Document:

EXHIBIT 10.5

 

	
   

  	
  *** CERTAIN CONFIDENTIAL
  INFORMATION CONTAINED IN THIS DOCUMENT (INDICATED BY ASTERISKS) HAS BEEN
  OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
  PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT UNDER 17 C.F.R. SECTIONS
  200.80(B)(4), 200.83 AND 230.406.

  

 

DEVELOPMENT AND SUPPLY AGREEMENT

 

This Development
and Supply Agreement (“Agreement”), is made and entered into as of June 18,
1999, and is effective as of the 18th day of June, 1999 (the “Effective Date”)
by and between Digirad Corporation, a Delaware corporation (“Digirad”), and
QuickSil, Inc., a California corporation (“QuickSil”).

 

WITNESSETH

 

WHEREAS, QuickSil
and Digirad wish to jointly develop certain products and wish to have QuickSil
supply these products to Digirad.

 

NOW, THEREFORE, in
consideration of the mutual covenants hereinafter expressed, the parties agree
as follows:

 

1.      DEVELOPMENT
OF PRODUCTS

 

(a)                                      *** Product    .  Digirad and
QuickSil shall continue to work together to develop and design                                  

***

***

***

***

 

(b)           Definition of Products.  “Products” shall refer to the            ***

 

(c)                                  Reliability.
QuickSil will warrant the reliability of the product. Product reliability
performance will be defined within 60 days of the Effective Date, but will
conform to                                 
***                     .

 

(d)                                 Product
Quantity.  “Product Quantity” equals
the number of wafers that meet the Product Acceptance criteria specified in
Exhibit A. Digirad and QuickSil shall work together to develop wafer probe and
dicing capabilities for the Products to enable QuickSil to deliver      ***    
that have passed the criteria defined in Exhibit A.

 

(e)                                  Reporting:
QuickSil shall provide a written monthly report to Digirad which identifies the
monthly development objectives, accomplishments against these objectives and a
project schedule update. QuickSil shall also provide a weekly WIP
(work-in-process inventory) status update and                  ***

 

***  Portions
of this page have been omitted pursuant to a request for Confidential Treatment
and filed separately with the commission.

 

 

for all product
and experiments. This report should be sent to the VP Operations and MDE
Manager.

 

(f)                                    Product
Shipment Times.  Digirad’s orders
shall be binding, to the extent set forth in Subsection 2(b); provided,
however, Digirad shall be free to increase orders in any time period so long as
QuickSil is given advance notice of the requested increase in production for a
period greater than the Product Shipment Lead Time. The “Product Shipment Lead
Time” target is 3 weeks during the Product’s development phase. Products
ordered pursuant to the provisions of Subsection 2(b) below shall be delivered
to Digirad on time as specified in Subsection 2(b) and all additional orders
shall be delivered to Digirad no later than after the order than the Product
Shipment Lead Time.

 

(g)                                 Future
Product.  The parties will work
together in good faith to develop a low-gain avalanche photodiode to be used in
coincident imagining applications.

 

2.      SUPPLY OF PRODUCTS

 

(a)                                  Supply
Requirements. Pursuant to the terms of this Agreement and so long as *** 

***, Digirad shall purchase Products from QuickSil. Prior to the release of
the          ***          as
noted in Section 2(d), QuickSil and Digirad will expand the acceptance
requirements in Exhibit A to include quality, customer service and updates to
the Product Performance criteria.

 

(b)                                 Product
Acceptance Criteria: The product shall meet the acceptance criteria
(“Acceptance”) set forth in Appendix A. Such criteria shall include, but not be
limited to yield, visual inspection, and      
***     performance, and         
***               ***    
and shall be provided to Digirad in writing with each product lot. The
criteria set forth in Appendix A represents product acceptance in the product
development phase, and will become more comprehensive prior to shipment of the
production unit as noted in Section 2(d).

 

(c)                                  Forecasts
and other Purchasing Requirements. Digirad shall notify QuickSil on a
rolling monthly basis of its projected requirements for Products for the
next   ***   period. The first three months of the forecast will be binding
with respect to the rolling forecast. Digirad’s initial purchase order will be
placed for a three month period, then on a monthly basis, Digirad will submit a
purchase order for the third months of the new forecast. The remaining three
months forecast serve as Digirad’s good faith estimate of future needs.

 

(d)                                 Initiation
of Shipment. Production shipments of         ***      shall
begin in October 1999.

 

***  Portions
of this page have been omitted pursuant to a request for Confidential Treatment
and filed separately with the commission.

 

2

 

(e)                                  Manufacturing
Changes. QuickSil shall not make any changes to the manufacturing process
or manufacturing location without the prior written approval of Digirad.

 

(f)                                    Conformance
to Specifications and Laws.  All
Products supplied or delivered to Digirad under this Agreement shall be in
compliance with (i) the Performance Specifications and (ii) all proper and
accurate marking and label requirements under applicable laws, regulations and
statutes. The Products shall (i) comply with all federal, state and local laws,
rules and regulations; (ii) not be the subject of any notice directed
specifically to QuickSil from any court or other competent governmental body
with respect to the Products that such Products are in violation of any law,
regulation, order, decree or ruling of or restriction imposed by any judicial,
governmental or regulatory body or agency; (iii) fully comply with the quality
and other relevant specifications required for the Products by the relevant
registration and marketing approvals for the Products.  Without limiting any claims or remedies
available to Digirad under the terms of this Agreement, or under applicable
law, QuickSil shall promptly take all actions, legal and otherwise, to seek the
replacement of defective or nonconforming Products supplied to Digirad under
this Agreement.

 

(g)           Title, Risk of Loss and Damage.
Title and risk of loss shall pass to Digirad when the Products are duly
delivered to Digirad by a common carrier. 
Digirad shall give QuickSil written notice of any claimed shipping error
or non-conformities within thirty (30) days after the date of shipment from
QuickSil.  Failure of Digirad to give
such notice within such 60-day period shall be deemed a waiver of Digirad’s
claim for shortages or incorrect shipments.

 

(h)           Price.  Prices for 1999 are detailed on Exhibit B
attached hereto. For future years QuickSil and Digirad shall agree on pricing
each December (for the following year) and such prices shall be effective for
the next calendar year. In no event shall any price increase for the next year
(in percentage terms) exceed the Consumer Price Index as measured by the U.S.
Bureau of Labor statistics for the first six months of the current year.

 

(i)                                     Payment
for Products. QuickSil shall invoice Digirad for Digirad’s purchases at the
time of each shipment. Such invoices shall be payable net thirty (30) days from
shipment of Products to Digirad.

 

(j)                                     Technology
Transfer and Escrow. In the event that either (i) QuickSil has an
insolvency event (as defined in 6(b))(ii) files for Bankruptcy, (iii) QuickSil
fails to produce the number of functional Products ordered by Digirad for more
than sixty days (60) in any calendar year, or (iv) QuickSil is acquired by or
merged into any company with whom Digirad determine in good faith competes in
the nuclear medicine imaging market, then Digirad shall receive all rights to
the technology used in the Products and all necessary information, data, know
how, procedures, schematics, and specifications needed to produce the Products
as described in Section 6 (b) (iii). 
The parties will take all actions and make all necessary assignment to
facilitate such transfer of rights and information.  In order to

 

3

 

facilitate such a
transfer, QuickSil shall place all such information with a reputable third
party escrow agent pursuant to a mutually acceptable Technology Escrow
Agreement within sixty (60) days of the execution of this Agreement.

 

3.      OWNERSHIP

 

(a)                                  Digirad
has licensed from *** device and process technology (the “***”) to make *** 

 

***

***

 

                The ***
manufactured by QuickSil for Digirad do not utilize the exact ***, specific
changes have been made to the *** by QuickSil to enhance performance. Digirad
has developed, and may further develop in connection with this Agreement, ***. 

***

                As such,
Digirad has contributed Device and Design Technology to the Product. Digirad
expressly retains the rights, title and interest (including all patent rights,
copyrights, trade secrets rights and other intellectual property rights) to
Device and Product Design Technology previously developed and developed
pursuant to this agreement.

 

(b)                                 QuickSil
has contributed to this project process technology originally developed ***

 

***

***

 

                and reduce
and control *** ***. Note that these and similar techniques have been routinely
utilized at QuickSil as part of its process technology arsenal.

 

(c)                                  QuickSil
hereby grants Digirad a royalty free, non-exclusive, non-transferable license
of the QuickSil Process Technology and any improvements or modifications for
internal use only and expressly limited to the specific application field of
building
                                        ***                                                       .  This License shall be limited to the terms
of this Agreement, in accordance with the paragraphs 4 (a), 4 (b), and 6 (a), 6
(b), and 6 (c). QuickSil expressly retains for all purposes all rights to the
Process Technology utilized at the inception of the Digirad project addressed
in this agreement.  QuickSil expressly
retains the rights (including all patent rights, copyrights, trade secrets
rights and other intellectual property rights) to Process Technology previously
developed and that is developed pursuant to this agreement as set forth in
paragraphs 4 (a), 4 (b), and 6 (a), (b), and (c) herein.

 

(d)           QuickSil agrees that it shall be
required to negotiate directly with 
***  if it seeks to license the
Design Technology for any field of use other than ***, or for customers other
than and with Digirad. In no event shall any such effort to license violate
paragraphs 4(a), 4(b), and 6 (a), (b), and (c) of this agreement.

 

4.      EXCLUSIVITY

 

(a)           Noncompete.  Digirad will have exclusive rights to this
Technology in the  *** . The initial
period of exclusivity will be for  *** ,
beginning  ***  through  ***  and during this term, QuickSil shall
neither  *** ***(other than Digirad)
engaged in or intending to engage in the 
*** , without written authorization from Digirad. During the fourth
quarter of 2001 and of each following calendar year, QuickSil and Digirad will
determine the number of wafers Digirad will purchase from QuickSil during the
next calendar year to maintain exclusivity, but in no event shall the number of
wafers be below  ***  wafers per year. In the event that the
parties are unable to agree on such volume after  *** , Digirad’s rights to the technology will become
non-exclusive.

 

(b)                                 Digirad
Commitment.  During the term of this
Agreement Digirad shall order at least  ***  of its annual requirements for Products from
QuickSil. QuickSil will help Digirad work with other suppliers by supplying
technical information which will allow Digirad meet its contractual commitments
which require that Digirad have alternate suppliers capable of supplying all
major components. Digirad anticipates that it will give between          ***         of its annual Products orders to

 

***  Portions
of this page have been omitted pursuant to a request for Confidential Treatment
and filed separately with the commission.

 

4

 

these other
suppliers to ensure that the alternate suppliers are capable of producing
Products. QuickSil will help to organize a second source for     ***               ***      and will ensure that
this second source has the required non-compete clause in their supply
agreement.

 

5.      CONFIDENTIALITY.

 

In order to aid in the fulfillment of the development
and supply goals of the contract, both Digirad and QuickSil are conveying to
each other and will in the future convey proprietary corporate information
which each party has a significant interest in keeping protected and
confidential.  As a result, Digirad and
QuickSil agree that:

 

(i)  The
information furnished by one party shall not be used by the other party for any
purpose, except to fulfill the obligations to the other party under this
Agreement and such information will be kept confidential by the receiving party
and shall not be disclosed to any third party; provided, however,
that any such information may be disclosed to a receiving party’s affiliates,
officers and employees who need to know such information for the purpose of
evaluating a possible collaboration between both parties. The one exception to
this requirement is defined in Section 4(b), in which Digirad and QuickSil will
disclose process technology to a second source         ***          .

 

(ii)  In addition, no party shall without prior
written consent of the other party, disclose to any unaffiliated third persons
that discussions or negotiations are taking place concerning a possible
collaboration between the parties or any of the terms, conditions, or other
facts with respect to any such possible collaboration including the status
thereof.

 

(iii) The term
“information” as used in the here above paragraphs and the nondisclosure
obligations contained in this Agreement do not include information which:

 

1.             is or becomes generally available
to the public, other than as a result of a disclosure by a defaulting party;

 

2.             was known by the other party prior
to its disclosure by one party;

 

3.             becomes available to a party on a
non-confidential basis from a source other than the other party provided that
such source is not bound by a confidentiality agreement with the other party;

 

4.             is in the public domain;

 

5.             is developed independently, as
evidenced by appropriate documentation, by employees or agents or
subcontractors of the receiving party who have not had access to the
information;

 

6.             is or becomes available to the
receiving party by casual observance or analysis of products in the market; or

 

***  Portions
of this page have been omitted pursuant to a request for Confidential Treatment
and filed separately with the commission.

 

5

 

7.             is disclosed pursuant to judicial
order, a lawful requirement of governmental agency; or by operation of law, but
then only to the extent so ordered; in such case the receiving party will use
its best efforts to timely advise the disclosing party prior to disclosure and
allow the disclosing party an opportunity to obtain protections preventing the
disclosure of the information.

 

(iv)  Information shall remain the exclusive
property of the disclosing party. No license whatsoever is implied from this
Agreement except the license for non-commercial use as expressly set forth
above.

 

(v)  All Information disclosed by either Party to
the other party shall be deemed to be confidential unless it is disclosed in
written form and stamped by the disclosing party with the words
“Non-Confidential Information” or the like at the time of disclosure.

 

(vi)  Each party commits to immediately return all
information received from the other party and to destroy or erase any and all
copies it may have, either at any time upon simple request or upon termination
or expiration of the business relationship between the parties.

 

(vii)  The confidentiality and non-use obligations
contained in this Agreement shall survive for five years from the date
information is disclosed under this Agreement.

 

6.      TERM
AND TERMINATION.

 

(a)                                  Term.
Unless terminated early as described in this Section 6(b), the contract shall
terminate on December 31, 2004. This Agreement shall automatically renew for
successive one year periods so long as Digirad places its forecast pursuant to
subsection 2(c) on or about July 31 (e.g., when Digirad places an order and it
is accepted by QuickSil on July 31, 2004, this Agreement shall automatically be
renewed until December 31, 2005.) 
However, the non-compete provisions of Section 4(a) above shall not
apply in any given year beyond  ***  unless both Digirad and QuickSil both agree
on the minimum number of Products that Digirad must purchase in a given year
for Section 4(a) to continue in force.

 

(b)                                 Early
Termination.  This Agreement may be
terminated at any time upon the occurrence of any of the following events:

 

(i)  Default.  Sixty (60) days following written notice by the performing party
to the other party in the event that the other party breaches any material
provision of this Agreement and has not cured such breach within such sixty day
(60) notice period.

 

(ii)  Insolvency.  Immediately upon written notice by either party to the other
party upon (i) the insolvency of the other party, or the appointment of a
receiver by the other party, or for all or any substantial part of its
properties, provided that such receiver is not discharged within sixty (60)
days of his appointment; (ii) the adjudication of the other party as a
bankrupt; (iii) the admission by the other party in writing of its inability to
pay its debts as they become due; (iv) the execution by the other party of an
assignment for the benefit of its creditors, or (v) the filing by the other
party of a petition to be adjudged a bankrupt, or a petition or answer
admitting the material allegations of a petition

 

***  Portions
of this page have been omitted pursuant to a request for Confidential Treatment
and filed separately with the commission.

 

6

 

filed against the other party in any bankruptcy proceeding, or the act
of the other. party in instituting or voluntarily being or becoming a party to
any other judicial proceeding intended to effect a discharge of the debts of
the other party, in whole or in part (an “Insolvency Event”).

 

(iii)  Acquisition.  In the event that QuickSil is acquired by or
merged into another entity or that more than fifty percent of its voting stock
is acquired through one or a series of transactions, then QuickSil must give
notice to Digirad of the completion of such event.  If QuickSil is acquired by or merged into an entity with whom
Digirad in good faith determine *** ***, Digirad shall have the right to
terminate this Agreement at anytime during the 90 day period immediately
following its receipt of such notice. In the event Digirad terminates this
agreement, pursuant to the preceding sentence, Digirad shall retain exclusive
rights to the technology used in the Products and all necessary information,
data, know how, procedures, schematics, and specifications needed to produce
the Products until Dec 31, 2004 unless the Agreement is earlier terminated by
QuickSil pursuant to section 6(b) (i) or (ii). 
At the end of the term, the right to the technology used in the Product
and required information become non-exclusive.

 

(c)                                  Survival.
Termination under this Agreement shall not relieve any party of its obligations
or liability for breaches of this Agreement incurred prior to or in connection
with termination.

 

7.             INDEMNIFICATION

 

(a)           Indemnification
by QuickSil. QuickSil will indemnify and hold Digirad harmless against any
and all liability, damage, loss, cost or expense (including reasonable attorney
fees) (collectively, “Liabilities”) resulting from any third party claims made
or suits brought against Digirad (excluding incidental or consequential damages
suffered or incurred by Digirad directly as opposed to incidental or
consequential damages suffered or incurred by third parties who are, in turn,
seeking the same from Digirad, which shall be covered by the indemnity set
forth, herein) which arise from QuickSil’s breach of its obligations hereunder,
or QuickSil’s gross negligence or willful misconduct, except to the extent
caused by Digirad’s gross negligence, willful misconduct or breach of Digirad’s
obligations hereunder.

(b)           Indemnification
by Digirad. Digirad will indemnify and hold QuickSil harmless against any
and all liability, damage, loss, cost or expense (including reasonable attorney
fees) (collectively, “Liabilities”) resulting from any third party claims made
or suits brought against QuickSil (excluding incidental or consequential
damages suffered or incurred by QuickSil directly as opposed to incidental or
consequential damages suffered or incurred by third parties who are, in turn,
seeking the same from QuickSil, which shall be covered by the indemnity set
forth, herein) which arise from Digirad’s breach of its obligations hereunder,
or Digirad’s gross negligence or willful misconduct, except to the extent caused
by QuickSil’s gross negligence, willful misconduct or breach of QuickSil’s
obligations hereunder.

 

***  Portions
of this page have been omitted pursuant to a request for Confidential Treatment
and filed separately with the commission.

 

7

 

(c)           Costs of
Indemnification. If either party expects to seek indemnification from the
other under Sections 6(a) or 6(b) it shall promptly give notice to the other
party of any such claim or suit threatened, made or filed against it which
forms the basis for such claim of indemnification and shall cooperate fully
with the other party in the defense of all such claims or suits. No settlement
or compromise shall be binding on a party hereto without its prior written consent.

 

8.             GENERAL PROVISIONS

 

(a)                                  Notices.  Any notices permitted or required by this
Agreement shall be sent by telex or telecopy or by certified or registered mail
and shall be effective when received if sent and addressed as follows or to
such other address as, may be designated by a party in writing:

 

If to
QuickSil:

 

QuickSil, Inc.

1971 N.
Capital Ave.

San Jose, CA
95132

 

Attention:              Dr. Luc Bauer

Fax Number:          (408) 935-7813

 

If to Digirad:

 

Digirad, Inc.

9350 Trade
Place

San Diego, CA
92126

 

Attention:              Scott
Huennekens

Fax Number:          (619) 549-7714

 

with a copy
to:

 

Brobeck,
Phleger & Harrison, LLP

550 West C
Street, Suite 1300

San Diego, CA
92101-3532

 

Attention:  Martin Nichols, Esq.

Fax Number:
(619) 234-3848

 

8

 

(b)                                 Entire
Agreement; Amendment; Consents  The
parties hereto acknowledge that this Agreement sets forth the entire agreement
and understanding of the parties and supersedes all prior written or oral
agreements or understandings with respect to the subject matter hereof.  No modification or amendment of any of the
terms of this Agreement, or any amendments thereto, shall be deemed to be valid
unless in writing and signed by all the parties hereto. No course of dealing or
usage of trade shall be used to modify the terms and conditions herein.

 

(c)                                  Waiver.  No waiver by either party of any default,
right or remedy shall be effective unless in writing, nor shall any such waiver
operate as a waiver of any other or the same default, right or remedy on a future
occasion.

 

(d)                                 Assignment.  This Agreement shall be binding upon and
inure to the benefit of the successors or permitted assigns of each of the
parties and may not be assigned or transferred by QuickSil without the prior
written consent of Digirad, which consent will not be unreasonably withheld.

 

(e)                                  No
Third-Party Rights.  No provision of
this Agreement shall be deemed or construed in any way to result in the
creation of any rights or obligations in any other individual, group, entity or
organization not a party to this Agreement.

 

(g)                                 Further
Assurance.  Each party hereby agrees
to duly execute and deliver, or cause to be duly executed and delivered, such
further instruments and do and cause to be done such further acts and things,
including, without limitation, the filing of such additional assignments,
agreements, documents and instruments, that may be necessary or as the other
party hereto may at any time and from time to time reasonably request in
connection with this Agreement.

 

(i)                                     Force
Majeure Events.  Failure of any
party to perform its obligations under this Agreement shall not subject such
party to any liability to the other if such failure is caused by acts such as
but not limited to acts of God, fire, explosion, flood, drought, war, riot, sabotage,
embargo, strikes, compliance with any order or regulation of any government
entity acting with color of right promulgated after the dates hereof.  Upon occurrence of an event of force
majeure, the party affected shall promptly notify the other in writing, setting
forth the details of the occurrence, and making every attempt to resume the
performance of its obligations as soon as practicable after the force majeure
event ceases.

 

(j)                                     Attorneys’
Fees.  Each party shall bear its own
attorney’s fees for the negotiation, execution and performance of this
Agreement. In the event it becomes necessary for either party (or any of its
affiliates) to institute any action at law or in equity (or in arbitration
pursuant to the requirements of this Agreement) against the other party to
enforce its rights hereunder, the prevailing party shall be entitled to recover
from the non-prevailing party reasonable attorneys’ fees, court costs and
expenses relating to such action.

 

9

 

(k)                                  Arbitration.  The parties hereby agree that the proper
venue and forum for all disputes under this Agreement is binding arbitration
before a neutral arbitrator mutually acceptable to both parties and such
arbitration to be conducted in San Diego California pursuant to the rules of
the American Arbitration Association.

 

(1)                                  Governing
Law.  The validity, interpretation
and effect of this Agreement shall be governed by and construed under the laws
of the State of California without regard to principles of conflict of laws.

 

(m)                               Severability.  If any term or provision of this Agreement
shall violate any applicable statute, ordinance or rule of law in any
jurisdiction in which it is used or otherwise be unenforceable, such provision
shall be ineffective to the extent of such violation without invalidating any
other provision hereof.

 

(n)                                 Headings,
Exhibits. The headings used in this Agreement are for convenience only and
are not a part of this Agreement. All exhibits references herein are hereby
made a part of this Agreement.

 

(o)                                 Counterparts.  This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same original.

 

(p)                                 Relationship
of Parties. The relationship of the parties under this Agreement is that of
independent contractors. Nothing contained in this Agreement is intended or is
to be construed so as to constitute the parties as partners, joint venturers,
or any party as an agent or employee of the other. No party has any express or
implied right under this Agreement to assume or create any obligation on behalf
of or in the name of any other party, or to bind any other party to any
contracts, agreement or undertaking with any third party, and no conduct of the
parties shall be deemed to infer such right.

 

(q)                                 Survival:
Section 3, Section 5, Section 7 and Section 8 shall survive the termination of
this agreement.

 

[REMAINDER OF
PAGE INTENTIONALLY LEFT BLANK]

 

10

 

IN WITNESS WHEREOF, the parties hereto have
each caused this Agreement to be executed by their duly-authorized
representatives effective as of the date and year set forth above.

 

 

	
  QUICKSIL, INC.

  	
  DIGIRAD CORPORATION

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Laura Bauer

  	
   

  	
  By:

  	
      /s/ Scott Hennekens

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Laura Bauer

  	
   

  	
   

  	
   

  	
  Scott Hennekens

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Its

  	
  President and CEO

  	
   

  	
  Its

  	
   

  	
  President & CEO

  	
   

  

 

 

[SIGNATURE PAGE TO DEVELOPMENT
AND SUPPLY AGREEMENT]

 

 

11

 

EXHIBIT A

 

*** Product *** Performance
Specification

Test Levels:

 

***

***

***

 

Conditions:

Test Temperature: ***

Illumination: ***

Test Voltage: ***

 

	
  Wafer

  	
  Device

  	
  Bin

  	
  *** Criteria

  	
  *** Criteria

  
	
  ***

  ***

  ***

  	
   

  	
  ***

  ***

  ***

  	
   

  	
  No.      Category

  ***

  ***

  ***

  	
  ***

  ***

  ***

  ***

  	
  ***

  ***

  ***

  ***

  	
  ***

  ***

  ***

  ***

  
								

 

*** Product Acceptance
Criteria

Wafer and Lot
Rejection:

Wafer Rejection:       ***

                                                                                                 ***

Lot Rejection:                      ***

                                                                                                 ***

***  Portions
of this page have been omitted pursuant to a request for Confidential Treatment
and filed separately with the commission.

 

A-1

 

EXHIBIT B

 

1999 Wafer Pricing

	
  Wafers shipped per month

  	
  Product

  	
  Price per Wafer

  
	
  ***

  	
  ***

  	
  ***

  
	
  ***

  	
  ***

  	
  ***

  
	
  ***

  	
  ***

  	
  ***

  

 

2002 Pricing

	
  Wafers shipped per month

  	
  Price per ***

  
	
  ***

  	
  ***

  
	
  ***

  	
  ***

  
	
  ***

  	
  ***

  

 

2003 Pricing

	
  Wafers shipped per month

  	
  Price per ***

  
	
  ***

  	
  ***

  
	
  ***

  	
  ***

  
	
  ***

  	
  ***

  

 

2004 Pricing

	
  Wafers shipped per month

  	
  Price per ***

  
	
  ***

  	
  ***

  
	
  ***

  	
  ***

  
	
  ***

  	
  ***

  

 

 

***  Portions
of this page have been omitted pursuant to a request for Confidential Treatment
and filed separately with the commission.

 

B-1EXHIBIT 10.6

 

SILICON
VALLEY BANK

 

LOAN AND SECURITY AGREEMENT

 

	
  Borrower:

  	
   

  	
  Digirad Corporation

  
	
  Address:

  	
   

  	
  9350 Trade Place

  
	
   

  	
   

  	
  San Diego, CA  92126

  
	
   

  	
   

  	
   

  
	
  Date:

  	
   

  	
  July 31, 2001

  

 

THIS LOAN AND
SECURITY AGREEMENT is entered into on the above date between SILICON VALLEY
BANK, COMMERCIAL FINANCE DIVISION (“Silicon”), whose address is 3003 Tasman
Drive, Santa Clara, California 95054 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”) shall for all purposes
be deemed to be a part of this Agreement, and the same 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. 
Silicon will make loans to Borrower (the “Loans”), in amounts determined
by Silicon in its good-faith business judgment, sale discretion, up to the
amounts (the “Credit Limit”) shown on the Schedule, provided no Default or
Event of Default has occurred and is continuing, and subject to deduction of
any Reserves for accrued interest and such other Reserves as Silicon deems
proper from time to time in its good faith business judgment.

 

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 last day of the month.  Interest may, in Silicon’s discretion, be
charged to Borrower’s loan account, and the same shall thereafter bear interest
at the same rate as the other Loans. 
Silicon may, in its discretion, charge interest to Borrower’s Deposit
Accounts maintained with Silicon. 
Regardless of the amount of Obligations that may be outstanding from
time to time, Borrower shall pay Silicon minimum monthly interest during the
term of this Agreement in the amount set forth on the Schedule (the “Minimum
Monthly Interest”).

 

1.3          Overadvances. If at any time or for any
reason the total of all outstanding Loans and all other Obligations exceeds the
Credit Limit (an “Overadvance”), Borrower shall immediately pay the amount of
the excess to Silicon, without notice or demand.  Without limiting Borrower’s obligation to repay to Silicon on
demand the amount of any Overadvance, Borrower agrees to pay Silicon interest
on the outstanding amount of any Overadvance, on demand, at a rate equal to the
interest rate which would otherwise be applicable to the Overadvance, plus an
additional 2% per annum.

 

 

	
  Silicon
  Valley Bank

  	
  Loan and Security Agreement

  

 

1.4          Fees. Borrower shall pay Silicon the
fee(s) shown on the Schedule, which are in addition to all interest and other
sums payable to Silicon and are not refundable.

 

1.5          Letters of Credit.  [Not Applicable]

 

2.             SECURITY INTEREST.

 

2.1          Security Interest.  To secure the payment and performance of all
of the Obligations when due, Borrower hereby grants to Silicon a security
interest in all of Borrower’s interest in the following, whether now owned or
hereafter acquired, and wherever located:   
All Inventory, Equipment, Receivables, and General Intangibles,
including, without limitation, all of Borrower’s Deposit Accounts, and all
money, and all property now or at any time in the future in Silicon’s
possession (including claims and credit balances), and all proceeds (including
proceeds of any insurance policies, proceeds of proceeds and claims against
third parties), all products and all books and records related to any of the foregoing
(all of the foregoing, together with all other property in which Silicon may
now or in the future be granted a lien or security interest, is referred to
herein, collectively, as the “Collateral”). 
Notwithstanding the foregoing, provided that (a) no Default or Event of
Default has occurred and is continuing, (b) Borrower completes an initial
public offering of equity securities of Borrower that generates net proceeds of
at least $535,000,000 (the “IPO”), (c) immediately following the conclusion of
the IPO Borrower has minimum cash (or cash equivalents acceptable to Silicon)
liquidity maintained at Silicon of not less than $5,000,000 and (d) Borrower
executes and delivers to Silicon, on Silicon’s standard form, a Negative Pledge
Agreement regarding the Borrower’s Intellectual Property, Silicon agrees to
release its liens on and security interests in all of Borrower’s Intellectual
Property.  Also notwithstanding the
foregoing, the term “Collateral” does not include any license agreements or
contract rights (under which Borrower is the licensee, lessee or other
similarly situated party) to the extent (i) the granting of a security interest
in it would be contrary to applicable law, or (ii) that such rights are
nonassignable by their terms (but only to the extent such prohibition is
enforceable under applicable law, including, without limitation, Section
9318(4) of the California Uniform Commercial Code) without the consent of the
licensor or other party (but only to the extent such consent has not been obtained);
nevertheless, the foregoing grant of security interest shall extend to, and the
term “Collateral” shall include, any and all proceeds of such license
agreements or contract rights to the extent that the assignment or encumbering
of such proceeds is not so restricted (including, without limitation, the
proceeds of such license agreements or contract rights for which any required
consent has been obtained).

 

3.             REPRESENTATIONS, WARRANTIES AND COVENANTS OF
BORROWER.

 

In order to
induce Silicon to enter into this Agreement and to make Loans, Borrower
represents and warrants to Silicon 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:

 

3.1          Corporate Existence and Authority.  Borrower, if a corporation, 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 have a
material adverse effect on

 

2

 

Borrower.  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 or any material agreement or instrument which is binding upon Borrower
or its property, and (iv) do not constitute grounds for acceleration of any
material indebtedness or obligation under any material agreement or instrument
which is binding upon Borrower or its property.

 

3.2          Name; Trade Names and Styles.  The name of Borrower set forth in the
heading to this Agreement is its correct name. 
Listed on the Schedule are all prior names of Borrower and all of
Borrower’s present and prior trade names. 
Borrower shall give Silicon 30 days’ prior written notice before changing
its name or doing business under any other name.  Borrower has complied, and will in the future comply, with all
laws relating to the conduct of business under a fictitious business name.

 

3.3          Place of Business; Location of Collateral.  The address set forth in the heading to this
Agreement is Borrower’s chief executive office.  In addition, Borrower has places of business and Collateral is
located only at the locations set forth on the Schedule.  Borrower will give Silicon at least 30 days
prior written notice before opening any additional place of business, changing
its chief executive office, or moving any of the Collateral to a location other
than Borrower’s Address or one of the locations set forth on the Schedule.  Notwithstanding the foregoing, Borrower
represents and warrants that all of Borrower’s locations outside of California
are sales offices only with little or no assets.  Additionally, during the term of this Agreement, Borrower shall
not transfer any assets to any subsidiary.

 

3.4          Title to Collateral; Permitted Liens.  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 by Borrower. 
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.  Silicon now has, and
will continue to have, a first-priority perfected and enforceable security
interest in all of the Collateral, subject only to the Permitted Liens, and
Borrower will at all times defend Silicon and the Collateral against all claims
of others.  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. 
Borrower is not and will not become a lessee under any real property
lease pursuant to which the lessor may obtain any rights in any of the
Collateral and no such lease now prohibits, restrains, impairs or will
prohibit, restrain or impair Borrower’s right to remove any Collateral from the
leased premises.  Whenever any
Collateral is located upon premises in which any third party has an interest
(whether as owner, mortgagee, beneficiary under a deed of trust, lien or
otherwise), Borrower shall, whenever requested by Silicon, use its best efforts
to cause such third party to execute and deliver to Silicon, in form acceptable
to Silicon, such waivers and subordinations as Silicon shall specify, so as to
ensure that Silicon’s rights in the Collateral are, and will continue to be,
superior to the rights of any such third party.  Borrower will keep in full force and effect, and will comply with
all the terms of, any lease of real property where any of the Collateral now or
in the future may be located.

 

3

 

3.5          Maintenance of Collateral.  Borrower will maintain the Collateral in
good working condition, and Borrower will not use the Collateral for any
unlawful purpose.  Borrower will
immediately advise Silicon in writing of any material loss or damage to the
Collateral.

 

3.6          Books and Records. Borrower has
maintained and will maintain at Borrower’s Address complete and accurate books
and records, comprising an accounting system in accordance with generally
accepted accounting principles.

 

3.7          Financial Condition, Statements and Reports.
All financial statements now or in the future delivered to Silicon have been,
and will be, prepared in conformity with generally accepted accounting
principles and now and in the future will completely and accurately reflect the
financial condition of Borrower, at the times and for the periods therein
stated.  Between the last date covered
by any such statement provided to Silicon and the date hereof, there has been
no material adverse change in the financial condition or business of
Borrower.  Borrower is now and will
continue to be solvent.

 

3.8          Tax Returns and Payments; Pension
Contributions. Borrower has timely filed, and will timely file, all tax
returns and reports required by foreign, federal, state and local law, and
Borrower has timely paid, and will timely pay, all foreign, federal, state and
local taxes, assessments, deposits and contributions now or in the future owed
by Borrower.  Borrower may, however, defer
payment of any contested taxes, provided that Borrower (i) in good faith
contests Borrower’s obligation to pay the taxes by appropriate proceedings
promptly and diligently instituted and conducted, (ii) notifies Silicon in
writing of the commencement of, and any material development in, the
proceedings, and (iii) posts bonds or takes any other steps required to keep
the contested taxes from becoming a lien upon any of the Collateral.  Borrower is unaware of any claims or
adjustments proposed for any of Borrower’s prior tax years which could result
in additional taxes becoming due and payable by Borrower.  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 result in any liability of Borrower, including any
liability to the Pension Benefit Guaranty Corporation or its  successors or any other governmental
agency.  Borrower shall, at all times,
utilize the services of an outside payroll service providing for the automatic
deposit of all payroll taxes payable by Borrower.

 

3.9          Compliance with Law.  Borrower has complied, and will comply, in
all material respects, with all provisions of all foreign, federal, state and
local laws and regulations relating 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 disclosed in the Schedule, there is no claim, suit,
litigation, proceeding or investigation pending or (to best of Borrower’s
knowledge) threatened by or against or affecting Borrower in any court or,
before any governmental agency (or any basis therefor known to Borrower) which
may result, either separately or in the aggregate, in any material adverse
change in the financial condition or business of Borrower, or in any material
impairment in the ability of Borrower to carry on its business in substantially
the same manner as

 

4

 

it is now being conducted.  Borrower will promptly inform Silicon in
writing of any claim,  proceeding,
litigation or investigation in the future threatened or instituted by or
against Borrower involving any single claim of $50,000 or more, or involving
$100,000 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.”

 

4.             RECEIVABLES.

 

4.1          Representations Relating to Receivables.  Borrower represents and warrants to Silicon
as follows:  Each Receivable 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 in the ordinary course of Borrower’s
business, and (ii) meet the Minimum Eligibility Requirements set forth in
Section 8 below.

 

4.2          Representations Relating to Documents and
Legal Compliance.  Borrower
represents and warrants to Silicon as follows: 
All statements made and all unpaid balances appearing in all invoices,
instruments and other documents evidencing the Receivables are and shall be
true and correct 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, and all signatories and endorsers have the capacity to
contract.  All sales and other
transactions underlying or giving rise to each Receivable shall fully comply
with all applicable laws and governmental rules and regulations.  All signatures and endorsements on all
documents, instruments, and agreements relating to all Receivables 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          Schedules and Documents relating to
Receivables.  Borrower shall deliver
to Silicon transaction reports and loan requests, schedules and assignments of
all Receivables, and schedules of collections, all on Silicon’s standard forms;
provided, however, that Borrower’s failure to execute and deliver the same
shall not affect or limit Silicon’s security interest and other rights in all of
Borrower’s Receivables, nor shall Silicon’s failure to advance or lend against
a specific Receivable affect or limit Silicon’s security interest and other
rights therein.  Loan requests received
after 12:00 Noon will not be considered by Silicon until the next Business
Day.  Together with each such schedule
and assignment, or later if requested by Silicon, Borrower shall furnish
Silicon with copies (or, at Silicon’s request, originals) of all contracts,
orders, invoices, and other similar documents, and all original 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
Receivables, and Borrower warrants the genuineness of all of the foregoing.  Borrower shall also furnish to Silicon an
aged accounts receivable trial balance in such form and at such intervals as
Silicon shall request.  In addition,
Borrower shall deliver to Silicon the originals of all instruments, chattel
paper, security agreements, guarantees and other

 

5

 

documents and property
evidencing or securing any Receivables, immediately upon receipt thereof and in
the same form as received, with all necessary indorsements, all of which shall
be with recourse.  Borrower shall also
provide Silicon with copies of all credit memos within two days after the date
issued.

 

4.4          Collection of Receivables.  Borrower shall have the right to collect all
Receivables, unless and until a Default or an Event of Default has
occurred.  Borrower shall hold all
payments on, and proceeds of, Receivables in trust for Silicon, and Borrower
shall immediately deliver all such payments and proceeds to Silicon in their
original form, duly endorsed in blank, to be applied to the Obligations in such
order as Silicon shall determine. 
Silicon may, in its discretion, require that all proceeds of Collateral
be deposited by Borrower into a lockbox account, or such other “blocked
account” as Silicon may specify, pursuant to a blocked account agreement in
such form as Silicon may specify. 
Silicon or its designee may, at any time, notify Account Debtors that
the Receivables have been assigned to Silicon.

 

4.5          Remittance of Proceeds.  All proceeds arising from the disposition of
any Collateral shall be delivered, in kind, by Borrower to Silicon 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 Silicon shall determine; provided that, if no Default or Event of
Default has occurred, Borrower shall not be obligated to remit to Silicon 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
$25,000 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 Silicon.  Nothing
in this Section limits the restrictions on disposition of Collateral set forth
elsewhere in this Agreement.

 

4.6          Disputes.  Borrower shall notify Silicon promptly of all disputes or claims
relating to Receivables.  Borrower shall
not forgive (completely or partially), compromise or settle any Receivable 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, which are
reported to Silicon on the regular reports provided to Silicon; (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. 
Silicon may, at any time after the occurrence of an Event of Default,
settle or adjust disputes or claims directly with Account Debtors for amounts
and upon terms which Silicon considers advisable in its reasonable credit
judgment and, in all cases, Silicon shall credit Borrower’s Loan account with
only the net amounts received by Silicon in payment of any Receivables.

 

4.7          Returns. 
Provided no Event of Default has occurred and is continuing, if any
Account Debtor returns any Inventory to Borrower in the ordinary course of its
business, Borrower shall promptly determine the reason for such return and
promptly issue a credit memorandum to the Account Debtor in the appropriate
amount (sending a copy to Silicon).  In
the event any attempted return occurs after the occurrence of any Event of
Default, Borrower shall (i) hold the returned Inventory in trust for Silicon,
(ii) segregate all returned Inventory from all of Borrower’s other property,
(iii) conspicuously label the returned Inventory as Silicon’s

 

6

 

property, and (iv) immediately
notify Silicon of the return of any Inventory, specifying the reason for such
return, the location and condition of the returned Inventory, and on Silicon’s
request deliver such returned Inventory to Silicon.

 

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

 

4.9          No Liability.  Silicon shall not under any circumstances 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 a
Receivable, or for any error, act, omission, or delay of any kind occurring in
the settlement, failure to settle, collection or failure to collect any
Receivable, or for settling any Receivable in good faith for less than the full
amount thereof, nor shall Silicon be deemed to be responsible for any of
Borrower’s obligations under any contract or agreement giving rise to a
Receivable.  Nothing herein shall,
however, relieve Silicon 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 Silicon, in such form and amounts as Silicon may reasonably
require, and Borrower shall provide evidence of such insurance to Silicon, so
that Silicon is satisfied that such insurance is, at all times, in full force
and effect.  All such insurance policies
shall name Silicon as an additional loss payee, and shall contain a lenders
loss payee endorsement in form reasonably acceptable to Silicon.  Upon receipt of the proceeds of any such
insurance, Silicon shall apply such proceeds in reduction of the Obligations as
Silicon shall determine in its sole discretion, except that, provided no
Default or Event of Default has occurred and is continuing, Silicon 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.  Silicon may require reasonable assurance
that the insurance proceeds so released will be so used.  If Borrower fails to provide or pay for any
insurance, Silicon may, but is not obligated to, obtain the same at Borrower’s
expense.  Borrower shall promptly
deliver to Silicon copies of all reports made to insurance companies.

 

5.3          Reports. 
Borrower, at its expense, shall provide Silicon with the written reports
set forth in the Schedule, and such other written reports with respect to
Borrower (including budgets, sales projections, operating plans and other
financial documentation), as Silicon shall from time to time reasonably
specify.

 

5.4          Access to Collateral, Books and Records.  At reasonable times, and on one Business
Day’s notice, Silicon, or its agents, shall have the right to inspect the
Collateral, and the right to audit and copy Borrower’s books and records.  Silicon shall take reasonable steps to keep

 

7

 

confidential all information
obtained in any such inspection or audit, but Silicon shall have the right to
disclose any such information to its auditors, regulatory agencies, and
attorneys, and pursuant to any subpoena or other legal process.  The foregoing inspections and audits shall
be at Borrower’s expense and the charge therefor shall be $650 per person per
day (or such higher amount as shall represent Silicon’s then current standard
charge for the same), plus reasonable out of pocket expenses.  Borrower will not enter into any agreement
with any accounting firm, service bureau or third party to store Borrower’s books
or records at any location other than Borrower’s Address, without first
obtaining Silicon’s written consent, which may be conditioned upon such
accounting firm, service bureau or other third party agreeing to give Silicon
the same rights with respect to access to books and records and related rights
as Silicon has under       this
Loan Agreement.

 

5.5          Negative Covenants.  Except as may be permitted in the Schedule,
Borrower shall not, without Silicon’s prior written consent, do any of the
following:  (i) merge or consolidate
with another corporation or entity; (ii) acquire any assets, except in the
ordinary course of business; (iii) enter into any other transaction outside the
ordinary course of business(except for a public offering of Borrower’s equity
securities); (iv) sell or transfer any Collateral, except for the sale of
finished Inventory in the ordinary course of Borrower’s business, and except
for the sale of obsolete or unneeded Equipment in the ordinary course of
business; (v) store any Inventory or other Collateral with any warehouseman or
other third party; (vi) sell any Inventory on a sale-or-return, guaranteed
sale, consignment, or other contingent basis; (vii) make any loans of any money
or other assets; (viii) incur any debts, outside the ordinary course of
business, which would have a material, adverse effect on Borrower or on the
prospect of repayment of the Obligations; (ix) guarantee or otherwise become
liable with respect to the obligations of another party or entity; (x) pay or
declare any dividends on Borrower’s stock (except for dividends payable solely
in stock of Borrower); (xi) redeem, retire, purchase or otherwise acquire,
directly or indirectly, any of Borrower’s stock; (xii) make any change in
Borrower’s capital structure which would have a material adverse effect on Borrower
or on the prospect of repayment of the Obligations; or (xiii) pay total
compensation, including salaries, fees, bonuses, commissions, and all other
payments, whether directly or indirectly, in money or otherwise, to Borrower’s
executives, officers and directors (or any relative thereof) in an amount in
excess of the amount set forth on the Schedule; or (xiv) 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 Silicon with respect to any Collateral or in any
manner relating to Borrower, Borrower shall, without expense to Silicon, make
available Borrower and its officers, employees and agents and Borrower’s books
and records, to the extent that Silicon may deem them reasonably necessary in
order to prosecute or defend any such suit or proceeding.

 

5.7          Further Assurances.  Borrower agrees, at its expense, on request
by Silicon, to execute all documents and take all actions, as Silicon, may deem
reasonably necessary or useful in order to perfect and maintain Silicon’s
perfected security interest in the Collateral, and in order to fully consummate
the transactions contemplated by this Agreement.

 

8

 

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 Section 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 Silicon; or (ii) by Silicon at any time after the occurrence of an
Event of Default, without notice, effective immediately.  If this Agreement is terminated by Borrower
or by Silicon under this Section 6.2, Borrower shall pay to Silicon a
termination fee in an amount equal to$5,000 per month for the number of months
remaining (including any partial months) until the Maturity Date, Credit Limit,
provided that no termination fee shall be charged if the credit facility
hereunder is replaced with a new facility from another division of Silicon
Valley Bank.  The termination fee shall
be due and payable on the effective date of termination and thereafter shall
bear interest at a rate equal to the highest rate applicable to any of the
Obligations.

 

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.  Without limiting the
generality of the foregoing, if on the Maturity Date, or on any earlier
effective date of termination, there are any outstanding Letters of Credit
issued by Silicon or issued by another institution based upon an application,
guarantee, indemnity or similar agreement on the part of Silicon, then on such
date Borrower shall provide to Silicon cash collateral in an amount equal to
the face amount of all such Letters of Credit plus all interest, fees and cost
due or to become due in connection therewith, to secure all of the Obligations
relating to said Letters of Credit, pursuant to Silicon’s then standard form
cash pledge agreement.  Notwithstanding
any termination of this Agreement, all of Silicon’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, without limiting the fact that Loans are
subject to the discretion of Silicon, Silicon 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 Silicon, nor shall any such termination relieve Borrower of any
Obligation to Silicon, 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,
Silicon shall promptly deliver to Borrower termination statements, requests for
reconveyances and such other documents as may be required to fully terminate
Silicon’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 Silicon immediate written
notice thereof: (a) Any warranty, representation, statement, report or
certificate made or delivered to Silicon by Borrower or any of Borrower’s
officers, employees or agents, now or in the future, shall be untrue or
misleading in a material respect when made; or (b) Borrower shall fail to pay
when due any Loan or any interest thereon or any other monetary Obligation; or
(c) the total Loans and other Obligations outstanding at any time shall exceed the
Credit Limit; or (d) Borrower shall fail to comply with any of the financial
covenants set forth in the Schedule or shall fail to perform any other
nonmonetary Obligation which by its nature cannot be cured; or

 

9

 

(e) Borrower shall fail to
perform any other nonmonetary Obligation, which failure is not cured within10
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 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 breach has or may reasonably be expected to have
a material adverse effect on Borrower’s business or financial condition; or (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 (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 30 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 (1) 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 a change in the record or
beneficial ownership of an aggregate of more than 20% of the outstanding shares
of stock of Borrower, in one or more transactions (other than in connection
with the IPO, as defined above), compared to the ownership of outstanding
shares of stock of Borrower in effect on the date hereof, without the prior
written consent of Silicon; or (o) 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 (p) there shall be a
material adverse change in Borrower’s business or financial condition; or (q)
Silicon, acting in good faith and in a commercially reasonable manner, deems
itself insecure because of the occurrence of an event prior to the effective
date hereof of which Silicon had no knowledge on the effective date or because
of the occurrence of an event on or subsequent to the effective date.  Silicon may cease making any Loans hereunder
during any of the above cure periods, and thereafter if an Event of Default has
occurred.

 

7.2          Remedies.  Upon the occurrence of any Event of Default, and at any time
thereafter, Silicon, 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:  (a) Cease

 

10

 

making Loans or otherwise
extending credit to Borrower under this Agreement or any other document or
agreement; (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 Silicon 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 Silicon deems it reasonably necessary in
order to complete the enforcement of its rights under this Agreement or any
other agreement; provided, however, that should Silicon 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 Silicon 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 Silicon at
places designated by Silicon which are reasonably convenient to Silicon and
Borrower, and to remove the Collateral to such locations as Silicon 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, Silicon shall have the right to use Borrower’s premises,
vehicles, hoists, lifts, cranes, equipment and all other property without charge;
(f) Sell, lease or otherwise dispose of any of the Collateral, in its condition
at the time Silicon 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.  Silicon shall
have the right to conduct such disposition on Borrower’s premises without charge,
for such time or times as Silicon deems reasonable, or on Silicon’s premises,
or elsewhere and the Collateral need not be located at the place of
disposition.  Silicon 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
Receivables and General Intangibles comprising Collateral and, in connection
therewith, Borrower irrevocably authorizes Silicon 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 Silicon’s sole discretion, to grant extensions of time to pay,
compromise claims and settle’ Receivables and the like for less than face
value; (h) Offset against any sums in any of Borrower’s general, special or
other Deposit Accounts with Silicon; and (i) Demand and receive possession of
any of Borrower’s federal and state income tax returns and the books and
records utilized in the preparation thereof or referring thereto.  All reasonable attorneys’ fees, expenses,
costs, liabilities and obligations incurred by Silicon 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 Silicon’s rights and remedies, from and after
the occurrence of any Event of Default, the interest rate applicable

 

11

 

to the Obligations shall be
increased by an additional four percent per annum

 

7.3          Standards for Determining Commercial Reasonableness.  Borrower and Silicon 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 (10) days prior to the sale, and, in the case of
a public sale, notice of the sale is published at least ten (10) 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
Silicon, 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, Silicon may (but is not obligated to)
direct any prospective purchaser to ascertain directly from Borrower any and all
information concerning the same. 
Silicon 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 of any Event of Default,
without limiting Silicon’s other rights and remedies, Borrower grants to
Silicon an irrevocable power of attorney coupled with an interest, authorizing
and permitting Silicon (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 Silicon agrees to exercise the
following powers in a commercially reasonable manner:  (a) Execute on behalf of Borrower any documents that Silicon may,
in its sole discretion, deem advisable in order to perfect and maintain
Silicon’s security interest in the Collateral, or in order to exercise a right
of Borrower or Silicon, or in order to fully consummate all the transactions
contemplated under this Agreement, and all other present and future agreements;
(b) Execute on behalf of Borrower any document exercising, transferring or
assigning any option to purchase, sell or otherwise dispose of or to lease (as
lessor or lessee) any real or personal property which is part of Silicon’s
Collateral or in which Silicon has an interest; (c) Execute on behalf of
Borrower, any invoices relating to any Receivable, 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;
(d) 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 Collateral or
documents, evidence of payment or Collateral that may come into Silicon’s
possession; (e) Endorse all checks and other forms of remittances received by
Silicon; (f) 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;
(g) Grant extensions of time to pay, compromise claims and settle Receivables
and General Intangibles for less than face value and execute all releases and
other documents in connection therewith; (h) Pay any sums required on account
of Borrower’s taxes or to secure the release of any liens therefor, or both;
(i) Settle and adjust, and give releases of, any insurance claim that relates
to any of the Collateral and obtain payment therefor; (j) Instruct any third
party having custody or control of any books or records belonging to, or relating
to, Borrower to give Silicon the same rights of access and other rights with
respect thereto as Silicon has under this Agreement; and (k) Take any action or
pay any sum required of Borrower pursuant to this

 

12

 

Agreement and any other present
or future agreements.  Any and all
reasonable sums paid and any and all reasonable costs, expenses, liabilities,
obligations and attorneys’ fees incurred by Silicon 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 Silicon’s rights under the foregoing power of
attorney or any of Silicon’s other rights under this Agreement be deemed to
indicate that Silicon is in control of the business, management or properties
of Borrower.

 

7.5          Application of Proceeds.  All proceeds realized as the result of any
sale of the Collateral shall be applied by Silicon first to the reasonable
costs, expenses, liabilities, obligations and attorneys’ fees incurred by
Silicon 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 Silicon shall determine in its sole
discretion.  Any surplus shall be paid
to Borrower or other persons legally entitled thereto; Borrower shall remain
liable to Silicon for any deficiency. 
If, Silicon, in its sole discretion, directly or indirectly enters into
a deferred payment or other credit transaction with any purchaser at any sale
of Collateral, Silicon shall have the option, exercisable at any time, in its
sole discretion, of either reducing the Obligations by the principal amount of
purchase price or deferring the reduction of the Obligations until the actual
receipt by Silicon of the cash therefor.

 

7.6          Remedies Cumulative.  In addition to the rights and remedies set
forth in this Agreement, Silicon shall have all the other rights and remedies
accorded a secured party under the California Uniform Commercial Code and under
all other applicable laws, and under any other instrument or agreement now or
in the future entered into between Silicon and Borrower, and all of such rights
and remedies are cumulative and none is exclusive.  Exercise or partial exercise by Silicon of one or more of its
rights or remedies shall not be deemed an election, nor bar Silicon from
subsequent exercise or partial exercise of any other rights or remedies.  The failure or delay of Silicon 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 a Receivable.

 

“Affiliate”
means, with respect to any Person, a relative, partner, shareholder, director,
officer, or employee of such Person, or any parent or subsidiary of such
Person, or any Person controlling, controlled by or under common control with
such Person.

 

“Business
Day” means a day on which Silicon 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 2.1 above.

 

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

 

13

 

Event of
Default.

 

“Deposit
Account” has the meaning set forth in Section 9105 of the Code.

 

“Eligible
Inventory” means Inventory which Silicon, in its good-faith business
judgment, deems eligible for borrowing, based on such considerations as Silicon
may from time to time deem appropriate. 
Without limiting the fact that the determination of which Inventory is
eligible for borrowing is a matter of Silicon’s discretion, Inventory which
does not meet the following requirements will not be deemed to be Eligible
Inventory:  Inventory which (i) consists
of raw materials and finished goods, in good, new and salable condition which
is not perishable, not obsolete or unmerchantable, and is not comprised of work
in process, packaging materials or supplies; (ii) meets all applicable
governmental standards; (iii) has been manufactured in compliance with the Fair
Labor Standards Act; (iv) conforms in all respects to the warranties and
representations set forth in this Agreement; (v) is at all times subject to
Silicon’s duly perfected, first priority security interest; and (vi) is
situated at a one of the locations set forth on the Schedule.

 

“Eligible
Receivables” means Receivables arising in the ordinary course of Borrower’s
business from the sale of goods or rendition of services, which Silicon, in its
good-faith business judgment, shall deem eligible for borrowing, based on such
considerations as Silicon may from time to time deem appropriate.  Without limiting the fact that the
determination of which Receivables are eligible for borrowing is a matter of
Silicon’s discretion, the following (the “Minimum Eligibility Requirements”)
are the minimum requirements for a Receivable to be an Eligible
Receivable:  (i) the Receivable must not
be outstanding for more than 90 days from its invoice date, (ii) the Receivable
must not represent progress billings, or be due under a fulfillment or
requirements contract with the Account Debtor, (iii) the Receivable must not be
subject to any contingencies (including Receivables arising from sales on
consignment, guaranteed sale or other terms pursuant to which payment by the
Account Debtor may be conditional), (iv) the Receivable must not be owing from
an Account Debtor with whom Borrower has any dispute (whether or not relating
to the particular Receivable), (v) the Receivable must not be owing from an
Affiliate of Borrower, (vi) the Receivable must not be owing from an Account
Debtor which is subject to any insolvency or bankruptcy proceeding, or whose
financial condition is not acceptable to Silicon, or which, fails or goes out
of a material portion of its business, (vii) the Receivable must not be owing
from the United States or any department, agency or instrumentality thereof
(unless there has been compliance, to Silicon’s satisfaction, with the United
States Assignment of Claims Act), (viii) the Receivable must not be owing from
an Account Debtor located outside the United States or Canada (unless
pre-approved by Silicon in its discretion in writing, or backed by a letter of
credit satisfactory to Silicon, or  FCIA
insured satisfactory to Silicon), (ix) the Receivable must not be owing from an
Account Debtor to whom Borrower is or may be liable for goods purchased from such
Account Debtor or otherwise.  Receivables
owing from one Account Debtor will not be deemed Eligible Receivables to the
extent they exceed 25% of the total Receivables outstanding.  In addition, if more than 50% of the
Receivables owing from an Account Debtor are outstanding more than 90 days from
their invoice date (without regard to unapplied credits) or are otherwise not
eligible Receivables, then all Receivables owing from that Account Debtor will
be deemed ineligible for borrowing. 
Silicon may, from time to time, in its discretion, revise the Minimum
Eligibility Requirements, upon written notice to Borrower.

 

14

 

“Equipment”
means all of Borrower’s present and hereafter acquired machinery, molds,
machine tools, motors, furniture, equipment, furnishings, fixtures, trade
fixtures, motor vehicles, tools, parts, dyes, jigs, goods and other tangible
personal property (other than Inventory) of every kind and description used in
Borrower’s operations or owned by Borrower and any interest in any of the
foregoing, and all attachments, accessories, accessions, replacements,
substitutions, additions or improvements to any of the foregoing, wherever
located.

 

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

 

“General Intangibles”
means all general intangibles of Borrower, whether now owned or hereafter
created or acquired by Borrower, including, without limitation, all chooses in
action, causes of action, corporate or other business records, Deposit
Accounts, Intellectual Property, security and other deposits, rights in all
litigation presently or hereafter pending for any cause or claim (whether in
contract, tort or otherwise), and all judgments now or hereafter arising
therefrom, all claims of Borrower against Silicon, rights to purchase or sell
real or personal property, rights as a licensor or licensee of any kind,
royalties, telephone numbers, 
proprietary information, purchase orders, and all insurance policies and
claims (including without limitation life insurance, key man insurance, credit
insurance, liability insurance, property insurance and other insurance), tax
refunds and claims, computer programs, discs, tapes and tape files, claims
under guaranties, security interests or other security held by or granted to
Borrower, all rights to indemnification and all other intangible property of
every kind and nature (other than Receivables).  “Intellectual Property” means all inventions, designs,
drawings, blueprints, patents, patent applications, trademarks and the goodwill
of the business symbolized thereby, names, trade names, trade secrets,
goodwill, copyrights, registrations, licenses, franchises, customer lists,
rights in all litigation relating thereto and the proceeds of the foregoing.

 

“Inventory”
means all of Borrower’s now owned and hereafter acquired goods, merchandise or
other personal property, wherever located, to be furnished under any contract
of service or held for sale or lease (including without limitation all raw
materials, work in process, finished goods and goods in transit), and all
materials and supplies of every kind, nature and description which are or might
be used or consumed in Borrower’s business or used in connection with the
manufacture, packing, shipping, advertising, selling or finishing of such
goods, merchandise or other personal property, and all warehouse receipts,
documents of title and other documents representing any of the foregoing.

 

“Obligations”
means all present and future Loans, advances, debts, liabilities, obligations,
guaranties, covenants, duties and indebtedness at any time owing by Borrower to
Silicon, whether evidenced by this Agreement or any note or other instrument or
document, 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 Silicon 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, letter of credit 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

 

15

 

any other
present or future instrument or agreement between Borrower and Silicon.

 

“Permitted
Liens” means the following:  (i)
purchase money security interests in specific items of Equipment; (ii) leases
of specific items of Equipment; (iii) liens for taxes not yet payable; (iv)
additional security interests and liens consented to in writing by Silicon,
which consent shall not be unreasonably withheld; (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.  Silicon will have the right to
require, as a condition to its consent under subparagraph (iv) above, that the
holder of the additional security interest or lien sign an intercreditor
agreement on Silicon’s then standard form, acknowledge that the security
interest is subordinate to the security interest in favor of Silicon, and agree
not to take any action to enforce its subordinate security interest so long as
any Obligations remain outstanding, and that Borrower agree that any uncured
default in any obligation secured by the subordinate security interest shall
also constitute an Event of Default under this Agreement.

 

“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.

 

“Receivables”
means all of Borrower’s now owned and hereafter acquired accounts (whether or
not earned by performance), letters of credit, contract rights, chattel paper,
instruments, securities, securities accounts, investment property, documents
and all other forms of obligations at any time owing to Borrower, all
guaranties and other security therefor, all merchandise returned to or repossessed
by Borrower, and all rights of stoppage in transit and all other rights or
remedies of an unpaid vendor, lienor or secured party.

 

“Reserves”
means, as of any date of determination, such amounts as Silicon may from time
to time establish and revise in good faith reducing the amount of Loans,
Letters of Credit 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 Silicon in good
faith, do or may 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 Receivables), (ii) the assets, business or
prospects of Borrower or any Guarantor, or (iii) the security interests and
other rights of Silicon in the Collateral (including the enforceability,
perfection and priority thereof); or (b) to reflect Silicon’s good faith belief
that any collateral report or financial information furnished by or on behalf
of Borrower or any Guarantor to Silicon is or may have been incomplete,
inaccurate or misleading in any material respect; or (c) in respect of any
state of facts which Silicon determines in good faith constitutes an Event of
Default or may, with notice or passage of time or both, constitute an Event of
Default.

 

16

 

Other Terms.  All accounting terms used in this Agreement,
unless otherwise indicated, shall have the meanings given to such terms in
accordance with generally accepted accounting principles, 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          Interest Computation.  In computing interest on the Obligations,
all checks, and other items of payment received by Silicon (including proceeds
of Receivables and payment of the Obligations in full) shall be deemed applied
by Silicon on account of the Obligations three Business Days after receipt by
Silicon of immediately available funds (except
with respect to wire transfers which shall be deemed applied by Silicon on
account of the Obligations the same Business Day as deemed received by Silicon),
and, for purposes of the foregoing, any such funds received after 12:00 Noon on
any day shall be deemed received on the next Business Day.  Silicon shall not, however, be required to
credit Borrower’s account for the amount of any item of payment which is
unsatisfactory to Silicon in its sole discretion, and Silicon may charge
Borrower’s loan account for the amount of any item of payment which is returned
to Silicon unpaid.

 

9.2          Application of Payments.  All payments with respect to the Obligations
may be applied, and in Silicon’s sole discretion reversed and re-applied, to
the Obligations, in such order and manner as Silicon shall determine in its
sole discretion.

 

9.3          Charges to Accounts.  Silicon may, in its discretion, require that
Borrower pay monetary Obligations in cash to Silicon, or charge them to
Borrower’s Loan account, in which event they will bear interest at the same
rate applicable to the Loans.  Silicon
may also, in its discretion, charge any monetary Obligations to Borrower’s
Deposit Accounts maintained with Silicon.

 

9.4          Monthly Accountings.  Silicon 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 Silicon), unless Borrower notifies Silicon in writing to the
contrary within thirty days after each account is rendered, describing the
nature of any alleged errors or admissions.

 

9.5          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, addressed
to Silicon 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.   Notices to Silicon shall be directed to the
Commercial Finance Division, to the attention of the Division Manager or the
Division Credit Manager.  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.

 

17

 

9.6          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.

 

9.7          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 Silicon 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.

 

9.8          Waivers. 
The failure of Silicon at any time or times to require Borrower to
strictly comply with any of the provisions of this Agreement or any other
present or future agreement between Borrower and Silicon shall not waive or
diminish any right of Silicon 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 agreement now or in the future
executed by Borrower and delivered to Silicon shall be deemed to have been
waived by any act or knowledge of Silicon or its agents or employees, but only
by a specific written waiver signed by an authorized officer of Silicon and
delivered to Borrower.  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 Silicon on
which Borrower is or may in any way be liable, and notice of any action taken
by Silicon, unless expressly required by this Agreement.

 

9.9          No Liability for Ordinary Negligence.  Neither Silicon, nor any of its directors,
officers, employees, agents, attorneys or any other Person affiliated with or
representing Silicon 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 Silicon, or any
of its directors, officers, employees, agents, attorneys or any other Person
affiliated with or representing Silicon, but nothing herein shall relieve Silicon
from liability for its own gross negligence or willful misconduct.

 

9.10        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
Silicon.

 

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

 

9.12        Attorneys Fees and Costs.  Borrower shall reimburse Silicon for all
reasonable attorneys’ fees and all filing, recording, search, title insurance,
appraisal, audit, and other reasonable costs incurred by Silicon, 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 Silicon incurs in order to do the following:  prepare and negotiate this Agreement and the documents relating
to this Agreement; obtain legal advice in connection with

 

18

 

this Agreement or Borrower;
enforce, or seek to enforce, any of its rights; 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 Silicon’s security interest in, the
Collateral; and otherwise represent Silicon in any litigation relating to
Borrower.  In satisfying Borrower’s
obligation hereunder to reimburse Silicon for attorneys fees, Borrower may, for
convenience, issue checks directly to Silicon’s attorneys Levy, Small &
Lallas, but Borrower acknowledges and agrees that Levy, Small & Lallas, is
representing only Silicon and not Borrower in connection with this Agreement.  If either Silicon 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 Silicon 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.

 

9.13        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 Silicon; provided,
however, that Borrower may not assign or transfer any of its rights under this
Agreement without the prior written consent of Silicon, and any prohibited
assignment shall be void.  No consent by
Silicon to any assignment shall release Borrower from its liability for the
Obligations.

 

9.14        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.

 

9.15        Limitation of Actions.  Any claim or cause of action by Borrower
against Silicon, its directors, officers, employees, agents, accountants or
attorneys, based upon, arising from, or relating to this Loan Agreement, or any
other present or future document or agreement, 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 Silicon, 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 eighteen months after the first act, occurrence or omission
upon which such claim or cause of action, or any part thereof, is based, and
the service of a  summons and complaint
on an officer of Silicon, or on any other person authorized to accept service
on behalf of Silicon, within thirty (30) days thereafter.   Borrower agrees that such eighteen month
period is a reasonable and sufficient time for Borrower to investigate and act
upon any such claim or cause of action. 
The eighteen month period provided herein shall not be waived, tolled,
or extended except by the written consent of Silicon in its sole
discretion.  This provision shall
survive any termination of this Loan Agreement or any other present or future
agreement.

 

19

 

9.16        Paragraph Headings; Construction.  Paragraph headings are only used in this
Agreement for convenience.  Borrower and
Silicon 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.  The term “including”,
whenever used in this Agreement, shall mean “including (but not limited to)”.  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 Silicon or
Borrower under any rule of construction or otherwise.

 

9.17        Governing Law; Jurisdiction; Venue.  This Agreement and all acts and transactions
hereunder and all rights and obligations of Silicon and Borrower shall be
governed by the laws of the State of California.  As a material part of the consideration to Silicon to enter into
this Agreement, Borrower (i) agrees that all actions and proceedings relating
directly or indirectly to this Agreement shall, at Silicon’s option, be
litigated in courts located within California, and that the exclusive venue
therefor shall be Santa Clara 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.

 

9.18        Mutual Waiver of Jury Trial.  BORROWER AND SILICON 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 SILICON AND BORROWER, OR ANY CONDUCT, ACTS OR
OMISSIONS OF SILICON OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES,
AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH SILICON OR BORROWER, IN
ALL OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.

 

	
  Borrower:

  
	
   

  
	
   

  	
  DIGIRAD
  CORPORATION

  
	
   

  
	
   

  	
  By

  	
  /s/ Illegible

  	
   

  
	
   

  	
   

  	
  President or Vice President

  
	
   

  	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Gary G. Atkinson

  	
   

  
	
   

  	
   

  	
  Secretary or Ass’t Secretary

  
	
   

  
	
  Silicon:

  	
   

  
	
   

  
	
   

  	
  SILICON
  VALLEY BANK

  
	
   

  	
   

  	
   

  
	
   

  	
  By

  	
   

  	
   

  
	
   

  	
  Title

  	
   

  	
   

  
								

 

20

 

Form 3/24/99

Version -0-4

 

21

 

SILICON
VALLEY BANK

 

Schedule To

 

Loan And Security Agreement

 

	
  Borrower:

  	
   

  	
  Digirad Corporation

  
	
  Address:

  	
   

  	
  9350 Trade Place

  
	
   

  	
   

  	
  San Diego, CA 92126

  
	
   

  	
   

  	
   

  
	
  Date:

  	
   

  	
  July 31, 2001

  

 

This Schedule
forms an integral part of the Loan and Security Agreement between Silicon
Valley Bank and the above-borrower of even date.

 

	
  1. 
  CREDIT LIMIT
(Section 1.1):

  	
   

  	
  An amount
  not to exceed the lesser of a total of $4,300,000 at any one time outstanding
  (the “Maximum Credit Limit”), or the sum of (a) and (b) below:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (a)           75% (the “Percentage
  Advance Rate”) of the amount of Borrower’s Eligible Receivables (as defined
  in Section 8 above), plus

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (b)           an amount not to
  exceed the lesser of:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (1)           25% of the value of
  Borrower’s Eligible Inventory (as defined in Section 8 above), calculated at
  the lower of cost or market value and determined on a first-in, first-out
  basis, or

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (2)           50% of the amount of
  Borrower’s Eligible Receivables (as defined in Section 8 above), or 

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (3)           $300,000.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  The
  foregoing Percentage Advance Rate is typically based on the quality of the
  Receivables and attendant Dilution as follows:  up to 85% Percentage Advance Rate with 5% Dilution; up to 80%
  Percentage Advance Rate with Dilution over 5% but less than 10%; up to 75%
  Percentage Advance Rate when Dilution is over 10% but less than 15%.  If Dilution exceeds 15%, a reserve is
  established for the dilution factor rounded up to the nearest whole number
  then multiplied by a factor of up to 75%.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  As used
  above, “Dilution” means all deductions from Receivables by Account Debtors of
  Borrower, other than

  

 

 

	
  Silicon
  Valley Bank

  	
  Loan and Security Agreement

  

 

	
   

  	
   

  	
  those
  arising from payment thereof, and includes without limitation deductions
  arising from advertising and other allowances, credit memos, returns, bad
  debts, and all other deductions, as determined by Silicon’s audit and for
  such period as Silicon shall determine. 
  Changes in the Percentage Advance Rate based on Dilution shall go into
  effect when Silicon has determined the amount of the Dilution and given
  written notice to the Borrower of the change in the Percentage Advance
  Rate.  If, as a result of a decrease
  in the Percentage Advance Rate, the total Loans and other Obligations exceed
  the Credit Limit, the Borrower shall pay the excess to Silicon in accordance
  with the terms of this Agreement.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Moreover,
  prior to any increase in the Percentage Advance Rate going into effect, the
  delinquency rate with respect to the Borrower’s Receivables must be
  satisfactory to Silicon in its sole discretion.

  
	
   

  	
   

  	
   

  
	
  2.  INTEREST.

  	
   

  	
   

  
	
  Interest Rate (Section 1.2):

  	
   

  	
   

  
	
   

  	
   

  	
  A rate equal
  to the “Prime Rate” in effect from time to time, plus 2.0% per annum.  Interest shall be calculated on the basis
  of a 360-day year for the actual number of days elapsed.  “Prime Rate” means the rate announced from
  time to time by Silicon as its “prime rate;” it is a base rate upon which
  other rates charged by Silicon are based, and it is not necessarily the best
  rate available at Silicon.The interest rate applicable to the Obligations
  shall change on each date there is a change in the Prime Rate.

  
	
   

  	
   

  	
   

  
	
  Minimum Monthly  Interest
(Section 1.2):

  	
   

  	
  $5,000 per
  month.

  
	
   

  	
   

  	
   

  
	
  3.  FEES (Section
  1.4):

  	
   

  	
   

  
	
  Loan Fee:

  	
   

  	
  $43,000,
  payable concurrently herewith.

  
	
   

  	
   

  	
   

  
	
  Collateral
  Monitoring Fee:

  	
   

  	
  $500, per
  month, payable in arrears (prorated for any partial month at the beginning
  and at termination of this Agreement).

  
	
   

  	
   

  	
   

  
	
  4. 
  MATURITY DATE
(Section 6.1):

  	
   

  	
  One year
  from the date of this Agreement.

  
	
   

  	
   

  	
   

  
	
  5. 
  FINANCIAL COVENANTS.
(Section 5.1):

  	
   

  	
  Borrower
  shall comply with each of the following covenant(s).  Compliance shall be determined as of the
  end of each month, except as otherwise specifically provided below:

  

 

2

 

	
  Minimum Tangible  Net Worth:

  	
   

  	
  Borrower
  shall maintain, at the Borrower level only and not consolidated with any
  subsidiaries, a Tangible Net Worth of not less than $6,000,000, plus
  25% of the consideration received after the date hereof for the issuance of
  equity securities of the Borrower; provided, however, for the
  month of August 2001 only, the 25% will be applicable only to all
  consideration received in excess of $4,000,000; and

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Borrower
  shall maintain, on a consolidated basis, a Tangible Net Worth of not less
  than $5,000,000, plus 25% of the consideration received after the date
  hereof for the issuance of equity securities of the Borrower; provided,
  however, for the month of August 2001 only, the 25% will be applicable
  only to all consideration received in excess of $4,000,000.

  
	
   

  	
   

  	
   

  
	
  Definitions.

  	
   

  	
  For purposes
  of the foregoing financial covenants, the following term shall have the
  following meaning:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  “Current
  assets”, “current liabilities” and “liabilities” shall have the meaning
  ascribed thereto by generally accepted accounting principles.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  “Tangible
  Net Worth” shall mean the excess of total assets over total liabilities,
  determined in accordance with generally accepted accounting principles, with
  the following adjustments:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (A)  there shall be excluded from assets:  (i) notes, accounts receivable and other
  obligations owing to Borrower from its officers or other Affiliates, and (ii)
  all assets which would be classified as intangible assets under generally
  accepted accounting principles, including without limitation goodwill,
  licenses, patents, trademarks, trade names, copyrights, capitalized software
  and organizational costs, licenses and franchises

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (B) there
  shall be excluded from liabilities: 
  all indebtedness which is subordinated to the Obligations under a
  subordination agreement in form specified by Silicon or by language in the
  instrument evidencing the indebtedness which is acceptable to Silicon in its
  discretion.

  
	
   

  	
   

  	
   

  
	
  6. 
  REPORTING.
(Section 5.3):

  	
   

  	
  Borrower
  shall provide Silicon with the following:

  
	
   

  	
   

  	
  1. Monthly
  Receivable agings, aged by invoice date, within

  

 

3

 

	
   

  	
   

  	
  fifteen days
  after the end of each month. 2. Monthly accounts payable agings, aged by
  invoice date, and outstanding or held check registers, if any, within fifteen
  days after the end of each month. 3. Monthly reconciliations of Receivable
  agings (aged by invoice date), transaction reports, and general ledger,
  within fifteen days after the end of each month. 4. Monthly perpetual
  inventory reports for the Inventory valued on a first-in, first-out basis at
  the lower of cost or market (in accordance with generally accepted accounting
  principles) or such other inventory reports as are reasonably requested by
  Silicon, all within fifteen days after the end of each month. 5. Monthly
  unaudited financial statements, as soon as 
  available, and in any event within thirty days after the end of each
  month.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  6. Monthly
  Compliance Certificates, within thirty days after the end of each month, in
  such form as Silicon shall reasonably specify, signed by the Chief Financial
  Officer of Borrower, certifying that as of the end of such month Borrower was
  in full compliance with all of the terms and conditions of this Agreement,
  and setting forth calculations showing compliance with the financial
  covenants set forth in this Agreement and such other information as Silicon
  shall reasonably request, including, without limitation, a statement that at
  the end of such month there were no held checks. 7. Quarterly unaudited
  financial statements, as soon as available, and in any event within
  forty-five days after the end of each fiscal quarter of Borrower. 8. Annual
  operating budgets (including income statements, balance sheets and cash flow
  statements, by month) for the upcoming fiscal year of Borrower within thirty
  days prior to the end of each fiscal year of Borrower. 9. Annual financial
  statements, as soon as available, and in any event within 120 days following
  the end of Borrower’s fiscal year, certified by independent certified public
  accountants acceptable to Silicon.

  
	
   

  	
   

  	
   

  
	
  7. 
  COMPENSATION
(Section 5.5):

  	
   

  	
  Not
  applicable.

  
	
   

  	
   

  	
   

  
	
  8.  BORROWER INFORMATION:

  	
   

  	
   

  
	
  Prior Names of Borrower
(Section 3.2):

  	
   

  	
  See
  Representations and Warranties dated March 14, 2001.

  
	
   

  	
   

  	
   

  
	
  Prior Trade  Names of Borrower

  	
   

  	
  See
  Representations and Warranties dated March 14, 2001.

  
	
  (Section
  3.2):

  	
   

  	
   

  

 

4

 

	
  Existing Trade  Names of
  Borrower
(Section 3.2):

  	
   

  	
  See
  Representations and Warranties dated March 14, 2001.

  
	
   

  	
   

  	
   

  
	
  Other Locations  and Addresses
(Section 3.3):

  	
   

  	
  See
  Representations and Warranties dated March 14, 2001.

  
	
   

  	
   

  	
   

  
	
  Material Locations and Addresses
(Section 3.10):

  	
   

  	
  None.

  
	
   

  	
   

  	
   

  
	
  9. 
  OTHER COVENANTS
(Section 5.1):

  	
   

  	
  Borrower
  shall at all times comply with all of the following additional covenants:

  
	
   

  	
   

  	
  (1)  Banking
  Relationship.  Borrower
  shall at all times maintain its primary banking relationship with Silicon.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (2)  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 Silicon’s standard
  form.  Borrower represents and
  warrants that there is no Inside Debt presently outstanding, except for the
  following:  NONE.  Prior to incurring any Inside Debt in the
  future, Borrower shall cause the person to whom such Inside Debt will be owed
  to execute and deliver to Silicon a subordination agreement on Silicon’s
  standard form.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (3)  Warrants.  Borrower shall provide Silicon with
  five-year warrants to purchase 42,490 shares of Series E Preferred Stock of
  the Borrower, at $3.036 per share, on the terms and conditions in the Warrant
  to Purchase Stock and related documents being executed concurrently herewith.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (4)  Future
  Warrants.  In the event the
  Maximum Credit Limit (as defined above) increases, Borrower agrees that it
  shall issue to Silicon additional warrants to purchase stock of Borrower, on
  Silicon’s standard form with such modifications as are acceptable to Silicon
  in its sole discretion, for an amount of shares equal to 3% of the increase
  in the Maximum Credit Limit divided by the initial exercise price of such
  warrant.  The class of stock and
  initial exercise price shall be determined at or about the time of such

  

 

5

 

	
   

  	
   

  	
  proposed
  increase in the Maximum Credit Limit.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (5)  Intellectual
  Property Security Agreement. 
  Concurrently, Borrower is executing and delivering to Silicon a
  Collateral Assignment, Patent Mortgage and Security Agreement between
  Borrower and Silicon (the “Intellectual Property Agreement”).  Borrower shall (i) cause the Intellectual
  Property Agreement to be recorded in the United States Patent and Trademark Office
  and (ii) provide evidence of such recordation to Silicon.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (6)  Landlord
  Waivers.  Within 30 days
  after the date hereof, Borrower shall cause the record owners (other than
  Borrower) of all real property upon which Borrower maintains inventory to
  execute and deliver to Silicon, on Silicon’s standard form, a landlord waiver
  containing such other terms and conditions as Silicon may require.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (7)  Default
  Notice from Heller Financial. 
  Within 10 Business Days after the date hereof, Borrower shall cause
  Heller Financial to amend its financing agreements with Borrower’s
  subsidiary(ies) (the “Heller Documents”) to require Heller Financial to
  provide Silicon with written notice of any default under the Heller
  Documents, and Borrower shall provide Silicon with evidence of such amendment
  to the Heller Documents.

  

 

 

	
  Borrower:

  	
  Silicon:

  
	
   

  	
   

  
	
  DIGIRAD
  CORPORATION

  	
  SILICON
  VALLEY BANK

  
	
   

  	
   

  
	
   

  	
   

  
	
  By

  	
  /s/ Illegible

  	
   

  	
  By

  	
   

  	
   

  
	
   

  	
  President or Vice President

  	
  Title

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By

  	
  /s/ Gary G. Atkinson

  	
   

  	
   

  
	
   

  	
  Secretary or Ass’t Secretary

  	
   

  
									

 

6

 

COLLATERAL ASSIGNMENT, PATENT MORTGAGE 

AND SECURITY AGREEMENT

 

This
Collateral Assignment, Patent Mortgage and Security Agreement is made as of
July 31, 2001 by and between Digirad Corporation (“Assignor”), and Silicon
Valley Bank, a California banking corporation (“Assignee”).

 

RECITALS

 

A.            Assignee has agreed to
lend to Assignor certain funds (the “Loans”), pursuant to a Loan and Security
Agreement dated July 31, 2001 (the “Loan Agreement”) and Assignor desires to
borrow such funds from Assignee.

 

B.            In order to induce
Assignee to make the Loans, Assignor has agreed to assign certain intangible
property to Assignee for purposes of securing the obligations of Assignor to
Assignee.

 

NOW,
THEREFORE, THE PARTIES HERETO AGREE AS FOLLOWS:

 

1.             Assignment,
Patent Mortgage and Grant of Security Interest.  As collateral security for the prompt and complete payment and
performance of all of Assignor’s present or future indebtedness, obligations
and liabilities to Assignee, Assignor hereby assigns, transfers, conveys and
grants a security interest and mortgage to Assignee, as security, but not as an
ownership interest, in and to Assignor’s entire right, title and  interest in, to and under the following (all
of which shall collectively be called the “Collateral”):

 

(a)           All of present and
future United States registered copyrights and copyright registrations,
including, without limitation, the registered copyrights listed in Exhibit A-1
to this Agreement (and including all of the exclusive rights afforded a
copyright registrant in the United States under 17 U.S.C.  §106 and any exclusive rights which may in
the future arise by act of Congress or otherwise) and all present and future
applications for copyright registrations (including applications for copyright
registrations of derivative works and compilations) (collectively, the
“Registered Copyrights”), and any and all royalties, payments, and other
amounts payable to Assignor in connection with the Registered Copyrights,
together with all renewals and extensions of the Registered Copyrights, the
right to recover for all past, present, and future infringements of the
Registered Copyrights, and all computer programs, computer databases, computer
program flow diagrams, source codes, object codes and all tangible property
embodying or incorporating the Registered Copyrights, and all other rights of
every kind whatsoever accruing thereunder or pertaining thereto.

 

(b)           All present and future
copyrights which are not registered in the United States Copyright Office (the
“Unregistered Copyrights”), whether now owned or hereafter acquired, including
without limitation the Unregistered Copyrights listed in Exhibit A-2 to
this Agreement, and any and all royalties, payments, and other amounts payable
to Assignor in connection with the Unregistered Copyrights, together with all
renewals and extensions of the Unregistered Copyrights, the right to recover
for all past, present, and future infringements of the Unregistered Copyrights,
and all computer programs, computer databases, computer program

 

 

flow diagrams, source codes,
object codes and all tangible property embodying or incorporating the
Unregistered Copyrights, and all other rights of every kind whatsoever accruing
thereunder or pertaining thereto.  The
Registered Copyrights and the Unregistered Copyrights collectively are referred
to herein as the “Copyrights.”

 

(c)           All right, title and
interest in and to any and all present and future license agreements with
respect to the Copyrights, including without limitation the license agreements
listed in Exhibit A-3 to this Agreement (the “Licenses”).

 

(d)           All present and future
accounts, accounts receivable and other rights to payment arising from, in
connection with or relating to the Copyrights.

 

(e)           Any and all trade
secrets, and any and all intellectual property rights in computer software and
computer software products now or hereafter existing, created, acquired or
held;

 

(f)            Any and all design
rights which may be available to Assignor now or hereafter existing, created,
acquired or held;

 

(g)           All patents, patent
applications and like protections including, without limitation, improvements,
divisions, continuations, renewals, reissues, extensions and
continuations-in-part of the same, including without limitation the patents and
patent applications set forth on Exhibit B attached hereto
(collectively, the “Patents”);

 

(h)           Any trademark and
servicemark rights, whether registered or not, applications to register and
registrations of the same and like protections, and the entire goodwill of the
business of Assignor connected with and symbolized by such trademarks,
including without limitation those set forth on Exhibit C attached
hereto (collectively, the “Trademarks”)

 

(i)            Any and all claims for
damages by way of past, present and future infringements of any of the rights
included above, with the right, but not the obligation, to sue for and collect
such damages for said use or infringement of the intellectual property rights identified
above;

 

(j)            All licenses or other
rights to use any of the Copyrights, Patents or Trademarks, and all license
fees and royalties arising from such use to the extent permitted by such
license or rights;

 

(k)           All amendments,
extensions, renewals and extensions of any of the Copyrights, Trademarks or
Patents; and

 

(l)            All proceeds and
products of the foregoing, including without limitation all payments under
insurance or any indemnity or warranty payable in respect of any of the
foregoing.

 

THE
INTEREST IN THE COLLATERAL BEING ASSIGNED HEREUNDER SHALL NOT BE CONSTRUED AS A
CURRENT ASSIGNMENT, BUT AS A CONTINGENT ASSIGNMENT TO SECURE ASSIGNOR’S
OBLIGATIONS TO ASSIGNEE UNDER

 

2

 

THE
LOAN AGREEMENT.

 

2.             Authorization
and Request.  Assignor authorizes
and requests that the Register of Copyrights and the Commissioner of Patents
and Trademarks record this conditional assignment.

 

3.             Covenants
and Warranties.  Assignor
represents, warrants, covenants and agrees as follows:

 

(a)           Assignor is now the
sole owner of the Collateral, except for non-exclusive licenses granted by
Assignor to its customers in the ordinary course of business.

 

(b)           Listed on Exhibits A-1
and A-2 are all copyrights owned by Assignor, in which Assignor has an
interest, or which are used in Assignor’s business.

 

(c)           Each employee, agent
and/or independent contractor who has participated in the creation of the
property constituting the Collateral has either executed an assignment of his
or her rights of authorship to Assignor or is an employee of Assignor acting
within the scope of his or her employment and was such an employee at the time
of said creation.

 

(d)           All of Assignor’s
present and future software, computer programs and other works of authorship
subject to United States copyright protection, the sale, licensing or other
disposition of which results in royalties receivable, license fees receivable,
accounts receivable or other sums owing to Assignor (collectively,
“Receivables”), have been and shall be registered with the United States
Copyright Office prior to the date Assignor requests or accepts any loan from
Assignee with respect to such Receivables and prior to the date Assignor
includes any such Receivables in any accounts receivable aging, borrowing base
report or certificate or other similar report provided to Assignee, and
Assignor shall provide to Assignee copies of all such registrations promptly
upon the receipt of the same.

 

(e)           Assignor shall
undertake all reasonable measures to cause its employees, agents and
independent contractors to assign to Assignor all rights of authorship to any
copyrighted material in which Assignor has or may subsequently acquire any
right or interest.

 

(f)            Performance of this
Assignment does not conflict with or result in a breach of any agreement to
which Assignor is bound, except to the extent that certain intellectual
property agreements prohibit the assignment of the rights thereunder to a third
party without the  licensor’s or other
party’s consent and this Assignment constitutes an assignment.

 

(g)           During the term of this
Agreement, Assignor will not transfer or otherwise encumber any interest in the
Collateral, except for non-exclusive licenses granted by Assignor in the
ordinary course of business or as set forth in this Assignment;

 

(h)           Each of the Patents is
valid and enforceable, and no part of the Collateral has been judged invalid or
unenforceable, in whole or in part, and no claim has been made that any part of
the Collateral violates the rights of any third party;

 

(i)            Assignor shall
promptly advise Assignee of any material adverse change

 

3

 

in the composition of the
Collateral, including but not limited to any subsequent ownership right of the
Assignor in or to any Trademark, Patent or Copyright not specified in this
Assignment;

 

(j)            Assignor shall (i)
protect, defend and maintain the validity and enforceability of the Trademarks,
Patents and Copyrights, (ii) use its best efforts to detect infringements of
the Trademarks, Patents and Copyrights and promptly advise Assignee in writing
of material infringements detected and (iii) not allow any Trademarks, Patents,
or Copyrights to be abandoned, forfeited or dedicated to the public without the
written consent of Assignee, which shall not be unreasonably withheld unless
Assignor determines that reasonable business practices suggest that abandonment
is appropriate.

 

(k)           Assignor shall promptly
register the most recent version of any of Assignor’s Copyrights, if not so
already registered, and shall, from time to time, execute and file such other
instruments, and take such further actions as Assignee may reasonably request
from time to time to perfect or continue the perfection of Assignee’s interest
in the Collateral;

 

(l)            This Assignment
creates, and in the case of after acquired Collateral, this Assignment will
create at the time Assignor first has rights in such after acquired Collateral,
in favor of Assignee a valid and perfected first priority security interest in
the Collateral in the United States securing the payment and performance of the
obligations evidenced by the Loan Agreement upon making the filings referred to
in clause (m) below;

 

(m)          To its knowledge, except
for, and upon, the filing with the United States Patent and Trademark office
with respect to the Patents and Trademarks and the Register of Copyrights with
respect to the Copyrights necessary to perfect the security interests and
assignment created hereunder and except as has been already made or obtained,
no authorization, approval or other action by, and no notice to or filing with,
any U.S.  governmental authority or
U.S.  regulatory body is required either
(i) for the grant by Assignor of the security interest granted hereby or for
the execution, delivery or performance of this Assignment by Assignor in the
U.S.  or (ii) for the perfection in the
United States or the exercise by Assignee of its rights and remedies
thereunder;

 

(n)           All information
heretofore, herein or hereafter supplied to Assignee by or on behalf of
Assignor with respect to the Collateral is accurate and complete in all
material respects.

 

(o)           Assignor shall not
enter into any agreement that would materially impair or conflict with
Assignor’s obligations hereunder without Assignee’s prior written consent,
which consent shall not be unreasonably withheld.  Assignor shall not permit the inclusion in any material contract
to which it becomes a party of any provisions that could or might in any way
prevent the creation of a security interest in Assignor’s rights and interest
in any property included within the definition of the Collateral acquired under
such contracts, except that certain contracts may contain anti-assignment
provisions that could in effect prohibit the creation of a security interest in
such contracts.

 

(p)           Upon any executive
officer of Assignor obtaining actual knowledge thereof, Assignor will promptly
notify Assignee in writing of any event that materially adversely

 

4

 

affects the value of any
material Collateral, the ability of Assignor to dispose of any material
Collateral or the rights and remedies of Assignee in relation thereto,
including the levy of any legal process against any of the Collateral.

 

4.             Assignee’s
Rights.  Assignee shall have the
right, but not the obligation, to take, at Assignor’s sole expense, any actions
that Assignor is required under this Assignment to take but which Assignor
fails to take, after fifteen (15) days’ notice to Assignor.  Assignor shall reimburse and indemnify
Assignee for all reasonable costs and reasonable expenses incurred in the
reasonable exercise of its rights under this Section 4.

 

5.             Inspection
Rights.  Assignor hereby grants to
Assignee and its employees, representatives and agents the right to visit,
during reasonable hours upon prior reasonable written notice to Assignor, and
any of Assignor’s plants and facilities that manufacture, install or store
products (or that have done so during the prior six-month period) that are sold
utilizing any of the Collateral, and to inspect the products and quality
control records relating thereto upon reasonable written notice to Assignor and
as often as may be reasonably requested, but not more than one (1) in every six
(6) months; provided, however, nothing herein shall entitle Assignee access to
Assignor’s trade secrets and other proprietary information.

 

6.             Further
Assurances; Attorney in Fact.

 

(a)           Upon an Event of
Default, on a continuing basis thereafter, Assignor will, subject to any prior
licenses, encumbrances and restrictions and prospective licenses, make,
execute, acknowledge and deliver, and file and record in the proper filing and
recording places in the United States, all such instruments, including, appropriate
financing and continuation statements and collateral agreements and filings
with the United States Patent and Trademarks Office and the Register of
Copyrights, and take all such action as may reasonably be deemed necessary or
advisable, or as requested by Assignee, to perfect Assignee’s security interest
in all Copyrights, Patents and Trademarks and otherwise to carry out the intent
and purposes of this Collateral Assignment, or for assuring and confirming to
Assignee the grant or perfection of a security interest in all Collateral.

 

(b)           Upon an Event of
Default, Assignor hereby irrevocably appoints Assignee as Assignor’s
attorney-in-fact, with full authority in the place and stead of Assignor and in
the name of Assignor, Assignee or otherwise, from time to time in Assignee’s
discretion, upon Assignor’s failure or inability to do so, to take any action
and to execute any instrument which Assignee may deem necessary or advisable to
accomplish the purposes of this Collateral Assignment, including:

 

(i)            To modify, in its sole
discretion, this Collateral Assignment without first obtaining Assignor’s
approval of or signature to such modification by amending Exhibit A-1, Exhibit
A-2, Exhibit A-3, Exhibit B and Exhibit C, thereof, as appropriate, to include
reference to any right, title or interest in any Copyrights, Patents or
Trademarks acquired by Assignor after the execution hereof or to delete any
reference to any right, title or interest in any Copyrights, Patents or
Trademarks in which Assignor no longer has or claims any right, title or
interest; and

 

5

 

(ii)           To file, in its sole
discretion, one or more financing or continuation statements and amendments
thereto, relative to any of the Collateral without the signature of Assignor
where permitted by law.

 

7.             Events
of Default.  The occurrence of any
of the following shall constitute an Event of Default under the Assignment:

 

(a)           An Event of Default
occurs under the Loan Agreement; or

 

(b)           Assignor breaches any
warranty or agreement made by Assignor in this Assignment.

 

8.             Remedies.  Upon the occurrence and continuance of an
Event of Default, Assignee shall have the right to exercise all the remedies of
a secured party under the California Uniform Commercial Code, including without
limitation the right to require Assignor to assemble the Collateral and any
tangible property in which Assignee has a security interest and to make it
available to Assignee at a place designated by Assignee.  Assignee shall have a nonexclusive, royalty
free license to use the Copyrights, Patents and Trademarks to the extent
reasonably necessary to permit Assignee to exercise its rights and remedies
upon the occurrence of an Event of Default. 
Assignor will pay any expenses (including reasonable attorney’s fees)
incurred by Assignee in connection with the exercise of any of Assignee’s
rights hereunder, including without limitation any expense incurred in
disposing of the Collateral.  All of Assignee’s
rights and remedies with respect to the Collateral shall be cumulative.

 

9.             Indemnity.  Assignor agrees to defend, indemnify and
hold harmless Assignee and its officers, employees, and agents against:  (a) all obligations, demands, claims, and
liabilities claimed or asserted by any other party in connection with the
transactions contemplated by this Agreement, and (b) all losses or expenses in
any way suffered, incurred, or paid by Assignee as a result of or in any way
arising out of, following or consequential to transactions between Assignee and
Assignor, whether under this Assignment or otherwise (including without
limitation, reasonable attorneys fees and reasonable expenses), except for
losses arising form or out of Assignee’s gross negligence or willful
misconduct.

 

10.           Release.  At such time as Assignor shall completely
satisfy all of the obligations secured hereunder, Assignee shall execute and
deliver to Assignor all assignments and other instruments as may be reasonably
necessary or proper to terminate Assignee’s security interest in the
Collateral, subject to any disposition of the Collateral which may have been
made by Assignee pursuant to this Agreement. 
For the purpose of this Agreement, the obligations secured hereunder
shall be deemed to continue if Assignor enters into any bankruptcy or similar
proceeding at a time when any amount paid to Assignee could be ordered to be
repaid as a preference or pursuant to a similar theory, and shall continue
until it is finally determined that no such repayment can be ordered.

 

11.           No
Waiver.  No course of dealing
between Assignor and Assignee, nor any failure to exercise nor any delay in
exercising, on the part of Assignee, any right, power, or privilege under this
Agreement or under the Loan Agreement or any other agreement, shall operate as
a waiver.  No single or partial exercise
of any right, power, or privilege under this Agreement or

 

6

 

under the Loan Agreement or any
other agreement by Assignee shall preclude any other or further exercise of
such right, power, or privilege or the exercise of any other right, power, or
privilege by Assignee.

 

12.           Rights
Are Cumulative.  All of Assignee’s
rights and remedies with respect to the Collateral whether established by this
Agreement, the Loan Agreement, or any other documents or agreements, or by law
shall be cumulative and may be exercised concurrently or in any order.

 

13.           Course
of Dealing.  No course of dealing,
nor any failure to exercise, nor any delay in exercising any right, power or privilege
hereunder shall operate as a waiver thereof.

 

14.           Attorneys’
Fees.  If any action relating to
this Assignment is brought by either party hereto against the other party, the
prevailing party shall be entitled to recover reasonable attorneys fees, costs
and disbursements.

 

15.           Amendments.  This Assignment may be amended only by a
written instrument signed by both parties hereto.  To the extent that any provision of this Agreement conflicts with
any provision of the Loan Agreement, the provision giving Assignee greater
rights or remedies shall govern, it being understood that the purpose of this
Agreement is to add to, and not detract from, the rights granted to Assignee
under the Loan Agreement.  This
Agreement, the Loan Agreement, and the documents relating thereto comprise the
entire agreement of the parties with respect to the matters addressed in this
Agreement.

 

16.           Severability.  The provisions of this Agreement are
severable.  If any provision of this
Agreement is held invalid or unenforceable in whole or in part in any
jurisdiction, then such invalidity or unenforceability shall affect  only such provision, or part thereof, in
such jurisdiction, and shall not in any manner affect such provision or part
thereof in any other jurisdiction, or any other provision of this Agreement in
any jurisdiction.

 

17.           Counterparts.  This Assignment may be executed in two or
more counterparts, each of which shall be deemed an original but all of which
together shall constitute the same instrument.

 

18.           California
Law and Jurisdiction.  This
Assignment shall be governed by the laws of the State of California, without
regard for choice of law provisions. 
Assignor and Assignee consent to the nonexclusive jurisdiction of any
state or federal court located in Orange County, California.

 

19.           Confidentiality.  In handling any confidential information,
Assignee shall exercise the same degree of care that it exercises with respect
to its own proprietary information of the same types to maintain the
confidentiality of any non-public information thereby received or received
pursuant to this Assignment except that the disclosure of this information may
be made (i) to the affiliates of the Assignee, (ii) to prospective transferee
or purchasers of an interest in the obligations secured hereby, provided that
they have entered into a comparable confidentiality agreement in favor of
Assignor and have delivered a copy to Assignor, (iii) as required by law,
regulation, rule or order, subpoena judicial order or similar order and (iv) as
maybe required in connection with the examination, audit or similar
investigation of Assignee.

 

7

 

20.           WAIVER OF RIGHT TO JURY TRIAL.  ASSIGNEE AND ASSIGNOR 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:  (I) THIS
AGREEMENT; OR (II) ANY OTHER PRESENT OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN
ASSIGNEE AND ASSIGNOR; OR (III) ANY CONDUCT, ACTS OR OMISSIONS OF ASSIGNEE OR
ASSIGNOR OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR
ANY OTHER PERSONS AFFILIATED WITH ASSIGNEE OR ASSIGNOR; IN EACH OF THE
FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.

 

IN WITNESS WHEREOF, the parties hereto have executed this Assignment on
the day and year first above written.

 

	
   

  	
   

  	
   

  	
  ASSIGNOR:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  DIGIRAD
  CORPORATION

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
    /s/ Gary JG Atkinson

  	
   

  
	
   

  	
   

  	
   

  	
  Title:

  	
    Chief Financial Officer

  	
   

  
	
   

  	
   

  	
   

  	
  Name (please
  print):

  	
   

  
	
   

  	
   

  	
   

  	
  Gary Atkinson

  	
   

  
	
   

  	
   

  	
   

  	
  Address of Assignor:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  9350 Trade
  Place

  	
   

  
	
   

  	
   

  	
   

  	
  San Diego,
  CA 92126

  	
   

  
							

 

8

 

	
  STATE OF
  California

  	
  )

  
	
   

  	
  ) ss,

  
	
  COUNTY OF
  San Diego

  	
  )

  

 

 

On August 3,
2001, before me, Claudia Perez, Notary Public, personally appeared Gary
Atkinson, personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to
the within instrument and acknowledged to me that he/she/they executed the same
in his/her/their authorized capacity(ies), and that by his/her/their
signature(s) on the instrument the person(s), or the entity upon behalf of
which the person(s) acted, executed the instrument.

 

Witness my hand and official seal.

 

	
   

  	
  /s/

  	
   

  
	
   

  	
  (Seal)

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Official Seal

  
	
   

  	
   

  	
   

  

 

1

 

EXHIBIT “A-l”

 

REGISTERED COPYRIGHTS

 

	
  REG. DATE

  	
   

  	
  REG. DATE

  	
   

  	
  COPYRIGHT

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  NONE

  	
   

  	
   

  

 

2

 

EXHIBIT “A-2”

 

UNREGISTERED COPYRIGHTS

 

 

NONE

 

 

DESCRIPTION OF COPYRIGHTS

 

3

 

EXHIBIT
“A-3”

 

DESCRIPTION
OF LICENSE AGREEMENTS

 

1.              Software license agreement with Segami
Corporation dated June 16, 1999.

 

2.             Licence agreement with Ethicon Endo-Surgery,
Inc. dated June 22, 1999.

 

3.             Software products license agreement with
Strategic Information Group, Inc. dated December 31, 1998.

 

4.             Software license agreement with Corporate
Management Solutions, Inc. dated July 21, 1999.

 

5.             Software license and maintenance agreement
with Cadence Design Systems, Inc. dated November 16, 1999.

 

6.             Software products license agreement with QAD,
Inc. dated January 6, 1999.

 

4

 

EXHIBIT “B”

 

PATENTS

 

	
  PATENT

  	
   

  	
  SERIAL/APPL.
  NO.

  	
   

  	
  FILING
  DATE

  	
   

  
	
  Semiconductor
  radiation detector with downconversion element

  	
   

  	
  6,194,726

  	
   

  	
  September
  22, 1998

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Semiconductor
  gamma-ray camera and medical imaging system

  	
   

  	
  6,194,725

  	
   

  	
  April 5,
  1999

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Semiconductor
  gamma-ray camera and medical imaging system

  	
   

  	
  6,172,362

  	
   

  	
  April 5, 1999

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Low profile
  open ring single photon emission computed tomographic imager

  	
   

  	
  6,147,352

  	
   

  	
  February 23,
  1998

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Semiconductor
  gamma-ray camera and medical imaging system

  	
   

  	
  6,091,070

  	
   

  	
  July 3, 1997

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Semiconductor
  gamma-ray camera and medical imaging system

  	
   

  	
  6,080,984

  	
   

  	
  September 9,
  1998

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Bifurcated
  gamma camera system

  	
   

  	
  6,055,450

  	
   

  	
  February 23,
  1998

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Semiconductor
  radiation detector with enhanced charge collection

  	
   

  	
  6,046,454

  	
   

  	
  October 3,
  1997

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Radiation
  detector with shielding electrode

  	
   

  	
  6,037,595

  	
   

  	
  October 14,
  1997

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Cross-strip
  semiconductor detector with cord-wood construction

  	
   

  	
  6,002,134

  	
   

  	
  October 21,
  1997

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Apparatus
  for securing a medical imaging device to a body

  	
   

  	
  5,967,983

  	
   

  	
  October 31,
  1995

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Semiconductor
  gamma-ray camera  and medical imaging
  system

  	
   

  	
  5,874,396

  	
   

  	
  July 3, 1997

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Semiconductor
  gamma-ray camera and medical imaging system

  	
   

  	
  5,786,597

  	
   

  	
  June 28,
  1996

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Medical
  system for obtaining multiple images of a body from different perspectives

  	
   

  	
  5,742,060

  	
   

  	
  August 9,
  1996

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Semiconductor
  radiation detector with-enhanced charge collection

  	
   

  	
  5,677,539

  	
   

  	
  October 13,
  1995

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Apparatus
  and method for measuring light transmittance or reflectance

  	
   

  	
  4,710,624

  	
   

  	
  May 10, 1984

  	
   

  

 

 

1

 

EXHIBIT “C”

 

TRADEMARKS

 

	
  MARK

  	
   

  	
  REG/FILE
  DATE

  	
   

  	
  APP./SERIAL
  NO.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Digirad
  Imaging Solutions

  	
   

  	
  March 6,
  2001

  	
   

  	
  76220818

  
	
  Agile

  	
   

  	
  June 5, 2000

  	
   

  	
  76067092

  
	
  DIGIRAD

  	
   

  	
  December 22,
  1999

  	
   

  	
  75879709

  
	
  Spectour

  	
   

  	
  September
  14, 1999

  	
   

  	
  75799823

  
	
  2020tc
  Imager

  	
   

  	
  September
  14, 1999

  	
   

  	
  75799499

  
	
  SpectrumPlus

  	
   

  	
  November 22,
  1996

  	
   

  	
  75202359

  
	
  Notebook
  Imager

  	
   

  	
   

  	
   

  	
   

  
	
  Digirad

  	
   

  	
  September 6,
  1994

  	
   

  	
  74569856

  
	
  Rim

  	
   

  	
   

  	
   

  	
   

  
	
  Hybrid Heat
  Sink

  	
   

  	
   

  	
   

  	
   

  

 

2

 

Silicon
Valley Bank

 

Certified
Resolution and Incumbency Certificate

 

	
  Borrower:

  	
   

  	
  Digirad Corporation,

  
	
   

  	
   

  	
  a corporation organized
  under the laws

  
	
   

  	
   

  	
  of the State of Delaware

  
	
   

  	
   

  	
   

  
	
  Date:

  	
   

  	
  July 31, 2001

  

 

I, the
undersigned, Secretary or Assistant Secretary of the above-named borrower, a
corporation organized under the laws of the state set forth above, do hereby
certify that the following is a full, true and correct copy of resolutions duly
and regularly adopted by the Board of Directors of said corporation as required
by law, and by the by-laws of said corporation, and that said resolutions are
still in full force and effect and have not been in any way modified, repealed,
rescinded, amended or revoked.

 

RESOLVED, that
this corporation borrow from Silicon Valley Bank (“Silicon”), from time to
time, such sum or sums of money as, in the judgment of the officer or officers
hereinafter authorized hereby, this corporation may require.

 

RESOLVED
FURTHER, that any officer of this corporation be, and he or she is hereby
authorized, directed and empowered, in the name of this corporation, to execute
and deliver to Silicon, and Silicon is requested to accept, the loan
agreements, security agreements, notes, financing statements, and other
documents and instruments providing for such loans and evidencing and/or
securing such loans, with interest thereon, and said authorized officers are
authorized from time to time to execute renewals, extensions and/or amendments
of said loan agreements, security agreements, and other documents and
instruments.

 

RESOLVED
FURTHER, that said authorized officers be and they are hereby authorized,
directed and empowered, as security for any and all indebtedness of this
corporation to Silicon, whether arising pursuant to this resolution or
otherwise, to grant, transfer, pledge, mortgage, assign, or otherwise
hypothecate to Silicon, or deed in trust for its benefit, any property of any
and every kind, belonging to this corporation, including, but not limited to,
any and all real property, accounts, inventory, equipment, general intangibles,
instruments, documents, chattel paper, notes, money, deposit accounts,
furniture, fixtures, goods, and other property of every kind, and to execute
and deliver to Silicon any and all grants, transfers, trust receipts, loan or
credit agreements, pledge agreements, mortgages, deeds of trust, financing
statements, security agreements and other hypothecation agreements, which said
instruments and the note or notes and other instruments referred to in the
preceding paragraph may contain such provisions, covenants, recitals and
agreements as Silicon may require and said authorized officers may approve, and
the execution thereof by said authorized officers shall be conclusive evidence
of such approval.

 

RESOLVED
FURTHER, that Silicon may conclusively rely upon a certified copy of these 

 

1

 

resolutions
and a certificate of the Secretary or Ass’t Secretary of this corporation as to
the officers of this corporation and their offices and signatures, and continue
to conclusively rely on such certified copy of these resolutions and said
certificate for all past, present and future transactions until written notice
of any change hereto or thereto is given to Silicon by this corporation by
certified mail, return receipt requested.

 

RESOLVED
FURTHER, that, in connection with the foregoing loans, this corporation shall
issue to Silicon five-year warrants to purchase 42,490 shares of Series E
Preferred stock of this corporation, at $3.036 per share, on the terms and
provisions of Silicon’s standard form Warrant to Purchase Stock and related
documents; with such changes therein as Silicon and this corporation shall
agree; any officer of this corporation is hereby authorized to execute and
deliver such Warrant to Purchase Stock and related documents, and all documents
and instruments relating thereto, in such form and containing such additional
provisions as said authorized officers may approve, and the execution thereof
by said authorized officers shall be conclusive evidence of such approval.

 

2

 

The
undersigned further hereby certifies that the following persons are the duly
elected and acting officers of the corporation named above as borrower and that
the following are their actual signatures:

 

	
  NAMES

  	
   

  	
  OFFICE (S)

  	
   

  	
  ACTUAL
  SIGNATURES

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  R. Scott Huennekens

  	
   

  	
  President and CEO

  	
   

  	
  /s/ R.
  Scott Huennekens

  
	
  Gary JG Atkinson

  	
   

  	
  Vice President and CEO

  	
   

  	
  /s/ Gary
  JG Atkinson

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  

 

IN WITNESS WHEREOF, I have hereunto set my hand as such Secretary or
Assistant Secretary on the date set forth above.

 

	
   

  	
  Gary JG Atkinson

  	
   

  
	
   

  	
  Secretary or Assistant Secretary

  	
   

  

 

3

 

Deposit Account Control Agreement

 

July 31, 2001

 

Merrill Lynch

 

                                             

Boston,
MA                                

 

Re:     Digirad Corporation 

 

Gentlemen:

 

Digirad
Corporation (the “Customer”) has granted to Silicon Valley Bank (the “Lender”)
a security interest in, and lien on, all of the following (whether now or
hereafter existing or arising) (collectively, the “Collateral”):  All of the Customer’s present and future
deposit accounts maintained by the Customer with you (the “Deposit Accounts”),
including without limitation all demand, time, savings, passbook and similar
accounts, and all present and future cash balances from time to time credited
to any of the Deposit Accounts, and all proceeds of any and all of the
foregoing.

 

Accordingly, we ask that you confirm your agreement as follows:

 

1.             Customer’s
Directions.  Until you have received
instructions from the Lender to the contrary, the Customer shall be entitled to
present items drawn on and otherwise to withdraw or direct the disposition of
funds from the Deposit Accounts; provided, however, that the Customer may not
close  any Deposit Account, without the
Lender’s prior written consent.

 

2.             Lender’s Rights.  Notwithstanding the foregoing or any
separate agreement that the Customer may have with the Lender, the Lender shall
be entitled at any time to give you instructions as to the withdrawal or
disposition of any funds from time to time credited to any or all of the
Deposit Accounts, or as to any other matters relating to the Deposit Accounts
or any of the other Collateral, without the Customer’s further consent.  You hereby agree to comply with any such
instructions without any further consent from the Customer.  Such instructions may include the giving of
stop payment orders for any items being presented to any Deposit Account for
payment.  You shall be fully entitled to
rely upon such instructions from the Lender, even if such instructions are
contrary to any instructions or demands that the Customer may give to you.  The Customer confirms that you are to follow
instructions from the Lender even if the result of following such instructions
from the Lender is that you dishonor items presented for payment from a Deposit
Account.  The Customer further confirms
that you shall have no liability to the Customer for wrongful dishonor of any
such items in following such instructions from the Lender.  You shall have no duty to inquire or
determine whether the Customer’s obligations to the Lender are in default or
whether the Lender is entitled, under any separate agreement between the
Customer and the Lender, to give any such instructions.  The Customer further agrees to be
responsible for your customary charges and to indemnify you from, and to hold you
harmless against, any loss, cost or expense that you may sustain or incur in
acting upon instructions from the Lender, or which you believe in good faith to
be instructions from the Lender.

 

1

 

3.             Waiver of Setoff.  You agree not to exercise any right of
recoupment or set-off, or to assert any banker’s lien, security interest or
other lien on, against or in any of the Deposit Accounts or other Collateral on
account of any credit or other obligation owed to you by the Customer or any
other person, or otherwise, provided that you shall have the right, from time
to time, to debit the Deposit Accounts for any of your customary charges in
maintaining the Deposit Accounts or for reimbursement for the reversal of any
provisional credits granted by you to the Deposit Accounts, to the extent, in
each case, that the Customer has not separately paid or reimbursed you for any
of the foregoing.

 

4.             Statements.  You agree to furnish to the Lender, at its
address indicated below, copies of all customary deposit account statements and
other information relating to the Deposit Accounts that you send to the
Customer.

 

5.             Governing Law;
Other Agreements.  This agreement
shall be governed by the internal law of the State of California.  You represent and warrant to the Lender that
the account agreement between you and the Customer relating to the
establishment and general operation of the Deposit Accounts provides that the
laws of the State of govern the Deposit Accounts and secured transactions
relating thereto, and you agree not to amend that account agreement to provide
that the laws of another jurisdiction will so govern.       In addition, you represent and warrant, to the
Lender that you have not entered into, and you agree not to enter, into any
agreement with any other person by which you are obligated to comply with
instructions from that personas to the disposition of funds from any of the
Deposit Accounts or other dealings with any of the Collateral.

 

6.             General.  This agreement us sets forth in full all of
the representations and agreements of the parties with respect to the subject
matter hereof and supersede all prior discussions, oral representations, oral
agreements and oral understandings between the parties with respect to the
subject matter hereof.  This agreement
shall control over any conflicting agreement between you and the Customer.  This agreement may not be modified or
amended, nor may any rights hereunder be waived, except in a writing signed by
the parties hereto.  In the event of any
litigation between the parties based upon, arising out of, or relating to this
agreement, the prevailing party shall be entitled to recover its reasonable
costs and expenses (including without limitation reasonable attorneys’ fees)
from the nonprevailing party.  The parties
agree to cooperate fully with each other and take such further actions and
execute such further documents from time to time as may be reasonably necessary
to carry out the purposes of this agreement.

 

Sincerely yours,

 

	
  Lender:

  	
  Customer:

  
	
   

  	
   

  
	
  SILICON VALLEY
  BANK

  	
  DIGIRAD
  CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
  By

  	
   

  	
   

  	
  By

  	
  /s/ Gary JG Atkinson

  	
   

  
	
  Title

  	
   

  	
   

  	
  Title

  	
  Chief
  Financial Officer

  	
   

  
									

 

2

 

	
  Address:

  	
   

  	
   

  	
  Address:

  	
  9350 Trade
  Place

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  San Diego CA
  92126-6334

  	
   

  
	
   

  	
  Attn:

  	
   

  	
   

  	
   

  	
  Attn:

  	
  Gary Atkinson

  	
   

  
											

 

Accepted and
Agreed:

 

MERRILL
LYNCH

 

	
  By

  	
   

  	
   

  
	
  Title

  	
   

  	
   

  
				

 

3

 

 

Silicon
Valley Bank

Amendment to Loan Documents

 

 

	
  Borrower:

  	
   

  	
  Digirad Corporation

  
	
   

  	
   

  	
   

  
	
  Date:

  	
   

  	
  March 28, 2002

  

 

THIS
AMENDMENT TO LOAN DOCUMENTS is entered into between
Silicon Valley Bank (“Silicon”) and the borrower named above (“Borrower”).

 

The Parties
agree to amend the Loan and Security Agreement between them, dated July 31,
2001 (as otherwise amended, if at all, the “Loan Agreement”), as follows,
effective as of the date hereof. (Capitalized terms used but not defined in
this Amendment shall have the meanings set forth in the Loan Agreement.)

 

1.             Modified Cash
Management Sublimit.  Section 1.6 of
the Loan Agreement is hereby amended to read as follows:

 

1.6  Cash Management Services
and Reserves. 
Borrower may use up to $200,000 of Loans available hereunder for
Silicon’s Cash Management Services (as defined below), including, merchant
services, business credit card, ACH and other services identified in the cash
management services agreement related to such service (the “Cash Management
Services”) but excluding ACH payroll cash management services. Silicon may, in
its sole discretion, reserve against Loans which would otherwise be available hereunder
such sums as Silicon shall determine in connection with the Cash Management
Services, and Silicon may charge to Borrower’s Loan account, any amounts that
may become due or owing to Silicon in connection with the Cash Management
Services. Borrower agrees to execute and deliver to Silicon all standard form
applications and agreements of Silicon in connection with the Cash Management
Services, and, without limiting any of the terms of such applications and
agreements, Borrower will pay all standard fees and charges of Silicon in
connection with the Cash Management Services. The Cash Management Services
shall terminate on the Maturity Date.

 

2.             Modified Credit
Limit.  Section 1 of the Schedule to
Loan and Security Agreement is hereby amended to read as follows:

 

	
  1.  CREDIT LIMIT

  	
   

  	
   

  
	
  (Section
  1.1):

  	
   

  	
  An amount
  equal to the sum of 1, 2 and 3 below:

  

 

1

 

	
   

  	
   

  	
  1.  Revolving Loans.  An amount not to exceed the lesser of a
  total of $4,300,000 at any one time outstanding (the “Maximum Credit Limit”),
  or the sum of (a) and (b) below:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (a)  85% (the “Percentage Advance Rate”) of the
  amount of Borrower’s Eligible Receivables (as defined in Section 8 above),
  plus

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (b)  an amount not to exceed the lesser of:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (1)           35%
  of the value of Borrower’s Eligible Inventory (as defined in Section 8
  above), calculated at the lower of cost or market value and determined on a
  first-in, first-out basis, or

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (2)           50%
  of the amount of Borrower’s Eligible Receivables (as defined in Section 8
  above), or

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (3)           $500,000.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  The
  foregoing Percentage Advance Rate is typically based on the quality of the
  Receivables and attendant Dilution as follows: up to 85% Percentage Advance
  Rate with 5% Dilution; up to 80% Percentage Advance Rate with Dilution over
  5% but less than 10%; up to 75% Percentage Advance Rate when Dilution is over
  10% but less than 15%. If Dilution exceeds 15%, a reserve is established for
  the dilution factor rounded up to the nearest whole number then multiplied by
  a factor of up to 75%.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  As used
  above, “Dilution” means all deductions from Receivables by Account Debtors of
  Borrower, other than those arising from payment thereof, and includes without
  limitation deductions arising from advertising and other allowances, credit
  memos, returns, bad debts, and all other deductions, as determined by
  Silicon’s audit and for such period as Silicon shall determine. Changes in
  the Percentage Advance Rate based on Dilution shall go into effect when
  Silicon has determined the amount of the Dilution and given written notice to
  the Borrower of the change in the Percentage Advance Rate. If, as a result of
  a decrease in the 

  

 

2

 

	
   

  	
   

  	
  Percentage
  Advance Rate, the total Loans and other Obligations exceed the Credit Limit,
  the Borrower shall pay the excess to Silicon in accordance with the terms of
  this Agreement.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Moreover,
  prior to any increase in the Percentage Advance Rate going into effect, the
  delinquency rate with respect to the Borrower’s Receivables must be
  satisfactory to Silicon in its sole discretion.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Cash Management

  Sublimit

  
	
   

  	
   

  	
  (Section
  1.6):    See
  Section 1.6 above;

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  plus

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  2.  Payroll Cash Management
  Services Loans. 
  Borrower has executed a cash management services agreement pursuant to
  which, in part, Borrower may utilize ACH payroll cash management services up
  to an amount of $350,000 (the “Payroll Cash Management Services Line”).  Upon Silicon’s receipt of an ACH payroll
  service charge (“Payroll Charge”), if Borrower’s operating account does not
  have sufficient funds to pay such Payroll Charge and if Silicon is obligated
  to pay such Payroll Charge, then Silicon will make such payment(s) and any
  such payments by Silicon shall constitute Obligations under this Agreement.
  Borrower agrees to execute and deliver to Silicon all standard form
  applications and agreements of Silicon in connection with the Payroll Cash
  Management Services Line, and, without limiting any of the terms of such
  applications and agreements, Borrower will pay all standard fees and charges
  of Silicon in connection with the Payroll Cash Management Services Line.  The Payroll Cash Management Services Line
  shall terminate on the Maturity Date;

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  plus

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  3.  Cash Secured Letter of
  Credit.  $205,000. Silicon
  previously issued for the account of Borrower a Standby Letter of Credit in
  the amount of $205,000 (the “Standby Letter of Credit”), which Standby Letter
  of Credit is secured by a certificate of deposit 

  

 

3

 

	
   

  	
   

  	
  pledged to
  Silicon on Silicon’s standard form documentation.

  
	
   

  	
   

  	
   

  
	
  3.             Modified Minimum Tangible Net Worth
  Financial Covenant.  The Minimum
  Tangible Net Worth Financial Covenant set forth in Section 5 of the Schedule
  to Loan and Security Agreement is hereby amended in its entirety to read as
  follows: 

  
	
   

  	
   

  	
   

  
	
  “Minimum Tangible

  	
   

  	
   

  
	
  Net Worth:

  	
   

  	
  Borrower
  shall maintain, at the Borrower level only and not consolidated with any
  subsidiaries, a Tangible Net Worth of not less than $500,000, plus 50%
  of the total consideration received by Borrower after March 1, 2002, in
  consideration for the issuance by Borrower of its equity securities and
  subordinated debt securities, effective on the date such consideration is
  received, plus 50% of Borrower’s year to date net income as of the end
  of the applicable reporting period.; and

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Borrower
  shall maintain, on a consolidated basis, a Tangible Net Worth of not less
  than $1,000,000, plus 50% of the total consideration received by Borrower
  after March 1, 2002, in consideration for the issuance by Borrower of its
  equity securities and subordinated debt securities, effective on the date
  such consideration is received, plus 50% of Borrower’s year to date
  net income as of the end of the applicable reporting period.”

  

 

4.             Covenant Regarding
Banking Relationship.  Subclause (1)
of Section 9 of the Schedule to Loan and Security Agreement is hereby amended
to read as follows:

 

“(1)         Banking Relationship.
Borrower shall at all times maintain its primary banking relationship with
Silicon.  Without limiting the
generality of the foregoing, Borrower shall, at all times, maintain not less
than 80% of its total cash and investments on deposit with Silicon.

 

5.             Fee.  As consideration for Silicon entering into
this Amendment, Borrower shall concurrently pay Silicon a fee in the amount of
$7,500, which shall be non-refundable and in addition to all interest and other
fees payable to Silicon under the Loan Documents. Silicon is authorized to
charge said fee to Borrower’s loan account.

 

6.             Representations True.  Borrower represents and warrants to Silicon
that all representations and warranties set forth in the Loan Agreement, as
amended hereby, are true and correct.

 

 

4

 

7.            General Provisions.  This Amendment, the Loan Agreement, any
prior written amendments to the Loan Agreement signed by Silicon and Borrower,
and the other written documents and agreements between Silicon and Borrower set
forth in full all of the representations and agreements of the parties with
respect to the subject matter hereof and supersede all prior discussions,
representations, agreements and understandings between the parties with respect
to the subject hereof.  Except as herein
expressly amended, all of the terms and provisions of the Loan Agreement, and
all other documents and agreements between Silicon and Borrower shall continue
in full force and effect and the same are hereby ratified and confirmed.

 

 

	
  Borrower:

  	
  Silicon:

  
	
   

  	
   

  
	
  DIGIRAD CORPORATION

  	
  SILICON VALLEY BANK

  
	
   

  	
   

  
	
   

  	
   

  
	
  By

  	
  /s/ Illegible

  	
   

  	
  By

  	
  /s/ Illegible

  	
   

  
	
   

  	
  President or Vice President

  	
  Title

  	
  Vice
  President and Regional Market

  	
   

  
	
   

  	
   

  	
   

  	
  Manager

  	
   

  
	
  By

  	
  /s/ Illegible

  	
   

  	
   

  
	
   

  	
  Secretary or Ass’t Secretary

  	
   

  
									

 

5

 

Silicon
Valley Bank

 

Amendment to Loan Documents

 

 

	
  Borrower:

  	
   

  	
  Digirad
  Corporation

  
	
   

  	
   

  	
   

  
	
  Date:

  	
   

  	
  August
  29, 2002

  

 

THIS
AMENDMENT TO LOAN TO LOAN DOCUMENTS is entered into
between Silicon Valley Bank (“Silicon”) and the borrower named above (“Borrower”).

 

The Parties
agree to amend the Loan and Security Agreement between them, dated July 31,
2001 (as otherwise amended, if at all, the “Loan Agreement”), as follows,
effective as of the date hereof. 
(Capitalized terms used but not defined in this Amendment shall have the
meanings set forth in the Loan Agreement.)

 

1.             Modified Definition
of Eligible Receivables.  Subclause
(i) of the Minimum Eligibility Requirements set forth in the definition of
Eligible Receivables in Section 8 of the Loan Agreement is hereby amended to
read as follows:

 

(i) the
Receivable must not be outstanding for more than 120 days from its invoice
date,

 

2.             Modified Credit
Limit.  Section 1 of the Schedule to
Loan and Security Agreement is hereby amended to read as follows:

 

	
  1.             CREDIT LIMIT

  	
   

  	
   

  
	
  (Section
  1.1):

  	
   

  	
  An amount
  equal to the sum of 1, 2 and 3 below:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  1.  Revolving Loans.  An amount not to exceed the lesser of a
  total of $5,000,000 at any one time outstanding (the “Maximum Credit Limit”),
  the sum of (a) and (b) below:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (a)  85%
  (the “Percentage Advance Rate”) of the amount of Borrower’s Eligible
  Receivables (as defined in Section 8 above), plus

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (b)  an amount not to exceed the lesser of:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (1)   35% of the value of Borrower’s Eligible
  Inventory (as defined in Section 8 above), calculated at the lower of cost or
  market value and 

  

 

1

 

	
  Silicon
  Valley Bank

  	
  Amendment to Loan Documents

  

 

	
   

  	
   

  	
  determined
  on a first-in, first-out basis, or

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (2)   50%
  of the amount of Borrower’s Eligible Receivables (as defined in Section 8
  above), or

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (3)   $650,000.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  The
  foregoing Percentage Advance Rate is typically based on the quality of the
  Receivables and attendant Dilution as follows:  up to 85% Percentage Advance Rate with 5% Dilution; up to 80%
  Percent Advance Rate with Dilution over 5% but less than 10%; up to 75%
  Percent Advance Rate when Dilution is over 10% but less than 15%.  If Dilution exceeds 15%, a reserve is established
  for the dilution factor rounded up to the nearest whole number then
  multiplied by a factor of up to 75%.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  As used
  above, “Dilution” means all deductions from Receivables by Account Debtors of
  Borrower, other than those arising from payment thereof, and includes without
  limitation deductions arising from advertising and other allowances, credit
  memos, returns, bad debts, and all other deductions, as determined by
  Silicon’s audit and for such period as Silicon shall determine.  Changes in the Percentage Advance Rate
  based on Dilution shall go into effect when Silicon has determined the amount
  of the Dilution and given written notice to the Borrower of the change in the
  Percentage Advance Rate.  If, as a
  result of a decrease in the Percentage Advance Rate, the total Loans and
  other Obligations exceed the Credit Limit, the Borrower shall pay the excess
  to Silicon in accordance with the terms of this Agreement.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Moreover,
  prior to any increase in the Percentage Advance Rate going into effect, the
  delinquency rate with respect to the Borrower’s Receivables must be
  satisfactory to Silicon in its sole discretion.

  

 

2

 

	
   

  	
   

  	
  Cash Management

  Sublimit

  
	
   

  	
   

  	
  Section
  1.6):          See
  Section 1.6 above;

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  plus

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  2.  Payroll Case Management
  Services Loans. 
  Borrower has executed a cash management services agreement pursuant to
  which in part, Borrower may utilize ACH payroll cash management services up
  to an amount of $350,000 (the “Payroll Cash Management Services Line”).  Upon Silicon’s receipt of an ACH payroll
  service charge (“Payroll Charge”), if borrower’s operating account does not
  have sufficient funds to pay such Payroll Charge and if Silicon is obligated
  to pay such Payroll Charge, then Silicon will make such payment(s) and any
  such payments by Silicon shall constitute Obligations under this
  Agreement.  Borrower agrees to execute
  and deliver to Silicon all standard form applications and agreements of
  Silicon in connection with the Payroll Cash Management Services Line, and,
  without limiting any of the terms of such applications and agreements,
  Borrower will pay all standard fees and charges of Silicon in connection with
  the Payroll Cash Management Services Line. 
  The Payroll Cash Management Services Line shall terminate on the
  Maturity Date;

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  plus

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  3.  Cash Secured Letter of
  Credit. 
  $205,000.  Silicon previously
  issued for the account of Borrower a Standby Letter of Credit in the amount
  of $205,000 (the “Standby Letter of Credit”), which Standby Letter of Credit
  is secured by a certificate of deposit pledged to Silicon on Silicon’s
  standard form documentation.

  

 

3.             Modified Interest
Rate.  Section 2 of the Schedule to
Loan and Security Agreement is hereby amended to read as follows:

 

2. 
INTEREST.

 

	
  Interest Rate (Section 1.2):

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  A rate equal
  to the “Prime Rate” in effect from time to time, plus 1.75% per annum
  Interest shall be calculated on the basis of a 360-day year for the actua1
  number of days

  

 

3

 

	
  Silicon
  Valley Bank

  	
  Loan and Security Agreement

  

 

	
   

  	
   

  	
  elapsed.  “Prime Rate” means the rate announced from
  time to time by Silicon as its “prime rate;” it is a base rate upon which
  other rates charged by Silicon are based, and it is not necessarily the best
  rate available at Silicon.  The
  interest rate applicable to the Obligations shall change on each date there
  is a change in the Prime Rate.

  
	
   

  	
   

  	
   

  
	
  Minimum Monthly

  Interest

  
	
  (Section
  1.2):

  	
   

  	
  $5,000 per
  month.

  

 

4.             Modified Maturity
Date.  Section 4 of the Schedule to
Loan and Security Agreement is hereby amended to read as follows:

 

	
  4.             MATURITY DATE

  
	
  (Section
  6.1):

  	
   

  	
  August 31, 2003, subject to early
  termination as provided in Section 6.2 above.

  
	
   

  	
   

  	
   

  

 

5.             Addition of Minimum
Cash On Hand Financial Covenant. 
The following Minimum Cash on Hand Financial Covenant is hereby added to
Section 5 of the Schedule to Loan and Security Agreement, entitled “5.
FINANCIAL COVENANTS (Section 5.1),” and shall read as follows:

 

	
  Minimum Cash

  on Hand:

  	
   

  	
  Borrower
  shall at all times maintain a minimum of unrestricted cash (and cash
  equivalents) in accounts maintained Silicon in an amount of not less than
  $2,500,000.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  

 

6.             Guaranty of
Obligations to Heller Financial.  A
new subclause (8) is hereby added to Section 9 of the Schedule to Loan and
Security Agreement and shall read as follows:

 

(8)           Guaranty of Obligations
to Heller Financial.  Borrower is
hereby permitted to guaranty the obligations of its subsidiaries Orion Imaging
Systems, Inc. (“Orion”) and Digirad Imaging Systems, Inc. (“Digirad Imaging,”
together with Orion, the “Subsidiaries”) to Heller Healthcare Finance, Inc.
(“Heller”), and any successor to Heller, under any financing agreements between
Heller and the Subsidiaries (the “Heller Documents”), but only on an unsecured
basis and only up to an aggregate of $5,000,000 for the Subsidiaries on a
combined basis (the “Digirad Guaranty”); provided further that Heller and
Silicon enter into an letter agreement or other applicable agreement,
acceptable to each in its respective discretion, pursuant to which Heller
agrees to provide Silicon

 

 

4

 

	
  Silicon
  Valley Bank

  	
  Amendment to Loan Documents

  

 

with written
notice of any default under the Heller Documents.

 

7.             Defaults Regarding
Guaranteed Obligations.  New
subclause (r) and (s) are hereby added to Section 7.1 of the Loan Agreement,
will immediately follow 7.1(q) and shall read as follows:

 

; or (r)  without limiting any of the foregoing, any
default or event of default occurs under the Heller Documents and Heller
dec1ares such default, or provides notice (or is required to provide notice) to
the Subsidiaries of the same; or (s) without limiting any of the foregoing,
Heller takes any action against Borrower with respect to the Digirad Guaranty,
including without limitation, seeking payment by Borrower of its obligations
under the Digirad Guaranty.

 

 

8.             Subsidiaries
Guaranty.  Within 60 days of the
date hereof, Borrower shall have caused each of Orion and Digirad Imaging to
execute and deliver to Silicon a Continuing 
Guaranty, in such form as Silicon shall specify, with respect to all of
the Obligations, together with the consent, if any, required from Heller with
respect to such Guaranty, and Borrower shall cause such Guaranty to continue in
full force and effect throughout the term of this Loan Agreement and so long as
any portion of the Obligations remains outstanding.

 

9.             Fee.  As consideration for Silicon entering into
this Amendment, Borrower shall concurrently pay Silicon a fee in the amount of
$25,000, which shall be non-refundable and in addition to all interest and
other fees payable to Silicon under the Loan Documents.  Silicon is authorized to charge said fee to
Borrower’s loan amount.

 

10.          Representations True.  Borrower represents and warrants to Silicon
that all representations and warranties set forth in the Loan Agreement, as
amended hereby, are true and correct.

 

11.          General Provisions.  This Amendment, the Loan Agreement, any
prior written amendments to the Loan Agreement signed by Silicon and Borrower,
and the other written documents and agreements between Silicon and Borrower set
forth in full all of the representations and agreements of the parties with
respect to the subject matter hereof and supersede all prior discussions,
representations, agreements and understandings between the parties with respect
to the subject hereof.  Except as herein
expressly amended, all of the terms

 

5

 

and provisions of the Loan
Agreement, and all other documents and agreements between Silicon and Borrower
shall continue in full force and effect and the same are hereby ratified and
confirmed.

 

	
  Borrower:

  	
  Silicon:

  
	
   

  	
   

  
	
  DIGIRAD CORPORATION

  	
  SILICON VALLEY BANK

  
	
   

  	
   

  
	
   

  	
   

  
	
  By

  	
  /s/ Illegible

  	
   

  	
  By

  	
  /s/ Illegible

  	
   

  
	
   

  	
  President or Vice President

  	
  Title

  	
  Vice
  President

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  By

  	
  /s/ Illegible

  	
   

  	
   

  
	
   

  	
  Secretary or Ass’t Secretary

  	
   

  
									

 

6

 

	
  Silicon
  Valley Bank

  	
  Loan and Security Agreement

  

 

Silicon
Valley Bank

 

Amendment to Loan Documents

 

	
  Borrower:

  	
   

  	
  Digirad
  Corporation

  
	
   

  	
   

  	
   

  
	
  Date:

  	
   

  	
  As of
  February 28, 2003

  

 

THIS
AMENDMENT TO LOAN DOCUMENTS  (this “Amendment”) is entered into between SILICON VALLEY BANK
(“Silicon”) and the borrower named above (the “Borrower”).

 

Silicon and
Borrower hereby agree to amend the Loan and Security Agreement from between
them, dated as of July 31, 2001 (as amended, restated, supplemented, or
otherwise modified from time to time, the “Loan Agreement”), as follows,
effective as of the date hereof. 
(Capitalized term used but not defined in this Amendment, shall have the
meanings set forth in the Loan Agreement.):

 

1.             Limited Waiver.  Silicon and Borrower agree that solely
Borrower’s failure to comply with the Minimum Tangible Net Worth financial
covenant (at the Borrower level only and not consolidated with any
subsidiaries) set forth in Section 5 of the Schedule to the Loan Agreement for
the month ended January 31, 2003 (the “Designated Default”) hereby is
waived.  It is understood by the parties
hereto, however, that the foregoing waiver of the Designated Default does not
constitute a waiver of such financial covenant with respect to any other date
or time period or of any other provision or term of the Loan Agreement or any
related document, nor an agreement to waive in the future such covenant with
respect to any other date or time period or any other provision or term of the
Loan Agreement or any related document.

 

2.             Modification of
Minimum Tangible Net Worth Covenant. 
The portion of Section 5 of the Schedule to the Loan Agreement that
currently reads:

 

“Minimum Tangible

  Net
Worth:                         Borrower
shall maintain, at the Borrower level only and not consolidated with any
subsidiaries, a Tangible Net Worth of not less than $500,000, plus 50% of the
total consideration received by Borrower after March 1, 2002, in consideration
for the issuance by Borrower of its equity securities and subordinated debt
securities, effective on the date such consideration is received, plus 50% of
Borrower’s year to date net income as of the end of

 

1

 

	
  Silicon
  Valley Bank

  	
  Amendment to Loan Documents

  

 

the applicable
reporting period.; and

 

Borrower shall
maintain, on a consolidated basis, a Tangible Net Worth of not less than
$1,000,000, plus 50% of the total consideration received by Borrower after
March 1, 2002, in consideration for the issuance by Borrower of its equity
securities and subordinated debt securities, effective on the date such
consideration is received, plus 50% of Borrower’s year to date net income as of
the end of the applicable reporting period.”

 

, hereby is
amended and restated in its entirety to read as follows:

 

“Minimum Tangible

  Net
Worth:                         (a)
Borrower shall maintain, at the Borrower level only and not consolidated with
any subsidiaries, a Tangible Net Worth of not less than: (i) $6,100,000, for
each month during the period commencing January 1, 2003 and ending on March 31,
2003; (ii) $5,100,000, for each month during the period commencing April 1,
2003 and ending on June 30, 2003; (iii) $5,000,000, for each month during the
period commencing July 1, 2003 and ending on September 30, 2003; and (iv)
$5,000,000, for each month during the period commencing October 1, 2003 and
ending on December 31, 2003; and

 

(b) Borrower
shall maintain, on a consolidated basis, a Tangible Net Worth of not less than:
(i) $6,900,000, for each month during the period commencing January 1, 2003 and
ending on March 31, 2003; (ii) $6,700,000, for each month during the period
commencing April 1, 2003 and ending on June 30, 2003; (iii) $6,900,000, for
each month during the period commencing July 1, 2003 and ending on September
30, 2003; and (iv) $7,400,000, for each month during the period commencing
October 1, 2003 and ending on December 31, 2003.”

 

 

3.             Fee.  As consideration for Silicon entering into
this Amendment, Borrower shall concurrently pay Silicon a fee in the amount of
$5,000, which shall be non-refundable and in addition to all interest and other
fees payable to Silicon under the Loan Documents.  Silicon is authorized to charge said fee to Borrower’s loan
account.

 

4.             Representations True.  Borrower represents and warrants to Silicon
that all

 

2

 

representations and warranties set forth in
the Loan Agreement, as amended hereby, are true and correct.

 

5.             General Provisions.  This Amendment, the Loan Agreement, any
prior written amendments to the Loan Agreement signed by Silicon and Borrower,
and the other written documents and agreements between Silicon and Borrower,
set forth in full all of the representations and agreements of the parties with
respect to the subject matter hereof and supersede all prior discussions,
representations, agreements and understandings between the parties with respect
to the subject hereof.  Except as herein
expressly amended, all of the terms and provisions of the Loan Agreement, and
all other documents and agreements between Silicon and Borrower, shall continue
in full force and effect and the same (as so amended, if applicable) are hereby
ratified and confirmed.

 

[remainder of
page intentionally left blank; signature page follows]

 

 

IN
WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed and delivered as of the date first above written.

 

 

	
  Borrower:

  	
  Silicon:

  

 

	
  DIGIRAD CORPORATION

  	
  SILICON VALLEY BANK

  
	
   

  	
   

  
	
   

  	
   

  
	
  By

  	
  /s/ Illegible

  	
   

  	
  By

  	
  /s/ Illegible

  	
   

  
	
   

  	
  President or Vice President

  	
  Title

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  By

  	
  /s/ Illegible

  	
   

  	
   

  
	
   

  	
  Secretary or Ass’t Secretary

  	
   

  
									

 

CONSENT

 

The
undersigned acknowledges that the undersigned’s consent to the foregoing
Amendment is not required, but the undersigned nevertheless does hereby consent
to the foregoing Amendment and to the documents and agreements referred to
therein and to all future modifications and amendments thereto, and any
termination thereof, and to any and all other present and future documents and
agreements between or among the foregoing parties. Nothing herein shall in any
way limit any of the terms or provisions of the guaranty of each of the
undersigned in favor of Silicon relative to Borrower, which guaranty is hereby
ratified and affirmed by each of the undersigned.

 

Digirad
Imaging Solutions,

a
Delaware corporation formerly

 

3

 

known
as Orion Imaging Systems, Inc.

 

 

	
  By

  	
  /s/ Illegible

  	
   

  
	
  Title

  	
  CFO

  	
   

  
				

 

 

Digirad
Imaging Systems, Inc.,

a
Delaware corporation

 

 

	
  By

  	
  /s/ Illegible

  	
   

  
	
  Title

  	
  CFO

  	
   

  
				

 

4

 

	
  Silicon Valley Bank

  	
   

  	
  Loan
  and Security Agreement

  

 

Silicon
Valley Bank

 

Amendment to Loan Documents

 

	
  Borrower:

  	
  Digirad
  Corporation

  
	
   

  	
   

  
	
  Date:

  	
  As of May
  1, 2003

  

 

THIS
AMENDMENT TO LOAN DOCUMENTS (this “Amendment”) is
entered into between SILICON VALLEY BANK (“Silicon”) and the borrower named
above (the “Borrower”).

 

Silicon and
Borrower hereby agree to amend the Loan and Security Agreement between them,
dated as of July 31, 2001 (as amended, restated, supplemented, or otherwise
modified from time to time, the “Loan Agreement”), as follows, effective as of
the date hereof. (Capitalized terms used but not defined in this Amendment,
shall have the meanings set forth in the Loan Agreement):

 

1.             Limited Consent.  Anything in Section 6(9) of the Schedule to
Loan Agreement to the contrary notwithstanding, Silicon hereby consents to the
delivery by Borrower of the audited annual financial statements of Borrower for
the fiscal year ended December 31, 2002 as soon as available after the 120th
day after such year-end but in any event not later than May 31, 2003. It is
understood by Borrower, however, that such consent does not constitute a waiver
of any failure of Borrower to comply with Section 6(9) of the Schedule to the
Loan Agreement in respect of the audited annual financial statements of
Borrower for any other fiscal year, nor a waiver of any other provision or term
of the Loan Agreement or any other Loan Document, nor an agreement to waive
compliance, in the future, with Section 6(9) of the Schedule to the Loan
Agreement in respect of the audited annual financial statements of Borrower for
any other fiscal year, or any other provision or term of the Loan Agreement or
any other Loan Document.

 

2.             Fee.  As consideration for Silicon entering into
this Amendment, Borrower shall concurrently pay Silicon a fee in the amount of
$1,000, which shall be non-refundable and in addition to all interest and other
fees payable to Silicon under the Loan Documents.  Silicon is authorized to charge said fee to Borrower’s loan
account.

 

3.             Representations True.  Borrower represents and warrants to Silicon
that all representations and warranties set forth in the Loan Agreement, as
amended hereby, are true and correct.

 

4.             General Provisions.  This Amendment, the Loan Agreement, any
prior written amendments to the Loan Agreement signed by Silicon and Borrower,
and the other written

 

5

 

	
  Silicon Valley Bank

  	
   

  	
  Amendment
  to Loan Documents

  

 

documents and agreements
between Silicon and Borrower, set forth in full all of the representations and
agreements of the parties with respect to the subject matter hereof and
supersede all prior discussions, representations, agreements and understandings
between the parties with respect to the subject hereof. Except as herein
expressly amended, all of the terms and provisions of the Loan Agreement, and all
other documents and agreements between Silicon and Borrower, shall continue in
full force and effect and the same (as so amended, if applicable) are hereby
ratified and confirmed.

 

[remainder of
page intentionally left blank; signature page follows]

 

6

 

IN
WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed and delivered as of the date rust above written.

 

	
  Borrower:

  	
  Silicon:

  
	
   

  	
   

  
	
  DIGIRAD CORPORATION

  	
  SILICON VALLEY BANK

  
	
   

  	
   

  
	
   

  	
   

  
	
  By

  	
  /s/ Illegible

  	
   

  	
  By

  	
   

  
	
   

  	
  CFO

  	
   

  	
  Title

  	
   

  
	
   

  	
   

  
	
  By

  	
  /s/ Illegible

  	
   

  	
   

  
	
   

  	
  Secretary or Ass’t Secretary

  	
   

  	
   

  
						

 

CONSENT

 

The
undersigned acknowledges that the undersigned’s consent to the foregoing
Amendment is not required, but the undersigned nevertheless does hereby consent
to the foregoing Amendment and to the documents and agreements referred to
therein and to all future modifications and amendments thereto, and any
termination thereof, and to any and all other present and future documents and
agreements between or among the foregoing parties. Nothing herein shall in any
way limit any of the terms or provisions of the guaranty of each of the
undersigned in favor of Silicon relative to Borrower, which guaranty is hereby
ratified and affirmed by each of the undersigned.

 

	
  Digirad Imaging Solutions,

  a Delaware corporation formerly

  known as Orion Imaging Systems, Inc.

  
	
   

  
	
   

  
	
  By

  	
   

  	
  /s/ Illegible

  	
   

  
	
  Title

  	
   

  	
  CFO

  	
   

  
	
   

  
	
   

  
	
  Digirad Imaging Systems, Inc.,

  a Delaware corporation

  
	
   

  
	
   

  
	
  By

  	
   

  	
  /s/ Illegible

  	
   

  
	
  Title

  	
   

  	
  CFO

  	
   

  
						

 

7

 

	
  Silicon
  Valley Bank

  	
   

  	
  Loan and Security Agreement

  

 

Silicon Valley Bank

 

Amendment
to Loan Documents

 

	
  Borrower:

  	
  Digirad Corporation

  
	
   

  	
   

  
	
  Date:

  	
  August 27, 2003

  

 

THIS
AMENDMENT TO LOAN DOCUMENTS  (this “Amendment”) is entered into between SILICON VALLEY BANK
(“Silicon”) and the borrower named above (the “Borrower”).

 

Silicon and
Borrower hereby agree to amend the Loan and Security Agreement between them,
dated as of July 31, 2001 (as amended, restated, supplemented, or otherwise
modified from time to time, the “Loan Agreement”), as follows, effective as of
the date hereof.  (Capitalized terms
used but not defined in this Amendment, shall have the meanings set forth in
the Loan Agreement):

 

1.             Modification of
Maturity Date.  Section 4 of the Schedule
to the Loan Agreement, which currently reads as follows:

 

4.             MATURITY DATE

(Section 6.1):                         August 31, 2003, subject to early
termination as provided in Section 6.2 above.

 

, hereby is amended and restated in its
entirety to read as follows:

 

4.             MATURITY DATE

(Section 6.1):                         October 15, 2003, subject to early
termination as provided in Section 6.2 above.

 

 

2.             Fee.  As consideration for Silicon entering into
this Amendment, Borrower shall concurrently pay Silicon a fee in the amount of
$2,000, which shall be non-refundable and in addition to all interest and other
fees payable to Silicon under the Loan Documents. Silicon is authorized to
charge said fee(s) to Borrower’s loan account.

 

3.             Representations True.  Borrower represents and warrants to Silicon that
all representations and warranties set forth in the Loan Agreement, as amended
hereby, are true and

 

1

 

	
  Silicon Valley Bank

  	
   

  	
  Amendment
  to Loan Documents

  

 

correct.

 

4.             General Provisions.  This Amendment, the Loan Agreement, any
prior written amendments to the Loan Agreement signed by Silicon and Borrower,
and the other written documents and agreements between Silicon and Borrower,
set forth in full all of the representations and agreements of the parties with
respect to the subject matter hereof and supersede all prior discussions,
representations, agreements and understandings between the parties with respect
to the subject hereof. Except as herein expressly amended, all of the terms and
provisions of the Loan Agreement, and all other documents and agreements
between Silicon and Borrower, shall continue in full force and effect and the
same (as so amended, if applicable) are hereby ratified and confirmed.

 

[remainder of page intentionally left blank; signature
page follows]

 

2

 

IN
WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed and delivered as of the date first above written.

 

	
  Borrower:

  	
  Silicon:

  
	
   

  	
   

  
	
  DIGIRAD CORPORATION

  	
  SILICON VALLEY BANK

  
	
   

  	
   

  
	
   

  	
   

  
	
  By

  	
  /s/ Illegible

  	
  CFO

  	
   

  	
  By

  	
   

  
	
   

  	
  President or Vice President

  	
   

  	
  Title

  	
   

  
	
   

  	
   

  
	
  By

  	
  Vera Pardee, General Counsel

  	
   

  	
   

  
	
   

  	
  Secretary or Ass’t Secretary

  	
   

  	
   

  
							

 

CONSENT

 

The
undersigned acknowledges that the undersigned’s consent to the foregoing
Amendment is not required, but the undersigned nevertheless does hereby consent
to the foregoing Amendment and to the documents and agreements referred to
therein and to all future modifications and amendments thereto, and any
termination thereof, and to any and all other present and future documents and
agreements between or among the foregoing parties. Nothing herein shall in any
way limit any of the terms or provisions of the guaranty of each of the
undersigned in favor of Silicon relative to Borrower, which guaranty is hereby
ratified and affirmed by each of the undersigned.

 

	
  Digirad Imaging Solutions,

  a Delaware corporation formerly

  known as Orion Imaging Systems, Inc.

  
	
   

  
	
   

  
	
  By

  	
   

  	
  /s/ Illegible

  	
   

  
	
  Title

  	
   

  	
  CFO

  	
   

  
	
   

  
	
   

  
	
  Digirad Imaging Systems, Inc.,

  a Delaware corporation

  
	
   

  
	
   

  
	
  By

  	
   

  	
  /s/ Illegible

  	
   

  
	
  Title

  	
   

  	
  CFO

  	
   

  
						

 

3

 

	
  Silicon Valley Bank

  	
   

  	
  Loan
  and Security Agreement

  

 

Silicon Valley Bank

 

Amendment
to Loan Documents

 

	
  Borrower:

  	
  Digirad Corporation

  
	
   

  	
   

  
	
  Date:

  	
  October 6, 2003

  

 

THIS
AMENDMENT TO LOAN DOCUMENTS  (this “Amendment”) is entered into between SILICON VALLEY BANK
(“Silicon”) and the borrower named above (the “Borrower”).

 

Silicon and
Borrower hereby agree to amend the Loan and Security Agreement between them,
dated as of July 31, 2001 (as amended, restated, supplemented, or otherwise
modified from time to time, the “Loan Agreement”), as follows, effective as of
the date hereof.  (Capitalized terms
used but not defined in this Amendment, shall have the meanings set forth in
the Loan Agreement.) :

 

1.             Modification of
Interest Rate.  The portion of
Section 3 of the Schedule to the Loan Agreement that currently reads as
follows:

 

A rate equal
to the “Prime Rate” in effect from time to time, plus 1.75% per annum.

 

, hereby is amended and restated in its
entirety to read as follows:

 

A rate equal
to the “Prime Rate” in effect from time to time, plus 1.75% per annum; provided
that the interest rate in effect on any day shall not be less than 5.75% per annum.

 

2.             Modification of
Maturity Date.  Section 4 of the
Schedule to the Loan Agreement, which currently reads as follows:

 

4.             MATURITY DATE

(Section 6.1):                         October 15, 2003, subject to early
termination as provided in Section 6.2 above.

 

, hereby is amended and restated in its
entirety to read as follows:

 

1

 

	
  Silicon Valley Bank

  	
   

  	
  Amendment
  to Loan Documents

  

 

4.             MATURITY DATE

(Section 6.1):                         October 15, 2004, subject to early
termination as provided in Section 6.2 above.

 

3.             Limited Waiver.  Silicon and Borrower agree that solely
Borrower’s failure to comply with the Minimum Tangible Net Worth financial
covenant (at the Borrower level only and not consolidated with any
subsidiaries) set forth in Section 5 of the Schedule to the Loan Agreement for
each of the months ended August 31, 2003 and September 30, 2003 (individually
and collectively, the “Designated Default”) hereby is waived. It is understood
by the parties hereto, however, that the foregoing waiver of the Designated
Default does not constitute a waiver of such financial covenant with respect to
any other date or time period or of any other provision or term of the Loan
Agreement or any related document, nor an agreement to waive in the future such
covenant with respect to any other date or time period or any other provision
or term of the Loan Agreement or any related document.

 

4.             Modification of
Minimum Tangible Net Worth Covenant. 
The portion of Section 5 of the Schedule to the Loan Agreement that
currently reads:

 

	
   

  	
  “Minimum Tangible

  
	
   

  	
  Net Worth:

  	
   

  	
  (a) Borrower shall maintain, at the
  Borrower level only and not consolidated with any subsidiaries, a Tangible
  Net Worth of not less than: (i) $6,100,000, for each month during the period
  commencing January 1, 2003 and ending on March 31, 2003; (ii) $5,100,000, for
  each month during the period commencing April 1, 2003 and ending on June 30,
  2003; (iii) $5,000,000, for each month during the period commencing July 1,
  2003 and ending on September 30, 2003; and (iv) $5,000,000, for each month
  during the period commencing October 1, 2003 and ending on December 31, 2003;
  and

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  (b) Borrower
  shall maintain, on a consolidated basis, a Tangible Net Worth of not less
  than: (i) $6,900,000, for each month during the period commencing January 1,
  2003 and ending on March 31, 2003; (ii) $6,700,000, for each month during the
  period commencing April 1, 2003 and ending on June 30, 2003; (iii)
  $6,900,000, for each month during the period commencing July 1, 2003 and
  ending on September 30, 2003; and (iv) $7,400,000, for each month during the
  period commencing October 1, 2003 and ending on December 31, 2003.”

  

 

2

 

, hereby is
amended and restated in its entirety to read as follows:

 

	
   

  	
  “Minimum Tangible

  
	
   

  	
  Net Worth:

  	
   

  	
  (a) Borrower shall maintain, at the
  Borrower level only and not consolidated with any subsidiaries, a Tangible
  Net Worth of not less than $3,800,000,  for
  each month during the period from and after October 1, 2003; and

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  (b) Borrower
  shall maintain, on a consolidated basis, a Tangible Net Worth of not less
  than $6,500,000,  for each month
  during the period from and after October 1, 2003.”

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  

 

5.             Financial Reporting.  The following hereby is added to the end of
Section 6 of the Schedule to Loan Agreement (following, and separate from, the
last numbered item therein):

 

With respect
to the financial statements and operating budgets referred to above in this
Section 6 of the Schedule, Borrower agrees to deliver such financial statements
and operating budgets prepared on both a consolidated and consolidating basis,
and agrees that no subsidiary of Borrower will have a fiscal year different
from that of Borrower.

 

6.             Compliance with
Heller Financing Documents. 
Borrower hereby covenants and agrees to deliver to Silicon, no later
than October 31, 2003, evidence (satisfactory to Silicon in its good faith
business judgment) that all existing events of default or potential events of
default under the financing documents between Heller Healthcare Finance, Inc.,
on the one hand, and one or more of Borrower and its subsidiaries, on the other
hand, (including without limitation all such events of default that are in
existence as of the date of this Amendment) have been waived (which waiver
shall be on terms and conditions (if any) satisfactory to Silicon in its good
faith business judgment), as of the date of Borrower’s delivery of such
evidence.

 

7.             Fee.  As consideration for Silicon entering into
this Amendment, Borrower shall concurrently pay Silicon a fee in the amount of
$25,000, which shall be non-refundable and in addition to all interest and
other fees payable to Silicon under the Loan Documents.  Silicon is authorized to charge said fee(s)
to Borrower’s loan account.

 

8.             Representations True.  Borrower represents and warrants to Silicon
that all representations and warranties set forth in the Loan Agreement, as
amended hereby, are true and correct.

 

9.             General Provisions.  This Amendment, the Loan Agreement, any
prior written amendments to the Loan Agreement signed by Silicon and Borrower,
and the other written documents and agreements between Silicon and Borrower,
set forth in full all of the representations and agreements of the parties with
respect to the subject matter hereof and supersede all prior discussions,
representations, agreements and understandings between the

 

3

 

parties with respect to the subject
hereof.  Except as herein expressly
amended, all of the terms and provisions of the Loan Agreement, and all other
documents and agreements between Silicon and Borrower, shall continue in full
force and effect and the same (as so amended, if applicable) are hereby
ratified and confirmed.

 

[remainder of page intentionally left blank;
signature page follows]

 

4

 

IN
WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed and delivered as of the date first above written.

 

	
  Borrower:

  	
  Silicon:

  
	
   

  	
   

  
	
  DIGIRAD CORPORATION

  	
  SILICON VALLEY BANK

  
	
   

  	
   

  
	
   

  	
   

  
	
  By

  	
  /s/ Illegible

  	
   

  	
   

  	
  By

  	
   

  
	
   

  	
  CFO

  	
   

  	
  Title

  	
   

  
	
   

  	
   

  
	
  By

  	
  Vera Pardee, Illegible

  	
   

  	
   

  
	
   

  	
  Secretary or Ass’t Secretary

  	
   

  	
   

  
							

 

CONSENT

 

The
undersigned acknowledges that the undersigned’s consent to the foregoing
Amendment is not required, but the undersigned nevertheless does hereby consent
to the foregoing Amendment and to the documents and agreements referred to
therein and to all future modifications and amendments thereto, and any
termination thereof, and to any and all other present and future documents and
agreements between or among the foregoing parties. Nothing herein shall in any
way limit any of the terms or provisions of the guaranty of each of the
undersigned in favor of Silicon relative to Borrower, which guaranty is hereby
ratified and affirmed by each of the undersigned.

 

 

	
  Digirad Imaging Solutions,

  a Delaware corporation formerly

  known as Orion Imaging Systems, Inc.

  
	
   

  
	
   

  
	
  By

  	
   

  	
  /s/ Illegible

  	
   

  
	
  Title

  	
   

  	
  CFO

  	
   

  
	
   

  
	
   

  
	
  Digirad Imaging Systems, Inc.,

  a Delaware corporation

  
	
   

  
	
   

  
	
  By

  	
   

  	
  /s/ Illegible

  	
   

  
	
  Title

  	
   

  	
  CFO

  	
   

  
					

 

5

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