ROYALTY AGREEMENT
This ROYALTY AGREEMENT (the "Agreement") is made effective as of October 1, 2000
(the "Closing Date" ) by and between SELECT THERAPEUTICS INC., a Delaware
corporation ("Select"), SIERRA DIAGNOSTICS, INC., a California corporation
("Sierra"), and SIERRA DIAGNOSTICS, LLC, a California limited liability company
("Sierra LLC").
Article 1 RNA/DNA Protect Shop Rights Licensing.
1.1 Sierra hereby grants to Select a nonexclusive, nontransferable,
royalty-free license to sublicense shop rights for RNA/DNA Protect to third
parties. Any such sublicenses granted by Select shall be with such
sublicensee(s), and pursuant to the terms of a written sublicense
agreement(s) between Select and its sublicensee(s), as are approved by
Sierra, which approval shall not be unreasonably withheld or delayed. This
license granted to Select shall expire on the date of payment in full of
all amounts owing under the that certain Acquisition Promissory Note dated
as of the Closing Date naming Select as payee and Sierra Diagnostics, LLC,
a California limited liability company, as payor (the " Expiration Date");
provided that such expiration shall not negate or otherwise affect rights
of Select or sublicensee(s) granted pursuant to sublicense agreements
entered into before the Expiration Date. Select shall pay to Sierra 50% of
all royalty payments it actually receives from its sublicensee(s) within 10
days after Select's actual receipt of each such payment, regardless whether
the payment is received before or after the Expiration Date.
1.2 Sierra shall pay to Select 50% of any royalty payments Sierra
receives pursuant to the terms of any RNA/DNA Protect shop right licenses
which Sierra may grant to third parties after the Closing Date and before
the Expiration Date. Such payments shall be made to Select within 10 days
after Sierra's actual receipt of each such payment, regardless whether the
payment is received before or after the Expiration Date. Select's right to
share in royalty payments under this Section 1.2 shall not apply to any
royalty payments received by Sierra pursuant to RNA/DNA Protect shop right
licenses entered into by Sierra after the Expiration Date.
Article 2 Perpetual Net Sales Royalty to Select.
2.1 Sierra shall pay to Select a royalty equal to six percent (6%) of
the amount of SDI Net Sales (defined below) in excess of U.S.$650,000 per
calendar year, for calendar years beginning after 2000 (the "Net Sales
Royalty"). Such payment shall be made by Sierra to Select within 60 days
after the end of each such calendar year; provided that in the event that
at such time during any calendar year as Sierra generates SDI Net Sales in
excess of U.S.$650,000, Sierra thereafter for the balance of such year
shall commence making such royalty payments on a quarterly basis, and
payments shall be due within 15 days after the end of each quarter. Select
shall be entitled to receive the Net Sales Royalty on a perpetual basis
except as otherwise provided in Article 3 below.
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2.2 "SDI Net Sales" means sums actually received by Sierra after the
Closing Date from sales or licensing by Sierra of Current SDI Products,
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, 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 above.
2.3 "Current SDI Products" mean RNA/DNA Protect and Gonostat products
manufactured pursuant to one or more of the patents attached as Exhibit A
to this Royalty Agreement. Current SDI Products shall also mean Derivative
Products of RNA/DNA Protect and Derivative Products of Gonostat. Current
SDI Products shall in no event include products developed or acquired after
the Closing Date. "Derivative Products" means products which use technology
or intellectual property which would infringe upon 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.
Article 3 Termination of Net Sales Royalty.
3.1 Select's right to receive the Net Sales Royalty shall terminate if
(i) there is a Change in Control (defined below), and (ii) within thirty
(30) days after the date of the Change in Control, Sierra or Sierra LLC (a)
provide to Select a written notice electing to terminate the Net Sales
Royalty (the "Termination Notice"), and (b) simultaneously with delivery of
the Termination Notice, pays to Select the Royalty Termination Payment
(defined below).
3.2 By way of clarification of Section 3.1, in the event Select's
right to receive the Net Sales Royalty is duly terminated, Select shall be
entitled to receive Net Sales Royalties only on SDI Net Sales made through
the date it receives the Termination Notice and the Royalty Termination
Payment under Section 3.1 (excluding any portions of the Royalty
Termination Payment which may be deferred in accordance with the terms of
Section 3.4(b)), but shall not be entitled to receive any Net Sales
Royalties on SDI Net Sales made after that date. For purposes of this
Section 3.2, SDI Net Sales shall be deemed to have been "made" (a) with
respect to a product sale, on the date that Sierra accepts the purchase
order for the product generating the SDI Net Sale, subject to the condition
subsequent that the product is shipped, and (b) with respect to a licensing
payment, on the date that Sierra's right to receive such payment accrues;
provided that Sierra shall in no event be obligated to pay any Net Sales
Royalty under Article 2 before SDI Net Sales payments are actually received
by Sierra.
3.3 "Change in Control" means any consolidation, merger or
reorganization of Sierra LLC or Sierra with or into any other corporation
or other business entity (except of Sierra into Sierra LLC or of Sierra
into a wholly-owned subsidiary of Sierra or Sierra LLC), or the merger of
any other person or entity into Sierra LLC or Sierra, or a sale, conveyance
or disposition of all or substantially all of the assets of Sierra LLC or
Sierra, or a sale by Sierra LLC of any of the outstanding voting stock of
Sierra. Sierra shall give Select written notice of Change
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in Control and the amount of Gross Sale Proceeds (defined below) within three
(3) days after any Change in Control
3.4
(a) "Royalty Termination Payment" means six percent (6%) of the
Gross Sale Proceeds (defined below) paid in the Change in Control
transaction to which the Termination Notice relates; provided that in
no event shall the Royalty Termination Payment be less than Seven
Hundred Fifty Thousand United States Dollars (U.S.$750,000.00).
(b) If Gross Sale Proceeds are payable in installments or their
receipt is otherwise deferred pursuant to the terms of such Change in
Control transaction, then any 6% portion of such deferred proceeds
payable to Select under this Article 3 shall be paid to Select at
Sierra LLC's election either (a) as such deferred payments are
received (notwithstanding the terms of Section 3.1 above otherwise
requiring that payments accompany the Termination Notice) or (b) on
the date of the Termination Notice in an amount equal to 6% of the
present fair market value of such deferred payments as mutually agreed
by Select and Sierra LLC.
(c) If Gross Sale Proceeds are received in a form other than cash
pursuant to the terms of such Change in Control transaction, and if
the terms of Section 3.4(b) do not apply, then any 6% portion of such
non-cash proceeds payable to Select under this Article 3 shall be paid
to Select at Select's election either (x) in-ki nd or (y) in cash
equal to the present fair market value of such non-cash proceeds as
mutually agreed by Select and Sierra LLC.
(d) In the event that the parties are unable to mutually agree on
any present fair market value amount to be determined under Section
3.4(b) or (c), the determination shall be made by an accountant
employed by a United States-based nationally recognized accounting
firm appointed jointly by Select and Sierra LLC, with the fees of such
accountant shared equally by Select and Sierra LLC (or, if they are
unable to jointly agree on an appointee, by the presiding judge of the
Superior Court of the State of California in and for the City and
County of San Francisco).
3.4 "Gross Sale Proceeds" means the aggregate total consideration of
every description payable to Sierra and Sierra LLC and their respective
shareholders and members pursuant to the terms of the Change in Control
transaction to which the Termination Notice relates, including such cash,
securities and installment obligation payments which are contingent, but
expressly excluding such commercially reasonable amounts payable for or in
consideration of employment and/or consulting services from shareholders or
members of Sierra or Sierra LLC pursuant to written agreements entered into
by them at the closing of and pursuant to the terms of such Change in
Control transaction.
Article 4 Miscellaneous.
4.1 Notices. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed given when
delivered personally or by
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reputable overnight courier or mailed by registered or certified mail,
return receipt requested, to the parties at the following addresses (or to
such other address as a party may have specified by notice to the other
parties pursuant to this provision):
(a) if to Sierra or Sierra LLC, at:
c/o Sierra Diagnostics, Inc.
(or 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
with a copy to:
Richard G. Klein, Esq.
Hofheimer Gartlir & Gross, LLP
530 Fifth Avenue
New York, New York 10036
4.2 No Assignment. This Agreement may not be assigned by Sierra or
Sierra LLC, and Sierra's obligations hereunder may not be assumed, without
the prior written consent of Select; provided that Select hereby consents
to the assignment of this Agreement to (a) Sierra LLC in conjunction with
Sierra LLC's planned liquidation of Sierra as contemplated by Section 5.4
of that certain Stock Purchase Agreement between Sierra LLC and Select with
an effective date of October 1, 2000, and (b) an acquirer of all or
substantially all of the assets of Sierra (or of Sierra LLC following the
liquidation referenced in clause (a)), provided that such assignee agrees
in a writing delivered to Select that it shall be liable to Select for all
obligations of Sierra to Select created under or contemplated by this
Agreement. Upon any assignment and assumption by Sierra LLC under clause
(a), Sierra LLC hereby agrees that it shall be liable to Select for all
obligations of Sierra to Select created under or contemplated by this
Agreement.
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4.3 Entire Agreement. This Agreement contains, and is intended as, a
complete statement of all the terms of the agreements among the parties
with respect to the matters provided for, supersedes any previous
agreements and understanding among the parties with respect to those
matters, and cannot be changed or terminated except by a writing signed by
the parties.
4.4 Governing Law; Consent to Jurisdiction and Service of Pro-cess.
This Agreement shall be governed by and construed in accordance with the
substantive laws of the State of New York applicable to contracts entered
into and to be performed entirely within New York. Any legal action, suit
or proceeding arising out of or relating to this Agreement 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 re-ceipt
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 as designated in Section 4.1 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.
4.5 Interpretation. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include," "includes"
or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation."
4.6 Facsimile/Counterparts. This Agreement may be
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executed by facsimile, and may be executed in two or more counterparts,
each of which shall be deemed to be an original, but all of which shall
constitute one and the same agreement.
4.7 Parties in Interest. This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the parties hereto and their
respective successors and assigns, and nothing in this Agreement, express
or implied, is intended to confer upon any other person any rights or
remedies of any nature whatsoever under or by reason of this Agreement.
4.8 Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining
terms or provisions of this Agreement in any other jurisdiction. If any
provision of this Agreement is so broad as to be unenforceable, the
provision shall be interpreted to be only so broad as is enforceable.
4.9 Attorneys' Fees. In the event of a dispute arising under this
Agreement or with respect to the Acquisition, the prevailing party shall be
entitled to recover its reasonable attorneys' fees and court costs, with
any such fees and costs incurred in enforcing any judgement or award and
upon appeals recoverable as a separate item of costs.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
SELECT THERAPEUTICS INC. SIERRA DIAGNOSTICS, INC.
By: By:
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Robert Bender, President Tony K. Baker, President
SIERRA DIAGNOSTICS, LLC
By:
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Tony K. Baker, Manager
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