EXHIBIT 1.2(a)
ACQUISITION PROMISSORY NOTE
U.S.$1,394,400 Sonora, California
October 1, 2000
SIERRA DIAGNOSTICS, LLC, a California limited liability company ("Debtor"),
for value received, hereby promises to pay to the order of SELECT THERAPEUTICS
INC., a Delaware corporation ("Select") in lawful money of the United States at
the address of Select set forth below, the Principal Amount (defined below) of
this Note, together with interest on the unpaid principal at the Interest Rate
(defined below).
This Note is made and delivered pursuant to the terms of the Stock Purchase
Agreement dated November 3, 2000 between Debtor and Select (the "Stock Purchase
Agreement"), and is made subject to the terms of the Stock Purchase Agreement.
Debtor's obligations under this Note are secured pursuant to the terms of an IP
Security Agreement dated November 2, 2000 between Debtor and Select.
1. Principal Amount. The Principal Amount of this Note shall equal the sum
of the following:
(a) U.S.$1,394,400 which represents the amount of the Select Advances
(as defined in the Stock Purchase Agreement); and
(b) All Patent Work Advances made by Select pursuant to the terms of
Section 5.2 of the Stock Purchase Agreement.
All Patent Work Advances, and all payments by Debtor under this Note, shall be
noted by Select on the attached SCHEDULE OF ADVANCES, INTEREST RATES AND
PAYMENTS; provided however, that the act or failure of Select to note and
initial any advance or payment shall not bar either party from claiming that
such advance or payment has or has not been made. Select shall provide to Debtor
a copy of the SCHEDULE OF ADVANCES, INTEREST RATES AND PAYMENTS promptly
following any request therefor by Debtor.
2. Interest Rate. The term "Interest Rate" shall have the meaning set forth
in this Section 2. The initial Interest Rate for the period commencing on the
date of this Note and ending on December 31, 2000 shall be nine and five-tenths
percent (9.5%) per annum. From and after December 31, 2000, on the first day of
each calendar quarter during the term of this Note (i.e., January 1, April 1,
July 1, and October 1) (each, an "Adjustment Date" ) the Interest Rate shall be
the "Prime Rate" per annum in effect on such Adjustment Date as quoted per the
Wall Street Journal in its Money Rates section, which Interest Rate shall remain
in effect until the next Adjustment Date. The Interest Rate applicable on each
Adjustment Date shall be noted by Select on the attached SCHEDULE OF ADVANCES,
INTEREST RATES AND PAYMENTS;
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provided however, that the act or failure of Select to note and initial any such
Interest Rate shall not bar either party from claiming that a different Interest
Rate applies under the terms of this Note.
3. Payments of Principal and Interest. Principal and interest shall be due
and payable as follows:
a. Accrued interest shall be due and payable on the first day of each
calendar quarter during the term of this Note, with the first such
quarterly payment due on January 1, 2001.
b. Principal shall be paid on or before January 31 of each year,
beginning on January 31, 2002, in an amount equal to twenty five percent
(25%) of the amount by which SDI Net Sales (defined below) for the
immediately preceding calendar year exceed U.S.$650,000; provided that in
the event that in any calendar quarter beginning after December 31, 2000,
SDI Net Sales exceed U.S.$167,500, then Debtor shall make a prepayment in
an amount not less than fifteen percent (15%) of the amount by which SDI
Net Sales during such calendar quarter exceed U.S.$167,500, and such
prepayment shall be due and payable within thirty (30) days following the
end of the subject calendar quarter.
c. The entire principal balance and all accrued and unpaid interest
shall be entirely due and payable upon a Change in Control (defined below).
d. Any and all payments shall be applied first to the payment of
accrued interest and then to reduce the outstanding principal balance
hereunder.
e. This Note may be prepaid, in whole or in part, at any time without
premium or penalty.
4. Default. Debtor shall be in default (a "Default Event") under this Note
if (a) Debtor fails to make any payment as and when due hereunder, or (b) Debtor
shall have breached the Stock Purchase Agreement, the Royalty Agreement or the
IP Security Agreement, and said failure or breach (i) if it involves the payment
of money to Select, is not cured within five (5) days following Select's written
demand for payment or notice of breach, or (ii) if it involves obligations other
than the payment of money to Select, is not cured within thirty (30) days
following Select's written demand for payment or notice of breach (or, if not
reasonably capable of cure within such thirty (30) day period, if cure is not
commenced within such thirty (30) day period and diligently pursued to
completion thereafter). Upon the occurrence of a Default Event, the principal
amount of this Note then outstanding, plus all accrued interest, shall
immediately become due and payable, and Select shall be entitled to exercise all
remedies available under law and in equity.
5. Attorneys' Fees. If the indebtedness represented by this Note or any
part thereof is collected at law or in equity or in bankruptcy, receivership or
other judicial proceedings or if this Note is placed in the hands of attorneys
for collection after a Default Event, Debtor agrees to pay, in addition to the
principal and interest payable hereon, the actual attorneys' fees and costs
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incurred by Select. In the event of litigation arising under this Note, the
prevailing party shall be entitled to its actual attorneys' fees and costs, in
addition to any other relief to which it may be entitled.
6. Usury. The Debtor and Select intend to comply at all times with
applicable usury laws. If at any time such laws would render usurious any
amounts due under this Note, then it is the Debtor's and Select's express
intention that the Debtor not be required to pay interest on this Note at a rate
in excess of the maximum lawful rate, that the provisions of this paragraph
shall control over all other provisions of this Note which may be in apparent
conflict hereunder, that such excess amount shall be immediately credited to the
principal balance of this Note (and if this Note has been fully paid, refunded
by Select to the Debtor), and the provisions hereof shall be immediately
reformed and if necessary the amounts thereafter collectible under this Note
reduced, without the necessity of the execution of any further documents, so as
to comply with the then applicable usury law, but so as to permit the recovery
of the fullest amount otherwise due under this Note. The term "applicable law"
as used in this Note shall mean the laws of the State of New York, as such laws
now exist or may be changed or amended or come into effect in the future.
7. Notices. All notices, requests, demands and other communications under
this Note shall be in writing and shall be deemed given when delivered
personally or by reputable overnight courier or mailed by registered or
certified mail, return receipt requested, to the parties at the following
addresses:
(a) if to Debtor, at:
Sierra Diagnostics, LLC
21109 Longeway, #C
Sonora, California 95370
Attn: Mr. Tony K. Baker
with a copy to:
Jeffrey B. Detwiler, Esq.
Dudnick Detwiler, Rivin & Stikker, LLP
351 California Street, 15th Floor
San Francisco, California 94104
(b) if to Select, at:
Select Therapeutics Inc.
50 O'Connor Street - Suite 300
Ottawa, Ontario KlP 6L2
CANADA
Attn: Mr. Robert Bender, Chairman
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<PAGE>
with a copy to:
Richard G. Klein, Esq.
Hofheimer Gartlir & Gross, LLP
530 Fifth Avenue
New York, New York 10036
Each of the above addressees may change its address for purposes of this
paragraph by giving to the other addressees notice in conformance with this
paragraph of such new address. Any payment shall be deemed made only upon
receipt by Select.
8. Definitions. As used in this Note, the following terms shall have the
meanings indicated:
(a) "Sierra" shall mean Sierra Diagnostics, Inc., a California
corporation, the entity's whose outstanding stock was acquired by Debtor
pursuant to the terms of the Stock Purchase Agreement.
(b) "Change in Control" shall mean any consolidation, merger or
reorganization of Debtor or Sierra with or into any other corporation or
other business entity (except of Sierra into Debtor or of Sierra into a
wholly-owned subsidiary of Sierra or Debtor), or the merger of any other
person or entity into Debtor or Sierra, or a sale, conveyance or
disposition of all or substantially all of the assets of Debtor or Sierra,
or the liquidation of Sierra other than in connection with the transfer of
substantially all of its assets to Debtor, or the liquidation of Debtor, or
a sale by Debtor of any of the outstanding voting stock of Sierra, or an
event or series of events by which any "person" or "group" (as such terms
are used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934
Act) other than Tony Baker becomes the "beneficial owner" (as defined in
Rule 13d-3 under such Act), directly or indirectly, of more than fifty
percent (50%) of the aggregate voting power of all the capital stock of
Sierra or membership interests of Debtor on a fully diluted basis, or Tony
Baker ceases to be either President of Sierra or the owner, directly or
indirectly, on a fully diluted basis of at least 50% of the capital stock
of Sierra or the membership interests of Debtor.
(c) "SDI Net Sales" shall mean sums actually received by Sierra after
the date of this Note from sales or licensing by Sierra of Current SDI
Products (as defined below), excluding trade or quantity discounts actually
allowed, sales commissions actually paid or allowed, sales, use, excise or
other taxes paid or accrued, transportation, packing and shipping charges
actually paid by Sierra, and amounts actually repaid or credited by reason
of rejections, returns, refunds or warranties; provided that SDI Net Sales
shall not include licensing revenues from RNA/DNA Protect shop right
licenses for which Select is entitled to receive a 50% share pursuant to
Article 1 of that certain agreement between Select and Sierra entitled
Royalty Agreement dated as of October 1, 2000.
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<PAGE>
(d) "Current SDI Products" shall mean RNA/DNA Protect and Gonostat
products manufactured pursuant to one or more of the patents listed on
Schedule A to this Acquisition Promissory Note (the "Scheduled Patents").
Current SDI Products shall also mean Derivative Products of RNA/DNA Protect
or Gonostat. "Derivative Products" means products which use technology or
intellectual property which would infringe upon one or more of the
Scheduled Patents if produced or sold by a third party. Current SDI
Products shall in no event include products developed or acquired by Sierra
after the date of this Note which are not Derivative Products.
9. Miscellaneous. If any payment of principal or interest on this Note
shall become due on a Saturday, Sunday, or a public holiday under the laws of
the State of New York, such payment shall be made on the next succeeding
business day and such extension of time shall be included in computing interest
in connection with such payment. Upon payment in full of all principal and
interest payable hereunder, this Note shall be surrendered to Debtor for
cancellation. Debtor waives presentment, demand for performance, notice of
nonperformance, protest, notice of protest, and notice of dishonor. No delay on
the part of Select in exercising any right hereunder shall operate as a waiver
of such right under this Note. This Note shall be construed in accordance with
the laws of the State of New York applicable to contracts entered into and
wholly performed in New York. Any legal action, suit or proceeding arising out
of or relating to this Note or the transactions contemplated hereby may be
instituted in the federal courts of the State of New York and each party waives
any objection which such party may now or hereafter have to the laying of venue
of any such action, suit or proceeding and irrevocably submits to the
jurisdiction of any such court in any such action, suit or proceeding. Any and
all service of process and any other notice in any such action, suit or
proceeding shall be effective against any party if given by registered or
certified mail, return receipt requested, or by any other means of mail that
requires a signed receipt, postage prepaid, mailed to such party as herein
provided. If for any reason such service of process by mail is ineffective, then
each party shall be deemed to have appointed its attorney designated in Section
7.4 of the Stock Purchase Agreement as such party's authorized agent to accept
and acknowledge on such party's behalf service of any and all process which may
be served in any such action, suit or proceeding. Nothing herein contained shall
be deemed to affect the right of any party to serve process in any manner
permitted by law or to commence legal proceedings or otherwise proceed against
any other party in any jurisdiction other than New York.
IN WITNESS WHEREOF, this Note is executed and delivered as of the date
first set forth above.
DEBTOR: SIERRA DIAGNOSTICS, LLC
By:
---------------------------
Tony K. Baker, Manager
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<PAGE>
SCHEDULE OF ADVANCES, INTEREST RATES AND PAYMENTS
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<CAPTION>
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DATE INTEREST PATENT ACCRUED PAYMENTS OUTSTANDING INITIALS
RATE WORK INTEREST PRINCIPAL BALANCE
ADVANCE
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<S> <C> <C> <C> <C> <C> <C>
10/1/00 9.5% U.S.$1,394,400.00
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