Document:

Exhibit
      10.61

    EMPLOYMENT
      AGREEMENT

    

    THIS
      EMPLOYMENT AGREEMENT dated as of January 5, 2006 (as the same may be amended,
      restated, supplemented or otherwise modified from time to time hereafter, this
      “Agreement”), is entered into by and between Columbia
      Laboratories, Inc.,
      a
      Delaware corporation having its corporate offices at 354 Eisenhower Parkway,
      Livingston, New Jersey 07039 (the “Company”), and Michael McGrane
      (“Executive”).

    

    WITNESSETH:

    

    WHEREAS,
      Executive was elected Senior Vice President, General Counsel, and Secretary
      of
      the Company on January 5, 2006; and

     

    WHEREAS,
      the Company wishes to continue the employment of Executive on the terms and
      conditions set forth in this Agreement; and

    

    WHEREAS,
      the Company and Executive desire to enter into this Agreement so the rights,
      duties, benefits, and obligations of each regarding Executive’s employment for
      and by the Company will be fully set forth under the terms and conditions stated
      within this Agreement;

    

    NOW
      THEREFORE, in consideration of the mutual promises and undertakings hereunder,
      and for other good and valuable consideration, the receipt and sufficiency
      of
      which are hereby acknowledged, the parties hereby agree as follows:

    

    1.  Term.
      The
      term of this Agreement shall commence on the date first written above and
      continue through March 31, 2008, unless this Agreement is earlier terminated
      in
      accordance with Section 6 or 8 hereof. The term shall be automatically extended
      without further action of either party for additional one-year periods, unless
      written notice of either party’s intention not to extend has been given to the
      other party hereto at least sixty (60) days prior to the expiration of the
      then
      effective term. 

    

    2.  Title;
      Duties.

    

    (a) Executive
      shall be the Senior Vice President, General Counsel, and Secretary of the
      Company. Executive will perform duties
      customarily associated with such position,
      including, but not limited to, duties relating to the management of the legal
      affairs of the Company and its affiliates,
      and such
      other duties commensurate with the job description as
      may be
      assigned to him from time to time by the President of the Company (the “Company
      President”) or his designee. Executive
      shall be
      employed at the Company’s offices located in Livingston, New Jersey.
Executive
      will report to the Company President.

    

    (b) Executive
      agrees to devote his
      entire business time and attention to the performance of his duties under this
      Agreement.
      He
      shall perform his duties to the best of his ability and shall use his best
      efforts to further the interests of the Company. Executive shall perform his
      duties and will be required to travel as reasonably necessary to perform the
      services required of him under this Agreement. Executive represents and warrants
      to the Company that he is able to enter into this Agreement and that his ability
      to enter into this Agreement and to fully
      perform his duties hereunder are not limited to or restricted by any agreements
      or understandings between Executive and any other person. For the purposes
      of
      this Agreement, the term “person” means any natural person, corporation,
      partnership, limited liability partnership, limited liability company, or any
      other entity of any nature.

    

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    (c) Executive
      will observe the reasonable rules, regulations, policies and/or procedures
      which
      the Company may now or hereafter establish governing the conduct of its
      business, except to the extent that any such rules, regulations, policies and/or
      procedures may be inconsistent with the terms of this Agreement, in which case
      the terms of this Agreement shall control.

    

    3.  Employment
      Contract.
      The
      Company and Executive acknowledge that the terms of his employment are set
      forth
      in this Agreement. If Executive’s employment terminates for any reason,
      Executive shall not be entitled to any payments, benefits, damages, award or
      compensation other than as provided in this Agreement, or as may otherwise
      be
      available in accordance with the Company’s established written plans and written
      policies at the time of termination.

    

    4.  Compensation.

    

    (a) Subject
      to tax withholdings and deductions to cover Executive contributions to, and
      payments under, applicable Executive benefit and welfare plans and programs,
      the
      Company will pay Executive an annual base compensation of $279,500 per year
      to
      be paid in accordance with the Company’s normal payroll practices during the
      term of this Agreement (“Base Salary”). The Company’s Board of Directors (the
“Board”) or Compensation Committee of the Board (or any committee of the Board
      that shall replace such committee) shall review annually Executive’s
      compensation for increases during the term of this Agreement in
      conjunction with the Company’s regular review of the salaries of other executive
      level employees and in consultation with the Company President.
      At such
      time, the Company will consider (without any obligation to implement) upward
      adjustments to Executive’s compensation under this Agreement in a manner
      consistent with the Company’s practices in effect from time to time.

    

    (b) In
      addition to Base Salary, Executive also will be eligible to receive an annual
      performance bonus as the Board or Compensation Committee of the Board (or any
      committee of the Board that shall replace such committee) shall, in its sole
      discretion, deem appropriate
      based
      upon the parameters and criteria contained in the Company’s bonus plan and in
      consultation with the Company President.
      He shall
      be eligible for a Target Annual Bonus of 40% of his Base Salary as then in
      effect. This bonus, if any, shall be paid to the Executive within seventy-five
      (75) days of the end of each calendar year.

    

    (d) Executive
      also shall be eligible in the sole discretion of the Board or the Compensation
      Committee of the Board (or any committee of the Board that shall replace such
      committee) to participate in the Company’s stock option plan as is from time to
      time in effect, subject to the terms and conditions of such plan. The
      Executive shall receive a grant of 30,000 restricted shares of the Company’s
      stock which shares are to vest on the first business day of the calendar month
      following the Company’s announcement of the results of the Phase III
      multi-center, randomized, double-blind, placebo-controlled, clinical trial
      designed to assess the efficacy, safety and tolerability of Prochieve® 8%
      (progesterone gel) in preventing preterm delivery in pregnant women who are
      at
      increased risk for preterm birth. Stock options granted to Executive prior
      to
      the date hereof shall not be affected by this Agreement in any
      manner.

    

    
      
         

      

      
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    5.  Benefits.
      

    

    (a)
       Executive
      and
      Executive’s eligible dependents shall
      be
      eligible for all employee benefit programs (including any
      pension, 401K, group life insurance, group medical and dental, vision, and
      short-term and long-term disability policies, plans, and programs)
      generally available to other executive level employees of the Company during
      the
      term of this Agreement,
      in
      accordance with the terms of those benefit plans.

    

    (b) Executive
      shall be entitled to accrue paid time off (“PTO”) during the term of this
      Agreement in accordance with the Company’s standard policy and in an amount
      commensurate with other executive
      level employees of the Company.

    

    (c) In
      accordance with the policies of the Company in effect from time to time,
      Executive will be entitled to reimburse-ment for approved ordinary and necessary
      business expenses incurred by him during the term of this Agreement commensurate
      with other executive level employees of the Company.

     

    6.  Termination.
      

    

    (a) Death.
      Executive’s employment shall terminate immediately upon his death.

    

    (b) Disability.
      Executive’s employment shall terminate upon Executive having a “Disability.” For
      purposes of this Agreement, “Disability” means a determination by Company in
      accordance with applicable law that, as a result of a physical or mental
      illness, Executive is unable to perform the essential functions of his job
      with
      or without reasonable accommodation for a period of six (6) months.

    

    (c) Termination
      by Company for Cause.
      Upon
      delivery of written notice of termination for “Cause” from Company to Executive,
      Executive’s employment shall terminate. Termination for “Cause” shall mean
      termination based on (i) Executive’s failure or refusal to perform, in any
      material respect, his duties faithfully and diligently in accordance with this
      Agreement; (ii) gross negligence, recklessness or malfeasance in the
      performance of Executive’s duties; (iii) Executive committing any criminal
      act; (iv) Executive committing any act of fraud or other material misconduct
      resulting or intending to result directly or indirectly in gain or personal
      enrichment at the expense of Company; (v) Executive willfully engaging in
      any conduct relating to the business of Company that could reasonably be
      expected to have a materially detrimental effect on the business or financial
      condition of the Company; (vi) misconduct which materially discredits or
      damages Company, or violates Company’s policies or procedures, after Company has
      notified Executive of the actions Company deems to constitute non-compliance;
      (vii) Executive materially breaches his obligations under Sections 9 and 10
      below, relating to confidential information, non-solicitation and
      non-competition. 

    

    
      
         

      

      
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    Termination
      for Cause pursuant to subsections (i), (ii), (iv), or (v) of this Paragraph
      (c)
      of Section 6 shall not take effect unless and until the Company complies with
      the provisions of this paragraph. Executive shall be given written notice by
      the
      Company of its intention to terminate him for Cause, stating in detail the
      particular act(s) or failure(s) to act that constitute the grounds on which
      the
      proposed termination for Cause is based. That written notice shall be given
      to
      Executive within ninety (90) days of the Company’s learning of such act(s) or
      failure(s) to act. Executive shall then have thirty (30) days after receipt
      of
      such written notice to cure such conduct, to the extent such cure is possible.
      If Executive fails to cure such conduct on or before the end of the thirty
      (30)
      day period, Executive shall be terminated for Cause. If Executive’s conduct is
      not curable, no notice need be given by the Company before terminating Executive
      for Cause.

    

    (d) Resignation
      for Good Reason.
      Executive may terminate his employment with “Good Reason” (as defined below)
      upon no fewer than thirty (30) days prior written notice to the Company
      specifying the reason(s) for the termination. Upon receipt of Executive’s notice
      of intent to terminate his employment for Good Reason, Company shall have a
      right to cure the alleged breach or other conduct alleged by Executive to
      constitute Good Reason within the thirty (30) day period. For purposes of this
      Agreement, “Good Reason” means (i) Company materially breaches this
      Agreement; (ii) Company assigns duties to Executive which are materially
      inconsistent with his duties as set forth in Section 2 or which materially
      impair his ability to perform the services contemplated hereunder; or
      (iii) Company has, without Executive’s consent, relocated Executive’s
      office more than 100 miles from its location at the commencement of this
      Agreement
      or (iv)
      Company substantially reduces the Executive’s job title, responsibilities, or
      level of authority from that customary for the Senior Vice President, General
      Counsel, and Secretary of a specialty pharmaceutical company.
      

    

    (e) Resignation
      Without Good Reason.
      Executive may terminate his employment without Good Reason upon no fewer than
      thirty (30) days prior written notice to the Company. Without Good Reason as
      used in this Agreement refers to any reason not included as a Good Reason in
      section 6(d).

    

    (f) Termination
      by Company Without Cause.
      Executive’s employment shall terminate thirty (30) days after written notice
      delivered to Executive of Company’s termination of Executive’s employment for
      reason other than Death, Disability or Cause.

    

    7.  Compensation
      Upon Termination

    

    (a) If
      Executive’s employment is terminated by Company for Cause, by Death or
      Disability, or if Executive resigns Without Good Reason, Executive shall be
      entitled to receive:

    

    (i) the
      Base
      Salary through the date of termination;

    

    (ii) reimbursement
      for any previously unreimbursed business expenses properly incurred and
      documented by Executive in accordance with Company policy prior to the date
      of
      Executive’s termination; and

    

    
      
         

      

      
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    (iii) such
      Employee Benefits, if any, as to which Executive may be entitled under the
      employee benefit plans of the Company.

    

    (b) If
      Executive’s Employment is terminated by Company without Cause or by Executive
      with Good Reason, Executive shall be entitled to:

    

    (i) the
      Base
      Salary through the date of termination;

    

    (ii) reimbursement
      for any previously unreimbursed business expenses properly incurred and
      documented by Executive in accordance with Company policy prior to the date
      of
      Executive’s termination;

    

    (iii)  receive
      a
      lump sum payment equal to (1) one times Executive’s Annual Base Salary at the
      rate immediately in effect before Executive’s Termination Date; and (2) the
      greater of (A) the cash bonus paid to Executive in the preceding year pursuant
      to the
      Company’s bonus plan or
      (B)
      the Executive’s target bonus in effect at the time of the
      termination.

    

    (iv) for
      a
      period of twelve (12) months following his Termination Date, continue to receive
      the medical and dental coverage in effect on his Termination Date (or generally
      comparable coverage) for himself and, where applicable, his spouse and
      dependents, as the same may be changed from time to time for employees
      generally, as if Executive had continued in employment during such period;
      or,
      as an alternative, the Company may elect to pay Executive cash in lieu of such
      coverage in an amount equal to Executive’s after-tax cost of continuing such
      coverage, where such coverage may not be continued (or where such continuation
      would adversely affect the tax status of the plan pursuant to which the coverage
      is provided). The COBRA health care continuation coverage period under Section
      4980B of the Code, shall run concurrently with the foregoing twelve (12) month
      benefit period. 

    

    (c) If
      Executive’s Employment is terminated as a result of Company providing written
      notice to Executive pursuant to Section 1 of this Agreement of Company’s
      intention not to extend the term of the Agreement, Executive shall be entitled
      to:

    

    (i) the
      Base
      Salary through the end of the term;

    

    (ii)  reimbursement
      for any previously unreimbursed business expenses properly incurred and
      documented by Executive in accordance with Company policy prior to the end
      of
      the term;

    

    (iii)  receive
      a
      lump sum payment equal to (1) one times Executive’s Annual Base Salary at the
      rate immediately in effect before the end of the term.

    

    
      
         

      

      
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    8.  Change
      in Control.

    

    (a) In
      the
      event of “Change in Control” of Company, as defined in the Executive Change in
      Control Severance Agreement dated as of April 8, 2004 (the “Change in Control
      Agreement”) between the Company and Executive attached hereto as Exhibit A and
incorporated
      by reference as if fully set forth herein,
      Executive shall be entitled to the benefits, if any, available to him pursuant
      to the Change in Control Agreement. 

    

    9.  Restrictive
      Covenants.
      

    

    (a) During
      Executive’s employment and for a period of one (1) year following the
      termination of Executive’s employment for any reason, Executive will not compete
      directly with the Company anywhere in the world by rendering services or
      providing assistance for himself or on behalf of any other person or entity,
      in
      any line of business in which the Company is engaged or has made preparations
      to
      engage, as of the termination date of Executive’s employment with the Company.
      The term “compete” as used herein means that Executive engages in research,
      development, design, consulting, manufacturing, marketing, promotion or sales
      with respect to the Company’s business for a third party or for its or his own
      interest. 

    

    (b) Executive
      agrees that during the period stated in subsection (a) above, he will not
      (i) directly solicit or encourage in any manner the resignation of any
      employee of the Company or any of its subsidiaries; or (ii) directly or
      indirectly solicit or divert customers, vendors, or business of the Company
      or
      any of its subsidiaries (provided
      that
      Executive may deal with any such customers or vendors in any manner which does
      not violate the provisions of subsection (a) above); or (iii) attempt to
      influence, directly or indirectly, any person or entity to cease, reduce, alter,
      or rearrange any business relationship with the Company or any of its
      subsidiaries.

    

    (c) Executive
      acknowledges and agrees that he considers the restrictions set forth in this
      Section 9 to be reasonable both individually and in the aggregate and that
      the
      duration, geographic scope, extent and application of these restrictions are
      no
      greater than is necessary for the protection of the Company’s legitimate
      interests. It is the desire and intent of Executive and the Company that the
      provisions of this Section 9 shall be enforced to the fullest extent possible
      under the laws and public policies of the State of New Jersey. The Company
      and
      Executive further agree that if any particular provision or portion of this
      Section 9 shall be adjudicated to be invalid or unenforceable, such adjudication
      shall apply only with respect to the operation of such provision in the
      particular jurisdiction in which such adjudication is made. The Company and
      Executive further agree that in the event that any restriction herein shall
      be
      found to be void or unenforceable but would be valid or enforceable if some
      part
      or parts thereof were deleted or the period or area of application reduced,
      such
      restriction shall apply with modification as may be necessary to make it valid
      and Executive and the Company empower a court of competent jurisdiction to
      modify, reduce or otherwise reform such provision(s) in such fashion as to
      carry
      out the parties’ intent to grant the Company the maximum allowable protection
      consistent with the applicable law and facts and the express exceptions
      contained herein.

    

    
      
         

      

      
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    (d) Without
      limiting the foregoing, Executive will not be deemed to be in competition with
      the Company by reason of his employment by an enterprise (“Subsequent Employer”)
      whose businesses include both (i) activities that involve the Company
      Technology (“Covered Business”); and (ii) activities that do not involve
      the Company Technology (“Excluded Business”) upon satisfaction of the following
      conditions: (A) Executive delivers to the Subsequent Employer a copy of
      this Agreement or an extract thereof setting forth fully and completely the
      restrictions set forth in this Section 9; (B) the Subsequent Employer
      executes and delivers to the Company a written agreement in which, as a
      condition to Executive’s employment, the Subsequent Employer
      (1) acknowledges receipt of such restriction, (2) agrees to employ
      Executive only in the Excluded Business, (3) agrees to cause the executive
      in charge of the Covered Business to acknowledge such restrictions in writing
      and agree that Executive will not be permitted to participate in the Covered
      Business, (4) agrees to establish reasonable internal policies and
      procedures to prevent violation of such restrictions or disclosure by Executive
      to personnel engaged in the Covered Business, and (5) agrees that the
      Company shall be entitled to enforce such agreement directly against the
      Subsequent employer; and (C) Executive and the Subsequent Employer perform
      their obligations pursuant to this Agreement and such agreement.

    

    10.  Confidentiality.
      The
      Employee Proprietary Information and Inventions Agreement dated March 14, 2003,
      between
      the Company and Executive is attached hereto as Exhibit B and incorporated
      by
      reference as if fully set forth herein.

    

    11.  Cooperation:
      Executive agrees to cooperate on a reasonable basis in the truthful and honest
      prosecution and/or defense of any claim in which the Company, its affiliates,
      and/or its subsidiaries may have an interest (subject to reasonable limitations
      concerning time and place), which may include without limitation making himself
      available on a mutually agreed, reasonable basis to participate in any
      proceeding involving the Company, its affiliates, and/or its subsidiaries,
      allowing himself to be interviewed by representatives of the Company, its
      affiliates, and/or its subsidiaries without asserting or claiming any privilege
      against the Company, its affiliates, and/or its subsidiaries, appearing for
      depositions and testimony without requiring a subpoena and without asserting
      or
      claiming any privilege against the Company, its affiliates, and/or its
      subsidiaries, and producing and/or providing any documents or names of other
      persons with relevant information without asserting or claiming any privilege
      against the Company, its affiliates, and/or its subsidiaries; provided that,
      if
      such services are required after the end of any period during which he is
      eligible for severance benefits, if any, the Company, its affiliates, and/or
      its
      subsidiaries shall provide Executive with reasonable compensation for the time
      actually expended in such endeavors and shall pay his reasonable expenses
      incurred at the prior and specific request of the Company, its affiliates,
      and/or its subsidiaries.

    

    12.  Remedies.
      Executive acknowledges and agrees that the Company’s remedy at law for a breach
      or threatened breach of the provisions of this Agreement would be inadequate
      and, in recognition of this fact, in the event of a breach or threatened breach
      by Executive of any provision of this Agreement, it is agreed that, in addition
      to any available remedy at law, the Company shall be entitled to, without
      posting any bond, specific performance, temporary restraining order, temporary
      or permanent injunction, or any other equitable relief or remedy which may
      then
      be available; provided, however, nothing herein shall be deemed to relieve
      the
      Company of its burden to prove grounds warranting such relief nor preclude
      Executive from contesting such grounds or facts in support thereof. Nothing
      herein contained shall be construed as prohibiting the Company from pursuing
      any
      other remedies available to it for such breach or threatened breach
      hereof.

    

    
      
         

      

      
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    13.  Applicable
      Laws and Consent to Jurisdiction.
      The
      validity, construction, interpretation, and enforceability of this Agreement
      shall be determined and governed by the laws of the State of New Jersey without
      giving effect to the principles of conflicts of law. For the purpose of
      litigating any dispute that arises under this Agreement, the parties hereby
      consent to exclusive jurisdiction of, and agree that such litigation shall
      be
      conducted in, any state or federal court located in the State of New
      Jersey.

    

    14.  Severability.
      The
      provisions of this Agreement are severable and if any one or more provisions
      are
      determined to be illegal or otherwise unenforceable, in whole or in part, the
      remaining provisions shall nevertheless be binding and enforceable. The Parties
      agree that the covenants set forth herein are reasonable. Without
      limiting the foregoing, it is the intent of the parties that the covenants
      set
      forth herein be enforced to the maximum degree permitted by applicable law.
      As
      such, the
      parties ask that if any court of competent jurisdiction were to consider any
      provision of this Agreement to be overly broad based on the circumstances at
      the
      time enforcement is requested, that such court “blue pencil” the provision and
      enforce the provision to the full extent that such court deems it to be
      reasonable in scope.  

    

    15.  Indemnification. The
      Indemnification Agreement dated April 8, 2004, between
      the Company and Executive is attached hereto as Exhibit C and incorporated
      by
      reference as if fully set forth herein.

    

    16.  Miscellaneous;
      Waiver.
      Executive further agrees that this Agreement, together with the Exhibits
      incorporated by reference as if fully set forth herein, sets forth the entire
      employment agreement between the Company and Executive, supersedes any and
      all
      prior agree-ments between the Company and Executive, and shall not be amended
      or
      added to except in writing signed by the Company and Executive. Executive
      understands that he may not assign his duties and obligations under this
      Agreement to any other party and that the Company may, at any time and without
      further action by or the consent of Executive, assign this Agreement to any
      of
      its affiliated companies. 

    

    17.  Counterparts.
      This
      Agreement may be executed in any number of counterparts, each of which shall
      be
      deemed an original and all of which taken together shall constitute one and
      the
      same agreement.

    

    18.  Successors
      and Assigns.
      This
      Agreement shall be binding on the successors and heirs of Executive and shall
      inure to the benefit of the successors and assigns of the Company.

    

    19.  Notices.
      Any
      notice required or permitted hereunder shall be in writing and shall be
      sufficiently given if personally delivered or if sent by registered or certified
      mail, postage prepaid, with return receipt requested, addressed: (a) in the
      case
      of the Company, to Columbia Laboratories, Inc., 354 Eisenhower Parkway,
      Livingston, New Jersey 07039, attn.: General Counsel, and (b) in the case of
      Executive, to Executive's last known address as reflected in the Company's
      records, or to such other address as Executive shall designate by written notice
      to the Company. Any notice given hereunder shall be deemed given at the time
      of
      receipt thereof by the person to whom such notice is given.

    

    
      
         

      

      
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    IN
      WITNESS WHEREOF, the parties have executed this Agreement as of the dates set
      forth below.

     

    

    
      	EXECUTIVE	 	 	COLUMBIA LABORATORIES, INC. 
	 	 	 	 
	 	 	 	 
	/s/ Michael
              McGrane	 	 	/s/ Stephen
              G. Kasnet
	
              
Michael
              McGrane	 	 	
              
 Stephen
              G. Kasnet, Chairman
	Date: March
              30, 2006 	 	 	Date: March
              30, 2006 

     

    
      
         

      

      
        9EXHIBIT
      10.1

    Partners
      for Growth        

     

    Loan
      and Security Agreement

     

    

    
      	Borrower:	
              North
                American Scientific, Inc., a Delaware corporation   

            

    

    
      	Address:	
              20200
                Sunburst Street, Chatsworth, CA
                91311

            

    

    

    
      	Borrower:	
              NOMOS
                Corporation

            

    

    
      	Address:	
              20200
                Sunburst Street, Chatsworth, CA
                91311

            

    

    

    
      	Borrower:	
              North
                American Scientific, Inc., a California
                corporation

            

    

    
      	Address:	
              20200
                Sunburst Street, Chatsworth, CA
                91311

            

    

     

    
      	Date:	
              March
                28, 2006 

            

    

     

    THIS
      LOAN AND SECURITY AGREEMENT
      is
      entered into on the above date between PARTNERS FOR GROWTH II, L.P. (“PFG”),
      whose address is 180 Pacific Avenue, San Francisco, CA 94111 and the borrower(s)
      named above (jointly and severally, the “Borrower”), whose chief executive
      office is located at the above address (“Borrower’s Address”). The Schedule to
      this Agreement (the “Schedule”) being signed by the parties concurrently, is an
      integral part of this Agreement. (Definitions of certain terms used in this
      Agreement are set forth in Section 8 below.)

     

    1. LOANS.

     

    1.1
      Loans. PFG
      will
      make loans to Borrower (the “Loans”) up to the amounts and subject to the
      conditions to borrowing (the “Credit Limit”) shown on the Schedule, provided no
      Default or Event of Default has occurred and is continuing, and subject to
      deduction of Reserves for accrued and unpaid interest and such other Reserves
      as
      PFG may establish in accordance with the definition thereof.

     

    1.2
      Interest.
      All
      Loans and all other monetary Obligations shall bear interest at the rate shown
      on the Schedule, except where expressly set forth to the contrary in this
      Agreement. Interest shall be payable monthly, on the first day of each month
      for
      interest accrued during the prior month. Overdue and unpaid interest may, in
      PFG’s discretion, be charged to Borrower’s loan account (i.e., added to the
      principal amount then outstanding), and shall thereafter bear interest at the
      same rate as the other Loans. 

     

    1.3
      Overadvances. If,
      at
      any time or for any reason, the total of all outstanding Loans and all other
      monetary Obligations exceeds the Credit Limit (an “Overadvance”), Borrower shall
      immediately pay the amount of the excess to PFG, without notice or demand.
      Without limiting Borrower's obligation to repay to PFG the amount of any
      Overadvance, Borrower agrees to pay PFG interest on the outstanding amount
      of
      any Overadvance, on demand, at the Default Rate.

     

    1.4
      Fees.
      Borrower
      shall pay PFG the fees shown on the Schedule, which are in addition to all
      interest and other sums payable to PFG hereunder and are not
      refundable.

     

    1.5
      Loan Requests.
      To
      obtain a Loan, Borrower shall make a request to PFG by facsimile or telephone.
      Loan requests may also be made by Borrower by email, but the same shall not
      be
      deemed made until PFG acknowledges receipt of the same by email or otherwise
      in
      writing. PFG’s obligation to consider a Loan request shall be subject to its
      receipt of such reports, certificates and other information as may be set forth
      in the Schedule. Loan requests received after 12:00 Noon Pacific time will
      not
      be deemed received by PFG until the next Business Day. PFG may rely on any
      telephone request for a Loan given by a person whom PFG believes in good faith
      is an authorized representative of Borrower, and Borrower will indemnify PFG
      for
      any loss PFG suffers as a result of that reliance.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

      
        
          	 	
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    1.6
      Late Fee.
      If any
      payment of accrued interest for any month is not made within three business
      days
      after the date a bill therefor is sent by PFG to Borrower, or if any payment
      of
      principal or any other payment is not made within three Business Days after
      the
      date due, Borrower shall pay PFG a late payment fee equal to 5% of the amount
      of
      such late payment. The provisions of this paragraph shall not be construed
      as
      PFG’s consent to Borrower’s failure to pay any amounts when due, and PFG’s
      acceptance of any such late payments shall not restrict PFG’s exercise of any
      remedies arising out of any such failure.

     

    2.
      SECURITY INTEREST. 

     

    2.1
      Grant of Security Interest. To
      secure
      the payment and performance of all of the Obligations when due, Borrower hereby
      grants to PFG a security interest in all of the following (collectively, the
      “Collateral”): all right, title and interest of Borrower in and to all of the
      following, whether now owned or hereafter arising or acquired and wherever
      located: all Accounts; all Inventory; all Equipment; all Deposit Accounts;
      all
      General Intangibles (including without limitation all Intellectual Property);
      all Investment Property; all Other Property; and any and all claims, rights
      and
      interests in any of the above, and all guaranties and security for any of the
      above, and all substitutions and replacements for, additions, accessions,
      attachments, accessories, and improvements to, and proceeds (including proceeds
      of any insurance policies, proceeds of proceeds and claims against third
      parties) of, any and all of the above, and all Borrower’s books relating to any
      and all of the above.

     

    2.2
      Specified Contracts Excluded. Notwithstanding
      anything herein to the contrary, the security interest granted under this
      Section 2 shall not attach to any of the following (“Specified Contracts”): any
      lease, license, contract, property rights or agreement to which Borrower is
      a
      party or any of its rights or interests thereunder if and for so long as the
      grant of such security interest shall constitute or result in any of the
      following (other than to the extent that any such term would be ineffective
      under the Code or any other applicable law or principles of equity): (i) the
      abandonment, invalidation or unenforceability of any right, title or interest
      of
      Borrower therein, or (ii) in a breach or termination pursuant to the terms
      of,
      or a default under, any such lease, license, contract property rights or
      agreement; provided however that such security interest shall attach immediately
      at such time as the condition causing such abandonment, invalidation or
      unenforceability shall be remedied and to the extent severable, shall attach
      immediately to any portion of such lease, license, contract, property rights
      or
      agreement that does not result in any of the consequences specified in (i)
      or
      (ii) above. Except as disclosed on Exhibit A hereto, Borrower represents and
      warrants to PFG that there are no Specified Contracts which are material to
      Borrower’s business or grant Borrower rights in Intellectual Property which is
      licensed by the Borrower to its customers or incorporated in products licensed
      or sold by the Borrower to its customers. Borrower shall not, hereafter, without
      PFG’s prior written consent, enter into any Specified Contract which is material
      to Borrower’s business or grants Borrower rights in Intellectual Property which
      is licensed by the Borrower to its customers or incorporated in products
      licensed or sold by the Borrower to its customers. 

     

    3.
      REPRESENTATIONS, WARRANTIES AND COVENANTS OF
      BORROWER.

     

    In
      order
      to induce PFG to enter into this Agreement and to make Loans, Borrower
      represents and warrants to PFG as follows, and Borrower covenants that the
      following representations will continue to be true, and that Borrower will
      at
      all times comply with all of the following covenants, throughout the term of
      this Agreement and until all Obligations have been paid and performed in
      full:

     

    3.1
      Corporate Existence and Authority.
      Borrower
      is and will continue to be, duly organized, validly existing and in good
      standing under the laws of the jurisdiction of its incorporation. Borrower
      is
      and will continue to be qualified and licensed to do business in all
      jurisdictions in which any failure to do so would result in a Material Adverse
      Change. The execution, delivery and performance by Borrower of this Agreement,
      and all other documents contemplated hereby (i) have been duly and validly
      authorized, (ii) are enforceable against Borrower in accordance with their
      terms
      (except as enforcement may be limited by equitable principles and by bankruptcy,
      insolvency, reorganization, moratorium or similar laws relating to creditors’
rights generally), and (iii) do not violate Borrower’s articles or certificate
      of incorporation, or Borrower’s by-laws, or any law to which Borrower or its
      property is subject, and (iv) do not constitute an event of default under or
      grounds for acceleration of any material indebtedness or obligation under any
      agreement or instrument which is binding upon Borrower or its
      property.

     

    3.2
      Name; Trade Names and Styles.
      As of
      the date hereof, the name of Borrower set forth in the heading to this Agreement
      is its correct name, as set forth in its Articles or Certificate of
      Incorporation. Listed in the Representations are all prior names of Borrower
      and
      all of Borrower’s present trade names as of the date hereof and trade names used
      during the five-year period preceding the date hereof. Borrower shall give
      PFG
      30 days prior written notice before changing its name. Borrower has complied,
      and will in the future comply, in all material respects, with all laws relating
      to the conduct of business under a fictitious business name, if applicable
      to
      Borrower.

     

    
      
        
        

      

      
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    3.3
      Place of Business; Location of Collateral. As
      of the
      date hereof, the address set forth in the heading to this Agreement is
      Borrower's chief executive office. In addition, as of the date hereof, Borrower
      has places of business and Collateral is located only at the locations set
      forth
      in the Representations. Borrower will give PFG at least 30 days prior written
      notice before changing its chief executive office, or moving more than $100,000
      of the Collateral to a location other than Borrower’s Address or one of the
      locations set forth in the Representations.

     

    3.4
      Title to Collateral; Perfection; Permitted Liens. 

     

    (a)
      Borrower is now, and will at all times in the future be, the sole owner of
      all
      the Collateral, except for items of Equipment which are leased to Borrower
      and
      except for non-exclusive licenses granted to its customers in the ordinary
      course of business, and licenses granted to Borrower by third parties with
      respect to intellectual property owned by such third parties. The Collateral
      now
      is and will remain free and clear of any and all liens, charges, security
      interests, encumbrances and adverse claims, except for Permitted Liens. PFG
      now
      has, and will continue to have, a first-priority (subject only to the security
      interest of the Senior Lender) perfected and enforceable security interest
      in
      all of the Collateral, subject only to the Permitted Liens, and Borrower will
      at
      all times defend PFG and the Collateral against all claims of others, excepting
      Permitted Liens. 

     

    (b) Borrower
      has set forth in the Representations all of Borrower’s Deposit Accounts as of
      the date hereof, and Borrower will give PFG five Business Days advance written
      notice before establishing any new Deposit Accounts and will cause the
      institution where any such new Deposit Account is maintained to execute and
      deliver to PFG a control agreement in form sufficient to perfect PFG’s security
      interest in the Deposit Account and otherwise satisfactory to PFG in its good
      faith business judgment, provided that PFG’s rights under any such control
      agreement shall be subject to the rights of the Senior Lender. 

     

    (c)
      In
      the event that Borrower shall at any time after the date hereof have any
      commercial tort claims against others, which it is asserting, and in which
      the
      potential recovery exceeds $100,000, Borrower shall promptly notify PFG thereof
      in writing and provide PFG with such information regarding the same as PFG
      shall
      request (unless providing such information would waive the Borrower’s
      attorney-client privilege). Such notification to PFG shall constitute a grant
      of
      a security interest in the commercial tort claim and all proceeds thereof to
      PFG, and Borrower shall execute and deliver all such documents and, subject
      to
      the rights of the Senior Lender, take all such actions as PFG shall request
      in
      connection therewith.

     

    (d)
       None
      of
      the Collateral now is or will be affixed to any real property in such a manner,
      or with such intent, as to become a fixture. Except as set forth in the
      Schedule, without the prior written consent of PFG, which consent may be
      conditioned upon PFG securing a landlord waiver in such form as PFG may specify,
      Borrower is not and will not become a lessee under any real property lease
      pursuant to which the lessor may obtain any rights in Collateral with a value
      in
      excess of $100,000, and no such lease now prohibits, restrains, impairs or
      will
      prohibit, restrain or impair Borrower's right to remove any Collateral with
      a
      value in excess of $100,000 from such leased premises. Whenever Collateral
      with
      a value in excess of $100,000 is located upon premises in which any third party
      has an interest, Borrower shall, whenever requested by PFG, use commercially
      reasonable efforts to cause such third party to execute and deliver to PFG,
      in
      form acceptable to PFG, such waivers and subordinations as PFG shall specify
      in
      its good faith business judgment. Borrower will notify PFG in advance of
      terminating any lease of real property where any of the Collateral now or in
      the
      future may be located.

     

    3.5
      Maintenance of Collateral. Borrower
      will maintain the Collateral in good working condition (ordinary wear and tear
      excepted), and Borrower will not use the Collateral for any unlawful purpose.
      Borrower will immediately advise PFG in writing of any loss or damage to the
      Collateral in excess of $100,000.

     

    3.6
      Books and Records.
      Borrower
      maintains and will maintain at Borrowers’ Address complete and accurate books
      and records, comprising an accounting system in accordance with
      GAAP.

     

    3.7
      Financial Condition, Statements and Reports.
      All
      financial statements now or in the future delivered to PFG have been, and will
      be, prepared in conformity with GAAP and now and in the future will fairly
      present in all material respects the results of operations and financial
      condition of Borrower, in accordance with GAAP, at the times and for the periods
      therein stated. Between the last date covered by any such statement provided
      to
      PFG and the date hereof, there has been no Material Adverse Change.

     

    3.8
      Tax Returns and Payments; Pension Contributions.
      Borrower
      has timely filed, and will timely file, all required tax returns and reports,
      and Borrower has timely paid, and will timely pay, all material foreign,
      federal, state and local taxes, assessments, deposits and contributions now
      or
      in the future owed by Borrower, except for any of the foregoing which are
      contested by Borrower in good faith, with adequate reserves under GAAP and
      which
      do not result in any tax lien on any of the Collateral, other than as set forth
      in Clause (iii) of the definition of Permitted Liens. Regardless of the
      materiality of any of the foregoing, Borrower shall promptly take all actions
      necessary, whether through payment, contest or otherwise, to ensure that none
      of
      the foregoing result in a lien on Collateral with priority over PFG’s liens on
      Collateral. Borrower has paid, and shall continue to pay all amounts necessary
      to fund all present and future pension, profit sharing and deferred compensation
      plans in accordance with their terms, and Borrower has not and will not withdraw
      from participation in, permit partial or complete termination of, or permit
      the
      occurrence of any other event with respect to, any such plan which could
      reasonably be expected to result in any material liability of Borrower,
      including any liability to the Pension Benefit Guaranty Corporation or its
      successors or any other governmental agency. 

     

    
      
        
        

      

      
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    3.9
      Compliance with Law.
      Borrower
      is, to the best of its knowledge, in compliance with, and will continue to
      comply, in all material respects, with all provisions of all foreign, federal,
      state and local laws and regulations applicable to Borrower, including, but
      not
      limited to, those relating to Borrower's ownership of real or personal property,
      the conduct and licensing of Borrower's business, and all environmental
      matters.

     

    3.10
      Litigation. Except
      as
      shown in Exhibit A hereto and except for such modifications thereto as to which
      Borrower shall have notified PFG in a manner acceptable to PFG and which
      modified information is acceptable to PFG in its sole discretion,
      there
      is no
      claim, suit, litigation, proceeding or investigation pending or (to best of
      Borrower’s knowledge) threatened against or affecting Borrower in any court or
      before any governmental agency (or any basis therefor known to Borrower) which
      could reasonably be expected to result, either separately or in the aggregate,
      in any Material Adverse Change. Borrower will promptly inform PFG in writing
      of
      any claim, proceeding, litigation or investigation in the future threatened
      or
      instituted against Borrower involving any single claim of $250,000 or more,
      or
      involving $250,000 or more in the aggregate.

     

    3.11
      Use of Proceeds.
      All
      proceeds of all Loans shall be used solely for lawful business purposes.
      Borrower is not purchasing or carrying any "margin stock" (as defined in
      Regulation U of the Board of Governors of the Federal Reserve System) and no
      part of the proceeds of any Loan will be used to purchase or carry any "margin
      stock" or to extend credit to others for the purpose of purchasing or carrying
      any "margin stock." 

     

    3.12
      No Default. At
      the
      date hereof, no Default or Event of Default has occurred, and no Default or
      Event of Default will have occurred after giving effect to any Loans being
      made
      concurrently herewith.

     

    4.
      ACCOUNTS.

     

    4.1
      Representations Relating to Accounts.  Borrower
      represents and warrants to PFG as follows: Each Account with respect to which
      Loans are requested by Borrower shall, on the date each Loan is requested and
      made, (i) represent an undisputed bona fide existing unconditional obligation
      of
      the Account Debtor created by the sale, delivery, and acceptance of goods or
      the
      rendition of services, or the non-exclusive licensing of Intellectual Property,
      in the ordinary course of Borrower's business, subject to any such Account
      Debtor’s right to return goods that are defective.

     

    4.2
      Representations Relating to Documents and Legal Compliance.
Borrower
      represents and warrants to PFG as follows: All statements made and all unpaid
      balances appearing in all invoices, instruments and other documents evidencing
      the Accounts are and shall be true and correct in all material respects and
      all
      such invoices, instruments and other documents and all of Borrower’s books and
      records are and shall be genuine and in all respects what they purport to be.
      All sales and other transactions underlying or giving rise to each Account
      shall
      comply in all material respects with all applicable laws and governmental rules
      and regulations. To the best of Borrower’s knowledge, all signatures and
      endorsements on all documents, instruments, and agreements relating to all
      Accounts are and shall be genuine, and all such documents, instruments and
      agreements are and shall be legally enforceable in accordance with their
      terms.

     

    4.3
      Documents Relating to Accounts. If
      requested by PFG, Borrower shall furnish PFG with copies (or, subject to the
      rights of the Senior Lender and at PFG's request, originals) of all contracts,
      orders, invoices, and other similar documents, and all shipping instructions,
      delivery receipts, bills of lading, and other evidence of delivery, for any
      goods the sale or disposition of which gave rise to such Accounts, and Borrower
      warrants the genuineness of all of the foregoing. In addition, subject to the
      rights of the Senior Lender, Borrower shall deliver to PFG, on its request,
      the
      originals of all instruments, chattel paper, security agreements, guarantees
      and
      other documents and property evidencing or securing any Accounts, in the same
      form as received, with all necessary indorsements, and copies of all credit
      memos.

     

    4.4
      Collection of Accounts. Borrower
      shall have the right to collect all Accounts, unless and until a Default or
      an
      Event of Default has occurred and is continuing. Subject to the rights of the
      Senior Lender, PFG may, in its good faith business judgment, require that all
      proceeds of Collateral be deposited by Borrower into a lockbox account, or
      such
      other "blocked account" as PFG may specify, pursuant to a blocked account
      agreement in such form as PFG may specify in its good faith business judgment.
      

     

    
      
        
        

      

      
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    4.5.
      Remittance of Proceeds. Subject
      to the rights of the Senior Lender, all proceeds arising from the disposition
      of
      any Collateral shall be delivered, in kind, by Borrower to PFG in the original
      form in which received by Borrower not later than the following Business Day
      after receipt by Borrower, to be applied to the Obligations in such order as
      PFG
      shall determine; provided that, if no Default or Event of Default has occurred
      and is continuing, Borrower shall not be obligated to remit to PFG (i) the
      proceeds of Accounts arising in the ordinary course of business, or (ii) the
      proceeds of the sale of worn out or obsolete Equipment disposed of by Borrower
      in good faith in an arm’s length transaction for an aggregate purchase price of
      $100,000 or less (for all such transactions in any fiscal year). Borrower agrees
      that it will not commingle proceeds of Collateral with any of Borrower's other
      funds or property, but will hold such proceeds separate and apart from such
      other funds and property and in an express trust for PFG, except as set forth
      above, and subject to the rights of the Senior Lender. Nothing in this Section
      limits the restrictions on disposition of Collateral set forth elsewhere in
      this
      Agreement.

     

    4.6
      Disputes. Borrower
      shall notify PFG promptly of all disputes or claims relating to Accounts in
      an
      amount in excess of $100,000. Borrower shall not forgive (completely or
      partially), compromise or settle any Account for less than payment in full,
      or
      agree to do any of the foregoing, except that Borrower may do so, provided
      that:
      (i) Borrower does so in good faith, in a commercially reasonable manner, in
      the
      ordinary course of business, and in arm’s length transactions, and which, if in
      excess of $50,000, are reported to PFG on the regular reports provided to PFG;
      (ii) no Default or Event of Default has occurred and is continuing; and (iii)
      taking into account all such discounts, settlements and forgiveness, the total
      outstanding Loans will not exceed the Credit Limit. 

     

    4.7
      Returns.
      Provided
      no Event of Default has occurred and is continuing, if any Account Debtor
      returns any Inventory to Borrower, Borrower shall promptly determine the reason
      for such return and, if appropriate, promptly issue a credit memorandum to
      the
      Account Debtor in the appropriate amount. In the event any attempted return
      occurs after the occurrence and during the continuance of any Event of Default,
      Borrower shall hold the returned Inventory in trust for PFG, and promptly
      notify PFG of the return of the Inventory. 

     

    4.8
      Verification.
      PFG may,
      from time to time, verify directly with the respective Account Debtors the
      validity, amount and other matters relating to the Accounts, by means of mail,
      telephone or otherwise, either in the name of Borrower or PFG or such other
      name
      as PFG may choose. 

     

    4.9
      No Liability.  PFG
      shall
      not be responsible or liable for any shortage or discrepancy in, damage to,
      or
      loss or destruction of, any goods, the sale or other disposition of which gives
      rise to an Account, or for any error, act, omission, or delay of any kind
      occurring in the settlement, failure to settle, collection or failure to collect
      any Account, or for settling any Account in good faith for less than the full
      amount thereof, nor shall PFG be deemed to be responsible for any of Borrower's
      obligations under any contract or agreement giving rise to an Account. Nothing
      herein shall, however, relieve PFG from liability for its own gross negligence
      or willful misconduct.

     

    5.
      ADDITIONAL DUTIES OF BORROWER.

     

    5.1
      Financial and Other Covenants.
      Borrower
      shall at all times comply with the financial and other covenants set forth
      in
      the Schedule.

     

    5.2
      Insurance.
      Borrower
      shall, at all times insure all of the tangible personal property Collateral
      and
      carry such other business insurance, with insurers reasonably acceptable to
      PFG,
      in such form and amounts as PFG may reasonably require and as are customary
      and
      in accordance with standard practices for Borrower’s industry and locations, and
      Borrower shall provide evidence of such insurance to PFG. All such insurance
      policies shall name PFG as an additional loss payee, and shall contain a lenders
      loss payee endorsement in form reasonably acceptable to PFG. Upon receipt of
      the
      proceeds of any such insurance, subject to the rights of the Senior Lender,
      PFG
      shall apply such proceeds in reduction of the Obligations as PFG shall determine
      in its good faith business judgment, except that, provided no Default or Event
      of Default has occurred and is continuing, PFG shall release to Borrower
      insurance proceeds with respect to Equipment totaling less than $100,000, which
      shall be utilized by Borrower for the replacement of the Equipment with respect
      to which the insurance proceeds were paid. PFG may require reasonable assurance
      that the insurance proceeds so released will be so used. If Borrower fails
      to
      provide or pay for any insurance, PFG may, but is not obligated to, obtain
      the
      same at Borrower's expense. 

     

    5.3
      Compliance; Reports.
      Borrower
      will maintain its and all Subsidiaries’ legal existence in its jurisdiction of
      formation and maintain its good standing and qualification in each jurisdiction
      in which the failure to so qualify would reasonably be expected to cause a
      material adverse effect on Borrower’s business or operations.  Borrower
      will comply, and have each Subsidiary comply, with all laws, ordinances and
      regulations to which it is subject, noncompliance with which could have a
      material adverse effect on Borrower’s business or operations or would reasonably
      be expected to cause a Material Adverse Change. Borrower shall at all times
      timely comply with its reporting obligations under applicable Securities and
      Exchange Commission rules and regulations, provided however, Borrower shall
      not
      be deemed to have breached such obligation if it has timely notified the
      Securities and Exchange Commission (or other relevant regulatory body) of its
      inability to timely file a required report, Borrower promptly notifies PFG
      of
      such inability to timely file, and Borrower uses its best efforts to file such
      report as soon as is practicable. Borrower, at its expense, shall provide PFG
      with the written reports set forth in the Schedule, and such other written
      reports with respect to Borrower (including budgets, projections, operating
      plans and other financial documentation), as PFG shall from time to time specify
      in its good faith business judgment.

     

    
      
        
        

      

      
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      5.4
        Access to Collateral, Books and Records.
        At
        reasonable times, and on three Business Day’s notice, PFG, or its agents, shall
        have the right to inspect the Collateral, and the right to audit and copy
        Borrower's books and records. The foregoing inspections and audits shall
        be at
        Borrower’s expense and the charge therefor shall be $750 per person per day (or
        such higher amount as shall represent PFG’s then current standard charge for the
        same), plus reasonable out-of-pocket expenses. Audits
        shall be conducted not more frequently than quarterly if there are no Loans
        outstanding and Borrower has not requested that PFG extend any Loans
        hereunder. Notwithstanding
        the foregoing, Borrower shall not be required to disclose to PFG any document
        or
        information (i) where disclosure is prohibited by applicable law or any
        agreement binding on Borrower, or (ii) is subject to attorney-client or similar
        privilege or constitutes attorney work product. If Borrower is withholding
        any
        information under the preceding sentence, it shall so advise PFG in writing,
        giving PFG a general description of the nature of the information
        withheld.

     

    5.5
      Negative Covenants.
      Except
      as may be permitted in the Schedule, Borrower shall not, without PFG's prior
      written consent (which shall be a matter of its good faith business judgment),
      do any of the following: 

     

      (i)
        merge
        or consolidate with another corporation or entity, except
        a
        Subsidiary may merge or consolidate into another Subsidiary or into Borrower
        if
        no Default or Event of Default has occurred and is continuing or would result
        from such action;
        

     

    (ii)
      make
      any Investments other than Permitted Investments; 

     

    (iii)
      enter into any other transaction, including without limitation, acquisition
      of
      assets, outside the ordinary course of business, not expressly permitted
      hereunder; 

     

    (iv)
      sell
      or transfer any Collateral (including without limitation and sale or transfer
      of
      Collateral which is then leased back by Borrower), except for (A) the sale
      of
      Inventory in the ordinary course of Borrower's business, and except for the
      sale
      of obsolete or unneeded Equipment, (B) the making of Permitted Investments,
      (C)
      the granting of Permitted Liens, (D) the non-exclusive licensing of Intellectual
      Property and similar arrangements for the use of the property of Borrower in
      the
      ordinary course of business, and (E) other assets of Borrower that in the
      aggregate do not exceed $250,000; 

     

    (v)
      store
      any Inventory or other Collateral with any warehouseman or other third party,
      unless there is in place a bailee agreement in such form as PFG shall specify
      in
      its good faith business judgment;

     

    (vi)
      make
      any loans of any money or other assets, other than Permitted Investments;

     

    (vii)
      incur any Indebtedness, other than Permitted Indebtedness; 

     

    (viii)
      guarantee or otherwise become liable with respect to the obligations of another
      party or entity, other than Permitted Indebtedness of another Borrower;

     

    (ix)
      pay
      or declare any dividends on Borrower's stock (except for dividends payable
      solely in stock of Borrower); 

     

    (x)
      redeem, retire, purchase or otherwise acquire, directly or indirectly, any
      of
      Borrower's stock, except if
      the
      consideration for the repurchase is the cancellation of indebtedness owed to
      Borrower by former employees, and no cash consideration is paid by Borrower
      in
      connection with such repurchase;
      

     

    (xi)
      engage, directly or indirectly, in any business other than the businesses
      currently engaged in by Borrower or reasonably related thereto;

     

    (xiii)
      maintain in excess of US$100,000 in any bank account or US$300,000 in the
      aggregate among all bank accounts for which there is not a Deposit Account
      control agreement in effect in favor of PFG; or 

     

    (xix)
      dissolve or elect to dissolve. 

     

    Transactions
      permitted by the foregoing provisions of this Section are only permitted if
      no
      Default or Event of Default would occur as a result of such transaction.

     

    5.6
      Litigation Cooperation.
      Should
      any third-party suit or proceeding be instituted by or against PFG with respect
      to any Collateral or relating to Borrower, Borrower shall, without expense
      to
      PFG, make available Borrower and its officers, employees and agents and
      Borrower's books and records, to the extent that PFG may deem them reasonably
      necessary in order to prosecute or defend any such suit or
      proceeding.

     

    
      
        
        

      

      
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    5.7
      Changes. Borrower
      agrees to promptly notify PFG in writing of any changes in the information
      set
      forth in the Representations, provided that only material changes to the
      Representations set forth in Sections 8, 9 and 10 need be notified to
      PFG.

     

    5.8
      Further Assurances.
      Borrower
      agrees, at its expense, on request by PFG, to execute all documents and take
      all
      actions, as PFG, may, in its good faith business judgment, deem necessary or
      useful in order to perfect and maintain PFG's perfected first-priority (subject
      only to the priority of the Senior Lender) interest security interest in the
      Collateral (subject to Permitted Liens), and in order to fully consummate the
      transactions contemplated by this Agreement.

     

    6.
      TERM.

     

    6.1
      Maturity Date.
      This
      Agreement shall continue in effect until the maturity date set forth on the
      Schedule (the "Maturity Date”), subject to Sections 6.2 and 6.3
      below.

     

    6.2
      Early Termination.
      This
      Agreement may be terminated prior to the Maturity Date as follows: (i) by
      Borrower, effective three Business Days after written notice of termination
      is
      given to PFG; or (ii) by PFG at any time after the occurrence and during the
      continuance of an Event of Default, without notice, effective immediately.
      

     

    6.3
      Payment of Obligations.
      On the
      Maturity Date or on any earlier effective date of termination, Borrower shall
      pay and perform in full all Obligations, whether evidenced by installment notes
      or otherwise, and whether or not all or any part of such Obligations are
      otherwise then due and payable. Notwithstanding any termination of this
      Agreement, all of PFG's security interests in all of the Collateral and all
      of
      the terms and provisions of this Agreement shall continue in full force and
      effect until all Obligations have been paid and performed in full; provided
      that
      PFG may, in its sole discretion, refuse to make any further Loans after
      termination. No termination shall in any way affect or impair any right or
      remedy of PFG, nor shall any such termination relieve Borrower of any Obligation
      to PFG, until all of the Obligations have been paid and performed in full.
      Upon
      payment and performance in full of all the Obligations and termination of this
      Agreement, PFG shall promptly terminate its financing statements with respect
      to
      the Borrower and deliver to Borrower such other documents as may be required
      to
      fully terminate PFG's security interests.

     

    7.
      EVENTS OF DEFAULT AND REMEDIES.

     

    7.1
      Events of Default.
      The
      occurrence of any of the following events shall constitute an "Event of Default"
      under this Agreement, and Borrower shall give PFG immediate written notice
      thereof: 

     

    (a)
      Any
      warranty, representation, statement, report or certificate made or delivered
      to
      PFG by Borrower or any of Borrower's officers, employees or agents, now or
      in
      the future, in this Agreement or in connection with this Agreement or in any
      documents publicly filed by Borrower which satisfies reporting obligations
      of
      Borrower under this Agreement shall be untrue or misleading in a material
      respect when made or deemed to be made; or 

     

    (b)
      Borrower shall fail to pay any Loan or any interest thereon or any other
      monetary Obligation within three Business Days after the date due; or

     

    (c)
      the
      total Loans and other Obligations outstanding at any time shall exceed the
      Credit Limit for more than one Business Day; or 

     

    (d)
      Borrower shall fail to comply with any of the financial covenants set forth
      in
      the Schedule, or shall breach any of the provisions of Section 5.5 hereof,
      or
      shall fail to perform any other non-monetary Obligation which by its nature
      cannot be cured, or shall fail to permit PFG to conduct an inspection or audit
      as provided in Section 5.4 hereof or shall fail to provide PFG with a borrowing
      base report under Section 6 of the Schedule within one Business Day after the
      date due; or 

     

    (e)
      Borrower shall fail to perform any other non-monetary Obligation, which failure
      is not cured within five Business Days after the date due; or 

     

    (f)
      any
      levy, assessment, attachment, seizure, lien or encumbrance (other than a
      Permitted Lien) is made on all or any part of the Collateral which is not cured
      within 10 days after the occurrence of the same; or 

     

    (g)
      any
      default or event of default occurs under any obligation having a value in excess
      of $250,000 and secured by a Permitted Lien, which is not cured within any
      applicable cure period or waived in writing by the holder of the Permitted
      Lien;
      or 

     

    (h)
      Borrower breaches any material contract or obligation, which has resulted or
      may
      reasonably be expected to result in a Material Adverse Change; or 

     

    
      
        
        

      

      
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    (i)
      Dissolution, termination of existence, insolvency or business failure of
      Borrower; or appointment of a receiver, trustee or custodian, for all or any
      part of the property of, assignment for the benefit of creditors by, or the
      commencement of any proceeding by Borrower under any reorganization, bankruptcy,
      insolvency, arrangement, readjustment of debt, dissolution or liquidation law
      or
      statute of any jurisdiction, now or in the future in effect, or Borrower shall
      generally not pay its debts as they become due, or Borrower shall conceal,
      remove or transfer any part of its property, with intent to hinder, delay or
      defraud its creditors, or make or suffer any transfer of any of its property
      which may be fraudulent under any bankruptcy, fraudulent conveyance or similar
      law; or 

     

    (j)
      the
      commencement of any proceeding against Borrower or any guarantor of any of
      the
      Obligations under any reorganization, bankruptcy, insolvency, arrangement,
      readjustment of debt, dissolution or liquidation law or statute of any
      jurisdiction, now or in the future in effect, which is not cured by the
      dismissal thereof within 45 days after the date commenced; or 

     

    (k)
      revocation or termination of, or limitation or denial of liability upon, any
      guaranty of the Obligations or any attempt to do any of the foregoing, or
      commencement of proceedings by any guarantor of any of the Obligations under
      any
      bankruptcy or insolvency law; or 

     

    (l)
      revocation or termination of, or limitation or denial of liability upon, any
      pledge of any certificate of deposit, securities or other property or asset
      of
      any kind pledged by any third party to secure any or all of the Obligations,
      or
      any attempt to do any of the foregoing, or commencement of proceedings by or
      against any such third party under any bankruptcy or insolvency law; or

     

    (m)
      Borrower makes any payment on account of any indebtedness or obligation which
      has been subordinated to the Obligations (other than as permitted in the
      applicable subordination agreement), or if any Person who has subordinated
      such
      indebtedness or obligations terminates or in any way limits his subordination
      agreement; or 

     

      (n) there
        shall be an acquisition by any party or group of affiliated parties, in one
        or
        more transactions, of more than 51%
        amount
        of
        fully diluted common
        stock
and
        common stock equivalents of
        Borrower,
        compared
        to the amount
        of
        outstanding shares of stock of Borrower in effect on the date hereof
        (other
        than by the sale of Borrower’s equity securities in a public offering or to
        venture capital investors so long as Borrower identifies to PFG, in writing,
        the
        venture capital investors prior to the closing of the investment);
        or

     

    (o)
      a
      Material Adverse Change shall occur. 

     

    PFG
      may
      cease making any Loans hereunder during any of the cure periods provided above,
      and thereafter if an Event of Default has occurred and is continuing.

     

    7.2
      Remedies.
      Upon the
      occurrence and during the continuance of any Event of Default, and at any time
      thereafter, PFG, at its option, and without notice or demand of any kind (all
      of
      which are hereby expressly waived by Borrower), may do any one or more of the
      following (subject in all instances to the rights of the Senior Lender): (a)
      Cease making Loans or otherwise extending credit to Borrower under this
      Agreement or any other Loan Document; (b) Accelerate and declare all or any
      part
      of the Obligations to be immediately due, payable, and performable,
      notwithstanding any deferred or installment payments allowed by any instrument
      evidencing or relating to any Obligation; (c) Take possession of any or all
      of
      the Collateral wherever it may be found, and for that purpose Borrower hereby
      authorizes PFG without judicial process to enter onto any of Borrower's premises
      without interference to search for, take possession of, keep, store, or remove
      any of the Collateral, and remain on the premises or cause a custodian to remain
      on the premises in exclusive control thereof, without charge for so long as
      PFG
      deems it necessary, in its good faith business judgment, in order to complete
      the enforcement of its rights under this Agreement or any other agreement;
      provided, however, that should PFG seek to take possession of any of the
      Collateral by court process, Borrower hereby irrevocably waives: (i) any bond
      and any surety or security relating thereto required by any statute, court
      rule
      or otherwise as an incident to such possession; (ii) any demand for possession
      prior to the commencement of any suit or action to recover possession thereof;
      and (iii) any requirement that PFG retain possession of, and not dispose of,
      any
      such Collateral until after trial or final judgment; (d) Require Borrower to
      assemble any or all of the Collateral and make it available to PFG at places
      designated by PFG which are reasonably convenient to PFG and Borrower, and
      to
      remove the Collateral to such locations as PFG may deem advisable; (e) Complete
      the processing, manufacturing or repair of any Collateral prior to a disposition
      thereof and, for such purpose and for the purpose of removal, PFG shall have
      the
      right to use Borrower's premises, vehicles, hoists, lifts, cranes, and other
      Equipment and all other property without charge; (f) Sell, lease or otherwise
      dispose of any of the Collateral, in its condition at the time PFG obtains
      possession of it or after further manufacturing, processing or repair, at one
      or
      more public and/or private sales, in lots or in bulk, for cash, exchange or
      other property, or on credit, and to adjourn any such sale from time to time
      without notice other than oral announcement at the time scheduled for sale.
      PFG
      shall have the right to conduct such disposition on Borrower's premises without
      charge, for such time or times as PFG deems reasonable, or on PFG's premises,
      or
      elsewhere and the Collateral need not be located at the place of disposition.
      PFG may directly or through any affiliated company purchase or lease any
      Collateral at any such public disposition, and if permissible under applicable
      law, at any private disposition. Any sale or other disposition of Collateral
      shall not relieve Borrower of any liability Borrower may have if any Collateral
      is defective as to title or physical condition or otherwise at the time of
      sale;
      (g) Demand payment of, and collect any Accounts and General Intangibles
      comprising Collateral and, in connection therewith, Borrower irrevocably
      authorizes PFG to endorse or sign Borrower's name on all collections, receipts,
      instruments and other documents, to take possession of and open mail addressed
      to Borrower and remove therefrom payments made with respect to any item of
      the
      Collateral or proceeds thereof, and, in PFG's good faith business judgment,
      to
      grant extensions of time to pay, compromise claims and settle Accounts and
      the
      like for less than face value; (h) Exercise any and all rights under any present
      or future control agreements relating to Deposit Accounts or Investment
      Property; and (i) Demand and receive possession of any of Borrower's federal
      and
      state income tax returns (or copies thereof) and the books and records utilized
      in the preparation thereof or referring thereto. All reasonable attorneys'
      fees,
      expenses, costs, liabilities and obligations incurred by PFG with respect to
      the
      foregoing shall be added to and become part of the Obligations, shall be due
      on
      demand, and shall bear interest at a rate equal to the highest interest rate
      applicable to any of the Obligations. Without limiting any of PFG's rights
      and
      remedies, from and after the occurrence and during the continuance of any Event
      of Default, the interest rate applicable to the Obligations shall be increased
      by an additional four percent per annum (the “Default Rate”).

     

    
      
        
        

      

      
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    7.3
      Standards for Determining Commercial Reasonableness.
      Borrower
      and PFG agree that a sale or other disposition (collectively, “sale”) of any
      Collateral which complies with the following standards will conclusively be
      deemed to be commercially reasonable: (i) Notice of the sale is given to
      Borrower at least ten days prior to the sale, and, in the case of a public
      sale,
      notice of the sale is published at least five days before the sale in a
      newspaper of general circulation in the county where the sale is to be
      conducted; (ii) Notice of the sale describes the collateral in general,
      non-specific terms; (iii) The sale is conducted at a place designated by PFG,
      with or without the Collateral being present; (iv) The sale commences at any
      time between 8:00 a.m. and 6:00 p.m.; (v) Payment of the purchase price in
      cash
      or by cashier’s check or wire transfer is required; (vi) With respect to any
      sale of any of the Collateral, PFG may (but is not obligated to) direct any
      prospective purchaser to ascertain directly from Borrower any and all
      information concerning the same. Subject to the rights of the Senior Lender,
      PFG
      shall be free to employ other methods of noticing and selling the Collateral,
      in
      its discretion, if they are commercially reasonable.

     

    7.4
      Power of Attorney.
      Upon the
      occurrence and during the continuance of any Event of Default, without limiting
      PFG’s other rights and remedies, Borrower grants to PFG an irrevocable power of
      attorney coupled with an interest, authorizing and permitting PFG (acting
      through any of its employees, attorneys or agents) at any time, at its option,
      but without obligation, with or without notice to Borrower, and at Borrower's
      expense, to do any or all of the following, in Borrower's name or otherwise,
      but
      PFG agrees that if it exercises any right hereunder, it will do so in good
      faith
      and in a commercially reasonable manner and in all instances subject to the
      rights of the Senior Lender: (a) Execute on behalf of Borrower any documents
      that PFG may, in its good faith business judgment, deem advisable in order
      to
      perfect and maintain PFG's security interest in the Collateral, or in order
      to
      exercise a right of Borrower or PFG, or in order to fully consummate all the
      transactions contemplated under this Agreement, and all other Loan Documents;
      (b) Execute on behalf of Borrower, any invoices relating to any Account, any
      draft against any Account Debtor and any notice to any Account Debtor, any
      proof
      of claim in bankruptcy, any Notice of Lien, claim of mechanic's, materialman's
      or other lien, or assignment or satisfaction of mechanic's, materialman's or
      other lien; (c) Take control in any manner of any cash or non-cash items of
      payment or proceeds of Collateral; endorse the name of Borrower upon any
      instruments, or documents, evidence of payment or Collateral that may come
      into
      PFG's possession; (d) Endorse all checks and other forms of remittances received
      by PFG; (e) Pay, contest or settle any lien, charge, encumbrance, security
      interest and adverse claim in or to any of the Collateral, or any judgment
      based
      thereon, or otherwise take any action to terminate or discharge the same; (f)
      Grant extensions of time to pay, compromise claims and settle Accounts and
      General Intangibles for less than face value and execute all releases and other
      documents in connection therewith; (g) Pay any sums required on account of
      Borrower's taxes or to secure the release of any liens therefor, or both; (h)
      Settle and adjust, and give releases of, any insurance claim that relates to
      any
      of the Collateral and obtain payment therefor; (i) Instruct any third party
      having custody or control of any books or records belonging to, or relating
      to,
      Borrower to give PFG the same rights of access and other rights with respect
      thereto as PFG has under this Agreement; and (j) Take any action or pay any
      sum
      required of Borrower pursuant to this Agreement and any other Loan Documents.
      Any and all reasonable sums paid and any and all reasonable costs, expenses,
      liabilities, obligations and attorneys' fees incurred by PFG with respect to
      the
      foregoing shall be added to and become part of the Obligations, shall be payable
      on demand, and shall bear interest at a rate equal to the highest interest
      rate
      applicable to any of the Obligations. In no event shall PFG's rights under
      the
      foregoing power of attorney or any of PFG's other rights under this Agreement
      be
      deemed to indicate that PFG is in control of the business, management or
      properties of Borrower.

     

    
      
        
        

      

      
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    7.5
      Application of Proceeds.
      All
      proceeds realized as the result of any sale of the Collateral shall, subject
      to
      the rights of the Senior Lender, be applied by PFG first to the reasonable
      costs, expenses, liabilities, obligations and attorneys' fees incurred by PFG
      in
      the exercise of its rights under this Agreement, second to the interest due
      upon
      any of the Obligations, and third to the principal of the Obligations, in such
      order as PFG shall determine in its sole discretion. Any surplus shall be paid
      to Borrower or other persons legally entitled thereto; Borrower shall remain
      liable to PFG for any deficiency. If, PFG, in its good faith business judgment,
      directly or indirectly enters into a deferred payment or other credit
      transaction with any purchaser at any sale of Collateral, PFG shall have the
      option, exercisable at any time, in its good faith business judgment, of either
      reducing the Obligations by the principal amount of purchase price or deferring
      the reduction of the Obligations until the actual receipt by PFG of the cash
      therefor.

     

    7.6
      Remedies Cumulative.
      In
      addition to the rights and remedies set forth in this Agreement, PFG shall
      have
      all the other rights and remedies accorded a secured party under the Code and
      under all other applicable laws, and under any other instrument or agreement
      now
      or in the future entered into between PFG and Borrower, and all of such rights
      and remedies are cumulative and none is exclusive. Exercise or partial exercise
      by PFG of one or more of its rights or remedies shall not be deemed an election,
      nor bar PFG from subsequent exercise or partial exercise of any other rights
      or
      remedies. The failure or delay of PFG to exercise any rights or remedies shall
      not operate as a waiver thereof, but all rights and remedies shall continue
      in
      full force and effect until all of the Obligations have been fully paid and
      performed.

     

    8. DEFINITIONS.
      As
      used
      in this Agreement, the following terms have the following meanings:

     

    “Account
      Debtor”
means
      the obligor on an Account.

     

    “Accounts”
means
      all present and future “accounts” as defined in the California Uniform
      Commercial Code in effect on the date hereof with such additions to such term
      as
      may hereafter be made, and includes without limitation all accounts receivable
      and other sums owing to Borrower.

     

    “Affiliate”
means
      (i) any of Borrower’s officers or directors, and if Borrower is a limited
      liability company, Borrower’s managers and members, and if Borrower is a
      partnership, Borrower’s general and limited partners; (ii) a Person that,
      directly or indirectly, owns or controls, is controlled by or is under common
      control with Borrower, and any of such person’s officers or directors, and if
      such person is a limited liability company, such person’s managers and members,
      and if such person is a partnership, such person’s general and limited
      partners.

     

    "Business
      Day"
      means a
      day on which PFG is open for business.

     

    “Code”
means
      the Uniform Commercial Code as adopted and in effect in the State of California
      from time to time. 

     

    “Collateral”
has
      the
      meaning set forth in Section 2 above.

     

    “continuing”
and
      “during
      the continuance of”
when
      used with reference to a Default or Event of Default means that the Default
      or
      Event of Default has occurred and has not been either waived in writing by
      PFG
      or cured within any applicable cure period.

     

    “Default”
means
      any event which with notice or passage of time or both, would constitute an
      Event of Default.

     

    “Default
      Rate”
has
      the
      meaning set forth in Section 7.2 above.

     

    “Deposit
      Accounts”
means
      all present and future “deposit accounts” as defined in the California Uniform
      Commercial Code in effect on the date hereof with such additions to such term
      as
      may hereafter be made, and includes without limitation all general and special
      bank accounts, demand accounts, checking accounts, savings accounts and
      certificates of deposit.

     

    "Event
      of Default"
      means
      any of the events set forth in Section 7.1 of this Agreement.

     

    “GAAP”
means
      generally accepted accounting principles consistently applied.

     

    “General
      Intangibles”
means
      all present and future “general intangibles” as defined in the California
      Uniform Commercial Code in effect on the date hereof with such additions to
      such
      term as may hereafter be made, and includes without limitation all Intellectual
      Property, payment intangibles, royalties, contract rights, goodwill, franchise
      agreements, purchase orders, customer lists, route lists, telephone numbers,
      domain names, claims, income tax refunds, security and other deposits, options
      to purchase or sell real or personal property, rights in all litigation
      presently or hereafter pending (whether in contract, tort or otherwise),
      insurance policies (including without limitation key man, property damage,
      and
      business interruption insurance), payments of insurance and rights to payment
      of
      any kind.

     

    “good
      faith business judgment"
      means
      honesty in fact and good faith (as defined in Section 1201 of the Code) in
      the
      exercise of PFG’s business judgment.

     

    “including”
means
      including (but not limited to).

     

    
      
        
        

      

      
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    “Indebtedness”
means
      (a) indebtedness for borrowed money or the deferred purchase price of property
      or services (other than trade payables arising in the ordinary course of
      business), (b) obligations evidenced by bonds, notes, debentures or other
      similar instruments, (c) reimbursement obligations in connection with letters
      of
      credit, and (d) capital lease obligations.

     

    “Intellectual
      Property”
means
      all present and future: (a) copyrights, copyright rights, copyright
      applications, copyright registrations and like protections in each work of
      authorship and derivative work thereof, whether published or unpublished, (b)
      trade secret rights, including all rights to unpatented inventions and know-how,
      and confidential information; (c) mask work or similar rights available for
      the
      protection of semiconductor chips; (d) patents, patent applications and like
      protections including without limitation improvements, divisions, continuations,
      renewals, reissues, extensions and continuations-in-part of the same; (e)
      trademarks, servicemarks, trade styles, and trade names, whether or not any
      of
      the foregoing are registered, and all applications to register and registrations
      of the same and like protections, and the entire goodwill of the business of
      Borrower connected with and symbolized by any such trademarks; (f) computer
      software and computer software products; (g) designs and design rights; (h)
      technology; (i) all claims for damages by way of past, present and future
      infringement of any of the rights included above; and (j) all licenses or other
      rights to use any property or rights of a type described above.

     

    “Inventory”
means
      all present and future “inventory” as defined in the California Uniform
      Commercial Code in effect on the date hereof with such additions to such term
      as
      may hereafter be made, and includes without limitation all merchandise, raw
      materials, parts, supplies, packing and shipping materials, work in process
      and
      finished products, including without limitation such inventory as is temporarily
      out of Borrower’s custody or possession or in transit and including any returned
      goods and any documents of title representing any of the above.

     

    “Investment”
means
      any beneficial ownership interest in any Person (including any stock,
      partnership interest or other equity or debt securities issued by any Person),
      and any loan, advance or capital contribution to any Person.

     

    “Investment
      Property”
means
      all present and future investment property, securities, stocks, bonds,
      debentures, debt securities, partnership interests, limited liability company
      interests, options, security entitlements, securities accounts, commodity
      contracts, commodity accounts, and all financial assets held in any securities
      account or otherwise, and all options and warrants to purchase any of the
      foregoing, wherever located, and all other securities of every kind, whether
      certificated or uncertificated.

     

    “Loan
      Documents”
means,
      collectively, this Agreement, the Representations, and all other present and
      future documents, instruments and agreements between PFG and Borrower,
      including, but not limited to those relating to this Agreement, and all
      amendments and modifications thereto and replacements therefor.

     

    "Material
      Adverse Change"
      means
      any of the following: (i) a material adverse change in the business, operations,
      or financial or other condition of the Borrower, or (ii) a material impairment
      of the prospect of repayment of any portion of the Obligations; or (iii) a
      material impairment of the value or priority of PFG’s security interests in the
      Collateral.

     

    "Obligations"
      means
      all present and future Loans, advances, debts, liabilities, obligations,
      guaranties, covenants, duties and indebtedness at any time owing by Borrower
      to
      PFG, whether evidenced by this Agreement or any note or other instrument or
      document, or otherwise, whether arising from an extension of credit, opening
      of
      a letter of credit, banker's acceptance, loan, guaranty, indemnification or
      otherwise, whether direct or indirect (including, without limitation, those
      acquired by assignment and any participation by PFG in Borrower's debts owing
      to
      others), absolute or contingent, due or to become due, including, without
      limitation, all interest, charges, expenses, fees, attorney's fees, expert
      witness fees, audit fees, collateral monitoring fees, closing fees, facility
      fees, termination fees, minimum interest charges and any other sums chargeable
      to Borrower under this Agreement or under any other Loan Documents.

     

    “Other
      Property”
means
      the following as defined in the California Uniform Commercial Code in effect
      on
      the date hereof with such additions to such term as may hereafter be made,
      and
      all rights relating thereto: all present and future “commercial tort claims”
(including without limitation any commercial tort claims identified in the
      Representations), “documents”, “instruments”, “promissory notes”, “chattel
      paper”, “letters of credit”, “letter-of-credit rights”, “fixtures”, “farm
      products” and “money”; and all other goods and personal property of every kind,
      tangible and intangible, whether or not governed by the California Uniform
      Commercial Code.

     

    “Payment”
means
      all checks, wire transfers and other items of payment received by PFG for credit
      to Borrower’s outstanding Obligations.

     

    “Permitted
      Indebtedness”
means
      

     

    (i)
      the
      Loans and other Obligations; and 

     

    (ii) Indebtedness
      existing on the date hereof and shown on Exhibit A hereto; 

     

    
      
        
        

      

      
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    (iii)
      Subordinated Debt; 

     

    (iv)
      Indebtedness owing to Senior Lender not to exceed the Senior Debt Limit
      specified in the Schedule; 

     

    (v)
      other
      Indebtedness secured by Permitted Liens;

     

    (vi)
      reimbursement obligations in respect of letters of credit in an aggregate face
      amount outstanding not to exceed $300,000 at any time outstanding, which has
      been reported to PFG in writing, and, in the case of reimbursement obligations
      to the Senior Lender in respect of letters of credit which do not exceed the
      Senior Debt Limit (taking into account all other Indebtedness to Senior Lender);
      and

     

      (vii)
        extensions,
        refinancing and renewals of any items of Permitted Indebtedness, provided
        that
        the principal amount thereof is not increased or the terms thereof modified
        to
        impose more burdensome terms on Borrower;

     

      (viii)
        intercompany loans among the entities constituting Borrower;
        and

     

      (ix)
        other Indebtedness in an aggregate not to exceed $100,000. 

     

    “Permitted
      Investments”
      are:

     

    (i) Investments
      (if any) shown on the Exhibit A and existing on the date hereof;

     

    (ii)
      marketable direct obligations issued or unconditionally guaranteed by the United
      States or its agency or any State maturing within 1 year from its
      acquisition;

     

    (iii) commercial
      paper maturing no more than 1 year after its creation and having the highest
      rating from either Standard & Poor's Corporation or Moody's Investors
      Service, Inc; 

     

    (iv) bank
      certificates of deposit issued maturing no more than 1 year after
      issue;

     

      (v)
        Investments in (A) foreign subsidiaries of NASI in the ordinary course of
        business consistent with past business practices provided that the aggregate
        amount thereof in any fiscal year shall not exceed $500,000, provided further,
        no such Investments may be made at such time that a Default or an Event of
        Default occurring prior to the making thereof or would arise upon the making
        thereof unless PFG specifically consents thereto in writing and (B) Theseus
        Imaging Corporation, a current domestic subsidiary of NASI which Borrower
        represents to PFG will be dissolved no later than October 31, 2006, and prior
        to
        such dissolution Borrower may make Investments necessary to wind up the business
        affairs of such company as long as the aggregate amount thereof does not
        exceed
        $350,000;

     

      (vi)
        Repurchase of Borrower’s stock, if the consideration for the repurchase is the
        cancellation of indebtedness owned to Borrower by former employees, and no
        cash
        consideration is paid by Borrower in connection with such
        repurchase;

     

      (vii)
        Investments accepted in connection with transfers permitted under Section
        5.5(iv) hereof;

     

      (viii)
        Investments not to exceed $250,000, in the aggregate outstanding at any time
        constituting travel advances and employee relocation loans, and other employee
        loans and advances in the ordinary course of business as heretofore conducted
        by
        Borrower;

     

      (ix)
        Investments (including debt obligations) received in connection with the
        bankruptcy or reorganization of customers or suppliers of Borrower’s, and in
        settlement of delinquent obligations of, and other disputes with, customers
        and
        suppliers arising in the ordinary course of business as heretofore conducted
        by
        Borrower;

     

      (x)
        Investments consisting of notes receivable of, or prepaid royalties and other
        credit extensions to, customers and suppliers who are not Affiliates of
        Borrower’s, in the ordinary course of business as heretofore conducted by
        Borrower, not to exceed in the aggregate outstanding at any time, the sum
        of (i)
        $1,000,000 and (ii) $950,000 with respect to that certain promissory note
        executed in favor of Borrower by Prostate Centers of America on or about
        October
        2003; and

     

      (xi)
        Joint ventures or strategic alliances consisting of the non-exclusive licensing
        of technology, the development of technology or the providing of technical
        support, provided that any cash Investments by Borrower do not exceed $500,000
        in the aggregate in any fiscal year.

     

    "Permitted
      Liens"
      means
      the following: 

     

    (i)
      purchase money security interests in specific items of Equipment;

     

    (ii)
      leases of specific items of Equipment or other property;

     

    
      
        
        

      

      
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      (iii)
        liens for taxes not yet payable or
        being
        contested in good faith and for which Borrower maintains adequate reserves,
        if
        they have no priority over any of PFG’s security interests;

     

    (iv)
      additional security interests and liens consented to in writing by PFG, which
      consent may be withheld in its good faith business judgment. PFG will have
      the
      right to require, as a condition to its consent under this subparagraph (iv),
      that the holder of the additional security interest or lien sign an
      intercreditor agreement on PFG’s then standard form, acknowledge that the
      security interest is subordinate to the security interest in favor of PFG,
      and
      agree not to take any action to enforce its subordinate security interest so
      long as any Obligations remain outstanding, and that Borrower agrees that any
      uncured default in any obligation secured by the subordinate security interest
      shall also constitute an Event of Default under this Agreement;

     

    (v)
      security interests being terminated substantially concurrently with this
      Agreement;

     

    (vi) liens
      of materialmen, mechanics, warehousemen, carriers, or other similar liens
      arising in the ordinary course of business and securing obligations which are
      not delinquent;

     

    (vii) liens
      incurred in connection with the extension, renewal or refinancing of the
      indebtedness secured by liens of the type described above in clauses (i) or
      (ii)
      above, provided that any extension, renewal or replacement lien is limited
      to
      the property encumbered by the existing lien and the principal amount of the
      indebtedness being extended, renewed or refinanced does not
      increase;

     

    (viii)
      liens in favor of customs and revenue authorities which secure payment of
      customs duties in connection with the importation of goods; 

     

    (ix)
      statutory, common law or contractual liens of depository institutions or
      institutions holding securities accounts (including rights of set-off) securing
      only customary charges and fees in connection with such accounts;
      and

     

      (x)
        liens
        in favor of Senior Lender securing an amount not in excess of the Senior
        Debt
        Limit; and

     

      (xi)
        liens existing on the date hereof and shown on Exhibit A or arising under
        this
        Agreement or other Loan Documents.

     

    "Person"
      means
      any individual, sole proprietorship, partnership, joint venture, trust,
      unincorporated organization, association, corporation, government, or any agency
      or political division thereof, or any other entity. 

     

    “Prime
      Rate”
means
      the rate quoted by the Wall Street Journal (or such other nationally recognized
      rate quoting service reasonably acceptable to PFG) as the prime lending rate
      on
      the date hereof and each business day during the term of this
      Agreement.

     

    “Representations”
means
      the written Representations and Warranties provided by Borrower to PFG referred
      to in the Schedule.

     

    "Reserves"
      means,
      as of any date of determination, such amounts as PFG may from time to time
      establish and revise in its good faith business judgment, reducing the amount
      of
      Loans, and other financial accommodations which would otherwise be available
      to
      Borrower under the lending formula(s) provided in the Schedule: (a) to reflect
      events, conditions, contingencies or risks which, as determined by PFG in its
      good faith business judgment, do or may adversely affect (i) the Collateral
      or
      any other property which is security for the Obligations or its value (including
      without limitation any increase in delinquencies of Accounts), (ii) the assets,
      business or prospects of Borrower or any Guarantor, or (iii) the security
      interests and other rights of PFG in the Collateral (including the
      enforceability, perfection and priority thereof); or (b) to reflect PFG's good
      faith belief that any collateral report or financial information furnished
      by or
      on behalf of Borrower or any Guarantor to PFG is or may have been incomplete,
      inaccurate or misleading in any material respect; or (c) in respect of any
      state
      of facts which PFG determines in good faith constitutes a Default or an Event
      of
      Default.

     

    “Senior
      Lender”
has
      the
      meaning set forth in Section 8 of the Schedule. 

     

    “Subordinated
      Debt”
means
      debt incurred by Borrower subordinated to Borrower’s debt to PFG (pursuant to a
      subordination agreement entered into between PFG, Borrower and the subordinated
      creditor), on terms acceptable to PFG in its absolute discretion.

     

      “Subsidiary”
means
        (a) any corporate entity of which more than 50% of the issued and
        outstanding equity securities having ordinary voting power to elect a majority
        of the governing body (e.g., Board of Directors) of such corporate entity
        is at
        the time directly or indirectly owned or controlled by Borrower, (b) any
        partnership, joint venture, or other association of which more than 50% of
        the equity interest having the power to vote, direct or control the management
        of such partnership, joint venture or other association is at the time directly
        or indirectly owned and controlled by Borrower, (c) any other entity
        included or includable in the financial statements of Borrower on a consolidated
        basis. 

     

    
      
        
        

      

      
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    Other
      Terms.
      All
      accounting terms used in this Agreement, unless otherwise indicated, shall
      have
      the meanings given to such terms in accordance with GAAP, consistently applied.
      All other terms contained in this Agreement, unless otherwise indicated, shall
      have the meanings provided by the Code, to the extent such terms are defined
      therein. 

     

    9. GENERAL
      PROVISIONS.

     

    9.1
      Confidentiality.
      PFG
      agrees to use the same degree of care that it exercises with respect to its
      own
      proprietary information, to maintain the confidentiality of any and all
      proprietary, trade secret or confidential information provided to or received
      by
      PFG from the Borrower, which indicates that it is confidential, including
      business plans and forecasts, non-public financial information, confidential
      or
      secret processes, formulae, devices and contractual information, customer lists,
      and employee relation matters, provided that PFG may disclose such information
      (i) to its officers, directors, employees, attorneys, accountants, affiliates,
      participants, prospective participants, assignees and prospective assignees,
      and
      such other Persons to whom PFG shall at any time be required to make such
      disclosure in accordance with applicable law or legal process, and (ii) in
      its
      good faith business judgment in connection with the enforcement of its rights
      or
      remedies after an Event of Default, or in connection with any dispute with
      Borrower or any other Person relating to Borrower. The confidentiality agreement
      in this Section supersedes any prior confidentiality agreement of PFG relating
      to Borrower.

     

    9.2
      Interest Computation. In
      computing interest on the Obligations, all Payments received after 12:00 Noon,
      Pacific Time, on any day shall be deemed received on the next Business Day.
      

     

    9.3
      Payments.
      All
      Payments may be applied, and in PFG's good faith business judgment reversed
      and
      re-applied, to the Obligations, in such order and manner as PFG shall determine
      in its good faith business judgment.

     

    9.4
      Charges to Accounts. PFG
      may,
      in its discretion, require that Borrower pay monetary Obligations in cash to
      PFG, or charge them to Borrower’s Loan account, in which event they will bear
      interest at the same rate applicable to the Loans. 

     

    9.5
      Monthly Accountings.
      PFG
      shall provide Borrower monthly with an account of advances, charges, expenses
      and payments made pursuant to this Agreement. Such account shall be deemed
      correct, accurate and binding on Borrower and an account stated (except for
      reverses and reapplications of payments made and corrections of errors
      discovered by PFG), unless Borrower notifies PFG in writing to the contrary
      within 60 days after such account is rendered, describing the nature of any
      alleged errors or omissions.

     

    9.6
      Notices.
      All
      notices to be given under this Agreement shall be in writing and shall be given
      either personally, or by reputable private delivery service, or by regular
      first-class mail, or certified mail return receipt requested, or by fax to
      the
      most recent fax number a party has for the other party (and if by fax, sent
      concurrently by one of the other methods provided herein), addressed to PFG
      or
      Borrower at the addresses shown in the heading to this Agreement, or at any
      other address designated in writing by one party to the other party. All notices
      shall be deemed to have been given upon delivery in the case of notices
      personally delivered, or at the expiration of one Business Day following
      delivery to the private delivery service, or two Business Days following the
      deposit thereof in the United States mail, with postage prepaid, or on the
      first
      business day of receipt during business hours in the case of notices sent by
      fax, as provided herein. 

     

    9.7
      Severability.
      Should
      any provision of this Agreement be held by any court of competent jurisdiction
      to be void or unenforceable, such defect shall not affect the remainder of
      this
      Agreement, which shall continue in full force and effect.

     

    9.8
      Integration.
      This
      Agreement and such other written agreements, documents and instruments as may
      be
      executed in connection herewith are the final, entire and complete agreement
      between Borrower and PFG and supersede all prior and contemporaneous
      negotiations and oral representations and agreements, all of which are merged
      and integrated in this Agreement. There
      are no oral understandings, representations or agreements between the parties
      which are not set forth in this Agreement or in other written agreements signed
      by the parties in connection herewith.

     

    9.9
      Waivers; Indemnity.
      The
      failure of PFG at any time or times to require Borrower to strictly comply
      with
      any of the provisions of this Agreement or any other Loan Document shall not
      waive or diminish any right of PFG later to demand and receive strict compliance
      therewith. Any waiver of any default shall not waive or affect any other
      default, whether prior or subsequent, and whether or not similar. None of the
      provisions of this Agreement or any other Loan Document shall be deemed to
      have
      been waived by any act or knowledge of PFG or its agents or employees, but
      only
      by a specific written waiver signed by an authorized officer of PFG and
      delivered to Borrower. Borrower waives the benefit of all statutes of
      limitations relating to any of the Obligations or this Agreement or any other
      Loan Document, and Borrower waives demand, protest, notice of protest and notice
      of default or dishonor, notice of payment and nonpayment, release, compromise,
      settlement, extension or renewal of any commercial paper, instrument, account,
      General Intangible, document or guaranty at any time held by PFG on which
      Borrower is or may in any way be liable, and notice of any action taken by
      PFG,
      unless expressly required by this Agreement. Borrower
      hereby agrees to indemnify PFG and its affiliates, subsidiaries, parent,
      directors, officers, employees, agents, and attorneys, and to hold them harmless
      from and against any and all claims, debts, liabilities, demands, obligations,
      actions, causes of action, penalties, costs and expenses (including reasonable
      attorneys' fees), of every kind, which they may sustain or incur based upon
      or
      arising out of any of the Obligations, or any relationship or agreement between
      PFG and Borrower, evidenced by the Loan Documents, relating to Borrower or
      the
      Obligations; provided that this indemnity shall not extend to damages to the
      extent caused by the indemnitee’s own gross negligence or willful misconduct.
      Notwithstanding any provision in this Agreement to the contrary, the indemnity
      agreement set forth in this Section shall survive any termination of this
      Agreement and shall for all purposes continue in full force and
      effect.

     

    
      
        
        

      

      
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    9.10
      No Liability for Ordinary Negligence.
      Neither
      PFG, nor any of its directors, officers, employees, agents, attorneys or any
      other Person affiliated with or representing PFG shall be liable for any claims,
      demands, losses or damages, of any kind whatsoever, made, claimed, incurred
      or
      suffered by Borrower or any other party through the ordinary negligence of
      PFG,
      or any of its directors, officers, employees, agents, attorneys or any other
      Person affiliated with or representing PFG, but nothing herein shall relieve
      PFG
      from liability for its own gross negligence or willful misconduct.

     

    9.11
      Amendment.
      The
      terms and provisions of this Agreement may not be waived or amended, except
      in a
      writing executed by Borrower and a duly authorized officer of PFG.

     

    9.12
      Time of Essence.
      Time is
      of the essence in the performance by Borrower of each and every obligation
      under
      this Agreement.

     

    9.13
      Attorneys Fees and Costs.
      Borrower
      shall reimburse PFG for all reasonable attorneys' fees and all filing,
      recording, search, title insurance, appraisal, audit, and other reasonable
      costs
      incurred by PFG, pursuant to, or in connection with, or relating to this
      Agreement (whether or not a lawsuit is filed), including, but not limited to,
      any reasonable attorneys' fees and costs PFG incurs in order to do the
      following: prepare and negotiate this Agreement and all present and future
      documents relating to this Agreement; obtain legal advice in connection with
      this Agreement or Borrower; enforce, or seek to enforce, any of its rights
      under
      the Loan Documents; prosecute actions against, or defend actions by, Account
      Debtors; commence, intervene in, or defend any action or proceeding; initiate
      any complaint to be relieved of the automatic stay in bankruptcy; file or
      prosecute any probate claim, bankruptcy claim, third-party claim, or other
      claim; examine, audit, copy, and inspect any of the Collateral or any of
      Borrower's books and records; protect, obtain possession of, lease, dispose
      of,
      or otherwise enforce PFG’s security interest in, the Collateral; and otherwise
      represent PFG in any litigation relating to Borrower. If either PFG or Borrower
      files any lawsuit against the other predicated on a breach of this Agreement,
      the prevailing party in such action shall be entitled to recover its reasonable
      costs and attorneys' fees, including (but not limited to) reasonable attorneys'
      fees and costs incurred in the enforcement of, execution upon or defense of
      any
      order, decree, award or judgment. All attorneys' fees and costs to which PFG
      may
      be entitled pursuant to this Paragraph shall immediately become part of
      Borrower's Obligations, shall be due on demand, and shall bear interest at
      a
      rate equal to the highest interest rate applicable to any of the
      Obligations.

     

    9.14
      Benefit of Agreement.
      The
      provisions of this Agreement shall be binding upon and inure to the benefit
      of
      the respective successors, assigns, heirs, beneficiaries and representatives
      of
      Borrower and PFG; provided, however, that Borrower may not assign or transfer
      any of its rights under this Agreement without the prior written consent of
      PFG,
      and any prohibited assignment shall be void. No consent by PFG to any assignment
      shall release Borrower from its liability for the Obligations.

     

    9.15
      Joint and Several Liability.
      If
      Borrower consists of more than one Person, their liability shall be joint and
      several, and the compromise of any claim with, or the release of, any Borrower
      shall not constitute a compromise with, or a release of, any other
      Borrower.

     

    9.16
      Limitation of Actions. Any
      claim
      or cause of action by Borrower against PFG, its directors, officers, employees,
      agents, accountants or attorneys, based upon, arising from, or relating to
      this
      Loan Agreement, or any other Loan Document, or any other transaction
      contemplated hereby or thereby or relating hereto or thereto, or any other
      matter, cause or thing whatsoever, occurred, done, omitted or suffered to be
      done by PFG, its directors, officers, employees, agents, accountants or
      attorneys, shall be barred unless asserted by Borrower by the commencement
      of an
      action or proceeding in a court of competent jurisdiction by the filing of
      a
      complaint within the earlier to occur of (i) one year after the date Borrower
      knew or should have known (with the exercise of customary diligence) of the
      first act, occurrence or omission upon which such claim or cause of action,
      or
      any part thereof, is based, or (ii) one year after the termination of this
      Agreement, and the service of a summons and complaint on an officer of PFG,
      or
      on any other person authorized to accept service on behalf of PFG, within sixty
      (60) days thereafter. Borrower agrees that such one-year period is a reasonable
      and sufficient time for Borrower to investigate and act upon any such claim
      or
      cause of action. The one-year period provided herein shall not be waived,
      tolled, or extended except by the written consent of PFG in its sole discretion.
      This provision shall survive any termination of this Loan Agreement or any
      other
      Loan Document.

     

    
      
        
        

      

      
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    9.17
      Paragraph Headings; Construction.
      Paragraph headings are only used in this Agreement for convenience. Borrower
      and
      PFG acknowledge that the headings may not describe completely the subject matter
      of the applicable paragraph, and the headings shall not be used in any manner
      to
      construe, limit, define or interpret any term or provision of this Agreement.
      This Agreement has been fully reviewed and negotiated between the parties and
      no
      uncertainty or ambiguity in any term or provision of this Agreement shall be
      construed strictly against PFG or Borrower under any rule of construction or
      otherwise.

     

    9.18
      Governing Law; Jurisdiction; Venue.
      This
      Agreement and all acts and transactions hereunder and all rights and obligations
      of PFG and Borrower shall be governed by the laws of the State of California,
      provided, however that Section 9.19 shall be governed by and construed in
      accordance with the laws of the State of Delaware. As a material part of the
      consideration to PFG to enter into this Agreement, Borrower (i) agrees that
      all
      actions and proceedings relating directly or indirectly to this Agreement shall,
      at PFG's option, be litigated in courts located within California, and that
      the
      exclusive venue therefor shall be San Francisco County; (ii) consents to the
      jurisdiction and venue of any such court and consents to service of process
      in
      any such action or proceeding by personal delivery or any other method permitted
      by law; and (iii) waives any and all rights Borrower may have to object to
      the
      jurisdiction of any such court, or to transfer or change the venue of any such
      action or proceeding.

     

    9.19
      Mutual Waiver of Jury Trial. BORROWER
      AND PFG EACH HEREBY WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING
      BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY
      OTHER PRESENT OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN PFG AND BORROWER, OR
      ANY
      CONDUCT, ACTS OR OMISSIONS OF PFG OR BORROWER OR ANY OF THEIR DIRECTORS,
      OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH
      PFG
      OR BORROWER, IN ALL OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR
      TORT
      OR OTHERWISE.

     

    
      	
              Borrower:

               

              North
                American Scientific, Inc., a Delaware corporation

               

               

              By
                /s/L.
                Michael Cutrer

              President
                or Vice President

               

              By
                /s/
                David N. King

              Secretary
                or Ass't Secretary

            	
              PFG:

               

              PARTNERS
                FOR GROWTH II, L.P. 

               

               

              By
                /s/Andrew
                W. Kahn

               

              Name:
                Andrew
                W. Kahn

               

              Title:
                Manager, Partners for Growth II, LLC

              Its
                General Partner

            
	 	 
	
              Borrower:

               

              North
                American Scientific, Inc., a California corporation

               

               

              By/s/L.
                Michael Cutrer

              President
                or Vice President

               

              By
                /s/L.
                Michael Cutrer

              Secretary
                or Ass't Secretary

            	
              Borrower:

               

              NOMOS
                Corporation

               

               

              By
                /s/L.
                Michael Cutrer

              President
                or Vice President

               

              By/s/L.
                Michael Cutrer

              Secretary
                or Ass't Secretary

            

    

    

     

    
      
        
        

      

      
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    Partners
      For Growth 

     

    Schedule
      to 

     

    Loan
      and Security Agreement

    

    
      	Borrower:	
              North
                American Scientific, Inc., a Delaware corporation   

            

    

    
      	Address:	
              20200
                Sunburst Street, Chatsworth, CA
                91311

            

    

    

    
      	Borrower:	
              NOMOS
                Corporation

            

    

    
      	Address:	
              20200
                Sunburst Street, Chatsworth, CA
                91311

            

    

    

    
      	Borrower:	
              North
                American Scientific, Inc., a California
                corporation

            

    

    
      	Address:	
              20200
                Sunburst Street, Chatsworth, CA
                91311

            

    

     

    
      	Date:	
              March
                28, 2006

            

    

     

    This
      Schedule forms an integral part of the Loan and Security Agreement between
      PARTNERS FOR GROWTH II, L.P. and the above-borrower of even date. 

     

    
      
        

      

    
      	1.	
              CREDIT
                LIMIT 

            

    

    
      	
            	(Section
              1.1):	
              An
                amount not to exceed the
                lesser of
                (a) or (b), below (the “Credit Limit”): (a) $4,000,000
                at
                any one time outstanding, or (b) at any time, up to
                50%
                (the “Advance Rate”) of the amount of Borrower’s Current Assets,
                less
                all principal amounts outstanding (or requested) under the Senior
                Loan
                Documents (including all facilities and products available under
                the
                Senior Loan Documents, such as letters of credit and bank cards,
                whether
                or not designated as sub-limits under the Senior Loan Documents)
                and,
                without duplication, the amount of any other monetary obligations
                under
                the Senior Loan Documents either (i) outstanding over 30 days from
                the
                date incurred or charged or (ii) otherwise past due (in the case
                of
                obligations maturing or otherwise due before 30 days) (such other
                monetary
                obligations referred to as “Other Past-Due Senior Monetary
                Obligations”).

            

    

     

    “Current
      Assets”
means
      the aggregate of Borrower’s balance
      sheet
      items
      which equals the sum of cash
      and
cash
      equivalents,
      Accounts, Inventory
      and
      Investment Property that can be converted to cash in less than 1 year, prepaid
      expenses, and other assets
      that can
      reasonably be expected to be converted to cash in less than one year.
      Notwithstanding, the foregoing definition, Borrower’s proposed Current Assets
      would have to qualify as current assets under GAAP.

     

    
      
        
        

      

      
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          17 -

        
          

        

      

      
        
        

      

      
        
          
            	 	
                    Partners
                      for
                      Growth

                  	
                    Loan
                      and Security
                      Agreement

                  

          

        

      

       

    

    For
      example only, if Borrower has $14.0 million in Current Assets on March 1, 2006,
      and has $3.0 million requested and outstanding in Senior Debt, Borrower could
      request up to $4 million under this Agreement [($14.0 million x 0.50) - $3.0
      million = $4 million].

     

    
      
        

      

    

    

     

    
      	2.	
              INTEREST.

            

    

     

    Interest
      Rate (Section
      1.2): 

     

    A
      rate
      equal to the Prime Rate per annum, measured monthly and applied to the average
      daily aggregate amount outstanding under this Agreement each month. Interest
      shall be calculated on the basis of a 360-day year and a year of twelve months
      of 30 days each for the actual number of days elapsed. Accrued interest for
      each
      month shall be payable monthly, on the first day of each month for interest
      accrued during the prior month. PFG shall have the right to adjust the rate
      applicable to amounts outstanding hereunder as and when the Prime Rate changes,
      but may elect in its sole discretion to reflect any such changes on a monthly
      basis.

     

    
      
        

      

    

     

    

    
      	3.	
              FEES
                (Section 1.4): 

            

    

    

    
      	
            	Loan
              Fee:	
              $80,000,
                payable concurrently herewith.

            

    

    

    
      
        

      

    

     

    

    
      	4.	
              MATURITY
                DATE 

            

    

    
      	
            	(Section
              6.1):	
              September
                28, 2007.

            

    

     

      
        

      

    

    

     

    
      	5.	
              FINANCIAL
                COVENANTS 

            

    

    
      	
            	(Section
              5.1):	
              [INTENTIONALLY
                LEFT BLANK]

            

    

     

    
      
        

      

    

     

    
      
        
        

      

      
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          18 -

        
          

        

      

      
        
        

      

      
        
          
            	 	
                    Partners
                      for
                      Growth

                  	
                    Loan
                      and Security
                      Agreement

                  

          

        

      

    

    

    
      	6.	
              REPORTING.

            

    

    (Section
      5.3):

     

    Borrower
      shall provide PFG with the following:

    
      
        	 	
                (a)

              	
                Monthly
                  borrowing base report, in such form as PFG shall specify, within
                  ten days
                  after the end of each month, and borrowing base reports at such
                  other
                  times as PFG shall from time to time request in its good faith
                  business
                  judgment.

              

      

       

      
        	 	
                (b)

              	
                Monthly
                  accounts receivable agings, aged by invoice date, within 20 days
                  after the
                  end of each month.

              

      

       

      
        	 	
                (c)

              	
                Monthly
                  accounts payable agings, aged by invoice date, and outstanding
                  or held
                  check registers, if any, within 20 days after the end of each month.
                  

              

      

       

      
        	 	
                (d)

              	
                Monthly
                  reconciliations of accounts receivable agings (aged by invoice
                  date), and
                  general ledger, within 20 days after the end of each month.
                  

              

      

       

      
        	 	
                (e)

              	
                A
                  quarterly information update certificate, on PFG’s standard form, within
                  30 days after the end of each fiscal quarter of
                  Borrower.

              

      

       

      
        	 	
                (f)

              	
                Annual
                  financial statements, as soon as available, and in any event within
                  120
                  days following the end of Borrower's fiscal year, certified by,
                  and with
                  an unqualified opinion of, independent certified public accountants
                  acceptable to PFG. 

              

      

       

      
        	 	
                (g)

              	
                Copies
                  of all reports and statements provided by Borrower to the Senior
                  Lender at
                  the same time the same are provided to the Senior
                  Lender.

              

      

    

     

    
      

    

    

    

    
      	7.	
              BORROWER
                INFORMATION:

            

    

    

    Borrower
      represents and warrants that the information set forth in the Representations
      and Warranties of the Borrower dated February 15, 2006, previously submitted
      to
      PFG (the “Representations”) is true and correct as of the date
      hereof.

     

    
      
        

      

    
      	8.	
              ADDITIONAL
                PROVISIONS

            

    

     

    

      
        	 	
                (a)

              	
                Senior
                  Lender. 

              

      

      

      
        	
              	(1)	
                Senior
                  Lender.
                  As used herein, “Senior Lender” means Silicon Valley Bank, and “Senior
                  Loan Documents” means all present and future documents instruments and
                  agreements entered into between Borrower and Senior Lender or by
                  third
                  parties relating to Borrower and Senior
                  Lender.

              

      

      

      
        
          
          

        

        
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            19 -

          
            

          

        

        
          
          

        

        
          
            
              
                	 	
                        Partners
                          for
                          Growth

                      	
                        Loan
                          and Security
                          Agreement

                      

              

            

          

        

         

      

        
          	
                	(2)	
                  Senior
                    Debt Limit.
                    Borrower shall not permit the total Indebtedness of Borrower
                    outstanding
                    at any time to Senior Lender to exceed $5,000,000, including
                    but not
                    limited to monies borrowed by Borrower,
                    sums
                    due from Borrower in connection with issuance of commercial letters
                    of
                    credit, issuance of forward contracts for foreign exchange reserve,
                    and
                    any other direct or indirect financial accommodation Senior Lender
                    may
                    provide to Borrower,
                    plus interest on loans due from Borrower and fees and expenses
                    for which
                    Borrower is obligated to Senior Lender (the “Senior Debt
                    Limit”).

                

        

       

      
        	
              	(3)	
                Senior
                  Loan Documents.
                  Borrower represents and warrants that it has provided PFG with
                  true and
                  complete copies of all existing Senior Loan Documents, and Borrower
                  covenants that it will, in the future, provide PFG with true and
                  complete
                  copies of any future Senior Loan Documents, including without limitation
                  any amendments to any existing Senior Loan
                  Documents.

              

      

      

      
        	 	
                (b)

              	
                Deposit
                  Accounts.
                  Concurrently, Borrower shall cause the banks and other institutions
                  where
                  its Deposit Accounts are maintained to enter into control agreements
                  with
                  PFG, in form and substance satisfactory to PFG in its good faith
                  business
                  judgment and sufficient to perfect PFG’ security interest in said Deposit
                  Accounts, subject to the security interest of the Senior Lender.
                  Said
                  control agreements shall permit PFG, in its discretion, to withdraw
                  from
                  said Deposit Accounts accrued interest on the Obligations monthly
                  (subject
                  to the rights of the Senior Lender). Notwithstanding the foregoing,
                  with
                  respect to any Deposit Accounts that are held with non-U.S. institutions,
                  Borrower (which term, for the avoidance of doubt, shall include
                  all
                  Subsidiaries) shall not be required to procure Deposit Account
                  control
                  agreements so long as the balance in each foreign Deposit Account
                  does not
                  exceed US$100,000.

              

      

      

      
        	 	
                (c)

              	
                Subordination
                  of Inside Debt.
                  All present and future indebtedness of Borrower to its officers,
                  directors
                  and shareholders (“Inside Debt”) shall, at all times, be subordinated to
                  the Obligations pursuant to a subordination agreement on PFG’s standard
                  form. Borrower represents and warrants that there is no Inside
                  Debt
                  presently outstanding, except as set forth in Exhibit A and except
                  for
                  travel advances, employee relocation loans and other employee loans
                  and
                  advances made in the ordinary course of business as heretofore
                  conducted
                  by Borrower which in the aggregate do not exceed $250,000. Prior
                  to
                  incurring any Inside Debt in the future, other than Inside Debt
                  not to
                  exceed $250,000 in the aggregate outstanding at any time constituting
                  travel advances, employee relocation loans and other employee loans
                  and
                  advances in the ordinary course of business as heretofore conducted
                  by
                  Borrower, Borrower shall cause the person to whom such Inside Debt
                  will be
                  owed to execute and deliver to PFG a subordination agreement on
                  PFG’s
                  standard form.

              

      

      

      
        
          
          

        

        
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            20 -

          
            

          

        

        
          
          

        

        
          
            
              
                	 	
                        Partners
                          for
                          Growth

                      	
                        Loan
                          and Security
                          Agreement

                      

              

            

          

        

         

      

      
        	 	
                (d)

              	
                Landlord
                  Waivers.
                  Borrower shall use its best efforts to secure landlord waivers
                  in
                  customary form for its leased facilities in (i) Hollywood, California,
                  (ii) Chatsworth, California and (iii) Cranberry Township, Pennsylvania,
                  all within 30 days from the date hereof. No such waiver shall be
                  required
                  on the date hereof in respect of Borrower’s facility in Seattle,
                  Washington and PFG shall provide Borrower not less than 30 days
                  notice of
                  any future requirement for such a
                  waiver.

              

      

    

     

    [Signature
      Page Follows]

     

    
      
        
        

      

      
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          21 -

        
          

        

      

      
        
        

      

      
        
          
            
              	 	
                      Partners
                        for
                        Growth

                    	
                      Loan
                        and Security
                        Agreement

                    

            

          

        

      

    

     

    
      	
              Borrower:

               

              North
                American Scientific, Inc., a Delaware corporation

               

               

              By
                /s/L.
                Michael Cutrer

              President
                or Vice President

               

               

               

              By
                /s/David
                N. King

              Secretary
                or Ass't Secretary

               

            	
              PFG:

               

              PARTNERS
                FOR GROWTH II, L.P. 

               

               

              By
                /s/Andrew
                W. Kahn

               

              Name:
                Andrew
                W. Kahn

               

              Title:  
                Manager, Partners for Growth II, LLC

              Its
                General Partner

            
	
              Borrower:

               

              North
                American Scientific, Inc., a California corporation

               

               

              By
                /s/L.
                Michael Cutrer

              President
                or Vice President

               

              By
                /s/L.
                Michael Cutrer

              Secretary
                or Ass't Secretary

            	
              Borrower:

               

              NOMOS
                Corporation

               

               

              By
                /s/L.
                Michael Cutrer

              President
                or Vice President

               

              By
                /s/L.
                Michael Cutrer

              Secretary
                or Ass't Secretary

            

    

     

    
      
        
        

      

      
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          22 -

        
          

        

      

      
        
        

      

       

    

    Exhibit
      A
      to Loan and Security Agreement

    

    Section
      2.2—Specified Contracts which, to the extent provided in Section 2.2, are
      excluded from the security interest granted to PFG and which are material to
      Borrower’s business or grant Borrower rights in Intellectual Property which is
      licensed by the Borrower to its customers or incorporated in products licensed
      or sold by the Borrower to its customers:

     

    Section
      3.10 - “Litigation”

     

    In
      December, 2004, an individual plaintiff, Steven Weeks, filed a complaint in
      the
      Coos County Circuit Court of the State of Oregon against Bay Area Health
      District, North American Scientific, Inc., NOMOS Corporation and Carl Jenson,
      M.D., alleging the defendants caused Mr. Weeks to receive excessive radiation
      during the course of his IMRT treatment, as a result of a manufacturing and/or
      design defect(s) in our CORVUS and BAT products. In September, 2005, prior
      to
      the case going to trial, the Company was party to a settlement agreement and
      the
      lawsuit is no longer an ongoing matter. Under the settlement agreement, the
      parties mutually agreed to dismiss all claims and counterclaims against each
      other without admitting any wrongdoing.

    

    In
      November, 2005, the Company was served with a complaint filed in U.S. District
      Court in Hartford, Connecticut by World Wide Medical Technologies (WWMT). WWMT's
      six count complaint alleges breach of a confidentiality agreement, fraud, patent
      infringement, wrongful interference with contractual relations, violation of
      the
      Connecticut Uniform Trade Secrets Act, and violation of the Connecticut Unfair
      Practices Act. WWMT alleges that the Company fraudulently obtained WWMT's
      confidential information during negotiations to purchase WWMT in 2004 and that
      once the Company acquired that information, it allegedly learned that Richard
      Terwilliger, (our current Vice President of New Product Development) owned
      certain patent rights and that we began trying to inappropriately gain property
      rights by hiring him away from WWMT. We were served with this matter at
      approximately the same time Mr. Terwilliger was served with a state court claim
      seeking, among other things, a preliminary injunction preventing Terwilliger
      from engaging in certain conduct in connection with him employment with us.
      The
      Company has agreed to defend Mr. Terwilliger. Mr. Terwilliger and a company
      of
      which he is a part-owner, IdeaMatrix, Inc., have removed the state court claim
      to federal court and the case is pending before the same court as the case
      against us. We have also the complaint in the action against us. The schedule
      and scope of the preliminary injunction proceedings in the Terwilliger action
      have not been established by the court. The Company denies liability and intends
      to vigorously defend this case as it progresses. 

    

    We
      are
      subject to other legal proceedings, claims and litigation arising in the
      ordinary course of business. While the outcome of these matters is currently
      not
      determinable, management does not expect that the ultimate costs to resolve
      these matters will have a material adverse effect on our consolidated financial
      position, results of operations, or cash flows.

     

    Section
      8(c) - “Inside Debt”

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