ASSET PURCHASE AGREEMENT

THIS ASSET PURCHASE AGREEMENT (the “Agreement”) is made as of March 26, 2009, by and between North American Scientific, Inc., a Delaware corporation (the “Parent”), North American Scientific, Inc., a California corporation and wholly-owned subsidiary of Parent (the “Company”), and Portola Medical, Inc., a Delaware corporation (the “Purchaser”).

WHEREAS, the Company owns and operates the Business (as defined in Section 1.1), and owns or holds under lease (as set out herein) the assets used in connection with the Business;

WHEREAS, the Company owns and wishes to sell, and the Purchaser wishes to purchase, the Assets (as defined in Section 1.1) and the Business as a going concern on the terms and conditions set forth in this Agreement;

WHEREAS, the Company desires to assign to the Purchaser, and the Purchaser desires to assume, the Assumed Liabilities (as defined in Section 1.1);

WHEREAS, the Company has filed a voluntary bankruptcy petition (the “Bankruptcy Case”) under Chapter 11 of Title 11 of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Central District of California (the “Bankruptcy Court”);

WHEREAS, the sale and purchase of the Assets and the assignment and assumption of the Assumed Liabilities shall be effectuated pursuant to an order of the Bankruptcy Court under Sections 363 and 365 of the Bankruptcy Code approving such transactions (the “Sale Order”); and

NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the premises and of the covenants, agreements, representations and warranties set out below, the parties covenant and agree as follows:

1.            Interpretation

1.1.           Definitions

In this Agreement, unless there is something in the subject matter or context inconsistent therewith or unless otherwise specifically provided:

(a)           “Accounts Receivable” means all accounts receivable, trade accounts, notes receivable and other debts owing to the Company in connection with or arising out of the Business, and the full benefit of all security for such accounts, notes and debts;

(b)           “Affiliate” means, with respect to any Person, any other Person controlling, controlled by or under common control with, such Person, with “control” for such purpose meaning the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities or voting interests, by contract or otherwise;

(c)           “Alternative Transaction” means any transaction, sale, or plan of reorganization or liquidation (other than a liquidation of a portion of the Business that is immaterial in the aggregate to the Business) accepted by the Company as being the highest and best offer pursuant to the Procedures Order, or otherwise, whereby all or a material portion of the Business is purchased by, or otherwise conveyed to, a Person other than Buyer and/or one or more of its Affiliates.

(d)           “Agreement” is defined in the introductory paragraph;

(e)           “Assets” means all properties and assets of the Company of every kind and description (whether real, personal, mixed, tangible or intangible) relating to the Business wherever located (but not including the Excluded Assets), including, without limitation:

(i)            subject to the terms of the Lease, the Company's interest in the Leasehold Improvements and the Leased Premises;

(ii)           the Company's right, title and interest in the Assumed Contracts;

(iii)           the Inventory;

(iv)           the Prepaid Expenses;

(v)           the Computer Hardware;

(vi)           the Computer Software;

(vii)          the Office Equipment;

(viii)         the Manufacturing Equipment;

(ix)           the Personal Property;

(x)            the Intellectual Property;

(xi)           the Goodwill;

(xii)          the Customer Lists;

(xiii)         the Company's interest in the Permits;

(xiv)         the Books and Records;

(f)           “Assumed Contracts” means those Contracts used in connection with the Business or Assets, including those set forth on Schedule 1.1(f);

(g)           “Assumed Liabilities” is defined in Section 2.5;

(h)           “Audited Financial Statements” means audited financial statements of the Parent, together with the auditor's report, the notes thereto and supporting schedules, consisting of statements of income and retained earnings and statements of cash flows for the period ending on, and balance sheet as at October 31, 2008 inclusive;

(i)           “Benefit Plan” means any pension, retirement, deferred compensation, COBRA, profit-sharing, savings, disability, medical, dental, health, life, death benefit, stock option, stock purchase, bonus, incentive, termination and severance pay or other employee benefit plan, trust, arrangement, contract, agreement, policy or commitment, whether or not any of the foregoing is funded or insured, and whether written or oral, formal or informal, which is intended to provide or does in fact provide benefits to any or all Employees or former Employees, and to which the Company is a party or by which the Company is bound or with respect to which the Company has any liability or potential liability;

(j)           “Books and Records” means all files, ledgers and correspondence, all price and supplier lists, all manuals, reports, texts, notes, engineering, environmental and feasibility studies, data, specifications, memoranda, invoices, receipts, accounts, accounting records and books, financial statements and financial working papers and all other records and documents of any nature or kind whatsoever, including, without limitation, those recorded, stored, maintained, operated, held or otherwise wholly or partly dependent on discs, tapes and other means of storage, including, without limitation, any electronic, magnetic, mechanical, photographic or optical process, whether computerized or not, and all software, passwords and other information and means of or for access thereto, belonging to the Company and relating to the Business or any of the Assets;

(k)           “Business” means the ClearPath business, but not including the prostate business;

(l)           “Business Day” means any day other than a Saturday, Sunday or any federal holiday in the United States;

(m)           “Charter Documents” means articles, articles or certificate of incorporation, bylaws and any other constituted document of a corporate entity;

(n)           “ClearPath” means all assets related to the Company’s ClearPath product family;

(o)           “Closing” means the completion of the sale and purchase of the Assets and the Business in accordance with Article 9;

(p)           “Closing Date” means five (5) Business Days following the satisfaction of the conditions set forth in Article 7 and Bankruptcy Court Approval, or such other date as may be agreed upon in writing by the Company and the Purchaser or by their respective counsel;

(q)           “Code” means the Internal Revenue Code of 1986, as amended.

(r)           “Computer Hardware” means all the computer hardware owned by the Company and used by the Company in connection with the Business, including, without limitation, the hardware listed in Schedule 1.1(r);

(s)           “Computer Software” means all the computer software, including, without limitation, application software, object codes and source codes, used by the Company in connection with the Business, including, without limitation, the software and codes described in Schedule 1.1(r), and, with respect to any of the same not owned by the Company, includes all rights of the Company under license agreements and other agreements or instruments relating thereto, including, without limitation, those license agreements, other agreements and instruments described in Schedule 1.1(s);

(t)           “Consent” means any approval, consent, ratification, waiver or other authorization;

(u)           “Contemplated Transactions” means all of the transactions contemplated by this Agreement;

(v)           “Contracts” means all contracts, agreements, instruments, leases, indentures and commitments, whether written or oral, relating to the Business or to any of the Assets to which the Company is a party including, without limitation, non-competition, non-solicitation and confidentiality agreements;

(w)           “Customer Lists” means all lists of customers and potential customers of the Company pertaining to the Business, including names, addresses, telephone and fax numbers, e-mail addresses, details of sales and other relevant information relating thereto;

(x)           “DIP Facility” means the Debtor-In-Possession Loan and Security Agreement, dated March 11, 2009, by and between Purchaser and Company, and documentation related thereto.

(y)           “Disclosure Schedule” means that disclosure schedule delivered by Company to the Purchaser concurrently with execution and delivery of this Agreement in the form of Schedule 1.1(y);

(z)           “Employees” means employees of the Company employed in connection with the Business;

(aa)           “Encumbrance” means, whether or not registered or registrable or recorded or recordable, and regardless of how created or arising:

(i)           a mortgage, assignment of rent, lien, encumbrance, adverse claim, charge, execution, title defect, security interest, hypothec or pledge, whether fixed or floating, against assets or property (whether real, personal, mixed, tangible or intangible), hire-purchase agreement, conditional sales contract, title retention agreement, equipment trust or financing lease, and a subordination to any right or claim of others in respect thereof;

(ii)           a claim, interest or estate against or in assets or property (whether real, personal, mixed, tangible or intangible), including, without limitation, an easement, right-of-way, servitude or other similar right in property granted to or reserved or taken by any Person;

(iii)           an option or other right to acquire, or to acquire any interest in, any assets or property (whether real, personal, mixed, tangible or intangible); and

(iv)           any other encumbrance of whatsoever nature and kind against assets or property (whether real, personal, mixed, tangible or intangible);

(bb)           “Environment” means the air immediately around, and the water in, and the soil under and adjacent to, any of the lands on which the Leased Premises are situate;

(cc)           “Environmental Protection Laws” means all statutes, orders, bylaws, standards, permits, laws, regulations, treaties, conventions, ordinances, codes, policies, guidelines, directives, decisions, licenses, consents, authorizations, certificates and lawful requirements (including, without limitation, of any Governmental Authority) relating to protection of the Environment, health and safety of the workplace, health, or transportation of dangerous goods;

(dd)           “Excluded Assets” means:

(i)           all cash on hand or in banks or other depositories, including the cash in the Company’s subsidiaries;

(ii)           all credits and benefits, including without limitation any Tax credits or benefits, insurance benefits, and any indemnification rights, escrows and other assets, relating to any Retained Liabilities;

(iii)           rights accruing to the Company under this Agreement or any agreement relating thereto;

(iv)           the corporate seals, certificate of incorporation, minute books, stock books, Tax returns, books of account or other records having to do with the corporate organization of the Company;

(v)           all personnel records and other records that Company is required by law to retain in its possession;

(vi)           all insurance policies held by or for the Company and any benefits or proceeds paid or payable thereunder;

(vii)          the Excluded Prepaids;

(viii)         the assets listed in Schedule 1.1(dd)(viii);

(ix)           all Accounts Receivable;

(x)            all assets solely related to the prostate business;

(xi)           all claims and actions arising under Sections 544 through 553, inclusive, of the Bankruptcy Code, against any pre-petition creditor of the Company with the exception of any claim against Purchaser;

(ee)           “Excluded Prepaids” is defined in Section 1.1(ccc);

(ff)           “FDA” means the United States Food and Drug Administration;

(gg)           “Goodwill” means the goodwill attributable to the Business and the exclusive right of the Purchaser to represent itself as carrying on the Business in continuation of and as successor to the Company, and the right to use any words indicating that the Business is so carried on or in connection with, the Business to be carried on by the Purchaser;

(hh)           “Governmental Authority” means any federal, state, municipal, county or regional government or governmental or regulatory authority, domestic or foreign, and includes any department, commission, bureau, board, administrative agency or regulatory body of any of the foregoing or any non-governmental regulatory body that provides standards for certification such as ISO certification;

(ii)           “Governmental Authorization” means any Consent, license, registration or permit issued, granted, given or otherwise made available by or under the authority of any Governmental Authority or pursuant to any Legal Requirement;

(jj)           “Hazardous Materials” means any contaminants, pollutants, hazardous, corrosive or toxic substances, flammable materials, explosive materials, radioactive materials, microwaves, waste, urea formaldehyde, asbestos materials, hydrocarbon contaminants, noxious substances, compounds known as chlorobiphenyls, deleterious substances, special wastes, dangerous goods or substances and any other substances or materials that are identified or described in or defined by any Environmental Protection Law as being substances or materials the storage, manufacture, disposal, treatment, generation, use, transportation or remediation of which, or release of which into or concentration of which in the Environment, is prohibited, controlled, regulated or licensed by any Governmental Authority or under any Environmental Protection Law;

(kk)           “Intellectual Property” means all rights, title, interest and benefit of the Company in and to intellectual property of every nature, whether registered or unregistered, including, without limitation, all websites and website names, copyrights, patents, patent rights, trade-marks, certification marks and industrial designs, applications for any of the foregoing, trade names, brand names, trade secrets, proprietary manufacturing information and know-how, instruction manuals, inventions, inventors' notes, research data, unpatented blue prints, drawings and designs, formulae, calculations, processes, prototypes, technology and marketing rights, together with all rights under license agreements, sublicense agreements, strategic alliances, development agreements, technology transfer agreements and other agreements or instruments relating to any of the foregoing, that are used in connection with the Business or Assets, including, without limitation, the trade-marks, copyrights, patents, licenses and agreements set forth in Schedule 1.1(kk);

(ll)           “Inventory” means the goods, merchandise, stock-in trade and inventories of raw materials, work in progress and finished goods of or pertaining solely to the Business;

(mm)        “IRS” means the Internal Revenue Service;

(nn)           “Knowledge” of the Company, or words of similar import, including without limitation, the Company being aware of a fact or circumstance, shall mean and refer to the actual knowledge as of the date of this Agreement, after reasonable inquiry, of John B. Rush, Brett Scott and Shawn Moaddeb;

(oo)           “Leased Premises” means the premises located at 13766 Alton Parkway, Suite 152, Irvine, California;

(pp)           “Leasehold Improvements” means all the leasehold improvements of the Company in the Leased Premises;

(qq)           “Lease” means that certain Standard Sublease, between the Company and SND Electronics LLC, dated June 5, 2008;

(rr)           “Legal Requirement” means any federal, state, local, municipal, foreign, international, multinational or other constitution, law ordinance, principle of common law, code regulation, statute or treaty;

(ss)           “Liability” means with respect to any Person, any liability or obligation of such Person of any kind, character or description, whether known or unknown, absolute or contingent, whether or not accrued, disputed or undisputed, liquidated or unliquidated, secured or unsecured, joint or several, due or to become due, vested or unvested, executory, determined, determinable or otherwise;

(tt)           “Manufacturing Equipment” means all machinery, plant, equipment, parts, fixtures, tools and accessories of the Company pertaining to the Business and used in the manufacture and packaging of goods for sale by the Company in the Business, including, without limitation, those items listed in Schedule 1.1(tt);

(uu)           “Material” means (i) any event(s), occurrence(s), breach(es) or other violations that individually or in the aggregate under all Sections of  this Agreement, amount to or potentially amount to damages in excess of $25,000; (ii) the failure to comply with any Legal Requirement or Government Authorization related to the Business which results in or could result in fees, sanctions or costs to restore compliance in excess of $25,000 in the aggregate; or (iii) any event(s), occurrence(s), breach(es) or other violations that would or could result in the termination, suspension or investigation of any Permit or Government Authorization related to the Business.

(vv)           “Material Adverse Effect” means (a) any effect or circumstance, either individually or in the aggregate under all Sections of this Agreement, that amounts to or could amount to damages in excess of an aggregate of $25,000; (b) the failure to file this Agreement with the Bankruptcy Court in a timely manner; or (c) any other act or omission which would make it impossible to operate the Business in the Ordinary Course; provided, however, the none of the following, shall be taken into account in determining whether there has been a “Material Adverse Effect”: (i) the entry into or the announcement of the execution of this Agreement, actions contemplated by this Agreement or the performance of obligations under this Agreement, (ii) any changes or effects arising out of or resulting from any legal claims or other proceedings made by any of the Company’s stockholders arising out of or related to this Agreement or the Contemplated Transactions (iii) changes affecting the United States economy generally, (iv) any failure by the Company to meet published revenue or earnings projections, in and of itself (as opposed to the facts underlying such failure), (v) any change, in and of itself (as opposed to the facts underlying such change), in the market price or trading volume of the equity securities of the Company on or after the date hereof, (vi) the suspension of trading in securities generally in and of itself (as opposed to the facts causing such suspension of trading) on the NASDAQ Global Market, (vii) any change in any applicable law, rule or regulation or GAAP or interpretation thereof after the date hereof, (viii) events, effects or circumstances to the extent specifically disclosed in the Disclosure Schedule (provided such disclosures are materially correct), (ix) any action taken or omitted to be taken by the Company with the Purchaser’s express written consent, (x) the commencement, occurrence or continuation of any war, armed hostilities or acts of terrorism involving or affecting the United States of America or any part thereof, (xi) the loss of any customer, supplier or employee of the Business after the announcement of the execution of this Agreement except as a result of a breach of any of Company’s obligations under Article 5.

(ww)        “Office Equipment” means all office equipment and furniture used by the Company in connection with the Business including, without limitation, the equipment described in Schedule 1.1(ww);

(xx)           “Ordinary Course of Business” or “in the Ordinary Course” means the conduct of the Business in substantially the same manner as the Business was operated on February 1, 2009 and in conformance with Company’s practices and procedures as of February 1, 2009.

(yy)           “Permits” means all permits, licenses, registrations, consents, authorizations, approvals, privileges, waivers, exemptions, orders, certificates, rulings, agreements and other concessions from, of or with Governmental Authorities or other regulatory bodies required to carry on the Business as now being carried on, and to hold, operate and use the Assets as now being held, operated and used obtained by the Company with respect to the Business or any of the Assets, including, without limitation, the permits, licenses, registrations and other rights described in Schedule 1.1(yy);

(zz)           “Permitted Encumbrances” means (a) real estate taxes, assessments and other governmental fees or other charges levied with respect to the real property of a party not yet due and payable as of the Closing Date; (b) mechanics and similar statutory liens arising or incurred in the Ordinary Course of Business for amounts which are not delinquent and which would not be reasonably likely to, individually or in the aggregate, have a Material Adverse Effect on the Business, taken as a whole; (c) zoning, entitlement, building and other land use and similar laws or regulations imposed by any governmental authority having jurisdiction over such parcel which are not violated by the current use and operation thereof; (d) easements, covenants, conditions, restrictions and other similar matters of record affecting title to such Leased Premises which would not materially impair the use or occupancy of such parcel in the operation of a party’s business; (e) liens or encumbrances placed by a Third Party lessor with respect to any  leased equipment; and (f) liens that do not materially interfere with the use or operation of the property subject thereto.

(aaa)        “Person” means an individual, legal personal representative, corporation, body corporate, firm, partnership, trust, trustee, syndicate, joint venture, unincorporated organization or Governmental Authority;

(bbb)       “Personal Property” means, to the extent not forming part of the Leasehold Improvements, Manufacturing Equipment, Office Equipment, Inventory and Computer Hardware, all equipment, furniture, furnishings, accessories, motors, tools, utensils, stores, supplies, and parts of every nature and kind and other tangible personal property owned by the Company and used in the Business, including, without limitation, the items of personal property described in Schedule 1.1(bbb), but excluding any Excluded Assets, and any personal property which is the subject of a lease agreement;

(ccc)        “Prepaid Expenses” means all prepaid expenses including any and all trade deposits (but not bank deposits) of the Company attributable to the Business or the Assets including, without limitation, amounts paid for licensing fees, property Taxes, telephone rentals, utilities and rentals, all of which are set forth in Schedule 1.1(ccc); but, in any event, shall not include any prepaid insurance (or refunds relating thereto), the COBRA receivable as reflected on the books of Company, or Prepaid Rent (the “Excluded Prepaids”);

(ddd)       “Prepaid Rent” is defined in Section 2.7;

(eee)        “Proceeding” is defined in Section 3.8(a);

(fff)          “Product Liability Insurance” is defined in Section 10.14;

(ggg)       “Purchase Price” means the purchase price for the Business, and the Assets, as set out in Section 2.2;

(hhh)       “Purchaser” is defined in the introductory paragraph;

(iii)           “Radioactive Possession Licenses” shall mean all licenses held by the Company to possess radioactive isotopes that are not transferable to the Purchaser that need to be reissued to the Purchaser to perform the Business as currently conducted;

(jjj)           “Retained Liabilities” is defined in Section 2.5(b);

(kkk)        “SEC” means the United States Securities and Exchange Commission;

(lll)           “Tangible Assets” shall mean the Inventory, the Computer Hardware, the Office Equipment, the Manufacturing Equipment and the Personal Property; and

(mmm)     “Tax” or “Taxes” shall mean all taxes, charges, fees, imposts, levies or other like assessments, including, without limitation, all net income, gross receipts, capital, sales, use, ad valorem, value added, transfer, franchise, profits, inventory, capital stock, license, withholding, payroll, employment, social security, unemployment, excise, severance, stamp, occupation, property and estimated taxes, customs duties, fees, assessments and charges of any kind whatsoever.

1.2.           Currency

Except where otherwise expressly provided, all monetary amounts in this Agreement are stated and shall be paid in US currency.

1.3.           Governing Law

This Agreement and the agreements contemplated hereby shall be construed in accordance with and governed by the laws and the courts of the State of California.

1.4.           Schedules

The following are the Schedules which are attached to and form part of this Agreement:

2.              Purchase of Assets

2.1.          Purchase and Sale

The Company agrees to sell, assign and transfer to the Purchaser and the Purchaser agrees to purchase from the Company, on the Closing Date, the Assets, effective as of and from the Closing, free and clear of all Encumbrances other than Permitted Encumbrances, for the Purchase Price and in accordance with and subject to the terms and conditions set forth in this Agreement, and subject to an Order granting Bankruptcy Court Approval (the “Sale Order”).

2.2.           Purchase Price

The Purchase Price for the Business and Assets will be Four Hundred Thousand Dollars ($400,000) (“Purchase Price”) plus the assumption of the Assumed Liabilities defined in Section 2.5.  Purchaser, in its sole discretion, shall be entitled to credit the Purchase Price against the Obligations (as defined in the DIP Facility) outstanding under the DIP Facility.

2.3.           Payment of Purchase Price

Except as set forth in Section 2.2 , the Cash Purchase Price for the Business and Assets shall be paid by the Purchaser to the Company by wire transfer to an account designated by the Company.  The Company shall promptly pay all costs to cure all defaults under the Assumed Contracts so as to permit the assumption and assignment of the Assumed Contracts pursuant to Section 365 of the Bankruptcy Code as ultimately determined by the Bankruptcy Code. Schedule 1.1(e) sets forth the expected cure costs with respect to each of the Assumed Contracts.

2.4.           Risk of Loss and Damage Prior to Closing

(a)           Risk of loss of the Tangible Assets shall pass to the Purchaser at the Closing, and the Company shall bear all risk of loss or damage to, or destruction of, the Tangible Assets until the Closing and the Purchaser shall bear all such risk of loss, damage and destruction after the Closing.  If, prior to the Closing, any Tangible Assets are lost, damaged or destroyed and such loss, damage or destruction has not been completely replaced, repaired or otherwise rectified by the Closing, and if the Closing takes place, the Purchase Price will be reduced by an amount equal to the aggregate of:

(i)           the insurance proceeds paid to the Company in respect of such loss, damage or destruction; and

(ii)           the aggregate of all deductible amounts under the insurance policies against which a payment has been made under Section 2.4(a) above in respect of such loss, damage or destruction;

less:

(ii)           the amount actually expended by or on behalf of the Company in the repair, replacement or other rectification thereof.

(b)           The Company shall consult with the Purchaser prior to making a claim against any applicable insurance policy and shall act reasonably and bona fide in respect thereof and in a manner consistent with the Purchaser's interest in the Tangible Assets.  The Company shall at Closing make, or cause to be made, the necessary claims under all applicable insurance policies and shall assign to the Purchaser all remaining insurance proceeds, including business interruption insurance proceeds, which are or may become receivable by the Company in respect of any such loss, damage or destruction. Subject to the limitations contained in Article 10, the Company shall indemnify and save harmless the Purchaser from and against the amount of any denied insurance claim in respect of such loss, damage or destruction where the denial is due to the negligence or willful misconduct of the Company.

(c)           In the event of losses, damage or destruction to the Tangible Assets that is either uninsured, underinsured or for which a claim is not made, if amounts not covered or paid by insurance are Material, the Purchaser may, at its option (i) elect to proceed to Close and reduce the Purchase Price by an amount equal to the uninsured or unclaimed losses; or (ii) terminate this Agreement.

2.5.           Liabilities

(a)           Assumed Liabilities.  On and effective as of the Closing Date, Purchaser shall assume and agree to discharge only the following Liabilities of Company (the “Assumed Liabilities”):

(i)           any Liability arising after the Closing Date under the Lease;

(ii)          any Liability arising after the Closing Date under the Assumed Contracts;

(iii)         any liability for sales, use or other similar tax arising from the transfer of the Assets; or

(iv)         any Liability of Company described in Schedule 2.6(a)(iv).

(b)           Retained Liabilities.  The Retained Liabilities shall remain the sole responsibility of and shall be retained, paid, performed and discharged solely by Company.  “Retained Liabilities” shall mean every Liability of Company other than the Assumed Liabilities, including but not limited to:

(i)            any trade account payable reflected on the balance sheet contained in the Audited Financial Statements (the “Balance Sheet”) that remains unpaid as of the Closing Date including any credit balances contained in the accounts receivable of the Audited Financial Statements; any trade account payable incurred by Company in the Ordinary Course of Business between the date of the Balance Sheet and the Closing Date that remains unpaid as of the Closing Date;

(ii)           any Liability arising out of or relating to products, software or services of Company sold prior to the Closing Date (a “Product Liability Matter”), except to the extent the same constitutes an Assumed Liability under Section 2.5(a)(i) or (ii);

(iii)           any Liability under any Contract that arises after the Closing Date but that arises out of or relates to any event that occurred prior to the Closing Date;

(iv)           any Liability of Company for (A) any Taxes arising as a result of Company's operation of its business or ownership of the Assets prior to the Closing Date, and (B) any deferred Taxes of any nature relating to any period prior to the Closing Date;

(v)           any Liability of Company under any Contract (excluding any Assumed Contract), including any Liability arising out of or relating to Company's credit facilities or any security interest related thereto;

(vi)           any Environmental, Health and Safety Liabilities arising out of or relating to the operation of Company's business or Company's leasing, ownership or operation of real property arising out of or relating to any occurrence or event prior to the Closing Date;

(vii)          any Liability of Company from its Shareholders;

(viii)         any Liability of Company arising out of any Proceeding pending as of the Closing Date;

(ix)           any Liability of Company arising out of any Proceeding commenced after the Closing Date and arising out of or relating to any occurrence or event happening prior to the Closing Date, except to the extent the same constitutes an Assumed Liability under this Agreement;

(x)           any Liability arising out of or resulting from Company's compliance or noncompliance with any Legal Requirement or order of any Governmental Authority arising out of or relating to any occurrence or event happening prior to the Closing Date; or

(xi)           any Liability of Company under this Agreement or any other document executed in connection with the Contemplated Transactions; or

(xii)           any Liability of the Company under Section 8.1 or Schedule 2.6(b)(xii).

2.6.           Allocation

Within forty (40) days after the Closing, Purchaser and the Company shall jointly prepare an allocation schedule which shall allocate the Purchase Price and the Assumed Liabilities in accordance with the applicable provisions of the Code and regulations thereunder (“Closing Allocation”).  After the Closing, the parties shall make consistent use of the allocations, fair market values and useful lives specified in the Closing Allocation for all Tax purposes and in all filings, declarations and reports with the IRS in respect thereof, including the reports required to be filed under Section 1060 of the Code.  Each of the Purchaser and the Company shall prepare or cause to be prepared IRS Forms 8594 in accordance with such allocation and consistent with one another and in accordance with the Code and regulations thereunder.  Purchaser and the Company shall each deliver such Forms to one another for review and comment no later than 20 Business Days prior to filing with the IRS.  For purposes of clarity, an amount included in the Tax basis of the Assets by Purchaser shall not be required to be taken into account or reported by the Company (including for purposes of IRS Form 8594) to the extent such amount is not required to be treated as an amount realized by the Company for Tax purposes (e.g., legal fees paid by the Company in connection with acquisition of the Assets hereunder required to be capitalized under Section 263 of the Code).

2.7.           Prepaid Rent

Immediately prior to the Closing, the parties shall calculate the amount of Base Rent and Operating Expenses as such terms are defined in the Lease paid by or on behalf of the Company relating to the period beginning on the Closing Date and ending on the next date that such Base Rent and Operating Expenses is due under the Lease (the “Prepaid Rent”), and at the Closing Purchaser shall pay to Company an amount equal to the amount of the Prepaid Rent.

3.             Representations and Warranties of the Company .  Except (i) as set forth in the corresponding section of the Disclosure Schedule, or (ii) as expressly contemplated or expressly permitted under this Agreement or any agreement contemplated hereby, the Company or the Parent, as applicable, hereby represents and warrants to Purchaser as follows:

3.1.           Corporate Status and Authority

(a)           Status: The Company and Parent are each duly organized, validly existing and in good standing under the laws of California and Delaware, respectively, and each has the corporate power to own its property and conduct the Business in the manner in which the Business is now being conducted.  Each of the Company and Parent is duly qualified to do business and is in good standing in each jurisdiction in which its ownership of properties or conduct of business requires such qualification and where failure to be so qualified would have a Material Adverse Effect on the Business taken as a whole.

(b)           Due Authorization: The execution and delivery of this Agreement and all documents, instruments and agreements required to be executed and delivered by the Company and Parent pursuant to this Agreement, and the completion and performance of the Contemplated Transactions by, or contained in, this Agreement, have been duly authorized by all necessary corporate action on the part of the Company and Parent, and this Agreement has been duly executed and delivered by the Company and Parent and constitutes a legal, valid and binding obligation of each of the Company and Parent, and shall be subject to the approval of the Bankruptcy Court.

3.2.           Assets

(a)           Ownership: Except for the Leased Premises, the Company owns, and has good and marketable title to, all of the Assets free and clear of all Encumbrances, except Permitted Encumbrances.

(b)           Leases and Leased Premises: The Leased Premises are held by the Company under the Lease, which is valid and subsisting, is set forth in the Disclosure Schedule, and is in full force and effect and without amendment thereto.  The Lease is complete and accurate in all respects and there are no other leases, agreements to lease or tenancy arrangements relating to real property to which the Company is a party and which relate to the Business except as disclosed to the Purchaser. The Company has not previously assigned the Lease nor sublet its interest in any of the Leased Premises under the Lease. The Company has not released any of the other parties to the Lease from the performance of any of their obligations thereunder.

(c)           Zoning: The Leased Premises at which the Company carries on any part of the Business is zoned to permit the particular activities carried on thereon or therein by the Company.

(d)           Taxes: All property, municipal, school, general and special Taxes, rates, assessments, local improvements charges, frontage Taxes, business Taxes, development cost charges, other subdivision charges and costs and other levies which are chargeable against the Leased Premises and payable by the Company under the Lease have been paid in full unless the same are not due and payable.

(e)           Lands and Buildings: The Leased Premises are the only real property used in the conduct of the Business.

(f)           State of Tangible Personal Property: All tangible personal property included in the Assets has been properly maintained in all Material respects, is in good working order (where applicable) and repair, ordinary wear and tear excepted, contains no defects known to the Company which will adversely affect the operation of the Business to any Material degree and is in the possession of the Company.

(g)           Tangible Personal Property: The Disclosure Schedule contains a complete list of the tangible Personal Property owned by the Company and used solely in the conduct of the Business that has a carrying value in excess of $1,000 per item.

(h)           Intellectual Property: With respect to the Intellectual Property:

(i)            the Disclosure Schedule contains a complete list of all patents, pending patent applications, trade-marks, trade-mark applications and copyright registrations used in connection with the Business, and each jurisdiction in which application or registration has been made by or on behalf of the Company, together with all licenses and agreements relating to the Intellectual Property;

(ii)            the Company has the right to use, sell, make, have made, offer for sale, import, transfer, assign, license, sub-license and prepare derivative works for, and to dispose of, and to bring actions for the infringement or misappropriation of, the Intellectual Property and the Company has not conveyed, assigned or encumbered any of the Intellectual Property rights;

(iii)           all registrations and filings necessary to preserve the rights of the Company to the Intellectual Property have been made and are in good standing;

(iv)           the execution and delivery of this Agreement and the completion and performance of the Contemplated Transactions will not breach, violate or conflict with any instrument or agreement governing any of the Company’s Intellectual Property, and will not cause the forfeiture or termination of any Intellectual Property right of Company or in any way exclude the right of the Company to use, sell, make, have made, offer for sale, import, transfer, assign, license or dispose of or to bring any action for the infringement of any Intellectual Property right of Company (or any portion thereof);

(v)           the conduct of the Business by the Company does not, to the Knowledge of the Company, infringe upon any intellectual property right, domestic or foreign, of any Person;

(vi)           there are no pending or, to the Knowledge of the Company threatened, claims, actions, demands, lawsuits or other proceedings contesting the validity, ownership or right to use, sell, make, have made, offer for sale, import, transfer, assign, license or dispose of any of the Intellectual Property necessary or required or otherwise used for or in connection with the conduct of the operations of the Business, nor to the Knowledge of the Company is there any reasonable basis for such claim presently in existence, nor has the Company received any notice asserting that any Intellectual Property right of the Company or the proposed use, sale, make, have made, offer for sale, import, transfer, assign, license or disposition thereof by the Company conflicts or will conflict with the rights of any party, nor to the Knowledge of the Company, is there any reasonable basis for any such assertion presently in existence;

(vii)          to the Knowledge of the Company, no Employee is in violation of any term of any non-disclosure, proprietary rights or similar agreement between the Employee and the Company or any former employer of such Employee;

(viii)         the Company has used its reasonable commercial efforts to ensure that all technical information, other than technical information for which the Company considers patent protection and defensive publication to be suitable, developed by, and belonging to, the Company with respect to the Business or the Assets, for which a copyright has not been registered nor patent protection sought, has been kept confidential;

(ix)           except for the existing obligations of the Company under licensing or similar agreements as set forth in the Disclosure Schedule, there are no royalties, honoraria, fees or other payments payable by the Company to any Person by reason of the ownership, use, license, sale or disposition of any of the Intellectual Property; and

(x)            all Persons having access to or knowledge of the Intellectual Property that is of a confidential nature and that is necessary or required or otherwise used for or in connection with the conduct or operation or proposed conduct or operation of the Business have entered into appropriate non-disclosure agreements with the Company;

(i)            No Rights to Assets: There is no agreement, contract, option, commitment or other right in favor of, or held by, any Person other than the Purchaser to purchase, lease, license or otherwise acquire any of the Assets, other than inventory purchase orders accepted by the Company in the Ordinary Course of Business and consistent with past practice, or to possess any of the Assets or to occupy any part of the Leased Premises.

(j)            All Assets Used in Business: The Licensed Assets (as defined in Section 6.1) and the Assets constitute all of the material rights, assets and properties required to operate the Business in the Ordinary Course, and include all material rights, assets and properties, the use and exercise of which are necessary for the performance of any Contract and any Permit for the conduct of the Business as now conducted.

(k)            Inventory:  To the Knowledge of the Company, none of the Inventory is obsolete or unsaleable in the Ordinary Course of Business and all of the Inventory is new, unused and in good condition for sale, except the maintenance Inventory which consists of used parts, in each case subject to customary reserves maintained by the Company.

(l)            Contracts Assignable: All of the Assumed Contracts may be assigned to the Purchaser without the consent of the other parties to the Assumed Contracts.

3.3.           Business Operations

(a)           Permits: The Company holds all Permits that it is required to carry on the Business as now being carried on, and to hold, operate and use the Assets as now being held, operated and used, by the Company, and all of the foregoing are validly issued, are in full force and effect, are in good standing, are being complied with in all respects and are listed in the Disclosure Schedule; and no notice of breach or default or defect in respect of any of their terms has been received by the Company and there are no proceedings in progress, pending or threatened which could result in the cancellation, revocation, suspension or adverse alteration of any of them, and the Company is not aware of any existing matters or state of facts which is reasonably likely to give rise to any such notice or proceeding.  As of the Closing, all Permits are transferable and will be transferred or assigned to Purchaser, except where the failure to transfer or assign would not have a Material Adverse Effect on the Business.

(b)           Compliance with Legal Requirements:

(i)            The Company is, and at all times since has been, in Material compliance with each Legal Requirement that is or was applicable to it or to the conduct or operation of its Business or the ownership or use of any of the Assets;

(ii)            No event has occurred or circumstance exists that (with or without notice or lapse of time) (A) would be reasonably likely to result in a Material violation by Company of, or a failure on the part of Company to comply with, any Legal Requirement or (B) will give rise to any Material obligation on the part of Company to undertake, or to bear all or any portion of the cost of, any Material remedial action of any nature; and

(iii)           The Company has not received, at any time any notice or other communication (whether oral or written) from any Governmental Authority or any other Person regarding (A) any actual, alleged, possible or potential violation of, or failure to comply with, any Legal Requirement or (B) any actual, alleged, possible or potential obligation on the part of Company to undertake, or to bear all or any portion of the cost of, any remedial action of any nature.

(c)           Governmental Authorization: The Disclosure Schedule contains a complete and accurate list of each Governmental Authorization that is held by Company or that otherwise relates to the Business or the Assets.  Each Governmental Authorization listed or required to be listed in the Disclosure Schedule is valid and in full force and effect.

(i)            The Company is, and at all times since has been, in