Asset Purchase Contract

EXHIBIT 10.1

ASSET PURCHASE AGREEMENT

dated as of May 9, 2007
by and among

ICU MEDICAL, INC.
("Buyer")
and

SPECTRX, INC.,
STERLING MEDIVATIONS, INC.
(collectively, "Sellers")

 

ASSET PURCHASE AGREEMENT

This Agreement (" Agreement "), dated as of May 9, 2007 (the " Effective Date ") is by and among ICU Medical, Inc. , a Delaware corporation (" Buyer "), SpectRx, Inc ., a Delaware corporation (" SpectRx "), and Sterling Medivations, Inc. (" Sterling "), a Delaware corporation. SpectRx and Sterling are sometimes referred to herein individually as a " Seller " and collectively as the " Sellers ." Sellers and Buyer may each be referred to herein individually as a " Party " and collectively as the " Parties ."

W I T N E S S E T H :

WHEREAS, Sellers hold assets relating to the SimpleChoice Business; and

WHEREAS, Sellers desire to sell, and Buyer desires to purchase, certain assets and certain specified obligations of the SimpleChoice Business on the terms and conditions set forth in this Agreement.

NOW THEREFORE, the parties hereto agree as follows:

ARTICLE 1
Definitions

Section 1.01. Definitions. The following words and phrases, when used herein, shall have the meanings set forth or referenced below:

" 2001 Agreement " means the Agreement and Plan of Merger between SpectRx, Inc., SM Merger Sub, Inc., and Sterling Medivations, Inc. dated December 31, 2001.

" 2001 Transaction " means the transactions contemplated by the 2001 Agreement.

" 510(k)s " shall have the meaning set forth in Section 3.13(d ).

"302 Patent " shall have the meaning set forth in Section 2.06(b) .

"' 302 Payments " shall have the meaning set forth in Section 2.06(b) .

" 674 Patent " shall have the meaning set forth in Section 2.06(a) .

" 674 Payments " shall have the meaning set forth in Section 2.06(a ).

" Affiliate " means, with respect to any Person, any other Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such first Person. For purposes of this definition, "control" as applied to any Person means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting securities, by contract, or otherwise.

" Amended and Restated Loan Agreement " means that Amended and Restated Loan Agreement dated March 1, 2007 by and among by and among SpectRx, Michael James, as Agent, and the persons listed as Noteholders in the signature page thereto, as amended by that First Amendment to the Amended and Restated Loan Agreement dated March 12, 2007 and the Second Amendment to the Amended and Restated Loan Agreement dated May 9, 2007.

" Assumed Liabilities " are defined in Section 2.03 .

"Assumption Agreement" means the Assumption Agreement to be executed and delivered by Sellers and Buyer on the Closing Date in the form attached hereto as Exhibit A .

"Audit Rights" shall mean the rights of a Party (herein, the "auditing party"), to use, at its option, its own personnel or representatives or agents to inspect, during normal business hours and upon at least ten (10) Business Days' notice to the other Party and its Affiliates (herein, the "audited party"), the applicable books and records of the audited party to determine the accuracy of its calculations or compliance with specific provisions of this Agreement that provide for such rights. In the event of a dispute, the auditing party may select an independent certified public accountant reasonably acceptable to the audited party to audit and inspect the applicable books and records and resolve such dispute. The audited party shall cooperate in the performance of such audit and inspection. The determination of the accounting firm shall be binding upon the parties. If, pursuant to the foregoing right to audit and inspect, the auditing party causes an audit and inspection to be instituted that thereafter discloses a deficiency between the amount paid to the auditing party and the amount determined to be owed to auditing party, then the audited party shall be responsible for payment of the deficiency within five (5) Business Days after the completion of the audit. Additionally, the costs and expenses of such audit and inspection shall be paid by the audited party if a deficiency which is more than the greater of $25,000 or five percent (5%) is determined to exist.

"Bill of Sale" means the Bill of Sale to be executed and delivered by Sellers on the Closing Date in the form attached hereto as Exhibit B .

" Business Day " means a day, other than Saturday, Sunday or other day on which commercial banks in New York, New York are authorized or required by law to close.

" Business Intellectual Property " means all technology, inventions, engineering and technical documentation, patents, Know-How, trademarks, domain names, trade secrets, copyrights, customer information, product designs under development, and all pending and issued applications and grants related to any of the foregoing, and all divisionals, continuations, extensions, reissues, and reexaminations thereof, including but not limited to the items listed in Schedule 3.18 , which are owned by a Seller or Sellers or any Affiliates (other than Affiliates who are individuals) thereof and which are related to the SimpleChoice Business, and all Sellers' rights to intellectual property owned by a Third Party related to the SimpleChoice Business and licensed or sublicensed to a Seller or Sellers or any Affiliates (other than Affiliates who are individuals) in each case existing as of or before the Closing Date.

" Buyer " means ICU Medical, Inc., a Delaware corporation.

" Buyer Indemnified Person " is defined in Section 7.01 .

" Closing " is defined in Section 2.07 .

" Closing Date " means the date of the Closing.

" Closing Payment " is defined in Section 2.05 .

"CGMPs" shall mean all current good manufacturing practices and quality systems regulations promulgated by any applicable Governmental Authority in a country in which the applicable SimpleChoice Product is sold, to the extent applicable to such SimpleChoice Product, including those promulgated by the FDA under 21 C.F.R. Part 820.

"Confidential Information" shall mean (i) any and all technical data, information, materials, trade secrets and other Know-How or intellectual property currently held by, on behalf of, or derived either directly or indirectly from either Party or its Affiliates, which relates to a product, its development, manufacture, promotion, marketing, distribution, sale or use, (ii) any and all financial data and information relating to the business of either of the Parties or of their Affiliates, which a Party or its Affiliates discloses to the other Party or its Affiliates, and (iii) the Specifications and all amendments thereto, in each case existing as of or before the Closing Date. Notwithstanding the foregoing, the information described above shall not be "Confidential Information" if it:

• (a) is known to the receiving Party or any of its Affiliates at the time of the disclosure, as evidenced by written records;

  (b) is disclosed to the receiving Party or any of its Affiliates by a Third Party not bound by a confidentiality or similar agreement to hold such information in confidence;

  (c) becomes patented, published or otherwise part of the public domain through no fault of the receiving Party or any of its Affiliates;

  (d) is independently developed by or for the receiving Party or any of its Affiliates without use of Confidential Information, as evidenced by written records; or

  (e) is required by applicable laws to be disclosed; provided, however, that no disclosure shall be made by a Party pursuant to this clause unless prior notice is given to the other Party and such other Party has a reasonable opportunity to limit such disclosure or take appropriate protective precautions relating to such disclosure.

" Consents " are defined in Section 3.05 .

" Contracts " are the Contractual Obligations listed on Schedule 3.14 .

" Contractual Obligations " means, with respect to any Person, any contract, agreement, deed, mortgage, lease, license or other document or instrument (including any document or instrument evidencing or otherwise relating to any Debt) to which or by which such Person is a party or otherwise subject or bound or to which or by which any property, business, operation or right of such Person is subject or bound.

"Covered '302 Products" shall have the meaning set forth in Section 2.06(c ).

"Covered "674 Products" shall have the meaning set forth in Section 2.06(a ).

"Debt " means, with respect to any Person, all obligations (including all obligations in respect of principal, accrued interest, penalties, fees and premiums) of such Person (a) for borrowed money (including overdraft facilities), (b) evidenced by notes, bonds, debentures or similar Contractual Obligations, (c) for the deferred purchase price of property, goods or services (including trade payables or accruals incurred in the Ordinary Course of Business), (d) under capital leases (in accordance with GAAP), (e) in respect of letters of credit and bankers' acceptances, (f) for Contractual Obligations relating to interest rate protection, swap agreements and collar agreements and (g) in the nature of guarantees of the obligations described in clauses (a) through (f) above of any other Person.

"Domain Name Assignment" means the Domain Name Assignment by and between Buyer and Sellers, dated as of the Closing Date in the form attached hereto as Exhibit C .

" Environmental, Health and Safety Requirements " means all federal, state, local and foreign statutes, regulations, ordinances and other provisions having the force or effect of law, all judicial and administrative orders and determinations, all contractual obligations and all common law concerning public health and safety, worker health and safety, and pollution or protection of the environment, including without limitation all those relating to the presence, use, production, generation, handling, transportation, treatment, storage, disposal, distribution, labeling, testing, processing, discharge, release, threatened release, control, or cleanup of any hazardous materials, substance or wastes, chemical substances or mixtures, pesticides, pollutants, contaminants, toxic chemicals, petroleum, SimpleChoice Products or byproducts, asbestos, polychlorinated biphenyls, noise or radiation (whether in solid or liquid form or in the form of a gas or vapor).

"Equipment" is as defined in Section 5.06 .

"Equipment Delivery Period" is as defined in Section 5.06 .

" Escrow Agent " means the escrow agent under the Escrow Agreement, as selected by mutual agreement of Buyer and Sellers.

" Escrow Agreement " means the Escrow Agreement by and among Buyer, Sellers and the Escrow Agent, dated as of the Closing Date in the form attached hereto as Exhibit D .

" Escrow Amount " is defined in Section 5.06 .

" Excluded Assets " are defined in Section 2.02 .

" Excluded Liabilities " are defined in Section 2.04 .

" FDA " means the United States Food and Drug Administration, and any successor agency thereto.

" FDC Act " means the United States Food, Drug and Cosmetics Act, as amended, and all regulations promulgated thereunder.

" Financials " are defined in Section 3.08 .

" GAAP " means generally accepted accounting principles in the United States, as in effect from time to time.

" Governmental Authority " means any United States federal, state or local or any foreign government, or political subdivision thereof, or any multinational organization or authority or any United States federal, state, local or foreign authority, agency or commission entitled to exercise any administrative, executive, judicial, legislative, police, regulatory or taxing authority or power, or any United States federal, state, local or foreign court or tribunal (or any department, bureau or division thereof), arbitrator or arbitral body, and including any authority or agency charged with issuing approvals, licenses, registrations or authorizations necessary for the manufacture, use, storage, import, export, transport, marketing, promotion or selling of any SimpleChoice Product in a country.

"Indemnified Party " is defined in Section 7.02 .

" Indemnifying Party " is defined in Section 7.02 .

" Insurance Excess " is defined in Section 7.05(a) .

" Interim Financials " is defined in Section 3.08(b ).

"Intellectual Property Assignments" means the Intellectual Property Assignments by and between Buyer and Sellers, dated as of the Closing Date in the form attached hereto as Exhibit E .

" Knowledge " means the actual knowledge of any of the individuals listed on Schedule 1.01(a) .

" Know-How " means all know-how, specifications, processes, procedures, instructions, methods, formulae, designs, plans, and any similar items that are owned or held by a Seller or Sellers and related to the products of the SimpleChoice Business, in each case in tangible form and existing as of or before the Closing Date.

" Legal Requirements " mean any United States federal, state or local law, statute, standard, ordinance, code, rule, regulation, resolution or promulgation, or any Governmental Order, or any license, franchise, permit or similar right granted under any of the foregoing, or any similar provision having the force or effect of law.

" Liability " means, with respect to any Person, any liability or obligation of such Person whether known or unknown, whether asserted or unasserted, whether determined, determinable or otherwise, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, whether incurred or consequential, whether due or to become due and whether or not required under GAAP to be accrued on the financial statements of such Person.

" Lien " or "Liens " means, with respect to any property or asset, any mortgage, lien, pledge, charge, security interest, community or other marital property interest, equitable interest, license, option, right of way, easement, encroachment, servitude, right of first offer or first refusal, buy/sell agreement or other encumbrance with respect to the use, construction, voting (in the case of any security or equity interest), transfer, receipt of income or exercise of any other attribute of ownership in respect of such property or asset.

" Losses " is defined in Section 7.01 .

" Material Adverse Effect " means a material adverse effect on the business, assets or results of operations of the SimpleChoice Business.

" Most Recent Balance Sheet " is defined in Section 3.08(a ).

" Most Recent Balance Sheet Date " is defined in Section 3.08(a ).

"Noncompete Agreements" means, collectively, the noncompete agreements, by and between SpectRx and each of Mark Samuels, Walter Pavlicek, Michael Axlerod, Rick Fowler, Erica Eckler Marshall, Alan Bomford, Jeff Allen and William Arthur, dated the Closing Date, each in the form attached as Exhibit F .

" Ordinary Course of Business " means an action taken by any Person in the ordinary course of such Person's business which is consistent with the past practices of such Person.

" Organizational Documents " means, with respect to any Person (other than an individual), (a) the certificate or articles of incorporation or organization and any joint venture, limited liability company, operating or partnership agreement and other similar documents adopted or filed in connection with the creation, formation or organization of such Person and (b) all by-laws, voting agreements and similar documents, instruments or agreements relating to the organization or governance of such Person, in each case, as amended or supplemented.

" Permitted Liens " are the Liens set forth in Schedule 3.06 that have specifically been accepted by Buyer.

" Person " means an individual, corporation, partnership, limited liability company, association, trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.

" Personnel" means any employee, consultant, independent contractor or inventor of Sellers who is identified on Schedule 2.01(h) and/or is an inventor on a patent included in the Business Intellectual Property and worked with the SimpleChoice Business as of or before March 12, 2007.

"Personnel Agreements" means the confidentiality, proprietary rights, assignment of inventions, noncompetition and/or nonsolicitation agreements between a Seller and any Personnel, including without limitation, the Noncompete Agreements.

" Purchased Assets " are defined in Section 2.01 .

" Real Property " is defined in Section 3.17 .

"Regulatory Approvals" means all necessary and appropriate regulatory licenses, permits, consents, approvals, certificates, listings, qualifications, registrations or other authorizations from the applicable Governmental Authority to manufacture, use, store, import, export, transport, to promote, manufacture, market and sell any SimpleChoice Product in a country, and any renewals of or other documentation related to the foregoing.

" Reimbursement Excess " is defined in Section 7.05(b) .

" Representatives " means, with respect to any Person, any director, officer, employee, agent, consultant, advisor, or other representative of such Person, including legal counsel, accountants and financial advisors.

" Schedules " means collectively, all of the Schedules in this Agreement.

" SimpleChoice Business " means all the business and related assets of Sterling, and all other business and related tangible assets of SpectRx, including its Subsidiaries and Affiliates, in the field of subcutaneous fluid delivery. For the avoidance of doubt, the Parties agree that "SimpleChoice Business" does not include any business, items or assets (whether tangible or intangible) related to any thermal ablation or thermal poration.

" SimpleChoice Products " means products set forth on Schedule 1.01(b ).

" Seller" or "Sellers " is as defined in the Recitals to this Agreement.

"Specifications" means those SimpleChoice Product formulations, standards, requirements and manufacturing, labeling, packaging and performance specifications for the SimpleChoice Products as determined by Sellers and in effect at the time of last manufacture of the SimpleChoice Products.

" SpectRx " is as defined in the Recitals of this Agreement.

" Sterling " is as defined in the Recitals of this Agreement.

" Subsidiary " or " Subsidiaries " means, with respect to any Person, any entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by such Person.

"Third Party" shall mean any Person other than the Parties and their Affiliates.

" Third Party Claim " is defined in Section 7.04 .

" Transaction Documents " means, collectively, this Agreement, the Assumption Agreement, the Bill of Sale, the Intellectual Property Assignments, the Domain Name Assignment, the Escrow Agreement and all other agreements and documents contemplated by this Agreement.

"Undelivered Equipment" is as defined in Section 5.06 .

"Unelected Equipment" is as defined in Section 5.06 .

" Year End Financials " are defined in Section 3.08(a ).

Section 1.02. Other Definitional and Interpretative Provisions . The captions herein are included for convenience of reference only and shall be ignored in the construction or interpretation hereof. References to Articles, Sections, Exhibits and Schedules are to Articles, Sections, Exhibits and Schedules of this Agreement unless otherwise specified. All references to "$" or "Dollars" shall be to United States dollars and all references to "days" shall be to calendar days unless otherwise specified. All Exhibits and Schedules annexed hereto or referred to herein are hereby incorporated in and made a part of this Agreement as if set forth in full herein. Any capitalized terms used in any Exhibit or Schedule but not otherwise defined therein, shall have the meaning as defined in this Agreement. Any singular term in this Agreement shall be deemed to include the plural, and any plural term the singular. Whenever the words "include", "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation", whether or not they are in fact followed by those words or words of like import. References to any Person include the successors and permitted assigns of that Person.
 

ARTICLE 2
Purchase and Sale

Section 2.01. Purchase and Sale of Assets. Sellers hereby sell and transfer to the Buyer, and the Buyer hereby purchases from the Sellers, subject to the exclusions contained in Section 2.02 and subject to the other terms and conditions contained herein, all of Sellers' (including all rights of their Affiliates) right, title and interest in and to the following assets, properties and rights (collectively, the " Purchased Assets ") free and clear of any Liens and Liabilities, other than Permitted Liens and Assumed Liabilities:

• (a) all machinery and equipment set forth on Schedule 2.01(a );

  (b) all tooling, dies and molds set forth on Schedule 2.01(a );

  (c) all rights of Sellers' in Contracts specifically listed on Schedule 3.14 ;

  (d) all customer and prospect lists, manufacturing lists, vendor lists, and other lists and databases related to the SimpleChoice Business, in whatever form;

  (e) all deposits made by Sellers and other prepaid assets and expenses in each case only to the extent related to the Contracts;

  (f) all Business Intellectual Property, and the right to sue and/or collect royalties or damages for any infringement or misappropriation of Business Intellectual Property prior to the Closing Date;

(g) all manufacturing processes, documentation, designs, technical or scientific information (including technical files for the CE Mark), research materials and Specifications for SimpleChoice Products or related to the SimpleChoice Business, whether in hard or electronic format, including those manufacturing processes, information, material, documentation and Specifications described in Schedule 2.01(g) ;

(h) all of Sellers' rights under the Personnel Agreements listed on Schedule 2.01(h) to enforce the nondisclosure, inventorship and other obligations of such Personnel under such agreements solely to the extent they relate to the SimpleChoice Business;

(i) all of Sellers' rights under the Noncompete Agreements;

(j) the right to sue and/or collect damages for any claim related to the Purchased Assets or Assumed Liabilities; and

(k) all goodwill associated with the SimpleChoice Business or the Purchased Assets.

Section 2.02. Excluded Assets. Notwithstanding any provision in the Transaction Documents to the contrary, Buyer agrees that none of the assets, properties, rights or interests of Sellers other than those listed or described in Section 2.01 (the "Excluded Assets" ) shall be Purchased Assets, and Excluded Assets shall include without limitation:

• (a) Subject to Section 5.07 , all inventories of products, work-in-process, finished goods, raw materials, supplies and parts relating to the SimpleChoice Business;

  (b) Subject to Section 5.05 , all accounts receivable accrued or arising out of the operation of the SimpleChoice Business prior to the Closing Date;

  (c) all cash, cash equivalents, bank deposits, certificates of deposit or similar cash items of Sellers;

  (d) any Seller employee benefit plan and any trusts, insurance arrangements or other assets held pursuant to, or set aside to, fund the obligations of Sellers under, any such employee benefit plan;

  (e) any and all of Sellers' insurance policies, binders and claims and rights thereunder and the proceeds thereof;

  (f) all note receivables and inter-company receivables;

  (g) Sellers' rights under the Personnel Agreements with Personnel other than those listed in Schedule 2.01(h) to enforce the nondisclosure, inventorship and other obligations of such Personnel under such agreements as to the business of Sellers other than the SimpleChoice Business;

  (h) all Contractual Obligations other than the Contracts; and

  (i) all other assets, properties and rights not listed or described in Section 2.01 .

Section 2.03. Assumed Liabilities. Buyer hereby assumes and shall hereby thereafter pay, perform and discharge when due and payable (collectively, the " Assumed Liabilities ") all Liability of Sellers or any of their Affiliates under the Contracts assumed by Buyer at Closing, but in each case only to the extent such Liabilities relate to Buyer's performance under the Contract after the Closing Date ; provided, however, that if Buyer directs Pacific Pathways to commence production, Buyer hereby assumes the obligation under that certain purchase order #1000517 dated February 27, 2006 to Pacific Pathways.

Section 2.04. Excluded Liabilities. Notwithstanding any provision in this Agreement or any other writing to the contrary, Buyer is assuming only the Assumed Liabilities and is not assuming any other Liability of Sellers or their Affiliates of whatever nature, whether presently in existence or arising hereafter, including without limitation:

• (a) Liability to Governmental Authority or any customer or supplier of Sellers or any other Person based on any alleged tort, breach of contract or other claim or cause of action arising from the SimpleChoice Products produced, manufactured or sold prior to Closing Date, whether or not products were used prior to the Closing Date;

  (b) Liability for (i) Contractual Obligations not listed on Schedule 3.14 , (ii) Contracts listed on Schedule 3.14 attributable to Sellers' performance for periods prior to, the Closing Date, or (ii) any agreement granting to any person a license, a royalty, or a first-refusal, first-offer or similar preferential right to purchase or acquire any Purchased Asset;

  (c) Liability to any former or current employees, consultants or independent contractors of Sellers, their Affiliates or the SimpleChoice Business for any claim, obligation or payment related to the SimpleChoice Business, including without limitation, approximately $440,827 in promissory notes dated April 17, 2007 from SpectRx to three officers and a former officer representing unpaid salary note payments, Liability for Environmental, Health and Safety Requirements; under Personnel Agreements or for any other employment, consulting or other agreement with a former or current employee, consultant or independent contractor); for any collective bargaining agreement with any labor union; or for any Defined Benefit Plan.

  (d) Liability arising out of the use of "SimpleChoice" as a d/b/a for Sellers and/or the SimpleChoice Business related to the business operated by Sellers and their Affiliates (including any winding down or post-Closing activities expressly permitted pursuant to this Agreement).

  (e) Liability arising from a liquidation or dissolution of a Seller or its Affiliates, or Liability arising out of any claims by vendors, investors, former or current employees, creditors of Sellers or their predecessors or other Persons for nonpayment of Debts, including without limitation, trade or other payables or under any bulk sales laws;

  (f) Seller's obligations under this Agreement or with respect to the transactions contemplated pursuant to this Agreement;

  (g) Liability for Taxes, to former or current employees of Sellers or for employee benefit plans of Sellers, whether attributable to periods prior to, including or subsequent to the Closing Date, and whether attributable to the sale of Purchased Assets, the liquidation of a Seller, or otherwise;

  (h) Liability for any of the Excluded Assets, including Liability for the disposal thereof;

  (i) Liability for Debts and Liens on the Purchased Assets, including the Debt and Liens set forth on Schedule 3.06 , which Liens and Debts shall be discharged and released by Sellers prior to Closing;

  (j) all Debt of Sellers, their Affiliates or the SimpleChoice Business to any Person;

  (k) any obligations or Liabilities arising out of the 2001 Transaction;

  (l) Liability under the Termination Agreement and Release by and between Sellers and Facet Technologies, LLC dated February 25, 2003;

  (m) Liability under a Distributor Agreement by and between SpectRx and SciTech, Inc. dated February 14, 2005;

  (n) Liability for any infringement or misappropriation by any product sold by a Seller or any Affiliate, or any predecessor of a Seller or an Affiliate of a Seller, or any agreement that would restrict the ability of the Buyer from developing or distributing a product for market or sale anywhere; or

  (o) Liability under the litigation filed by Accellent, Inc. (Docket Number 06C-19818-4) against SpectRx on December 6, 2006.

Any and all obligations and liabilities of Sellers not being specifically assumed by Buyer pursuant to Section 2.03 shall remain the obligation and responsibility of Seller, and Buyer shall not be responsible for (other than as specifically provided under indemnification obligations contained in this Agreement) any tort or other liability or obligation of any nature of Seller, whether matured or unmatured, fixed or contingent, known or unknown, arising out of occurrences prior to, at or after the Closing Date (collectively " Excluded Liabilities ").

Section 2.05. Purchase Price. The purchase price for the Purchased Assets shall be Three Million Dollars (US $3,000,000) (the " Closing Payment ") minus any portion, if any, of the Escrow Amount subject to the Escrow Agreement that is returned to the Buyer by the Escrow Agent pursuant to the terms of the Escrow Agreement (the " Purchase Price ").

Section 2.06. Additional Payments.

• (a) Sterling or SpectRx shall receive payments from Buyer on sales made after Closing by Buyer of any product covered by a valid claim of U.S. Patent No. 6,685,674, entitled "Infusion Hub Assembly and Fluid Line Disconnect System," or any existing or future divisionals, continuations, extensions, reissues and reexaminations thereof (the " "674 Patent" and such products, the "Covered " 674 Products ") until the expiration of the "674 Patent, as provided in this Section 2.06(a ). Each calendar year and continuing until expiration of the "674 Patent, Buyer shall pay Sterling one-half of one percent (0.5%) on annual net sales of Covered "674 Products between Ten Million Dollars ($10,000,000) and Twenty Million Dollars ($20,000,000); three-fourths of one percent (0.75%) on annual net sales of Covered "674 Products between Twenty Million and One Dollars ($20,000,001) and Thirty Million Dollars ($30,000,000); and one and one-half percent (1.5%) of annual net sales of Covered "674 Products over Thirty Million and One Dollars ($30,000,001) (collectively, the " 674 Payments "). The total "674 Payments shall not exceed One Million Dollars ($1,000,000) in any one (1) calendar year, and shall be payable annually within forty five (45) days after the end of the previous year. "674 Payments shall be subject to Audit Rights, provided that a party may exercise its Audit Rights no more than once per calendar year. Net sales shall mean gross sales, less discounts, rebates, uncollectible accounts, and refunds provided to customers for rejected goods. Any "674 Payments due to Sterling will be reduced by and may be set off against any sum that becomes payable to Buyer under Section 2.06(c) of this Agreement. This Section 2.06(a) and the obligations to make "674 Payments shall be binding on any successor to Buyer or to any successor-in-interest to the "674 Patent.

  (b) In consideration for the royalties paid by SpectRx under Section 2.06(c ), Buyer hereby grants an irrevocable, non-exclusive, transferable worldwide license (with the right to sublicense) to SpectRx, to make, use, sell, offer for sale, or import products covered by the claims of U.S. Patent No. 7,056,302 B2, entitled "Insertion Device for an Insertion Set and Method of Using the Same", or any existing or future divisionals, continuations, extensions, reissues, and reexaminations thereof (the "'302 Patent "), provided that such license shall be limited to products or devices that perform continuous glucose monitoring, and for no other purpose, product or device, including without limitation any device or product for fluid infusion. SpectRx shall provide written notice to Buyer of its intention to transfer or sublicense under this Section 2.06(b) at least thirty (30) days in advance of such transfer or sublicense, and SpectRx shall provide a copy to Buyer of such transfer or sublicense. Further, SpectRx shall require any transferee or sublicense to comply with all of the obligations imposed on SpectRx in Section 2.06(b) and Section 2.06(c) of this Agreement, including the patent marking requirement and the obligation to pay royalties to Buyer.

  (c) Buyer shall receive payments from SpectRx on sales made after Closing by SpectRx or any sublicensee of any glucose monitoring product(s) covered by a valid claim of the '302 Patent (collectively, " Covered 302 Products "), as provided in this Section 2.06(c ). Each calendar year, SpectRx shall pay Buyer one-half of one percent (0.5%) on net sales of such glucose monitoring products between Ten Million Dollars ($10,000,000) and Twenty Million Dollars ($20,000,000); three-fourths of one percent (0.75%) on net sales of any such glucose monitoring products between Twenty Million and One Dollars ($20,000,001) and Thirty Million Dollars ($30,000,000); and one and one-half percent (1.5%) of net sales of glucose monitoring products over Thirty Million and One Dollars ($30,000,001) (collectively, the " 302 Payments "). The total '302 Payments shall not exceed One Million Dollars ($1,000,000) in any one (1) calendar year, and shall be payable annually within forty five (45) days after the end of the previous yearly period. '302 Payments shall be subject to Audit Rights, provided that a party may exercise its Audit Rights no more than once per calendar year. Net sales shall mean gross sales less discounts, rebates, uncollectible amounts, and refunds provided to customers for rejected goods. SpectRx shall mark all products covered by the '302 Patent in accordance with 35 U.S.C. § 287.

Section 2.07. Closing. The closing (the " Closing ") of the purchase and sale of the Purchased Assets and the assumption of the Assumed Liabilities hereunder shall take place concurrently with the execution of this Agreement at the offices of Jones Day, 1420 Peachtree Street, Suite 800, Atlanta, Georgia 30309-3053 on the Effective Date. The Closing shall be effective as of 5:00 pm on the Effective Date. At the Closing:

• (a) Buyer is delivering to Sellers the aggregate amount of $2,552,000, which represents the Closing Payment minus (i) the Escrow Amount and (ii) the amount of $3,000 representing 50% of the fees payable to the Escrow Agent, in immediately available funds by wire transfer to a bank account designated by Sellers.

  (b) Sellers and Buyers are executing and delivering the Escrow Agreement to each other and the Escrow Agent.

  (c) Buyer is delivering the Escrow Amount to the Escrow Agent in accordance with the Escrow Agent's instructions.

  (d) Sellers are delivering a complete copy of each Consent and a copy of the termination or amendment to UCC financing statements in respect of the Purchased Assets.

  (e) Sellers are executing and delivering to Buyer the Bill of Sale.

  (f) Sellers and Buyer are executing and delivering the Assumption Agreement.

  (g) Sellers and Buyers are executing and delivering the Assignment of Domain Name.

  (h) Sellers and Buyer are executing and delivering the Intellectual Property Assignments.

  (i) The Escrow Agent is executing and delivering the Escrow Agreement to Sellers and Buyer.
   

ARTICLE 3
Representations and Warranties of Seller

In order to induce Buyer to enter into and perform this Agreement, Sellers jointly and severally represent and warrant to Buyer that:

Section 3.01. Existence and Power.

• (a) SpectRx is (i) duly organized, validly existing and in good standing, where applicable, under the laws of its jurisdiction of organization, (ii) duly qualified to do business and in good standing in each jurisdiction in which it owns or leases real property and in each other jurisdiction in which the failure to be so qualified has not had, and is not reasonably likely to have, a Material Adverse Effect, and (iii) has all powers and all material governmental licenses, authorizations, permits, consents and approvals required to carry on its respective businesses. As of the Effective Date and the Closing Date, SpectRx is the sole owner, beneficially and of record, of all of the one thousand (1000) issued and outstanding shares of Sterling.

  (b) Sterling is (i) duly organized, validly existing and in good standing, where applicable, under the laws of its jurisdiction of organization, (ii) duly qualified to do business and in good standing in each jurisdiction in which it owns or leases real property and in each other jurisdiction in which the failure to be so qualified has not had, and is not reasonably likely to have, a Material Adverse Effect, and (iii) has all powers and all material governmental licenses, authorizations, permits, consents and approvals required to carry on its respective businesses.

Section 3.02. Corporate Authorization. The execution, delivery and performance by each Seller of each Transaction Document to which it is a party and the consummation of the transactions contemplated hereby and thereby are within each Seller's corporate powers and have been duly authorized by all necessary corporate action on the part of each Seller. Each Transaction Document, when duly executed and delivered by a Seller, will constitute a valid and binding agreement of such Seller, enforceable against such Seller in accordance with its terms.

Section 3.03. Governmental Authorization. The execution, delivery and performance by a Seller of each Transaction Document to which it is a party and the consummation of the transactions contemplated hereby and thereby require no action (including any authorization, consent or approval) by or in respect of, or filing with, any Governmental Authority.

Section 3.04. Noncontravention. The execution, delivery and performance by a Seller of each Transaction Document to which it is a party and the consummation of the transactions contemplated hereby and thereby do not and will not (i) violate the Organizational Documents of Seller, (ii) assuming compliance with the matters referred to in Section 3.03 , violate in any respect any applicable law, rule, regulation, judgment, injunction, order or decree, (iii) assuming the obtaining of all Consents, constitute a default or breach under or give rise to any right of termination, cancellation or acceleration of any right or obligation or to a loss of any benefit relating to the SimpleChoice Business to which a Seller is entitled under any provision of any agreement or other instrument binding upon a Seller or (iv) result in the creation or imposition of any Lien on any Purchased Asset, except for Permitted Liens.

Section 3.05. Consents. Schedule 3.05 sets forth all consents, releases, approvals or other actions required by any Person as a result of the Sellers' execution, delivery and performance of this Agreement, including without limitation any consents, approvals, releases or other action under Contractual Obligations, Liens or Sellers' Debt (all such required consents, releases, approvals or other actions, the " Consents ").

Section 3.06. Ownership; Liens. (a) Sterling and SpectRx own and hold all right, title and interest in and to the Purchased Assets, free and clear of any and all Liens except for Permitted Liens. Except fo