Product (in
bulk filled capsule form) supplied by it to Astra under the terms of this
Agreement shall as at the date of delivery be supplied fully in accordance
with the Bulk Product Specifications and the Finished Product
Specifications contained in Schedule 3 and shall have been manufactured in
accordance with all applicable laws and regulations including FDA Good
Manufacturing Practices, and in compliance with the Drug Master File for
the Product.
12.7 Upon the receipt of any delivery of the Product from Salix, Astra shall
test such Product (in accordance with the Quality Test Procedures to be
agreed and incorporated into Schedule 4 to this Agreement after execution
of this Agreement) and in the event that such Quality Test Procedures
reveal any breach of the warranty given in Article 12.6, Astra shall be
entitled to reject the full shipment of the Product within 45 days of
receipt of such shipment by notice in writing to Salix. Failure of Astra
to reject Product after such 45 day period shall constitute acceptance
thereof by Astra.
12.8 In the event of any dispute between the parties concerning any allegation
of breach of the warranty contained in Article 12.6 or concerning any
rejection or purported rejection of any shipment of the Product, a sample
quantity of the Product in question shall be delivered to an independent
laboratory (nominated by the mutual agreement of the parties) which shall
be supplied with copies of the Bulk Product Specifications, the Finished
Product Specifications and the Drug Master File and shall carry out testing
in accordance with the Quality Test Procedures and whose decision as to the
quality of such Product and as to any breach of warranty by such Product
shall, in the absence of manifest
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26 (53)
error, be final and binding an the parties. The fees and expenses of such
laboratory testing shall be borne entirely by the party against whom such
findings are made.
12.9 The terms and conditions relating to the supply of the Product by Salix to
Astra shall be as set out in this Agreement and each written order placed
on Salix by Astra shall form a separate contract for the supply of the
Product. In the event of any conflicting term between this Agreement and
any order placed by Astra, this Agreement will apply.
13. PRICE
13.1 The price charged for the Product by Salix to Astra shall (save as provided
in Article 12.4, 13.5 and 13.6) be established in US Dollars as follows:
13.1.1 The price for the Product shall be finally determined by the end of
February of each calendar year for the preceding calendar year and
shall equal [*]
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THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
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[*]
13.1.2 Until the price can be finally determined in accordance with
Article 13.1.1 the Product will be supplied at provisional prices
per unit as determined in good faith by Salix and Astra (at Launch
and thereafter on January 1 of each year) based on historical
figures, forecasts (including forecasted Net Sales for Product) and
best estimates;
13.1.3 Any balance resulting from differences between the provisional and
the final prices shall be settled by March 15 of the calendar year
in which the final prices are established;
13.1.4 The parties confirm their understanding that they will at the
latest three (3) months prior to Launch in good faith establish a
"floor price" for the supply by Salix to Astra of the Product. It
is understood that Salix will be under no obligation to supply the
Product for commercial use hereunder at a price which is lower than
such established floor price unless otherwise agreed.
13.2 In order to calculate the price charged by Salix to Astra pursuant to
Article 13.1, Astra shall keep Salix informed of its best available
estimate of the annual Net Sales which it reasonably considers will be
obtained for the Product by Astra in the U.S.
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THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
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28 (53)
13.3 Astra shall keep full, proper and up-to-date books of account and records
showing clearly all transactions relating to the calculation of the Net
Sales. During the term of this Agreement, after Launch, Astra shall
furnish to Salix on a quarterly basis a written report covering Astra's
fiscal quarters showing the gross sales of all Product sold by Astra and/or
any Astra Associates during the reporting period and the calculation of Net
Sales from such gross sales. Reports shall be due forty-five (45) days
following the close of each respective quarter.
13.4 Astra shall allow Salix or its auditors or representative reasonable access
during normal business hours to inspect the books of account of Astra (or
any Astra Associate) in order to verify the annual Net Sales of Product
under this Article 13 Provided That such verification shall be at the sole
cost and expense of Salix. If such examination however reflects an
underpayment of five percent (5%) or more of the amount that should have
been paid for the period audited, then Astra will bear the expense of the
audit.
13.5 Salix shall provide such supplies of the Product to Astra as Astra may
reasonably require for the conduct of clinical trials at cost to Salix (as
specified in Article 13.6).
13.6 The Product supplied by Salix to Astra for the purpose of Product samples
shall be supplied to Astra [*] for a period of [*] from the date of Launch
Provided That:
13.6.1 The quantities so delivered in any one year shall not exceed [*] of
the total aggregate units of Product sold by Astra in such year; and
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THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
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13.6.2 For the purpose of determining [*] it is understood that this shall
include direct costs of material, labor and interest direct
manufacturing overhead, and insurance and shipping costs, but shall
not in any circumstances exceed [*] of such Product in the U.S. for
such year (determined as if such Product had been sold by Astra at
the average Net Sales price per unit of Product during such period);
and
13.6.3 Articles 13.3 and 13.4 shall apply mutatis mutandis with respect to
Salix for the purpose of verifying [*] prices charged;
Provided Further That for the avoidance of doubt Salix shall be entitled to
charge and receive the price for Product calculated in accordance with
Article 13.1 (as if such Product had been sold by Astra at the average Net
Sales price per unit of Product during such period) in respect of any
supplies of Product samples made after such [*] period or made during such
[*] period which are in excess of such [*] figure.
14. TERMS OF PAYMENT
14.1 Payment is strictly net cash to be paid to Salix within thirty (30) days
from the date of invoice in US Dollars. Such payment shall be made in USD
by express payment through the banking system into such bank account as
Salix shall designate for such purpose.
14.2 If payment is not made as set out in Article 14.1 for any bulk delivery of
the Product to Astra Salix
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reserves the right:
14.2.1 To charge interest to Astra at the lower of the rate of 2% (two per
cent) per annum above the prime rate set by the Bank of America on
all past due amounts (such interest to accrue on a day-to-day basis
to the date of payment or the maximum interest allowable by law; and
14.2.2 To require payment in advance for any delivery of the Product made
prior to receipt of such payment in full.
15. DELIVERY
15.1 Delivery of the Product to Astra by Salix shall be F.O.B. any continental
U.S. manufacturing plant of Product (including Puerto Rico) or any port of
entry into the continental U.S. (the "FOB Location").
15.2 Risk in the Product shall pass to Astra on delivery to the FOB Location and
Astra shall be responsible for insuring the Product from the date of
delivery to the FOB Location at its own cost and expense.
16. LICENSE TO MANUFACTURE
16.1 Save only in the circumstances set out below, Salix shall manufacture the
Product and shall supply Astra with such quantities of the Product as it
shall require (subject to the provisions of Article 12) and (save as
expressly provided in this Article 16) Astra shall have no right, title or
interest in any of the Patents or proprietary rights relating to the
Product and is entitled to use the same only under the terms of this
Agreement;
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31 (53)
16.2 In the event that Salix shall:
16.2.1 Be in breach of its obligations to supply the Product as specified
in Article 12 and shall fail to remedy such breach within 90 days of
written notice from Astra requiring remedy; or
16.2.2 Give Astra 180 days notice in writing of its intention to cease to
supply Astra with the Product; or
16.2.3 By reason of Force Majeure be prevented from supplying the Product
to Astra for a period exceeding 180 days;
Astra shall be entitled, by service of notice in writing to Salix forthwith
upon receipt of such notice from Salix, to acquire a non-exclusive license
to manufacture the Product. So manufactured Product may only be sold in
the U.S. on an exclusive basis in accordance with the terms of this
Agreement. Such license shall commence upon the effective date of such
notice and shall be granted and continue upon the terms and conditions
contained in Schedule 5.
16.3 In the event that during any period in which Salix shall fail to supply the
Product to Astra by reason of;
16.3.1 any breach by Salix in respect of which notice shall have been
served under Article 16.2.1; or
16.3.2 any Force Majeure notified by Salix to Astra under Article 16.2.3
Astra wishes to manufacture quantities of the
<PAGE>
32 (53)
Product to satisfy requirements for the Product in the U.S. Astra shall (by
notice in writing to Salix) forthwith be entitled to a temporary license to
manufacture the Product during such period only and Provided That:
16.3.3 Such license shall be upon the terms specified in Schedule 5; and
16.3.4 Such license shall permit manufacture by Astra of only such
quantities of the Product as may reasonably be required to fulfill
actual and reasonably anticipated orders on Astra for the Product
during such period and a reasonable period thereafter.
16.4 In order to satisfy itself of its ability to manufacture the Product, Astra
(or an Astra Associate) shall be entitled at any time during the term of
this Agreement to effect one trial manufacture of bulk quantity of the
Product Provided Always That:
16.4.1 Salix shall provide such assistance and technical information as
Astra may reasonably require for such trial; and
16.4.2 Salix shall be entitled to attend and observe such trial; and
16.4.3 Such trial shall be conducted at the sole cost and expense of Astra
and if such trial quantity is used by Astra for commercial purposes
in the U.S., be entitled to charge Astra for the Product produced as
if it were Product sold by Salix to Astra under this Agreement at a
price calculated [*]
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILLED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
33 (53)
obtained by Salix on the supply of Product under the terms of this
Agreement, [*] in the U.S. (determined as if such Product had been
sold by Astra at the average Net Sales price per unit of Product
during such period) or such higher figure as Salix may show by
documentary evidence [*].
16.4.4 Astra shall be solely responsible and liable for the quality of the
Product produced in the trial and for all expenses necessary to
register Astra as a supplier of Product in the U.S.; and
16.4.5 Astra shall be licensed to use the Patents and any intellectual
property rights existing in the Product for such trial only and
solely for purposes of sales in the U.S.; and
16.4.6 Astra shall not use all or any information received for the purpose
of the trial for any other purpose whatsoever and shall not use the
same after the trial unless and until a license to manufacture
Product shall became effective under the terms of Articles 16.2 and
16.3; and
16.4.7 Upon the successful completion of Astra's trial manufacture under
Article 16.4, Salix shall apply, at Astra's expense, for
registration of Astra as a supplier of Product in the U.S. under the
Drug Master File for the Product Provided Always That Astra shall
not exercise any right as such a registered supplier unless and
until a
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
34 (53)
manufacturing license shall become effective under Articles 16.2
and 16.3.
PART D - TRADEMARK LICENSE
17. TRADEMARK LICENSE
17.1 Salix hereby grants to Astra a sole and exclusive license to use the
Trademark on the Product and in connection with the marketing and
commercialization of the Product in the U.S. only. Astra agrees to utilize
the Trademark on all Product sold in the U.S. during the term of the
trademark license granted hereunder.
17.2 Salix undertakes to procure the grant of such rights and license as may
reasonably be required to give effect to Article 17.1 from the Trademark
owner and shall use reasonable endeavors to obtain such owner's execution
of such agreements as are referred to in Article 9.3.2.
17.3 Astra hereby confirms and acknowledges that it is licensed to use the
Trademark only as set out in this Agreement and Astra further:
17.3.1 Acknowledges that all goodwill in the Trademark in the U.S.
(whether or not generated by the activities of Astra under this
Agreement) shall vest in such trademark owner as Salix shall
identify; and
17.3.2 Acknowledges that any application for registration of the Trademark
shall only be made in the name of such trademark owner as Salix
shall identify; and
<PAGE>
35 (53)
17.3.3 Undertakes to transfer and assign to Salix (or as it may direct)
any right, title or interest required by Salix for registration of
the Trademark in any part of the U.S. in the name of such owner of
the Trademark as Salix shall direct and for all goodwill in the U.S.
to such owner.
17.4 In consideration of the rights and license granted to Astra by Salix in
respect of the Trademark, Astra shall pay to Salix a license fee at the
rate of [*] of all Product bearing the Trademark supplied by Astra (or any
Astra Associate) to any third party. Such license fee shall commence on the
date of this Agreement and shall continue to be payable for such period of
time in which Astra shall continue to use the Trademark under the license
hereby granted.
18. LICENSE PAYMENT
18.1 Astra shall keep true and accurate records of the sales of all Product
manufactured by it pursuant to any license granted under Articles 16.2 and
16.3 and of all Product sold by it at any time bearing the Trademark and
Astra shall within ninety (90) days of the end of each period of three
months (such periods to end on March 31, June 30, September 30 and December
31) send Salix a full statement showing the calculation of all sums due and
owing to Salix:
18.1.1 In respect of the manufacturing license under the provisions of
Article 6 of Schedule 5; and
18.1.2 In respect of the Trademark License under the provisions of Article
17
and with such statement shall make payment in US Dollars by express payment
through the banking
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
36 (53)
system into such bank account as Salix shall designate for such purpose, of
such sum as is shown as due on the statement.
18.2 Astra shall allow Salix or its auditors or representative reasonable access
during normal business hours to inspect the books of account of Astra or
any Astra Associate in order to verify the accuracy and calculation of any
statements delivered under Article 18.1 Provided That such verification
shall be at the sole cost and expense of Salix. If such examination however
reflects an underpayment of five percent (5%) or more of the amount that
should have been paid for the period audited, then Astra will bear the
expense of the audit.
18.3 Interest shall be payable to Salix by Astra at the lower of the rate of two
percent (2%) above the prime lending rate set by the Bank of America from
time to time or the maximum interest allowable by law on all on all past
due amounts payable by Astra to Salix under the provisions of this Article
18, both before and after judgement.
PART E - MISCELLANEOUS
19. INDEMNIFICATION
19.1 Salix hereby agrees to indemnify Astra against any action, claim, loss and
damage suffered by or awarded against Astra (as well as attorney's fees and
defense costs) in connection with any claim against Astra from a third
party arising from any statement or presentation with respect to the
Product or Balsalazide made by Salix or its authorized agents or employees
(excluding Astra or any Astra Associate) which is inconsistent,
<PAGE>
37 (53)
contradictory or misleading to the information of or for the Product
included in the package insert for Product, or from any breach by Salix (or
its subcontractors or nominees) of the warranty and undertaking contained
in Article 12.6 Provided Always That such indemnity shall not extend to any
liability, cost, expense or damage suffered or incurred by reason of any
defect in any Product which was detected or should have been detected by
Astra by means of the Quality Test Procedures applied (or which should have
been applied) by Astra within 45 days of the date of delivery of the
Product under the provisions of Article 12.7.
19.2 Astra undertakes to indemnify and hold Salix harmless against all and any
action, loss, damage, claim or liability (including Attorney's fees and
defense costs) suffered or incurred by Salix in any circumstances
whatsoever save only where Salix is liable under Article 19.1.
20. CONFIDENTIAL INFORMATION
20.1 Astra hereby agrees and undertakes that during the application of this
Article 20 and for a period of ten years thereafter (howsoever termination
may be caused or arise) Astra and any Astra Associate shall keep
confidential and shall not without the prior written consent of Salix
disclose to any third party or use (except as specifically provided in this
Agreement) any information of a confidential nature belonging to Salix or
Biorex (including without limitation trade secrets and information of
commercial value) which may become known to Astra from Salix in connection
with this Agreement Provided Always That such obligation of confidentiality
shall not extend to any part of such confidential information which:
<PAGE>
38 (53)
20.1.1 Shall otherwise than by reason of any default by Astra or any Astra
Associate become freely available to the general public; or
20.1.2 Astra can show by documentary evidence was in its possession or
control prior to disclosure free of any obligation of
confidentiality; or
20.1.3 Astra can show by documentary evidence shall have come into the
possession or control of Astra from a third party free of any
obligation of confidentiality subsequent to disclosure hereunder; or
20.1.4 Astra is obliged by law or regulation to disclose to a third party
provided that such disclosure shall only be to the extent required
by such law or regulation.
20.1.5 Astra or any Astra Associate is authorized to use under separate
agreements with Biorex or its licensees, provided however that any
such use shall be governed by and limited to what is stated in such
agreements.
and Provided Further that in the event that this Agreement is terminated by
Salix, Astra shall forthwith cease any use of such information for any
purpose whatsoever.
20.2 Astra shall ensure that any employee of, or consultant to, Astra or any
Astra Associate who shall obtain any confidential information in connection
with the performance of this Agreement shall be bound by obligations of
confidentiality substantially similar to the provisions of Article
<PAGE>
39 (53)
20.1.
20.3 Salix acknowledges the importance of keeping all material information
relating to the Product confidential and Salix will use all reasonable
endeavors to make sure that no such information is made public or otherwise
made available to third parties in any manner which would jeopardize the
exclusivity in the U.S. granted to Astra hereunder.
21. INTELLECTUAL PROPERTY
21.l Salix hereby represents and warrants to Astra as at the date of this
Agreement (with the intent that Astra has relied upon such representations
and warranties in entering into this Agreement) that:
21.1.1 The Biorex Agreement (which has been disclosed to Astra) contains
all the terms concerning the arrangements between Biorex and Salix
affecting the U.S. and that there is no other fact or circumstance
relating to the Biorex Agreement that is material to the Project
and/or this Agreement and which might reasonably be expected to
affect the decision of Astra to enter into this Agreement which has
not been disclosed to Astra by Salix; and
21.1.2 Biorex is the sole legal owner of the Patents listed in Schedule 1;
and
21.1.3 So far as Salix is aware the issued Patents are valid and
subsisting; and
21.1.4 So far as Salix is aware and save as indicated therein the Product
Information is accurate and complete in all material
<PAGE>
40 (53)
respects and there is nothing contained therein which might render
the Product Information misleading in any material respect; and
21.1.5 Except as disclosed in writing to Astra, so far as Salix is aware
the Trademark is available for use in connection with the Product in
the U.S. and does not infringe the rights of any third party;
Provided Always That Salix shall not be liable in any respect for any
breach of the warranties contained in Articles 21.1.1 and 21.1.5 unless
notice in writing specifying details of such breach shall have been served
on Salix by Astra prior to the twelfth anniversary of the date of this
Agreement.
21.2 Astra acknowledges that save as expressly provided herein or as may be
required in connection with the performance by Astra of any obligations
hereunder, Astra shall have no right, title, interest or license in or to
the Patents or otherwise any intellectual property rights of Biorex or
Salix in Balsalazide, the Trademark or the Product, including without
limitation the results of the Project.
21.3 In the event that either party becomes aware of any infringement by any
third party within the U.S. of any intellectual property rights of Salix
and/or Biorex in the Patents, Balsalazide, the Product or the Trademark it
shall forthwith notify the other party. Salix shall be entitled to take
such action (or procure such action by Biorex) as it may in its sole
discretion consider appropriate against any such third party infringer
Provided Always That:
21.3.1 Astra shall give such assistance as Salix
<PAGE>
41 (53)
may reasonably require in connection with any such action (subject
to reimbursement by Salix of all costs reasonably incurred by
Astra); and
21.3.2 Salix shall keep Astra informed of the conduct and progress of such
action but shall be entitled to conduct, pursue and settle such
action in such manner as it shall reasonably consider appropriate
and to retain any damages awarded against any such infringer;
In the event that such infringement shall continue for a period of sixty
(60) days after Salix has knowledge of the infringement and Salix shall
fail to take or procure any action to prevent any continued infringement
Astra may (in its sole discretion) at its sole expense initiate and pursue
such action as it considers appropriate to prevent any continued
infringement Provided Further That:
21.3.3 Salix shall give (and shall use reasonable endeavors to procure
from Biorex) such assistance as Astra may reasonably require in
connection with any such action (subject to reimbursement by Astra
or all costs reasonably incurred by Salix and/or Biorex); and
21.3.4 Astra shall keep Salix informed of the conduct and progress of such
action but shall be entitled to conduct, pursue and settle such
action in such manner as it shall reasonably consider appropriate
(having regard to the continuing value of any such intellectual
property rights to Salix and/or Biorex and the effect which any such
infringement shall have had or will have on the sale in the U.S. by
Astra
<PAGE>
42 (53)
of the Product) and to retain any damages awarded against any such
infringer.
21.4 In the event that any claim is made against Astra by any third party
alleging infringement of any rights of any third party by the use and
exploitation of the Product by Astra, Astra shall be entitled at its sole
cost and expense to defend any such claim in such manner as it may in its
sole discretion consider appropriate Provided Always That:
21.4.1 Salix shall give (and shall use reasonable endeavors to procure
from Biorex) such assistance as Astra may reasonably require in such
action (subject to reimbursement by Astra of all costs reasonably
incurred by Salix and/or Biorex); and
21.4.2 Astra shall keep Salix informed of the conduct and progress of such
action but shall be entitled to conduct, pursue and settle such
action in such manner as it shall reasonably consider appropriate
(having regard to the continuing value of any such intellectual
property rights to Salix and/or Biorex and the effect which any such
infringement shall have had or will have on the sale in the U.S. by
Astra of the Product) and to retain any damages awarded against such
infringer; and
21.4.3 Save only for any liability arising by reason of any breach by
Salix of the warranties contained in Article 21.1, Salix shall not
be liable in any manner whatsoever to Astra for any loss or damages
suffered incurred or awarded against Astra in connection with any
such claim.
<PAGE>
43 (53)
22. SUB-DISTRIBUTORS AND SUB-LICENSEES
22.1 Astra is hereby granted the right to appoint subdistributors for the
Product Provided Always That
22.1.1 Astra shall remain solely liable for the performance of its
obligations hereunder; and
22.1.2 Any sub-distributor appointed shall only be an Astra Associate.
23. ASSIGNMENT
23.1 The benefit of this Agreement is personal to Astra and Salix and shall not
be capable of assignment by either of them without the prior consent in
writing of the other party (such consent not to be unreasonably withheld or
delayed). Salix may however assign this Agreement to its associated
company, Glycyx Pharmaceuticals Ltd. a company incorporated under the laws
of Bermuda with its registered office at 41 Ceder Avenue, Hamilton, HM 12,
Bermuda ("Glycyx").
24. FORCE MAJEURE
24.1 If the performance of any obligations under this Agreement by either party
is affected by Force Majeure, it shall forthwith notify the other party of
the nature and extent thereof.
24.2 Neither party shall be deemed to be in breach of this Agreement or
otherwise be liable to the other by reason of any delay in performance or
nonperformance of any of its obligations hereunder to the extent that such
delay or nonperformance is due to any Force Majeure which has been notified
to the other party in writing.
<PAGE>
44 (53)
25. COSTS
25.1 Each party hereto shall bear its own costs in relation to the negotiation,
drafting, preparation and execution of this Agreement.
25.2 All payments made by Astra to Salix under this Agreement shall be made free
and clear of, and shall shall not be reduced or offset by any non-U.S.
withholding taxes, which shall be the sole responsibility of Astra. Astra
shall make all such required payments and shall provide Salix with a
certificate evidencing payment of any such withholding tax.
26. CONFIDENTIALITY OF THIS AGREEMENT
26.1 The content of this Agreement shall remain confidential as between the
parties. Neither party shall, without the prior written consent of the
other (such consent not to be unreasonably withheld without justification),
disclose any of the financial terms of this Agreement to any other person,
firm or company save for:
26.1.1 disclosure by Salix to Biorex, Glycyx or proposed investors in
circumstances where such third party shall have accepted obligations
of confidentiality in respect of the information disclosed; and
26.1.2 such disclosure as may be required by any relevant law or
regulatory authority.
27. NATURE OF THE AGREEMENT
27.1 Nothing in this Agreement shall create or be deemed to create any
partnership, joint venture or the relationship of principal and agent
between the
<PAGE>
45 (53)
parties.
27.2 EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, SALIX MAKES NO
REPRESENTATION OR WARRANTY AS TO THE PRODUCTS, EXPRESS OR IMPLIED, EITHER
IN FACT OR BY OPERATION OF LAW, BY STATUTE OR OTHERWISE, AND SALIX
SPECIFICALLY DISCLAIMS ANY AND ALL IMPLIED OR STATUTORY WARRANTIES,
INCLUDING WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR WARRANTY
OF FITNESS FOR A PARTICULAR PURPOSE.
27.3 EXCEPT AS PROVIDED IN THIS AGREEMENT, IN NO EVENT SHALL EITHER PARTY BE
LIABLE FOR COSTS OF PROCUREMENT OF SUBSTITUTE PRODUCTS OR SERVICES, OR FOR
ANY LOST PROFITS OR OTHER CONSEQUENTIAL, INCIDENTAL, SPECIAL, OR INDIRECT
DAMAGES OF THE OTHER PARTY, HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY,
ARISING OUT OF THIS AGREEMENT. THESE LIMITATIONS SHALL APPLY
NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY.
27.4 This Agreement (including all the Schedules) and any agreements entered
into pursuant to this Agreement constitutes the entire understanding and
agreement between the parties with respect to the subject matter of this
Agreement and supersedes all prior agreements, negotiations and discussions
between the parties relating to this Agreement.
27.5 This Agreement may not be released, discharged, abandoned, charged or
modified, in any manner, except by an instrument in writing signed by a
duly authorized officer of representative from each of the parties hereto.
27.6 Dispute Resolution; Governing Law. This Agreement shall be governed by and
---------------------------------
construed in accordance with the laws of the state of New York, excluding
any choice of law rules which may direct the
<PAGE>
46 (53)
application of the law of any other jurisdiction. In the event of the
occurrence of a dispute relating to a party's rights or obligations
hereunder, either party may, by notice to the other party, have such
dispute referred to their respective President or other designee, for
attempted resolution by good faith negotiations within thirty (30) days
after such notice is received. All such disputes shall be addressed in
English. In the event such officers are not able to resolve such dispute
within such thirty (30) day period, the parties agree that the dispute will
be submitted to binding arbitration which shall be in accordance with the
Commercial Arbitration Rules of the American Arbitration Association. Any
arbitration or litigation initiated hereunder shall be (i) held in Santa
Clara County, California if the demand for arbitration or litigation is
initiated by Astra and (ii) held in Boston, Massachusetts if the demand for
arbitration or litigation is initiated by Salix. In the event of
arbitration, there shall be three (3) arbitrators, one (1) chosen by Astra,
one chosen by Salix and a third to be selected by the two arbitrators so
chosen. The costs of arbitration including reasonable attorney's fees,
shall be borne by the party designated by the arbitrators. For the purpose
of accepting service of process in connection with any action commenced
hereunder, the parties hereto hereby absolutely, unconditionally and
irrevocably appoint the following agents to accept process on their behalf;
it being unconditionally agreed that for this purpose such process will be
properly and effectively served if the same is left at the addresses set
out below:
Astra: Astra USA, Inc.
50 Otis Street
Westboro, MA 01581 USA
F.A.O. President
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47 (53)
Salix: Salix Pharmaceuticals, Inc.
3600 W. Bayshore Road, Suite 205
Palo Alto, CA 94303 USA
F.A.O. President
28. NOTICES
28.l All Notices to be served by the parties to this Agreement shall be served
only in the English language.
28.2 Notices shall be sufficiently served if dispatched by first class or
express post (meaning the fastest normal method of mail transmit in the
country of dispatch) to the address of the receiving party set out below
Astra: AB Astra
S-151 85 Sodertalje
Sweden
F.A.O. Vice President Legal Affairs
copy to: Astra USA, Inc.
50 Otis Street
Westboro, MA 01581 USA
F.A.O. President
Salix: Salix Pharmaceuticals, Inc.
3600 W. Bayshore Road, Suite 205
Palo Alto, CA 94303 USA
F.A.O. President
Any modification to these address must in itself be notified in writing to
the other party in accordance with the terms of this sub-clause.
28.3 In the absence of proof to the contrary and subject to Article 28.4,
notices properly sent hereunder shall be deemed to have been duly served 10
days after the date of dispatch.
28.4 It shall be permitted for notices to be served hereunder by facsimile
transmission and for this purpose the following fax numbers below shall
apply:
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48 (53)
28.4.1 In the case of Salix at 3600 Bayshore Road, Suite 205, Palo Alto,
CA 94303, USA facsimile transmission number (415) 856-1555 and
marked for the attention of the President; and
28.4.2 In the case of Astra at S-151 85 Sodertalje, Sweden facsimile
transmission number (8) 55 32 90 00 and marked for the attention of
Vice President Legal Affairs with copy to 50 Otis Street, Westboro,
MA 01581, USA facsimile transmission number (508) 366-7406 and
marked for the attention of the President;
provided that such notice is confirmed by return facsimile and shall be
deemed served 24 hours after the time of receipt of such return facsimile.
PART F - TERMINATION AND EFFECTS THEREOF
29. TERMINATION
29.1 Unless terminated earlier as set forth in this Agreement, the rights and
obligations of the parties contained in Articles 2-16 and 21-31 shall cease
forthwith upon the later of (i) the date of expiry of the validity of the
last to expire of the Patents (including any exclusivity extension for the
Product in the U.S. granted by or through the FDA or applicable
governmental body), or (ii) nine (9) years from the Launch of Product
Provided Always That:
29.1.1 The Trademark License granted under Article 17 shall continue
thereafter in accordance with its terms and Article 18 will remain
valid with respect to Article 17; and
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49 (53)
29.1.2 Any license granted to Astra to manufacture under Article 16.2
shall continue indefinitely thereafter in accordance with Article
6.4 of Schedule 5; and
29.1.3 Astra is entitled to continue to sell the Product indefinitely
thereafter.
29.1.4 Salix is free to manufacture and sell the Product in the U.S.
indefinitely thereafter to any party.
29.2 Either party to this Agreement shall be entitled to terminate this
Agreement forthwith by notice in writing to the other in the event that:
29.2.1 The other party shall fail to pay any sum due hereunder on the due
date and shall fail to remedy such breach within thirty (30) days of
being required in writing by the other party so to do; or
29.2.2 The other party shall commit a material breach of any of the terms
and conditions of this Agreement and shall fail to remedy the same
(if capable of remedy) within ninety (90) days of being required in
writing by the other party so to do; provided that such right of
termination shall not arise in the event of any breach by Salix of
its obligations under Article 12 which circumstance is governed by
the provisions of Article 16 only; or
29.2.3 The other party goes into liquidation (either voluntary or
compulsory or shall be the subject of any petition for winding up;
or
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29.2.4 The other party shall make any assignment or arrangement for the
benefit of its creditors or cease to carry on its business in the
ordinary course; or
29.2.5 A receiver, administrative receiver, or receiver and manager, or
judicial manager or administrator is appointed over the whole or any
part of the assets of either party or if any court proceedings are
commenced for the appointment of an administrator or receiver to
either party; or
29.2.6 The other party shall become unable to pay its debts as they become
due in the ordinary course of business or shall otherwise become
subject or seek relief under any law relating to insolvency in any
jurisdiction relevant to such other party; or
29.2.7 The party serving such notice shall have served notice of
termination on such other party under the provisions of Article 29.2
provided that in the event that Astra assumes all obligations in
connection with the conduct and completion of the Project in
accordance with Article 6.5 or 6.6, no event referred to in such
Article 6.5 or 6.6 shall constitute grounds for breach under this
Agreement.
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51 (53)
29.3 Any waiver by either party of a breach of any provision of this Agreement
shall not be considered as a waiver of any subsequent breach of the same or
any other provisions of this Agreement.
29.4 Any termination of this Agreement shall be without prejudice to the right
of either party to recover any monies due to it under this Agreement or the
rights or remedies of either party in respect of any breach prior to the
effective date of termination of this Agreement.
29.5 Salix undertakes that during the term of this Agreement it shall not
exercise any right which it may have (or may acquire) to terminate the
Biorex Agreement without prior consultation with Astra and without taking
such action as may be appropriate to ensure that the rights granted to such
other hereunder are not prejudiced to any material extent.
30. CONSEQUENCES OF TERMINATION
30.1 In the event of termination of this Agreement under Article 29.2 by Salix
or as provided in Articles 6.5.1 or 6.6, prior to its expiry under Article
29.1 Astra shall:
30.1.1 Forthwith, cease all marketing, sale and promotion of the Product;
and
30.1.2 Immediately telegraphically transfer all monies due and payable to
Salix as at the date of termination into Salix's bank account
designated under Article 14.1; and
30.1.3 Immediately return to Salix all information and data of whatsoever
nature relating to the Product together with all copies thereof
(other than correspondence between
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52 (53)
Salix and Astra) which Astra may have in its possession or under its
control including but without limitation all scientific, medical and
safety data relating to the Product; and
30.1.4 Immediately cease use of (i) all or any confidential information of
Salix delivered in connection with this Agreement and (ii) the
Trademark; and
30.1.5 Take all such steps as may reasonably be required to transfer or
procure the transfer to Salix (or its nominee) of all such product
licenses and approvals as may have been obtained for the marketing
and sale of the Product in any part of the U.S.; and
30.1.6 Salix shall purchase such stocks of the Product (inclusive of
packaging) as Astra shall still have in its possession (once Astra
has fulfilled all orders outstanding as at the date of termination)
at a price calculated as cost price to Astra Provided That Salix
shall not be obliged to purchase any of the stocks of the Product
which do not have at least two thirds of its approved shelf-life
unexpired or are otherwise not of merchantable quality.
30.2 In the event of termination of this Agreement under Article 29.2 by Astra
prior to its expiry under Article 29.1, the rights and obligations of Astra
shall be as provided by the terms of the Biorex/Astra Agreement.
<PAGE>
53 (53)
PART G - ASTRA OPTION
31. ASTRA OPTION
Astra will have a first right of refusal to obtain U.S. marketing rights to
gastrointestinal products for which Salix has obtained such rights from a third
party and where Salix chooses not to assume the sole and exclusive
responsibility for marketing.
Salix will submit to Astra a proposal including commercial terms and
technical information sufficient for Astra to make an informed decision.
Astra will have exclusive rights to evaluate and negotiate with Salix for
the following 6 months and during which time Salix will negotiate in good
faith. Upon expiration of 6 months, Salix can contract with third parties
but at terms no less favorable than those last offered by Astra.
For gastrointestinal products which Salix obtains as a result of its own
internal research and development efforts, Salix agrees to discuss these
products first with Astra with the intention of initiating a business
discussion.
This Agreement has been duly executed by the duly authorized representatives of
the parties hereto effective as of the day and year first above written.
SALIX PHARMACEUTICALS INC AB ASTRA
By: /s/ Randy Hamilton By: /s/ signature unreadable
Title: President Title: President & CEO
<PAGE>
EXHIBIT A
DATED April 30 1993
-----------------------------------------
BIOREX LABORATORIES LIMITED (1)
- and -
AB ASTRA (2)
AGREEMENT
<PAGE>
TABLE OF CONTENTS
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<TABLE>
<CAPTION>
Page
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<S> <C>
1. Definitions............................................ 1
2. Commencement........................................... 3
3. Appointment of Astra................................... 4
4. Regulatory Approvals................................... 5
5. Astra's Undertakings................................... 6
6. Product Database and Adverse Reactions Reporting....... 7
7. Clinical Trials and Developments....................... 8
8. Licence to Manufacture................................. 9
9. Trademark Licence...................................... 10
10. Licence Payment........................................ 11
11. Product Liability...................................... 12
12. Confidential Information............................... 12
13. Intellectual Property.................................. 13
14. Sub-Distributors....................................... 14
15. Termination............................................ 14
16. Consequences of Termination............................ 15
17. Assignment............................................. 16
18. Force Majeure.......................................... 16
19. Costs.................................................. 17
20. Confidentiality of This Agreement...................... 17
</TABLE>
<PAGE>
TABLE OF CONTENTS - (Cont.)
---------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
21. Nature of the Agreement............................... 17
22. Notices............................................... 18
</TABLE>
<PAGE>
THIS AGREEMENT is made the 30th day of April, 1993
- --------------
BETWEEN:
- -------
(1) BIOREX LABORATORIES LIMITED, a company incorporated under the laws of
---------------------------
England and Wales having its registered office at 2 Crossfield Chambers
Gladbeck Way Enfield Middlesex EN2 7HT ("Biorex"); and
(2) AB ASTRA, a company incorporated under the laws of Sweden whose principal
--------
place of business is at Kvarnbergagatan 16 S-151 85 Sodertalje Sweden
("Astra").
WHEREAS:
- -------
(A) Salix Pharmaceuticals, Inc., a company incorporated under the laws of
California and whose registered office is at 3600 W. Bayshore Road, Palo
Alto, CA 94303 ("Salix") and Biorex have entered into a License Agreement
dated as of January 17, 1991, as amended and restated by an agreement of
even date herewith. The January 17, 1991 Agreement, as amended, is
referred to in this Agreement as the "Biorex/Salix Agreement."
(B) By a Co-Participation Agreement of even date herewith between Salix and
Astra (the "Salix/Astra Agreement"), Salix has entered into arrangements
with Astra concerning further research and development of the
pharmaceutical product licensed to Salix by Biorex, and Salix has sub-
licensed certain of the rights granted to it by Biorex under the terms of
the Biorex/Salix Agreement to Astra for a defined territory.
(C) Astra wishes to ensure that its rights to manufacture and distribute such
pharmaceutical product will not be prejudiced by any action by Salix or
circumstances which might give Biorex rights to terminate the Biorex/Salix
Agreement or by any termination by Astra of the Salix/Astra Agreement and
Biorex and Astra have agreed to enter into this Agreement upon the terms
and conditions hereof.
NOW IT IS HEREBY AGREED as follows:
- -----------------------
1. DEFINITIONS
-----------
1.1 In this Agreement the following words shall have the following meanings:
"Applications" means the treatment of Diseases of Digestive System
according to WHO classification of diseases Class 52.
"Astra Associate" means any company which is a holding company of Astra
or a subsidiary of Astra and any other subsidiary of
any such holding company or subsidiary and for this
purpose a company
-1-
<PAGE>
shall be deemed to be a "subsidiary" of another if that
other is a member of it and controls the composition of
its board of directors.
"Balsalazide" means 5-[4(2-carboxyethylcarbamoyl)-phenylazo]-
salicylic acid disodium salt dihydrate.
"Biorex/Salix
Agreement" means the agreement dated January 17, 1991 between
Salix and Biorex, as amended and restated by an
agreement of even date to this Agreement.
"Salix/Astra
Agreement" means the Co-Participation Agreement of even date to
this Agreement between Salix and Astra.
"Dossier" shall mean the master regulatory dossier relating to
the Product prepared under and in accordance with the
terms of the Salix/Astra Agreement.
"Excluded
Territory" the entire world excluding the Territory, Japan, Korea
and Taiwan.
"Factory Sale Price" means the ex factory sales price of each Product
actually charged by Astra (or any Astra Associate) for
each shipment of Product on an arms length open market
basis to any third party (being a person firm or
company which is not an Astra Associate) net only of
sales and purchase taxes, customs or import duties,
delivery charges, and returns and allowances. discounts
and chargebacks actually charged on each such shipment.
"Filing Date" means the date upon which the Dossier (completed in
accordance with the terms of die Salix/Astra Agreement)
shall be submitted by Salix for registration within the
U.S. under Clause 2.6 of the Salix/Astra Agreement.
"Force Majeure" means in relation to either party any circumstances
beyond the reasonable control of that party (including
but not limited to strike, lock out or other form of
industrial action, act of God, war, riot, accident,
breakdown in plant or machinery, fire, flood, explosion
or government action).
-2-
<PAGE>
"Salix" means Salix Pharmaceuticals, Inc.. a company
incorporated under the laws of California and whose
registered office is at 3600 W. Bayshore Road, Palo
Alto, California 94303.
"Launch" means a commercial launch by Astra (or any Astra
Associate) of the Product throughout the Territory
supported by such marketing expense and support and
launched in such quantities as may reasonably be
appropriate for the Product to have a significant
effect on total sales of any similar or competitive
product.
"the Patents" means the patents and applications therefor relating to
Balsalazide listed in Schedule 1 to the Salix/Astra
Agreement.
"Product" means a pharmaceutical preparation in capsule form
containing Balsalazide for the Applications and such
other pharmaceutical preparations containing
Balsalazide for the Applications as may be developed by
Salix during the term of the Salix/Astra Agreement or
by Biorex during the term of this Agreement.
the "Territory" means the United States of America, its territories and
possessions.
the "Trade Mark" means the trade name "Colazide" registered as a
trademark for use on pharmaceutical preparations in the
Territory and any other tradename designated by Biorex
for use in connection with the Product in any part of
the Territory.
1.2 The headings in this Agreement are for convenience only and shall not
affect its interpretation.
1.3 References to documents in the approved form shall be references to
documents in the form agreed between the parties and initialled by both
parties for the purposes of identification.
2. COMMENCEMENT
------------
2.1 The rights and obligations of the parties under this Agreement shall only
come into force if either:
2.1.1 Biorex terminates the Biorex/Salix Agreement in accordance with its
terms; or
-3-
<PAGE>
2.1.2 Astra terminates the Salix/Astra Agreement pursuant to Clause 29.2
thereof and consequently Biorex terminates the Biorex/Salix Agreement
in accordance with its terms.
2.2 For the avoidance of doubt Biorex shall not be liable to Astra or incur any
obligation to Astra for any act or omission of Salix in respect of the
Salix/Astra Agreement.
2.3 Any payments which would otherwise have become payable to Salix pursuant to
Clause 11.1.3 of the Salix/Astra Agreement but which have not at the date
of termination of the Biorex/Salix Agreement or at the date of termination
of the Salix/Astra Agreement (as the case may be) in accordance with Clause
2.1 above become due and payable to Salix shall be paid directly to Biorex
by Astra.
3. APPOINTMENT OF ASTRA
--------------------
3.1 With effect from the date this Agreement comes into force pursuant to
Clause 2.1 and in accordance with the terms and conditions contained in
this Agreement, Biorex hereby grants Astra an exclusive licence to sell
within and throughout the Territory Product manufactured in the Territory
by Astra pursuant to the licence granted in Clause 8.1. Astra shall not
have the right to grant sublicenses under this license or pursuant to the
Salix/Astra Agreement, except to an Astra Associate.
3.2 The rights granted hereunder to Astra shall be in respect of the Product
only. In the event that either party shall become aware of any indications
or applications for Balsalazide other than the Applications, it shall
forthwith notify the other party and shall supply the other party with such
details of the other indications and applications as may be available to it
Provided Always That:
3.2.1 Astra shall have a lint option to enter into good faith negotiations
with Biorex during the period six months from the supply of such
details in respect of an agreement concerning the development of
such other indications and applications and the grant to Astra of
the right to exploit the same in the Territory; and
3.2.2 Astra shall have no right whatsoever to use and exploit Balsalazide
in any such other indications and/or applications unless and until
completion of such good faith negotiations and the execution of a
written agreement in respect thereof; and
3.2.3 during such period in which Astra shall continue to negotiate in
good faith, Biorex shall not disclose details of such other
indications and/or applications to any third party or grant any
third party any rights therein in the Territory; provided that
Biorex shall not be prevented or precluded from disclosing the same
to any third party which shall have entered good faith negotiations
for the
-4-
<PAGE>
acquisition of the right to exploit such other indications and/or
applications outside the Territory; and
3.2.4 in respect of any such other applications and indications disclosed
by Astra to Biorex of which Biorex was not already aware at the time
of such disclosure (as evidenced by its written records), Biorex
shall not use or exploit the same (either itself or through any
third party) in the Territory without the prior consent of Astra
(such consent not to be unreasonably withheld or delayed).
4. REGULATORY APPROVALS
--------------------
4.1 Astra shall not be able to exercise its rights hereunder unless and until
the Dossier shall have been completed and is available for filing with the
relevant regulatory authority in the Territory.
4.2 Astra undertakes to use all reasonable endeavours to file the Dossier and
to apply for and obtain all relevant regulatory health and price approvals
for the marketing and use of the Product in the Territory as soon as
reasonably practicable after the Filing Date.
4.3 Astra undertakes to use its best endeavours to apply for and obtain all
relevant regulatory health and price approvals for the marketing and use of
the Product in the Territory and to effect Launch of the Product in the
Territory within 90 days of the receipt of all necessary approvals for such
Launch.
4.4 Astra shall be solely responsible for effecting (at its sole cost and
expense) such amendments and translations to the Dossier as may be required
to procure that the Dossier complies with and satisfies the requirements of
any regulatory or approval authority within any particular part of the
Territory and Biorex shall not be obliged to incur any cost or conduct any
further test or development work or otherwise amend or translate the
Dossier whether before or after the Filing Date.
4.5 In the event that Astra shall fail to effect Launch in the Territory within
a period of 180 days after the grant of all necessary registrations,
approvals, price approvals, and reimbursements, then Biorex may in its
absolute discretion serve written notice on Astra (within 30 days of the
expiry of such period of 180 days) amending the rights of Astra to be
granted hereunder in respect of the Territory to those of a non-exclusive
distributor for the Product for the Territory only. Thereafter Biorex for
the avoidance of doubt shall also be entitled to exploit such rights and to
market and exploit the Product in the Territory (whether directly or
indirectly through any agent, contractor or licensee) in such manner as it
may in its sole discretion think fit; Provided Always that Astra will
retain exclusive rights to use the Trade Mark in the Territory.
4.6 In the event that Astra's failure to effect Launch as stated in Clause 4.5
exceeds a period of twelve months from the grant of all necessary
registrations, approvals, price
-5-
<PAGE>
approvals and reimbursements in the Territory, Biorex may at its sole
discretion serve written notice on Astra (within 90 days of the expiry of
such period of twelve months) terminating all rights granted hereunder to
Astra in respect of the Territory only and thereafter Biorex for the
avoidance of doubt shall be entitled to exploit such rights and to market
and exploit the Product in the Territory (whether directly or indirectly
through any agent, contractor or licensee) in such manner as it may in its
sole discretion think fit, free of any obligation to Astra; and Astra shall
have no rights with respect to the Product or the Trade Mark in the
Territory.
5. ASTRA'S UNDERTAKINGS
--------------------
5.1 Astra shall use reasonable endeavours to promote, market and sell the
Product throughout the Territory and undertakes to allocate such
promotional and sales resources and such technical support for the
promotion, marketing and sales of the Product as may reasonably be required
to sell the Product. Astra agrees generally to use the same channels and
methods, exercising the same due diligence and adhering to the same
standards which it employs with respect to its other products.
5.2 Astra shall promote market and sell the Product in the Territory entirely
in accordance with the terms of any product licence, price approval (where
applicable) and other restrictions and regulations for the Product as may
be relevant and applicable within the Territory.
5.3 Astra further undertakes:
5.3.1 to promote, market and sell the Product in the Territory under the
Trade Mark only and not to use any other trade name, trademark or
logo for or on the Product (Provided That the name "Balsalazide" may
be used but only as a generic name for the Product in accordance
with and as required by applicable laws and regulations); and
5.3.2 to enter into trade mark user agreements and such other agreements
(whether relating to the Trade Mark, Technical Standards or
otherwise) as may reasonably be required by Biorex or is required by
applicable regulations in any part of the Territory in connection
with the exploitation by Astra of the Product and/or the use by
Astra of the Trade Mark; and
5.3.3 to notify Biorex immediately of any improper or wrongful use of the
Trade Mark, the Patents or otherwise any proprietary or confidential
information of Biorex relating to the Product coming to Astra's
knowledge; and
5.3.4 forthwith to refer to Biorex all enquiries received for the supply
of the Product outside the Territory; and
-6-
<PAGE>
5.3.5 not actively to seek customers for the Product outside the
Territory; and
5.3.6 to develop and design packaging for the Product in each part of the
Territory at its sole cost and expense Provided Always That the
general quality design and content of such packaging and any
information supplied with the Product by Astra shall be subject to
prior approval by Biorex: and
5.3.7 not to use any misleading statements or misrepresentations on the
Product packaging or use any defective packaging materials and to
comply in all respects with all local regulations and laws in
connection with the Product packaging and the information provided
thereon; and
5.3.8 in the sale and use of the Product in each part of the Territory to
comply with all relevant regulatory, health and pricing regulations
and approvals in such part of the Territory. For the avoidance of
doubt, Biorex shall not be responsible or liable in any manner
whatsoever for compliance with any such regulations and approvals
(whether or not it shall have assisted Astra in or approved the sale
or use of the Product in such part of the Territory); and
5.3.9 not to use any packaging which may adversely affect the Product in
any way whatsoever including but without limitation the Product's
approved shelf-life; and
5.3.10 not to incur any liability on behalf of Biorex or in any manner
pledge or purport to pledge Biorex's credit or accept any order or
make any contract binding on Biorex or give or make any
representation, warranties or conditions or quantities with
reference to the Product on behalf of Biorex. Astra is not and shall
not be deemed to be the agent of Biorex and in all correspondence
and dealings with third parties shall clearly indicate that it is
acting as a principal; and
5.3.11 To be solely responsible for the acts and omissions of its
employees and representatives in connection with the performance of
its rights and obligations hereunder.
5.4 Astra shall be entirely responsible for the collection of debts due to it
and shall bear all losses owing to its failure so to do.
6. PRODUCT DATABASE AND ADVERSE REACTIONS REPORTING
------------------------------------------------
6.1 Biorex shall maintain a database of all adverse and other reactions or
events occurring in connection with the Product in any part of the
Territory or the Excluded Territory and shall use reasonable endeavours to
procure that any such adverse and other reactions are notified to it in a
timely manner by any sub-licensee and/or distributor of the Product in the
Territory and the Excluded Territory.
-7-
<PAGE>
6.2 Astra undertakes to notify Biorex:
6.2.1 forthwith in the event that it becomes aware of any serious or
previously unknown adverse reaction or contra indications to the
Product; and
6.2.2 within three months, on a quarterly basis of other adverse reactions
or contra indications to the Product other than stated under 6.2.1
6.3 Biorex undertakes to notify Astra:
6.3.1 forthwith in the event that it becomes aware of any serious or
previously unknown adverse reaction or contra indications to the
Product in any part of the Territory and the Excluded Territory; and
6.3.2 within three months, on a quarterly basis of other adverse reactions
or contra indications to the Product other than stated under 6.2.1.
6.4 In the event that Biorex or any third party shall conduct clinical studies
in support of any promotional or marketing activities of Biorex or such
third party within the Territory or the Excluded Territory, Biorex shall
use reasonable endeavours to grant or procure the grant to Astra of full
unrestricted access to the results of such trials so that Astra shall be
entitled to use such results in connection with the marketing, sale and use
of the Product in the Territory.
7. CLINICAL TRIALS AND DEVELOPMENTS
--------------------------------
7.1 Astra is authorised by Biorex to undertake clinical studies after the
Filing Date in support of Astra's regulatory, promotional and marketing
activities and to enhance the Product's approval and/or use within the
Applications Provided Always That:
7.1.1 such trials are conducted solely for such purposes and not for any
other purpose whatsoever; and
7.1.2 prior to the conduct of such trials, the trial objectives and
protocols are approved by Biorex (such approval not to be
unreasonably withheld or delayed and Provided Always That such
approval shall be deemed given by Biorex in the event that no
response is received by Astra from Biorex within 20 working days of
receipt by Biorex of any request for approval); and
7.1.3 Astra shall keep Biorex fully informed as to the conduct, progress
and results of such trials; and
-8-
<PAGE>
7.1.4 Biorex shall have full unrestricted access to the results of such
trials and shall be entitled to disclose the same to third parties
for use in connection with the registration. marketing, sale and use
of the Product in the Excluded Territory only; and
7.1.5 Astra shall bear all the costs and expenses associated with such
trials (including but without limitation the costs of documentation
and administrative payments to trialists); and
7.1.6 such trials shall be conducted only in accordance with any
regulatory permissions and/or approvals granted for the Product in
such part of the Territory in which the trials are conducted.
7.2 It is anticipated that Astra shall support any symposia organised, arranged
or sponsored by Biorex involving areas of medicine relating to diseases of
the gastro-intestinal tract and similar conditions and shall nominate and
sponsor key physicians in the said field of medicine to attend at those
symposia (and in particular shall sponsor those physicians presenting the
results of clinical research studies relating to the Product).
8. LICENCE TO MANUFACTURE
----------------------
8.1 In consideration of the royalties payable under Clause 8.6 and subject to
the terms of this Agreement, Biorex hereby grants to Astra a licence to
manufacture the Product in the Territory for sale in the Territory pursuant
to the licence granted in Clause 3.1.
8.2 For the avoidance of doubt Biorex shall not be prevented from manufacturing
or continuing to manufacture the Product or appointing sub-contractors to
manufacture the Product for sale by Biorex or its customers both inside and
outside the Territory subject to the exclusivity granted to Astra in
respect of the Territory under Clause 3.1 above.
8.3 Biorex shall supply Astra with such technical information as it has in its
possession and is free to disclose as Astra may reasonably require (and
which has not previously been supplied to Astra by Salix) to assist Astra
to produce the Product in commercial quantities Provided Always that Biorex
shall be reimbursed all costs and expenses incurred by it in supplying such
information and assistance to Astra.
8.4 Astra undertakes to Biorex that it will manufacture the Product fully in
accordance with the Bulk Product Specification and the Finished Product
Specification set out in the Salix/Astra Agreement and with the Drug Master
File for the Product and in accordance with United States current Good
Manufacturing Practices.
8.5 Astra shall be entitled to market, distribute and sell the Product
manufactured by it only in accordance with the terms and provisions of this
Agreement.
-9-
<PAGE>
8.6 In consideration of the licences granted in Clauses 3.1 and 8.1, Astra
shall pay to Biorex a royalty [*]
8.7 Astra shall be solely liable in all losses, damages, costs and expenses
arising out of any claim by any third party in connection with any Product
manufactured by Astra and Astra hereby agrees fully and effectively to
indemnify Biorex against any claims, damages, costs, expenses, or other
losses incurred by Biorex arising out of or in connection with any Product
manufactured by Astra.
8.8 In the event that Astra decides to have the Product manufactured by a sub-
contractor, Astra may appoint such sub-contractor provided that Astra shall
ensure that the sub-contractor shall perform in accordance with this
Agreement and Astra shall remain liable for the acts of its sub-contractor
so appointed.
9. TRADE MARK LICENCE
------------------
9.1 Biorex hereby grants to Astra an exclusive licence to use the Trade Mark on
the Product and in connection with the marketing and exploitation of the
Product in the Territory only.
9.2 Astra hereby confirms and acknowledges that it is licensed to use the Trade
Mark only as set out in this Agreement and Astra further:
9.2.1 acknowledges that all goodwill in the Trade Mark in any part of the
Territory (whether or not generated by the activities of Astra under
this Agreement) shall vest in Biorex; and
9.2.2 acknowledges that any application for registration of the Trade Mark
shall be made in the name of Biorex only; and
9.2.3 undertakes to transfer and assign to Biorex (or as it may direct)
any right, title or interest required by Biorex for registration of
the Trade Mark in any part of the Territory in the name of Biorex
and for all goodwill in the Territory to vest in Biorex.
9.3 In consideration of the rights and licence granted to Astra by Biorex in
respect of the Trade Mark, Astra shall pay to Biorex a licence fee at the
rate of [*] of the Factory Sales Price of all Product bearing the Trade
Mark supplied by Astra (or any Astra Associate) to any third party. Such
licence fee shall commence on the date this Agreement comes into force
pursuant to Clause 2.1 and shall continue to be payable for such period of
time in which Astra shall continue to use the Trade Mark under the licence
hereby granted.
-10-
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
10. LICENCE PAYMENT
---------------
10.1 Astra shall keep true and accurate records of the sales of all Product
manufactured by or on behalf of it or any Astra. Associate pursuant to any
licence granted under Clause 8 and of all Product sold by it or any Astra
Associate at any time and Astra shall within ninety (90) days of the end of
each period of three months (such periods to end on 31 March, 30 June, 30
September and 31 December) send Biorex a full statement showing the
calculation of all sums due and owing to Biorex
10.1.1 in respect of the licence to sell under the provisions of Clause
3.1 and the manufacturing licence under the provisions of Clause
8.1; and
10.1.2 in respect of the Trade Mark Licence under the provisions of Clause
9;
and with such statement shall make payment in pounds sterling by express
payment through the banking system into such bank account as Biorex shall
designate for such purpose, of such sum as is shown due on the statement.
10.2 For the conversion of the relevant currencies into Sterling Pounds under
Clause 10.1, the official average exchange rates for the sale and purchase
of foreign currency at the SE-Banken, Stockholm on the last banking day of
the calendar half-year in question shall be applied. With respect to
currencies not quoted by the SE-Banken, the average rate for purchasing
Sterling Pounds in the respective country as published by any leading
London Bank shall apply.
10.3 Astra shall allow Biorex or its auditors or representative reasonable
access during normal business hours to inspect the books of account of
Astra or any Astra Associate in order to verify the accuracy and
calculation of any statements delivered under Clause 10.1 Provided That
such verification shall be at the sole cost and expense of Biorex.
10.4 In the event of any dispute between the parties concerning the
calculation and/or payment of any fee due under this Clause 10, an
independent auditor shall be appointed by the agreement of the parties or
in the absence of agreement at the request of either party by the President
for the time being of the Institute of Chartered Accountants in England and
Wales who acting as an expert and not as an arbitrator shall have full an
free access to all relevant information and data and shall be asked to
determine and settle any such dispute and in the absence of manifest error
his decision shall be final and binding on the parties. The independent
auditor's fees shall be paid by the parties in such proportions as he
shall direct.
10.5 Interest shall be payable to Biorex by Astra at a rate of two per cent
(2%) above the base lending rate from time to time of Barclays Bank plc
on all outstanding fees due and payable by Astra to Biorex under the
provisions of this Clause 10 both before and after judgment.
-11-
<PAGE>
11. PRODUCT LIABILITY
-----------------
11.1 Astra undertakes to indemnify and hold Biorex harmless against all and any
loss, damage, claim or liability suffered or incurred by Biorex in
connection with the sale and use of the Products hereunder.
12. CONFIDENTIAL INFORMATION
------------------------
12.1 Astra hereby agrees and undertakes that during the application of this
Clause 12 and for a period of ten years thereafter (howsoever termination
may be caused or arise) it shall keep confidential and shall not without
the prior written consent of Biorex disclose to any third party or use
except for the purposes of this Agreement any information of a confidential
nature belonging to Biorex (including trade secrets and information of
commercial value) which may become known to Astra from Biorex in connection
with this Agreement and/or the Salix/Astra Agreement Provided Always that
such obligation of confidentiality shall not extend to any part of such
confidential information which:
12.1.1 shall otherwise than by reason of any default by Astra, become
freely available to the general public; or
12.1.2 Astra can show by documentary evidence was in its possession or
control prior to disclosure free of any obligation of
confidentiality; or
12.1.3 Astra can show by documentary evidence shall have come into the
possession or control of Astra from a third party free of any
obligation of confidentiality subsequent to disclosure hereunder;
or
12.1.4 Astra is obliged by law or regulation to disclose to a third party
provided that such disclosure shall only be to the extent required
by such law or regulation.
12.2 Astra shall ensure that any employee of, or consultant to, or sub-
contractor of, Astra who shall obtain any confidential information in
connection with the performance of this Agreement shall be bound by
obligations of confidentiality substantially similar to the provisions of
Clause 12.1.
12.3 Biorex acknowledges the importance of keeping all material information
relating to the Product confidential and Biorex will use all reasonable
endeavours to make sure that no such information is made public or
otherwise made available to third parties in any manner which would
jeopardize the exclusivity in the Territory granted to Astra hereunder.
-12-
<PAGE>
13. INTELLECTUAL PROPERTY
---------------------
13.1 Astra acknowledges that save as expressly provided herein Astra shall have
no right, title, interest or licence in or to the Patents. the Trade Mark
or otherwise any intellectual property rights of Biorex in Balsalazide or
the Product.
13.2 In the event that either party becomes aware of any infringement by any
third party within the Territory of any intellectual property Tights of
Biorex in the Patents. Balsalazide, the Product or the Trade Mark it shall
forthwith notify the other party. Biorex shall be entitled to take such
action as it may in its sole discretion consider appropriate against any
such third party infringer Provided Always That:
13.2.1 Astra shall give such assistance as Biorex may reasonably require
in connection with any such action (subject to reimbursement by
Biorex of all costs reasonably incurred by Astra); and
13.2.2 Biorex shall keep Astra informed of the conduct and progress of
such action but shall be entitled to conduct, pursue and settle
such action in such manner as it shall reasonably consider
appropriate and to retain any damages awarded against any such
infringer;
In the event that such infringement shall continue and Biorex shall fail to
take or procure any action to prevent any continued infringement (for the
avoidance of doubt, any such failure on the part of Biorex shall not
constitute a breach of this Agreement) Astra may (in its sole discretion)
at its sole expense initiate and pursue such action as it considers
appropriate to prevent any continued infringement Provided Further That:
13.2.3 Biorex shall give such assistance as Astra may reasonably require
in connection with any such action (subject to reimbursement by
Astra of all costs reasonably incurred by Biorex); and
13.2.4 Astra shall keep Biorex informed of the conduct and progress of
such action but shall be entitled to conduct, pursue and settle
such action in such manner as it shall reasonably consider
appropriate (having regard to the continuing value of any such
intellectual property rights to Biorex and the effect which any
such infringement shall have had or will have on the exploitation
in the Territory by Astra of the Product) and to retain any damages
awarded against any such infringer.
13.3 In the event that any claim is made against Astra by any third party
alleging infringement of any rights of any third party by the use and
exploitation of the Product by Astra, Astra shall be entitled at its sole
cost and expense to defend any such claim in such manner as it may in its
sole discretion consider appropriate Provided Always That
-13-
<PAGE>
13.3.1 Biorex shall give such assistance as Astra may reasonably require
in such action (subject reimbursement by Astra of all costs
reasonably incurred by Biorex); and
13.3.2 Astra shall keep Biorex informed of the conduct and progress of
such action but shall be entitled to conduct, pursue and settle
such action in such manner as it shall reasonably consider
appropriate (having regard to the continuing value of any such
intellectual property rights to Biorex and the effect which any
such infringement shall have had or will have on the exploitation
in the Territory by Astra of the Product) and to retain any damages
awarded against any such infringer; and
13.3.3 Biorex shall not be liable in any manner whatsoever to Astra for
any loss or damage suffered incurred or awarded against Astra in
connection with any such claim.
14. SUB-DISTRIBUTORS
----------------
14.1 Astra is hereby granted the right to appoint sub-distributors for the
Product in the Territory Provided Always That:
14.1.1 Astra shall remain solely liable for the performance of its
obligations hereunder in each part of the Territory; and
14.1.2 in any part of the Territory where there is resident an Astra
Associate any sub-distributor appointed shall only be such Astra
Associate
15. TERMINATION
-----------
15.1 The rights and obligation of the parties contained in Clauses 2, 3, 4, 5,
6, 7, 8.3, 8.6, 13, 14 and 17 shall cease forthwith upon the later of (i)
the expiry of the last to expire of the Patents or (ii) the expiry of a
period of 9 years from the date of first Launch Provided Always That
15.1.1 the Trade Mark licence granted under Clause 9 shall continue
thereafter in accordance with its terms and Clause 10 will remain
valid with respect to Clause 9; and
15.1.2 the licence granted to Astra to manufacture under Clause 8 shall
continue indefinitely thereafter subject to no additional
compensation or royalty to Biorex; and
15.1.3 any licence or interest in all or any part of the Patents,
Balsalazide and/or the Product shall continue indefinitely
thereafter.
-14-
<PAGE>
15.2 Either party to this Agreement shall be entitled to terminate this
Agreement forthwith by notice in writing to the other in the event that:
15.2.1 the other party shall fail to pay any sum due hereunder on the due
date and shall fail to remedy such breach within (30) thirty days
of being required in writing by the other party so to do; or
15.2.2 the other party shall commit a material breach of any of the terms
and conditions of this Agreement and shall fail to remedy the same
(if capable of remedy) within ninety (90) days of being required in
writing by the other party so to do; or
15.2.3 The other party goes into liquidation (either voluntary or
compulsory) or shall be the subject of any petition for winding up;
or
15.2.4 the other party shall make any assignment or arrangement for the
benefit of its creditors or cease or threaten to cease to carry on
its business in the ordinary course; or
15.2.5 a receiver, administrative receiver, or receiver and manager, or
judicial manager or administrator is appointed over the whole or
any part of the assets of either party or if any court proceedings
are commenced for the appointment of an administrator or receiver
to either party; or
15.2.6 the other party shall become unable to pay its debts as they become
due in the ordinary course of business or shall otherwise become
subject or seek relief under any law relating to insolvency in any
jurisdiction relevant to such other party.
15.3 Any waiver by either party of a breach of any provision of this Agreement
shall not be considered as a waiver of any subsequent breach of the same or
any provisions of this Agreement.
15.4 Any termination of this Agreement shall be without prejudice to the right
of either party to recover any monies due to it under this Agreement or the
rights or remedies of either party in respect of any breach prior to the
effective date of termination of this Agreement.
16. CONSEQUENCES OF TERMINATION
---------------------------
16.1 In the event of termination of this Agreement under Clause 15.2 by Biorex
or Astra prior to the later of (i) the expiry of the last to expire of the
Patents or (ii) expiry of a period of 9 years from date of Launch, Astra
shall:
-15-
<PAGE>
16.1.1 forthwith, cease all marketing, sale and promotion of the Product;
and
16.1.2 immediately telegraphically transfer all monies due and payable to
Biorex as at the date of termination into Biorex's bank account
designated under Clause 10; and
16.1.3 immediately return to Biorex all information and data of whatsoever
nature relating to the Product together with all copies thereof
which Astra may have in its possession or under its control
including but without limitation all scientific, medical and safety
data relating to the Product; and
16.1.4 immediately cease use of all or any confidential information of
Biorex delivered in connection with this Agreement and the Trade
Mark; and
16.1.5 take all such steps as may reasonably be required to transfer or
procure the transfer to Biorex (or its nominee) of all such product
licences and approvals as may have been obtained for the marketing
and sale of the Product in any part of the Territory; and
16.1.6 Biorex shall purchase such stocks of the Product (inclusive of
packaging) as Astra shall still have in its possession once it has
fulfilled all orders outstanding as at the date of termination at a
price calculated as cost price to Astra Provided That Biorex shall
not be obliged to purchase any of the stocks of the Product which
do not have at least two thirds of its approved shelf life
unexpired or are otherwise not of merchantable quality.
17. ASSIGNMENT
----------
17.1 The benefit of this Agreement is personal to Astra and to Biorex and shall
not be capable of assignment by either of them without the prior consent in
writing of the other party (such consent not to be unreasonably withheld or
delayed).
18. FORCE MAJEURE
-------------
18.1 If the performance of any obligations under this Agreement by either party
is affected by Force Majeure it shall forthwith notify the other party of
the nature and extent thereof.
18.2 Neither party shall be deemed to be in breach of this Agreement or
otherwise be liable to the other by reason of any delay in performance or
non-performance of any of its obligations hereunder to the extent that such
delay or non-performance is due to any Force Majeure which has been
notified to the other party in writing.
-16-
<PAGE>
19. COSTS
-----
19.1 Each party hereto shall bear its own costs in relation to the negotiation,
drafting, preparation and execution of this Agreement.
20. CONFIDENTIALITY OF THIS AGREEMENT
---------------------------------
20.1 The contents of this Agreement shall remain confidential as between the
parties. Neither party shall, without the prior written consent of the
other (such consent not to be unreasonably withheld without justification),
disclose any of the financial terms of this Agreement to any other person,
firm or company save for
20.1.1 such disclosure as may be required by any relevant law or regulatory
authority.
21. NATURE OF THE AGREEMENT
-----------------------
21.1 Nothing in this Agreement shall create or be deemed to create any
partnership, joint venture or the relationship of principal and agent
between the parties.
21.2 Each party acknowledges that, in entering into this Agreement, it does not
do so on the basis of, and does not rely on, any representation, warranty
or other provision except as expressly provided herein and all conditions,
warranties or other terms implied by Statute or common law are hereby
excluded to the fullest extent permitted by law.
21.3 This Agreement (including all the Schedules and other documents referred
to) and any agreements entered into pursuant to this Agreement constitutes
the entire understanding and agreement between the parties with respect to
the subject matter of this Agreement and supersedes all prior agreements,
negotiations and discussions between the parties relating to this
Agreement.
21.4 This Agreement may not be released, discharged, abandoned, charged or
modified, in any manner, except by an instrument in writing signed by a
duly authorised officer or representative from each of the parties hereto.
21.5 This Agreement shall be governed by and construed in all respects in
accordance with the laws of England and each party hereby submits to the
exclusive jurisdiction of the English courts. For the purpose of accepting
service of process in connection with any action commenced before the High
Court in England the parties hereto hereby absolutely, unconditionally and
irrevocably appoint the following agents to accept process on their behalf,
it being unconditionally agreed that for this purpose such process will be
properly and effectively served if the same is left at the addresses set
out below:
-17-
<PAGE>
Astra: F.A.O. The Managing Director
Astra Pharmaceuticals Limited
Home Park Estate
Kings Langley
Herts
WD4 8DH
Biorex: F.A.O. The Managing Director
Biorex Laboratories Limited
2 Crossfield Chambers
Gladbeck Way
Enfield
Middlesex
EN2 7HT
22. NOTICES
-------
22.1 All notices to be served by the parties to this Agreement shall be served
only in the English language.
22.2 Notices shall be sufficiently served if dispatched by First class or
express post (meaning the fastest normal method of mail transmit in the
country of dispatch) to the address of the receiving party set out below:
Biorex: 2 Crossfield Chambers
Gladbeck Way
Enfield
Middlesex
EN2 7HT
F.A.O. L Baxendale
Astra: Kvarnbergagatan 16
S-151 85 Sodertalje
Sweden
F.A.O. Vice President Legal Affairs
Any modification to this address must in itself be notified in writing to
the other party in accordance with the terms of this sub-clause.
22.3 In the absence of proof to the contrary notices properly sent hereunder
shall be deemed to have been duly served 10 days after the date of
dispatch.
22.4 It shall be permitted for notices to be served hereunder by facsimile
transmission and for this purpose the following fax number below shall
apply:
-18-
<PAGE>
22.4.1 in the case of Biorex facsimile transmission number 081 367 4627
and marked for the attention of Miss L Baxendale; and
22.4.2 in the case of Astra at Kvarnbergagatan 16.S-151 85 Sodertalje,
Sweden facsimile transmission number +46 855 32 90 00 and marked
for the attention of Vice President Legal Affairs;
provided that such notice is confirmed by first class or express post in
accordance with Clause 22.2 and shall be deemed served on the next business
day following transmission of such facsimile.
-19-
<PAGE>
AS WITNESS the hands of the duly authorised representatives of the parties
hereto the day and year first above written.
SIGNED by ) /s/ signature unreadable
for and on behalf of BIOREX )
LABORATORIES LIMITED in the presence )
of:- )
/s/ signature unreadable
Director
SIGNED by ) /s/ signature unreadable
for and on behalf of AB ASTRA )
in the presence of:- )
/s/ signature unreadable
/s/title unreadable
-20-
<PAGE>
SCHEDULE 1
-----------
BALSALAZIDE PATENTS AND APPLICATIONS
-----------------------------------
United States Patent Number 4,412,992
Title: "2-Hydroxy-5-Phenylazobenzoic Acid Derivatives and Methods of Treating
Ulcerative Colitis Therewith"
Issued: November 1, 1983
<PAGE>
SCHEDULE 2
----------
SUMMARY OF PROJECT AND ASTRA FUNDING
------------------------------------
The major elements of the Project relate to the preparation and submission
of an NDA for the treatment of acute relapse of ulcerative colitis. A
large-scale clinical program will be undertaken in the U.S. in support of
the NDA, though the studies have been designed to be of use outside the
U.S. as well. Non-clinical data will be obtained from past and in-progress
work in the U.K. under the management of Glycyx Pharmaceuticals, Ltd. Salix
will contribute toward the cost of these studies. The major elements of
the Project are as follows:
Pre-clinical Safety and Pharmacology
------------------------------------
Relevant pre-clinical studies conducted by Biorex will be re-formatted,
summarized and included in the NDA as appropriate. Additional data and
reports will be acquired from Glycyx's U. K. studies over an 18 month
period. Summary reports will be prepared, as necessary.
Human Clinical and Metabolic Studies
------------------------------------
Two pivotal studies of efficacy are planned. A double-blind controlled,
multi-center, dose ranging trial is scheduled to begin in May 1993. The
trial has a target enrollment of 230 patients, in 3 treatment groups:
placebo, Balsalazide (BSZ) 4.50g/d, and BSZ 6.75g/d. Completion is
forecast for 4Q 1993. A second double-blind controlled trial, comparing
Balsalazide to Asacol is planned to begin 4Q 1993. Target enrollment is
230 patients in 3 arms: BSZ 2.25g/d, BSZ 6.75g/d, and Asacol. Completion
is forecast for 2Q 1994. Both trials will be multi-center, encompassing
15-20 clinics throughout the U.S. Salix has previously received IND
approval for a Phase III study and an amendment for the above two protocols
will be filed in April 1993. BRI, a Contract Research Organization, has
been retained by Salix
-1-
<PAGE>
for trial administration, data collection and analysis. The clinical plan
and protocols have been developed through consultation with representatives
of Astra Draco.
A short-duration pharmacokinetic study in healthy volunteers will be
conducted to measure dose proportionality and other parameters. The plan
and protocol are currently under preparation. Completion is expected prior
to that of the pivotal studies. Data from the U.K. pharmacokinetic studies
will be acquired from Glycyx.
Manufacturing and Controls
--------------------------
Active ingredient and pharmaceutical process will be transferred to Salix
from Glycyx. Supplementary process development and documentation for the
drug product will be developed by Salix. An outside company is under
contract to produce "Colazide" capsules in the U.S. Balsalazide chemical
will be procured from the current European manufacturers.
Dossier Preparation and Regulatory Affairs
------------------------------------------
The NDA will be assembled and submitted by Salix staff, with assistance
from BRI. To the extent possible, all sections of the NDA will be prepared
and submitted in advance of the completion of the final pivotal clinical
study. Post-submission follow up and requests from FDA will be managed by
Salix staff. A review period of two years is forecast.
It is planned that approximately 70% of Salix's current administrative
resources will be dedicated to the Project.
Expenses
--------
Estimated costs for the Project are shown on the following page. Payments
from Astra to Salix shall be made no later than the first day of each
calendar quarter.
-2-
<PAGE>
SCHEDULE 2
SUMMARY OF PROJECT AND ASTRA FUNDING
------------------------------------
<TABLE>
<CAPTION>
PROJECT SUMMARY
<S> <C>
[*]
</TABLE>
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
1
LISTING OF COMPLETED AND PLANNED PHARMACOKINETIC STUDIES WITH BASALAZIDE
- ------------------------------------------------------------------------
Requested by R.A. Onyett, CAMAS Partners, 31 August 1992.
Prepared by J. G. Allen, Pharmac Consultants, 1 September 1992.
1. A list of the non-clinical studies "completed by Biorex" has been prepared
by Glycyx Pharmaceuticals Ltd., in their COLAZIDE - INVENTORY OF STUDIES
(annotated copy attached). None of these have, in fact, been written up as
formal reports; therefore, they all need to be "reconstructed". The
possible use Of a standard format for the preclinical reports has been
discussed with T. Hardy Consultancy, who are exploring this. When they
are complete, however, the kinetic reports will only provide limited
support the NDA. All of the studies listed as "pharmacokinetics and
distribution " under PART IIIG (categories 1-3) only involve the
measurement of radioactivity, and in many cases this is complicated by the
simultaneous use of two different 3H-forms of BSZ and/or failure to
separate out the tritiated water. Reports of all the studies are however
required to provide some data for the ferret, mouse and rabbit, and
supportive information for the new rat data.
2. The Biorex results in rats and ferrets suggest that both balsalazide and 4-
ABA are highly cleared; therefore, the exposure of organs and tissues
should be low. Data in the rat also suggest that the systemic exposure to
balsalazide and its metabolites, after administration of the lowest dose
used in the toxicity studies, may be lower than that achieved with
therapeutic doses in patients. New ADME studies are planned in the rat to
confirm this. Similar studies are planned to determine whether this will
also apply to the dog, which has been selected as an additional "non-
rodent" for toxicology. These are listed, as an attachment. Limited
studies may also be required in the mouse and rabbit, depending upon the
rewrites.
3. If it is confirmed that the clearance of balsalazide and/or metabolites is
higher in laboratory animals than humans, reasoned arguments to justify the
validity of the toxicology will need to be included in the NDA [e.g.
exposure of the colon (the primary target organ) is related to total dose
and the expected secondary effect is the salicylate-like action of 5-ASA on
the kidney, which will be determined by species sensitivity and/or total
renal clearance of active metabolite rather than plasma concentrations.]
Comparative protein binding data ("free drug fractions") may also need to
be determined in this context.
<PAGE>
2
Listing of Completed and Planned Pharmacokinetic Studies with Balsalazide
- -------------------------------------------------------------------------
cont.
4. The dog was selected as the "non-rodent" for toxicology on the basis that
it is one of the species recommended by various regulatory authorities, and
because it was used for the recently submitted applications for olsalazine
and mesalazine (FDA Summary Basis or Approval). However the metabolism of
both 5-ASA and 4-ABA in this species is unlikely to reflect that in man,
where N-acetylation is expected to be the major route. This can probably
be justified for 5-ASA, because the dog's lack of secondary metabolism will
maximise exposure to the active and potentially (salicylate) toxic moiety.
Exposure to the N-acetyl metabolite of 4-ABA is likely, however, to only be
covered in the rat. If this proves to be very low relative to that in
humans, additional (short-term) toxicology, either with this metabolite or
in a further species, may need to be considered.
5. I am aware of 3 Biorex human pharmacokinetic studies: (i) the comparative
study with sulphasalazine (which was written up as a publication, and for
the UK submission in 1985) (ii) a single dose bioequivalence comparison of
solution and capsules and (iii) monitoring of Nottingham study, in patients
receiving escalating doses. The last two studies also need to be reported
formally, as supportive data for the NDA.
6. To date, two new human studies (shown in the Glycyx inventory) have been
planned. The need for further kinetic studies will depend upon the outcome
of this program; for example, a randomised dose proportionality study could
be required, if the repeat dose fails to reassure authorities (especially
the FDA). In addition: further patient monitoring data will be required,
plus possibly a single dose human radiolabelled study (depending upon
results from the metabolic studies in animals). Bioequivalence studies may
also be needed, depending upon changes in formulations, suppliers etc.
/S/ J.G. Allen
<PAGE>
3
Summary of Preclinical ADME Studies planned for Balsalazide
-----------------------------------------------------------
Balsalazide and 4-ABA, randomly labelled with Carbon-14 in the aromatic ring are
being prepared by Amersham International, for ADMI studies at Hazleton U.K.
These materials will be used for.
1. A quantitative whole body autoradiographic study with 14C-balsalazide in
pregnant pigmented rats, to determine (i) general distribution after oral
administration, (ii) placental transfer and foetal penetration and (ii)
melanin binding after a single oral administration by gavage.
2. Absorption, distribution, metabolism and excretion of single doses of 14C-
balsalazide administered to male rats intravenously (one dose level) and
orally by gavage (two dose levels, corresponding to the high and low doses
used for 26 week toxicology).
3. Absorption, distribution, metabolism and excretion of single doses of 14C-
ABA administered to male rats intravenously (one dose level) and orally by
gavage (one dose level, equivalent to the low dose used for 26 week
toxicology).
4. Absorption, distribution, metabolism and excretion of single doses of 14C-
balsalazide administered to beagles intravenously (one dose level) and
orally by gavage (two dose levels, corresponding to the high and low doses
used for 26 week toxicology).
In addition, monitoring of the rat and dog MTD, 26 week toxicology and rat
carcinogenicity will be used to assess dose-proportionality of absorption and
elimination during repeated oral administration. Notification has also been
received recently from Biorex that 30 mCI of tritiated balsalazide were held at
University of Surrey; arrangements to transfer this material to HUK have been
made, as a contingency measure.
<PAGE>
4
T.L HARDY CONSULTANCY
- --------------------------------------------------------------------------------
Tel (0929) 48 1197 "Badgers".
Fax: (0929) 48 1197 South Street,
Kingston,
Corfe Castle,
Wareham,
Dorset BH20 5LL
England
re: Balsalazide
Non-Clinical Safety Evaluation Studies - Toxicology
---------------------
I have examined the animal toxicology studies and genetic toxicology conducted
by and on behalf of Biorex laboratories Ltd. of Crossfield Chambers, Gladbeck
Way, Enfield, Mddx. England and which were conducted to December 1991.
Although many of the studies were not conducted to the format and conditions now
expected by Regulatory Agencies, it is my opinion that the data shows that
balsalazide has a low order of toxicity and that the signs and reactions to
dosage as seen in the animal species studied are compatible with the
pharmacology of the product administered. No adverse toxicities are clearly
apparent within the reports which I have examined which are aberrant in
consideration of the chemical nature of the principal metabolite, 5. ASA. The
studies refered to include long term administration to rats and ferrets and
carcinogenicity studies in the mouse and rat.
Notwithstanding the above, a programme of toxicological evaluation of
balsalazide has been designed to fulfil the present day requirements of the
major Regulatory Agencies World Wide. This programme includes re-evaluation of
the consequences of repeated administration to rodents and non-rodents,
reproduction toxicology and necessary toxicokinetics to enable overall
evaluation.
To date the initial findings in preliminary studies using high doses of
balslazide at large multiples of the proposed dose for man, are substantiating
the balsalazide has a low order of toxicity.
/s/ Terry L. Hardy
------------------
Terry L. Hardy.
Dated: 31st, August, 1992.
- --------------------------------------------------------------------------------
Adviser on Toxicology and Safety Evaluation
<PAGE>
5
COLAZIDE(R) DEVELOPMENT - Completed Studies and Additional Work
---------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
EC Registration Dossier Headings Completed Glycyx
by Biorex Repeat/New Reconstruct
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
PART IIIA Single dose toxicity
- Mouse, oral o
- Mouse, ip o
- Rat oral o *
- Rat, ip (iv) o *
- Mouse, oral: 4-ABA o
- Rat, oral: 4-ABA o
- Mouse, oral: 5-ASA o
- Rat, oral: 5-ASA o
- Mouse, oral: 5-ASA/4-ABA o
- Rat, oral: 5-ASA/4-ABA o
- Mouse, oral: BSZ impurity o
- Mouse, ip: BSZ impurity o
- Mouse, ip: Colazide o
Part IIIB - Repeated dose toxicity
Max. Tolerated Dose
-------------------
- Dog o
!unreadable!
- Rat, 14 days, oral o o *
- Mouse, 7 days, oral: BSZ o *
- Mouse, 28 day, oral BSZ o *
- Rat, 7 days, oral: BSZ o *
- Rat, 28 day, oral: BSZ o *
- Dog, 28 days, oral o
Chronic
-------
- Rat, 96 week, oral o o
- Ferret, 26 week, oral o o
- Dog, 26 week, gavage o
- Rat 26 week, gavage o
PART IIIC Reproduction Studies
1. Fertility and general reproductive
performance
----------------------------------
- Rat fertility, oral o o
- Rat, comparative fertility with
sulphasalazine, oral o
- Mouse, comparative fertility
with sulphasalazine, oral o
- --------------------------------------------------------------------------------
Page 1 *under consideration
</TABLE>
<PAGE>
6
COLAZIDE(R) DEVELOPMENT - Completed Studies and Additional Work
---------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
EC Registration Dossier Headings Completed Glycyx
by Biorex Repeat/New Reconstruct
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
2. Embryotoxicity
- Mouse teratology oral o
- Rat teratology o
- Rabbit teratology, oral o o
3. Peri-/postnatal potential
- Mouse perinatal o
- Rat peri-/post natal o
PART IIID Mutagenic Potential
In vitro
--------
- Ames test o
- Cultured human lymphocytes o
- HGPRT locus Chinese hamster
V79 cells o
In vivo
-------
- Micronucleus test o
PART IIIE - Oncogenic/carcinogenic
potential
- Mouse carcinogenicity, oral o o
- Rat carcinogenicity, oral o o o
(new study is 104 week)
PART IIIF General Pharmacology
1. Pharmacodynamic effects relating
to proposed indications
--------------------------------
- Carrageenin-induced ulcerative
colitis o *
- Gastrointestinal studies
- Ulcerogenic potential o *
- GI motility and smooth muscle
activity o *
- Ethanol-induced gastric
necrosis in rats o *
- Effect of BSZ on GSH levels
in rectocolonic mucosa o *
- Effect on BSZ on ethanol-induced
rectocolonic damage o *
- Effect on BSZ and metabolites
on ethanol-induced gastric
necrosis o *
- Effect on BSZ on eicosanoid
release o *
- Effect on BSZ and SASP on
rectocolonic lesions o *
- Anti-inflammatory activity o *
- Analgesic activity
- Acetic acid-induced writhing
test o *
- Hyperalgesia test in rats o *
- Yeast-induced pyrexia o *
</TABLE>
- --------------------------------------------------------------------------------
Page 2 * under consideration
<PAGE>
7
COLAZIDE(R) DEVELOPMENT-Completed Studies and Additional Work
-------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
EC Registration Dossier Headings Completed Glycyx
by Biorex Repeat/New Reconstruct
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
2. General Pharmacodynamics
- ---------------------------
- Central nervous system
- Barbiturate-induced sleeping
time o *
- Spontaneous locomotor activity o *
- Endocrine system
- Vaginal comification test o *
- Uterine weight response o *
- Cardiovascular system
- Effect of BSZ on CV system and
respiration in ferrets o *
- Effect of BSZ on cat BP and
respiration o *
- Effect of BSZ (I.V.) on BP,
HR and respiration in
anesthetized male cat o *
- Effect of BSZ on BP, HR and
respiration in anesthetized rats o *
- Effect of BSZ on BP, HR and
respiration of ferrets o *
- Effect of impurity (BX769A) on
rat BP, HR and respiration o *
- Effect of impurity (BX769A)
(I.V.) on BP, HR and respiration
of anesthetized rats o *
- Effect of BSZ metabolites on BP,
HR and respiration of
anesthetized cats o *
- Electrolyte Excretion
- Diuretic test o *
- Effect of BSZ and related
compounds on water induced
diuresis in the rat o *
- Other Systems
- Effects of BSZ on rat peritoneal
mast cell degranulation o *
- Effects of BSZ in vitro on
erythrocyte membrane
stabilization o *
- Effect of BSZ and its impurity
(BX769A) on erythrocyte membrane
stabilization o *
- Effect of SASP and BSZ on cell
membrane stability and histamine
release o *
- Possible anti-microbial activity
of BSZ and related compounds on
organisms of gut microflora o *
- Comparative suppression of
lymphocyte transformation by
SASP analogues o *
2. Drug Interactions
- --------------------
- No studies
</TABLE>
- --------------------------------------------------------------------------------
Page 3 * Under Consrtuction
<PAGE>
8
COLAZIDE(R) DEVELOPMENT-Completed Studies and Additional Work
-------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
EC Registration Dossier Headings Completed Glycyx
by Biorex Repeat/New Reconstruct
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
PART IIIG-Pharmacokinetics
1. Pharmacokinetics after a
single dose
- Drug excretion in rat
and ferret o o
- Rat blood concentrations,
oral and iv o o
- Rat bioavailability, oral
liquid vs solid dose o o
- Ferret blood concentrations,
oral and iv o o
- Ferret blood concentrations,
dietary dosing o o
2. Pharmacokinetics after repeated
administration
- Rat blood concentrations,
oral, 28 days dosing o o
- Ferret blood concentrations,
oral 28 days dosing o o
3. Distribution in normal and
pregnant animals
- Rat tissue concentrations,
oral o o
- Ferret tissue concentrations,
oral o o
- Rat QWBA o
4. Biotransformation
- Mouse excretion, oral o o
- Rat excretion, oral o o
- Rat biliary excretion, oral o o
- Ferret excretion, oral o o
- Ferret biliary excretion, oral o o
- Rat ADME, iv and gavage o
- Rat ADME (4-ABA), iv and gavage o
- Dog ADME, iv and gavage o
Comparison pharmacokinetics rat &
ferret o
PART IIIH-Local Tolerance
- No studies
PART IIIQ-Other Information
- No studies
</TABLE>
- --------------------------------------------------------------------------------
Page 4 *under consideration
<PAGE>
9
COLAZIDE(R) DEVELOPMENT-Completed Studies and Additional Work
-------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
EC Registration Dossier Headings Completed Glycyx
by Biorex Repeat/New Reconstruct
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
PART IV A Clinical Pharmacology
1. Pharmacodynamics
-------------------
2. Pharmacokinetics
-------------------
- Serum concentrations of
BX661A, sulphasalazine
and metabolites in man o
- Comparative tolerability
and pharmacokinetic
study of balsalazide,
sulphasalazine and
mesalazine following a
single oral dose o
- Single dose bioequivalence o o
- Tolerability and pharmacokinetic
study of balsalazide following
repeated oral doses o
- High dose patient monitoring o o
PART IV B - Clinical Experience
1. Clinical trials
Double Blind, Controlled Studies
in Acute Active Ulcerative Colitis
- Balsalazide 6.75g/d vs SASP
3g/d in the treatment of mild
first episode ulcerative
colitis (Protocol 028/011) o
- Balsalazide 6.75g/d vs SASP
3g/d in the treatment of acute
relapse or first episode
ulcerative colitis(Protocol
028/017) o
Double-Blind, Controlled Studies
in Maintenance of Remission of
Ulcerative Colitis
Low dose pilot (6 month) study:
- Balsalazide 2g/d vs SASP 2g/d
in the maintenance of remission
of patients with ulcerative
colitis (Protocol: 028/001) o
Medium dose subchronic (12 month)
study:
- Balsalazide 2g/d vs 4g/d in the
maintenance of remission of
patients with ulcerative colitis
(Protocol: 028/005) o
</TABLE>
- --------------------------------------------------------------------------------
Page 5 *under consideration
<PAGE>
SCHEDULE 3
----------
"Bulk Product Specifications"
and
"Finished Product Specifications"
BALSALAZIDE SODIUM
------------------
Specification - "IN-HOUSE"
--------------------------
[*]
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
BALSALAZIDE SODIUM
------------------
Specification - "PL Submission"
-------------------------------
[*]
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
SCHEDULE 4
----------
QUALITY TEST PROCEDURES
-----------------------
To be mutually agreed upon prior to Launch.
-------------------------------------------
<PAGE>
COLAZIDE (TM) CAPSULES
----------------------
1. GENERAL CHARACTERISTICS
-----------------------
Red/maroon, hard gelatin lock-fit capsule shells, size 00, containing a
dry orange/yellow powder.
2. FINISHED PRODUCT SPECIFICATION
------------------------------
[*]
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
1 (4)
SCHEDULE 5
TERMS AND CONDITIONS APPLICABLE TO THE
MANUFACTURING LICENCE UNDER ARTICLE 16.2
----------------------------------------
l. With effect from the effective date of notice served by Astra under and in
accordance with Article 16.2 of the Agreement (and consequently also
Article 6.6) Salix shall grant Astra a licence to manufacture the Product
both inside and outside the U.S. for sale in the U.S. only under the terms
of the Agreement and this Schedule 5.
2. For the avoidance of doubt Salix shall not be prevented from manufacturing
or continuing to manufacture the Product or appointing sub-contractors to
manufacture the Product for sale by Salix or its customers both inside and
outside the U.S. subject to the exclusivity granted to Astra in respect of
the U.S. under the terms of the Agreement.
3. Salix shall supply Astra with such technical information and assistance as
Astra may reasonably require (and which has not previously been supplied to
Astra pursuant to Article 16.4) to enable Astra to produce the Product in
commercial quantities Provided Always That Salix shall be reimbursed all
costs and expenses incurred by it in supplying such
<PAGE>
2 (4)
information and assistance to Astra.
4. Astra undertakes to Salix that it will manufacture the Product fully in
accordance with the Bulk Product Specification and the Finished Product
Specification (annexed to the Agreement in the approved form) and with the
Drug Master File for the Product and in accordance with FDA Good
Manufacturing Practice.
5. Astra shall be entitled to market, distribute and sell the Product
manufactured by it only in accordance with the terms and provisions of the
Agreement,
6. In consideration of the licence to manufacture Astra shall pay to Salix a
fee calculated as a percentage of the Net Sales of all Product manufactured
by or on behalf of Astra pursuant to this license and sold by Astra or any
Astra Associate such percentage to be:
6.1 [*]
6.2 [*]
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
3 (4)
6.3 [*]
6.3.1 [*]
6.3.2 the actual cost of manufacture of the Product incurred by Astra
shall be calculated upon the expiry of 12 months from the date of
service of notice under Article 16 (and fees shall be payable during
such 12 month period on an estimate and shall be adjusted
retrospectively upon such calculation) by Astra which shall produce
to Salix full details of all actual direct costs of manufacture
(being materials labour and direct manufacturing overhead and
interest) and its calculation of the average actual cost per
kilogram of Product incurred in such 12 month period and upon
agreement by Salix of such actual cost, it shall remain fixed
thereafter for the period in which fees under this Article 6
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
4 (4)
shall remain payable.
6.4 [*]
6.5 [*]
7. Astra shall be solely liable for all losses, damages, costs and expenses
arising out of any claim by any third party in connection with any Product
manufactured by Astra and Astra hereby agrees fully and effectively to
indemnify Salix against any claims, damages, costs, expenses, or other
losses incurred by Salix arising out of or in connection with any Product
manufactured by Astra.
8. The licence to manufacture granted hereunder shall continue for such period
in which Astra may wish to manufacture the Product provided always that
such licence shall terminate in the event of termination of the Agreement
by Salix under the provisions of Article 29.2
9. In the event that Astra decides to have the Product manufactured by a sub-
contractor Astra may appoint such sub-contractor provided that Astra shall
ensure that the sub-contractor shall perform in accordance with this
Agreement and Astra shall remain liable for the acts of its sub-contractor
so appointed.
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
AMENDMENT NO. 1 TO CO-PARTICIPATION AGREEMENT
This Amendment No. 1 to Co-Participation Agreement (the "Amendment") is
entered into effective as of September 30, 1993 between Salix Pharmaceuticals,
Inc., a company incorporated under the laws of California whose registered
office is at 3600 W. Bayshore Road, Suite 205, Palo Alto, California 94303 USA
("Salix"), and AB Astra, a company incorporated under the laws of Sweden whose
principal place of business is at Kvarnbergagatan 16, S-151 85 Sodertalje,
Sweden ("Astra")
Recitals
--------
Salix and Astra entered into a Co-Participation Agreement dated as of April
30, 1993 (the "Co-Participation Agreement") with respect to a collaboration in a
programme of development and commercial sale in the United States of
pharmaceutical products incorporating Balsalazide. The parties now desire to
amend the Co-Participation Agreement on the following terms and conditions.
Unless otherwise defined herein, capitalized terms shall have the meanings
provided in the Co-Participation Agreement.
Agreement
---------
Now, therefore, in consideration of the premises and the mutual covenants
set forth herein, the parties hereto mutually agree as follows:
1. Amendment to Schedule 2. In order to better reflect the estimated
------------------------
expenses to be incurred by Salix and funded by Astra pursuant to Section 6.1 of
the Co-Participation Agreement, Schedule 2 to the Co-Participation Agreement is
hereby amended as follows:
[*]
2. Miscellaneous. Except as specifically amended as set forth above, the
--------------
Co-Participation Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties, by their respective authorized officers,
have executed this Amendment effective as of the date first above written.
AB ASTRA SALIX PHARMACEUTICALS, INC.
By: /s/ Claes Wilhelmsson /s/ Goran Lerenius By: /s/ Randy W. Hamilton
Claes Wilhelmsson Goran Lerenius Randy W. Hamilton,
Executive Vice President General Counsel President
Title: ___________________________
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
EXHIBIT 10.10
THIS AGREEMENT is made 15th September 1993
- -------------- -------------------
BETWEEN
- -------
COURTAULDS CHEMICALS (HOLDINGS) LIMITED whose registered office is at 50 George
- ---------------------------------------
Street, London. WIA 2BB ("COURTAULDS"): and
GLYCYX PHARMACEUTICALS LIMITED whose registered office is at Cedar House. 41
- ------------------------------
Cedar Avenue. Hamilton HH 1 2. Bermuda ("GLYCYX").
WHEREAS., the parties have reached agreement on the following terms for the
- -------
supply of the product described in Schedule 1 (the "PRODUCT") by Courtaulds to
Glycyx.
NOW IT IS AGREED as follows:
- ----------------
1. Definitions
-----------
In this Agreement:
(1) "COMMENCEMENT DATE" means 1st January 1994.
(2) "CALENDAR YEAR" means calendar years beginning on 1st January,
and ending on 31st December each year.
(3) "SPECIFICATION" means the specification for the Product set out
in Schedule 1. as amended from time to time in writing by mutual
agreement of the parties.
(4) "TONNE" means a tonne of 1.000 kilogramms.
(5) "MONTH" means a calendar month.
(6) "AFFILIATE" means any corporation or other entity which controls,
is controlled by, or is under common control with, a party to
this Agreement. A corporation or other entity shall be regarded
as in control of another corporation or entity if it owns or
directly or indirectly controls more than fifty percent (50%) of
the voting stock or other ownership interest of the other
corporation or entity, or if it possesses, directly or
indirectly, the power to direct or cause the direction of the
management and policies of the corporation or other entity.
(7) "CERTIFICATE OF ANALYSIS" means the certificate of analysis to be
provided by Courtaulds with each shipment of Product, setting
forth:
(a) the results of the quality test procedures with respect
to such shipment;
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
(b) the manufacturing date: and
(c) a statement that the batch of Products has been released
for shipment in accordance with the following criteria:
(1) all manufacturing materials used in the manufacture
of such Products have complied with the Specification
and (2) all manufacture and quality control operations
by Courtaulds with respect to such Product have been
carried out according to current Good Manufacturing
Practices. in-process control. manufacturing and testing
procedures. and standard operating procedures in the
form agreed upon by the parties.
2. Sale and Purchase
-----------------
(1) With effect from the Commencement Date Courtaulds shall sell and
deliver the Product to Glycyx and Glycyx shall purchase the
Product from Courtaulds on the terms and conditions of this
Agreement.
(2) Courtaulds undertakes to supply such quantities of the Product
meeting the Specification as Glycyx may order from Courtaulds
from time to time, subject always to minimum quantities as
follows:
(a) Within one month after Glycyx receives the first order from
their marketing partner. following the first country being
approved for the sale of distribution of the Product as a
drug, Glycyx will place an order on Courtaulds (the "INITIAL
ORDER") for [*] of the Product, and delivery of [*] of the
Product shall be made by Courtaulds within 20 weeks of
receipt of the Initial Order and the balance of [*] of
Product will be delivered by Courtaulds within 14 weeks
after the [*] has been delivered to Glycyx;
(b) Between 6 and 14 months after the Initial Order, Glycyx will
place a further order for [*] of the Product and delivery
shall be made by Courtaulds within 20 weeks of the further
order (the "SECOND ORDER"); and
(c) Between 20 and 28 months after the Initial Order. Glycyx
will place an order for [*] of the Product, and Courtaulds
shall deliver [*] of the Product within 12 weeks of
receiving the order and the balance 10 weeks later (the
"THIRD ORDER").
(3) Subject to Clause 2(2), Courtaulds shall supply to Glycyx the
quantities of the Product specified in Glycyx' order
confirmations as aforesaid, and shall make deliveries to Glycyx
in the installments and at such times and places as Glycyx shall
require from time to time.
-2-
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
(4) Courtaulds hereby agrees that, during the term of this Agreement.
Courtaulds and its Affiliates will only supply Product to Glycyx
or its bona fide designees which designees will be notified to
Courtaulds in writing by Glycyx.
3. Delivery
--------
(1) The Product shall be supplied on an ex-works basis to Glycyx or
on a delivered basis to Glycyx or Glycyx's designee in accordance
with Glycyx's instructions.
(2) Title to and risk in the Product shall pass to Glycyx either upon
collection by Glycyx of the Product from Courtaulds' Buckhaven
plant or upon delivery to (Glycyx or their designee at
destinations to be nominated by Glycyx.
(3) Deliveries of the Product will initially be in 50 kg net weight
Mauser drums (which will be double polythene lined and
non-returnable). Courtaulds shall test each lot of Product before
delivery to Glycyx and provide a Certificate of Analysis for each
lot of Product delivered.
4. Price and Payment
-----------------
(1) The price to be paid by Glycyx for the minimum orders of Product
supplied pursuant to Clause 2(2) hereunder shall be as follows:
(a) for Product supplied pursuant to the Initial Order [*] the
price shall be [*]:
(b) for Product supplied pursuant to the Second Order of [*] the
price shall be [*]; and
(c) for Product supplied pursuant to the Third Order of [*] the
price shall be [*];
Provided that Courtaulds is able to buy the required quantities of raw
materials (namely beta alanine and p Nitro benzoylchloride) at the
appropriate time such raw materials are required to make the Product
and at a price for such raw materials respectively of [*] delivered to
Courtaulds' plant at Buckhaven, [*]. If both Glycyx and Courtaulds are
unable to purchase the raw materials at the prices referred to above.
Courtaulds will forthwith notify Glycyx and the parties will meet and
negotiate in good faith within 30 days a revised price per kilogramme
for the
-3-
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
Product. If the parties fail to agree on a revised price within 30
days or if Glycyx is unable to End an acceptable supplier of such raw
materials at a mutually acceptable price. this Agreement shall
terminate forthwith. If requested by Glycyx, Courtaulds shall deliver
the Product to a consignment address and charge Glycyx at cost for
Carriage and insurance.
(2) At the beginning of October each Calendar year Glycyx and
Courtaulds will negotiate in good faith and agree on prices for
any quantities ordered over the quantities referred to in Clause
2(2) above.
(3) Glycyx shall make payment to Courtaulds in British Pounds
Sterling within 30 days after the later of (i) the date of
dispatch of Product to Glycyx or (ii) Glycyx's receipt of the
invoice with respect to shipment of such Product.
5. Terms of Supply.
---------------
(1) Courtaulds warrants to Glycyx that all Product supplied hereunder
will at the time of dispatch to Glycyx or its designees (i)
comply with the Specification. (ii) be Manufactured, packaged,
stored and supplied in accordance with Good Manufacturing
Practices and the Drug Master File with respect to Product and
(iii) not be adulterated or misbranded within the meaning of the
United States Federal Food, Drug and Cosmetic Act or any other
similar law or regulation within the United Kingdom. Courtaulds
shall comply with the requirements of all laws regulations and
codes of practice relating to the manufacture of the Product that
are in force in the United Kingdom (including UK DHSS and ISO
9002 standards) and the United States of America (being the
standards of the FDA).
(2) Should Glycyx have requirements for compliance with other laws or
regulations they shall notify Courtaulds of these and the direct
cost of complying with such further laws or regulations shall be
reimbursed to Courtaulds by Glycyx.
(3) Courtaulds shall maintain for a least 6 years for each batch of
Product made and produce for inspection by Glycyx all
documentation regarding the manufacture of the Product, reference
samples (solvents excluded) and quality control records, as
Glycyx may from time to time require and shall provide Glycyx
upon request with copies of the same.
(4) Glycyx or their authorized representatives may carry out quality
assurance inspections of Courtaulds' production facilities for
the Product at reasonable times during the course of this
Agreement and may take reasonable samples for quality assurance
purposes only. Courtaulds shall promptly provide Glycyx with all
relevant information reasonably
-4-
<PAGE>
required for the investigation of any complaints regarding the
quality of Produce. Courtaulds shall promptly inform Glycyx of
the outcome of any inspections by regulatory authorities
(including, without limitation. the National Drug Inspectorate)
of Courtaulds' manufacturing site for Product.
(5) Courtaulds shall not make any change to the manufacturing process
for Product which would necessitate an amendment to the Drug
Master File for Product, without the prior written consent of
Glycyx.
(6) The Product to be supplied to Glycyx by Courtaulds shall be
manufactured at Courtaulds' premises at Buckhaven or such other
place as Glycyx and Courtaulds may agree.
6. Liability and Indemnity
-----------------------
(1) Neither party shall be liable (in contract, tort or otherwise)
and irrespective of any negligence of such party for any indirect
or consequential losses (including but not limited to loss of
goodwill, business or anticipated savings), loss of profits or
use or third party claims, suffered by the other party in
connection with this Agreement or the Product save to the extent
that such claims relate to death or personal injury resulting
from the negligence of the first party in which case there shall
be no limit to such party's liability.
(2) Notwithstanding Clause 6(l) above Glycyx shall have the
responsibility to make any claim that any supply of the Product
does not meet the Specification within 45 days from the date of
delivery of such Product or within 25 days after Glycyx becomes
aware that the Product does not meet the Specification; provided
that in the latter event such claims must be brought within six
months from the date of delivery of such Product. Glycyx will, in
the event it receives Product which does not meet the
Specification, require Courtaulds to redeliver a Product which
does comply at Courtaulds' risk and expense. Where Glcyx claims
that a Product does not comply with the Specification, it shall
give full details of such claim and give Courtaulds reasonable
access to investigate the matter before the remainder of the
Product of the same consignment is used or returned to
Courtaulds. If Glycyx does not so notify Courtaulds within the
time limits set out above Glycyx shall be treated as having
waived all claims connected with the matter which should have
been so notified and, other than as provided in Clauses 6(l) and
6(3), Courtaulds shall have no further liability in respect of
Product which does not comply with the Specification.
(3) In the event that Glycyx recalls any of its products due to the
failure of Courtaulds or any of its employees to supply the
Product in accordance with the Specification in any material
respect, Courtaulds shall
-5-
<PAGE>
compensate Glycyx for the reasonable costs of physical recovery
and destruction of the Product and any products incorporating the
Product directly incurred by Glycyx as a result of such recall.
[*]
(4) For the avoidance of doubt Glycyx hereby acknowledges that
Courtaulds has neither been a party to nor is competent to judge
the result of any clinical trials of the Product.
7. Duration and Termination
------------------------
(1) Either party may terminate this Agreement by at least 12 months'
prior written notice given at any time but not to expire prior to
the fifth anniversary of the Commencement Date.
(2) Either party may terminate this Agreement forthwith by written
notice to the other upon any material breach by the other which
is not remedied within 30 days of notification in writing to the
offending party, or if the other goes into liquidation or if a
receiver or administrator is appointed over or an encumbrancer
takes possession of any part of its assets, or it makes any
composition with its creditors or is deemed unable to pay its
debts, or suffers any analogous act under foreign law.
(3) Courtaulds may in addition terminate this Agreement forthwith by
written notice to Glycyx if the Product license is withdrawn by a
competent health authority in either the United Kingdom or the
United States of America and may require Glycyx to pay
Courtaulds' cost for any reasonable quantities of raw materials,
work in progress (including the payment of waste) or finished
goods in connection with the Product. Within 30 days of such
termination, Courtaulds shall furnish Glycyx with a statement of
all such materials. Glycyx shall pay such amount within 30 days
of such statement date.
(4) Termination shall be without prejudice to Clause 6 and to any
liabilities accrued at the date of termination.
8. Force Majeure
-------------
(1) If any party is delayed in or prevented from carrying out any of
its obligations under this Agreement for any reason beyond such
party's reasonable control, that party shall be excused
performance of such obligation for as long as and to the extent
that the prevention or delay lasts; provided that the party
affected gives the other as much advance notice of such
circumstances as is practicable, and in any event shall have
notified the other in writing within seven days of discovery of
such
-6-
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
circumstances, identifying the same and indicating the
anticipated period and quantities of the Product affected.
(2) A party affected by such circumstances shall use all reasonable
endeavours to minimize the extent and duration of their effect on
this Agreement.
(3) Notwithstanding Clause 8(l), if either party invokes force
majeure for a continuous period of 90 days or more, or 90 days or
more in any period of 180 days, the other party may forthwith
terminate this Agreement by notice to the other.
9. Confidentiality
---------------
(1) Glycyx shall keep secret and shall not divulge to any third party
any information given by Courtaulds in connection with this
Agreement and/or the Product or which otherwise becomes known to
Glycyx concerning Courtaulds' Drug Master File for the Product,
the manufacturing process for the Product, or Courtaulds and its
products through its performance of this Agreement or use the
same other than for the purpose of executing this Agreement.
Courtaulds shall keep secret and shall not divulge to any third
party any information given by or on behalf of Glycyx in
connection with this Agreement and/or the Product or use the same
other than for the purpose of executing this Agreement. The
foregoing obligations shall not apply to information which is:
(i) in the public domain or subsequently enters the public
domain other than by breach of this Agreement;
(ii) can be shown by the receiving party by documentary
evidence to have been in its possession or control prior
to disclosure by the disclosing party;
(iii) received from a third party lawfully entitled to disclose
the same; or
(iv) is required by law, regulation or court order to be
disclosed; provided that the receiving party has taken
such steps as are reasonably available under the law (but
not the institution of legal action) to protect such
information and notifies the disclosing party prior to
disclosure and provided further that such disclosure shall
only be made to the extent actually required by such law,
regulation or court order.
-7-
<PAGE>
10. Assignment
----------
Courtaulds may assign any of its rights or duties hereunder with the
prior consent of Glycyx which may not be unreasonably withheld save
that such consent may be reasonably withheld by Glycyx if Courtaulds
wishes to assign its rights and duties hereunder to a company which at
the time of the proposed assignment (i) is selling Balsalazide Sodium
in a finished form; or (ii) is manufacturing, formulating, or
marketing a product which competes or will compete with Balsalazide
Sodium. Glycyx may assign its rights and duties hereunder with the
prior written consent of Courtaulds which consent shall not be
unreasonably withheld.
11. Miscellaneous
-------------
(1) Save as otherwise provided herein, any order, notice, claim or
demand hereunder shall be given in writing and shall be deemed
duly served seven days after it has been sent property addressed
by registered air mail to the address of the party set out below,
and if sent by facsimile deemed sufficiently served on the date
and at the time when it is sent to the following fax number or
such other number(s) as may be notified by the party in question
from time to time):
(a) in the case of notices to Glycyx to:
Glycyx Pharmaceuticals Ltd.
3600 W. Bayshore Road, Suite 205
Palo Alto, California 94303 USA
Fax No.: 0101 415 856 1555
FAO: President
(b) in the case of notices to Courtaulds to:
50 George Street
London W1A 2BB
Fax No.: 071-612-1500
FAO: The Company Secretary
(2) The parties acknowledge that for reasons of administrative
convenience. supplies of the Product may be requested and orders
confirmed on forms which embody the parties' respective standard
conditions of trade, but such conditions shall not apply to the
supply of the Products hereunder.
(3) This Agreement supersedes and cancels all previous agreements or
arrangements between Glycyx and Courtaulds relating to the supply
of Products by Glycyx. and any such previous agreement or
arrangement is hereby terminated without compensation, but
without prejudice to any
-8-
<PAGE>
right resulting from any prior breach of such agreement or any
rights or indemnity which may have accrued to either party under
any such previous agreement or arrangement.
(4) No amendment to this Agreement shall be effective unless it is
made in writing and signed by a duly authorized representative on
behalf of each party.
(5) No failure by either party to enforce any provision of this
Agreement shall constitute a waiver of that party's rights or
thereafter prevent it from insisting on strict compliance
therewith.
(6) This Agreement shall be governed by the law of England and the
parties submit to the non-exclusive jurisdiction of the English
courts.
(7) It is expressly agreed that Glycyx and Courtaulds shall be
independent contractors and that the relationship between the two
parties shall not constitute a partnership, joint venture or
agency. Neither Glycyx or Courtaulds shall have the authority to
make any statements, representations or commitments of any kind
or to take any action which shall be binding on the other,
without the prior written authorization of the other party to do
so.
(8) In case any one or more of the provisions of this Agreement shall
for any reason be held to be invalid, illegal or unenforceable in
any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions hereof, but this Agreement
shall be construed as if such provisions had never been contained
herein.
-9-
<PAGE>
IN WITNESS whereof the parties hereto have executed this Agreement the day and
year first before written.
SIGNED by )
- ------
for and on behalf of )
COURTAULDS CHEMICALS ) /s/ William J. McPherson
- --------------------
(HOLDINGS) LIMITED )
- ------------------
SIGNED by )
- ------
for and on behalf of )
GLYCYX PHARMACEUTICALS ) /s/ Randy Hamilton
- ----------------------
LIMITED )
- ------
-10-
<PAGE>
(Page 1 of 4)
SCHEDULE I
BALSALAZIDE SODIUM
Written by: Date:
Approved by: Date:
Ref.No. 07.JUL.93 supersedes: 27 MAY 1993
Page 1 of 4
- --------------------------------------------------------------------------------
[*]
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
(Page 2 of 4)
SPECIFICATIONS
--------------
[*]
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
(Page 3 of 4)
TEST METHODS
------------
[*]
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
(Page 4 of 4)
[*]
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
EXHIBIT 10.11
Dated 23rd September, 1994
GLYCYX PHARMACEUTICALS, LTD (1)
- and -
MENARINI INTERNATIONAL OPERATIONS LUXEMBOURG SA (2)
______________________________________________________
DISTRIBUTION AGREEMENT
_______________________________________________________
Hewitson Becke + Shaw
4/5 Church Street
Peterborough
PE1 1XB
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
-1-
THIS AGREEMENT is made 23rd day of September 1994
BETWEEN:
- -------
(1) GLYCYX PHARMACEUTICALS, LTD a company incorporated under the laws of
Bermuda and whose registered office is at 41 Cedar Avenue, Hamilton, HM12,
Bermuda ("Glycyx"); and
(2) MENARINI INTERNATIONAL OPERATIONS LUXEMBOURG SA a company incorporated
under the Law of Luxembourg whose principal place of business is at 15
Boulevard Roosevelt, Luxembourg ("Menarini")
WHEREAS:
A. Biorex Laboratories Limited ("Biorex") has developed and owns patent and
other intellectual property rights in' a therapeutic pharmaceutical product
for treatment and maintenance of colitis based upon the compound
Balsalazide and Biorex has granted to Glycyx the exclusive right and
licence to manufacture, or have manufactured, use, sell or have sold
products incorporating Balsalazide.
B. Glycyx wishes to grant to Menarini (who in turn wishes to accept) the
exclusive right to promote market distribute and sell the Product in the
Territory and to effect or have effected on its behalf final manufacture of
a finished Product within the Territory on the terms and subject to the
conditions of this Agreement.
NOW IT IS HEREBY AGREED as follows:-
1. DEFINITIONS
-----------
1.1 In this Agreement the following words shall have the following
meanings:
"the Applications" means the treatment of Diseases of Digestive
System according to the international
Classification of Diseases (Edition 9) under
categories 555 and 556 "Ulcerative Colitis
and Crohn's disease"
"Balsalazide" means (E)-5- [[4[[ (2-carboxyethyl) amino]
carbonyl] phenyl] azo] -2 hydroxybenzoic acid
disodium salt dihydrate (USAN)
"Biorex" means Biorex Laboratories Limited a company
incorporated in England under Company
Registration Number 390233 whose registered
office in at 2 Crossfield Chambers, Gladbeck
Way, Enfield,
<PAGE>
-2-
Middlesex EN2 7HT
"Clinical Trials" shall mean clinical trials effected by or on
behalf of Glycyx and/or Menarini to effect a
comparative study between the Product and the
Asacol brand of 5.ASA currently marketed in
the Territory and elsewhere whether conducted
in the United States, United Kingdom, the
Territory or elsewhere and to be conducted
substantially in accordance with the protocol
previously agreed between Menarini and Glycyx
and contained in a document dated October 5th
1992
"Dossier" means the master regulatory dossier relating
to the Product prepared by Glycyx in
accordance with the terms of this Agreement
"Dossier Date" means the date upon which the Dossier shall
be delivered by Glycyx to Menarini in
accordance with the terms of this Agreement
"Excluded Territory" means all countries in the World except the
Territory and Japan Taiwan and Korea
"Force Majeure" means in relation to either party any
circumstances beyond the reasonable control
of that party (including but not limited to
strike, look out or other form of industrial
action, act of God, war, riot, accident,
breakdown in plant or machinery, fire, flood,
explosion or government action)
"Launch" means a commercial launch by Menarini (or any
Menarini Associate) of the Product in a
country Of the Territory supported by such
marketing expense and support and launched in
such quantities as may reasonably be
appropriate for the Product to have a
significant effect on total
<PAGE>
-3-
sales of any similar or competitive product
in such country of the Territory
"the Manufacturing means the agreement relating to the
Agreement" manufacture and supply of the Menarini.
Product referred to in clause 9.10.
"Menarini Associate" means Menarini and such other companies owned
by or associated with Menarini as are
notified in writing to Glycyx by Menarini
from time to time
"the Menarini Product" means Bulk Balsalazide or the Bulk Active
Ingredient (4ABA) and in the event of the
development of any other pharmaceutical
preparations, Bulk Balsalazide or the Bulk
Active Ingredient in the form required for
such other pharmaceutical preparation for the
Applications.
"the Patents" means the patents and applications therefor
relating to Balsalazide listed in Schedule 1
to this Agreement and Any continuations,
continuations in part, divisions,
substitutions, reissues and extensions
thereof and any applications for patents and
patents granted in any part of the World
derived from any such patents and
applications and any and all other patent
rights now existing or hereafter acquired
(including applications therefor) pertaining
to the subject matter of any of such patents
and applications listed in Schedule 1 or that
are otherwise related to Balsalazide or to
pro drugs analogs or isomers thereof or
improvements of any of the foregoing obtained
in any country within the Territory.
"Product" means a pharmaceutical preparation in capsule
form containing Balsalazide for the
<PAGE>
-4-
Applications and such other pharmaceutical
preparations containing Balsalazide for the
Applications as may be developed by Glycyx
during the term of this Agreement
"the Territory" means Italy, Spain, Portugal and Greece
"the Trade Name" means such trade name (other than the Trade
Mark) as may be agreed between Glycyx and
Menarini and designated for use in connection
with the Product in any part of the Territory
"the Trade mark" means the trade name "Colazide" registered as
a trademark for use on pharmaceutical
preparations in the United Kingdom and
elsewhere
1.2 The headings in this Agreement are for convenience only and shall not
affect its Interpretation.
1.3 References to documents in the approved form shall be references to
documents in the form agreed between the parties and initialled by
both parties for the purposes of identification.
2. APPOINTMENT OF MENARINI
-----------------------
2.l In accordance with the terms and conditions contained in this
Agreement Glycyx hereby grants to Menarini the exclusive right to
promote market and sell the Product within and throughout the
Territory and pursuant to the terms of Clause 9.2 only to effect (or
have affected on its behalf) final manufacture of a finished Product.
2.2 The rights granted hereunder to Menarini shall be in respect of the
Product only but for the avoidance of doubt shall include such dosages
and forms thereof as may be appropriate within the Applications. In
the event that either party shall become aware of any indications or
applications for Balsalazide other than the Applications it shall
forthwith notify the other party and shall supply the other party with
such details of the other indications and applications as may be
available to it Provided Always That:-
2.2.1 Menarini shall have the right of first refusal (exercisable
within 30 days of receipt by Menarini of such details from
Glycyx or supply by Menarini of such details to Glycyx (as
the case may be)) to enter into good faith negotiations with
Glycyx in respect of an agreement concerning the development
<PAGE>
-5-
of such other Indications and applications and the grant to
Menarini of the right to exploit the same in the Territory;
and
2.2.2 Menarini shall have no right whatsoever to use and exploit
Balsalazide in any such other indications and/or
applications unless and until completion of such good faith
negotiations and the execution of a written agreement in
respect thereof; and
2.2.3 during the period in which Menarini shall continue to
negotiate in good faith (which shall not (unless expressly
agreed in writing by Glycyx and Menarini) exceed six
calendar months) Glycyx shall not disclose details of such
other indications and/or applications to any third party or
grant any third party any rights therein provided that
Glycyx shall not be prevented or precluded from disclosing
the same to any third party which shall have entered good
faith negotiations for the acquisition of the right to
exploit such other indications and/or applications outside
the Territory; and
2.2.4 In the event that Menarini shall not exercise its right of
first refusal under Clause 2.2.1 or (after exercise of such
right of first refusal) shall not enter into an agreement
for the grant of rights to Menarini in respect of the
Territory in respect of such other indications and
applications within such period of six calendar months (or
such extended period as may be agreed between the parties)
Glycyx shall be entitled to offer such rights in respect of
the Territory to a third party provided that (unless
otherwise agreed by Menarini) such rights shall be offered
to such third party upon terms and conditions no more
favourable than those offered to Menarini. For the avoidance
of doubt no such proviso shall apply to the offer or grant
of rights in respect of such other indications and
applications for areas outside the Territory; and
2.2.5 in respect of any such other applications and Indications
disclosed by Menarini to Glycyx, Glycyx shall not use or
exploit the same (either itself or through any third party)
whether in the Territory or elsewhere without the prior
consent of Menarini (such consent not to be unreasonably
withheld or delayed).
3. EARLY TERMINATION BY MENARINI
-----------------------------
3.l This agreement shall become effective in all respects as at the date
of execution and shall continue thereafter in accordance with its
terms, subject to termination under the provisions of Clause 18
Provided Always that this agreement may at the sole option of Menarini
be terminated by notice
<PAGE>
-6-
in writing served by Menarini on Glycyx in the event that the results
of the Clinical Trials shall not have established the clinical
superiority of the Product in comparison with the Asacol brand of 5-
ASA (as currently marketed within the Territory and elsewhere) upon
the criteria and basis set out in Appendix 1 to this agreement: such
notice to be served by Menarini within 30 days of receipt by Menarini
of the results of the Clinical Trials.
3.2 Forthwith upon service of any notice of termination under Clause 3.1
Menarini shall:-
3.2.1 return to Glycyx and deliver up all tangible copies of all
confidential information belonging to Glycyx or Biorex and
supplied to or obtained by Menarini in connection with this
Agreement; and
3.3.2 forthwith cease all and any actions concerning or in respect
of the exercise by it of any rights granted under this
Agreement; and
3.2.3 deliver to Glycyx all information and data of whatsoever
nature relating to the Product together with all copies
thereof (other than correspondence between Glycyx and
Menarini) which Menarini may have in its possession or under
its control including (but without limitation) all
scientific, medical and safety data relating to the Product;
and
3.2.4 at its sole cost take all such actions as may be necessary
and appropriate fully and effectively to transfer absolutely
to Glycyx (or as it may direct) all applications made or
pending and all approvals and rights granted to or by all
regulatory and approval authorities (including without
limitation all technical and pricing approvals) within each
part of the Territory and all information, documentation and
rights within the possession or control of Menarini or any
Menarini Associate or any agent or representative thereof in
respect of all or any of such applications, approvals and
rights.
3.3 Menarini undertakes after the date of service of any notice under
Clause 3.1:-
3.3.1 and for a period of two years thereafter to execute such
further documents and/or provide to Glycyx such further
Information and assurance as Glycyx may reasonably require
fully to give effect to the provisions of Clause 3.2;
3.3.2 and for a period of tan years thereafter (without prejudice
to the provisions of Clause 3.4) to keep and maintain as
confidential the existence of and the contents of this
Agreement and all matters relating to the negotiation and/or
termination of
<PAGE>
-7-
this Agreement and not to disclose any information
concerning any of the same to any third party.
3.4 Menarini hereby confirms and acknowledges that notwithstanding the
termination of this Agreement under Clause 3.l the provisions of
Clauses 14, 15.1 and 23 shall continue thereafter in accordance with
their terms.
3.5 In the event of termination under Clause 3.1 forthwith upon the proper
and full performance in all material respects by Menarini of its
obligations under Clause 3.2 Glycyx shall reimburse to Menarini:-
3.5.1 [*]
3.5.2 [*]
3.5.3 [*]
3.6 Menarini hereby undertakes that it shall not effect any Launch of the
Product in any part of the Territory unless and until either:-
3.6.l 30 days after the date of receipt by Menarini of the results
of the Clinical Trials, in the event that no notice shall
have been served under Clause 3.1; or
3.6.2 Menarini shall have expressly and irrevocably by notice in
writing to Glycyx waived its right to terminate under Clause
3.1
3.7 In the event that either no notice under Clause 3.1 shall have been
------
servedby Menarini within 30 days of receipt by Menarini of the results
of the Clinical Trials or that Glycyx shall receive from Menarini
--
notice in writing expressly and irrevocably waiving in all respects
its right to terminate under Clause 3.1 Menarini shall forthwith upon
the expiry of such 30 day period or upon service of such notice of
waiver (as the case may be) pay to Glycyx the sum of [*] due under
Clause 7.1.1.
4. REGULATORY APPROVALS
--------------------
4.1 Glycyx shall use all reasonable endeavours to prepare (or procure the
preparation of) the Dossier in accordance with published standards
required for master regulatory dossiers by the European Commission as
at the date of completion of the Dossier and in a form suitable for
submission to and suitable for approval by the relevant regulatory
authorities in connection with obtaining health registration in each
Part of the Territory.
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
-8-
4.2 Menarini undertakes to use its best endeavours to file the Dossier in
each part of the Territory as soon as reasonably practicable after the
Dossier Date and in any event within 26 weeks of the Dossier Date.
4.3 Menarini undertakes to use its best endeavours to apply for and obtain
all relevant regulatory health and price approvals for the marketing
and use of the Product in each part of the Territory as soon as
reasonably practicable after the Dossier Date and in any event shall
apply for such approvals within two years from the Dossier Date
Provided Always that Menarini shall not be liable in respect of any
delay experienced in obtaining any such approvals where such delay is
caused by circumstances outside its reasonable control or influence.
Menarini shall supply to Glycyx quarterly reports setting out in
reasonable detail its activities and progress in developing and
securing such approvals for the Products in each part of the
Territory.
4.4 Subject to proper performance by Glycyx of its obligations under
Clause 4.1 Menarini shall be solely responsible for effecting (at its
sole cost and expense) such amendments and translations to the Dossier
as may be required to procure that the Dossier complies with and
satisfies the requirements of any regulatory or approval authority
within any particular part of the Territory and Glycyx shall not be
obliged to incur any cost or conduct any further test or development
work or otherwise amend or translate the Dossier whether before or
after the Dossier Date Provided always that in the event that Menarini
reasonably requires any additional work to be carried out by Glycyx in
such connection, Glycyx shall use its reasonable endeavours to assist
Menarini subject to reimbursement by Menarini of reasonable costs
incurred by Glycyx in providing such assistance.
4.5 In the event that Menarini shall fail to effect Launch in any country
of the Territory within a period of 180 days after the grant of all
necessary registrations, approvals, price approvals, and
reimbursements, then Glycyx may in its absolute discretion serve
written notice on Menarini (within 30 days of the expiry of such
period of 180 days) amending the rights of Menarini granted hereunder
to be non-exclusive in respect of any such country of the Territory
only. Thereafter Glycyx for the avoidance of doubt shall also be
entitled to exploit such rights and to market and exploit the Product
in such part of the Territory (whether directly or indirectly through
any agent, contractor or licenses) in such manner as it may In its
sole discretion think fit.
4.6 In the event that Menarini's failure to effect Launch in any country
in the Territory as stated in Clause 4.5 exceeds a period of twelve
months from the grant of all necessary registrations, approvals, final
price approvals and reimbursements for such country Glycyx may at its
sole discretion serve written notice on Menarini (within 30 days of
the expiry of such period of twelve months) terminating all rights
granted to Menarini under the terms of this
<PAGE>
-9-
Agreement in respect of such part of the Territory only and thereafter
Glycyx for the avoidance of doubt shall be entitled to exploit such
rights and to market and exploit the Product in such part of the
Territory (whether directly or indirectly through any agent,
contractor or licensee) in such manner as it may in its sole
discretion think fit free of any obligation to Menarini.
5. MENARINI'S UNDERTAKINGS
-----------------------
5.l Menarini shall use its best endeavours to promote, market and sell the
Product and to achieve such penetration of the relevant market as may
be commensurate with the qualities of the Product throughout the
Territory. Menarini undertakes to use at least such procedures and
standards to seek to obtain such penetration as it may use for other
products of Menarini.
5.2 Without prejudice to the generality of Clause 5.1 Menarini undertakes
to allocate such promotional and sales resources and such technical
support for the promotion, marketing and sales of the Product as may
reasonably be required to achieve such penetration of the relevant
market an may be commensurate with the qualities of the Product in all
parts of the Territory. Menarini undertakes to use at least such
procedures and standards to seek to obtain such penetration as it may
use for other products of Menarini.
5.3 Menarini shall promote market and sell the Product in the Territory
entirely in accordance with the terms of any product licence, price
approval (where applicable), and other restrictions and regulations
for the Product as may be relevant and applicable in each country
within the Territory.
5.4 Menarini further undertakes:-
5.4.1 to promote, market and sell the Product in the Territory
under the Trade Mark or Trade Name only and not to use any
other trade name, trademark or logo for or on the Product
Provided Always That the name "Balsalazide" may be used but
only as a generic name for the Product in accordance with
and as required by applicable laws and regulations; and
5.4.2 to enter into such trademark user agreements as may
reasonably be required by Glycyx in connection with the
exploitation by Menarini of the Trade Mark or the Trade
Name; and
5.4.3 to enter into such other agreements (whether relating to
technical standards or otherwise) as may reasonably be
required by Glycyx in connection with the exploitation by
Menarini of the Product provided always that such other
agreements shall evidence and clarify the obligations of
Menarini as agreed between the parties as at the date
<PAGE>
-10-
hereof and shall not seek to amend any such obligations; and
5.4.4 to notify Glycyx immediately of any improper or wrongful use
of the Trade Mark or the Trade Name, Patents or otherwise
any proprietary or confidential information of Glycyx or
Biorex relating to the Product coming to Menarini's
knowledge; and
5.4.5 forthwith to refer to Glycyx all enquiries received for the
supply of the Product outside the Territory; and
5.4.6 not actively to seek customers for the Product outside the
Territory and not to establish any branch or sales force
outside the Territory for the marketing and sale of the
Product; and
5.4.7 to develop and design packaging labelling instructions and
promotional materials for the Product in each part of the
Territory at its sole cost and expense Provided Always That
the general quality design and content of such packaging and
other materials supplied with the Product by Menarini shall
be subject to prior approval by Glycyx (such approval not to
be unreasonably withheld or delayed); and
5.4.8 not to use any misleading statements or misrepresentations
on the Product packaging labelling instructions and
promotional materials or use any defective packaging or
other materials and to comply in all respects with all
regulations and laws applicable in each part of the
Territory in connection with the Product packaging and other
materials provided in connection therewith; and
5.4.9 in the promotion marketing and/or sale of the Product in
each part of the Territory to comply with all relevant
regulatory health and pricing regulations and approvals in
such part of the Territory. For the avoidance of doubt
Glycyx shall not be responsible or liable In any manner
whatsoever for compliance with any such regulations and
approvals (whether or not it shall have assisted Menarini in
or approved the promotion marketing and/or sale of the
Product in such part of the Territory); and
5.4.10 not to use any packaging which may adversely affect the
Product in any way whatsoever including but without
limitation the Product's approved shelf-life; and
5.4.11 not to incur any liability on behalf of Glycyx or in any
manner pledge or purport to pledge Glycyx's credit or accept
any order or make any contract
<PAGE>
-11-
binding on Glycyx or give or make any representation,
warranties or conditions or quantities with reference to the
Product on behalf of Glycyx. Menarini is not and shall not
be deemed to be the agent of Glycyx and in all
correspondence and dealings with third parties shall clearly
indicate that it is acting as principal or otherwise as
Licenses under the terms of this Agreement; and
5.4.12 to be solely responsible for the acts and omissions of its
employees and representatives in connection with the
performance of its rights and obligations hereunder; and
5.4.13 not to obtain or seek to obtain the Menarini Product from
any third party or otherwise (save as expressly permitted by
this Agreement) itself to manufacture or attempt to
manufacture all or any part of the Menarini Product.
5.4.14 During the period from the date of this Agreement to the
date of expiry of a period of three years after Launch in
each country of the Territory not to market (and to procure
that no Menarini Associate involved in the distribution or
marketing of the Product within any country of the Territory
shall market) whether directly or indirectly or through any
licenses or distributor within each such country of the
Territory any product for the treatment of inflammatory
bowel disease in which the anti inflammatory component may
compete in any material respect with Balsalazide.
6. PRODUCT DATABASE AND ADVERSE REACTIONS REPORTING
------------------------------------------------
6.1 Glycyx shall maintain a database of all adverse and other reactions or
events occurring in connection with the Product in any part of the
Territory or the Excluded Territory and shall use reasonable
endeavours to procure that any such adverse and other reactions are
notified to it in a timely manner by any sub-licensee and/or
distributor of the Product in the Territory and the Excluded
Territory.
6.2 Menarini undertakes to notify Glycyx:-
6.2.1 by telephone or telefax within 24 hours of becoming aware of
any serious or unexpected adverse reaction or
contraindication to the Product; written documentation of
such events must be received by Glycyx within five working
days of verbal notification using the CIOMS form;
6.2.2 within 3 months, on a quarterly basis, of other adverse
reactions or contraindications to the Product other than
stated under 6.2.1, in accordance with the definitions
listed in Schedule
<PAGE>
-12-
4; and
6.2.3 regarding sales volumes, by providing in writing quarterly
unit sales figures by reference to each part of the
Territory. This information will be used by Glycyx to
generate "increased frequency" data for periodic safety
reporting to FDA.
6.3 Glycyx undertakes to notify Menarini:-
6.3.1 forthwith in the event that it becomes aware of any serious
or previously unknown adverse reaction or contra indications
to the Product in any part of the Territory and the Excluded
Territory; and
6.3.2 within three months, on a quarterly basis of other adverse
reactions or contraindications to the Product other than
stated under 6.3.1 in any part of the Territory and the
Excluded Territory.
6.4 In the event that Glycyx or any third party shall conduct clinical
studies in support of any promotional or marketing activities of
Glycyx or such third party within the Territory or the Excluded
Territory, Glycyx shall grant or procure the grant to Menarini of full
unrestricted access to the results of such trials and Menarini shall
be entitled to use such results in connection with the marketing, sale
and use of the Product in the Territory.
6.5 Glycyx undertakes to organise regular meetings between Menarini and
any other licenses and/or distributor of the Product within Europe at
which information concerning the marketing usage and performance of
the Product may be exchanged in order to co-ordinate the marketing
image of the Product as sold by licensees and/or distributors
throughout Europe and Menarini undertakes to procure attendance at
such meetings by a suitably qualified and experienced employee of
Menarini.
7. DEVELOPMENT PAYMENT
-------------------
7.1 In consideration of the obligations of Glycyx contained in this
Agreement Menarini shall pay to Glycyx as a contribution to the costs
incurred in the research and development of the Product (both before
and after the date hereof):-
7.1.1 [*]
7.1.2 [*]
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
-13-
[*]
7.1.3 [*]
7.2.1 Glycyx acknowledges receipt prior to the date hereof to the
sum of [*] from Menarini as partial reimbursement of the
costs of conduct of the Clinical Trials.
7.2.2 In the event that the Clinical Trials are conducted at the
cost of Glycyx within the United Kingdom and/or the United
States of America Menarini shall pay to Glycyx (within seven
days of receipt of a request therefore from Glycyx such
request to be made upon agreement of the parties as to the
conduct of the Clinical Trials) a
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
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further sum of [*] as partial reimbursement of the costs of
the conduct of the Clinical Trials.
7.2.3 In the event that the clinical trials are not conducted at
the cost Of Glycyx within the United Kingdom and/or the
United States of America and at Menarini's option the
Clinical Trials will be conducted at the cost of Menarini
within the Territory Menarini shall be under no obligation
to pay any further sum under clause 7.2.2 above and Glycyx
shall repay to Menarini (within seven days of receipt of the
request therefore from Menarini such request to be made upon
agreement between the parties as to the conduct of the
Clinical Trials) the sum previously paid under clause 7.2.1.
8. CLINICAL TRIALS AND DEVELOPMENTS
--------------------------------
8.1 Menarini is authorised by Glycyx to undertake clinical studies after
the date hereof in support of Menarini's regulatory, promotional and
marketing activities and to enhance the Product's approval and/or use
within the Applications Provided Always That:-
8.1.l such trials are conducted solely for such purposes and not
for any other purpose whatsoever;. and
8.1.2 prior to the conduct of such trials the trial objectives and
protocols are approved by Glycyx (such approval not to be
unreasonably withheld or delayed); and
8.1.3 Menarini shall keep Glycyx fully informed as to the conduct
progress and results of such trials; and
8.1.4 Glycyx shall have full unrestricted access to the results of
such trials and shall be entitled to disclose the same to
third parties for use in connection with the registration
marketing sale and use of the Product in the Excluded
Territory only; and
8.l.5 Menarini shall bear all the costs and expenses associated
with such trials (including but without limitation the costs
of documentation and administrative payments to trialists);
and
8.1.6 such trials shall be conducted only in accordance with any
regulatory permissions and/or approvals granted for the
Product in such part of the Territory in which the trials
are conducted; and
8.1.7 Menarini, agrees that, prior to submission of a manuscript
describing the results for publication, Menarini, shall
forward to Glycyx a copy of the manuscript to be submitted
and shall allow Glycyx 30 days to determine whether a patent
application
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
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or other Intellectual property protection should be sought
prior to publication in order to protect Glycyx's
proprietary interest in any product or invention developed
in connection with this project. Upon request by Glycyx and
with reasonable justification, Menarini agrees to withhold
such publication for an additional 90 days, if required to
obtain subject protection. Glycyx will have the right to
request deletion from a manuscript of any trade secret,
proprietary, or confidential information supplied by Glycyx
to Menarini, but shall not otherwise have the right to
interfere with publication; and
8.1.8 all Information relating to and all results of such trials
shall be supplied to Glycyx forthwith in the event of
termination of this agreement by Menarini under Clause 3.1.
8.2 Menarini undertakes to use reasonable endeavours to support those
scientific International symposia organised, arranged or sponsored by
Glycyx and/or Biorex involving areas of medicine relating to diseases
of the gastro-intestinal tract and similar conditions.
9. SUPPLY OF PRODUCT
-----------------
9.1 The Menarini Product shall be supplied by Glycyx to Menarini (or any
specified sub-licensee or designated third party) upon such terms as
may be agreed in writing between Glycyx and Menarini.
9.2 Menarini shall be granted a limited licence for the term of this
Agreement only to undertake such further manufacturing as may
reasonably be required to produce from the Menarini Product the
Product in and for use in the Territory only Provided Always that;
9.2.1 Menarini shall carry out such manufacturing fully in
accordance with the Drug Master File and the specification
for the Product and otherwise in accordance with good
manufacturing practice and shall comply with such
instructions of Glycyx as may reasonably be required to
ensure conformity with other Product on the market within
Europe; and
9.2.2 Glycyx shall notify Menarini forthwith of any changes in the
Drug Master File and/or the specification for the Product;
9.2.3 Representatives of Glycyx and/or its licensor may upon
reasonable notice and at times reasonably acceptable to
Menarini visit and inspect the premises and facilities at
which such further manufacturing takes place from time to
time and consult informally (during such visits and by
telephone) with personnel of Menarini carrying out work on
such manufacture.
<PAGE>
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9.3 Without prejudice to the generality of Clause 9.1 Menarini shall
notify Glycyx in writing of its forecast requirements for quantities
of Menarini Product and details of its proposals for Launch in each
country of the Territory:-
9.3.l In respect of initial quantities of Menarini Product
required for Launch of Product In the Territory and details
of its proposals for Launch In each country of the Territory
Menarini shall deliver to Glycyx in writing on or before the
date of filing within any country (under clause 4.2) a
forecast of its requirements for each of the twelve months
immediately following the anticipated date for Launch. Such
forecast shall be updated in writing quarterly thereafter
but shall not be binding upon Menarini unless and until
delivered in connection with Launch under the provisions of
Clause 9.3.2.
9.3.2 Menarini shall deliver to Glycyx firm written orders for
quantities of Menarini Product required for Launch and
thereafter not less than sixteen weeks before the required
date of delivery. Firm written orders for the first two
months after Launch shall be delivered (permitting not less
than 16 weeks lead time) no later than fifteen days
following the grant of all relevant approvals for marketing
and sale of the Product within such Territory together with
forecasts for the seven months subsequent to the first two
months after Launch. Upon delivering such firm written
orders in connection with Launch, and thereafter on or
before the first day of each calendar month throughout the
term of this agreement, Menarini shall deliver to Glycyx
revised forecasts in writing of its requirements for
Menarini Product for the subsequent nine month period
(commencing on the first day of the month being sixteen
weeks after the month in which the forecast is delivered)
and with such forecasts shall deliver firm written orders
for the first two calendar months of such nine month
forecast period, In accordance with clause 9.5. Provided
Always that during the first year of supply under the terms
of this Agreement the parties will work closely together and
agree on such terms as to enable Glycyx to have such firm
orders and lead times as may reasonably be appropriate to
enable it to use all reasonable endeavours to meet in full
Menarini's requirements for Menarini Produt under the terms
of this Agreement.
9.4 Glycyx shall use reasonable endeavours to fulfil all written orders
placed on it by Menarini for the Menarini Product.
9.5 Whilst the forecasts delivered by Menarini to Glycyx under Clause 9.3
shall be non-binding and will not place any obligation on either
Menarini to order such quantities or
<PAGE>
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Glycyx to deliver such quantities:-
9.5.1 Menarini shall use all reasonable endeavours to estimate
accurately in such forecasts its requirements for the
Menarini Product; and
9.5.2 Menarini shall ensure that all written orders are placed
providing a period of 16 weeks between the date of order and
the required date of delivery.
9.6 Glycyx hereby warrants and undertakes that all quantities of the
Menarini Product supplied by it to Menarini under the terms of this
Agreement shall as at the date of delivery be supplied fully in
accordance with the Bulk Product Specification and the Finished
Product Specification contained in Schedule 2 and shall have been
manufactured in accordance with European Community Current Good
Manufacturing Practice and the Drug Master File for the Product.
9.7 Upon the receipt of any delivery of the Menarini Product from Glycyx
Menarini shall test such Menarini Product (in accordance with the
Quality Test Procedures agreed in the Manufacturing Agreement) and in
the event that the proper performance of such Quality Test Procedures
reveals any breach of the warranty given in Clause 9.6 Menarini shall
be entitled to reject the full shipment of the Menarini Product within
45 days of receipt of such shipment by notice in writing to Glycyx. In
the event that such shipment is not rejected within 45 days of receipt
Menarini shall be deemed to have accepted the same as fully in
compliance with the warranty given in Clause 9.6.
9.8 In the event of any dispute between the parties concerning any
allegation of breach of the warranty contained in clause 9.6 or
concerning any rejection or purported rejection of any shipment of the
Menarini. Product a sample quantity of the Menarini Product in
question shall be delivered to an independent laboratory (nominated by
the agreement of the parties or in the absence of agreement on the
application of either party by the President for the time being of the
Swiss Pharmaceutical Society) which shall be supplied with copies of
the Bulk Product Specification, the Finished Product Specification or
otherwise, the relevant agreed specification and the Drug Master File
and shall carry out testing in accordance with the Quality Test
Procedures and whose decision as to the quality of such Menarini
Product and as to any breach of warranty by such Menarini Product and
as to the apportionment between the parties of the costs of
arbitration shall in the absence of manifest error be final and
binding on the parties.
9.9 The terms and conditions relating to the supply of the Menarini
Product by Glycyx to Menarini as set out in this Agreement or as
otherwise agreed in writing from time to time by the parties shall
prevail over any terms and conditions of sale or purchase specified by
either party from time to time.
<PAGE>
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9.10 The parties undertake to execute an agreement relating to the
manufacture and supply of Menarini Product for the purpose of
disclosure to the relevant regulatory authorities in the Territory
substantially in the form contained in Schedule 3. In the event that
such agreement is entered into by any Menarini Associate in place of
Menarini, Menarini undertakes to guarantee and procure the proper
performance by such Menarini Associate of all its obligations under
such agreement.
10. PRICE
-----
10.1 The price charged for the Menarini Product by Glycyx to Menarini shall
be such prices as may be agreed in writing between Glycyx and
Menarini (or any Menarini Associate, on behalf of Menarini).
11. DELIVERY
--------
11.1 Delivery of the Menarini Product shall be made to such address
designated by Menarini and Glycyx shall be responsible for effecting
delivery to such designated address Provided Always that all such
costs incurred by Glycyx in effecting such delivery shall be
reimbursed in full by Menarini.
11.2 Risk in the Menarini Product shall pass to Menarini upon delivery and
Glycyx shall be responsible for insuring the Menarini Product in
transit to the designated Menarini destination Provided Always that
all such costs of insurance shall be reimbursed in full by Menarini.
12. TRADEMARK LICENCE
-----------------
12.l Glycyx hereby grants to Menarini (at Merarini's sole option) a sole
and exclusive licence to use either the Trade Mark or the Trade Name
------ --
on the Product and in connection with the marketing and exploitation
of the Product in the Territory only.
12.2 In the event that Menarini wishes to use the Trade Mark Glycyx
undertakes to procure the grant of such rights and licence as may
reasonably be required to give effect to Clause 12.1 from the Trade
Mark owner, Biorex.
12.3 In the event that Menarini wishes to use the Trade Name Menarini
hereby confirms and undertakes that all right title and interest
therein shall vest in and remain in Glycyx and that Menarini shall
have the right to use the same only as set out in this Clause 12.
12.4 Menarini hereby confirms and acknowledges that it is licensed to use
either the Trade Mark or the Trade Name only as set out in this
Agreement and Menarini further acknowledges:-
<PAGE>
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l2.4.1 that all goodwill in the Trade Mark and the Trade Name in
any part of the Territory (whether or not generated by the
activities of Menarini under this Agreement) shall vest in
Biorex or Glycyx as the case may be; and
l2.4.2 that any application for registration of the Trade Mark
shall be made in the name of Biorex only; and
12.4.3 that any application for registration of the Trade Name
shall be made in the name of Glycyx only; and
12.4.4 undertakes to transfer and assign to Glycyx (or as it may
direct) any right, title or interest required by Glycyx or
Biorex for registration of the Trade Name or the Trade Mark
in any part of the Territory in the name of Biorex or Glycyx
and for all goodwill relating to the Trade Mark or the Trade
Name in the Territory to vest in Biorex or Glycyx as the
case may be.
l2.5 In consideration of the rights and licence granted to Menarini in
respect of the Trade Mark or Trade Name Menarini shall pay to Glycyx a
licence fee at the rate of [*] [*] of all Product bearing the Trade
Mark or Trade Name (as the case may be) supplied by Menarini to any
third party Provided Always that:-
12.5.l such licence fee shall not become payable upon any Product
until after the date of expiry of this Agreement pursuant to
Clause 18.1; and
12.5.2 thereafter shall continue to be payable for the period only
in which the Trade Mark or Trade Name (as the case may be)
is used by Menarini
and for the purposes of this Clause 12.5:
"Net Sales Price" shall mean the invoiced ex-works sales price of a
Product as sold by Menarini or any Menarini Associate in an arms
length transaction after deduction of normal trade discounts actually
granted and any credits actually given by Menarini or any Menarini
Associate for returned or defective goods and after deducting any
costs included in the invoice for packing, insurance, carriage and
freight and Value Added Tax or other sales tax and in the case of
export orders any import duties or similar applicable government
levies. In any sale or other disposal of any Product otherwise than in
any arms length transaction the Net Sales Price shall be whichever is
the higher of the price actually charged to the customer for the
Product or the fair market value of the Product in the relevant part
of the Territory.
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
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13. LIABILITY
---------
13.1 Glycyx hereby agrees to indemnify Menarini against any action, claim, loss
and damage suffered by or awarded against Menarini in connection with any
claim against Menarini from a third party arising from any breach by Glycyx
(or its subcontractors or nominees) of the warranty and undertaking
contained in clause 9.6 Provided Always That such indemnity shall not
extend to any liability, cost, expense or damage suffered or incurred by
reason of any defect in any Menarini Product which was detected or should
have been detected by Menarini by means of the Quality Test Procedures
applied (or which should have been applied) by Menarini within 45 days of
the date of delivery of the Menarini Product under the provisions of Clause
9.7.
13.2 Menarini undertakes to indemnify and hold Glycyx harmless against all and
any loss, damage, claim or liability suffered or incurred by Glycyx in any
circumstances whatsoever save only where Glycyx is liable under Clause
13.l.
13.3 Save as expressly provided in this Agreement in no circumstances whatsoever
shall either Glycyx or Menarini be liable for any special indirect
incidental or consequential damages (including without limitation damages
for lose of profits production, use or sales) whether arising in contract,
tort or any other legal basis whatsoever.
14. CONFIDENTIAL INFORMATION
------------------------
14.1 Menarini hereby agrees and undertakes that during the term of the Agreement
and for a period of ten years thereafter (howsoever termination may be
caused or arise and including termination by reason of expiry under Clause
18.l) it shall keep confidential and shall not without the prior written
consent of Glycyx disclose to any third party or (save as expressly
provided in this Agreement) use any information of a confidential nature
belonging to Glycyx or Biorex (including trade secrets and information of
commercial value) which may become known to Menarini from Glycyx or its
representatives in connection with this Agreement Provided Always That such
obligation of confidentiality shall not extend to any part of such
confidential information which:
14.1.1 shall otherwise than by reason of any default by Menarini become
freely available to the general public; or
14.l.2 Menarini can show by documentary evidence was in its possession
or control prior to disclosure free of any obligation of
confidentiality; or
14.l.3 Menarini can show by documentary evidence shall have come into
the possession or control of Menarini from a third party free of
any obligation of confidentiality subsequent to disclosure
hereunder; or
<PAGE>
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14.l.4 Menarini is obliged by law or regulation to disclose to a third
party provided that such disclosure shall only be to the extent
required by such law or regulation.
14.2 Menarini shall ensure that any employee of, or consultant to Menarini who
shall obtain any confidential information in connection with the
performance of this Agreement shall be bound by obligations of
confidentiality substantially similar to the provisions of Clause 14.1.
14.3 Glycyx acknowledges the importance of keeping all material information
relating to the Product confidential and Glycyx will use all reasonable
endeavours to ensure that no such information is made public or otherwise
made available to third parties in any manner which would jeopardize the
exclusivity in the Territory granted to Menarini hereunder.
15. INTELLECTUAL PROPERTY
---------------------
15.1 Menarini acknowledges that save as expressly provided herein Menarini shall
have no right, title, interest or licence in or to the Patents or otherwise
any intellectual property rights of Biorex or Glycyx in Balsalazide or the
Product or any Menarini Product.
15.2 In the event that either party becomes aware of any infringement by any
third party within the Territory of any intellectual property rights of
Glycyx and/or Biorex in the Patents, Balsalazide, the Product or any
Menarini Product or the Trade Mark it shall forthwith notify the other
party. Glycyx shall be entitled to take such action (or procure such
action by Biorex) as it may in its sole discretion consider appropriate
against any such third party infringer Provided Always That:-
15.2.1 Menarini shall give such assistance as Glycyx may reasonably
require in connection with any such action (subject to
reimbursement by Glycyx of all costs reasonably incurred by
Menarini); and
15.2.2 Glycyx shall keep Menarini informed of the conduct and progress
of such action but shall be entitled to conduct, pursue and
settle such action in such manner as it shall reasonably consider
appropriate and to retain any damages awarded against any such
infringer;
and in the event that such infringement shall continue and Glycyx shall
fail to take or procure any action to prevent any continued infringement
within the period of ninety days from the date upon which Glycyx shall
become aware of any such infringement Menarini may (in its sole discretion)
at its sole expense initiate and pursue such action as it considers
appropriate to prevent any continued infringement Provided Further That:-
<PAGE>
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15.2.3 Glycyx shall give (and shall use reasonable endeavours to procure from
Biorex) such assistance as Menarini may reasonably require in
connection with any such action (subject to reimbursement by Menarini
of all costs reasonably incurred by Glycyx and/or Biorex); and
15.2.4 Menarini shall keep Glycyx informed of the conduct and progress of
such action but shall be entitled to conduct, pursue and settle such
action in such manner as it shall reasonably consider appropriate
(having regard to the continuing value of any such intellectual
property rights to Glycyx and/or Biorex and the effect which any such
infringement shall have had or will have on the exploitation in the
Territory by Menarini of the Product) and to retain any damages
awarded against any such infringer.
15.3 In the event that any claim is made against Menarini by any third party
alleging infringement of any rights of any third party by the use and
exploitation of the Product by Menarini Menarini shall forthwith notify
Glycyx and Glycyx may at its sole option take such action (or procure such
action by Biorex) as it may in its sole discretion consider appropriate to
defend any such claim and in such circumstances;
15.3.l Menarini shall give such assistance as Glycyx may reasonably
require in connection with any such defence (subject to
reimbursement by Glycyx of all costs reasonably incurred by
Menarini); and
15.3.2 Glycyx shall keep Menarini informed of the conduct and progress
of any such claim but shall be entitled to conduct pursue and
settle such action in such manner as it reasonably considers
appropriate;
In the event that Glycyx (and/or Biorex) shall notify Menarini that it does
not intend taking any action to defend any such claim or shall otherwise
not take any action to defend any such claim Menarini shall be entitled at
its sole cost and expense to defend any such claim in such manner as it may
in its sole discretion consider appropriate Provided Always That
15.3.3 Glycyx shall give (and shall use, reasonable endeavours to
procure from Biorex) such assistance as Menarini may reasonably
require in such action (subject to reimbursement by Menarini of
all costs reasonably incurred by Glycyx and/or Biorex); and
15.3.4 Menarini shall keep Glycyx informed of the conduct and progress
of such action but shall be entitled to conduct, pursue and
settle such action in such manner as it shall reasonably consider
appropriate (having regard to the continuing value of any such
intellectual property rights to Glycyx and/or
<PAGE>
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Biorex and the effect which any such infringement shall have had
or will have on the exploitation in the Territory by Menarini of
the Product) and to retain any damages awarded against any such
infringer; and
15.3.5 In the event of any such claim as aforesaid (subject always to
any breach of the warranty contained in Clause 15.4) Glycyx shall
not be liable in any manner whatsoever to Menarini for any loss
or damages suffered incurred or awarded against Menarini in
connection with any such claim.
15.4 Glycyx hereby represents and warrants to Menarini as at the date of this
Agreement that so far as it is aware such of the Patents as are listed in
Schedule 1 are valid and subsisting.
15.5 In the event that in the exercise of its rights and obligations under this
Agreement Menarini shall develop any improvements to the Product or its use
in the Applications or otherwise any invention of direct application to the
Product and/or its use in the Applications Menarini shall:-
15.5.1 notify Glycyx in writing of any such improvements or inventions;
and
15.5.2 forthwith upon such notification grant to Glycyx an exclusive
royalty free licence (without limit in time) to use and exploit
any such inventions or improvements in connection with the use
and exploitation of the Products by Glycyx or any sub-licensee in
all parts of the world outside the Territory; and
15.5.3 (for the avoidance of doubt) have the right to use and exploit
the same within the Territory in such manner as it considers
appropriate and to use and exploit the same in connection with
the Product in the exercise of its rights and obligations under
the terms of this Agreement.
16. SUB-DISTRIBUTION AND SUB-LICENSEES
----------------------------------
16.1 Menarini is hereby granted the right to appoint sub-distributors and/or
sub-licensees for the exercise of its rights hereunder in connection with
the Product In countries within the Territory Provided Always That:-
16.1.1 Menarini shall remain solely liable to Glycyx for the performance
of its obligations hereunder in each part of the Territory; and
16.1.2 Menarini shall prior to granting any such rights notify Glycyx in
writing of the identity of any such sub-distributor and/or sub
licensee and of the terms upon which it proposes to appoint such
<PAGE>
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sub-distributor/sub-licensee; and
16.1.3 No such sub-distributor and/or sub-licensee shall be appointed
without the prior approval in writing of Glycyx such approval not
to be unreasonably withheld or delayed; and
16.1.4 Menarini shall supply Glycyx with a copy of each such sub-licence
and/or sub-contract entered into by it within fourteen days of
the effective date thereof.
17. BREACH BY GLYCYX
----------------
17.1 In the event of any breach of the terms of this Agreement by Glycyx,
Menarini shall be entitled to refer any such breach to arbitration
(pursuant to the provisions of Clauses 24.5 and 24.6) and to request from
the arbitrator such remedies as Menarini may reasonably require:-
17.1.1 to compensate Menarini for any lose or damage suffered or
incurred by reason of any such breach; and
17.1.2 to ensure the continued supply to Menarini of the Menarini
Product under the terms of this Agreement; and
17.1.3 to enable Menarini to exploit the Product fully in accordance
with the rights granted to Menarini under the terms of this
Agreement
and Glycyx and Menarini each confirm and acknowledge that such arbitrator
shall have the power, upon hearing all the evidence and representations of
both parties in a full arbitration hearing, to make such order as he
considers reasonable and appropriate in the light of all the circumstances
concerning and surrounding such breach including (but without limitation):
17.1.4 the award of damages; and/or
17.1.5 the grant of a licence to manufacture the Menarini Product to a
third party upon the basis that such third party shall fulfil the
obligations of Glycyx under the terms of this Agreement for such
period as the arbitrator may consider reasonable and appropriate
as Glycyx's agent and/or licensee; and/or
17.1.6 the grant of a licence to manufacture the Menarini Product to
Menarini to enable Menarini to manufacture the Menarini Product
for such period as the arbitrator may consider reasonable and
appropriate, such licence to be granted upon such terms as the
arbitrator may consider reasonable and appropriate including,
(without limitation) terms relating to the payment of such
royalty (if
<PAGE>
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any) as the arbitrator may consider appropriate to compensate
Glycyx and/or any licensor of Glycyx for the use by Menarini of
the Patents and otherwise any confidential information supplied
or required in connection with the Product under the terms of
this Agreement.
18. TERMINATION
-----------
18.1 Subject always to earlier termination under Clauses 3.1 or 18.2 the rights
and obligations of the parties contained in this agreement shall cease
forthwith upon the expiry of whichever shall be the earlier of:-
18.1.1 that date upon which such of the Patents as are listed as patents
in Schedule 1 (together with any extensions (deriving from a
supplementary protection certificate or similar instrument or
provision of such Patents) reasonably available to the Patent
owner in any part of the Territory) shall expire or otherwise
cease to be subsisting; or
18.l.2 a period of fifteen years from the date hereof
Provided Always that
18.l.3 notwithstanding the provisions of Clause 18.1.1 no such cessation
shall occur and this agreement shall continue fully in accordance
with its terms for a period of 10 years from the first date of
Launch; and
18.1.4 for the avoidance of doubt any licence or interest granted under
this agreement in all or any part of the Patents Balsalazide
and/or the Product and any confidential information shall
continue indefinitely after such cessation.
18.2 Either party to this Agreement shall be entitled to terminate this
Agreement forthwith by notice in writing to the other in the event that:-
18.2.1 the other party shall fail to pay any sum due hereunder on the
due date and shall fail to remedy such breach within (30) thirty
days of being required in writing by the other party so to do; or
18.2.2 the other party shall commit a material breach of any of the
terms and conditions of this Agreement and shall fail to remedy
the same (if capable of remedy) within ninety (90) days of being
required in writing by the other party so to do; or
18.2.3 the other party shall enter into liquidation (either voluntary or
compulsory) or shall be the subject of any petition for winding
up; or
<PAGE>
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18.2.4 the other party shall make any assignment or arrangement for the
benefit of its creditors or cease or threaten to cease to carry
on its business in the ordinary course; or
18.2.5 a receiver, administrative receiver, or receiver and manager, or
judicial manager or administrator is appointed over the whole or
any part of the assets of either party or if any court
proceedings are commenced for the appointment of an administrator
or receiver to either party; or
18.2.6 the other party shall become unable to pay its debts as they
become due in the ordinary course of business or shall otherwise
become subject or seek relief under any law relating to
insolvency in any jurisdiction relevant to such other party
18.3 Any waiver by either party of a breach of any provision of this Agreement
shall not be considered as a waiver of any subsequent breach of the same or
any provisions of this Agreement.
18.4 Any termination of this Agreement shall be without prejudice to the right
of either party to recover any monies due to it under this Agreement or the
rights or remedies of either party in respect of any breach prior to the
effective date of termination of this Agreement.
19. CONSEQUENCES OF TERMINATION
---------------------------
19.1 In the event of termination of this Agreement under Clause 18.2 by Glycyx
or by Menarini (prior to the expiry of this Agreement in respect of any
part of the Territory pursuant to Clause 18.1) Menarini shall:
19.1.1 forthwith, cease all manufacturing, marketing, sale and promotion
of the Product; and
19.1.2 immediately pay all monies due and payable to Glycyx as at the
date of termination; and
19.1.3 immediately return to Glycyx all information and data of
whatsoever nature relating to the Product together with all
copies thereof (other than correspondence between Glycyx and
Menarini) which Menarini may have in its possession or under its
control including but without limitation all scientific, medical
and safety data relating to the Product; and
19.l.4 immediately cease use of all or any confidential information of
Glycyx delivered in connection with this Agreement; and
19.1.5 immediately cease use of the Trade Mark; and
<PAGE>
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19.1.6 take all such steps as may reasonably be required by Glycyx to
transfer or procure the transfer to Glycyx (or its nominee) of
all such product licences and approvals as may have been obtained
for the manufacturing marketing and sale of the Product in any
part of the Territory subject always (save only in the event of
termination by Glycyx under the provisions of Clauses 18.2.1 or
18.2.2) to payment by Glycyx of a sum representing the
reimbursement to Menarini of the unamortised amount of its
reasonable costs directly incurred in obtaining and successfully
exploiting such product licences and approvals, amortised over a
ten year period from the date of approval, such costs to be
agreed and determined in good faith negotiations between the
parties or, in the event of any failure to be agreed by an
arbitrator appointed and operating in accordance with the
provisions of Clause 24.6; and
19.1.7 immediately deliver to Glycyx a full and detailed inventory of
all Products and Menarini Products in the course of manufacture
and/or in stock as at the date of termination; and
19.1.8 Glycyx may at its sole discretion purchase such stocks of the
Product (inclusive of packaging) as Menarini shall still have in
its possession once it has fulfilled all orders outstanding as at
the date of termination at a price calculated as cost price to
Menarini Provided Always that such stocks:-
(i) are of merchantable quality; and
(ii) have remaining (as at the date of any such purchase) not
less than two thirds of their approved shelf life.
20. ASSIGNMENT AND SUB-CONTRACTING
------------------------------
20.1 The benefit of this Agreement is personal to Menarini and to Glycyx and
shall not be capable of assignment (whether in whole or in part) by either
of them without the prior consent in writing of the other party (such
consent not to be unreasonably withheld or delayed) Provided Always that:-
20.1.1 Glycyx shall be entitled to assign the whole (but not part) of
this Agreement without the prior consent of Menarini to any
company to which the entire trade and business of Glycyx may be
transferred as part of any internal corporate restructuring of
Glycyx;
20.1.2 Menarini shall be entitled to assign the whole (but not part) of
this Agreement to any Menarini Associate without the prior
consent of Glycyx
Provided further that in the event of any assignment by Menarini to any
Menarini Associate or third party Menarini
<PAGE>
-28-
undertakes to remain liable as guarantor of the obligations of such
Menarini Associate or third party under this Agreement.
20.2 Menarini hereby confirms and undertakes that in the event that any
obligation of Menarini contained herein is sub-contracted or sub-licensed
or otherwise performed by any Menarini Associate Menarini shall remain
solely liable for the proper performance of such obligation.
21. FORCE MAJEURE
-------------
21.1 If the performance of any obligations under this Agreement by either party
Is affected by Force Majeure it shall forthwith notify the other party of
the nature and extent thereof.
21.2 Neither party shall be deemed to be in breach of this Agreement or
otherwise be liable to the other by reason of any delay in performance or
non-performance of any of its obligations hereunder to the extent that such
delay or non-performance is due to any Force Majeure which has been
notified to the other party in writing.
22. COSTS
-----
Each party hereto shall bear its own costs in relation to the negotiation,
drafting, preparation, and execution of this Agreement.
23. CONFIDENTIALITY OF THIS AGREEMENT
---------------------------------
23.1 The contents of this Agreement shall remain confidential as between the
parties. Neither party shall, without the prior written consent of the
other (such consent not to be unreasonably withheld without justification),
disclose any of the financial terms of this Agreement to any other person,
firm or company save for
23.1.1 disclosure by Glycyx to Biorex (or otherwise the owner for the
time being of the Patents) and/or Salix Pharmaceuticals Inc. (for
as long as it shall remain a company in common ownership with
Glycyx) in circumstances where such third party shall have
accepted obligations of confidentiality in respect of the
information disclosed; and
23.1.2 such disclosure as may be required by any relevant law or
regulatory authority; and
23.1.3 such disclosure as may reasonably be required to its professional
advisers and/or any potential or actual investor in such party
(subject always to such party obtaining appropriate obligations
of confidentiality from any such person(s)).
<PAGE>
-29-
24. NATURE OF THE AGREEMENT
-----------------------
24.1 Nothing in this Agreement shall create or be deemed to create any
partnership, joint venture or the relationship of principal and agent
between the parties.
24.2 Each party acknowledges that, in entering into this Agreement, it does not
do so on the basis of, and does not rely on, any representation, warranty
or other provision (save only as expressly provided herein) and all
conditions, warranties or other terms implied by Statute or common law are
hereby excluded to the fullest extent permitted by law.
24.3 This Agreement (including all the Schedules) and any agreements entered
into pursuant to this Agreement constitutes the entire understanding and
agreement between the parties with respect to the subject matter of this
Agreement and supersedes all prior agreements, negotiations and discussions
between the parties relating to this Agreement.
24.4 This Agreement may not be released, discharged, abandoned, charged or
modified, in any manner, except by an instrument in writing signed by a
duly authorised officer or representative from each of the parties hereto.
24.5 This Agreement shall be governed by and construed in all respects in
accordance with the laws of England.
24.6 Any dispute arising out of or in connection with this Agreement shall be
referred to arbitration in Geneva, Switzerland before an arbitrator (with
suitable technical knowledge) appointed by the agreement of the parties or
in the absence of agreement by the President for the time being of the
Swiss Pharmaceutical Society and such arbitration shall be conducted in the
English language under the arbitration rules of the International Chamber
of Commerce.
25. NOTICES
-------
25.l All notices to be served by the parties to this Agreement shall be served
only in the English language.
25.2 Notices shall be sufficiently served if dispatched by international courier
to the address of the receiving party set out below
Glycyx 3600 W Bayshore Road
Suite 205
Palo Alto
CA 94303 U.S.A.
F.A.O. The President
Menarini 15 Boulevard Roosevelt
Luxembourg
F.A.0. for the President of the Board
<PAGE>
-30-
with a copy to:
A. Menarini Industrie Farmaccutiche
Riunite s.r.l.
Via Sette Santi 1
50131 Firenze
Italy
F.A.O. The Legal Department
Any modification to this address must in itself be notified in writing to
the other party in accordance with the terms of this sub-clause.
25.3 In the absence of proof to the contrary notices properly sent hereunder
shall be deemed to have been duly served 10 days after the date of
dispatch.
AS WITNESS the hands of the duly authorised representatives of the parties
hereto the day and year first above written.
<PAGE>
-31-
SCHEDULE 1
----------
THE PATENTS
-----------
<TABLE>
<CAPTION>
PATENT NUMBER FILING DATE GRANT DATE DUE TO EXPIRE
<S> <C> <C> <C> <C>
UK 2,080,796 Complete 07.07.2001
Specification
07.07.1981
France 1,493,313 21.07.1981 21.07.2001
Italy 1,138,450 10.07.1981 10.07.2001
Japan 1,433,303 16.07.1981 07.04.2001
U.S.A. 4,4l2,992 08.07.1981 01.11.2000
F.R.G. 3,120,0l9 21.07.1981 15.02.90 21.07.2001
</TABLE>
<PAGE>
-32-
SCHEDULE 2
----------
"Bulk Product Specifications"
and
"Finished Product Specifications"
<PAGE>
-33-
PENN PHARMACEUTICALS LTD
DEVELOPMENT DEPARTMENT
INTERIM
ANALYTICAL PROCEDURES AND SPECIFICATIONS
BALSALAZIDE SODIUM
Written by: Date:
Approved by: Date:
Ref.No. 20.DEC.93 Supersedes: 19 AUG 1993
Page 1 of 4
- --------------------------------------------------------------------------------
Chemical Name
- -------------
[*]
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
-34-
SPECIFICATIONS
--------------
[*]
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
-35-
PENN PHARMACEUTICALS LTD
DEVELOPMENT DEPARTMENT
ANALYTICAL PROCEDURES AND SPECIFICATIONS
COLAZIDE CAPSULES
Written by: Date:
Approved by: Date:
Ref. No. 18.FEB.93 Supersedes: First
Page 1 of 3
- --------------------------------------------------------------------------------
Appearance:
- ----------
[*]
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
-36-
[*]
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
-37-
[*]
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
-38-
SCHEDULE 3
- ----------
MANUFACTURING AGREEMENT
- -----------------------
TECHNICAL ARRANGEMENTS
between
A. MENARINI INDUSTRIE FARMACEUTICHE RIUNITE SRL a company incorporated under the
laws of Italy whose principal Place of business is at Sette Santi, 1 50131
Firenze Italy hereinafter called MENARINI
and
GLYCYX PHARMACEUTICALS LTD a Company incorporated under the laws of Bermuda
whose registered office is at 41 Cedar Avenue Hamilton HM12 Bermuda hereinafter
called GLYCYX
WHEREBY it is agreed as follows:-
Supply of Product
- -----------------
1. GLYCYX will supply the Product specified in the Schedule to this agreement
("the Product") to MENARINI upon the terms and conditions of this agreement
and otherwise as agreed between the parties.
2. GLYCYX will use its site(s) at [
] for
manufacturing and control activities of the Product.
Quality of manufacturing materials used by GLYCYX
- -------------------------------------------------
3. GLYCYX shall obtain the manufacturing materials specified in Schedule A.
4. GLYCYX is solely responsible for ensuring that each batch of manufacturing
material used by GLYCYX has been examined and complies with the
specifications In Schedule A.
GMP standard
- ------------
5. All manufacture and quality control operations of GLYCYX shall be carried
out according to the current Basic Standard of Good Manufacturing Practice
for Pharmaceutical Products - including supplementary recommendations as
issued by the European Commission.
<PAGE>
-39-
Changes in quality standards, formula, manufacturing and quality control
- ------------------------------------------------------------------------
procedures
- ----------
6. The procedures of manufacture and quality control shall be as agreed by the
parties and any change in such procedures shall be agreed upon by both
parties in writing.
7. GLYCYX may not sub-contract any manufacturing or quality control operations
to any Glycyx site other than that specified in Clause 2 or sub-contractor
without prior notice in writing to MENARINI and providing such period of
notice is reasonably required by MENARINI for MENARINI to meet Drug
Regulatory requirements.
Responsibility for release of product manufactured by GLYCYX
- ------------------------------------------------------------
8. GLYCYX shall only release batches of Product for shipment to MENARINI which
have been examined and comply with the specifications in Schedule A
Provided Always that MENARINI shall be solely responsible for the final
approval of batches of Product manufactured by GLYCYX.
Storage
- -------
9. GLYCYX shall store all manufacturing materials and Products in accordance
with GMP recommendations and the storage conditions prescribed therein [and
agreed between the parties].
Documentation
- -------------
10. GLYCYX shall keep:-
10.1 reference samples (solvents excluded) and quality control records for
each batch of manufacturing material used by GLYCYX; and
10.2 manufacturing and quality control records for each batch of the
Product manufactured for MENARINI by GLYCYX
for a period of six years from the date of manufacture or such longer
period as may be agreed upon in writing between MENARINI and GLYCYX.
l1. Each shipment of the Products from GLYCYX to MENARINI shall be accompanied
by a certificate of analysis with the following information:-
11.1 the results of such tests as may by agreement of the parties be
carried out by GLYCYX; and
11.2 a statement by GLYCYX that the batch of Products has been released for
shipment to MENARINI in accordance
<PAGE>
- 40 -
with the following criteria:-
11.2.1 all manufacturing materials used in the manufacture of the
Products have complied with the specification in Schedule 2;
and
11.2.2 all manufacture and quality control operations by GLYCYX
have been carried out according to current GMP,
manufacturing, in process control and testing procedures, as
well as Standard Operating Procedures in the form agreed
between the parties.
11.3 the manufacturing date.
12. GLYCYX agrees to submit to MENARINI upon receipt of any request therefor
from Menarini:-
12.1 copies of all manufacturing and quality control records of any batch
of the Products manufactured by GLYCYX; and
12.2 copies of the quality control records of any batch of manufacturing
materials used by GLYCYX.
13. Menarini shall keep reference samples and quality control records for each
batch of Product delivered to Menarini by Glycyx for a period of six years
from the date of delivery or such longer period as may be agreed upon in
writing between Menarini and Glycyx.
14. Menarini agrees to submit to Glycyx upon receipt of any request therefor
copies of all quality control records for each batch of Product delivered
to it by Glycyx.
Quality test procedures
- -----------------------
15. Upon receipt of each batch of Products from Glycyx, Menarini shall test
each such batch fully in accordance with Quality Test Procedures agreed
from time to time by Glycyx and Menarini.
Quality Audit
- -------------
16. During normal working hours and upon reasonable notice MENARINI shall be
entitled to inspect the manufacturing and quality control areas at GLYCYX's
site.
17. During quality audits by MENARINI and upon request, GLYCYX shall inform
MENARINI of the outcome of inspections by the National Drug Inspectorate of
GLYCYX's site.
18. GLYCYX shall supply MENARINI with all relevant information reasonably
required for the investigation of any complaints concerning the quality of
the Products.
<PAGE>
- 41 -
Post production product inspection
- ----------------------------------
19. MENARINI is solely responsible for all post production Inspection of the
Product.
Contact persons
- ---------------
20. Contact persons in matters relating to manufacture and quality control
under the terms of this Agreement are:-
- on behalf of MENARINI
- on behalf of GLYCYX
<PAGE>
- 42 -
SCHEDULE A
----------
Manufacturing materials to be supplied by GLYCYX
------------------------------------------------
NAME SPECIFICATION NO.
- ---- -----------------
Detailed specifications
-----------------------
Date:
A. MENARINI INDUSTRIE FARMACEUTICHE RIUNITE SRL
____________________________________
Date:
GLYCYX
____________________________________
<PAGE>
- 43 -
SCHEDULE 4
----------
ADVERSE EVENT REPORTING
-----------------------
1. Serious Event: In the US, a serious event includes death, a life-
threatening event, hospitalisation (initial or prolonged), disability,
congenital anomaly, and any event requiring intervention to prevent
permanent impairment or damage.
2. Unexpected: Event is not listed in the current FDA-approved labelling for
the drug. This includes events that may differ from a labelled reaction
because of greater severity or specificity.
3. Quarter: Non-serious and expected events occurring prior to NDA approval
will be reported to Glycyx on a quarterly basis, where the first quarter of
each year begins an 22 June.
Non-serious and expected events occurring post-NDA approval will be reported to
Glycyx every quarter, where the first quarter begins on the date of approval of
the NDA.
<PAGE>
- 44 -
SIGNED by ) Randy W. Hamilton
for and on behalf of GLYCYX ) PRESIDENT
PHARMACEUTICALS, LTD in the presence) Lorin K. Johnson
of:- ) VICE PRESIDENT
SIGNED by Dr. Lucia Aleotti ) Lucia Aleotti
for and on behalf of MENARINI )
INTERNATIONAL OPERATIONS LUXEMBOURG ) Stephano Marano
S.A. in the presence of:- )
Dr. Stefano Marano
GENERAL COUNSEL
<PAGE>
APPENDIX 1
RAO:eae/1.3/24
ADDRESS FOR CORRESPONDENCE:
- --------------------------
Beech House,
Melbourn Science Park,
Cambridge Road,
Melbourn, Cambridge SG8 6TB.
TEL: 0763-262940 [IMAGE OMITTED]
FAX: 0763-263460
CAMAS PARTNERS
________________________________
CAMAS HOUSE
21st April 1992 23 PARK LANE, BLUNHAM
BEDFORDSHIRE MK44 3NH
FAX: 010 39 55 5680446 E N G L A N D
TEL(0767)40373
FAX(0767)40941
Dr Capone
Direttore Della Ricerca Clinica
A. MENARINI Industrie Farmaceutiche Riunite srl
Via Sette Santi 1
50131 Firenze
Italy cc: Mr R Hamilton
Mr J Chappell
Dear Dr Capone
Since our meeting on March 10th, we have been diligently analysing data in order
to arrive at a fair and accurate measure of the superiority of 'Colazide' when
compared to 'Asacol'. I must apologise for the delay in responding to these
matters, but we have felt it important to give due consideration to the
parameters that are used to adjudge these comparative factors.
In regard to clinical superiority, our hypothesis is that the reproducible and
site-specific delivery aspects of 'Colazide' will result in superior rates of
symptomatic improvement vs. 'Asacol'. This hypothesis has largely been based
on the improvement we have seen in our relapse-treatment trials at the two week
interval.
To date, there have been no direct comparative studies of the two drugs, so we
must rely on analogy to establish a foundation of understanding. Nevertheless,
two published studies can shed light on the anticipated performance of
'Colazide' and 'Asacol' in the treatment of relapse in mild to moderate
ulcerative colitis:
* Sninsky CA, et al, Oral Mesalamine ('Asacol') for mildly to moderately
active ulcerative colitis. Annals of Int Med 1991; 115(5): 350-355
* Mansfield JC et al. Is high dose balsalazide better than sulphasalazine in
initial management of ulcerative colitis? Gut (1991) In Press.
/Contd...
<PAGE>
- - 2 -
Dr Capone
A. MENARINI Industrie Farmaceutiche Riunite srl
The 'Asacol' study compared 1.6g/d and 2.4g/d to placebo, measuring improvement
and remission at 3 and 6 weeks. The balsalazide study compared 6.75g/d
balsalazide to 3g/d of sulphasalazine, and measured improvement and remission at
2, 4 and 8 weeks. End-point measures were similar and the patient populations
were not dramatically different. The daily balsalazide dose of 6.75g equates to
2.36g of 5-ASA, almost exactly the 2.4g/d dose of 'Asacol'.
Though it is not scientifically valid to directly compare these two studies, we
believe the 2/3 week scores reveal a trend in the favour of balsalazide. The
Sninsky trial defined improvement as a reduction of physician's global
assessment score and in at least one other component score, with no score
increase in severity. At 3 weeks, 32% of patients on 2.4g/d 'Asacol' were scored
as improved. Using a similar scoring of improvement in the balsalazide study,
at 2 weeks of treatment, 68% of patients were scored as improved. Had this been
a direct comparative study, these results would represent a 112% superiority of
balsalazide over 'Asacol', measured as early (2 week) patient improvement.
We therefore propose to conduct a direct, comparative clinical trial of
'Colazide' and 'Asacol' in the treatment of acute relapse in mild to moderate
ulcerative colitis. The trial would compare the most widely accepted acute
dosage of 'Asacol', 2.4g per day, to 6.75 g of 'Colazide' per day. The trial
would run for 8 weeks, with symtomatic scores being taken at 1, 2 and 4 weeks,
and assessment of remission at the 8 week treatment point. The scoring system
is shown on the attached sheet. Patient improvement would be defined as per the
Sninsky study, noted above.
Clinical superiority of 'Colazide' will be determined by the following formulae:
Proportion of 'Colazide' patients Improved
------------------------------------------ = 1.20
Proportion of 'Asacol' patients Improved
This represents the 20% "superiority" target set out for us by Dott. Aleotti.
We think that the superiority of 'Colazide' at any of the time points is a
significant finding, consistent with our postulate that 'Colazide' treatment
will result in faster improvement, even if at later time points the two drugs
are closer to equivalent (c.f. omeprazole vs ranitidine vs cimetidine).
/Contd ...
<PAGE>
- - 3 -
Dr Capone
A. MENARINI Industrie Farmaceutiche Riunite srl
Of course, more rapid clinical improvement is only a part of 'Colazide's
advantage. In regard to safety, our hypothesis is that the unpredictable
release of 5-ASA from Asacol can result in greater systemic exposure and
possible nephrotoxicity. This concern gave rise to a CSM warning regarding
'Asacol' in the UK.
To put 'Colazide into perspective, we refer to: Laursen et al. Disposition of
5-aminosalicylic acid by olsalazine and three mesalazine preparations (including
'Asacol') in patients with ulcerative colitis: comparison of intraluminal
colonic concentrations, serum values and urinary excretion. Gut (1990) 31:1271-
1276. This study showed a significantly higher urinary output of 5-ASA from
'Asacol' as compared to olsalazine. The authors note:
"The potential toxicity of 5-ASA should be considered, in particular during
long-term treatment with 5-ASA delivering compounds in doses above 1g/day.
Most interest has been focused on the potential renal abnormalities due to
5-ASA. The drug has structural similarities to phenacetin, and has caused
papillary necrosis when given intravenously in high doses to rats. A
putative nephrotic syndrome and an interstitial nephritis after treatment
with 'Asacol' and 'Salofalk' respectively, have been reported. Finally, a
two year follow up of patients on 'Asacol' has shown an incidence of pyuria
of more than 50%. Hence; the lowest possible systemic load of 5-ASA should
be sought in the choice of a system for effective delivery of 5-ASA to the
inflamed colon."
We also know from direct clinical input from UK gastroenterologists that
patients transferred onto 'Asacol' are in practice exposed to a higher level of
side effects than is widely perceived. Our intent is to monitor systemic 5-ASA
levels and other marker enzymes predictive of renal tubule damage in volunteers
and patients. We consider that such evaluation is a critical adjunct to the
assessment of this type of product, where the site and mechanism of delivery of
5-ASA is such a key adjunct to efficacy.
/Contd ...
<PAGE>
- - 4 -
Dr Capone
A. MENARINI Industrie Farmaceutiche Riunite srl
Since 'Colazide' uses the same azo-reductase delivery mechanism as olsalazine,
we postulate that urinary excretion of 5-ASA from 'colazide' will be
significantly less than that from 'Asacol'. Furthermore, we believe this
contrast will be even greater when comparing unmetabolized urinary 5-ASA output
(N-acetyl-5-ASA is considered therapeutically inert).
Clearly, superiority in efficacy is a much stronger argument from reimbursement
and marketing perspectives. However, it might be appropriate to factor urinary
5-ASA output as an additional score in the definition. For any drug,
superiority should be measured by both efficacy and safety parameters. Each
must be considered together in a benefit/risk assessment.
SYMPTOM SCORING SYSTEM
- ----------------------
Stool frequency
- ---------------
0 = Normal number of stools for this patient
1 = 1 to 2 stools more than normal
2 = 3 to 4 stools more than normal
3 = 5 or more stools more than normal
Rectal bleeding
- ---------------
0 = No blood seen
1 = Streaks of blood with stool less than half the time
2 = Obvious blood with stool most of the time
3 = Blood alone passed
Abdominal pain
- --------------
0 = None
1 = Mild, with bowel action
2.= Moderate, with bowel action
3 = Severe, with bowel action or continuous abdominal pain
PATIENT'S FUNCTIONAL ASSESSMENT
- -------------------------------
0 = Generally well
1 = Fair
2.= Poor
3 = Terrible
HAEMATOLOGICAL SCORING SYSTEM
- -----------------------------
0 = ESR within Normal Range
1 = ESR more than 20 less than 50 mm/hr
2.= ESR more than 50 less than 100 mm/hr
3 = ESR more than 100 mm/hr
/Contd...
<PAGE>
- - 5 -
Dr Capone
A. MENARINI Industrie Farmaceutiche Riunite srl
- --------------------------------------------------------------------------------
SIGMOIDOSCOPIC AND HISTOLOGICAL GRADING SYSTEMS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Sigmoidoscopic grading Histological grading
- --------------------------------------------------------------------------------
Grade macroscopic appearance Grade Microscopic appearance
- --------------------------------------------------------------------------------
<S> <C>
0 Normal, vascular pattern 0 Normal
clearly visible
- --------------------------------------------------------------------------------
1 Erythema with loss of 1 Mild increase in chronic
vascular pattern inflammatory cell infiltrate
no tissue destruction
- --------------------------------------------------------------------------------
2 As above plus contact 2 Moderate increase in chronic
bleeding inflammatory cell infiltrate
no tissue destruction
- --------------------------------------------------------------------------------
3 As above plus 3 Marked increase in
spontaneous bleeding inflammatory cell infiltrate
mild tissue destruction
- --------------------------------------------------------------------------------
4 As above plus 3 Marked increase in chronic,
obvious ulceration inflammatory cell infiltrate
obvious tissue destruction
- --------------------------------------------------------------------------------
</TABLE>
We are in the process of developing a complete clinical trial protocol, but in
the meantime we should come to a basic understanding as to the means of
determining and definition of superiority. I look forward to your comments and
a chance to discuss the definition proposed herein.
This letter has been forwarded to you by Fax as the preliminary communication.
The references quoted in the letter are being sent with a hard copy of the
letter by Express Post.
Best regards
Yours sincerely
/s/ R.A. Onyett
R A ONYETT
- ----------
<PAGE>
Glycyx Pharmaceuticals, Ltd
Cedar House
41 Cedar Avenue
Hamilton
EM12
Bermuda
Menarini International
Operations Luxembourg S.A.
15 Boulevard Roosevelt
Luxembourg 23rd September 1994
Dear Sirs
I write in connection with an Agreement entered into between Glycyx
Pharmaceuticals, Ltd ("Glycyx") and Menarini International Operations Luxembourg
SA ("Menarini") in the form of the agreement attached hereto dated 23rd
September ("the Agreement").
In this letter words and phrases defined in the Agreement shall bear the same
meaning.
I write to confirm the agreement between Menarini and Glycyx of the prices to be
paid for the Menarini Product in accordance with clause 10.1. I confirm our
agreement as follows:.
1. It is intended that the prices charged by Glycyx will be calculated by
reference to Glycyx's [*] Provided Always that Glycyx's costs shall not be
materially different to the costs that might be incurred by Menarini if it
was itself to manufacture the Menarini Product.
2. For this purpose, the [*] of Glycyx shall be volume related and shall be
calculated as a percentage of the [*] achieved by Menarini (or any Menarini
Associate, marketing and selling the Product under the terms of the
Agreement) on any sale within each part of the Territory in any year
("Menarini's Price") and:-
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
Continued/... Page 2
for that portion of Menarini Glycyx's reasonable profit
aggregate sales in any will be calculated as
calendar year between
[*]
3. Annual quantities of Product (ie finished capsules) shall be calculated as
the number sold during each twelve month period starting from the date of
first commercial launch of the Product in the first market. Once the
Product has been launched in all parts of the Territory a definitive
adjustment to the anniversary date will be made substituting 31st December
in each year as the expiry date of each twelve month period and such
calendar year shall apply to all quantities of products sold In the
Territory.
4. "Menarini's Price" shall be calculated as the price obtained by Menarini
(or any Menarini Associate, exercising rights granted to Menarini under the
terms of the Agreement) on the sale and supply of each unit of Product to
third parties in each calendar year. In any six month period from the date
of first commercial launch of the Product in the Territory account shall be
taken of actual volumes of sales and prices in such period. The overall
accounting periods will be adjusted to conform with a calendar year basis
through one definitive adjustment (as specified above) once the Product has
been launched in all parts of the Territory.
5. Not later than one month prior to the commencement of any six month period
Glycyx and Menarini will determine the "Interim Price" to apply during such
six month period and to be based on historical figures, forecasts and
estimates. Menarini's Price shall be determined finally for each six month
period at the end of the third month after the expiry of each six month
period and any difference arising from the calculation of the Menarini
Price as due and the Interim Price previously paid shall be settled between
Glycyx and this Company within fourteen days of such date of determination.
6. To assist in the calculation of the Menarini Price (and the Interim Price)
Menarini shall
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
Continued/... Page 3
(i) keep Glycyx fully informed of its best available estimates of total
sales and prices for the Product in each part of the Territory and
of any material deviation from such estimates; and
(ii) keep full records of all such prices actually achieved; and
(iii) grant Glycyx access to all such records in order to verify such
prices for the purposes of calculating the "reasonable profit" and
the prices to be charged by Glycyx to Menarini for the Product under
the terms of this letter agreement.
7. Menarini's Price shall be determined and settled in United Kingdom pounds
sterling at the exchange rate applicable as at the date of determination.
8. The price payable to Glycyx for all quantities of Menarini Product
delivered pursuant to the Agreement shall be payable in Pounds Sterling and
shall be payable by means of interbank telegraphic transfer.
9. All matters information and discussions relating to the calculation of the
Interim Price and Menarini's Price shall be treated as strictly
confidential and this shall be maintained as confidential.
It is confirmed that this letter is intended to reflect a binding agreement
between Glycyx and Menarini in respect of all the matters covered by this letter
as if these terms were expressly incorporated into the Agreement.
It is the intention of Menarini that all detailed matters concerning the trading
relationship between Menarini and Glycyx (including, in particular, the supply
of Menarini Product and details concerning the forecasting, ordering, delivery
and payment of and for the Menarini Products) shall be effected by a Menarini
Associate appointed by Menarini as its agent with authority to act in all such
matters under the terms of the Agreement and to bind Menarini in all such
matters as if it was a signatory to any such arrangements. Menarini would
intend appointing any such agent by a letter of authority forwarded to Glycyx
and Menarini confirms that notwithstanding any such appointment or the exercise
of any such rights by any Menarini Associate, Menarini shall remain solely
liable for the proper performance of all obligations under the Agreement.
<PAGE>
Continued/... Page 4
Kindly countersign and return the enclosed copy letter to evidence your
agreement to these terms.
Yours faithfully
Randy W. Hamilton
FOR AND ON BEHALF OF
GLYCYX PHARMACEUTICALS, LTD
Confirmed, acknowledge and agreed for and on behalf of Menarini International
Operations Luxembourg SA.
[SIGNATURE ILLEGIBLE]
.................................
Duly authorised signatory
<PAGE>
DATED 23rd September 1994
A. MENARINI INDUSTRIE FARMACCUTICHE RIUNITE s.r.l.
-and-
GLYCYX PHARMACEUTICALS, LTD
------------------------------
AGREEMENT
------------------------------
Hewitson Becke + Shaw
4/5 Church Street
Peterborough
PE1 1XB
<PAGE>
THIS AGREEMENT is made the 23rd day of September 1994
BETWEEN
(1) A. Menarini Industrie Farmaccutiche Riunite s.r.l of Via Sette Santi 1,
50131 Firenze Italy ("Menarini"); and
(2) Glycyx Pharmaceuticals, Ltd of Cedar House 41 Cedar Avenue Hamilton EM12
Bermuda ("Glycyx")
WHEREAS
(A) At the request of Menarini Glycyx has today entered into an Agreement
between Glycyx and Menarini International Operations Luxembourg SA
("Menarini Luxembourg"); and
(B) Menarini has agreed to guarantee to Glycyx the performance of all the
obligations and liabilities of Menarini Luxembourg under the terms of the
said Agreement in accordance with the terms of this Agreement.
NOW IT IS HEREBY AGREED as follows:-
1. In consideration of Glycyx at the request of Menarini entering into an
agreement with Menarini Luxembourg dated 23rd September 1994 ("the
Agreement");
1.1 Menarini hereby guarantees to Glycyx the due and punctual performance
by Menarini Luxembourg (notwithstanding any legal limitation and/or
incapacity or other circumstances (including without limitation,
insolvency) relating to Menarini Luxembourg or any irregularity
unenforceability or invalidity of any obligation of Menarini under
this agreement) of all obligations which Menarini Luxembourg may incur
or assume under the Agreement and the due compliance by Menarini
Luxembourg of all provisions under the Agreement ("Menarini
Luxembourg's Obligations"); and
1.2 Menarini hereby covenants with Glycyx that if and whenever Menarini
Luxembourg shall make any default in any of Menarini Luxembourg's
Obligations Menarini will indemnify Glycyx against all losses, damages
costs and expenses which may be incurred by Glycyx by reason of any
such default.
2. The liability of Menarini hereunder shall be as primary obligor and not
merely as a surety and Menarini waives any rights which it may have to
require Glycyx to proceed first against or claim payment first from
Menarini Luxembourg and furthermore, the liability of Menarini shall not be
affected impaired or discharged by reason of any act omission matter or
thing which but for this provision might operate to release or otherwise
exonerate Menarini Luxembourg from the Menarini Luxembourg Obligations
including but without limitation;
<PAGE>
2.1 any granting of time or other indulgence or (without limitation) any
extension renewals acceptance forbearance or release in respect of any
of Menarini Luxembourg's Obligations; or
2.2 Any waiver or release of any right under the terms of the Agreement;
or
2.3 Any modification of or variation to the terms of the Agreement; or
2.4 Any transfer or assignment of rights or obligations under the
Agreement; or
2.5 Any corporate reorganisation reconstruction amalgamation dissolution
merger acquisition of or by other alteration in the corporate
existence or structure of Menarini Luxembourg; or
2.6 Any composition or arrangement made by Glycyx with Menarini Luxembourg
or any other person; or
2.7 Any dealing with exchange modification or abstention from perfecting
or enforcing any right; or
2.8 The invalidity or enforceability of any provision of the Agreement.
It being the intention of Menarini that the guarantee and indemnity set out
herein shall be irrevocable and unconditional and that the same may be
enforced as often as the need may arise.
3. This Agreement shall be construed in accordance with the laws of England
and Wales and Menarini hereby undertakes to submit to the jurisdiction of
the English Courts.
IN WITNESS whereof the parties hereto have executed this Agreement as a Deed on
the date set out above.
Signed sealed and )
delivered by A. Menarini )
Industrie Farmaceutiche )
Riunite s.r.l )
[SIGNATURE ILLEGIBLE]
Signed sealed and ) Randy W. Hamilton
delivered by Glycyx ) PRESIDENT
Pharmaceuticals, Ltd ) Lorin K. Johnson
VICE PRESIDENT
-2-
<PAGE>
Menarini International Operations
Luxembourg SA
15 Boulevard Roosevelt
Luxembourg 23rd September 1994
Dear Sirs:
Re: AGREEMENT BETWEEN MENARINI INTERNATIONAL OPERATIONS LUXEMBOURG SA and
---------------------------------------------------------------------
GLYCYX PHARMACEUTICALS, LIMITED DATED 23rd Sept. 1994 ("the Agreement")
-----------------------------------------------------------------------
I write for and on behalf of Glycyx Pharmaceuticals, Limited ("Glycyx") in
connection with the Agreement and in particular, in connection with agreements
and arrangements entered into between Glycyx and third parties for the
exploitation of the Product (as defined in the Agreement) within Europe and
Scandinavia.
I confirm that such agreements contain a clear obligation on Glycyx's licensee
for such Territory to, within each country of its Territory, "use all reasonable
endeavours to obtain the most favourable Factory Sales Price, which is
consistent with competitive market characteristics and the demonstrated
advantages of the Product and presenting the Product as a new chemical entity
within such country."
In such agreements "Factory Sales Price" is defined as the ex-factory sales
price of each Product actually charged by the licensee (or any associate) for
each shipment of Product on an arms length open market basis to any third party
net only of sales and purchase taxes, customs or import duties, delivery charges
and returns and allowances actually charged on each shipment.
I hope this confirms the position for your purposes.
Yours faithfully,
/s/ Randy Hamilton
Randy W. Hamilton
President
SIGNED FOR AND ON BEHALF OF
GLYCYX PHARMACEUTICALS, LIMITED
<PAGE>
[A. MENARINI LETTERHEAD]
Legal Department
FIONA CRAWLEY
Hewitson Becke and Shaw
4/5 Church Street
Peterborough PEI IXB
UNITED KINGDOM Florence, September 9, 1994
Dear Fiona
Re: Glycyx Pharmaceuticals Limited - Distribution Agreement
-------------------------------------------------------
Further to your letter dated 26th August 1994 and to our recent phone
conversation, I would like to confirm that under Italian law the "guarantee
agreement" signed by Menarini Florence in connection with the captioned
Distribution Agreement is valid and enforceable even though there is no seal of
the company and one signatory only appears. As a matter of fact, the Italian
Civil code allows a limited liability company to be validly represented by one
person ("Amministratore Unico") whose signature on any document creates a legal
obligation on the conpany itself.
For certain acts or documents the law prescribes the written form as a condition
of their validity (for example, sale of a piece of land) and legalization by a
Notary Public is required to give publicity to the act and gain protection
against third parties. However, a unilateral warranty or a guarantee agreement
does not need to be executed before a Notary Public or by another director. In
other words, we are not bound to execute a document of that kind as a deed.
I can also confirm that Dr. Alberto Aleotti is "Amministratore Unico" of
"A.MENARINI INDUSTRIE FARMACEUTICHE RIUNITE s.r.l." and his signature on any
document released by the company (including, inter alia, the "guarantee
agreement" pertaining to Balsalazide Distribution Agreement) creates a legal
obligation on the company to abide by the terms of the signed document.
I hope that the above clarifies the situation. Please do not hesitate to call
me if you have any further question on the content of this letter.
Kindest regards.
/s/ Stefano Marino
Stefano Marino
<PAGE>
TRIBUNALE CIVILE E PENALE DI FIRENZE
CANCELLERIA COMMERCIALE
Il Cancelliere sottoscritto
c e r t i f i c a
risulatre dagli atti depositati in questa Cancelleria, omologati, iscritti e
pubblicati nelle forme di legge: - che la societa "A.MENARINI - Industrie
Farmaceutiche Riunite s.r.l."e regolarmente iscritta al n 2206 del Registro
Societa con il capitale di 1 3,000,000,000 - interamente versato durata fino al
31 dicembre 2050 avente sede legale in Firenze Via Sette Santi n.3, avente per
oggetto la ricerca scientifica, l'industria e la fabbricazione di specialita
medicinali, Prodotti farmaceutici, prodotti ottenuti attraverso la biologia
molecare, parafarmaceutici, diagnostici (e relative apparecchiature),
elettromedicali, cosmetici, dietetici, sanitari e similari in genere, nonche il
commercio degli stessi in Italia e all'estero - Cod. Fisc. e Partita IVA
00395270481; - che detta societa e stata trasformata da "societa in accomandita
semplice" a "societa a responsabilita limitata" con atto a rogito Notaio
Alessandro Ruggiero di Firenze del 22 dicembre 1988 reg. to a Firenze - Atti
Civili - il 10 gennaio 1989 al n. 252, omologato dal Tribunale di Firenze con
decreto 16 gennaio 1989, trascritto nel Registro Societa in data 1 febbraio
1989 al n. 2210 reg. Gen. d'Ord.- La predetta so-
<PAGE>
cieta e stata costituita con Atto Costitutivo in data 24 febbraio 1915 atto
Notaio F. Parronchi registrato a Firenze il 4 marzo 1915 da ultimo modificato
con Patti Sociali sottoscritti in data 22 dicembre 1988;
- - che detta societa e amministrata da un Amministratore Unico nominato per tutta
la durata della societa nella persona del Cav. del. Lav. Dr. Alberto Aleotti
nato a Quattro Castella (RE) il 4 marzo 1923 il quale ha accettato la carica;
- - che il predetto Amministratore Unico fino ad oggi non risulta sostituito e
quindi tutt'ora in carica;
- - che in base all'art. 14 del vigente statuto sociale all'Amministratore Unico
sono attribuiti tutti i piu ampi poteri per la gestione della societa e per il
compimento di tutti gli atti di ordinaria e straordinaria amministrazione
rientranti nell'oggetto sociale essendo di sua competenza tutto cio che per
legge o per statuto non sia espressamente riservato alla competenza
dell'assemblea dei soci;
- - che la rappresentanza legale della societa di fronte a terzi ed in giudizio e
devoluta al predetto Amministratore Unico Cav. del Lavoro Dr. Alberto Aleotti;
- - che nell'ultimo quinquennio la predetta societa non e stata dichiarata fallita
ne ammessa a procedura di concordato preventivo, di amministrazione controllata,
o di liquidazione e quindi si trova nel pieno e libero esercizio dei
<PAGE>
suoi diritti. -
Si rilascia per gli usi consenti dalla legge -
Firenze.
<PAGE>
TERMS OF AMENDMENT
In light of new developments affecting the Distribution Agreement between Glycyx
Pharmaceuticals ("Glycyx"); and Menarini International Operations Luxembourg SA
("Menarini") dated 23rd September 1994 ("the Agreement"), Glycyx and Menarini,
with intent to be legally bound, agree to the following amendment to the
Agreement.
I. Menarini will provisionally accept the interim results of the U.S.
comparative trial versus Asacol delivered on 6 December 1994 as very
promising with regard to the requirements of Clause 3.1 of the Agreement.
Payment of [*] per Clause 7.1.1 is due and payable immediately following
acceptance by both parties of this Letter of Amendment, but it will be
refundable pursuant to section III herebelow and clause 3.1 of the
Agreement.
II. The parties having agreed that Glycyx will file the dossier in Europe
under the E.U. Decentralized Procedure, the term "Dossier Date" for
purposes of the Agreement is now understood as "the date upon which the
master regulatory dossier relating to the Product shall be delivered by
Glycyx to Menarini following filing of Glycyx's Product licence
application for the Product in the UK" it being understood that UK has
been selected as the rapporteur country for the EU Decentralized
Procedure. Payment of [*] to Glycyx will be due no later than three
months from the Dossier Date per Clause 7.1.2.2 of the Agreement.
III. The above payments shall not be refunded by Glycyx, Provided Always That:
A. Glycyx shall complete the scheduled Clinical Trials as convened at due
time and shall submit to Menarini the final results; and
B. the results of the Clinical Trials are satisfactory pursuant to Clause
3.1 of the Agreement.
IV. Except as specifically provided herein, the terms of the Distribution
Agreement shall remain in full force and effect.
Accepted and agreed this 13th day of February, 1995
Company: GLYCYX PHARMACEUTICALS, LTD
By: Randy Hamilton
Title: President
Signature: /s/ Randy Hamilton
Company: MENARINI INTERNATIONAL OPERATIONS LUXEMBOURG SA
By: Dr. asa Lucia Aleotti
Title: President of the Board of Directors
Signature: /s/ Dr. Lucia Aleotti
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
Exhibit 10.12
Dated JUNE 24, 1996
- -------------------
ALFA WASSERMANN S.p.A
- -and-
SALIX PHARMACEUTICALS. INC.
LICENCE AGREEMENT
Hewitson Becke Shaw
First Floor
Stuart House
City Road
Peterborough
PEI IQF
Hewitson Becke+Shaw
SOLICITORS
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Article 1 - RECITALS.................................................... 1
Article 2 - DEFINITIONS................................................. 1
Article 3 - LICENSE TO MANUFACTURE AND SELL THE PRODUCTS................ 4
Article 4 - SUPPLY OF INFORMATION AND ASSISTANCE........................ 7
Article 5 - SUPPLY OF COMPOUND.......................................... 8
Article 6 - CONSIDERATION............................................... 8
Article 7 - DEVELOPMENT. REGULATORY APPROVALS AND MARKETING.............10
Article 8 - MARKETING...................................................13
Article 9 - COMMENCEMENT AND DURATION...................................14
Article 10 - TRADEMARK...................................................15
Article 11 - INDUSTRIAL PROPERTY RIGHTS..................................15
Article 12 - DEVELOPMENTS................................................15
Article 13 - CONFIDENTIALITY UNDERTAKING.................................17
Article 14 - PRODUCT LIABILITY - INDEMNIFICATION.........................18
Article 15 - NON COMPETITION.............................................19
Article 16 - FORCE MAJEURE...............................................19
Article 17 - TERMINATION OF THE AGREEMENT................................20
Article 18 - PERIOD SUBSEQUENT TO THE TERMINATION OF THE AGREEMENT.......21
Article 19 - ASSIGNABILITY...............................................21
Article 20 - ENTIRE AGREEMENT AND MODIFICATION...........................22
Article 21 - LANGUAGE AND GOVERNING LAW..................................22
Article 22 - WAIVER......................................................22
Article 23 - NOTICES.....................................................23
Article 24 - LITIGATION..................................................23
</TABLE>
30
<PAGE>
LICENCE AGREEMENT
-----------------
BETWEEN:
ALFA WASSERMANN S.p.A., a corporation organized and existing under the laws
of Italy, with registered office at Contrada S. Emidio, 65020 Alanno
(Pescara), Italy, represented herein by Mr. Andrea Golinelli, in his
capacity as Int'l Gen. Manager (hereinafter "ALFA"); and SALIX
PHARMACEUTICALS, INC. corporation organized and existing under the laws of
California, United States of America, with registered office is at 3600 W.
Bayshore Road, Suite 205, Palo Alto, California 94303, represented herein
by Mr. Randy W. Hamilton in his capacity as President (hereinafter "SALIX")
WHEREAS
(A) ALFA has developed a Compound known as "rifaximin", and Products
(hereinafter defined) which exhibit antibacterial activity and therefore
can be used in the treatment of bacterial diseases;
(B) The Compound and/or the Products are the subject of patents and/or patent
applications owned by ALFA ( the "Patents", as hereinafter defined);
(C) SALIX wishes to obtain from ALFA an exclusive licence to exploit the
Patents and the Technology Rights (hereinafter defined) and to use the
Compound in order to develop, make, have made, use, sell and have sold
therapeutic products for the treatment of gastrointestinal and respiratory
tract diseases and conditions (the "Products", as hereinafter defined)
under the Trademark in the Territory (both hereinafter defined);
(D) ALFA is willing to grant SALIX such licence on the terms and conditions
contained in this Agreement.
NOW THEREFORE, for and in consideration of the premises and the understandings
herein contained, it is hereby agreed as follows;
Article I - RECITALS
- --------------------
It is acknowledged and agreed that the recitals to this Agreement and the
schedules and annexures to this Agreement form an integral part hereof and are
expressly incorporated herein..
Article 2 - DEFINITIONS
- -----------------------
1
<PAGE>
The following words and expressions used in this Agreement shall have the
following meanings:
"Affiliate(s)" shall mean any corporation, joint-venture or
other entity which directly or indirectly
controls, is controlled by or is under common
control with a party to this Agreement. "Control"
shall mean the possession of the power to direct
or cause the direction of the management and
policies of a person or business entity, whether
through ownership of voting securities, by
contract or otherwise;
"Compound" shall mean the raw material known as "rifaximin",
which is 2,7-(Epoxypentadeca [1,11,13]trienimino)
benzofuro [4,5-e]-pyrido[1,2-a]benzimidazole-
1,15(2H)-dione, 25-(acetyloxy)-5,6,21,23-
tetrahydroxy-27-methoxy-2,4,11,16,20,22,24,26-
octamethyl-,[2S-(2R*, 16Z, 18E,20R*,21R*,
22S*,23S*,24S*,25R*,26S*,27R*,28E)]-(Chemical
Abstract No. 80-621-81-4-together with all
products analogs and isomers thereof and any
improvements or developments to any of the
foregoing owned by or controlled by or licensed to
ALFA in respect thereof during the term of this
Agreement.
"FDA" shall mean the United States Food and Drug
Administration or any successor agency performing
a similar function or an equivalent foreign
regulatory agency (including without limitation,
the Health Protection Branch in Canada);
"NDA" shall mean applications filed with the FDA
requesting approval to market a new drug,
including but not limited to New Drug Applications
and Product License Applications (PLA), as
applicable. As used herein, the term "NDA" is
inter-changeable with the term "PLA" depending on
the regulatory approval process applicable to the
product under the provisions of the United States
Code 21 CFR or any equivalent foreign regulatory
provisions;
"Net Sales" shall mean the gross invoiced amount received by
SALIX (or any of its sub-licensees or
distributors) for
2
<PAGE>
commercial sales to third parties (who shall not
be Affiliates or distributors of SALIX or its
Affiliates) of the Products in the Territory, net
of all normal trade and cash discounts and net of
all refunds, rebates, returns, transportation and
insurance charges, sales, value added or other
direct taxes charged on any invoice, customs
duties and surcharges allowed to the purchasers as
deductions from the purchase price of the Products
or otherwise as specified on the invoice;
"Patents" shall mean the patents and/or patent applications
listed in Part I of the Schedule and any other
patent rights in the Territory now existing or
hereafter acquired by or licensed to ALFA
pertaining to the subject matter of such patents
and patent applications or otherwise to the
Compound and/or the Product and any divisions,
continuations and continuations-in-part of any
such patents or patent rights and any patent
granted in respect thereof for the full terms
thereof including any reexaminations, renewals,
extensions and reissues thereof and including any
supplementary protection certificates;
"Products" shall mean those pharmaceutical products for human
use in the treatment and/or prevention of
gastrointestinal and respiratory tract diseases
and conditions containing the Compound as an
active ingredient;
"Putting into Commerce" shall mean the date of the first commercial
sale of Products to third parties (who shall not
be Affiliates or Sublicensees or distributors of
SALIX or its Affiliates) by or on behalf of SALIX
or any sublicensees or distributors of SALIX or
its Affiliates under the terms of this Agreement
made in any part of the Territory after all
relevant marketing and pricing approvals shall
have been granted by the relevant regulatory
authorities in respect of the Product in such part
of the Territory;
"Schedule" shall mean the Schedule hereto, comprising Parts 1
to 4 thereof;
"Supply Agreement" shall mean an agreement between the parties of
even date herewith relating to the supply of the
Compound by ALFA to SALIX;
3
<PAGE>
"Technology Rights" shall mean all intellectual property and other
proprietary rights and all confidential
information and know-how pertaining to the
Compound and/or the Products or otherwise to the
Patents in any respect (including without
limitation all improvements, inventions,
derivatives, formulation data, specifications,
manufacturing procedures and technology, technical
information, know-how, trade secrets,
pharmacology, toxicology and other preclinical
data, clinical data, regulatory information and
marketing data) within the possession or control
of ALFA (whether developed by or licensed to ALFA)
(and all such rights and information within the
possession or control of any other licensee of
ALFA having rights in respect of the Compound or
the Products) in existence as at the date hereof
or arising during the term of this Agreement which
are available to ALFA for the Territory.
"Territory" shall mean the United States (its territorial
possessions, territories and the Commonwealth of
Puerto Rico) and Canada;
"Trademark" shall mean the trademark to be chosen and agreed
by the parties to be used by SALIX for the
marketing of the Products in the Territory , such
trademark to be registered and maintained by ALFA
in its name under the terms of this Agreement;
"Valid Claim" shall mean a claim of an issued and unexpired
patent included within the Patents, which has not
been held permanently revoked, unenforceable or
invalid by a decision of a court or other
governmental agency of competent jurisdiction
unappealable or unappealed within the time allowed
Or appeal and which has not been admitted to be
invalid or unenforceable through reissue or
disclaimer or otherwise.
Article 3 - LICENCE TO MANUFACTURE AND SELL THE PRODUCTS
- --------------------------------------------------------
3.1 For good and valuable consideration set forth herein, ALFA hereby grants to
SALIX and SALIX hereby accepts;
3.1.1 an exclusive licence under the Patents and all Technology Rights to
develop, make, have made, use, market, promote, sell and have sold
Products within the Territory;
4
<PAGE>
3.1.2 a non exclusive Licence under the Patents and all Technology Rights
(and under any similar rights existing outside the Territory) to
manufacture and have manufactured on its behalf Products in any part
of the world solely for use and sale within the Territory;
3.1.3 an exclusive Licence to use and exploit the Trademark within the
Territory in connection with the sale of the Products only;
3.1.4 the right to sublicence to third parties and Affiliates all or any
part of the rights granted under Articles 3.1.1, 3.1.2 and 3.1.3
above, under the provisions of Article 3.2.
Such Licences to be continuing and irrevocable, save only as expressly provided
under the terms of this Agreement.
3.2 The right to sublicence granted under Article 3.1.4 shall be subject to the
following terms:
3.2.1 the terms of any such sublicence shall be in accordance with the
terms of the Licence granted to SALIX hereunder and shall be subject
to the prior approval of ALFA, such approval not to be unreasonably
withheld or delayed;
3.2.2 SALIX will be entitled to grant sublicences in each of the three
indications selected under Article 7.1 only after the Products have
been adequately developed and the relevant NDA has been filed with
the FDA for each such indication.
3.2.3 notwithstanding the appointment of any such sublicensee SALIX shall
remain solely responsible to ALFA for the performance of its
obligations under the terms hereof and for any breach of such
obligations, whether such breach shall be caused by SALIX or any
sublicensee.
For be avoidance of doubt it is hereby acknowledged that the appointment by
SALIX of any distributor for the Products within the Territory, of any
manufacturer to manufacture the Products for and on behalf of SALIX or of
any third party to assist in the development and approval of the Products
shall not be deemed to constitute the appointment of any sublicensee or the
sublicense by SALIX of any rights hereunder.
3.3 ALFA shall procure and maintain all export and other licences and permits
required for the grant to SALIX of the rights and Licences granted under
Article 3.1 and for the supply to SALIX of all documentation under Article
4 and shall comply with all other laws regulations and government
directives relating to the grant of rights under the terms of this
Agreement to ensure that SALIX shall be entitled to exercise the rights
granted to it free of any restriction.
3.4 ALFA hereby represents, warrants and undertakes to SALIX;
5
<PAGE>
3.4.1 that it has full right and authority to grant the Licences contained
in this Agreement and to perform its obligations hereunder;
3.4.2 that the exercise by SALIX of the rights granted to it hereunder
within the Territory shall not infringe the rights of any third
party;
3.4.3 that ALFA has not (and will not during the term of this Agreement)
make any commitment or incur any obligation in conflict with the
rights and Licences granted to SALIX hereunder;
3.4.4 that ALFA is the sole legal and beneficial owner of the patents and
patent applications set out in Part I of the Schedule and that Part
I of the Schedule contains accurate details of all patents and
patent applications existing in the Territory in respect of the
Compound and/or the Products.
3.4.5 that during the term of the Trademark Licence granted under Article
3.1.3 ALFA shall not use or permit the use of the Trademark within
the Territory on or in connection with any pharmaceutical product.
3.5 SALIX undertakes, during the term of this Agreement, not to sell or
otherwise supply the Compound and/or the Products to any third party
outside the Territory (save only for the supply of Compound to
manufacturers of Products for sale within the Territory) and shall not
knowingly, sell or otherwise supply the Compound and/or the Products to any
third party within the Territory for the purpose of sale or supply to any
third party outside the Territory. ALFA confirms and acknowledges that
restrictions in substantially the form of this Article 3.5 have been and
will be imposed upon third party licensees of Compound, Patent and/or
Technology Rights in respect of territories outside the Territory when and
where legally enforceable. For the proper protection of the rights granted
to SALIX hereunder ALFA undertakes to use all reasonable endeavours to
prevent any breach or continuation of any breach by any such licensee of
such terms and ALFA confirms and acknowledges that it shall also be bound
by such restrictions in respect of the exploitation of the Compound and/or
the Products outside the Territory.
3.6 SALIX acknowledges that ALFA has represented to it that the Patents, the
Compound, the Products, the Technology Rights, the Trademark and the
relevant exploitation rights in the Territory are all the exclusive
property of ALFA. SALIX acknowledges that save as expressly provided
herein it shall acquire no right title or interest in any such proprietary
rights of ALFA and that nothing contained herein shall be construed as
granting SALIX any rights whatsoever in the Patents, the Compound, the
Products, the Technology Rights, the Trademark and the relevant
exploitation rights in connection with products other than the Products.
3.7 In order to protect the rights granted by ALFA to SALIX under the terms of
this Agreement:-
3.7.1 ALFA undertakes that it shall not without the prior consent of SALIX
either
6
<PAGE>
directly or indirectly (through any third party or sublicensee)
develop, manufacture or market within the Territory any
pharmaceutical product containing the Compound as an active
ingredient, such consent not to be unreasonably witheld or delayed
where ALFA can show to SALIX that such development, marketing or
manufacture would not adversely affect the exploitation by SALIX of
its rights hereunder, and
3.7.2 in the event of any development of any pharmaceutical product
containing the Compound as an active ingredient, within the
Territory (whether by ALFA or any licensee) the development thereof
shall be effected in close consultation with SALIX and SALIX shall
be kept fully informed and shall have the right to rescind any
consent given under Article 3.7.1 in the event that in the course of
such development it is shown that such development and/or subsequent
marking is adversely affecting the exploitation by SALIX of its
rights hereunder; and
3.7.3 ALFA undertakes and warrants that any exploitation of any
rights in the Compound within the Territory (whether by ALFA or any
third party) will not adversely affect the exploitation by SALIX of
its rights hereunder, in any material manner.
3.8 SALIX is aware that ALFA has developed formulations of the Compound which
may find a use for the treatment of topical and vaginal infections and also
in the veterinary area. SALIX accepts the fact that the activities which
ALFA or its Licensees may undertake in such areas (save for activities in
the case of veterinary formulations which fall within the definition of
Product) are to be considered in connection with the provisions of Article
3.7, not in contrast with SALIX's interests and not adversely affecting the
exploitation by SALIX of its rights in the Compound under the terms of this
Agreement.
Article 4 - SUPPLY OF INFORMATION AND ASSISTANCE
- ------------------------------------------------
4.1 ALFA undertakes to supply to SALIX forthwith upon execution of this
Agreement copies of all documentation constituting the Patents and the
Technology Rights existing as at the date hereof and thereafter during the
term of this Agreement to supply to SALIX all documentation in respect of
any further or additional Patents or Technology Rights promptly upon the
same becoming available to ALFA.
4.2 ALFA undertakes promptly to supply to SALIX during the twin of this
Agreement such information and documentation in connection with and
relating to the completion of the clinical development and applications for
regulatory approvals for the Compound and/or Products in respect of other
territories (whether prepared by ALFA or any licensee of ALFA and which are
available to ALFA) as Salix may reasonably require in connection, with the
clinical development and regulatory approvals required for the Products
within the Territory or otherwise in connection with the performance by
SALIX of its obligations under Article 7.
7
<PAGE>
4.3 Each party undertakes throughout the term of this Agreement to supply free
of charge to the other all such pharmaceutical pre-clinical and clinical
data and information as may be developed or obtained by it or any
sublicensee with respect to the Compound and/or Products and to permit the
other party to use all such information in connection ,with the continued
exploitation of the Products.
4.4 Representatives of either party may upon reasonable notice and at times
reasonably acceptable to the other party visit any facilities where any pre
clinical or clinical tests or trials are being carried out in respect of
the Products and any facilities where the Compound or Products are being
manufactured and shall be entitled to consult informally during any such
visit or by telephone or facsimile communication with personnel at any such
facilities Provided That SALIX shall inform ALFA of the substance and
content of all such consultations and communications.
4.5 All documentation supplied to SALIX under the terms of this agreement
necessary. to enable SALIX to fulfill its regulatory obligations hereunder
or necessary to enable SALIX to exercise its right to manufacture under
Article 9 of the Supply Agreement shall be supplied in the English Language
and ALFA shall at its sole cost obtain translations of any such
documentation for such purpose, save where SALIX shall notify ALFA in
writing that a summary of the same in the English language will suffice..
Article 5 - SUPPLY OF COMPOUND
- ------------------------------
5. In order to safeguard the quality standards of the Compound and of the
Products, it is understood that subject to the terms of me Supply Agreement
ALFA will be the sole and exclusive supplier of the Compound to SALIX and
SALIX undertakes to purchase the Compound exclusively from ALFA subject to
the provisions contained in the Supply Agreement.
Article 6 - CONSIDERATION
- -------------------------
6.1 In consideration of all the rights and licences granted hereunder SALIX
agrees to pay ALFA the following amounts:
6.1.1 [*]
6.1.2 [*]
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[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
[*]
6.1.3 [*]
6.1.4 [*]
<TABLE>
<CAPTION>
QUANTITY Of COMPOUND SOLD IN EACH CALENDAR YEAR ROYALTY RATE, AS A %
OF NET SALES
<S> <C>
[*]
</TABLE>
6.2 In the event that SALIX is required to pay to any third party royalties
calculated by reference to Products sold in respect of any technology of
such third party incorporated in the Products there shall be deducted from
the calculation of Net Sales (in connection with the calculation of
royalties due hereunder) a sum equal to [*] in respect of the Products.
6.3 Within 60 days of the end of each calendar quarter after the date of
Putting into Commerce (such quarters to end on the last days of March,
June, September and December in each calendar year) SALIX shall submit to
ALFA a written report setting out details of all Net Sales in such calendar
quarter together with its calculation of such Net Sales) and with such
statement SALIX shall pay to ALFA the sum due in respect of royalty on such
Net Sales.
6.4 In the event that any payment due hereunder shall not be paid by the due
date such payment shall from the due date until the date of payment bear
interest at the rate of 4 % (four per-cent) above the official prime rate
published by the Bank of America in the Territory.
6.5 Each of SALIX and ALFA shall use all reasonable endeavours to minimise any
sum required to be deducted by way of withholding tax from any sums payable
under this agreement to ALFA and shall use all reasonable endeavours to
procure for ALFA the
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THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
benefit of any present or future treaty against double taxation in force
between Italy ,and the Territory in respect of such sums payable and any
tax so withheld. Provided That for the avoidance of doubt SALIX shall
deduct any such withholding tax required to be deducted by it under any
applicable law.
6.6 All payments to be made by SALIX to ALFA hereunder shall be made in US
Dollars by SWIFT (international communications) wire transfer to such bank
as ALFA shall designate in writing.
6.7 SALIX shall maintain during the term of this Agreement normal accounting
books (in accordance with normal US accounting practice) containing
accurate details of all sales of Products and of the calculation of Net
Sales (in accordance with the definition thereof contained in Article 2)
and the royalty due to ALFA hereunder. ALFA will have the right upon
reasonable notice during normal working hours to cause qualified
professional accountants of its choice to inspect the books and records and
any other documentation and records maintained by SALIX relevant to the
calculation of any royalty hereunder. The cost of the above accountants'
inspections shall be borne by ALFA save only where any such inspection
reveals a discrepancy in excess of 5% of royalties due and payable, in
which event the costs shall be borne by SALIX Provided Always;
6.7.1 that such inspection shall not take place more than once in each
calendar year;
6.7.2 that such inspection shall only be in respect of records and
accounts for the period of three years preceding the date of such
inspection and SALIX shall not be required to retain records for any
period exceeding three years
6.8 For the avoidance of doubt, sales of Products made by SALIX to an Affiliate
or any sub-licensee or distributor for the purpose of resale to non-
Affiliated parties shall be specifically excluded from Net Sales
calculations for royalty determinations.
6.9 Save as expressly stated in this Agreement, SALIX shall not be entitled in
any circumstances to withhold any money due to ALFA under the terms of this
Agreement in respect of any possible (justified or unjustified) claims
against ALFA, related to this Agreement or to the Supply Agreement.
Article 7 - DEVELOPMENT, REGULATORY APPROVALS AND MARKETING
- ------------------------------------------------------------
7.1 SALIX shall use all reasonable endeavours to develop at least [*]
indications for the Products. It is acknowledged that it is the present
intention of SALIX to first develop a Product as a treatment for antibiotic
associated colitis as per the Development Plan contained in Part 3 of the
Schedule. The [*] indications will be identified within the first [*] the
date hereof. The development of these latter indications shall not start
later than [*] from the date hereof.
7.2 SALIX shall perform and complete (or procure the performance or completion
on its behalf) diligently and expeditiously at its sole expense and
direction (except as
10
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THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
hereinafter set forth) all work studies and formalities necessary to
complete all Phase II and III clinical requirements for the initial
indication and pre-clinical and clinical requirements, as appropriate, for
additional indications for the Products within the Territory, shall file
the NDA and shall obtain (in its own name or that of its nominee(s)) the
permits, approvals, (including NDA approval(s)) and any other
authorizations necessary to market the Products in the Territory.
7.3 SALIX shall provide ALFA with semiannual reports describing in reasonable
detail its progress in all the above activities, until the Putting into
Commerce.
7.4 ALFA undertakes to perform and complete diligently and expeditiously the
studies listed in Part 4 of the Schedule at its sole responsibility for
covering all cost and expense. All such studies shall be conducted and
completed in such manner and to such standard (including without
limitation, US Good Laboratory Practice and Good Clinical Practice) as may
be required for the use of such study results and documentation in
connection with any regulatory approvals required for the Products within
the Territory and to supply SALIX with full details and information
concerning the same under the provisions of Article 4.
7.5 Each of ALFA and SALIX undertakes to cooperate and liaise with the other
party in such manner as may reasonably be required in connection with the
timing and conduct of trials in order to prevent any avoidable delays and
to ensure the commitment of each party as may be appropriate under the
terms of this Agreement.
7.6 ALFA shall use its best efforts to supply, or arrange for others to supply,
all such quantities of the Compound and/or Products as may reasonably be
required by SALIX for all required preclinical tests, stability and human
clinical trials and for samples or placebos for clinical trials such
quantities to be supplied at ALFA's expense free of charge to SALIX
(Provided Always that in this Article 7.6 "Products" shall mean bulk
(tablets) for the active drug and for the placebo).
7.7 ALFA undertakes to supply to SALIX copies of all preclinical or clinical
reports and protocols relating to the Compound and/or the Products obtained
or prepared by ALFA or any licensee of ALFA of the Compound in any
territory. The parties shall use their best efforts in order that all
preclinical and clinical studies are obtained and produced in accordance
with US Good Laboratory Practice and Good Clinical Practice standards and
comply in all material respects with the requirements of the FDA in respect
of reports and protocols filed in support of or otherwise in connection
with any NDA.
7.8 Immediately after the signature hereof, ALFA and SALIX will establish a
"Product Development Committee" consisting of three representatives from
each of the parties. It is acknowledged that the Product Development
Committee as at the date hereof will be constituted by;
ALFA; Dr Ernesto Palazzini
Dr MS. Miriam Barbanti
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<PAGE>
and one other to be appointed
SALIX; Alexander McMahon
Margie Nemcik-Cruz
Dr Lorin Johnson
The primary aim of the Product Development Committee will be the discussion
and the recommendation of indications which SALIX shall develop; it shall
also discuss and suggest to the parties any additional form of cooperation,
under Article 7.8 below. The Product Development Committee shall endeavour
to meet at least two times in each year, at locations alternating between
California and Italy. Each party shall bear the costs and expenses incurred
by its own representatives in connection with the Product Development
Committee and attending any meetings. Notwithstanding the foregoing it is
acknowledged and confirmed that in its role of developer and marketer SALIX
will retain the final decision to determine all aspects of the development
and commercialization of the Products in the Territory, in its sole
discretion, acting in the best interest of the Products in the Territory.
7.9 SALIX will be responsible in its sole discretion for determining which
indication(s) of the Products, within the treatment of gastrointestinal and
respiratory tract diseases and conditions, to develop, taking into
consideration the recommendations of the Product Development Committee
(subject always to the final decision of SALIX under Article 7.8), and for
designing all related clinical protocols, conducting clinical studies,
preparing, filing for and obtaining regulatory approvals required to
market, and commence commercial sales for such indication(s) in the
Territory. SALIX undertakes to market the Products in compliance with all
such regulatory approvals obtained.
7.10 In addition to the exchange of information and obligations in respect
thereof contained in this Agreement and without limiting and or affecting
in any way the generality of such provisions, the parties agree that they
are prepared to negotiate specific forms of cooperation for carrying out
additional studies and/or tests, and for exchanging respective proprietary
information in addition to what is already subject to the provisions
hereof, for the most efficient preparation of pre-clinical and clinical
regulatory packages; the parties shall then agree on law and in what
portion they will share the related costs; the parties shall furthermore
from time to time exchange marketing information for the purpose of
homogenizing worldwide strategies and marketing policies.
7.11 SALIX shall notify ALFA of any material step which has been undertaken with
the purpose to have the Products approved and shall promptly send to ALFA
by courier or by similar means copies of the following documentation;
IND annual reports
Final reports of all clinical studies undertaken
the NDA
ALFA shall be allowed to use and to make available such documentation to
its
12
<PAGE>
Licensees free of charge.
SALIX acknowledges that it shall not in the Territory or elsewhere publish
any data or information concerning the Products or any clinical trials of
the Products without the prior consent in writing of ALFA such consent to
be provided within a maximum period of 60 days and not to be unreasonably
withheld or delayed.
7.12 In the event that SALIX abandons development of the Compound and/or
Products for any indication (after commencing development in respect of
such indication) in a defined part of the Territory and does not recommence
such development within 90 days of any notice in writing served on it by
ALFA Licence granted hereunder in connection with the Patents and the
Technology Rights relating solely to such indication shall be deemed (upon
the expiry of such 90 day period) to have terminated in respect of such
specified indication only and all rights in such indication shall revert to
ALFA and SALIX shall deliver to ALFA all information within its possession
relating to such indication Provided Always that ALFA undertakes that it
shall not either directly or indirectly (through any third party or sub
licensee) market within the Territory any Product for any such indication
without the prior consent of SALIX such consent not to be unreasonably
withheld where ALFA can show that such marketing would not adversely affect
the exploitation by SALIX of its rights hereunder. For the avoidance of
doubt the provisions of this Article 7.12 shall not affect in any manner
the obligations of SALIX under Article 6.
7.13 The parties further undertake to maintain throughout the terms of this
Agreement a system (and obligations as required) concerning the prompt
reporting of all and any adverse events relating to the Compound and/or the
Products and the prompt supply to the other party of any information
concerning any such adverse event, in such manner as may required by the
FDA and European Union authorities..
Article 8 - MARKETING
- ---------------------
8.1 SALIX shall use all reasonable endeavours to introduce, promote and
maximize the sales of the Products throughout the Territory; SALIX shall
carry out such activities under the Trademark and in accordance with the
usual practice in the pharmaceutical field of the Territory .
8.2 SALIX and ALFA shall consult and exchange information concerning marketing
strategies and market information within the Territory and elsewhere in
respect of any territory in which the Products may be marketed to endeavour
to produce homogeneity in the marketing of the Products worldwide. The
parties will exchange marketing information; for this purpose each party
shall provide to the other samples of all promotional literature,
pamphlets, booklets, and advertising material for the Products and all data
which support promotional claims for them. ALFA and/or ALFA'S licensees,
at their own cost, may translate and reproduce such promotional materials
or publications and distribute them, at their sole discretion, in the
course of its promotional and marketing activities Provided Always that
SALIX shall not be liable in any manner whatsoever in respect of any such
translations or reproductions
13
<PAGE>
and shall be indemnified and held harmless against any loss or claim
arising in connection with the same. SALIX may at its own cost
translate and reproduce any such promotional materials or publications
and distribute them in the course of its promotional and marketing
activities Provided Always that ALFA shall not be liable in any manner
whatsoever in respect of any such translations or reproductions and
shall be indemnified and held harmless against any loss or claim
arising in connection with the same.
8.3 SALIX undertakes to print on the packaging of and on all promotional
and advertising material relating to the Products the words "Licensed
by Wassermann S.p.A" or similar language to the extent permitted under
any applicable law and ALFA licenses SALIX to use is corporate name in
such form for such purpose.
8.4 Putting into Commerce of the Products shall be effected by SALIX in
any country in the Territory within and not later than six (6) months
from the date of the obtaining of the NDA and/or of the regulatory
approvals to market the Products in such country within the Territory
(including if applicable all pricing and reimbursement approvals),
unless postponements of said deadline be agreed upon in writing by the
parties Provided Always that SALIX shall not be in breach of its
obligations under this Article in the event that any failure to meet
such deadlines shall be caused by any failure by ALFA to Supply
Compound in accordance with the provisions of the Supply Agreement.
SALIX shall promptly notify ALFA in writing of the date of the Putting
into Commerce in the Territory.
Article 9 - COMMENCEMENT AND DURATION
- -------------------------------------
9.1 This Agreement shall come into force and effect from the last date of
execution of these presents and shall continue thereafter unless and
until terminated in accordance with the provisions set out below.
9.2 The obligations of SALIX to pay royalties in respect of Products under
the provisions of Article 6 shall commence upon Putting into Commerce
of such Products and shall continue until whichever shall be the later
of.-
9.2.1 the expiry of the period in which the manufacture, use or
sale of the Products by any unlicensed third party would
constitute an infringement of any Valid Claim within the
Patents; and
9.2.2 the expiry of a period of ten years from the date of Putting
into Commerce of the first Product
For the avoidance of doubt this Agreement shall continue thereafter in
accordance with its terms and the licences granted under Article 3.1 shall
continue thereafter as irrevocable royalty free paid up licences (with the right
to sublicence), and save only as expressly provided under Article 10.3 in
respect of the Trademark thereafter.
14
<PAGE>
ARTICLE 10 - TRADEMARK
- ----------------------
10.1 As soon as possible after execution of this Agreement the parties will
select and agree the most suitable trademark for the Products (the
Trademark) to be used by SALIX hereunder in the Territory. Forthwith
upon agreement of the Trademark ALFA undertakes to take all such steps
as may be required at its own expense to obtain registration of the
Trademark throughout the Territory for use of the Trademark on the
Products and thereafter to maintain and renew such registration(s) as
required throughout the period in which SALIX shall be exploiting the
Products.
10.2 ALFA hereby grants SALIX to exclusive licence to use the Trademark to
identify the Products to be manufactured, promoted and sold in the
Territory hereunder. The parties agree and undertake to execute such
Trademark User Agreements as may be required to note and register the
Licence granted under this Agreement in respect of the Trademark
within the Territory.
10.3 It is understood that the Trademark Licence granted to SALIX hereunder
does not involve the acquiring of ownership of the Trademark on the
part of SALIX; upon expiry of the obligation to pay royalties under
the terms of Article 9.2 SALIX shall thereafter retain an exclusive
licence of the Trademark in respect of the continued sale and
exploitation of the Products. If so required by SALIX ALFA shall
execute a separate Trademark Licence in respect of the Trademark in
favour of SALIX permitting the continued use of the Trademark on the
Products, such licence to be irrevocable provided that SALIX shall pay
royalties on the continued use of the Trademark thereafter at the rate
of [*] of Net Sales. In the event that SALIX notifies ALFA in writing
at any time thereafter that it wishes to terminate such Trademark
Licence SALIX acknowledges that it shall have no continuing right to
use the Trademark Provided Always that ALFA under takes not thereafter
(either directly or indirectly) to use the Trademark within the
Territory upon any products competitive in any material respect with
the Products.
1O.4 In the event the parties shall agree and select as the Trademark any
trademark already in the possession of SALIX as at the date hereof,
SALIX shall transfer said trademark to ALFA within and not later than
three (3) months after the date of agreement of the Trademark and such
trademark shall fall within the definition of "Trademark" for all
purposes hereunder. In such circumstances SALIX shall take all such
steps as may reasonably be required to vest ownership of such
trademark in ALFA
Article 11 - INDUSTRIAL PROPERTY RIGHTS
- ---------------------------------------
11.1 In the event that SALIX shall become aware of any infringement or
violation of the rights of ALFA in the Patents or the Technology
Rights by any third party within the Territory it shall forthwith
notify ALFA. SALIX undertakes to use all reasonable endeavours to
prevent any such infringement or violation.
11.2 ALFA, undertakes promptly and at its sole expense, either directly or
indirectly through a duly authorized agent, to take all such steps as
may reasonably be required
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THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
to prevent any violation or infringement of any of the Patents or the
Technology Rights or the Trademark within the Territory and to procure
that any such infringement or violation is discontinued . SALIX shall
provide to ALFA such assistance as it may reasonably requite in
connection therewith provided always that ALFA shall reimburse to
Salix all reasonable costs incurred by SALIX in providing such
assistance or otherwise in the performance of its obligations under
Article II 1.1. In the event that ALFA shall fail to take such steps
SALIX shall be entitled to take such steps in its own name or in be
name of ALFA as it considers appropriate to prevent any such
Infringement or violation or otherwise as it may consider appropriate
to protect the market for the Products within the Territory provided
always that SALIX shall be entitled to deduct from royalties due to
ALFA hereunder all costs, charges, expenses and damages suffered or
incurred by it.
11.3 In the event that the exercise by SALIX of the rights granted under
Article 3.1 shall infringe the rights of any third party or in the
event that any allegation is made in respect of any such infringement
ALFA shall take all such steps and action at its sole cost and expense
to defend or otherwise settle any such claim and to procure for SALIX
the right to continue to exercise the exclusive and other rights
granted hereunder and shall indemnify and hold harmless SALIX against
all costs expenses claims losses or damages suffered or incurred in
connection with any such claim or allegation.
Article 12 - DEVELOPMENTS
- --------------------------
12.1 In the event that SALIX shall discover or identify any new uses or
applications outside the field of gastrointestinal and respiratory
tract diseases and conditions for the Compound or any pharmaceutical
product which may use the Compound or otherwise any new indications
for the Products or the Compound outside the field of gastro
intestinal and respiratory tract diseases and conditions (an
"Invention") it shall notify ALFA in writing of be same and shall use
all reasonable endeavours to procure that the same shall remain
strictly confidential and shall not be disclosed to any third party
during a period of 180 days from the date of notification or if
earlier until ALFA and SALIX shall have agreed the manner in which the
same may be exploited. Thereafter it shall only be disclosed either
upon terms agreed between the parties or by SALIX in such manner as it
considers appropriate. The parties shall negotiate in good faith terms
relating to the protection and exploitation of any such Invention
Provided Always that
12.1.1 SALIX shall have the right to exploit any Invention
throughout the Territory free of any further or additional
payment to ALFA.
12.1.2 ALFA shall have the right to exploit any such invention in
all other parts of the world and to sublicense any such
rights, subject to the negotiation in good of faith such
payments (including royalties) as may be reasonable and
appropriate to compensate SALIX for its rights in any such
Invention
12.1.3 Any patent rights applied for in respect of any such
Invention shall be applied
16
<PAGE>
for in the sole name of SALIX
12.2 In the event that ALFA (or any licensee of ALFA) shall discover or
identify any new uses or applications for the Compound or any
pharmaceutical product which may use the Compound or otherwise any new
indications for the Products or the Compound (an "ALFA invention")
within or relating to the field of gastro intestinal or respiratory
tract diseases or conditions ALFA shall notify SALIX in writing of the
same and SALIX is hereby granted an option to obtain an exclusive
licence in respect of all rights existing in any ALFA Invention to
exploit the same within the Territory the terms of such licence to be
negotiated in good faith between the parties.
12.3 ALFA hereby grants SALIX a first option to enter into good faith
negotiations concerning the grant to SALIX of a licence to exploit
within the Territory any future compounds and/or pharmaceutical
products developed or identified by ALFA of potential application
within the field of gastro intestinal and respiratory tract diseases
and conditions.
Article 13 - CONFIDENTIALITY UNDERTAKING
- ----------------------------------------
13.1 During the term of this Agreement and for a period of ten (10) years
after the expiry of the obligation to pay royalties, SALIX shall keep
secret and confidential and shall use all reasonable endeavours, to
procure that the same is kept confidential all technical and
scientific data, information and know-how and documentation disclosed
to it by ALFA under the terms of this Agreement and shall not disclose
the same to any third party save only as may be required in connection
with the performance of its obligations hereunder or in connection
with any sublicence granted or to any potential investor in SALIX.
13.2 During the term of this Agreement and for a period of ten (10) years
after the expiry of the obligation to pay royalties. ALFA shall keep
secret and confidential and shall use all reasonable endeavours to
procure that the same is kept confidential all technical and
scientific data, information and know-how and documentation disclosed
by it to SALIX under the terms of this Agreement together with all
information developed by it from any such information or documentation
and all information data and documentation supplied to it by SALIX in
connection with this Agreement and shall not disclose the same to any
third party save only as may be required in connection with the
performance of its obligations or otherwise to any other licensee of
the rights hereunder in respect of any territory outside the Territory
Provided such Licensees agree to be bound by the same obligations of
confidentiality accepted by ALFA in this Article 13.
13.3 The obligations contained in Articles 13.1 and 13.2 shall not apply to
any part of such data information or documentation which
13.3.1 shall otherwise than by reason of the default of the
recipient after the date hereof enter the public domain;
17
<PAGE>
13.3.2 the recipient can show was in its possession free of any
obligation of confidentiality prior to the date of receipt in
connection with this Agreement
13.3.3 the recipient is obliged by or statutory or regulatory
authority to disclose
Article 14 - PRODUCT LIABILITY - INDEMNIFICATION
- ------------------------------------------------
14.1 ALFA shall be solely liable for all costs claims damages and expenses
arising out of the use of the Compound in the Product and the
exploitation of the Product Within the Territory where any such costs
claims damages and expenses are suffered or incurred by any third
party or by SALIX by reason of;
14.1.1 any default by ALFA of its obligations under this Agreement
or under the Supply Agreement;
14.1.2 any negligent act or omission of ALFA in connection with the
performance of its obligations under this Agreement or the
Supply Agreement
14.1.3 any inherent defect in the Compound as determined by the
Specifications (as defined in the Supply Agreement);
and ALFA shall idemnify, and hold SALIX harmless against all and any
such costs claims damages and expenses and shall effect and maintain
adequate and appropriate insurance cover in respect of all such risks
and shall if and when required by SALIX produce to SALIX evidence of
such insurance cover .
14.2 Save as expressly provided in Article 14.1 SALIX shall be solely
liable to third parties and shall hold ALFA harmless from all actions
for compensation by third parties for any damages whatsoever, either
direct or indirect or consequential, deriving from the Products
manufactured and sold by SALIX or from the studies made by SALIX under
the terms of this Agreement and undertakes to effect and maintain
appropriate and adequate insurance cover against any such liability
and shall if and when required by ALFA produce to ALFA evidence of
such insurance cover.
14.3 In the event of any claim, action or proceeding for which a person is
entitled to indemnity hereunder, the person seeking indemnity
("Claimant") shall promptly notify the relevant party ("Indemnitor")
of such matter in writing. Indemnitor shall then promptly assume
responsibility for and shall have full control of such matter,
including settlement negotiations and any legal proceedings and
Claimant shall fully cooperate in Indemnitor' s handling and defence
thereof. Provided Always that Indemnitor shall keep Claimant fully
informed of the progress and conduct of any such negotiations or legal
proceedings and shall not in any settlement defence of the same make
any admission or otherwise act in such manner as may prejudice the
continuing business or reputation of Claimant without the prior
consent in writing of Claimant (such consent not to be unreasonably
withheld or delayed).
14.4 Notwithstanding any provision of this Agreement which might otherwise
be to the
18
<PAGE>
contrary, neither party shall under any circumstances be liable to the
other for any indirect loss, lost profits, economic loss or other
consequential damages and in the event of any breach by either party
of the teens of this Agreement or otherwise in the event of the
negligence of either party the damages recoverable shall be limited to
such damages as may be suffered as a direct consequence of any such
breach of negligence Provided Always that such limitation shall not
apply to the indemnity provisions contained in Articles 14.1 and 14.2
and any such indemnity shall extend to the full amount of any sums
paid by the Claimant to any third party in connection with such
matters (whether or not such sums paid to the third party include
consequential or indirect loss).
14.5 Each party undertakes to notify the other: -
14.5.1 forthwith in the event that it becomes aware of any serious
or previously unknown adverse reaction or contra indications
to the Compound and/or the Products in any part of the
Territory or elsewhere; and
14.5.2 within three months, on a quarterly basis, of other adverse
reactions or contra indications to the Compound and/or the
Product (other than those specified in Article 14.5. 1) in
any part of the Territory or elsewhere.
Article 15 - NON COMPETITION
- ----------------------------
15.1 SALIX undertakes that it shall not for a period of 5 (five) years from
the first date of Putting into Commerce of any Product promote,
distribute or otherwise sell, directly or indirectly, any antibiotic
products in the Territory competitive in any material respect with the
Products developed and sold by SALIX hereunder.
15.2 ALFA undertakes that it shall not for a period of 10 (ten) years from
the date hereof be involved directly or indirectly in the promotion,
distribution or sale of any antibiotic products within the Territory
competitive in any material respect with the Products to be developed
and sold by SALIX hereunder.
15.3 ALFA undertakes that during the period in which royalties may be due
hereunder it shall use all reasonable endeavours to procure that any
product incorporating the Compound sold and exploited in the Territory
shall be sold and exploited in such manner as shall not prejudice or
otherwise affect in any material manner the ability of SALIX to
exploit the rights granted hereunder in the best commercial interests
of SALIX.
Article 16 - FORCE MAJEURE
- ---------------------------
Neither party shall be liable in any manner in respect of any breach by such
party of its bligations hereunder (other than any breach of any obligation to
make payment on the due date) where such breach raises from any circumstance
outside such party's reasonable control. Amongst said circumstances are
included, by way of example only and not implying any limitation, fires, floods,
earthquakes, accidents, explosions, quarantine restrictions, strikes,
19
<PAGE>
labour shortages, shortages of raw materials for the manufacturing of Products
and acts of any public authority, including foreign ones.
Article 17 - TERMINATION OF THE AGREEMENT
- ------------------------------------------
17.1 Either party may terminate this Agreement following the material
breach of any material provision hereof if the party in breach shall
have failed to remedy such breach within sixty days of receipt of
written notice from the other party specifying such breach and
requesting remedy.
17.2 ALFA shall have the right to terminate this Agreement, by sending
SALIX by registered airmail return (receipt requested) a three (3)
months advance notice in writing
17.2.1 should SALIX fail to use its best efforts to develop the
Products for the [*] indications selected under Article 7.1
in particular SALIX shall use its best efforts to file the
IND for the first indication in the US within six (6)
months from the date of execution of this Agreement and the
NDA within twenty-four (24) months from the filing of the
IND.
17.2.2 should SALIX fail to effect the Putting into Commerce
within the six (6) months term provided for in Article 8.4
above subject to the proviso in Article 8.4; or
17.2.3 should SALIX fail to sell the Products for a period of at
least six (6) consecutive months after the Putting into
Commerce of the Products, save where such failure is due:
(a) in whole or in part to any failure of ALFA to perform
its obligations under this Agreement or the Supply
Agreement; or
(b) the discontinuance or suspension of sales by reason of
any government regulations relating to the Products or
otherwise by any delays or restrictions caused or
imposed by government or by reason of any concern
relating to safety, efficacy or quality of the Products.
(c) SALIX being affected by force majeure circumstances
(that is, circumstances outside its reasonable control).
17.2.4 should SALIX become the subject of proceedings involving
bankruptcy, receivership, administration, insolvency,
moratorium of payment, reorganization or liquidation, or make
any assignation for the benefit of the creditors or any
equivalent measures in any relevant jurisdiction;
Provided Always that such notice shall not be effective in the event
that SALIX shall during such three month period remedy any breach or
failure specified above such that the circumstances giving rise to any
such notice shall no longer apply. In the event of
20
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
termination by ALFA under the provisions of this Article such
termination shall be ALFA's sole remedy in respect of any such failure
or otherwise any alleged breach by SALIX.
17.3 SALIX shall have the right to terminate this Agreement in whole or in
part, in respect of any indication or any part of the Territory by
giving ninety (90) days' notice in writing to ALFA whereupon the
rights of SALIX under this Agreement to exploit such indication or
exploit Product in such part of the Territory shall cease.
Article 18 - PERIOD SUBSEQUENT TO THE TERMINATION OF THE AGREEMENT
- ------------------------------------------------------------------
18.1 Upon the termination or expiration of this Agreement by reason of
service of notice under Article 17.1 or 17.2 (and not otherwise);
18.1.1 SALIX shall cease any activity and any use of material
consequent to or connected with this Agreement and shall
return to ALFA, at its own expense and within one (1) month
from the effective date of termination, all the Technology
Rights supplied to it by ALFA hereunder, as well as any and
all documents and materials referring to it, and shall (save
only as specified below) cease any and all use of be
Technology Rights and of the Trademark for any purpose
whatsoever; and
18.1.2 ALFA may at its sole discretion require SALIX to:
(a) transfer to ALFA or to a company named by ALFA the IND,
the NDA, the PLA and/or other regulatory approvals for
the Product Provided That upon any such transfer SALIX
shall be entitled to reimbursement of all provable
government fees incurred by SALIX in connection with the
NDA and/or other regulatory approvals or the
applications therefor;
(b) transfer to ALFA or a company named by ALFA, at cost,
all unsold quantities of the Products Provided Always
that SALIX shall have the right to continue its selling
activities in order to dispose of said Products (and in
such a case SALIX shall continue to pay the royalties
due in respect thereof);
(c) accept delivery of any quantities of Compound ordered
from ALFA prior to the date of termination under the
terms of the Supply Agreement.
Article 19 - ASSIGNATION
- ------------------------
19.1 ALFA shall have the right to assign this Agreement, in whole but not
in part, to any Affiliate of its choice to whom the Patents and
Technology Rights may have been transferred and SALIX hereby
acknowledges and accepts any such assignation but
21
<PAGE>
ALFA shall not otherwise assign or purport to assign this Agreement
(in whole or in part) without the prior consent in writing of SALIX
such consent not to be unreasonably withheld or delayed.
19.2 SALIX shall have the right to assign this Agreement, in whole but not
in part, to any Affiliate of its choice and ALFA hereby acknowledges
and accepts any such assignation but SALIX shall not otherwise assign
or purport to assign this Agreement (in whole or in part) without the
prior consent in writing of ALFA such consent not to be unreasonably
withheld or delayed.
19.3 This Agreement shall be binding upon the successors and assignees,
(and any subsequent assignee) of each of the parties.
Article 20 - ENTIRE AGREEMENT AND MODIFICATION
- ----------------------------------------------
20.1 This Agreement together with the Supply Agreement constitutes the
final and complete understanding existing between ALFA and SALIX
relating to the subject matter hereof The terms of this Agreement
cannot be substituted, superseded, waived or modified in any manner
except by written agreement executed for and on behalf of each of ALFA
and SALIX.
20.2 This Agreement supersedes the letter of intent dated February 2, 1995.
This Agreement supersedes the Nondisclosure Agreement dated Number 11,
1991 between SALIX and ALFA provided that such agreement shall
continue in accordance with its terms in respect of any breach by
either party of the terms thereof occurring prior to the date hereof.
Article 21 - LANGUAGE AND GOVERNING LAW
- ---------------------------------------
21.1 This Agreement is written and executed in two originals in the English
language.
21.2 This Agreement shall be governed by and construed in accordance with
the laws of Scotland, without giving effect to any conflict of laws
principles or rules. All communications notices and proceedings
required to be given hereunder shall be in the English Language.
Article 22-WAIVER
- -----------------
No waiver of any default by either party shall be deemed to constitute a waiver
of any subsequent default with respect to the same or any other provision
hereof. No waiver shall be effective unless made in writing with specific
reference to the relevant provision(s) of this Agreement and signed by a duly
authorized representative of the party granting the waiver.
22
<PAGE>
Article 23 - NOTICES
- --------------------
Except as otherwise herein provided, all notices to be served or notified to the
parties hereunder shall be mailed by registered airmail return receipt requested
to their respective addresses listed below or to any other address subsequently
communicated in writing, and shall be deemed to have been given seven working
days after the date of mailing.
Party By Mail
----- -------
to SALIX SALIX HOLDINGS Ltd
3600 W. Bayshore Road,
Suite 205, Palo Alto,
California 94303
to ALFA: ALFA WASSERMAN S.p.A
Attn. Mr. Andrea Golinelli
--------------------------
Via Ragazzi del '99 no 5
40133 Bologna, Italy
Article 24 - LITIGATION
- -----------------------
The parties hereby agree that any legal action or proceeding arising out of or
in connection with this Agreement shall be brought in the Scottish Courts and
the parties hereby prorogate the non-exclusive jurisdiction of the Court of
Session, Edinburgh. IN WITNESS WHEREOF, these presents consisting of this and
the twenty one preceding pages together with the Schedule hereto, are executed
as follows:-.
23
<PAGE>
For and on behalf of
ALFA WASSERMANN S.p.A
at MILANO
on the 24 day of June 1996
By /s/ signature unreadable
---------------------------
Director
in the presence of
/s/ Alberto Sacconi
- -------------------------------
ALBERTO SACCONI Name of Witness
- -------------------------
c/o ALFA WASSERMANN Address of Witness
- -------------------------
MILANO
- -------------------------
For and on behalf of
SALIX PHARMACEUTICALS, INC.
at Palo Alto
on the 24 day of June 1996
By /s/ Randy Hamilton
------------------------
Director
in the presence of
/s/ ALEXANDER T. McMAHON
- ------------------------
ALEXANDER T. McMAHON Name of Witness
- ------------------------
c/o SALIX PHARMACEUTICALS Address of Witness
- ------------------------
Palo Alto, CA
- ------------------------
24
<PAGE>
This is the Schedule referred to in the foregoing Licence Agreement between
Alfa Wassermann S.p.A and Salix Pharmaceuticals, Inc., dated June 24, 1996
SCHEDULE
--------
PART 1
PATENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Case Filing date Filing no. Granting date No. of the Expiry date
granted patent
<S> <C> <C> <C> <C> <C>
S34 05/11/1981 262,123 07/27/1982 4,341,785 05/11/2001
S50 04/26/1985 727,521 12/10/1985 4,557,866 04/26/2005
S73 06/28/1993 083,453 10/04/1994 5,352,679 06/28/2013
</TABLE>
Case S 34 (product patent): Imidazo-rifamycin derivatives with antibacterial
utility
Case S 50 (processing patent): Process for the synthesis of pyrido-imidazo
rifamycins
Case S 73 (patent for therapeutical use) : Use of rifaximin and pharmaceutical
formulations containing it in the treatment of gastric dyspepsia caused by
helicobacter pylori.
All as filed for the Territory.
- ------------------------------
25
<PAGE>
PART 2
COMPOUND SPECIFICATION
<TABLE>
<CAPTION>
[*]
<S> <C>
</TABLE>
26
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
PART 3
SALIX DEVELOPMENT PLAN
----------------------
- --------------------------------------------------------------------------------
ACTIVITIES
- --------------------------------------------------------------------------------
A. ANIMAL PHARMACOLOGY
Al Treatment of clindamycin-induced colitis with rifaximin in hamsters
B HUMAN PHARMACOKINETICS
B1 Absorption/excretion in patients with C difficile colitis (assay of
samples taken from phase III efficacy studies)
C CLINICAL EFFICACY
C1 Two phase III pivotal efficacy studies in patients with
antibioticassociated colitis (to include evaluation of dose-response)
27
<PAGE>
PART 4
ALFA DEVELOPMENT PLAN
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
ACTIVITIES
- -------------------------------------------------------------------------------
A. TOXICOLOGY
A.1 Validation chemistry pre-study stability and homogeneity of
suspension.
A.2 Analytical method development LC-MS/N4S (rat/dog/rabbit/human)
(including validation)
A.3 4 week preliminary toxicity rat
A.4 26 week toxicity rat
A.5 4 week preliminary toxicity dog (including supporting toxicokinetics)
A.6 52 week toxicity dog (including supporting toxicokinetics)
A.7 Formulation chemistry rabbit (repro)
A.8 Pregnant preliminary rabbit
A.9 Teratology rabbit (ICH 413) (including supporting toxicokinetics)
A.10 Formulation chemistry rat (repro)
A.11 Fertility rat (ICH 411)
A.12 pre- and post natal rat (ICH 412)
A.13 Teratology rat (ICH 413) (including supporting toxicokinetics)
A.14 Acute studies in two rodent species (mouse, rat)
B ADME (dog-rat)
B.1 Preparation of 14C-Rifaxmin
B.2 Absorption excretion (AE) 14C-R, in dog after single administration
B.3 Absorption distribution excretion (ADE) 14C-R in rat after single
administration
B.4 ADME alter multiple doses in rat or dog (if required)
B.5 Identification of metabolites (if required)
C SAFETY (general) PHARMACOLOGY STUDIES
C.1 General signs and behavior
C.2 Central nervous system
C.3 Respiration and cardiovascular system
C.4 Autonomic nervous system and smooth muscle
C.5 Skeletal muscle
C.6 Gastrointestinal system
C.7 Water and electrolyte excretion
C.8 Drug interaction studies.
28
<PAGE>
D MICROBIOLOGY
D.1 R on C Difficile vs Vancomicin and Metronidazole
D.2 R induction of resistance in NH4 pr.b.vs Neomycin
E CLINICAL DEVELOPMENT
E.1 Single ascending dose in healthy volunteers
E.2 Single dose radiolabelled study in healthy volunteers (including
determination of metabolites, as necessary)
E.3 Multiple dose in healthy volunteers (if required)
E.4 Absorption study in patients with ulcerative colitis.
29
<PAGE>
EXHIBIT 10.13
Dated June 24, 1996
- -------------------
ALFA WASSERMANN S.p.A
and
SALIX PHARMACEUTICALS. Inc.
SUPPLY AGREEMENT
Hewitson Becke + Shaw
First Floor
Stuart House
City Road
Peterborough PE1 1QF
Hewitson Becke + Shaw
S O L I C I T O R S
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ARTICLE 1 - DEFINITIONS................................................. 1
ARTICLE 2 - SUPPLY...................................................... 5
ARTICLE 3 - TERMS AND CONDITIONS OF SUPPLY.............................. 5
ARTICLE 4 - SPECIFICATIONS.............................................. 6
ARTICLE 5 - ORDERS AND QUALITY ASSURANCE................................ 6
ARTICLE 6 - WARRANTIES AID INSPECTION.................................. 7
ARTICLE 7 - INDEMNIFICATION............................................. 8
ARTICLE 8 - CONFIDENTIALITY UNDERTAKING................................. 10
ARTICLE 9 - LICENCE TO MANUFACTURE...................................... 10
ARTICLE 10 - TERMINATION................................................. 11
ARTICLE 11 - NOTICES..................................................... 12
ARTICLE 12 - ENTIRE AGREEMENT AND MODIFICATION........................... 13
ARTICLE 13 - ASSIGNABILITY............................................... 13
ARTICLE 14 - WAIVER OF DEFAULT........................................... 13
ARTICLE 15 - GOVERNING LAW............................................... 13
ARTICLE 16 - FORCE MAJEURE............................................... 13
ARTICLE 17 - LITIGATION.................................................. 14
ARTICLE 18 - HEADINGS.................................................... 14
</TABLE>
<PAGE>
SUPPLY AGREEMENT
----------------
BETWEEN
ALFA WASSERMANN S.p.A., a corporation organized and existing under the laws
of Italy, with registered of at Contrada S. Emidio 65020 Alanno (Pescara)
Italy, (hereinafter "ALFA"); and SALIX PHARMACEUTICALS, INC., a corporation
organized and existing under the laws of the State of California, United
States of America, with registered office at 3600 W Bayshore Road, Suite
205, Palo Alto, California, USA 94303 (hereinafter "SALIX").
WHEREAS
(A) ALFA and SALIX have envied into a Licence Agreement (the "Licence
Agreement") of even date herewith with respect to the Products (as defined
below); and
(B) ALFA desires to supply SALIX with Compound (as defined below), subject to
the terms and conditions hereof, and SALIX desires to purchase such
Compound from ALFA.
NOW THEREFORE, for and in consideration of the premises and the understandings
herein contained it is hereby agreed as following;
Article 1 - DEFINITIONS
- -----------------------
The following words and expressions used in this Agreement shall have tile
following meanings:
"ACT" means the United States Food, Drug, and Cosmetic
Act and rules and regulations thereunder and the
equivalent legislation, rules and regulations in
any other country in the Territory, as amended
from time to time, as the context requires.
"AFFILIATE(S)" shall mean any corporation, joint-venture other
entity which directly or indirectly controls, is
controlled by or is under common control with a
party to this Agreement. "Control" shall mean the
possession of the power to direct or cause the
direction of the management and policies of a
person or business entity, whether through
ownership of voting securities, by contract or
otherwise;
"APPLICATION(S) means the new drug application ("NDA") for the
1
<PAGE>
Products to be filed with the U.S. Food and
Drug Administration ("FDA") or any other
applicable
regulatory authority by SALIX.
"COMPOUND" shall mean the raw material known as "rifaximin",
which is 2,7-(Epoxypentadeca [1,11,13]trienimino)
benzofuro [4,5-e-]-pyrido[1,2-a]benzimidazole-
1,15(2H)-doine, 25-(acetyloxy)-5,6,21,23-
tetrahydroxy-27-methoxy-2,4,11,16,20,22,24,26-
octamethyl-, [2S-(2R*, 16 Z, 18E, 20R*,21R*,22S*
,23S*, 24S*,25R*,26S*,27R*,28E)]-(Chemical
Abstract No. 80-621-814) together with all
products analogs and isomers thereof and any
improvements or developments to any of the
foregoing owned or controlled by or licenced to
ALFA in inspect thereof during the term of this
Agreement;
"FACILITY means the plant where the Compound will be
manufactured for the purposes of supplying SALIX
hereunder. Such plant unless notified to SALIX
under Article 2.3 shall be the plant of Alfa
Chemicals Italiana S.r.l. located at Strada
Briantea Km 36, no.83, 22060 Bulciago (Como).
"FDA" shall mean the United States Food and Drug
Administration or any successor agency performing
a similar function or an equivalent foreign
regulatory agency (including without limitation,
the Health Protection Branch in Canada);
"GOVERNMENT" means the FDA other regulatory authority, or
successor agencies thereto.
"LICENCE" shall mean an agreement between the parties of
even date herewith granting a licence in respect
of the Patents and the Technology Rights for the
exploitation of the Product by SALIX within the
Territory;
"MANUFACTURER" shall mean the manufacturer appointed by ALFA to
manufacture the Compound on behalf of ALFA which
manufacturer is at the date hereof Alfa Chemicals
Italiana S.r.l. and which Manufacturer shall be
changed only as provided in Article 2.3
2
<PAGE>
"MANUFACTURING LICENCE" shall mean the license granted by ALFA to SALIX to
manufacture the Compound in accordance with the
terms of Article 9.
"NDA" shall mean applications filed with the FDA
requesting approval to market a new drug,
including but not limited to New Drug Applications
and Product License Approvals (PLA), as
applicable.
"NDA APPROVAL" means the date upon which the FDA approves SALIX'S
NDA for the applicable Product.
"NET SALES" shall mean the gross invoiced amount received by
SALIX (or any of its sub-licensees or distributor)
for commercial sales to third parties (who shall
not be Affiliates, sublicensees or distributors of
SALIX or its Affiliates) of the Products in the
Territory, net of all normal trade and cash
discounts and net of all rebates, returns,
transportation and insurance charges, sales, value
added or other direct taxes charged on any
invoice, customs duties and surcharges allowed to
the purchasers as deductions from the purchase
price of the Products or otherwise as specified on
the invoice;
"PATENTS" shall mean the patents and/or patent applications
listed in Part 1 of the Schedule and any other
patent rights in the Territory now existing or
hereafter acquired by or licenced to ALFA
pertaining to the subject matter of such patents
and patent applications or otherwise to the
Compound and/or the Product and any divisions,
continuations and continuations-in-part of any
such patents or patent rights and any patent
granted in respect thereof for the full terms
thereof including any reexaminations, renewals,
extensions and reissues thereof and including any
supplementary protection certificates;
"PRODUCTS" shall mean those pharmaceutical products for human
use in the treatment and/or prevention of
gastrointestinal and respiratory tract diseases
and conditions containing the Compound as an
active ingredient;
"PUTTING INTO COMMERCE" shall mean the date of the first commercial sale
of Products to third parties (who shall not be
Affiliates or sublicensees or distributors of
SALIX or its
3
<PAGE>
Affiliates) by or on behalf of SALIX or any
sublicensees or distributors of SALIX or its
Affiliates under the terms of this Agreement made
in any part of the Territory after all relevant
marketing and pricing approvals shall have been
granted by the relevant regulatory authorities in
respect of the Product in such part of the
Territory;
"SCHEDULE" shall mean the Schedule hereto comprising Parts 1
to 3 thereof;
"SPECIFICATIONS" means the requirements, standards and other items
for Compound attached as Part 2 of the Schedule,
as amended from time to time in accordance with
the provisions hereof to comply with the
Applications.
"TECHNOLOGY RIGHTS" shall mean all intellectual property and other
proprietary rights and all confidential
information and knowhow pertaining to the Compound
and/or the Product or otherwise to the Patents in
any respect (including without limitation all
improvements, inventions, derivatives, formulation
data, specifications, manufacturing procedures and
technology, technical information, know-how, trade
secrets, pharmacology, toxicology and other pre-
clinical data, clinical data, regulatory
information and marketing data) within the
possession or control of ALFA (whether developed
by or licensed to ALFA) (and all such rights and
information within the possession or control of
any other licensee of ALFA having right in respect
of the Compound or the Product) in existence as at
the date hereof or arising during the term of this
Agreement which are available to ALFA for the
Territory.
"TERRITORY" shall mean the United States (its territorial
possessions, territories and the Commonwealth of
Puerto Rico) and Canada;
"VALID CLAIM" shall mean a claim of an issued and unexpired
patent included within the Patents, which has not
been held permanently revoked, unenforceable or
invalid by a decision of a court or other
governmental agency of competent jurisdiction
unappealable or unappealed within the time allowed
for appeal and which has not been admitted to be
invalid or unenforceable through reissue or
4
<PAGE>
disclaimer or otherwise;
ARTICLE 2 - SUPPLY
- ------------------
2.1 Subject to the terms hereof, ALFA agrees to sell to SALIX, and SALIX agrees
(subject only to the provisions of Article 9) to purchase from ALFA, all
such quantities of Compound required by SALIX for use in the manufacture of
Product for sale in the Territory in exercise of the rights granted to
SALIX by ALFA under the Licence.
2.2 ALFA, at its sole expense, will provide all labour, utilities, equipment,
raw materials and components necessary for manufacturing, shipping and
storage of the Compound in compliance with the Specifications and the
warranties contained in Article 6.1.
2.3 Subject to the prior written approval of SALIX (which approval shall not be
unreasonably withheld or delayed but may be conditional upon receipt of
necessary Government approvals), ALFA may change the Manufacturer and/or
the Facility. In such event, the obligations of ALFA under this Agreement
shall continue and ALFA shall remain solely responsible for the performance
of its obligations under this Agreement notwithstanding the appointment of
a Manufacturer. ALFA shall use its best endeavours to procure that the
Manufacturer shall comply in full with all obligations of ALFA hereunder.
ARTICLE 3 - TERMS AND CONDITIONS OF SUPPLY
- ------------------------------------------
3.1 The price to be paid by SALIX to ALFA for Compound shall be as set forth in
Part 3 of the Schedule and shall be inclusive of the cost of carriage
insurance and freight of the Compound to SALIX as specified in Article 3.2.
3.2 The Compound will be delivered by ALFA to a plant in close proximity to a
major airport, as designated by SALIX from time to time by notice to ALFA.
Title and risk shall be deemed to have passed to SALIX when the Compound is
delivered by the carrier to the plant designated by SALIX.
3.3 SALIX will pay for each shipment within forty-five (45) days after
whichever shall be the later of the date the relevant invoice is received
by SALIX or the date of receipt of the Compound, by SWIFT (international
communications) wire transfer in US dollars to such bank and account in
Italy as is designated by ALFA in writing for such purpose. ALFA shall be
responsible for securing any governmental permits or making any filings
with the Italian government required in connection with such payment.
3.4 For a period of [*] following the Putting into Commerce of Product for each
indication, ALFA shall provide [*] to SALIX quantities of Compound not
exceeding [*] of Compound required in connection with the actual total
sales of Product by SALIX during such period, [*] in
5
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
connection with the launch and promotion and marketing of the Products.
ARTICLE 4 - SPECIFICATIONS
- --------------------------
4.1 Specifications
--------------
The Compound shall be manufactured, packaged, stored and shipped by ALFA
fully in accordance with the Specifications as described in Part 2 of the
Schedule. The Specifications may be changed by mutual agreement which will
be reached in good faith by the parties.
4.2 Filings.
--------
At SALIX's request following the execution of this Agreement; ALFA shall
promptly (but not later than sixty (60) days after receipt of such request
provide all technical data knowhow and other information relating to the
Patents or the Technology Rights required and necessary to enable SALIX to
file the Applications with respect to the Products in compliance with all
relevant Government regulations.
ARTICLE 5 - ORDERS AND QUALITY ASSURANCE
- ----------------------------------------
5.1 Delivery Date.
-------------
SALIX shall place firm orders for Compound in economical batches with a
delivery date of not less than ninety (90) days after ALFA's receipt
thereof. SALIX shall submit its initial purchase order not later than 30
days following NDA Approval. Compound shall be shipped to SALIX within the
time frame requested in the applicable purchase order, provided that ALFA
has at least a ninety day lead time.
5.2 Forecasts.
---------
Commencing from the date of filing of the Applications SALIX shall provide
to ALFA a 12 month forecast of its requirements for Products and Compound
which forecast will be updated quarterly until the first Putting into
Commerce. Thereafter, SALIX shall provide a rolling 12 month forecast,
updated monthly.
5.3 SALIX agrees to purchase [*] of SALIX;s
last forecasts for any forecast period, and ALFA agrees to fulfill SALIX's
purchase orders to the extent such orders exceed its revised forecasts for
any forecast period by [*]
ALFA shall use its best efforts to fulfill SALIX purchase orders to the
extent such orders exceed its revised forecasts for any forecast period by
more than [*]
5.4 Quality Assurance.
-----------------
6
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
ALFA, at its sole expense, will perform all testing for the release of raw
materials and components listed in the Specifications. ALFA will supply a
chemical Certificate of Analysis with each batch of Compound and any other
documentation required by law. Complete copies of all test results and/or
assays will be submitted to SALIX promptly following any request therefor
during the term hereof.
ARTICLE 6 - WARRANTIES AND INSPECTION
- -------------------------------------
6.1 ALFA Warranties.
---------------
ALFA warrants and undertakes that in respect of all Compound delivered:-
6.1.1 as at the date of delivery to SALIX, such Compound will comply fully
with the Specifications;
6.1.2 as at the date of delivery to SALIX such Compound shall have been
manufactured, packaged, labelled, stored and shipped fully in
accordance with all relevant GMP's, all applicable laws and
regulations and requirements and all commitments and undertakings
made in any applicable regulatory filings;
6.1.3 it will prepare and maintain all such batch records and samples as
may be required for the manufacture of chemical compounds for
pharmaceutical use of this type by any relevant regulatory
authority, for the full period required under any applicable
regulations.
6.2 ALFA confirms that it shall grant to SALIX and its authorised
representatives full access to all such records, documentation and data of
ALFA or its manufacturer(s), as may reasonably be required by SALIX for the
purpose of inspecting the compliance by ALFA with the warranties set out
above Provided Always that such inspection will take place not more than
twice in each calendar year and shall take place upon reasonable notice
upon normal working hours. ALFA will procure access for SALIX to any
Facility at which the Compound is manufactured whether such Facility is
within the control of ALFA or any third party Manufacturer.
6.3 Reporting.
---------
Both parties shall promptly
6.3.1 notify the other party of any governmental inspection of the
Facility by the FDA or any other governmental agency department
which relates to or could adversely affect the manufacture and/or
supply of Compound hereunder; and
6.3.2 supply the other parry with all written communications to or from
Government relating to the above.
7
<PAGE>
6.4 Quality Control Evaluation.
--------------------------
Within forty-five (45) days of receipt of each shipment of Compound, SALIX
may make a visual or other quality control evaluation of such shipment. If
any shipment fails to conform to the Specifications or shall have been
manufactured, packaged or shipped under conditions which do not comply with
this Agreement, SALIX may reject the same by giving prompt written notice
to ALFA within such forty-five (45) day period, specifying the manner in
which it fails to meet the requirements hereof. If SALIX fails to give
such notice within such period, SALIX shall be deemed to have waived its
right to reject such shipment due to failure to meet Specifications
Provided Always that such waiver shall without prejudice to the rights of
SALIX against ALFA in connection with any latent defect contained in the
Compound or otherwise any breach by ALFA of the warranties contained in
Article 6.1.
6.5 Disposal.
--------
SALIX shall not dispose of any non-conforming shipment without written
authorization and instructions from ALFA. ALFA shall promptly notify SALIX
as to the disposal thereof (at ALFA's sole cost and expense) at the
conclusion of any investigation by ALFA. In no event shall this
investigation exceed sixty (60) days from receipt by ALFA of SALIX's
written notice provided for in Section 6.4.
6.6 Disputes.
--------
Any dispute as to whether any shipment of Compound fails in whole or part
to meet the requirements hereof shall be resolved by an independent testing
organization of recognized repute within the U.S. pharmaceutical industry
agreed upon by the parties, the appointment of which shall not be
unreasonably withheld or delayed by either party. The cost of such
independent testing organization shall be paid by the party in error with
respect to such shipment.
6.7 Product
-------
ALFA shall have the right to inspect or cause to be inspected (at its sole
cost) at any time samples of the Products in order to ascertain whether
they are manufactured using the Compound, and in compliance with the
manufacturing and quality standards established by FDA and for such purpose
shall have the right to visit such facilities at which the Product is
manufactured and to inspect records and samples held at such Facilities
Provided Always that such inspection shall not take place more than once in
each year and shall be upon reasonable notice during normal business hours.
ARTICLE 7 - INDEMNIFICATION AND DAMAGES
- ---------------------------------------
7.1 In Favour of SALIX.
------------------
ALFA shall defend, indemnify and hold SALIX and its Affiliates and the
respective
8
<PAGE>
officers, directors and employees of each harmless from and against any and
all claims, demands, losses, damages, liabilities (including without
limitation Product liability), settlement amounts, cost or expenses
whatsoever (including reasonable legal fees and costs and court costs)
arising from or relating to any claim, action or proceeding made or brought
against such person by a third party as a result of ALFA's negligence,
willful misconduct or breach of this Agreement (including, without
limitation, ALFA's failure to comply with the Specifications, any breach by
ALFA of the warranties contained in Article 6.1 or otherwise any breach of
the provisions of this Agreement by ALFA).
7.2 In Favour of ALFA.
-----------------
Except as otherwise provided in Section 7. 1, SALIX shall defend, indemnify
and hold ALFA and its Affiliates and the respective officers, directors and
employees of each harmless from and against any and all claims, demands,
losses, damages, liabilities (including without limitation Product
liability), settlement amounts, cost or expenses whatsoever (including
reasonable legal fees and costs and court costs) arising from or relating
to any claim, action or proceeding made or brought against such person by a
third party as a result of SALIX's manufacture, use, sale and/or
distribution of the Products.
7.3 Notice: Defence
---------------
In the event of any claim, action or proceeding for which a person is
entitled to indemnity hereunder, the person seeking indemnity ("Claimant")
shall promptly notify the relevant party ("Indemnitor") of such matter in
writing. Indemnitor shall then promptly assume responsibility for and
shall have full control of such matter, including settlement negotiations
and any legal proceedings, and Claimant shall fully cooperate in
Indemnitor's handling and defence thereof Provided Always that Indemnitor
shall keep Claimant fully informed of the progress and conduct of any such
negotiations or legal proceedings and shall not in any settlement or
defence of the same make any admission or otherwise act in such manner as
may prejudice the continuing business or reputation of Claimant without the
prior consent in writing of Claimant (such consent not to be unreasonably
withheld or delayed).
7.4 Consequential Damages.
---------------------
Notwithstanding any provision of this Agreement which might otherwise be to
the contrary, neither party shall under any circumstances be liable to the
other for any indirect loss, lost profits, economic loss or other
consequential damages and in the event of any breach by either party of the
terms of this Agreement or otherwise in the event of the negligence of
either party the damages recoverable shall be limited to such damages as
may be suffered as a direct consequence of any such breach or negligence,
Provided Always that such limitation shall not apply to the indemnity
provisions contained in Articles 7.1 and 7.2 and any such indemnity shall
extend to the full amount of any sums paid by the Claimant to any third
party in connection with such matters (whether or not such sums paid to the
third party include
9
<PAGE>
consequential or indirect loss).
ARTICLE 8 - CONFIDENTIALITY UNDERTAKING
- ---------------------------------------
8.1 During the term of this Agreement and for a period of ten (10) years
thereafter, SALIX shall keep secret and confidential and shall use all
reasonable endeavours to procure that the same is kept confidential all
technical and scientific data, information and know-how and documentation
disclosed to it by ALFA under the terms of this Agreement and shall not
disclose the same to any third party save only as may be required in
connection with the performance of its obligations hereunder or in
connection with any sublicence granted or any potential Investor in SALIX.
8.2 During the term of this Agreement and for a period of ten (10) years
thereafter, ALFA shall keep secret and confidential and shall use all
reasonable endeavours to procure that the same is kept confidential all
technical and scientific data, information and know-how and documentation
disclosed by it to SALIX under the terms of this Agreement together with
all information developed by it from any such information or documentation
and all information data and documentation supplied to it by SALIX in
connection with this Agreement and shall not disclose the same to any third
party save only as may be required in connection with the performance of
its obligations or otherwise to any potential investor in ALFA or any other
licensee of the Patent and/or Technology Rights in respect of any territory
outside the Territory Provided such licensees or potential investor agree
to be bound by the same conditions of confidentiality agreed to by ALFA
herein.
8.3 The obligations contained in Articles 8.1 and 8.2 shall not apply to any
part of such data information or documentation which
8.3.1 shall otherwise than by reason of the default of the recipient after
the date hereof enter the public domain;
8.3.2 the recipient can show was in its possession free of any obligation
of confidentiality prior to the date of receipt in connection with
this Agreement
8.3.3 the recipient is obliged by law or statutory or regulatory authority
to disclose
ARTICLE 9 - LICENCE TO MANUFACTURE
- ----------------------------------
9.1 In the event that for any reason whatsoever ALFA shall fail to supply SALIX
in accordance with written orders placed by SALIX on ALFA for the Compound
under the terms of this Agreement for a period of ninety (90) days SALIX
shall be granted a license (under all relevant Patents and Technology
Rights) to manufacture the Compound within the Territory or elsewhere. Such
license shall be upon terms whereby:-
9.1.1 such licence shall be continuing, sublicensable and irrevocable in
the event that any such failure to supply continues for a further
period of ninety (90)
10
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
days;
9.1.2 SALIX shall be permitted to manufacture the Compound for the purpose
only of the use of the Compound for use and sale of Products within
the Territory;
9.1.3 [*] shall be due in connection with such manufacturing licence
Provided That, for the avoidance of doubt, SALIX shall continue to
pay all sums due under the provisions of the Licence;
For the purpose of establishing any such manufacturing facility, ALFA will
deliver to SALIX at the request of SALIX after the date hereof all such
information, data and technology relating to the Patents and the Technology
Rights or otherwise relating to processes for the manufacture of the
Compound as SALIX( may reasonably require to enable it to establish a
manufacturing facility and to permit such manufacturing facility to produce
three test batches of the Compound and to enable such manufacturing
facility to qualify as a supplier under the Applications and all regulatory
provisions. In this respect, SALIX shall be entitled to procure that the
NDA shall permit the substitution of SALIX and/or its subcontractor
manufacturer at any time in the event that the Manufacturing License
becomes operative, at the request of SALIX.
9.2 In consideration of the loss of ALFA's appointment to supply all quantities
of Compound required by SALIX (as contemplated under Article 2.1) SALIX
agrees to pay ALFA [*] in respect of the manufacture by SALIX of the
Compound under this Article 9 which is dependent upon the delivery of the
items referred to in Article 9.1. The [*] for such manufacture under the
respective Patents while such Patents are in force or which utilises to a
significant extent confidential know-how of ALFA for such time as it
remains confidential Provided however that no royalties will be due to ALFA
if SALIX does not use such Patents or confidential know-how or if the items
delivered pursuant to Article 9.1 are not sufficient to enable such
manufacture by SALIX.
9.3 To ensure the provision by ALFA of continuity of supply of the Compound
ALFA will procure that at all times after Putting into Commerce of the
Compound it will have at least two facilities fully qualified by FDA and
capable of manufacturing such Compound in compliance with Article 6 for and
on behalf of SALIX.
ARTICLE 10 - TERMINATION
- ------------------------
10.1 Termination.
-----------
This agreement shall come into force and effect as at the last date of
execution of these presents and shall continue thereafter until whichever
shall be the earlier of:
10.1.1 the expiry of a period of ten years from the date of Putting into
Commerce of the first Product for a non-orphan indication;
11
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
10.1.2 the date of the first commercial sale of a generic of any Product
by a third party in any part of the Territory
and shall continue thereafter torn year to year unless and until either
party shall give not less than six months notice in writing to the other
party of termination.
10.2 In addition to any other rights or remedies a party may have, either party
may terminate this Agreement upon the occurrence of any of the following
events of default which is not cured within thirty (30) days after written
notice thereof is received by the other party:
10.2.1 breach by the other party of any of its material obligations
hereunder; or
10.2.2 should the other party become subject of proceedings involving
bankruptcy, receivership, administration, insolvency, moratorium
of payment reorganization or liquidation, or make any assignation
for the benefit of the creditors or any equivalent measures in
any relevant jurisdiction.
10.3 In the event of termination of the Agreement under the provisions of
Article 10.1 or in the event of termination of this Agreement by SALIX
under Article 10.2, the Manufacturing Licence shall immediately become
effective and thereafter SALIX shall be permitted to manufacture the
Compound under the terms of the Manufacturing Licence.
10.4 The obligations under Articles 6, 7, 8 and 9 shall survive any expiration
or other termination of this Agreement in accordance with their terms.
ARTICLE 11 - NOTICES
- --------------------
Except as otherwise herein provided, all notices to be served or notified to the
parties hereunder shall be mailed by registered airmail return receipt requested
to their respective addresses listed below or to any other address subsequently
communicated in writing, and shall be deemed to have been given seven working
days after the date of mailing.
Party By Mail
----- -------
to SALIX: SALIX HOLDINGS Ltd
3600 W. Bayshore Road,
Suite 205, Palo Alto,
California 94303
to ALFA: ALFA WASSERMAN S.p.A
Attn. Mr. Andrea Golinelli
--------------------------
Via Ragazzi del '99 no 5
40133 Bologna, Italy
12
<PAGE>
ARTICLE 12 - ENTIRE AGREEMENT AND MODIFICATION
- -----------------------------------------------
This Agreement (including the Schedule and the Licence) constitutes the entire
agreement between the parties relating to the subject matter hereof. Save as
expressly provided in the licence all prior agreements or arrangements, written
or oral, between the parties relating to the subject matter hereof are hereby
cancelled and superseded. This Agreement may not be modified except in writing
signed by both parties.
ARTICLE 13 - ASSIGNATION
- ------------------------
13.1 ALFA shall have the right to assign this Agreement, in whole but not in
part, to any Affiliate of its choice to whom the Patents and Technology
Rights may have been transferred and SALIX hereby acknowledges and accepts
any such assignation but shall not otherwise assign or purport to assign
this Agreement (in whole or in part) without the prior consent in writing
of SALIX.
13.2 SALIX shall have the right to assign this Agreement, in whole but not in
part, to any Affiliate of its choice and ALFA hereby acknowledges and
accepts any such assignation but shall not otherwise assign or purport to
assign this Agreement (in whole or in part) without the prior consent in
writing of ALFA.
13.3 This Agreement shall be binding upon the successors and assignees (and any
subsequent assignee) of each of the parties.
ARTICLE 14 - WAIVER OF DEFAULT
- ------------------------------
No waiver of any default by either party shall be deemed to constitute a waiver
of any subsequent default with respect to the same or any other provision
hereof. No waiver shall be effective unless made in writing with specific
reference to the relevant provision(s) of this Agreement and signed by a duly
authorized representative of the party granting the waiver.
ARTICLE 15 - GOVERNING LAW
- --------------------------
This Agreement is written and executed in two originals in the English language.
All notices, communications and proceedings to be in English. It shall be
governed by and construed in accordance with the laws of Scotland, without
giving any effect to any conflict of laws principles or rules.
ARTICLE 16 - FORCE MAJEURE
- --------------------------
Save as expressly provided in Clause 7 neither party shall be liable in any
manner in respect of any breach by such party of its obligations hereunder
(other than any breach of any obligation to make payment on the due date) where
such breach arises from any circumstance outside such party's reasonable
control. Amongst said circumstances are included, by way of example only and
not implying any limitation, fires, floods, earthquakes, accidents, explosions,
quarantine restrictions, strikes labour shortages shortages of raw materials for
the manufacturing of the Products, or acts of any public authority, including
13
<PAGE>
foreign ones.
ARTICLE 17 - LITIGATION
- -----------------------
The parties hereby agree that any legal action or proceeding arising out of or
in connection with this Agreement shall be brought in the Scottish Courts and
the parties hereby prorogate the non-exclusive jurisdiction of the Court of
Session, Edinburgh.
ARTICLE 18 - HEADINGS
- ---------------------
Headings are inserted for convenience and shall not affect the meaning or
interpretation of this Agreement IN WITNESS WHEREOF, these present consisting of
this and the twelve preceding pages together with the Schedule hereto are
executed as follows:-
For and on behalf of
SALIX PHARMACEUTICALS, INC
at
on the 24 day of June 1996
By[SIGNATURE ILLEGIBLE] Director
in the presence of
/s/ Alberto Sacconi
ALBERTO SACCONI
................................Name of Witness
c/o ALFA WASSERMANN
................................Address of Witness
MILANO
................................
For and on behalf of
ALFA WASSERMANN S.p.A.
at
on the 24 day of June 1996
By /s/ Randy Hamilton Director
in the presence of
/s/ Alexander McMahon
Alexander T. McMahon
................................Name of Witness
c/o SALIX PHARMACEUTICALS
................................Address of Witness
PALO ALTO, CA
................................
14
<PAGE>
This is the Schedule referred to in the foregoing Supply Agreement between Alfa
Wassermann S.p.A and Salix Pharmaceuticals, Inc., dated June 24, 1996.
SCHEDULE
PART 1
THE PATENTS
PATENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CASE FILING DATE FILING NO. G R A N T I N G NO. OF THE EXPIRY DATE
DATE GRANTED PATENT
<S> <C> <C> <C> <C> <C>
S 34 05/11/1981 262,123 07/27/1982 4,341,785 05/11/2001
S 50 04/26/1985 727,521 12/10/1985 4,557,866 04/26/2005
S 73 06/28/1993 083,453 10/04/1994 5,352,679 06/28/2013
</TABLE>
Case S 34 (product patent): IMIDAZO-RIFAMYCIN DERIVATIVES WITH ANTIBACTERIAL
UTILITY
Case S 50 (processing patent) : PROCESS FOR THE SYNTHESIS OF PYRIDO-IMIDAZO
RIFAMYCINS
Case S 73 (patent for therapeutical use) : USE OF RIFAXIMIN AND PHARMACEUTICAL
FORMULATIONS CONTAINING IT IN THE TREATMENT OF GASTRIC DYSPEPSIA CAUSED BY
HELICOBACTER PYLORI.
ALL AS FILED FOR THE TERRITORY.
- -------------------------------
15
<PAGE>
PART 2
COMPOUND SPECIFICATION
---------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
[*]
</TABLE>
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
PART 3
PRICES
[*]
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
EXHIBIT 10.14
THE KONTRABECKI GROUP
OFFICE LEASE
1. Parties. THIS LEASE, dated for reference purposes only, January 1,
-------
1992, is made by and between KONTRABECKI-MASON DEVELOPERS, a California general
partnership (herein "Landlord") and SALIX PHARMACEUTICALS, INC., a California
Corporation (herein "Tenant").
2. Premises.
--------
(a) Landlord leases to Tenant and Tenant hires from Landlord the
office space indicated on Exhibit "A" attached hereto (the "Premises"). The
Premises are more particularly identified as Suite 102, with an agreed area of
762 square feet, situated on the first floor of that certain two-story building
commonly known as 3600 West Bayshore Road, Palo Alto, California 94303 (the
"Building"), together with the interior improvements thereto, if any, specified
on the "Tenant Improvement Plan" attached hereto as Exhibit "B". The square
footage of the Premises comprise two and 15/100's percent (2.15%) of the total
leasable space within the Building, which percentage shall hereinafter be
referred to as "Tenant's Share." Tenant's Share shall be equitably adjusted upon
any future expansion or reduction of the leasable space within either the
Premises or the Building. Tenant shall also have a nonexclusive right to use,
during the term of this Lease, in common with other Tenants of the Building and
their guests and customers, the areas described on Exhibit "C" attached hereto
and incorporated herein by this reference the ("Common Areas"), subject to rules
and regulations promulgated or modified hereunder from time to time by Landlord.
(b) The Premises shall be deemed to exclude exterior faces of
exterior walls and exterior window glass, anything beyond the interior face of
demising walls, and pipes, ducts, conduits, wires and appurtenant fixtures
serving exclusively or in common, other parts of the Building.
3. Tenant and Landlord Covenant. The Lease is subject to the following
----------------------------
terms, covenants and conditions. Tenant and Landlord covenant, as a material
part of the consideration for this Lease, to keep and perform each of said
terms, covenants and conditions.
4. Term.
----
(a) The term of this Lease is month to month, commencing on January
20, 1992 (the "Commencement Date") and ending, upon thirty (30) days written
notice by either party to the other (the "Expiration Date").
(b) Notwithstanding Paragraph 4(a) above, if at the date of execution
of this Lease, Landlord and Tenant have agreed that Landlord shall construct,
modify, or install any interior improvements to the Premises, as set forth in
Exhibit "B", then the Commencement Date shall be the later of:
<PAGE>
(i) The scheduled Commencement Date set forth in Paragraph 4(a)
above, or
(ii) The date on which Landlord delivers possession of the
Premises to Tenant after approval of occupancy by the appropriate governmental
authority, and after substantial completion of such interior improvements as
certified by Landlord's architect.
Upon completion of such improvements, Landlord will determine the Commencement
Date for purposes of this Lease and deliver notice thereof to Tenant.
5. Possession,
----------
(a) If Landlord, for any reason, cannot deliver possession of the
Premises to Tenant at the commencement of the term hereof, this Lease shall not
be void or voidable, nor shall Landlord be liable to Tenant for any loss or
damage resulting therefrom, nor shall the expiration date of the term be
extended, but in such event, all rent shall be abated during the period between
the commencement of said term and the time when Landlord delivers possession.
(b) If Landlord permits Tenant to occupy the Premises prior to the
Commencement Date of the term of this Lease, for the purpose of installing
fixtures or for any other purpose permitted by Landlord such occupancy shall be
subject to all of the provisions of this Lease except for the obligation to pay
rent which shall commence on the Commencement Date. Said early possession shall
not advance the expiration date hereinabove provided. In the event Landlord
permits any such early entry, Tenant agrees not to interfere with or cause any
delay with any work conducted on or about the Premises by Landlord or its
employees and contractors, and further agrees to indemnify Landlord from and
against any and all claims of damage whatsoever arising out of any activity by
Tenant, or its agents, employees or contractors on or about the Premises during
such early entry.
6. Security Deposit.
----------------
(a) Tenant has deposited with Landlord the sum of ONE THOUSAND FOUR
HUNDRED FORTY AND 18/100'S DOLLARS ($1,440.18) to be held by Landlord as
security for the faithful performance by Tenant of all terms covenants and
conditions of this Lease. If Tenant defaults with respect to any provision of
this Lease, including but not limited to the provisions relating to the payment
of rent, Landlord may (but shall not be required to) use, apply or retain all or
any part of this security deposit for the payment of any rent or any other sum
in default, or for the payment of any amount which Landlord may spend or become
obligated to spend by reason of Tenant's default, or to compensate Landlord for
any other loss or damage which Landlord may suffer by reason of Tenant's
default. If any portion of said deposit is so used or applied, Tenant shall,
within five (5) days after written demand therefor, deposit cash with Landlord
in an amount sufficient to restore the security deposit to its original amount
and Tenant's failure to do so shall be a material breach of this Lease.
Landlord shall not be required to keep this security deposit separate from its
general funds, and Tenant shall not be entitled to interest on such deposit.
-2-
<PAGE>
(b) If Tenant is not in default at the expiration or termination of
this Lease, Landlord shall return to Tenant (or at Landlord's option, to the
last assignee of Tenant's interest hereunder) the balance of the security
deposit; provided that, a reasonable portion of said deposit may be retained to
secure payment of Tenant's share of operating Expenses (as defined in Paragraph
7) prior to determination of the actual amount thereof.
7. Rent.
----
(a) Tenant shall pay to Landlord as monthly rental for the Premises
(the "Base Rent"), on or before the first day of each and every calendar month
of the term hereof, the sum of ONE THOUSAND ONE HUNDRED FOUR AND 90/100'S
DOLLARS ($1,104.90). The first month's rent shall be paid in advance upon the
execution of this Lease. Rent for any period which is for less than one (1)
month shall be a prorated portion of the monthly installment stated herein,
based upon a thirty (30) day month. Said rental shall be paid, without prior
notice or demand and without deduction or offset, in lawful money of the United
States of America to KONTRABECKI-MASON DEVELOPERS at 3600 West Bayshore Road,
Suite 101 Cupertino, California 94303 or to such other person or at such other
place as Landlord may from time to time designate in writing. If rent is
received after the third (3rd) day of the month in which it is due, Tenant
agrees to pay an additional ten percent (10%) of the monthly payment then due as
a late payment charge in accordance with Paragraph 30 (i) below.
(b) In addition to the Base Rent payable to Landlord pursuant to
Paragraph 7(a) above, Tenant shall pay to Landlord as part of the monthly rent
Tenant's Share of all expenses incurred by Landlord in the operation,
maintenance and repair of the Building (herein "Operating Expenses"). Operating
Expenses shall include, without limitation, real property taxes and assessments
(general and special), rent taxes, gross receipt taxes (whether assessed against
Landlord or assessed against the Tenant and collected by Landlord, or both),
water and sewer charges, insurance premiums, utilities charges, central station
monitoring charges, janitorial services, pest control, trash removal, labor
costs incurred in the management of the Building including salaries and employer
taxes thereon, and Building maintenance supplies, material, equipment and tools,
the cost of maintenance, repair and upkeep of all parking and common areas and
the landscaping therein, the cost of maintaining, repairing or replacing the
HVAC system servicing the Building and the roof membrane and structure of the
Building, including the cost of any maintenance contracts entered into by
Landlord, the cost of cleaning, repainting and resurfacing the exterior surface
of Common Area Walls and the exterior walls of the Building. In addition,
Landlord will change Building management fees equal to five percent (5%) of the
current monthly rental for the Premises. Operating Expenses shall not include
depreciation on the Building, loan payments or real estate broker's commissions.
(i) Landlord estimates that Operating Expenses during the first
calendar year of the Lease term hereunder (or the balance thereof, as the case
may be) will be equivalent to $.44 per month per square foot of leasable square
feet in the Building. Accordingly, during the first calendar year of the Lease
term (or remaining portion thereof, as the case may be), Tenant shall pay
-3-
<PAGE>
to Landlord each month as additional rent attributable to estimated Operating
Expenses the sum of THREE HUNDRED THIRTY-FIVE AND 28/100'S DOLLARS ($335.28).
(ii) On or before December 1 of each year Landlord shall estimate
the projected Operating Expenses (per square foot of leasable space per month)
for the following calendar year and notify the Tenant thereof. Commencing
January 1 of the following calendar year and continuing on the first day of each
calendar month thereafter for the remainder of said year, Tenant shall pay to
Landlord Tenant's Share of the projected Operating Expenses. Annually, on March
1 of each calendar year (or soon thereafter as Landlord can reasonably make the
determination), Landlord shall determine and deliver to Tenant a statement of
the actual amount of Operating Expenses incurred by Landlord during the twelve
month period ending December 31 of the previous year. If Tenant's cumulative
total of monthly payments of estimated Operating Expenses for said previous year
is less than Tenant's Share of the actual Operating Expenses during said period,
Tenant shall pay the difference to Landlord within thirty (30) days after the
date of Landlord's statement. If Tenant's Share of actual Operating Expenses is
less than the cumulative total of Tenant's monthly payments of Operating
Expenses during said period, the difference shall be credited against amounts
thereafter becoming due from Tenant for subsequent payments of Operating
Expenses, or refunded to Tenant if the lease is terminated.
(iii) In the event the Lease term commences on a date other than
January 1 or expires on a date other than December 31, the amount of Operating
Expenses payable by Tenant to Landlord hereunder shall be equitably prorated to
reflect only such period of time during said year as this Lease is in effect.
8. First Year Operating Expenses. Notwithstanding Paragraph 7 above,
-----------------------------
during the first twelve (12) months of the Lease term, Tenant shall pay a fixed
amount of $.44 per month per square foot of leasable square feet in the Building
for Operating Expenses. This amount equals the sum of THREE HUNDRED THIRTY-FIVE
AND 28/100's DOLLARS ($335.28) per month. After the first twelve (12) months,
the Operating Expenses shall be charged and accounted for as provided in
Paragraph 7.
9. Use of Premises.
---------------
(a) Tenant shall use the Premises for general office purposes and
shall not use or permit the Premises to be used for any other purpose without
the prior written consent of Landlord.
(b) Tenant shall not do or permit anything to be done in or about the
Premises nor bring or keep anything therein which will:
(i) increase the existing rate of or affect any fire or other
insurance covering the Building or any of its contents, or
(ii) cause cancellation of any insurance policy covering the
Building or any part thereof or any of its contents, or
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(iii) in any way obstruct or interfere with the rights of other
Tenants or occupants of the Building or injure or annoy them.
(c) Tenant shall not cause, maintain or permit any nuisance in, on or
about the Premises. Tenant shall not commit or suffer to be committed any waste
in or upon the Premises. Tenant shall not use any apparatus, machinery or other
equipment in or about the Premises that may cause substantial noise or vibration
or overload existing electrical systems, and shall not place any loads upon the
floors, walls or ceilings of the Premises which may jeopardize the structural
integrity of the Building or any part thereof.
10. Compliance with Law. Tenant shall not use or permit the Premises to
-------------------
be used in any way which will conflict with any law, statute, ordinance or
governmental rule or regulation now in force or which may hereafter be enacted
or promulgated. Tenant shall, at its sole cost and expense, promptly comply
with all laws, statutes, ordinances, and governmental rules, regulations or
requirements now in force or which may hereafter be in force, relating to
Tenant's use of the Premises. Tenant shall also comply with the requirements of
any board of fire insurance underwriters or other similar bodies now or
hereafter constituted relating to or affecting the condition, use or occupancy
of the Premises. The judgment of any court of competent jurisdiction or the
admission of Tenant in any action against Tenant, whether Landlord be a party
thereto or not, that Tenant has violated any law, statute, ordinance or
governmental rule, regulation or requirement, shall be conclusive of that fact
as between Landlord and Tenant.
11. Alterations and Additions. Tenant shall not make or allow any
-------------------------
alterations, additions, or improvements of or to the Premises without Landlord's
prior written consent. Any such alterations, additions or improvements,
including but not limited to wall coverings, paneling and built-in cabinet work,
but excepting movable furniture and trade fixtures, shall immediately upon
installation or construction thereof become a part of the realty, shall belong
to Landlord and shall, unless Landlord requests the removal thereof in the
manner set forth below, be surrendered with the Premises at the expiration or
termination of the Lease. Any alterations, additions or improvements that
Tenant desires to make in the Premises shall be presented to Landlord in written
form, with proposed working drawings and plans and specifications therefor
prepared at Tenant's sole expense. If Landlord consents to any such alterations,
additions or improvements by Tenant, they shall be made by Tenant at Tenant's
sole cost and expense, and in compliance with all codes, rules and regulations,
and any contractor or person selected by Tenant to perform the work shall first
be approved of, in writing, by Landlord. All work performed hereunder shall be
done at such times and in such manner as Landlord from time to time may
designate. Tenant shall not proceed to make such alterations or additions,
after having obtained consent from Landlord to do so, until ten (10) days from
receipt of such consent, in order that Landlord may post appropriate notices to
avoid any liability to contractors or material suppliers for payment for
Tenant's improvements. Tenant will at all times permit such notices to be
posted and to remain posted until the completion of work. In performing any
work hereunder, Tenant shall not interfere with the proper functioning of any
mechanical, electrical, sanitary and other service systems of the Building
("Service Facilities"), and no construction, improvement, alteration or addition
permitted by Landlord hereunder shall interfere with Landlord's free access to
the Service Facilities. Upon completion of any work hereunder,
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Tenant, at Tenant's sole cost, shall promptly deliver to Landlord "as-built"
plans in mylar form and specifications therefor.
12. Liens. Tenant shall keep the Premises and the Building free from any
-----
liens arising out of any work performed, materials furnished or obligations
incurred by Tenant. If any claim of lien is recorded, Tenant shall bond against
or discharge the same within ten (10) days after the same has been recorded.
Landlord may require Tenant to provide Landlord, at Tenant's sole cost and
expense, a payment and performance bond in an amount equal to one and one-half
(1/2) times the estimated cost of any improvements, additions, or alterations by
Tenant, to insure Landlord against liability for mechanics' and materialmen's
liens and to insure completion of the work.
13. Maintenance.
-----------
(a) By entry hereunder, Tenant accepts the Premises as being in good
and sanitary order condition and repair and accepts the Building and the other
improvements in their present condition. Any exceptions to the foregoing must
be by written agreement executed by Landlord and Tenant. During the term of the
Lease, Tenant shall keep the Premises and every part thereof in good condition
and repair, at Tenant's sole cost and expense. The Tenant agrees on the last
day of the term hereof, or on the sooner termination of this Lease, to surrender
the Premises to Landlord in good condition and repair with all interior walls
cleaned, all interior painted surfaces repainted in original color, all holes in
walls repaired, all stained or damaged suspended ceiling tiles replaced, all
carpets shampooed and cleaned, and all floors cleaned and waxed. Tenant also
agrees to surrender to Landlord all alterations, additions, and improvements
which may have been made in, to, or on the Premises by Tenant, except that
Tenant shall ascertain from Landlord within thirty (30) days before the end of
the term of this Lease whether Landlord desires to have the Premises or any part
or parts thereof restored to their condition as of the commencement of this
Lease. If Landlord shall so desire, then Tenant shall restore the Premises or
such part or parts thereof before the termination of this Lease at Tenant's sole
cost and expense. Tenant on or before the end of the term or sooner termination
of this Lease, shall remove all its personal property and trade fixtures from
the Premises, and all property not so removed shall be deemed to be abandoned by
Tenant. If the Premises is not surrendered at the end of the term or sooner
termination of this Lease, Tenant shall indemnify Landlord against loss or
liability resulting from delay by Tenant in so surrendering the Premises
including, without limitation, any claims made by any succeeding Tenant founded
on such delay.
(b) Notwithstanding the provisions of Paragraph 13(a), Landlord shall
repair and maintain the roof, exterior walls, and foundation of the Building,
and plumbing, air conditioning, heating and electrical systems installed or
furnished by Landlord, and parking and landscaped areas and all other common
areas appurtenant to the Building, as provided in Paragraph 7(b), unless such
maintenance and repairs are necessitated in part or in whole by the act,
neglect, fault or omission of any duty by Tenant, or its agents, servants,
employees or invitees, in which case Tenant shall pay to Landlord the entire
cost of such maintenance and repairs.
(c) Tenant hereby waives Section 1932.1 of the Civil Code of
California, as well as all rights to make repairs at Landlord's expense under
Sections 1941.1, 1942 and 1942.1 of the
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said Code, or any similar or successor laws. Except as provided in Paragraph 23
hereof, there shall be no abatement of rent and no liability of Landlord by
reason of any injury or interference with Tenant's business arising from the
making of any repairs, alterations or improvements to any portion of the
Building or the Premises or to fixtures, appurtenances and equipment therein.
14. Assignment and Subletting.
-------------------------
(a) Tenant shall not, voluntarily or by operation of law, assign,
transfer or encumber Tenant's interest under this Lease or in the Premises nor
sublease all or any part of the Premises or allow any other person or entity
(except Tenant's employees, agents and invitees) to occupy or use all or any
part of the Premises without the prior written consent of Landlord, which
consent shall not be unreasonably withheld. Any such consent shall not release
Tenant from liability hereunder, and a consent to one assignment, subletting,
occupation or use shall not be deemed a consent to any subsequent assignment,
subletting, occupation or use. Any such purported assignment, subletting, or
permission to occupy or use without such consent from Landlord shall be void and
shall, at the option of Landlord, constitute a default under this Lease. If the
Premises are assigned for a consideration or sublet for a rental value in excess
of that which is due to Landlord under the terms of this Lease, such excess
rental value shall be paid to Landlord at such times and in such amounts as said
rent would otherwise be payable to Tenant by said assignee or sublessee, as the
case may be. In lieu of consenting to a proposed assignment or sublease,
Landlord shall be entitled to terminate this Lease with respect to all or such
portion of the Premises which Tenant proposes to assign or sublease.
(b) If Tenant is a partnership, a transfer, voluntary or involuntary,
of all or any part of an interest in the partnership, or the dissolution of the
partnership, shall be deemed an assignment requiring Landlord's prior written
consent. If Tenant is a corporation, any dissolution, merger, consolidation of
other reorganization of Tenant, or the transfer, either all at once or in a
series of transfers, of a controlling percentage of the capital stock of Tenant,
or the sale, or series of sales within any one (1) year period, of all or
substantially all of Tenant's assets located in, on, or about the Premises,
shall be deemed an assignment. The phrase "controlling percentage" means the
ownership of, and the right to vote, stock possessing at least fifty-one percent
(51%) of the total combined voting power of all classes of Tenant's capital
stock issued, outstanding, and entitled to vote for the election of directors.
The provisions of this Paragraph shall not apply to Tenant if Tenant is a
corporation the stock of which is listed on a national securities exchange (as
this term is used in the Securities Exchange Act of 1934, as amended) or is
publicly traded on the over-the-counter market and prices therefor are published
daily on business days in a recognized financial journal.
(c) If Tenant shall purport to assign this Lease, or sublease all or
any portion of the Premises or permit any person or persons other than Tenant to
occupy the Premises, without Landlord's prior written consent, Landlord may
collect rent from the person or persons then or thereafter occupying the
Premises and apply the net amount collected to the rent reserved herein, but no
such collection shall be deemed a waiver of Landlord's rights and remedies under
this Paragraph 14, or the acceptance of any such purported assignee, sublessee
or occupant, or a release of Tenant from the further performance by Tenant of
covenants on the part of Tenant herein contained.
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<PAGE>
15. Hold Harmless and Waiver of Claims.
----------------------------------
(a) Tenant shall indemnify Landlord against and hold Landlord
harmless from:
(i) any claims arising from Tenant's use of the Premises or from
any activity, work, or other thing done or permitted by Tenant in or about the
Premises; and
(ii) any claims arising from any breach or default in Tenant's
performance of any obligation under the terms of this Lease, or arising from any
act or negligence of Tenant, or any officer, agent, employee, guest, or invitee
of Tenant; and
(iii) all costs, attorneys' fees, expenses and liabilities
incurred in or attributable to any such claim and any action or proceeding
brought thereon.
(b) If any action or proceeding is brought by reason of any such
claim in which Landlord is named as a party, Tenant shall defend Landlord
therein at Tenant's expense by counsel reasonably satisfactory to Landlord.
Tenant hereby assumes all risk of damage to property or injury to persons, in,
upon or about the Premises, from any cause except to the extent caused by
Landlord's negligence or willful misconduct and Tenant hereby waives all claims
in respect thereof against Landlord.
(c) Landlord and its agents shall not be liable for any damage to
property entrusted to employees of the Building, nor for loss or damage to any
property by theft or otherwise, nor from injury to or damage to persons or
property resulting from any cause whatsoever, unless caused by the wilful
misconduct of Landlord, its agents, or employees.
Landlord and its agents and employees shall not be liable for interference with
light or other incorporeal hereditaments, or loss of business by Tenant, nor
shall Landlord be liable for any latent defect in the Premises or in the
Building. Tenant shall give prompt notice to Landlord in case of fire or
accidents in the Premises or in the Building or of alleged defects in the
Building, fixtures or equipment.
16. Subrogation. Landlord and Tenant hereby mutually waive their
-----------
respective rights of recovery against each other for any loss insured by fire,
extended coverage, and other property insurance policies existing for the
benefit of the respective parties. Tenant and Landlord shall, upon obtaining
the policies of insurance required hereunder, obtain from their respective
insurance carriers an endorsement to said policies whereby the insurance
carriers waive their respective rights of subrogation in accordance with this
Paragraph.
17. Liability Insurance. Tenant shall, at Tenant's expense, obtain and
-------------------
keep in force during the term of this Lease a policy of comprehensive public
liability insurance with an insurance company satisfactory to Landlord insuring
Landlord and Tenant against claims occurring in, on or about the Premises and
all areas appurtenant thereto. The limit of said insurance shall not, however,
limit the liability of Tenant hereunder. Tenant may carry said insurance under
a blanket policy,
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<PAGE>
providing however, said insurance by Tenant shall name Landlord as an additional
insured. If Tenant fails to procure and maintain said insurance, Landlord may,
but shall not be required to, procure and maintain the same, but at the expense
of Tenant. Tenant shall deliver to Landlord prior to occupancy of the Premises
copies of policies of liability insurance required herein or certificates
evidencing the existence and amount of such insurance with loss payable clauses
satisfactory to Landlord. No policy shall be cancellable or subject to reduction
of coverage except after thirty (30) days prior written notice to Landlord. Such
insurance policy shall have a single combined liability limit of at least Two
Million Dollars ($2,000,000) insuring against damage to or loss of Property and
injury or death to persons, and shall contain a cross-liability endorsement.
Landlord shall have the right to require Tenant from time to time to increase
its insurance coverage hereunder to levels consistent with insurance amounts
generally considered prudent in the area at the time for similar businesses.
18. Services and Utilities.
----------------------
(a) Landlord shall furnish to the Premises during reasonable hours of
generally recognized business days to be determined by Landlord in its sole
discretion and subject to the rules and regulations of the Building, electricity
for normal lighting and fractional horsepower office machines, heat and air
conditioning required in Landlord's judgment for the comfortable use and
occupation of the Premises, subject to restrictions or guidelines for
temperature limitations provided by lawful governmental authority, and
janitorial service. Landlord shall maintain and light the common stairs, common
entries, and toilet rooms in the Building. Landlord shall not be liable for and
Tenant shall not be entitled to, any reduction of rental by reason of Landlord's
failure to furnish any of the foregoing when such failure is caused by accident,
breakage, repairs, strikes, lockout or other labor disturbances or labor
disputes of any character, or by any other cause, similar or dissimilar, beyond
the reasonable control of Landlord. Landlord shall not be liable for a loss of
or injury to property, however occurring, through or in connection with or
incidental to furnishing or its failure to furnish any of the foregoing.
Wherever heat generating machines or equipment are used in the Premises which
affect the temperature otherwise maintained by the air conditioning system,
Landlord reserves the right to install supplementary air conditioning units in
the Premises and the cost thereof, including the cost of installation, and the
cost of operation and maintenance thereof, shall be paid by Tenant to Landlord
as additional rent upon demand by Landlord.
(b) Tenant shall not, without the written consent of Landlord, use
any apparatus or device in the Premises, including but not limited to electronic
data processing machines, punch card machines, and machines using in excess of
120 volts, which will increase the amount of electricity consumed by Tenant
beyond that amount which is reasonably required for the use of the Premises as
general office space. Tenant shall not connect with electric current, except
through existing electrical outlets in the Premises, any apparatus or device,
for the purpose of using electric current. If Tenant requires water, gas or
electric current in excess of the amount which Landlord deems reasonable for the
use of the Premises as general office space, Tenant shall first procure the
written consent of Landlord (which Landlord may refuse) to the use thereof and
Landlord may cause a separate water, gas or electrical current meter to be
installed in the Premises to measure the amount of water, gas and electric
current consumed for any such use. The cost of installation, maintenance and
repair of any
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such meters shall be paid by Tenant. Tenant agrees to pay to Landlord as
additional rent promptly upon demand, the cost of all such water, gas and
electric current consumed as shown by said meters, at the rates charged for such
services by the local public utility furnishing the same, plus any additional
expense incurred in keeping account of the water and electric current so
consumed. If a separate meter is not installed, such excess cost for such water,
gas and electric current will be established and adjusted from time to time by
an estimate made by a utility company or electrical engineer designated by
Landlord.
19. Personal Property Taxes. Tenant shall pay before delinquency all
-----------------------
taxes levied or assessed and which become payable during the term hereof upon
all Tenant's leasehold improvements, equipment, furniture, fixtures and personal
property located in the Premises, except that which has been paid for by
Landlord and is standard for the Building. If any of Tenant's leasehold
improvements, equipment, furniture, fixtures and personal property are assessed
and taxed with the Building, Tenant shall pay to Landlord its share of such
taxes within ten (10) days after delivery to Tenant by Landlord of a statement
in writing setting forth the amount of such taxes applicable to Tenant's
property.
20. Rules and Regulations. Tenant shall faithfully observe and comply
---------------------
with the rules and regulations attached as Exhibit "D" to this Lease, as well as
such rules and regulations that Landlord shall from time to time promulgate
relating to Tenant's use of the Premises or the Building. Landlord reserves the
right from time to time to make all reasonable modifications to said rules. The
additions and modifications to those rules shall be binding upon Tenant upon
delivery of a copy of them to Tenant. Landlord shall not be responsible to
Tenant for the nonperformance of any of said rules or regulations by any other
Tenants or occupants of the Building.
21. Holding Over
------------
(a) If Tenant remains in possession of the Premises or any part
thereof after the expiration of the term hereof, with the express written
consent of Landlord, such occupancy shall be a tenancy from month to month at a
rental in the amount of one hundred fifty percent (150%) of the then prevailing
rental, plus all other charges payable hereunder, and upon all the terms hereof.
Tenant shall continue in possession until such tenancy is terminated by either
Landlord or Tenant by thirty (30) days prior notice to the other.
(b) If Tenant remains in possession without Landlord's consent, after
expiration or sooner termination of the Lease, by lapse of time or otherwise,
Tenant shall pay Landlord for each day of such retention one-fifteenth (1/15th)
of the amount of the monthly rental for the last month prior to such termination
and Tenant shall also pay all costs, expenses and damages, direct or
consequential, sustained by Landlord by reason of such retention, including,
without limitation, claims made by a succeeding Tenant resulting from Tenant's
failure to surrender the Premises.
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<PAGE>
22. Entry by Landlord.
-----------------
(a) Landlord reserves the right to enter the Premises at any time to
inspect the Premises, to provide any service for which Landlord is obligated
hereunder, to show the Premises to prospective purchasers or Tenants, to post
notices of non-responsibility, and to alter, improve, maintain or repair the
Premises and any portion of the Building that Landlord deems necessary or
desirable, all without abatement of rent. Landlord may erect scaffolding and
other necessary structures where reasonably required by the character of the
work to be performed, but shall not block any entrance to the Premises nor
interfere with Tenant's business, except as reasonably required for the
particular activity by Landlord. Landlord shall not be liable in any manner for
any inconvenience, disturbance, loss of business, nuisance, interference with
quiet enjoyment, or other damage arising out of Landlord's entry on the Premises
as provided in this Paragraph, except damage, if any, resulting from the sole
negligence or willful misconduct of Landlord or its authorized representatives.
(b) Landlord shall retain, or Tenant shall provide to Landlord, as
the case may be, a key with which to unlock all doors into, within and about the
Premises, excluding Tenant's vaults, safes and files. In an emergency, Landlord
shall have the right to use any means which Landlord deems reasonably necessary
to obtain entry to the Premises, without liability to Tenant, except for any
failure to exercise due care for Tenant's property. Any such entry to the
Premises by Landlord shall not be construed or deemed to be forcible or unlawful
entry into the Premises or an eviction of Tenant from the Premises or any
portion thereof.
23. Damage and Destruction.
----------------------
(a) Subject to Paragraph 23(d) below, if the Premises or the Building
are damaged by fire or other peril covered by extended coverage insurance,
Landlord agrees to make repairs and restorations to the extent and in the manner
possible at a cost not exceeding the proceeds of the insurance received by
Landlord. If the cost of repair and restoration exceeds the amount of proceeds
received from insurance, Landlord may elect to terminate this Lease by giving
notice to Tenant within twenty (20) days after determining that the cost will
exceed such proceeds. If Landlord proceeds with repair and restoration, this
Lease shall remain in full force and effect, except that Tenant shall be
entitled to a proportionate abatement of rent while such repairs are being made.
The rent abatement shall be based upon the extent to which repair and
restoration activity materially interferes with Tenant's business at the
Premises, provided, however, that if the damage was occasioned by the fault or
neglect of Tenant, its agents or employees, there shall be no such abatement of
rent.
(b) If the Premises or the Building, as the case may be, are damaged
as a result of any cause other than the perils covered by fire and extended
coverage insurance on the Building, then Landlord shall repair the same, if the
destruction is less than five percent (5%) of the then full replacement cost
thereof. If the destruction is to an extent greater that five percent (5%) of
the full replacement cost, then Landlord shall have the option:
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(i) to repair or restore such damage, this Lease continuing in
full force and effect, but the rent to be proportionately abated as provided in
Paragraph 23(a); or
(ii) to give notice to Tenant at any time within sixty (60) days
after such damage terminating this Lease as of the date specified in such
notice, which date shall be no less than thirty (30) and no more than sixty (60)
days after the giving of such notice. In the event of giving such notice, this
Lease shall expire, the entire interest of Tenant in the Premises shall
terminate on the date so specified in such notice, and the rent, as abated to
reflect the extent, if any, to which such damage materially interferes with the
business carried on by Tenant in the Premise, shall be paid up to the date of
such termination.
(c) Notwithstanding anything to the contrary contained in this
Paragraph, Landlord shall not have any obligation whatsoever to repair,
reconstruct or restore the Premises or the Building when the damage thereto
occurs during the last twelve (12) months of the term of this Lease or any
extended term but shall instead be entitled to terminate this Lease by delivery
of written notice to Tenant thereof within thirty (30) days after the occurrence
of such damage.
(d) Notwithstanding anything to the contrary contained in this
Paragraph, Landlord shall not be required to repair or replace any damage to any
panels, decorations, office fixtures, railings, floor coverings, partitions, or
any other property installed or maintained in or about the Premises by Tenant.
(e) Tenant shall not be entitled to any compensation or damages from
Landlord for loss of the use of the whole or any part of Premises, and/or
Tenant's personal property, or any inconvenience or annoyance occasioned by any
damage, repair, reconstruction or restoration of the Premises or the Building.
24. Default. Occurrence of any of the following events shall constitute a
-------
default and breach of this Lease by Tenant.
(a) The vacating or abandonment of the Premises by Tenant for a
continuous period of at least three (3) days.
(b) The failure by Tenant to make any payment of rent or any other
payment required of Tenant hereunder, as and when due, if such failure continues
for three (3) days after written notice thereof by Landlord to Tenant.
(c) The failure by Tenant to observe or perform any of the covenants,
conditions or provisions of this Lease other than described in Paragraph 24(b)
above, where such failure continues for ten (10) days after written notice
thereof by Landlord to Tenant; provided however, that if Tenant's default is
such that more than ten (10) days are reasonably required for its cure, then
Tenant shall not be deemed to be in default if Tenant commences such cure within
said ten (10) day period and thereafter diligently prosecutes such cure to
completion.
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(d) The making by Tenant of any general assignment or general
arrangement for the benefit of creditors or the filing by or against Tenant of a
petition to have Tenant adjudged bankrupt, or a petition, or reorganization or
arrangement under any law relating to bankruptcy (unless in the case of a
petition filed against Tenant, the same is dismissed within sixty (60) days); or
the appointment of a trustee or a receiver to take possession of substantially
all of Tenant's assets located at the Premises or of Tenant's interest in this
Lease, where possession is not restored to Tenant within thirty (30) days; or
the attachment, execution or other judicial seizure of substantially all of
Tenant's assets located at the Premises or of Tenant's interest in this Lease,
where such seizure is not discharged in thirty (30) days.
25. Remedies.
--------
(a) Landlord shall have the following remedies if Tenant commits a
default. These remedies are not exclusive, but are cumulative and in addition
to any remedies herein provided or now or later allowed by law.
(b) Landlord may continue this Lease in full force and effect, as
long as Landlord does not terminate Tenant's right to possession, and Landlord
shall have the right to collect rent when due. During the period Tenant is in
default, Landlord may enter the Premises and relet them, or any part of them, to
third parties for Tenant's account. Tenant shall be liable to Landlord for all
costs Landlord incurs in reletting the Premises, including, without limitation,
brokers' commissions and expenses of remodeling the Premises required by the
reletting. Reletting may be for a period shorter or longer than the remaining
term of the Lease. Tenant shall pay to Landlord the rent due under this Lease as
and when due, less the rent Landlord receives from any reletting. No act by
Landlord allowed by this Paragraph shall terminate this Lease unless Landlord
notifies Tenant in writing that Landlord elects to terminate Tenant's right to
possession of the Premises.
(c) Provided Tenant is in default, Landlord may terminate Tenant's
right to possession of the Premises at any time. No act by Landlord other than
giving written notice to Tenant shall terminate this Lease. Acts of
maintenance, efforts to relet the Premises, or the appointment of a receiver on
Landlord's initiative to protect Landlord's interest under this Lease shall not
constitute a termination of Tenant's right to possession. On termination,
Landlord shall have the right to recover from Tenant:
(i) The worth, at the time of the award, of the unpaid rent
that had been earned as of the time of termination of this Lease;
(ii) The worth, at the time of the award, of the amount by which
the unpaid rent that would have been earned after the date of termination of
this Lease until the time of award exceeds the amount of the loss of rent that
Tenant proves could have been reasonably avoided;
(iii) The worth, at the time of the award, of the amount by which
the unpaid rent for the balance of the term after the time of award exceeds the
amount of the loss of rent that Tenant proves could have been reasonably
avoided;
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(iv) Any other amount, and court costs, necessary to compensate
Landlord for all detriment proximately caused by Tenant's default.
"The worth, at the time of the award," as used (i) and (ii) of this
Paragraph, is to be computed by allowing interest at the rate of ten percent
(10%) per annum. "The worth, at the time of the award," as referred to in (iii)
of this Paragraph, is to be computed by discounting the amount at the discount
rate of the Federal Reserve Bank of San Francisco at the time of the award, plus
one percent (1%).
26. Eminent Domain. If more than twenty-five percent (25%) of the
--------------
Premises is taken or appropriated by any public or quasi-public authority under
powers of eminent domain, either party hereto shall have the right, at its
option, to terminate this Lease by delivery of notice to the other party thereof
on or before five (5) days after such taking, in which event this Lease shall
terminate as of the later of the date of such taking or the date on which Tenant
vacates the Premises. If less than twenty-five percent (25%) of the Premises is
taken (or neither party elects to terminate as above provided if more than
twenty-five percent (25%) is taken), the Lease shall continue, and the rental
thereafter to be paid shall continue, but the rental thereafter to be paid shall
be reduced in proportion to the portion of the Premises so taken. If any part
of the Building or areas appurtenant thereto are so taken or appropriated,
whether or not any part of the Premises is involved, Landlord shall have the
right, at its option, to terminate this Lease in accordance with the foregoing
provision. Whether or not the Lease is terminated by reason of any such taking
or appropriation, Landlord shall be entitled to the entire award and
compensation for the taking which is paid or made by the public or quasi-public
agency, and Tenant shall have no claim against said award. Tenant hereby waives
the provisions of California Civil Code Procedure Section 1205.730 allowing it
to petition the superior court to terminate this Lease in the event of a partial
taking of the Premises except as otherwise allowed by this Paragraph.
27. Offset Statement. Tenant shall at any time and from time to time,
----------------
upon not less than ten (10) days prior written notice from Landlord, execute,
acknowledge, and deliver to Landlord a statement in writing, (a) certifying that
this Lease is unmodified and in full force and effect (or, if modified, stating
the nature of such modifications and certifying that this Lease so modified, is
in full force and effect), and the date to which the rental and other charges
are paid in advance, if any, and (b) acknowledging that there are not, to
Tenant's knowledge, any uncured defaults on the part of Landlord hereunder, or
specifying such defaults if any are claimed. Any such statement may be relied
upon by any prospective purchaser or encumbrancer of all or any portion of the
real property of which the Premises are a part.
28. Parking. Tenant shall have the right to use in common with other
-------
Tenants or occupants of the Building parking facilities, if any, provided by
Landlord for Tenants of the Building. Tenant shall have the right to use on a
reserved basis one (1) parking space to be designated by Landlord and located in
the parking garage beneath the Building. Landlord shall not be responsible for
any person parking in Tenant's reserved parking spaces.
-14-
<PAGE>
29. Notices. All notices, demands, consents, and approvals (collectively
-------
"notices") which may or are required to be given by either party to the other
hereunder shall be in writing. All notices by Landlord to Tenant shall be
sufficient if delivered in person, or by overnight courier, or sent by United
States mail, registered or certified with return receipt requested, postage
prepaid, and addressed to Tenant at the Premises or to such other place as
Tenant may from time to time designate in a written notice to Landlord. All
notices by Tenant to Landlord, shall be sufficient if delivered in person, or by
overnight courier, or sent by United States mail, registered or certified with
return receipt requested, postage prepaid, addressed to Landlord at 10055 Miller
Avenue, Suite 202, Cupertino, California 95014, or to such other person or place
as Landlord may from time to time designate in a notice to Tenant. Any such
notice shall be effective at the time of personal delivery, or one (1) business
day after deposit with an overnight courier service, or three (3) days after
depositing if such notice is deposited in the United States mail, return receipt
requested.
30. Toxic Materials.
---------------
(a) Tenant shall not cause or permit to be discharged into the
plumbing or sewage system of the Building or onto the land underlying or
adjacent to the Building any hazardous, toxic or radioactive materials,
including, but not limited to, those materials identified in Section 66680 of
Title 22 of the California Administrative Code, Division 4, Chapter 30, as
amended from time to time (collectively, "Toxic Materials"). Tenant shall
neutralize, by filtering or otherwise, all Toxic Materials generated by Tenant's
activities on the Premises. Tenant shall at its sole expense comply with any
and all rules, regulations, codes, ordinances, statutes, and other requirements
of lawful governmental authority respecting Toxic Materials, pollution, harmful
chemicals and other materials in connection with Tenant's activities on or about
the Premises. Tenant specifically agrees to comply with any such requirements
relating to the handling, use, storage and disposal of Toxic Materials and other
materials which are considered by any such governmental authorities as harmful,
dangerous, toxic, flammable, or otherwise deserving of special care. Tenant
shall pay the full cost of any clean-up work performed on or about the Premises
as required by any such governmental authority in order to remove, neutralize or
otherwise treat toxic Materials of any type whatsoever directly or indirectly
placed by Tenant or its agents, employees, invitees or contractors on or about
the Premises or the land under or about the Premises.
(b) Tenant shall be solely responsible for and shall indemnify,
defend, and hold Landlord harmless from any and all claims, judgments, losses,
demands, causes of action, proceedings, or hearings relating to the storage,
placement, or use of Toxic Materials (hereinafter collectively referred to as
"Claims") by Tenant, its agents, employees, invitees or contractors on or about
the Premises, including, but not limited to, Claims resulting from the
contamination of subterranean water beneath, adjoining, or in the vicinity of
the Premises. Tenant shall reimburse Landlord for (i) losses in or reductions
to rental income resulting from Tenant's use, storage, and disposal of Toxic
Materials; (ii) all costs of refitting or other alterations to the Premises
necessitated by Tenant's use, storage, or disposal of Toxic Materials including,
but not limited to, alterations required to accommodate an alternate use of the
Premises; and (iii) any diminution in the fair market value of the Premises
caused by Tenant's use, storage, or disposal of Toxic Materials. Tenant agrees
to defend all such claims on behalf of Landlord with counsel acceptable to
Landlord, and to pay all
-15-
<PAGE>
fees, costs, damages, or expenses relating to or arising out of any such Claims
including attorneys' fees and costs. Tenant shall further be solely responsible
for and shall indemnify, defend and hold Landlord harmless from and against all
claims, including reasonable attorneys' fees and costs, arising out of or in
connection with any removal, clean-up, or restoration work which is required by
any government agency having jurisdiction and which arises from Tenant's
storage, use, or disposal of Toxic Materials on the Premises during the term of
this Lease.
(c) The obligations of Tenant under this Paragraph shall survive the
expiration of the Lease term.
31. General Provisions.
------------------
(a) The waiver by Landlord of any term, covenant or condition herein
contained shall not be deemed to be a waiver of such term, covenant or condition
for any subsequent breach of the same or any other terms, covenant or condition
herein contained. The subsequent acceptance of rent hereunder by Landlord shall
not be deemed to be a waiver of any preceding breach by Tenant of any term,
covenant or condition of this Lease, other than the failure of Tenant to pay the
particular rental so. Accepted, regardless of Landlord's knowledge of such
preceding breach at the time of the acceptance of such rent. The acceptance of
partial rent by Landlord shall not be deemed a waiver of the right to full
payment of all rent owed hereunder.
(b) If Tenant is a corporation, each individual executing this Lease
on behalf of said corporation represents and warrants that he is duly authorized
to execute and deliver this Lease on behalf of said corporation, in accordance
with a duly adopted resolution of the Board of Directors of said corporation or
in accordance with the by-laws of said corporation, and that this Lease is
binding upon said corporation in accordance with its terms.
(c) If there be more than one individual or other entity comprising
Tenant, the obligations hereunder imposed upon Tenant shall be joint and several
with respect to said individuals and/or other entities.
(d) The marginal headings and Paragraph titles to the Paragraphs of
this Lease are not a part of this Lease and shall have no affect upon the
construction or interpretation of any part hereof.
(e) Time of the essence of this Lease and each of its
provisions in which performance is a factor.
(f) The covenants and conditions herein contained, subject to the
provisions as to assignment, apply to and bind the heirs, successors, executors,
administrators, and assigns of the parties hereto.
(g) Neither Landlord nor Tenant shall record this Lease or a short
form memorandum hereof without the prior written consent of the other party.
-16-
<PAGE>
(h) Upon Tenant paying the rent reserved hereunder and observing and
performing all of the covenants, conditions and provisions on Tenant's part to
be observed and performed hereunder, Tenant shall have quiet possession of the
Premises for the entire term hereof, subject to all the provisions of this
Lease.
(i) Tenant hereby acknowledges that late payment by Tenant to
Landlord of rent or other sums due hereunder will cause Landlord to incur costs
not contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed upon Landlord by
terms of any mortgage or trust deed covering the Premises. Accordingly, if any
installment of rent or of a sum due from Tenant shall not be received by
Landlord or Landlord's designee within three (3) days after said amount is past
due, then Tenant shall pay to Landlord a late charge equal to ten percent (10%)
of such overdue amount. The parties hereby agree that such late charges
represent a fair and reasonable estimate of the additional costs that Landlord
will incur by reason of the late payment by Tenant. Acceptance of such late
charges by Landlord shall in no event constitute a waiver of Tenant's default
with respect to such overdue amount, nor prevent Landlord from exercising any of
the other rights and remedies granted hereunder.
(j) This Lease contains all of the agreements of the parties hereto
with respect to any matter covered or mentioned in this Lease. No prior
agreements or understandings pertaining to any such matters shall be effective
for any purpose. No provision of this Lease may be amended or added except by
an agreement in writing signed by the parties hereto or their respective
successors in interest. This Lease shall not be effective or binding on any
party until fully executed by both parties hereto.
(k) This Lease and the obligations of Tenant hereunder shall not be
affected or impaired because Landlord is unable to fulfill any of its
obligations hereunder or is delayed in doing so, if such inability or delay is
caused by reason of strike, labor troubles, acts of God, or any other cause
beyond the reasonable control of Landlord.
(l) In the event of any action or proceeding brought by either party
against the other under this Lease, the prevailing party shall be entitled to
recover all costs and expenses, including the fees of its attorneys, whether or
not such action shall proceed to final judgment by a court of law.
(m) In the event of any sale of the Building, Landlord shall be and
is hereby entirely freed and relieved of all liability under any and all of its
covenants and obligations contained in or derived from this Lease arising out of
any act, occurrence, or omission occurring after the consummation of such sale,
and the purchaser at such sale or any subsequent sale of the Building shall be
deemed, without any further agreement between the parties or their successors in
interest or between the parties and any such purchaser, to have assumed and
agreed to carry out all of the covenants and obligations of Landlord under this
Lease.
-17-
<PAGE>
(n) Upon request of Landlord, Tenant will, in writing, subordinate
its rights hereunder to the lien of any mortgage, or deed of trust to any bank,
insurance company or other lending institution, now or hereafter in force
against the Building and/or the land on which the Building is situated, and to
all advances made or hereafter to be made upon the security thereof. If any
proceedings are brought for foreclosure, or in the event of the exercise of the
power of sale under any mortgage or deed of trust made by Landlord covering the
Premises, Tenant shall attorn to the purchaser upon any such foreclosure or sale
and recognize such purchaser as Landlord under this Lease. The provisions of
this Paragraph 30 to the contrary notwithstanding and so long as Tenant is not
in default hereunder, this Lease shall remain in full force and effect for the
full term hereof. Tenant shall execute and return to Landlord any documents
required by the lender to accomplish any subordination requested by Landlord
hereunder within seven (7) days after delivery thereof to Tenant, and the
failure of Tenant to execute and return such documents as and when required
shall constitute a default hereunder.
(o) Tenant shall not use the name of the Building for any purpose
other than as an address of the business to be conducted by Tenant in the
Premises.
(p) Any provision of this Lease which shall prove to be invalid,
void, or illegal shall in no way affect, impair, or invalidate any other
provisions hereof and such other provisions shall remain in full force and
effect.
(q) No remedy or election hereunder shall be deemed exclusive but
shall, wherever possible, be cumulative with all other remedies herein provided
or permitted at law or in equity.
(r) This lease shall be governed by the laws of The State of
California.
(s) Tenant shall not conduct any auction, on or at the Premises or
Building, without Landlord's prior written consent.
(t) The covenants and conditions contained herein, subject to the
provisions as to assignment, shall apply to and be binding upon the parties'
respective heirs, executors, administrators, assigns and other successors in
interest.
(u) The voluntary or other surrender of this Lease, or a mutual
cancellation thereof, shall not work an automatic merger, but shall, at the sole
option of Landlord, either terminate all or any existing subleases or
subtenancies, or operate as an assignment to Landlord of any or all of such
subleases or subtenancies.
(v) Any prevention of or delay in the performance by a party hereto
of its obligations under this Lease caused by inclement weather, labor disputes
(including strikes and lockouts), inability to obtain materials or reasonable
substitutes therefor, governmental restrictions, regulations, controls, action
or inaction, civil commotion, fire or other causes beyond the reasonable control
of the party obligated to perform (except financial inability), shall excuse the
performance by
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<PAGE>
such party of its obligations hereunder (except the obligation of Tenant to pay
rent and other sums hereunder) for a period of one day for each such day of
delay.
32. Brokers. Tenant warrants that it has had no dealings with any real
-------
estate broker or agent in connection with the negotiation of this Lease,
excepting only Jack Troedson and Brad Van Ling of Cornish & Carey, whose fee
Landlord shall pay. Landlord and Tenant agree to hold the other harmless from
and indemnify the other against any claim or demand for commission, finder's
fee, or other compensation by any broker, other than the brokers named herein
based upon their respective acts.
33. List of Exhibits. The following is a complete list of documents
----------------
attached hereto and made a part of this Lease:
Exhibit "A" - Premises
Exhibit "B" - Tenant Improvement Plan
Exhibit "C" - Common Areas
Exhibit "D" - Rules and Regulations
IN WITNESS WHEREOF, the parties hereto have executed this Lease on the
dates set forth opposite their respective signatures.
Landlord:
KONTRABECKI-MASON DEVELOPERS, a California General Partnership
By:/S/J.T. KONTRABECKI
-------------------
Title: GENERAL PARTNER Dated: 1/21/92
----------------- -------
Tenant:
SALIX PHARMACEUTICALS, INC., a California Corporation
By:/S/LORIN K. JOHNSON
-------------------
Title: VICE PRESIDENT Dated: 1/20/92
-------------- -------
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<PAGE>
EXHIBIT "A"
FLOOR PLAN OF LEASED SPACE
--------------------------
[Floor plan graphic omitted]
<PAGE>
EXHIBIT "B"
SUBJECT PROPERTY IS LEASED IN IMPROVED "AS IS" CONDITION
<PAGE>
EXHIBIT "C"
COMMON AREAS
------------
The following are the "Common Areas" for that certain two-story building
commonly known as 3600 West Bayshore Road, Palo Alto, California 94303:
1. Parking lot and parking garage
2. Outdoor patios
3. Men's and Women's restrooms
4. Lobbies and corridors
5. Landscaped areas
<PAGE>
EXHIBIT "D"
RULES AND REGULATIONS OF BUILDING
---------------------------------
1. Tenant, and its employees and patrons, shall not loiter in the entrances or
corridors, nor in any way obstruct the sidewalks, entry passages, halls and
stairways and shall use the same only as passageways and means of passage to and
from their respective offices.
2. The sash doors, sashes, windows, glass doors, lights, and skylights that
reflect or admit light into the halls or other places of the Building shall not
be covered or obstructed. The toilets and urinals shall not be used for any
purpose other than those for which they were constructed, and no rubbish,
newspapers or other substances of any kind shall be thrown into them. Waste and
excessive or unusual use of water shall not be allowed. Tenant shall not mark,
drive nails, screw or drill into, paint, nor in any way deface the walls,
ceilings, partitions, floors, wood, stone or iron work. The expense of any
breakage, stoppage or damage resulting from a violation of this rule shall be
borne by Tenant.
3. Tenant shall not paint, display, inscribe, maintain or affix any sign,
placard, picture, advertisement, name, notice, lettering, or direction
(collectively "signs") on any part of the outside or inside of the Building, or
on any part of the inside of the Premises which can be seen from the outside of
the Premises, without the written consent of Landlord, and then only such name
or names or matter and in such color, size, style, character and material as may
be first approved by Landlord in writing. Landlord reserves the right to remove
at Tenant's expense all signs other than those permitted pursuant to the
foregoing without notice to Tenant.
4. Electric wiring of every kind shall be introduced and connected as directed
by Landlord and no boring nor cutting for wires will be allowed except with the
consent of Landlord. The location of telephones, call boxes, etc. shall be
prescribed by Landlord.
5. Landlord shall prescribe the weight, size and position of all safes and
other property brought into the Building, and also the times of moving the same
in and out of the Building, and all such moving must be done under the
supervision of Landlord. Landlord will not be responsible for any loss of or
damage to any such safe or property from any cause; but all damage done to the
building by moving or maintaining any such safe or property shall be repaired at
the expense of Tenant. All safes shall stand on timbers of such size as shall
be designated by Landlord.
6. No additional lock or locks shall be placed by Tenant on any door in the
Building unless written consent of Landlord shall have first been obtained. All
keys shall be surrendered to Landlord upon termination of the tenancy.
7. Tenant shall not employ any person or persons other than the janitor of
Landlord for the purpose of cleaning the Premises without the consent of
Landlord. Landlord shall not be responsible to Tenant for any loss of property
from the Premises, however occurring, or for any damage done to the effects of
Tenant by the janitor or any other of Landlord's employees, or by any other
person.
<PAGE>
8. Tenant, and/or its guests and employees, shall not make or permit any
unduly loud or otherwise unduly disturbing noises in the Building, nor smoke
tobacco in the public areas, nor play musical instruments in the Building, nor
disturb or interfere in any way with other Tenants of the Building or those
having business with them. Tenant, and its guests and employees, shall not throw
substances of any kind out of the windows or doors, nor down the passages or
skylights of the Building, nor set, or place anything upon the window sills, or
bring in or keep within the Building any animal or motorcycle or other vehicle.
9. All freight must be moved into, within and out of the Building according to
such regulations as may be posted in the Building, but Landlord will not be
responsible for loss of or damage to such freight from any cause.
10. No awnings are allowed. Any window covering desired by Tenant shall be
installed at its expense and must be of such uniform shape, color, material and
make as may be prescribed by Landlord.
11. No physician, surgeon or dentist shall advertise his business in any manner
prohibited by the Code of Ethics of the American Medical Association.
12. At any time while the Building is in charge of a watchman, any person
entering or leaving the Building may be questioned by him as to his business in
the Building, and anyone not satisfying the watchman of his right to enter the
Building nay be excluded by him.
13. Landlord reserves the right to make such other and further rules and
regulations as in his judgment may from time to time be necessary for the safety
and cleanliness of, and for the preservation of good order in the Building.
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<PAGE>
ADDENDUM "I"
This Addendum I is executed by and between KONTRABECKI-MASON DEVELOPERS, a
California General Partnership as Landlord, and SALIX PHARMACEUTICALS, INC., a
California Corporation as Tenant with respect to those certain Premises commonly
known as 3600 West Bayshore Road, Suite 102, Palo Alto, California 94303. This
Addendum I is an integral part of the Lease to which it is attached; provided,
the provisions of this Addendum I supersede the provisions of the Lease to the
extent inconsistent therewith.
1. Paragraph 2(a) of the Lease is amended so that the Premises shall be Suite
202, situated on the second floor of the Building.
3. This addendum shall become effective on April 1, 1992. Except as provided
herein, all other terms and conditions of the Lease shall be as previously
set forth and are hereby ratified, affirmed, and in full force and effect.
LANDLORD
KONTRABECKI-MASON DEVELOPERS,
a California General Partnership
By:/S/J.T. KONTRABECKI
-------------------
Title: GENERAL PARTNER Dated: 2/5/92
----------------- ------
TENANT
SALIX PHARMACEUTICALS, INC.,
a California Corporation
By:/S/LORIN K. JOHNSON
-------------------
Title: VICE PRESIDENT Dated: 2/10/92
-------------- -------
<PAGE>
ADDENDUM "II"
This Addendum II is executed by and between KONTRABECKI-MASON DEVELOPERS, a
California General Partnership as Landlord, and SALIX PHARMACEUTICALS, INC., a
California Corporation as Tenant with respect to those certain Premises commonly
known as 3600 West Bayshore Road, Suite 202, Palo Alto, California 94303. This
Addendum II is an integral part of the Lease and Addendum I to which it is
attached; provided, the provisions of this Addendum II supersede the provisions
of the Lease and Addendum I to the extent inconsistent therewith.
1. Paragraph 2(a) of the Lease is amended to reflect the expansion of the
Premises. The agreed area of the Premises of 762 square feet is increased
by 2,188 square feet to 2,950 square feet. Tenant's share of the total
leasable space within the Building is increased from two and 15/100's
percent (2.15%) by six and 17/100's percent (6.17%) to eight and 32/100's
percent (8.32%).
2. Paragraph 4(a) of the Lease is amended so that the expiration date of the
Lease shall be October 31, 1995.
3. Paragraph 6(a) of the Lease is amended so that the security deposit is
increased from $1,440.18 by $4,135.32 to $5,575.50.
4. Paragraph 7(a) of the Lease is amended so that the monthly rent for the
Lease term shall increase from $1,104.90 by $3,172.60 to $4,277.50.
5. Paragraph 7(b)(i) of the Lease is amended so that the monthly estimated
operating expenses shall increase from $335.28 by $962.72 to $1,298.00.
6. Paragraph 28 of the Lease is amended so that the number of reserved spaces
in the parking garage shall increase from one (1)space by two (2) spaces to
three (3) spaces.
7. This addendum shall become effective on November 1, 1992. Except as
provided herein, all other terms and conditions of the Lease and Addendum I
shall be as previously set forth and are hereby ratified, affirmed, and in
full force and effect.
LANDLORD
KONTRABECKI-MASON DEVELOPERS,
a California General Partnership
By:/S/J.T. KONTRABECKI
-------------------
Title: GENERAL PARTNER Dated: 9/15/92
----------------- -------
TENANT
SALIX PHARMACEUTICALS, INC.,
a California Corporation
By:/S/LORIN K. JOHNSON
-------------------
Title: VICE PRESIDENT Date: 9/15/92
-------------- -------
<PAGE>
ADDENDUM "III"
This Addendum III is executed by and between KONTRABECKI-MASON DEVELOPERS, a
California General Partnership as Landlord, and SALIX PHARMACEUTICALS, INC., a
California Corporation as Tenant with respect to those certain Premises commonly
known as 3600 West Bayshore Road, Suite 205, Palo Alto, California 94303. This
Addendum III is an integral part of the Lease and Addendum I and II to which it
is attached; provided, the provisions of this Addendum III supersede the
provisions of the Lease and Addendum I and II to the extent inconsistent
therewith.
1. Paragraph 4(a) of the Lease is amended so that the expiration date of the
Lease shall be November 30, 1998.
2. Paragraph 6(a) of the Lease is amended so that the security deposit is
increased from $6,666.00 by $255.75 to $6,921.75.
3. Paragraph 7(a) of the Lease is amended so that the monthly rent for the
Lease term shall increase from as follows:
December 1, 1995 - $5,369.86
December 1, 1996 - $5,638.35
December 1, 1997 - $5,920.27
4. Except as provided herein, all other terms and conditions of the Lease
and Addendum I and II shall be as previously set forth and are hereby
ratified, affirmed, and in full force and effect.
LANDLORD
KONTRABECKI-MASON DEVELOPERS,
a California General Partnership
By:/S/STEVE S. MASON
-----------------
Title: GENERAL PARTNER Dated: 4/14/95
----------------- -------
TENANT
SALIX PHARMACEUTICALS, INC.,
a California Corporation
By:/S/LORIN K. JOHNSON
-------------------
Title: VICE PRESIDENT Dated: 4/14/95
-------------- -------
<PAGE>
ADDENDUM "IV"
This Addendum IV is executed by and between KONTRABECKI-MASON, a California
General Partnership as Landlord, and SALIX PHARMACEUTICALS, Inc., a California
Corporation as Tenant with respect to those certain Premises commonly known as
3600 West Bayshore Road, Suite 205, Palo Alto, California 94303. This Addendum
IV is an integral part of the Lease and Addendum I, II, and III to which it is
attached; provided, the provisions of this Addendum IV supersede the provisions
of the Lease and Addendum I, II, and III to the extent inconsistent therewith.
1. Paragraph 2(a) of the Lease is amended to reflect the expansion of the
Premises. The agreed area of the Premises of 3,527 square feet is increased
by 2,001 square feet to 5,528 square feet. Tenant's share of the total
leasable space within the building is increased from ten percent (10%) by
five and 71/100's percent (5.71%) to fifteen and 71/100's percent (15.71%).
2. Paragraph 4(a) of the Lease is amended so that the expiration date of the
Lease shall be July 31, 2000.
3. Paragraph 6(a) of the Lease is amended so that the security deposit is
increased from $6,921.75 to $10,462.75.
4. Paragraph 7(a) of the Lease is amended so that the monthly rent for the
Lease term shall be as follows:
<TABLE>
<CAPTION>
<S> <C>
08/01/96 - 11/31/96 $ 8,911.63
12/01/96 - 11/31/97 $ 9,180.12
12/01/97 - 11/30/98 $ 9,462.04
12/01/98 - 07/31/00 $10,779.60
</TABLE>
5. Paragraph 7(b)(i) of the Lease is amended so that the monthly estimated
operating expenses shall increase from $1,551.88 by $900.45 to $2,452.33.
6. Paragraph 28 of the Lease is amended so that the number of reserved spaces
in the parking garage shall increase from four (4) spaces by two (2) spaces
to six (6) spaces.
7. Tenant shall pay up to $2,500 for the creation of a suitable passageway
between the current space and the expansion space, and Landlord agrees to
pay any additional cost above this amount.
8. This addendum is contingent upon the termination of the Karen Butera Inc.
lease in Suite 204 of the Premises by October 1, 1996.
9. This addendum shall be effective on the later of August 1, 1996, or the
termination date of the Karen Butera Inc. lease. Except as provided herein,
all other terms and conditions of the Lease and Addendum I, II, and III
shall be as previously set forth and are hereby ratified, affirmed, and in
full force and effect.
LANDLORD
KONTRABECKI-MASON DEVELOPERS,
a California Partnership
By:/S/J.T. KONTRABECKI
-------------------
Title: GENERAL PARTNER Dated: 6/5/96
----------------- ------
TENANT
SALIX PHARMACEUTICALS, INC.,
a California Corporation
By:/S/LORIN K. JOHNSON
-------------------
Title: VICE PRESIDENT Dated: 6/5/96
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<PAGE>
ADDENDUM "V"
This ADDENDUM "V" is dated for reference purposes as of July 27, 1997 and is
made between Kontrabecki-Mason Developers, a California general partnership
("Landlord"), and Salix Pharmaceuticals, Inc., a California Corporation
("Tenant"), with respect to those certain Premises commonly known as 3600 West
Bayshore Road, Suite 101 and Suite 205, Palo Alto, California 94303. This
Addendum V is an integral part of the Lease and Addendum I, II, III, and IV to
which it is attached; provided, the provisions of this Addendum V supersede the
provisions of the Lease and Addendum I, II, III, and IV to the extent
inconsistent therewith.
1. Paragraph 2 (a) of the Lease is amended to reflect the expansion of the
premises. The agreed area of the Premises of 5,528 square feet is
increased by 2,056 square feet to 7,584 square feet. Tenant's share of the
total leasable space within the building is increased from fifteen and
71/100's percent (15.71%) by five and 84/100s percent (5.84%) to twenty one
and 55/100's percent (21.55%). Along with the new premises, Tenant shall
have the right to five (5) additional assigned parking spaces in the
underground parking garage.
2. Paragraph 6(a) of the Lease is amended so that the security (deposit is
increased from $10,462.75 by $7,915.60 to $18,378.35.
3. Paragraph 7(a) of the Lease is amended to add the following rent schedule
for Suite 101 (the "Expansion Space").
<TABLE>
<CAPTION>
<S> <C> <C>
09/01/97 - 08/31/98 $6,168.00 $3.00 per sq ft
09/01/98 - 08/31/99 $6,373.60 $3.10 per sq ft
09/01/99 - 08/31/00 $6,579.20 $3.20 per sq ft
09/01/00 - 08/31/01 $6,784.80 $3.30 per sq ft
</TABLE>
Upon the expiration of the original lease term for Suite 205, the new
rental rate shall correspond with the rent schedule, per square foot, as
outlined above.
4. Paragraph 7 (b) of the Lease is amended to add the monthly estimated
operating expenses for Suite 101 of $925.20.
5. Renewal Option: Tenant shall have one (1) option to extend the Lease for
five (5) years at Fair Market Value by providing written notice not less
than one hundred and eighty days (180) prior to the expiration of the
lease.
6. Except as provided herein, all other terms and conditions of the Lease and
Addendum I, II, III, and IV shall be as previously set forth and are hereby
ratified, affirmed, and in full force and effect.
7. Paragraph 4(a) of the Lease is amended so that the expiration date of the
Lease shall be August 31, 2001.
<PAGE>
LANDLORD
KONTRABECKI-MASON DEVELOPERS, a California general partnership
By:___________________________ Date:__________________
Its:__________________________
TENANT
SALIX PHARMACEUTICALS, INC., a California corporation
/s/ Randy Hamilton 7/31/97
By:___________________________ Date:__________________
President
Its:__________________________
<PAGE>
Exhibit 21.1
Subsidiaries of the Registrant
Name Place of Incorporation
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Glycyx Pharmaceuticals, Ltd. Bermuda
Salix Pharmaceuticals, Inc. California
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Selected
Consolidated Financial Data" and "Experts" and to the use of our report dated
March 18, 1997, in the Registration Statement (Form S-1) and related Prospectus
of Salix Holdings, Ltd. for the registration of 3,450,000 shares of its common
stock.
/S/ ERNST & YOUNG, LLP
Palo Alto, California
August 14, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 JUN-30-1997
<CASH> 5,624 3,657
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 200
<CURRENT-ASSETS> 5,703 4,055
<PP&E> 333 373
<DEPRECIATION> 188 221
<TOTAL-ASSETS> 5,858 4,250
<CURRENT-LIABILITIES> 1,265 1,069
<BONDS> 0 0
0 0
0 0
<COMMON> 13,194 14,257
<OTHER-SE> (8,601) (11,076)
<TOTAL-LIABILITY-AND-EQUITY> 5,858 4,250
<SALES> 0 0
<TOTAL-REVENUES> 1,820 21
<CGS> 0 0
<TOTAL-COSTS> 4,389 2,596
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 172 22
<INCOME-PRETAX> (2,451) (2,475)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (2,451) (2,475)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2,451) (2,475)
<EPS-PRIMARY> (0.46) (0.35)
<EPS-DILUTED> (0.46) (0.35)
</TABLE>
