Document:

EXHIBIT 10.1

 

Loan and Security Agreement

 

This LOAN
AND SECURITY AGREEMENT dated the Effective Date between
SILICON VALLEY BANK (“Bank”), whose address is 3003 Tasman Drive, Santa Clara,
California 95054, and NORTH AMERICAN SCIENTIFIC, INC., a Delaware corporation (“NASI”),
NORTH AMERICAN SCIENTIFIC, INC., a California corporation (“NASI-CA”), and NOMOS
CORPORATION, a Delaware corporation (“NOMOS”, and collectively, jointly and
severally with NASI and NASI-CA, the “Borrower”), whose address is 20200 Sunburst
Street, Chatsworth, California 91311, provides the terms on which Bank will
lend to Borrower and Borrower will repay Bank. The parties agree as follows:

 

1.                                      ACCOUNTING
AND OTHER TERMS.

 

Accounting terms
not defined in this Agreement will be construed following GAAP. Calculations
and determinations must be made in accordance with GAAP.  The term “financial statements” includes the
notes and schedules thereto.  The terms “including”
and “includes” always mean “including (or includes) without limitation,” in
this or any Loan Document.

 

2.                                      LOAN
AND TERMS OF PAYMENT.

 

2.1.                            Promise to
Pay.

 

Borrower promises
to pay Bank the unpaid principal amount of all Credit Extensions and interest
on the unpaid principal amount of the Credit Extensions.

 

2.1.1.                  Advances.

 

(a)                                  Bank
will make Advances not exceeding the Credit Limit/Borrowing Base formula
provisions as are set forth on Schedule 2. 
Amounts borrowed under this Section may be repaid and reborrowed
during the term of this Agreement.

 

 (b)                              To
obtain an Advance, Borrower must notify Bank by facsimile or telephone by 12:00 p.m.
Pacific time on the Business Day the Advance is to be made.  Borrower must promptly confirm the
notification by delivering to Bank the Payment/Advance Form attached as Exhibit B.  Bank will credit Advances to Borrower’s
deposit account.  Bank may make Advances
under this Agreement based on instructions from a Responsible Officer or his or
her designee or without instructions if the Advances are necessary to meet
Obligations which have become due.  Bank
may rely on any telephone notice given by a person whom Bank believes is a
Responsible Officer or designee. Borrower will indemnify Bank for any loss Bank
suffers due to such reliance.

 

(c)                                  The
Committed Revolving Line terminates on the Maturity Date, when all Advances,
Credit Extensions and other Obligations arising in connection therewith are
immediately payable.

 

(d)                                 Borrower
shall have the right to terminate the Committed Revolving Line prior to the
Maturity Date, effective three Business Days after written notice of
termination is given to Bank, in which event Borrower shall pay in full all
Obligations on the effective date of termination.  While the Asset Based Terms are in effect, in
the event Borrower terminates the Committed Revolving Line prior to the
Maturity Date, Borrower shall pay Bank the Termination Fee set forth in Schedule 2.

 

 

2.1.2.                  Letters of
Credit Sublimit.

 

Bank will issue or
have issued letters of credit (the “Letters of Credit”) for Borrower’s account
not exceeding the amount shown on Schedule 2 provided that any new
Letter of Credit shall only be issued if there is otherwise available at such
time loan availability for the making of an Advance in the amount of the
proposed Letter of Credit.  Each Letter
of Credit will have an expiry date of no later than 180 days after the Maturity
Date, but Borrower’s reimbursement obligation will be secured by cash on terms
acceptable to Bank at any time after the Maturity Date if the term of this
Agreement is not extended by Bank. 
Borrower agrees to execute any further documentation in connection with
the Letters of Credit as Bank may reasonably request.

 

2.1.3.                  Foreign
Exchange Sublimit.

 

If, as of the date
of a proposed FX Forward Contract, there is loan availability for the making of
an Advance in the amount of the applicable FX Reserve relating to any such
proposed FX Forward Contract, then Borrower may, as of such date, enter into
any such FX Forward Contract with Bank. 
Bank will subtract 10% of each outstanding FX Forward Contract from the
foreign exchange sublimit which is set forth in Schedule 2 (the “FX
Reserve”).  The total FX Forward
Contracts at any one time may not exceed 10 times the amount of the FX
Reserve.  As used herein the term “FX
Forward Contract” shall mean a contractual undertaking between Borrower and
Bank whereby Borrower commits to purchase from or sell to Bank, as the case may
be, a set amount of foreign currency more than one Business Day after the date
of any such undertaking.

 

2.1.4                     Cash
Management Services Sublimit.

 

Borrower may use up to
$500,000 (the “Cash Management Services Sublimit”) for Bank’s cash management
services, which may include merchant services, direct deposit of payroll,
business credit card, and check cashing services identified in various cash
management services agreements related to such services (the “Cash Management
Services”).  The aggregate amounts
utilized under the Cash Management Services Sublimit will at all times reduce
the amount otherwise available to be borrowed under the Committed Revolving
Line and new Cash Management Services may be extended only if the amount of
such proposed new extension of such services would otherwise be available for
the making of an Advance in such amount. 
Any amounts Bank pays on behalf of Borrower or any amounts that are not
paid by Borrower for any Cash Management Services will be treated as Advances
under the Committed Revolving Line and will accrue interest at the rate for
Advances.

 

2.2.                            Overadvances.

 

If Borrower’s
Obligations under Section 2.1.1, 2.1.2, 2.1.3 or 2.1.4 exceed the
applicable lending limitations set forth above whether with respect to any
specific sublimit provisions or otherwise in the aggregate, Borrower must
immediately pay Bank any such excess.

 

2.3.                            Interest
Rate, Payments.

 

(a)                                  Interest
Rate.  Advances accrue interest on the
outstanding principal balance at the interest rate set forth on Schedule 2.
After an Event of Default, Obligations accrue interest at three percentage
points (3%) above the rate effective immediately before the Event of
Default.  The interest rate increases or
decreases when the Prime Rate changes. 
Interest is computed on a 360 day year for the actual number of days
elapsed.

 

(b)                                 Payments.  Interest due on the Advances is payable on
the first day of each month.  Bank may
debit any of Borrower’s deposit accounts maintained with Bank, including the
Accounts shown on Schedule 1 for principal and interest payments owing or
any amounts Borrower owes Bank when due and payable.  In computing interest on the Obligations, all
checks, wire transfers and other items of payment received by Bank (including
proceeds of Accounts and payment of the Obligations in full) shall

 

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be deemed applied by Bank
on account of the Obligations in accordance with its customary practices,
provided that while the Asset Based Terms are in effect, all of the foregoing
items shall be deemed applied on account of the Obligations two (2) Business Days after receipt by
Bank of immediately available funds. 
Further, however, Bank shall not be required to credit Borrower’s
account for the amount of any item of payment which is unsatisfactory to Bank
in its good faith business judgment, and Bank may charge Borrower’s loan
account for the amount of any item of payment which is returned to Bank
unpaid.  Bank will promptly notify
Borrower when it debits Borrower’s accounts. 
These debits are not a set-off. 
Payments received after 12:00 noon Pacific time are considered received
at the opening of business on the next Business Day.  When a payment is due on a day that is not a
Business Day, the payment is due the next Business Day and additional fees or
interest accrue.

 

2.4.                            Fees.

 

Borrower will pay:

 

(a)                                  Facility
Fee.  A fully earned, non refundable Facility
Fee and the other fees in the amounts shown on Schedule 2, which shall be
due and payable as shown on Schedule 2; and

 

(b)                                 Bank
Expenses. All Bank Expenses (including reasonable attorneys’ fees and
reasonable expenses) incurred through and after the date of this Agreement, are
payable when due. Borrower has heretofore paid to Bank a deposit of $20,000
(the “Deposit”) and such Deposit shall first be applied to the payment of Bank
Expenses incurred in connection herewith and with any balance remaining thereafter
to be applied to the Facility Fee referenced in clause (a) above.

 

3.                                      CONDITIONS
OF LOANS.

 

3.1.                            Conditions
Precedent to Initial Credit Extension.

 

Bank’s obligation
to make the initial Credit Extension is subject to the condition precedent that
it receive the agreements, documents, fees and other evidence it requires
including, without limitation, the following:

 

(a)                                  this
Agreement;

 

(b)                                 Schedule 2
to this Agreement;

 

(c)                                  the IP
Security Agreement;

 

(d)                                 a
certificate of the Secretary of Borrower with respect to the incumbency and
resolutions authorizing the execution and delivery of the Loan Documents;

 

(e)                                  securities
account control agreement with respect to accounts of Borrower at or through
the Bank that are established on or before the date hereof;

 

(f)                                    establishment
of lockbox arrangements, satisfactory to Bank;

 

(g)                                 evidence of
insurance and loss payable endorsement in form acceptable to Bank and all in
compliance with the terms and conditions of this Agreement;

 

(h)                                 UCC
financing statements relating to all obligor parties hereunder and otherwise
under the Loan Documents;

 

(i)                                     payment of
the fees and Bank Expenses then due; and

 

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(j)                                     such other
documents, agreements and instruments, and completion of such other matters, as
Bank may deem necessary or appropriate in Bank’s good faith business judgment, in
order to effectuate the terms and conditions of the Loan Documents.

 

3.2.                            Conditions
Precedent to all Credit Extensions.

 

Bank’s obligations
to make each Credit Extension, including the initial Credit Extension, is
subject to the following:

 

(a)                                  Timely
receipt of any Payment/Advance Form; and

 

(b)                                 The
representations and warranties in Section 5 must be true (subject to the
materiality provisions in Section 5) on the date of the Payment/Advance Form and
on the effective date of each Credit Extension and no Event of Default may have
occurred and be continuing, or result from the Credit Extension. Each Credit
Extension is Borrower’s representation and warranty on that date that the
representations and warranties of Section 5 remain true.

 

4.                                      CREATION
OF SECURITY INTEREST.

 

4.1.                            Grant of
Security Interest.

 

Borrower grants
Bank a continuing security interest in all presently existing and later
acquired Collateral (including Intellectual Property) to secure all Obligations
and performance of each of Borrower’s duties under the Loan Documents.  Except for Permitted Liens, the Bank will, at
all times, have a first-priority security interest in all of the Collateral
(including Intellectual Property). Bank’s lien and security interest in the
Collateral will continue until Borrower fully satisfies its Obligations, and
all obligations of the Bank to make Advances or otherwise extend credit
accommodations have terminated.

 

4.2.                            Authorization
to File Financing Statements.

 

Borrower
authorizes Bank to file financing statements without notice to Borrower, with
all appropriate jurisdictions, as Bank deems appropriate, in order to perfect
or protect Bank’s interest in the Collateral.

 

5.                                      REPRESENTATIONS
AND WARRANTIES.

 

Borrower
represents and warrants that the following statements are true and correct on
the date hereof and Borrower covenants that the following statements will
continue to be true and correct throughout the term of this Agreement and so
long as any Obligations are outstanding:

 

5.1.                            Due
Organization and Authorization.

 

Borrower and each
of its Subsidiaries is duly existing and in good standing in its state of
formation and qualified and licensed to do business in, and in good standing
in, any state in which the conduct of its business or its ownership of property
requires that it be qualified, except where the failure to do so could not
reasonably be expected to cause a Material Adverse Change.  Borrower has not changed its state of
formation or its organizational structure or type or any organizational number
(if any) assigned by its jurisdiction of formation during the five-year period
preceding the Effective Date.

 

The execution,
delivery and performance of the Loan Documents have been duly authorized, and
do not conflict with Borrower’s formation documents, nor constitute an event of
default under any material agreement by which Borrower is bound.  Borrower is not in default under any
agreement to which it is a party or by which it is bound in which the default
could reasonably be expected to cause a Material Adverse Change.

 

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5.2.                            Collateral.

 

Borrower has good
title to the Collateral and the Intellectual Property, free of Liens except
Permitted Liens.   As of the Effective
Date, Borrower has no other deposit account, other than the deposit accounts
described on Schedule 1.  Each
Account with respect to which Advances are requested by Borrower shall, on the
date each Advance is requested and made, 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, subject to any such account debtor’s right to
return any goods that are defective.  Except
as set forth on Schedule 1 hereto, the Collateral is not in the possession
of any third party bailee (such as at a warehouse).  In the event that Borrower, after the date
hereof, intends to store or otherwise deliver the Collateral to such a bailee,
then Borrower will receive the prior written consent of Bank and such bailee
must acknowledge in writing that the bailee is holding such Collateral for the
benefit of Bank. Borrower has no notice as of the Effective Date, and shall
have no notice as of the date any Borrowing Base Certificate is delivered, of
any actual or imminent Insolvency Proceeding of any account debtor whose
accounts are an Eligible Account in any Borrowing Base Certificate.  All Inventory is in all material respects of
good and marketable quality, free from material defects, except for Inventory
for which adequate reserves have been made in accordance with GAAP. Borrower is
the sole owner of the Intellectual Property, except for non-exclusive licenses
granted to its customers in the ordinary course of business, and licenses
granted to Borrower by third parties with respect to intellectual property
owned by such third parties.  Each Patent
is, to the best of Borrower’s knowledge, valid and enforceable and no part of
the Intellectual Property has been judged invalid or unenforceable, in whole or
in part, and no claim has been made that any part of the Intellectual Property
violates the rights of any third party, except to the extent such claim could
not reasonably be expected to cause a Material Adverse Change.

 

5.3.                            Litigation.

 

Except as shown in
Schedule 1 hereto and except for
such modifications thereto as to which Borrower shall have notified Bank in a
manner acceptable to Bank and
which modified information is acceptable to Bank in its sole discretion,
there are no actions or proceedings pending or, to the knowledge of Borrower’s
Responsible Officers and legal counsel, threatened by or against Borrower or
any Subsidiary, which could reasonably be expected to result in damages or
costs to Borrower or any Subsidiary of $250,000 or more, or in which an adverse
decision could reasonably be expected to cause a Material Adverse Change.

 

5.4.                            No Material
Adverse Change in Financial Statements.

 

All consolidated
financial statements for Borrower, and any Subsidiary, delivered to Bank fairly
present in all material respects Borrower’s consolidated financial condition
and Borrower’s consolidated results of operations as of, and for the periods
ended on, the dates specified therein. 
There has not been any material deterioration in Borrower’s consolidated
financial condition since the date of the most recent financial statements
submitted to Bank.

 

5.5.                            Regulatory
Compliance.

 

Borrower is not an
“investment company” or a company “controlled” by an “investment company” under
the Investment Company Act.  Borrower is
not engaged as one of its important activities in extending credit for margin
stock (under Regulations T and U of the Federal Reserve Board of
Governors).  Borrower has complied in all
material respects with the Federal Fair Labor Standards Act.  Borrower has not violated any laws,
ordinances or rules, the violation of which could reasonably be expected to
cause a Material Adverse Change.  None of
Borrower’s or any Subsidiary’s properties or assets has been used by Borrower
or any Subsidiary or, to the best of Borrower’s knowledge, by previous Persons,
in disposing, producing, storing, treating, or transporting any hazardous
substance other than in compliance in all material respects with applicable law.  Borrower and each Subsidiary has timely filed
all

 

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required tax returns and
paid, or made adequate provision to pay, all material taxes, except those being
contested in good faith with adequate reserves under GAAP and which do not
result in any tax lien on any of the Collateral, other than as set forth in
clause (b) of the definition of Permitted Liens. Borrower and each
Subsidiary have obtained all consents, approvals and authorizations of, made
all declarations or filings with, and given all notices to, all government
authorities that are necessary to continue its business as currently conducted,
except where the failure to do so could not reasonably be expected to cause a
Material Adverse Change.

 

5.6.                            Subsidiaries.

 

Borrower does not
own any stock, partnership interest or other equity securities except for
Permitted Investments.

 

5.7.                            Representations;
Full Disclosure.

 

The information in
the Representations previously submitted to Bank continues to be true and
correct as of the date hereof and on each date that the representations and
warranties hereof are otherwise made or deemed to be made, except for such modifications to any
information set forth in the Representations as to which Borrower shall have
notified Bank in a manner acceptable to Bank and which modified information is acceptable to Bank.  No written representation, warranty or other
statement of Borrower in any certificate or written statement given to Bank
(taken together with all such written certificates and written statements to
Bank) contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements contained in the certificates or
statements not misleading.

 

6.                                      AFFIRMATIVE
COVENANTS.

 

Borrower will do
all of the following for so long as Bank has an obligation to lend, or there
are outstanding Obligations:

 

6.1.                            Government
Compliance.

 

Borrower will
maintain its and all Subsidiaries’ legal existence and good standing in its
jurisdiction of formation and maintain qualification in each jurisdiction in
which the failure to so qualify would reasonably be expected to cause a
material adverse effect on Borrower’s business or operations.  Borrower will comply, and have each
Subsidiary comply, with all laws, ordinances and regulations to which it is
subject, noncompliance with which could have a material adverse effect on Borrower’s
business or operations or would reasonably be expected to cause a Material
Adverse Change.

 

6.2.                            Financial
Statements, Reports, Certificates.

 

(a)                                  Borrower
will deliver to Bank:  (i) as soon
as available, but no later than 30 days after the last day of each month, a company
prepared consolidated balance sheet and income statement covering Borrower’s
consolidated operations during the period certified by a Responsible Officer
and in a form acceptable to Bank, in Bank’s good faith business judgment; (ii) (x)
as soon as available, but not later than 5 days following the filling with the Securities
and Exchange Commission of Borrower’s Quarterly Report on form 10-Q, a copy of
Borrower’s form 10-Q; (y) as soon as available, but no later than 5 days
following the filling with the Securities and Exchange Commission of Borrower’s
Annual Report on form 10-K, Borrower’s form 10-K including audited consolidated
financial statements prepared under GAAP, consistently applied, together with
an unqualified opinion on the financial statements from an independent
certified public accounting firm reasonably acceptable to Bank; (iii) a
prompt report of any legal actions pending or threatened against Borrower or
any Subsidiary that could result in damages or costs to Borrower or any
Subsidiary of $250,000 or more, or in which an adverse decision could
reasonably be expected to cause a Material Adverse Change; (iv) budgets,
sales projections, operating plans or other

 

6

 

financial information Bank
reasonably requests, and without limitation of the foregoing, Borrower shall
provide to Bank, no later than the beginning of each fiscal year of the
Borrower, a Board of Directors-approved budget for the Borrower for such fiscal
year; and (v) prompt notice of any material change in the composition of
the Intellectual Property, including any subsequent ownership right of Borrower
in or to any copyright, patent or trademark not shown in any intellectual
property security agreement between Borrower and Bank or knowledge of an event
that materially adversely affects the value of the Intellectual Property.

 

(b)                                 Within
20 days after the last day of each month when any Advances are outstanding and
prior to the making of any Advance when no Advances are then outstanding (and
under such circumstance the following shall be delivered in such time period
prior to the proposed Advance as Bank shall determine is necessary or
advisable), Borrower will deliver to Bank a Borrowing Base Certificate signed
by a Responsible Officer in the form of Exhibit C, with aged listings (by
invoice date) of accounts receivable and accounts payable together with a
report regarding deferred revenue in form acceptable to Bank.

 

(c)                                  Within
30 days after the last day of each month, Borrower will deliver to Bank with
the monthly financial statements a Compliance Certificate signed by a
Responsible Officer in the form of Exhibit D.

 

(d)                                 Allow
Bank to audit Borrower’s Collateral at Borrower’s expense, with the first of
such audits to be completed, with results satisfactory to Bank prior to the
making of any Advances hereunder (it being understood that Bank has heretofore
conducted an audit of Borrower’s Collateral). 
After the initial audit, such audits will be conducted no more often
than every 6 months, unless an Event of Default or Default has occurred and is
continuing and in such event there shall be no limitation as to the frequency
of audit conducted.  Further, upon the
effectiveness of the Asset Based Terms, an audit shall be conducted within 90
days of the effectiveness thereof and subsequent audits shall be conducted on a
quarterly basis or at such other frequency as the conditions warrant as Bank
shall determine in its good faith business judgment (unless there are no Credit
Extensions outstanding and Borrower has not requested that Bank extend any
Credit Extensions hereunder and in such case audits shall be conducted not more
frequently than quarterly, or as Bank shall reasonably determine as conditions
warrant).  In connection with Bank’s
field audits, Borrower shall pay to Bank the sum of $750 per day during such
audit, plus Bank’s reasonable out of pocket expenses incurred in connection
therewith.

 

6.3.                            Inventory;
Returns.

 

Borrower will keep
all Inventory in good and marketable condition, free from material
defects.  Returns and allowances between
Borrower and its account debtors will be in accordance with Borrower’s
customary practices as they exist at execution of this Agreement.  Borrower must promptly notify Bank of all
returns, recoveries, disputes and claims that involve more than $100,000.

 

6.4.                            Taxes.

 

Borrower will
make, and cause each Subsidiary to make, timely payment of all material
federal, state, and local taxes or assessments (except for taxes or assessments
being contested in good faith with adequate reserves under GAAP and which do
not result in any tax lien on any of the Collateral, other than as set forth in
clause (b) of the definition of Permitted Liens) and will deliver to Bank,
on demand, appropriate evidence of such payment.

 

6.5.                            Insurance.

 

Borrower will keep
its business and the Collateral insured for risks and in amounts, as Bank may
reasonably request.  Insurance policies
will be in a form, with companies, and in amounts that are satisfactory to Bank
in Bank’s reasonable discretion.  All
property policies will have a lender’s loss

 

7

 

payable endorsement
showing Bank as an additional loss payee, and all liability policies will show
the Bank as an additional insured and provide that the insurer must give Bank
at least 20 days notice before canceling its policy.  At Bank’s request, Borrower will deliver
certified copies of policies and evidence of all premium payments.  Proceeds payable under any policy will, at
Bank’s option, be payable to Bank on account of the Obligations.

 

6.6.                            Primary
Accounts; Landlord Agreement.

 

Within 90 days of the Effective Date, Borrower will
maintain its primary depository and investment accounts with Bank, which
relationship shall include Borrower maintaining account balances in any
accounts at or through Bank representing at least 85% of all account balances
of Borrower at any financial institution. 
Subject to the foregoing, if Borrower thereafter elects to maintain cash
and investment accounts at institutions other than at Bank, Borrower will under
such circumstances cause the institutions where any Deposit Accounts outside of
the Bank are maintained to execute and deliver to Bank control agreements in
form sufficient to perfect Bank’s security interest in the Deposit Accounts and
which are otherwise satisfactory to Bank in its good faith business
judgment.  Further, Borrower will give
Bank five Business Days advance written notice before establishing any new
account and will cause the institution where any such new Deposit Account is
maintained to execute and deliver to Bank a control agreement in form
sufficient to perfect Bank’s security interest therein and which is otherwise
satisfactory to Bank in its good faith business judgment.

 

Borrower will use its best efforts to deliver to Bank,
within 90 days of the Effective Date, a landlord agreement regarding the
premises leased from a third party by NOMOS in Cranberry Township,
Pennsylvania, which shall be in a form acceptable to Bank.

 

6.7.                            Financial
Covenants.

 

Borrower will
comply with the financial covenants set forth on Schedule 2.

 

6.8.                            Intellectual
Property.

 

(a)                                  Copyrights.  (1) Concurrently herewith, Borrower
shall execute and deliver to Bank a security agreement relative to Borrower’s
Intellectual Property, in form and substance satisfactory to Bank (the “IP
Security Agreement”).  As of the
Effective Date, and as of the date of each borrowing hereunder or if the representations and warranties
hereof are otherwise made or deemed made pursuant hereto, Borrower
represents and warrants that it has no maskworks, computer software, or other
copyrights that are registered (or are the subject of any application for
registration) with the United States Copyright Office, other
than any maskworks, computer software, or other copyrights as to which Borrower has complied with
Borrower’s obligations set forth in subsection (2) of this Section 6.8(a).

 

(2) Borrower will NOT
register with the United States Copyright Office (or apply for such registration
of) any of Borrower’s maskworks, computer software, or other copyrights, unless
Borrower has provided Bank not less than 30 days prior written notice of the filing
of such registration/application and Borrower has executed and delivered to
Bank such security agreement(s) and other documentation (in form and substance
reasonably satisfactory to Bank) which Bank in its good faith business judgment
may require for filing with the United States Copyright Office with respect to
such registration or application.

 

(b)                                 Patents
and Trademarks.  (1)  As of the
Effective Date, and as of the date of each borrowing hereunder or if the representations and warranties
hereof are otherwise made or deemed made pursuant hereto, Borrower
represents and warrants that it has no trademarks or patents that are
registered (or the subject of any application for registration) with the United
States Patent and Trademark Office, other than as set forth in the IP Security
Agreement, and other than any
trademarks or patents as

 

8

 

to
which Borrower has complied with Borrower’s obligations set forth in subsection (2) of
this Section 6.8(b).

 

(2)  Borrower will identify to Bank in writing any and all
patents or trademarks that are registered (or the subject of any application
for registration) with the United States Patent and Trademark Office that
Borrower acquires in the future, promptly upon such acquisition; and, upon Bank’s
request therefor, Borrower shall promptly execute and deliver to Bank such
security agreement(s) and other documentation (in form and substance reasonably
satisfactory to Bank) which Bank in its good faith business judgment may
require for filing with the United States Patent and Trademark Office with
respect to such registrations or applications.

 

(c)                                  Protection
of Intellectual Property.  Borrower will (i) protect,
defend and maintain the validity and enforceability of the Intellectual
Property and promptly advise Bank in writing of material infringements and (ii) not
allow any Intellectual Property material to Borrower’s business to be
abandoned, forfeited or dedicated to the public without Bank’s written consent.

 

(d)(1) As of
the Effective Date, and as of the date of each borrowing hereunder or if the representations and warranties
hereof are otherwise made or deemed made pursuant hereto, except as
noted on the Borrower’s Representations and Schedule 1 hereto, Borrower is
not a party to, nor is bound by, any material license or other material
agreement with respect to which the Borrower is the licensee that prohibits or
otherwise restricts Borrower from granting a security interest in Borrower’s
interest in such license or agreement or any other property, other than any such license or agreement as
to which Borrower has complied with Borrower’s obligations set forth in Subsection (2) of
this Section 6.8(d) .

 

(2)  Borrower will provide written notice to Bank within ten (10) days
of entering or becoming bound by any such license or agreement which is
reasonably likely to have a material impact on Borrower’s business or financial
condition (other than over-the-counter software that is commercially available
to the public).  Borrower shall take such
steps as Bank reasonably requests to obtain the consent of, authorization by,
or waiver by, any person whose consent or waiver is necessary for all such
licenses or contract rights to be deemed “Collateral” and for Bank to have a
security interest in it that might otherwise be restricted or prohibited by law
or by the terms of any such license or agreement (such consent or authorization
may include a licensor’s agreement to a contingent assignment of the license to
Bank if the Bank determines that is necessary in its good faith judgment),
whether now existing or entered into in the future.

 

6.9.                            Lockbox
Arrangements, etc.

 

Borrower shall establish a lockbox account with Bank in
such form as Bank may specify and enter into such arrangements relating thereto
regarding the collection of the proceeds of Accounts as Bank shall request.

 

6.10.                     Further
Assurances.

 

Borrower will
execute any further instruments and take further action as Bank reasonably
requests to perfect or continue Bank’s security interest in the Collateral or
to effect the purposes of this Agreement.

 

7.                                      NEGATIVE
COVENANTS.

 

Borrower will not
do any of the following without Bank’s prior written consent, which will not be
unreasonably withheld, for so long as Bank has an obligation to lend and there
are any outstanding Obligations:

 

9

 

7.1.                            Dispositions.

 

Convey, sell,
lease, transfer or otherwise dispose of (collectively “Transfer”), or permit
any of its Subsidiaries to Transfer, all or any part of its business or
property or any Collateral, except for Transfers (i) of Inventory in the
ordinary course of business; (ii) of non-exclusive licenses and similar
arrangements for the use of the property of Borrower or its Subsidiaries in the
ordinary course of business; (iii) of worn out or obsolete Equipment; or (iv) of
other assets of Borrower or its Subsidiaries that do not in the aggregate
exceed $250,000 in any fiscal year.

 

7.2.                            Changes in
Business, Non-Ordinary Course Transactions, Ownership, Management or Locations
of Collateral.

 

Engage in or
permit any of its Subsidiaries to engage in any business other than the
businesses currently engaged in by Borrower or reasonably related thereto, or
enter into any transaction outside the ordinary course of business not
expressly permitted hereunder, or permit there to be an acquisition by any
party or group of affiliated parties, in one or more transactions, of more than
51% of the outstanding amount of fully diluted common stock and common stock
equivalents of Borrower, compared to the amount of outstanding shares of stock
of Borrower in effect on the date hereof (other than by the sale of Borrower’s
equity securities in a public offering or to venture capital investors so long
as Borrower identifies to the Bank, in writing, the venture capital investors
prior to the closing of the investment). 
Borrower will not, without at least 30 days prior written notice to the
Bank, relocate its chief executive office, change its state of formation
(including by reincorporation), change its organizational number or name or add
any new offices or business locations (including warehouses) in which Borrower
maintains or stores over $100,000 in Collateral.

 

7.3.                            Mergers or
Acquisitions.

 

Merge or
consolidate, or permit any of its Subsidiaries to merge or consolidate, with
any other Person, or acquire, or permit any of its Subsidiaries to acquire, all
or substantially all of the capital stock or property of another Person, except
a Subsidiary may merge or consolidate into another Subsidiary or into Borrower
if no Default or Event of Default has occurred and is continuing or would
result from such action.

 

7.4.                            Indebtedness.

 

Create, incur,
assume, or be liable for any Indebtedness, or permit any Subsidiary to do so,
other than Permitted Indebtedness.

 

7.5.                            Encumbrance.

 

Create, incur, or
allow any Lien on any of its property, or assign or convey any right to receive
income, including the sale of any Accounts, or permit any of its Subsidiaries
to do so, except for Permitted Liens, or permit any Collateral not to be
subject to the first priority security interest granted hereby, subject to
Permitted Liens.

 

7.6.                            Distributions;
Investments.

 

Directly or
indirectly acquire or own any Person, or make any Investment in any Person,
other than Permitted Investments, or permit any of its Subsidiaries to do
so.  Pay any dividends (other than
dividends payable solely in stock of the Borrower) or make any distribution or
payment or redeem, retire or purchase any capital stock, except that Borrower
may repurchase stock pursuant to any transaction constituting a Permitted
Investment.

 

10

 

7.7.                            Transactions
with Affiliates.

 

Directly or
indirectly enter into or permit to exist any material transaction with any
Affiliate of Borrower except for transactions that are in the ordinary course
of Borrower’s business, upon fair and reasonable terms that are no less
favorable to Borrower than would be obtained in an arm’s length transaction
with a nonaffiliated Person.

 

7.8.                            Subordinated
Debt.

 

Make or permit any
payment on any Subordinated Debt, except under the terms of the Subordinated
Debt, or amend any provision in any document relating to the Subordinated Debt
without Bank’s prior written consent.

 

7.9.                            Compliance.

 

Become an “investment
company” or a company controlled by an “investment company,” under the
Investment Company Act of 1940 or undertake as one of its important activities
extending credit to purchase or carry margin stock, or use the proceeds of any
Credit Extension for that purpose; fail to meet the minimum funding requirements
of ERISA, permit a Reportable Event or Prohibited Transaction, as defined in
ERISA, to occur; fail to comply with the Federal Fair Labor Standards Act or
violate any other law or regulation, if the failure to comply or violation would
reasonably be expected to cause a Material Adverse Change, or permit any of its
Subsidiaries to do so.

 

8.                                      EVENTS
OF DEFAULT.

 

Any one of the
following is an Event of Default:

 

8.1.                            Payment
Default.

 

If Borrower fails
to pay any of the Obligations within 3 days after their due date.

 

8.2.                            Certain
Defaults.

 

If Borrower (i) fails
to provide the financial statements called for by Section 6.2 hereof or by
any other provisions of this Agreement, within the time therein provided; or (ii) fails
to perform or comply with any other term, condition or covenant in any other
agreement between Borrower and Bank which is not cured within any cure period
provided in such agreement.

 

8.3.                            Other
Defaults.

 

If Borrower fails
to perform or comply with any other term, condition or covenant in this
Agreement (other than as set forth in Section 8.1 or 8.2 above or, while
the Asset Based Terms are not in effect, the Financial Covenants set
forth in Schedule 2 hereto), and such failure is not cured within 30 days
after the date it occurs.

 

8.4.                            Material
Adverse Change.

 

A Material Adverse
Change occurs.

 

8.5.                            Attachment.

 

If any of Borrower’s
assets having a value in the aggregate of more than $250,000 is attached,
seized, levied on, or comes into possession of a trustee or receiver and the attachment,
seizure or levy is not removed in 10 days, or if Borrower is enjoined,
restrained, or prevented by court order from

 

11

 

conducting a material
part of its business or if a judgment or other claim becomes a Lien on a
material portion of Borrower’s assets, or if a notice of lien, levy, or
assessment is filed against any of Borrower’s assets by any government agency
and not paid within 10 days after Borrower receives notice; provided that none
of the foregoing shall constitute an Event of Default if stayed or if a bond is
posted pending contest by Borrower;

 

8.6.                            Insolvency.

 

If Borrower fails
to pay its debts generally as they mature, or if Borrower begins an Insolvency
Proceeding, or if an Insolvency Proceeding is begun against Borrower and not
dismissed or stayed within 30 days;

 

8.7.                            Other
Agreements.

 

If there is a
default in any agreement between Borrower and a third party that gives the
third party the right to accelerate any Indebtedness exceeding $250,000 or that
could cause a Material Adverse Change;

 

8.8                               Judgments.

 

If a money
judgment(s) in the aggregate of at least $250,000 is rendered against Borrower
and is unsatisfied and unstayed for 10 days;

 

8.9.                            Misrepresentations.

 

If any material
misrepresentation or material misstatement exists now or hereafter of any warranty
or representation in this Agreement or in any writing delivered to Bank or to
induce Bank to enter this Agreement or any Loan Document; or

 

8.10.                     Guaranty.

 

Any guaranty of
any Obligations ceases for any reason to be in full force or any Guarantor does
not perform any obligation under any guaranty of any of the Obligations, or any
material misrepresentation or material misstatement exists now or hereafter in
any warranty or representation in any guaranty of the Obligations or in any
certificate delivered to Bank in connection with the guaranty, or any
circumstance described in Sections 8.5, 6 or 8 occurs to any Guarantor.

 

No Credit
Extensions will be made during any of the cure periods set forth in Sections
8.1. 8.6 or 8.8 above.

 

9.                                      BANK’S
RIGHTS AND REMEDIES.

 

9.1.                            Rights and
Remedies.

 

When an Event of
Default occurs and continues Bank may, without notice or demand, do any or all
of the following:

 

(a)                                  Declare
all Obligations immediately due and payable (but if an Event of Default
described in Section 8.6 occurs all Obligations are immediately due and
payable without any action by Bank);

 

(b)                                 Stop
advancing money or extending credit for Borrower’s benefit under this Agreement
or under any other agreement between Borrower and Bank and terminate the
Committed Revolving Line and any FX Contracts;

 

12

 

(c)                                  Settle
or adjust disputes and claims directly with account debtors for amounts, on
terms and in any order that Bank considers advisable;

 

(d)                                 Make
any payments and do any acts it considers necessary or reasonable to protect
its security interest in the Collateral. 
Borrower will assemble the Collateral if Bank requires and make it available
as Bank designates.  Bank may enter
premises where the Collateral is located, take and maintain possession of any
part of the Collateral, and pay, purchase, contest, or compromise any Lien
which appears to be prior or superior to its security interest and pay all
expenses incurred. Borrower grants Bank a license to enter and occupy any of
its premises, without charge, to exercise any of Bank’s rights or remedies;

 

(e)                                  Apply
to the Obligations any (i) balances and deposits of Borrower it holds, or (ii) any
amount held by Bank owing to or for the credit or the account of Borrower;

 

(f)                                    Ship,
reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise
for sale, and sell the Collateral.  Bank
is granted a non-exclusive, royalty-free license or other right to use, without
charge, Borrower’s labels, Intellectual Property, and advertising matter, and
any similar property as it pertains to the Collateral, in completing production
of, advertising for sale, and selling any Collateral and, in connection with
Bank’s exercise of its rights under this Section, Borrower’s rights under all
licenses and all franchise agreements inure to Bank’s benefit; and

 

(g)                                 Dispose
of the Collateral according to the Code.

 

9.2.                        Power of
Attorney.

 

Effective only when
an Event of Default occurs and continues, Borrower irrevocably appoints Bank as
its lawful attorney to:  (i) endorse
Borrower’s name on any checks or other forms of payment or security; (ii) sign
Borrower’s name on any invoice or bill of lading for any Account or drafts
against account debtors, (iii) make, settle, and adjust all claims under
Borrower’s insurance policies; (iv) settle and adjust disputes and claims
about the Accounts directly with account debtors, for amounts and on terms Bank
determines reasonable; and (v) transfer the Collateral into the name of
Bank or a third party as the Code permits. 
Bank may exercise the power of attorney to sign Borrower’s name on any
documents necessary to perfect or continue the perfection of any security
interest regardless of whether an Event of Default has occurred.  Bank’s appointment as Borrower’s attorney in
fact, and all of Bank’s rights and powers, are coupled with an interest, are
irrevocable until all Obligations have been fully repaid and performed and Bank’s
obligation to provide Credit Extensions terminates.

 

9.3.                            Accounts
Collection.

 

Without limitation
of the lockbox arrangement in place hereunder, when an Event of Default occurs
and continues, Bank may notify any Person owing Borrower money of Bank’s
security interest in the funds and demand payment of, and collect any Accounts,
general intangibles and other Collateral, and, in connection therewith,
Borrower irrevocably authorizes Bank to endorse or sign Borrower’s name on all
collections, receipts, instruments and other documents, and, in Bank’s good
faith business judgment, to grant extensions of time to pay, compromise claims
and settle Accounts and general intangibles for less than face value.  When an Event of Default occurs and
continues, and to the extent that Borrower receives proceeds and payments
(which should not be the case regarding ordinary course payments to the extent
the contemplated lockbox arrangement remains in effect), Borrower shall collect
all payments in trust for Bank and, if requested by Bank, immediately deliver
the payments to Bank in the form received from the account debtor, with proper
endorsements for deposit.

 

13

 

9.4.                            Bank
Expenses.

 

If Borrower fails
to obtain the insurance called for by Section 6.5 or fails to pay any
premium thereon or fails to pay any other amount, which Borrower is obligated
to pay under this Agreement or any other Loan Document, Bank may obtain such
insurance or make such payment, and all amounts so paid by Bank are Bank
Expenses and immediately due and payable (and Bank shall give reasonable notice
to Borrower thereof), bearing interest at the then applicable rate and secured
by the Collateral.  No payments by Bank
shall be deemed an agreement to make similar payments in the future or Bank’s
waiver of any Event of Default.

 

9.5.                            Bank’s
Liability for Collateral.

 

If Bank complies
with reasonable banking practices and Section 9207 of the Code, it is not
liable for: (a) the safekeeping of the Collateral; (b) any loss or
damage to the Collateral; (c) any diminution in the value of the
Collateral; or (d) any act or default of any carrier, warehouseman,
bailee, or other person.  Borrower bears
all risk of loss, damage or destruction of the Collateral.

 

9.6.                            Remedies
Cumulative.

 

Bank’s rights and
remedies under this Agreement, the Loan Documents, and all other agreements are
cumulative.  Bank has all rights and
remedies provided under the Code, by law, or in equity. Bank’s exercise of one
right or remedy is not an election, and Bank’s waiver of any Event of Default
is not a continuing waiver. Bank’s delay is not a waiver, election, or
acquiescence. No waiver is effective unless signed by Bank and then is only
effective for the specific instance and purpose for which it was given.

 

9.7.                            Demand
Waiver.

 

Borrower waives
demand, notice of default or dishonor, notice of payment and nonpayment, notice
of any default, nonpayment at maturity, release, compromise, settlement,
extension, or renewal of accounts, documents, instruments, chattel paper, and
guarantees held by Bank on which Borrower is liable.

 

9.8.                            Asset Based
Terms.

 

If, at such time
while any Credit Extensions are outstanding, Borrower breaches any of the
Financial Covenants (as defined in Schedule 2), the provisions of Exhibit E
hereto (the “Asset Based Terms”) and the applicable Asset Based Terms as
otherwise set forth herein, including, without limitation, as set forth in Schedule 2,
shall be effective upon written notice by Bank to the Borrower.  If Borrower breaches the Financial Covenants,
and no Credit Extensions are outstanding at such time, such breach of the
Financial Covenants shall not constitute an Event of Default, but Bank shall
have no obligation to make any Advances to Borrower until such time as the
Asset Based Terms shall have become effective.  The foregoing institution of such Asset Based
Terms does not diminish or otherwise derogate from all other rights and
remedies of Bank upon the occurrence of an Event of Default, and all of such
rights and remedies relating thereto are deemed reserved and not waived.  Borrower acknowledges and agrees that
Borrower’s breach of the Financial Covenants that are applicable while the
Asset Based Terms are in effect shall constitute an Event of Default.

 

10.                               NOTICES.

 

All notices or
demands by any party about this Agreement or any other related agreement must
be in writing and be personally delivered or sent by an overnight delivery
service, by certified mail, postage prepaid, return receipt requested, or by
fax to the addresses set forth at the beginning of this

 

14

 

Agreement and, in the
case of notices by fax, to the latest fax number a party has for the other
party.  A party may change its notice
address by giving the other party written notice.

 

11.                               CHOICE
OF LAW, VENUE AND JURY TRIAL WAIVER.

 

California law
governs the Loan Documents without regard to principles of conflicts of
law.  Borrower and Bank each submit to
the exclusive jurisdiction of the State and Federal courts in Orange County,
California.

 

BORROWER AND BANK
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 BANK AND BORROWER, OR ANY
CONDUCT, ACTS OR OMISSIONS OF BANK OR BORROWER OR ANY OF THEIR DIRECTORS,
OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH
BANK OR BORROWER, IN ALL OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT
OR TORT OR OTHERWISE. THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO
ENTER INTO THIS AGREEMENT.  EACH PARTY
HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.

 

12.                               GENERAL
PROVISIONS

 

12.1.                     Successors
and Assigns.

 

This Agreement
binds and is for the benefit of the successors and permitted assigns of each
party.  Borrower may not assign this
Agreement or any rights under it without Bank’s prior written consent which may
be granted or withheld in Bank’s discretion. 
Bank has the right, without the consent of or notice to Borrower, to
sell, transfer, negotiate, or grant participation in all or any part of, or any
interest in, Bank’s obligations, rights and benefits under this Agreement.  Bank agrees to use reasonable efforts to
notify Borrower of any transfer of Bank’s rights hereunder, provided
that Bank shall incur no liability for its failure, for any reason, to notify
Borrower.

 

12.2.                     Indemnification.

 

Borrower will
indemnify, defend and hold harmless Bank and its officers, employees, and agents
against:  (a) all obligations,
demands, claims, and liabilities asserted by any other Person in connection
with the transactions contemplated by the Loan Documents; and (b) all
losses or Bank Expenses incurred, or paid by Bank from, following, or consequential
to transactions between Bank and Borrower (including reasonable attorneys fees
and expenses), except for losses caused by Bank’s gross negligence or willful
misconduct.

 

12.3.                     Time of
Essence.

 

Time is of the
essence for the performance of all obligations in this Agreement.

 

12.4.                     Severability
of Provision.

 

Each provision of
this Agreement is severable from every other provision in determining the
enforceability of any provision.

 

12.5.                     Amendments
in Writing, Integration.

 

All amendments to
this Agreement must be in writing and signed by Borrower and Bank.  This Agreement represents the entire
agreement about this subject matter, and supersedes prior negotiations or
agreements.  All prior agreements,
understandings, representations, warranties, and negotiations

 

15

 

between the parties about
the subject matter of this Agreement merge into this Agreement and the Loan
Documents.

 

12.6.                     Counterparts.

 

This Agreement may
be executed in any number of counterparts and by different parties on separate
counterparts, each of which, when executed and delivered, are an original, and
all taken together, constitute one Agreement.

 

12.7.                     Survival.

 

All covenants,
representations and warranties made in this Agreement continue in full force
while any Obligations remain outstanding. 
The obligations of Borrower in Section 12.2 to indemnify Bank will
survive until all statutes of limitations for actions that may be brought
against Bank have run.

 

12.8.                     Confidentiality.

 

In handling any
confidential information, Bank will exercise the same degree of care that it
exercises for its own proprietary information, but disclosure of information
may be made (i) to Bank’s subsidiaries or affiliates in connection with
their business with Borrower, (ii) to prospective transferees or
purchasers of any interest in the loans (provided, however, Bank shall use
commercially reasonable efforts in obtaining such prospective transferee or
purchasers agreement of the terms of this provision), (iii) as required by
law, regulation, subpoena, or other order, (iv) as required in connection
with Bank’s examination or audit and (v) as Bank considers appropriate in exercising
remedies under this Agreement. 
Confidential information does not include information that either: (a) is
in the public domain or in Bank’s possession when disclosed to Bank, or becomes
part of the public domain after disclosure to Bank; or (b) is disclosed to
Bank by a third party, if Bank does not know that the third party is prohibited
from disclosing the information.

 

12.9.                     Attorneys’
Fees, Costs and Expenses.

 

In any action or
proceeding between Borrower and Bank arising out of the Loan Documents, the
prevailing party will be entitled to recover its reasonable attorneys’ fees and
other reasonable costs and expenses incurred, in addition to any other relief
to which it may be entitled.

 

13.                               DEFINITIONS.

 

13.1.                     Definitions.

 

In this Agreement:

 

“ Accounts” is defined on Exhibit A hereto.

 

“Advance” or “Advances” is a
loan advance (or advances) under the Committed Revolving Line.

 

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

 

“Bank Expenses” are all audit fees and expenses and
reasonable costs and expenses (including reasonable attorneys’ fees and
expenses) for preparing, negotiating, administering, defending and

 

16

 

enforcing the Loan
Documents (including appeals or Insolvency Proceedings), or otherwise relating
to Borrower or the Loan Documents, including, but not limited to, any reasonable
attorneys’ fees and costs Bank incurs in order to do the following: obtain
legal advice in connection with this Agreement or Borrower; enforce, or seek to
enforce, any of Bank’s 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 bankruptcy claim, third-party claim, or other claim; protect,
obtain possession of, lease, dispose of, or otherwise enforce Bank’s security
interest in, the Collateral; and otherwise represent Bank in any litigation
relating to Borrower.

 

“Borrower’s Books” are all Borrower’s books and records
including ledgers, records regarding Borrower’s assets or liabilities, the
Collateral, business operations or financial condition and all computer
programs or discs or any equipment containing the information.

 

“Business Day” is any day that is not a Saturday, Sunday or a
day on which the Bank is closed.

 

“Closing Date” is the date of this Agreement.

 

“Code” is the California Uniform Commercial Code, in effect
from time to time.

 

“Collateral” is the property described on Exhibit A.

 

“Committed Revolving Line” is the credit facility hereunder
relating to the making of Advances in an aggregate amount not to exceed Five
Million Dollars ($5,000,000) on a joint basis for all Borrowers and otherwise
subject to the terms and conditions hereof.

 

“Contingent Obligation” is, for any Person, any direct or
indirect liability, contingent or not, of that Person for (i) any
indebtedness, lease, dividend, letter of credit or other obligation of another
such as an obligation directly or indirectly guaranteed, endorsed, co made,
discounted or sold with recourse by that Person, or for which that Person is
directly or indirectly liable; (ii) any obligations for undrawn letters of
credit for the account of that Person; and (iii) all obligations from any
interest rate, currency or commodity swap agreement, interest rate cap or
collar agreement, or other agreement or arrangement designated to protect a
Person against fluctuation in interest rates, currency exchange rates or
commodity prices;  but “Contingent
Obligation” does not include endorsements in the ordinary course of
business.  The amount of a Contingent
Obligation is the stated or determined amount of the primary obligation for
which the Contingent Obligation is made or, if not determinable, the maximum
reasonably anticipated liability for it determined by the Person in good faith;
but the amount may not exceed the maximum of the obligations under the
guarantee or other support arrangement.

 

“Credit Extension” is each Advance, Letter of Credit, FX
Forward Contract, Cash Management Services utilization and each other extension
of credit by Bank for Borrower’s benefit under and relating to this Agreement.

 

“Current Liabilities” are the aggregate amount of Borrower’s
Total Liabilities which mature within one (1) year.

 

“Effective
Date” is the date that Bank executes this Agreement.

 

“Eligible Accounts” are Accounts in the ordinary course of
Borrower’s business that meet all Borrower’s representations and warranties in Section 5;
but Bank may change eligibility standards by giving Borrower notice.  Unless Bank agrees otherwise in writing,
Eligible Accounts will not include:

 

(a)                                  Accounts
that the account debtor has not paid within 90 days of invoice date;

 

17

 

(b)                                 Accounts
for an account debtor, 50% or more of whose Accounts have not been paid within
90 days of invoice date;

 

(c)                                  Credit
balances over 90 days from invoice date;

 

(d)                                 Accounts
for an account debtor, including Affiliates, whose total obligations to
Borrower exceed 25% of all Accounts, for the amounts that exceed that
percentage;

 

(e)                                  Accounts
for which the account debtor does not have its principal place of business in
the United States;

 

(f)                                    Accounts
for which the account debtor is a federal, state or local government entity or
any department, agency, or instrumentality;

 

(g)                                 Accounts
for which Borrower owes the account debtor, but only up to the amount owed
(sometimes called “contra” accounts, accounts payable, customer deposits or
credit accounts);

 

(h)                                 Accounts
for demonstration or promotional equipment, or in which goods are consigned,
sales guaranteed, sale or return, sale on approval, bill and hold, or other
terms if account debtor’s payment may be conditional;

 

(i)                                     Accounts
for which the account debtor is Borrower’s Affiliate, officer, employee, or
agent;

 

(j)                                     Accounts
in which the account debtor disputes liability or makes any claim or Bank
believes there may be a basis for dispute (but only up to the disputed or
claimed amount), or if the Account Debtor is subject to an Insolvency
Proceeding, or becomes insolvent, or goes out of business; and

 

(k)                                  Accounts
for which Bank reasonably determines collection to be doubtful.

 

“Equipment” is defined on Exhibit A hereto.

 

“ERISA” is the Employment Retirement Income Security Act of
1974, and its regulations.

 

“FX
Forward Contract” shall have the meaning ascribed to such
term in Section 2.1.3 hereof.

 

“FX
Reserve” shall have the meaning ascribed to such term in Section 2.1.3
hereof.

 

“GAAP” is generally accepted accounting principles,
consistently applied.

 

“Guarantor” is any present or future guarantor of any of the
Obligations.

 

“Indebtedness” is (a) indebtedness for borrowed money or
the deferred price of property or services, such as reimbursement and other
obligations for surety bonds and letters of credit, (b) obligations
evidenced by notes, bonds, debentures or similar instruments, (c) capital
lease obligations and (d) Contingent Obligations.

 

“Insolvency Proceeding” are proceedings by or against any
Person under the United States Bankruptcy Code, or any other bankruptcy or
insolvency law, including assignments for the benefit of creditors,
compositions, extensions generally with its creditors, or proceedings seeking
reorganization, arrangement, or other relief.

 

“Intellectual Property” is defined on Exhibit A hereto.

 

18

 

“Inventory” is defined on Exhibit A hereto.

 

“Investment” is any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.

 

“Letter of Credit” is defined in Section 2.1.2.

 

“Lien” is a mortgage, lien, deed of trust, charge, pledge,
security interest or other encumbrance.

 

“Loan Documents” are, collectively, this Agreement, any note,
or notes or guaranties executed by Borrower or Guarantor, and any other present
or future agreement between Borrower and/or for the benefit of Bank in
connection with this Agreement, all as amended, extended or restated.

 

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

 

“Maturity Date” is set forth on Schedule 2.

 

“NASI
Eligible Accounts” are Accounts in the ordinary course of
NASI’s business that constitute Eligible Accounts hereunder.

 

“NASI-CA
Eligible Accounts” are Accounts in the ordinary course of
NASI-CA’s business that constitutes Eligible Accounts hereunder.

 

“NOMOS
Eligible Accounts” are Accounts in the ordinary course of
NOMOS’ business that constitute Eligible Accounts hereunder.

 

“Obligations” are debts, principal, interest, Bank Expenses
and other amounts Borrower owes Bank now or later, including cash management
services, letters of credit and foreign exchange contracts, if any and
including interest accruing after Insolvency Proceedings begin and debts,
liabilities, or obligations of Borrower assigned to Bank.

 

“Patents”
are patents, patent applications and like protections, including improvements,
divisions, continuations, renewals, reissues, extensions and continuations in
part of the same.

 

“Permitted Indebtedness” is:

 

(a)                                  Borrower’s
indebtedness to Bank under this Agreement or any other Loan Document;

 

(b)                                 Indebtedness
existing on the Closing Date and shown on Schedule 1;

 

(c)                                  Subordinated
Debt;

 

(d)                                 Indebtedness
to trade creditors incurred in the ordinary course of business;

 

(e)                                  Indebtedness
secured by Permitted Liens;

 

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

 

(g)                                 Intercompany
loans between NASI, NASI-CA, and NOMOS; and

 

19

 

(h)                                 Other
Indebtedness in an aggregate amount not to exceed One Hundred Thousand Dollars
($100,000).

 

“Permitted Investments” are:

 

(a)                                  Investments
shown on Schedule 1 and existing on the Closing Date;

 

(b)                                 (i) marketable
direct obligations issued or unconditionally guaranteed by the United States or
its agency or any State maturing within 1 year from its acquisition, (ii) commercial
paper maturing no more than 1 year after its creation and having the highest
rating from either Standard & Poor’s Corporation or Moody’s Investors
Service, Inc., and (iii) Bank’s certificates of deposit issued
maturing no more than 1 year after issue;

 

(c)                                  Investments
in (A) foreign subsidiaries of NASI in the ordinary course of business
consistent with past business practices provided that the aggregate amount
thereof in any fiscal year shall not exceed $500,000, provided further, no such
Investments may be made at such time that a Default or an Event of Default is
occurring prior to the making thereof or would arise upon the making thereof
unless Bank specifically consents thereto in writing and (B) Theseus
Imaging Corporation, a current domestic subsidiary of NASI which Borrower
represents to Bank will be dissolved no later than October 31, 2006, and
prior to such dissolution Borrower may make Investments necessary to wind up
the business affairs of such company as long as the aggregate amount thereof
does not exceed $750,000;

 

(d)                                 Repurchase
of Borrower’s stock (i) in an amount not to exceed $2,000,000 in the
aggregate during the term of this Agreement, provided that no Event of default
has occurred and is continuing or would result therefrom, or (ii) if the
consideration for the repurchase is the cancellation of indebtedness owned to
Borrower by former employees, and no cash consideration is paid by Borrower in
connection with such repurchase;

 

(e)                                  Investments
accepted in connection with transfers permitted under Section 7.1 hereof;

 

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

 

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

 

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

 

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

 

“Permitted Liens” are:

 

(a)                                  Liens
existing on the Closing Date and shown on Schedule 1 or arising under this
Agreement or other Loan Documents;

 

20

 

(b)                                 Liens
for taxes, fees, assessments or other government charges or levies, either not
delinquent or being contested in good faith and for which Borrower maintains
adequate reserves on its Books, if they have no priority over any of Bank’s
security interests;

 

(c)                                  Purchase
money Liens (i) on Equipment acquired or held by Borrower or its
Subsidiaries incurred for financing the acquisition of the Equipment, or (ii) existing
on equipment when acquired, if the Lien is confined to the property and
improvements and the proceeds of the equipment;

 

(d)                                 Nonexclusive
licenses and non-exclusive sublicenses granted by Borrower in the ordinary
course of its business;

 

(e)                                  Leases
or subleases granted in the ordinary course of Borrower’s business, including
in connection with Borrower’s leased premises or leased property;

 

(f)                                    Liens
incurred in the extension, renewal or refinancing of the indebtedness secured
by Liens described in (a) through (c), but any extension, renewal or
replacement Lien must be limited to the property encumbered by the existing
Lien and the principal amount of the indebtedness may not increase; and

 

(g) Liens in favor of other financial institutions arising in
connection with Borrower’s deposit accounts held at such institutions to secure
standard fees for deposit services charged by such institutions, provided that
Bank as a perfected first priority security interest in such deposit accounts
and any amounts on deposit therein.

 

“Person” is any individual, sole proprietorship, partnership,
limited liability company, joint venture, company association, trust,
unincorporated organization, association, corporation, institution, public
benefit corporation, firm, joint stock company, estate, entity or government
agency.

 

“Prime Rate” is Bank’s most recently announced “prime rate,”
even if it is not Bank’s lowest rate.

 

 “Representations”
are the written Representations and Warranties of Borrower dated September 15,
2005.

 

“Responsible Officer” is each of the Chief Executive Officer,
the President, the Chief Financial Officer and the Controller of Borrower.

 

“Schedule 1” is Schedule 1 to this Agreement.

 

“Schedule 2” is Schedule 2 to this Agreement.

 

“Subordinated Debt” is debt incurred by Borrower subordinated
to Borrower’s indebtedness owed to Bank and which is reflected in a written
agreement in a manner and form acceptable to Bank and approved by Bank in
writing.

 

“Subsidiary” is for any Person, or any other business entity
of which more than 50% of the voting stock or other equity interests is owned
or controlled, directly or indirectly, by the Person or one or more Affiliates
of the Person.

 

“Total Liabilities” is on any day, obligations that should,
under GAAP, be classified as liabilities on Borrower’s consolidated balance
sheet, including all Indebtedness that should, under GAAP, be classified as
liabilities on Borrower’s consolidated balance sheet, and current portion
Subordinated Debt allowed to be paid, but excluding all other Subordinated
Debt.

 

21

 

                                                IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written above.

 

	
  “BORROWER”:

  	
   

  	
  “BANK”:

  
	
   

  	
   

  	
   

  	
   

  
	
  NORTH AMERICAN SCIENTIFIC, INC.

  	
   

  	
  SILICON VALLEY BANK

  
	
  a Delaware corporation

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
      /s/ L. Michael Cutrer

  	
   

  	
  By:

  	
       /s/ Bob Muller

  	
   

  
	
  Name:

  	
       L. Michael Cutrer

  	
   

  	
  Name:

  	
     Bob Muller

  	
   

  
	
  Title:

  	
       President &
  CEO

  	
   

  	
  Title:

  	
      Sr. Relationship Manager

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  NORTH AMERICAN SCIENTIFIC, INC.

  	
   

  	
   

  	
   

  
	
  a California corporation

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
             /s/
  L. Michael Cutrer

  	
   

  	
   

  	
   

  	
   

  
	
  Name:

  	
         L. Michael
  Cutrer

  	
   

  	
   

  	
   

  	
   

  
	
  Title:

  	
                   President &
  CEO

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  NOMOS CORPORATION,

  	
   

  	
   

  	
   

  
	
  a Delaware corporation

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
                    /s/
  L. Michael Cutrer

  	
   

  	
   

  	
   

  	
   

  
	
  Name:

  	
               
  L. Michael Cutrer

  	
   

  	
   

  	
   

  	
   

  
	
  Title:

  	
                  President &
  CEO

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Effective Date: October 5, 2005

  	
   

  	
   

  	
   

  
																		

 

22

 

Schedule 2 to

LOAN AND SECURITY AGREEMENT

 

	
  Borrower:

  	
  North American Scientific, Inc., a Delaware
  Corporation

  
	
   

  	
  North American Scientific, Inc., a
  California Corporation

  
	
   

  	
  NOMOS Corporation, a Delaware corporation

  
	
   

  	
   

  
	
  Date:

  	
  October 5, 2005

  

 

This Schedule forms an integral part of the Loan and Security
Agreement (the “Loan Agreement”) between Silicon Valley Bank (“Bank”) and the
above-borrowers (collectively, jointly and severally, the “Borrower”) of even
date herewith.  (Capitalized terms used
herein, which are not defined, shall have the meanings set forth in the Loan
Agreement.)

 

	
  1.

  	
  CREDIT LIMIT

  	
   

  	
   

  
	
   

  	
  (Section 2.1.1):

  	
   

  	
  WHILE THE ASSET-BASED TERMS ARE NOT IN EFFECT, an amount of Advances not to exceed the lesser of
  (A) or (B):

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  (A) $5,000,000
  at any one time outstanding (the “Revolving Line Credit Amount”); or

  
	
   

  	
   

  	
   

  	
  (B) The sum of (i) up to 80% of the amount of NASI Eligible Accounts, (ii) up
  to 80% of the amount of NASI-CA Eligible
  Accounts, (iii) up to 80% of the
  amount of NOMOS Eligible Accounts, and (iv) the Liquidity Availability;

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  minus

  
	
   

  	
   

  	
   

  	
  (i) the amount of all
  outstanding Letters of Credit (including drawn but unreimbursed Letters of
  Credit); minus

  
	
   

  	
   

  	
   

  	
  (ii) the FX Reserve; and minus

  
	
   

  	
   

  	
   

  	
  (iii) the aggregate amount of
  Cash Management Services utilizations.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  As used herein the term “Liquidity Availability” as
  used herein shall mean the lesser of (i) $3,000,000, and (ii) 50%
  of Borrower’s consolidated, unrestricted cash, and unrestricted cash
  equivalents (including marketable securities), less the aggregate
  amount of Indebtedness owing to Bank, measured on a monthly basis, based upon
  the most recent monthly Borrower’s financial statements and reports provided
  to Bank as set forth in the Loan Agreement.

  
	
   

  	
   

  	
   

  	
  This clause (B) is
  collectively referred to as the “Borrowing Base”, subject to modification as
  follows.

  

 

23

 

	
   

  	
   

  	
   

  	
  WHILE THE ASSET-BASED TERMS ARE IN EFFECT, the Borrowing Base shall be equal to:

  
	
   

  	
   

  	
   

  	
  The sum of (i) up to 80% of the amount of NASI Eligible Accounts, (ii) up
  to 80% of the amount of NASI-CA Eligible
  Accounts, and (iii) up to 80% of the
  amount of NOMOS Eligible Accounts;

  
	
   

  	
   

  	
   

  	
  minus

  
	
   

  	
   

  	
   

  	
  (i) the amount of all
  outstanding Letters of Credit (including drawn but unreimbursed Letters of
  Credit); minus

  
	
   

  	
   

  	
   

  	
  (ii) the FX Reserve; and minus

  
	
   

  	
   

  	
   

  	
  (iii) the aggregate amount of Cash Management Services utilizations.

  
	
   

  	
   

  	
   

  	
  provided, however, that while the Asset-Based
  Terms are in effect, Bank shall have the
  right, in Bank’s discretion, to modify the above Borrowing Base formula based
  upon the results of field audits conducted by Bank.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Letter of Credit Sublimit

  	
   

  	
   

  
	
   

  	
  (Section 2.1.2):

  	
   

  	
  $500,000.

  
	
   

  	
  Foreign Exchange Sublimit

  	
   

  	
   

  
	
   

  	
  (Section 2.1.3):

  	
   

  	
  $500,000.

  
	
   

  	
  Cash
  Management Services Sublimit:

  
	
   

  	
  (Section 2.1.4):

  	
   

  	
  $500,000.

  
	
   

  	
   

  	
   

  	
   

  
	
  2.

  	
  INTEREST.

  	
   

  	
   

  
	
   

  	
  Interest Rate

  	
   

  	
   

  
	
   

  	
  (Section 2.3(a)):

  	
   

  	
  A per annum rate equal
  to the “Prime Rate” in effect from time to time, provided that while
  the Asset Based Terms are in effect, the interest rate shall be a rate equal
  to the Prime Rate plus 1.50% per annum.

  
	
   

  	
   

  	
   

  	
   

  
	
  3.

  	
  FEES (Section 2.4(a)):

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Facility Fee:

  	
   

  	
  $30,000, payable
  concurrently herewith, provided that at such time that the Asset Based
  Terms first come into effect hereunder, Borrower shall pay to Bank an
  additional facility fee of $25,000 concurrently therewith.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Collateral Handling Fee:

  	
   

  	
  During
  each month or portion thereof that the Asset Based Terms are in effect,
  Borrower shall pay Bank a collateral handling fee in an amount equal to
  $2,000 per month, payable in arrears on the first day of each month with
  respect to the prior month.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Unused Line Fee:

  	
   

  	
  During each month or portion thereof that the Asset
  Based Terms are in effect, Borrower shall pay to Bank an unused line fee
  equal to the rate of one-half of one percentage point (.50%)

  

 

24

 

	
   

  	
   

  	
   

  	
  per annum multiplied by the amount by which the
  Revolving Line Credit Amount exceeds the average daily principal balance of
  the outstanding aggregate amount of the sum, without duplication, of
  Advances, Letters of Credit, FX Reserve and Cash Management Services
  utilizations during the immediately preceding calendar
  month (or part thereof), which fee shall be payable monthly in arrears
  on the first day of each month,
  beginning on the first day of the month following the institution of the
  Asset Based Terms and thereafter.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Termination;

  	
   

  	
   

  
	
   

  	
  Termination Fee:

  	
   

  	
  The “Termination Fee” that is payable as set
  forth under the circumstances described in Section 2.1.1(d) (only
  applicable while the Asset Based Terms are in effect) shall be equal to one
  percent (1%) of the Revolving Line Credit Amount in effect from time to time,
  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.

  
	
   

  	
   

  	
   

  	
   

  
	
  4.

  	
  MATURITY DATE

  	
   

  	
   

  
	
   

  	
  (Section 13.1):

  	
   

  	
  October 4, 2006

  
	
   

  	
   

  	
   

  	
   

  
	
  5.

  	
  FINANCIAL COVENANTS

  
	
   

  	
  (Section 6.7):

  	
   

  	
  Borrower, on a consolidated basis, shall comply with
  each of the following covenants at all times during the term of this
  Agreement, except as otherwise specifically stated below:

  
	
   

  	
   

  	
   

  	
   

  
	
  5.1

  	
  Asset Based Terms

  	
   

  	
   

  
	
   

  	
  Not In Effect.

  	
   

  	
  During all periods in which the Asset Based Terms
  are not in effect, Borrower shall comply with the following financial
  covenants at all times during the term of this Agreement and, at the request
  of Bank from time to time, Borrower shall provide evidence of compliance
  therewith. Unless otherwise set forth herein or as may be determined by Bank,
  measurement of compliance with the following will take place on a month-end
  basis, each month during the term hereof.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Quick Ratio:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Borrower shall maintain, as of the end of each
  month, a ratio of (with a breach of the following covenant addressed by the
  provisions of Section 6.3 of this Schedule):

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  (i)

  	
  Quick Assets,

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  TO

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  (ii)

  	
  Current liabilities plus the aggregate amount
  Indebtedness owing to Bank that is not otherwise already included within the
  scope of current liabilities,

  
						

 

25

 

	
   

  	
   

  	
   

  	
  of not less than 0.90 to
  1.00; provided, however, that for the quarter ending
  10/31/05 such ratio shall be not less than 0.80 to
  1.00.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Maximum Adjusted

  	
   

  	
   

  
	
   

  	
  Net Losses/Minimum

  	
   

  	
   

  
	
   

  	
  Profitability

  	
   

  	
  Borrower on a consolidated basis shall not have a
  quarterly Adjusted Net Loss (as defined below) exceeding the amount below
  indicated for the corresponding quarter:

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Quarter Ending

  	
   

  	
  Maximum Adjusted

  Net Losses

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  July 31, 2005

  	
   

  	
  $

  	
  (2,500,000

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  October 31, 2005

  	
   

  	
  $

  	
  (1,500,000

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  January 31, 2006

  	
   

  	
  $

  	
  (600,000

  	
  )

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  As used herein, the term “Adjusted Net Loss” shall
  mean the consolidated net loss of Borrower determined in accordance with
  GAAP, excluding the effects of non-cash charges related to depreciation,
  amortization and stock compensation.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Beginning with the quarter ending April 30,
  2006 and in each quarter thereafter, Borrower shall attain an Adjusted Net
  Profit of at least $1.00 per quarter period.

  
	
   

  	
   

  	
   

  	
  As used herein, the term “Adjusted Net Profit” shall
  mean the consolidated net profits of Borrower determined in accordance with
  GAAP, excluding the effects of non-cash charges related to depreciation,
  amortization and stock compensation.

  
	
   

  	
   

  	
   

  	
   

  
	
  The above financial covenants shall constitute the “Target
  Financial Covenants” and their violation alone shall not result in an
  Event of Default hereunder, provided that a violation of any of the Target
  Financial Covenants shall cause the Asset Based Terms to become effective,
  all as more fully set forth in Section 6.3 below.

  
	
   

  	
   

  	
   

  	
   

  
	
  5.2

  	
  Asset Based Terms

  	
   

  	
   

  
	
   

  	
  In Effect.

  	
   

  	
  During all periods in which the Asset Based Terms
  are in effect, Borrower shall comply with the following financial covenant at
  all times during the term of this Agreement, measured on a monthly basis,
  and, monthly and otherwise at the request of Bank from time to time, Borrower
  shall provide evidence of compliance therewith.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Minimum Tangible

  	
   

  	
   

  
	
   

  	
  Net Worth:

  	
   

  	
  Borrower shall maintain a Tangible Net Worth of not
  less than $5,000,000 plus the
  sum of (i) 50% of Borrower’s net quarterly income, (ii) 50% of all
  consideration received by Borrower for the issuance of equity securities, and
  (iii) 100% of the proceeds of Subordinated Debt received by Borrower
  (the sum of (i), (ii) and (iii) is referred to as the “Applicable
  Amount.”).

  
	
   

  	
   

  	
   

  	
  Increases in the Minimum Tangible Net Worth Covenant
  based on consideration received for equity securities and Subordinated Debt
  of Borrower shall be effective as of the end

  
									

 

26

 

	
   

  	
   

  	
   

  	
  of the month in which such consideration is
  received, and shall continue effective thereafter. Increases in the Minimum
  Tangible Net Worth Covenant based on net income shall be effective on the
  last day of the fiscal quarter in which said net income is realized, and
  shall continue effective thereafter. In no
  event shall the Minimum Tangible Net Worth Covenant be decreased.

  
	
   

  	
   

  	
   

  	
   

  
	
  5.3

  	
  Definitions.

  	
   

  	
  For purposes of this Agreement, the following terms
  shall have the following meanings (for additional terms, see
  Section 13.1 of the Loan Agreement):

  
	
   

  	
   

  	
   

  	
  “Current assets”, “current liabilities” and
  “liabilities” shall have the meaning ascribed thereto by GAAP.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  “Tangible Net Worth” as used herein shall mean, as
  to any Person, net worth minus intangible assets.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  “Quick
  Assets” are, on any date, Borrower’s consolidated, unrestricted cash,
  unrestricted cash equivalents (including marketable securities) together with
  the aggregate amount of Eligible Accounts, provided that restrictions on cash
  imposed by Borrower’ s investors may be considered “unrestricted” for
  purposes of this definition as long as Bank has a first priority perfected
  security interest therein and any such restrictions are acceptable to Bank.

  
	
   

  	
   

  	
   

  	
   

  
	
  6.

  	
  ASSET BASED TERMS

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  6.1

  	
  “Asset Based Terms”. As used herein, “Asset
  Based Terms” means the terms set forth on Exhibit E to the Loan
  Agreement. Terms of this Agreement without the Asset Based Terms are referred
  to as the “Non-Asset Based Terms”.

  
	
   

  	
   

  	
   

  	
   

  
	
  6.2

  	
  Voluntary Conversion to Asset Based Terms.
  In the event the Borrower wishes to have the Asset Based Terms in effect,
  Borrower may do so by giving the Bank prior written notice thereof, in order
  to permit the Bank to make such reviews and audits as it shall deem
  appropriate.

  
	
   

  	
   

  
	
  6.3

  	
  Breach Triggering Asset Based Terms; Etc.
  The following are certain terms and provisions applicable to Asset Based
  Terms and related matters:

  
	
   

  	
  (A) If there is a breach of any of the Target
  Financial Covenants and there are then outstanding any Credit Extensions
  hereunder, the Asset Based Terms shall be deemed immediately effective upon
  written notice from the Bank to the Borrower (with it being recognized that
  as such financial covenants are to be satisfied as of certain dates during
  the term of this Agreement, Borrower is not able to cure, on a retroactive
  basis, any breach of the Target Financial Covenants as of a particular date).

  
	
   

  	
  (B) Upon receipt of the notice referred to in
  clause (A) above, Borrower shall cooperate fully with Bank in order to
  implement the Asset Based Terms and shall take such actions as Bank shall
  deem reasonably necessary or advisable in connection therewith, pursuant to
  the general further assurances covenant set forth in Section 6.10 of the
  Loan Agreement.

  
	
   

  	
   

  
	
  6.4

  	
  Audits. If Bank shall have
  conducted a field audit within 120 days prior to the proposed date of
  conversion to Asset Based Terms, Advances will be available for borrowings
  with 15

  
					

 

27

 

	
   

  	
  days of such proposed date of conversion. If Bank’s
  last field audit was conducted more than 120 days prior to the proposed date
  of conversion to Asset Based Terms, Advances will be available for borrowing
  at the earlier of (i) 60 days following such proposed date of
  conversion, or (ii) upon Bank’s completion of a field audit and related
  analysis.

  
	
   

  	
   

  
	
  7.

  	
  ADDITIONAL TERMS AND PROVISIONS.

  
			

 

[RESERVED]

 

28

 

IN WITNESS WHEREOF, the parties
have executed this Schedule to Loan and Security Agreement as of the date
first above written.

 

	
  “Borrower”:

  	
   

  	
  “Bank”:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  NORTH AMERICAN SCIENTIFIC, INC.

  	
   

  	
  SILICON VALLEY BANK

  
	
  A
  Delaware corporation

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By

  	
     /s/L.
  Michael Cutrer

  	
   

  	
   

  	
   

  
	
   

  	
  President
  or Vice President

  	
  By

  	
        /s/
  Bob Muller

  	
   

  
	
   

  	
   

  	
  Title

  	
      Sr.
  Relationship Manager

  	
   

  
	
  By

  	
     /s/
  David N. King

  	
   

  	
   

  	
   

  
	
   

  	
  Secretary
  or Assistant Secretary

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  NORTH AMERICAN SCIENTIFIC, INC.

  	
   

  	
   

  
	
  A
  California corporation

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By

  	
        /s/
  L. Michael Cutrer

  	
   

  	
   

  	
   

  
	
   

  	
  President
  or Vice President

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By

  	
        /s/
  David N. King

  	
   

  	
   

  	
   

  
	
  Secretary or Assistant
  Secretary

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  NOMOS CORPORATION

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By

  	
     /s/L.
  Michael Cutrer

  	
   

  	
   

  	
   

  
	
   

  	
  President
  or Vice President

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By

  	
  /s/ David N. King

  	
   

  	
   

  	
   

  
	
  Secretary or Assistant
  Secretary

  	
   

  	
   

  	
   

  
																	

 

29Exhibit 10.1

 

September 1,
2004

 

 

Edward
R. Daihl

15670
Canterbury Chase

Alpharetta,
GA  30004

 

Dear
Edward:

 

We are pleased to offer you the position of Group Vice
President, Revenue Management, reporting to Joe Cowan, Chief Executive Officer.

 

In
this position, your salary, on an annual basis, will be $200,000.00 and will be
payable in accordance with Company policy. You are also eligible to begin
participation in Manugistics’ FY 05 Incentive Plan Program, which commenced March 1,
2004.  This Program offers you the
opportunity to receive up to 60% of your base salary, prorated based upon your
date of hire.  Manugistics’ fiscal year
is March 1 – February 28.  The terms and conditions of this
Plan will be presented to you by Joe Cowan upon joining the Company. This
position has regular performance reviews; your first performance review is
scheduled for March 1, 2005 and will be prorated accordingly. This
position is exempt, at-will and may be terminated at any time.

 

We
will also recommend to the Compensation Committee of the Board of Directors
that you be granted an option to purchase
100,000 shares of common stock of the Company vesting over five (5) years
in equal quarterly installments under the 1998 Amended and Restated Stock
Option Plan of Manugistics Group, Inc. 
Our stock plan administrator will provide you with written confirmation
of stock options awarded.

 

In
the event that the Company has a change of control, which is defined as
fifty-one percent (51%) of the Company’s voting stock having a change in
ownership:  (a) if your
responsibilities are not affected, fifty percent (50%) of your outstanding
options set out above shall immediately vest; (b) if your responsibilities
are significantly diminished or you are actually or constructively terminated,
i.e., your responsibilities no longer consist of those reasonably associated
with the position of Group Vice President, Revenue Management, one hundred
percent (100%) of the outstanding options set out above shall immediately vest.  The number of option shares vesting shall be
determined by multiplying the original number of option shares granted which
are still outstanding by the applicable percentage.  A change in ownership of “fifty-one percent
(51%) of the Company’s voting stock” shall mean a change in ownership as a
result of a single purchase or series of related purchases by a single
purchaser or a group of purchasers acting in concert by way of merger,
consolidation or otherwise.  The change
of control rights granted herein are in addition to other similar rights
granted under the Plan.

 

 

In brief (effective on
your first day of employment) you will be eligible for our comprehensive
Manugistics benefits program, which includes:

 

•              Manugistics, Inc.
401(k) Retirement Savings Plan

•              Comprehensive
Medical Care; Dental Care, Vision Care

•              Life
Insurance; Accidental Death and Dismemberment Insurance; Long-Term Disability

•              Vacation
(The first and last years are earned on a pro-rated schedule.)

•              Sick
Leave

•              Company
and Personal Holidays

 

Additional information on these and
other valuable benefits is enclosed for your reference.

 

As
required by the Immigration Reform and Control Act of 1986, on your first day
of employment, you must provide Manugistics with documentation verifying your
eligibility to work in the United States. Acceptable forms of documentation are
described on the attached Employment Eligibility Verification form.

 

Dependent on the type of position you are being offered,
you may be required to obtain security clearance to work on specific projects.  Therefore, you consent to completing the
necessary background investigation in order to receive this clearance.

 

If the company terminates your employment for its
convenience, as compared to cause, such as for gross misconduct or upon a
criminal conviction, you will receive your base salary in accordance with the
Company’s regular payroll practices, and benefits to extent you are eligible to
receive such benefits under the terms of those plans following termination of
employment, for a 13 week period commencing on your termination date; provided
that the foregoing salary and benefits will cease immediately if you begin
alternative employment during this 13 week period.  Any period during which you are receiving
these payments and benefits is called your “Severance Period.”  You will not earn any incentive compensation
during this Severance Period. During your Severance Period, any options which
you hold will continue to vest in accordance with their terms.

 

In
order to receive the benefits described herein, you will be required to execute
a Termination Agreement which will include a non-compete agreement and a full
release of claims.

 

In the event of a dispute concerning the terms and
conditions of employment, or the termination of that employment, the parties
agree to binding arbitration by and under the rules of the American
Arbitration Association, at Manugistics’ expense (other than your personal
attorney who you will hire at your expense).

 

Please
signify your acceptance by signing this letter, completing the enclosed
paperwork and returning these documents to Human Resources. By doing so, you
agree, among other things, to comply with the non-competition, secrecy, and
other provisions of the Company’s Conditions of

 

2

 

Employment.  This
offer of employment expires 7 days from the date of this letter. In
keeping with Manugistics policy, all offers are contingent upon successful
completion of employment references.

 

We
look forward to your joining Manugistics on a date to be determined and are
confident that the association will be mutually rewarding. There will be a new
employee orientation conducted that will review our processes, procedures and
standards.

 

Sincerely,

 

	
  Manugistics, Inc.

  
	
   

  
	
   

  
	
  /s/ Robin Hoesch

  	
   

  
	
  Robin Hoesch

  
	
  Vice President

  
	
  Human Resources

  

 

 

	
  Accepted by:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  /s/ Edward R. Daihl

  	
   

  	
  09/01/2004

  	
   

  
	
  Edward R. Daihl

  	
  Date

  
				

 

 

cc:
Joe Cowan

 

 

Enclosures

 

3

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