**Exhibit 10.60**

 

**FACTORING, LOAN & SECURITY AGREEMENT**

** **

This Factoring, Loan and Security Agreement (this “Agreement”), datedand effective as of the Effective Date, and entered into between Hana Financial, Inc.,a California corporation, with offices at 1055 Wilshire Blvd., Los Angeles, CA90017, Telecopy No.: (213) 482-1212 (“Hana”), and Liquidmetal Technologies, Inc., aDelaware corporation, whose address is 25800 Commercentre Drive, Suite 100,Lake Forest, CA 92630, Telecopy No.: (949) 206-8088 (“Client”).  Certain capitalized terms used herein willhave the meanings assigned to such terms in Section 12 of this Agreement.

 

WHEREAS, Client has requested and Hana has agreed to purchase all ofClient’s Accounts, issue factor and supplier guaranties and provide certainservices; and

 

NOW, THEREFORE, inconsideration of the agreements, provisions, and covenants herein contained,and for other good and valuable consideration, the receipt and sufficiency ofwhich is hereby acknowledged, Client and Hana agree as follows:

 

**SECTION 1.****         Sale andApproval of Accounts**

 

1.1           Client hereby agrees to sell, assign andtransfer to Hana, and Hana hereby agrees to purchase, all of Client’s Accounts,with full power to Hana to collect and otherwise deal with such Accounts as thesole and exclusive owner thereof.  Hanawill purchase an Account on the shortest selling terms for the Purchase Pricethereof upon receipt by Hana of the invoice copy evidencing such Account.

 

1.2           (a)           Clientwill submit for Hana’s credit approval the credit requirements of Client’scustomers, a description of Client’s normal selling terms and such otherInformation as Hana requests concerning Client’s customers.  Hana may, in Hana’s sole credit judgment,establish credit lines for sales to Client’s customers on Client’s normalselling terms or on other selling terms approved by Hana by Written Noticeand/or Transmission.  Client may alsosubmit for Hana’s credit approval specific orders from Client’s customers andHana may, in Hana’s sole credit judgment, approve such orders on a single ordercredit approval basis.  All of Hana’scredit approvals will be by Written Notice to Client.  All sales to a customer within the creditline established for such customer on Client’s normal selling terms or withinthe single order credit approvals given by Hana for orders from such customerwill be Approved Accounts provided that: (i) Delivery is completed whilethe credit line or single order credit approval remains in effect and (ii) theAccount is assigned to Hana within thirty (30) days of Delivery and (iii) theAccount is not past due at the time of assignment.

 

(b)           Hana may amend orwithdraw a credit line or single order credit approval at any time prior toDelivery by notifying Client verbally and/or by Written Notice.  A single order credit approval will beautomatically withdrawn: (i) in the event Delivery is not made on or priorto the expiration date indicated on the single order credit confirmation formHana sends to Client by Written Notice; or (ii) in the event any change ismade in any of the terms of the Account without Hana’s prior approval byWritten Notice.

 

(c)           Hana will have noliability to Client or to any customer for Hana’s refusal to credit approve anAccount or Hana’s withdrawal or amendment of a credit approval.

 

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1.3           Hana will assume onlyEighty Percent (80%) of the CreditRisk on all Approved Accounts which means that Hana shall indemnify the Clientfor only Qualifying Losses incurred in connection with EligibleReceivables and directly caused by the failure of the Customer topay the Client all or part of the Net Invoice Value of the EligibleReceivable(s) due to the Insolvency of the Customer, such Insolvencyhaving occurred during the Agreement or within six (6) monthsthereafter.  The amount payable by Hanawill be calculated in accordance with Section 7, Proof and Payment ofClaims, and will be subject always to the Deductible, FinancingLimits and other applicable terms and conditions of the Agreement.

 

1.4           In the event thatmonies are at any time owing by a Customer for both Approved Accounts andNon-Approved Accounts, any amount when paid by or credited to the customer willbe applied as follows:

 

(a)           If Hana issued singleorder approvals, all amounts paid by or credited to the customer will be deemedapplied first to Approved Accounts.

 

(b)           If Hana established acredit line for such Customer and if the credit line was in force at the timeamounts were received from or credited to the customer, such amounts will bedeemed applied first to Non-Approved Accounts. If the credit line is canceled, any amount thereafter received orcredited will be deemed applied first to Approved Accounts.

 

1.5           If a bankruptcy orinsolvency proceeding is instituted by or against a Customer and if Hana agreesby Written Notice to Client to make a claim in such proceeding for Non-ApprovedAccounts, all amounts distributed to Hana in such proceeding will be shared prorata between Approved Accounts and Non-Approved Accounts.

 

**SECTION 2.****         Advances,Payments, Commissions and Fees.**

 

2.1           (a)           Subjectto the terms and conditions of this subsection and this Agreement andprovided that there does not exist a Default or an Event of Default and inreliance upon Client’s representation and warranties herein set forth, Hanamay, upon Client’s request, and in Hana’s sole discretion, make advances toClient or for Client’s account against the Purchase Price of Eligible Accountsin amounts determined by Hana, in Hana’s sole discretion, of up to thefollowing percentage of the Purchase Price of such Accounts:

 

(i)            ifthe Eligible Account is an Approved Account, Hana may advance to Client up to **eighty percent (80%)** of the Purchase Priceof such Approved Account;

 

(ii)           ifthe Eligible Account is a Non-Approved Account, Hana may advance to Client upto **thirty percent (30%)** of thePurchase Price of such Non-Approved Account.

 

(b)           Hana shall establishand may adjust, in its sole discretion, standards to determine whether anAccount purchased by Hana is eligible for an Advance (“Eligible Account(s)”)and the percentage rate of such Advance at such time as Client requests anAdvance.  Each such increase or decreasein the percentage rate or amount of any Advance shall become effectiveimmediately for the purposes of calculating availability 

 

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of Advances herein.

 

(c)     Without limiting the generality of theforegoing, the following Accounts are not Eligible Accounts:

 

(i)            Accounts which are Non-Approved Accounts andwhich Hana deems, in its sole discretion, to be ineligible; and

 

(ii)           Accountswith respect to which the customer is an Affiliate of Client’s or a director,officer, agent, stockholder, or employee of Client’s or any of Client’sAffiliates; and

 

(iii)          Accountswith respect to which there is any Dispute with the respective customer; and

 

(iv)          anyAccount with respect to which the customer is a person to which Client isindebted, provided, however, that any such Account shall only beineligible as to that portion of such Account which is less than or equal tothe amount owed by Client to such person; and

 

(v)           Accountswhich have been charged back to Client pursuant to Sections 6.1, and 6.4hereof; and

 

(vi)          cash-on-deliveryAccounts; and

 

(vii)         cashsale Accounts; and

 

(viii) Approved Accounts arising fromsales to a single customer, in the aggregate, in excess of an amount equal to **thirty percent (30%)** of the total NetAmount of all Accounts from all customers outstanding at such time **five hundred thousand dollars ($500,000.00)**;and

 

(ix)           Non-ApprovedAccounts arising from sales to a single customer, in the aggregate, in excessof an amount equal to **fifteen percent (15%)**of the total Net Amount of all Accounts from all customers outstanding at suchtime **one hundred fifty thousand dollars($150,000.00)**; and

 

(x)            Non-ApprovedAccounts that are **thirty (30)** ormore days past due; and

 

(xi) All Non-Approved Accounts from anysingle customer if **forty percent (40%)**or more of such customer’s outstanding Accounts are **forty five (45)** or more days past due; and

 

(xii)          Accountsdue from a customer whose principal place of business is located outside theUnited States of America or Canada that are not covered by a letter of credit,in acceptable form to Hana, in its sole discretion or which are not otherwiseApproved Accounts.

 

(d)           Hana does not intend tomake any advances on any Non-Approved Accounts to the extent any such advancewould cause the aggregate amount of

 

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outstanding advances with respect to Non-Approved Accounts to exceed **five hundred thousand dollars ($500,000.00)**;and Hana does not intend to make any advances on any Accounts to the extent anysuch advance would cause the aggregate amount of outstanding Obligations toexceed **one million five hundred thousanddollars ($1,500,000.00)** (the “Credit Limit”).

 

(e)           Notwithstanding theforegoing, in no event shall the total of outstanding Advances at any one timeexceed the Credit Limit.  To the extentthat the total of aggregate outstanding Advances exceeds the Credit Limit,Client shall pay to Hana upon its demand any and all amounts necessary toreduce the aggregate outstanding Advances to or below the Credit Limit.

 

2.2           As payment for anAccount, the Collected Amount of the Purchase Price of an Account will becredited to Client’s account as of the Collection Date and disbursed to Clienton the Remittance Date.  The payments,when credited to Client’s account, shall first be applied to all advances, interest,and other amounts due Hana hereunder.  Ifan Approved Account remains partially or fully unpaid solely as a result of thefinancial inability of the customer thereon to pay such Approved Account and ifsuch Account is not subject to a Dispute, the Purchase Price of such ApprovedAccount less any Collected Amounts previously credited to Client’s account withrespect to such Approved Account and less advances, interest and any otheramounts due Hana will be credited to Client’s account on the Approved Payment Date for such Approved Account.

 

2.3           At the time Hanapurchases an Account, Hana will charge Client’s account with a factoringcommission equal to **sixty five hundredths ofa whole percent (0.65%)** of the Net Amount of the Approved Accountsplus the Surcharge Amount, as applicable. At the time Hana purchases anAccount, Hana will charge Client’s account with a factoring commission equal to**sixty five hundredths of a whole percent(0.65%)** of the Net Amount of the Non-Approved Accounts. On Accountsbearing payment terms in excess of sixty (60) days, the factoring commissionwill be increased by one quarter of one percent (0.25%) for each thirty (30)days or part thereof that the stated terms exceed sixty (60) days.

 

2.4           During each Contract Year, Client agreesto pay to Hana factoring commissions aggregating at least **thirty thousand dollars ($30,000.00)** (“MinimumAnnual Commission”).  If at the end ofany Contract Year the aggregate of factoring commissions paid by Client is lessthan the Minimum Annual Commission, then Client shall pay to Hana, or Hana maycharge Client’s account with, an amount equal to the difference between theMinimum Annual Commission and the factoring commissions actually paid duringthat Contract Year.  If Client terminatesthis Agreement at any time during a Contract Year or if Hana terminates thisAgreement at any time during a Contract Year upon the occurrence of an Event ofDefault, Client shall nevertheless remain obligated to pay the Minimum AnnualCommission for such Contract Year.

 

2.5           Client will pay to Hanaor Hana may charge Client’s account with (i) wire transfer fees on allwire transfers; (ii) all data transmission telephone charges relating toTransmissions; (iii) exchange on checks, charges for returned items andall other bank charges; (iv) all Costs; (v) all other amounts owingby Client to Hana under the Agreement; and (vi) all other Obligations.

 

2.6           Client will pay to Hanaor Hana may charge Client’s account a fee for each new

 

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customer set-up on our data base, as follows: (i) a fee of $10.00will be charged when you submit an order or invoice for any customer that hasnot had any activity with us for at least eighteen (18) months prior theretoand is not established in our files; and (ii) a fee of $5.00 will becharged when you submit an order or invoice for any customer that has not hadany activity with us for at least eighteen (18) months, but has been activeduring such period with respect to other clients of ours; provided, however,that no fees will be charged for new customers set-up during the first six (6) monthsfrom the Effective Date of this Agreement.

 

2.7.             Proof and Payment of Claims and Recoveries

 

A.      Paymentby Hana for Qualifying Losses shall be calculated as follows, subject always tothe Deductible, if any, Financing Limit, and other applicable terms andconditions of the Agreement:

 

a)       Calculatethe amount of the Qualifying Loss.

 

b)      Subtractthe Non Qualifying Loss and the Deductible, if any from the amount of theQualifying Loss.

 

c)       Shouldthe sum be equal to a number less than 0, then no payment shall be made byHana.

 

B.      Thepayment for a Qualifying Loss shall be made promptly, in either U.S. Dollars orin Contract Currency at Hana’s sole option, after the submission by the Clientof a satisfactory written proof of Loss together with evidence that theCustomer is Insolvent.

 

For the purpose of any calculation required in the settlement of aQualifying Loss, the rate of exchange shall be the rate as offered on the dateof such settlement by a commercial bank selected by Hana.

 

C.      Theresponsibility for proving a Qualifying Loss under this Agreement andevidencing that all conditions and warranties have been complied with shall atall times rest with the Client.

 

D.      Forthe purpose of determining Hana’s liability under this Agreement, all funds orsalvage received from the Customer, or from any other source whatsoever as ortowards payment of the Customer’s obligations to the Client after the Customeris in default of any payment obligation to the Client for more than one hundredtwenty (120) days, or is Insolvent, whichever happens first, shall be appliedin chronological order of due dates until Hana indemnifies the Client for theQualifying Loss.

 

The application of funds described in this paragraph shall applyregardless of any designation of funds by the Customer or any other partyunless specifically agreed in writing by Hana.

 

After payment of a Qualifying Loss, any such funds or salvage shall beimmediately paid to Hana and shared between Hana and the Client as follows:

 

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1.       Hanashall receive the Client Percentage of all sums recovered, and the Client shallreceive the remaining percentage of such sums, until the amount of Hana’spayment of a Qualifying Loss and Hana’s cost of recovery have been fullyreimbursed;

 

2.       Allfurther sums recovered shall inure to the benefit of the Client.

 

This paragraph does not apply to any funds received in payment forgoods shipped to a “debtor in possession.”

 

E.       Sumsrecovered in respect of any Qualifying Loss retained by the Client under theDeductible shall reinstate the Deductible by the same amount.

 

F.       Inthe event of any payment of a Loss under this Agreement, Hana shall besubrogated to all of the Client’s rights of recovery therefore against anyperson or organization, and the Client shall execute and deliver allinstruments and papers and do whatever else is necessary to secure such rights,including rights with respect to amounts that have been applied to theDeductible.  Hana shall have the right todirect the manner in which such assets shall be liquidated.  The Client shall do nothing to prejudice suchrights.

 

It shall be a condition to the obligation of Hana to make any paymentof a Qualifying Loss under this Agreement that the receivables to which itshall be subrogated shall not be subject to any lien, security interest orother third party claim superior to that of Hana.

 

2.8           Hana shall charge Client for each audit Hanaor Hana’s agent performs on behalf of Client, at reasonable industry rates atthat time, together with out-of-pocket expenses.

 

2.9           Exclusions

 

A.      Lossescaused by or resulting from the following shall not constitute Qualifying Lossesand are not covered under this Agreement:

 

1.       Wrongfulor dishonest acts or omissions of the Client or its agents;

 

2.       Anymaterial breach of or inaccuracy regarding any warranty or representations madeherein or failure to perform or to fulfill any warranty, covenant or agreementmade herein by the Client;

 

3.       Nuclearreaction or nuclear radiation or radioactive contamination;

 

4.       War(i) between the People’s Republic of China, France, the United Kingdom,states of the former Soviet Union, and/or the United States of America; and/or (ii) betweenthe Customer’s country and the country of the Client.

 

B.      Lossesrelating to any of the following Customers and/or receivables shall notconstitute Qualifying Losses and are not covered under this Agreement:

 

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1.       AnyCustomer that, as of the first day of the Agreement, is Insolvent or past duein any payment obligations to the Client unless

 

(a)     thetotal aggregate amount of such past due payment obligations does not exceed theNon Qualifying Loss Amount (payment obligations that are disputed by theCustomer in writing will not be considered past due for the purposes of thisparagraph); or

 

(b)     theAgreement is renewed, in which case the Client must disclose to Hana on therenewal date if any particular Customer is Insolvent or past due in any paymentobligation to the Client at the time of the renewal.  If the Client fails to make such adisclosure, then any and all shipments to that particular Customer will be automaticallyexcluded from coverage of the Qualifying Losses under the Agreement.  If the Client makes the disclosures requiredherein, then the provisions herein will be extended to that Customer unlessthat Customer is specifically excluded by Hana;

 

2.       AnyCustomer with which the Client has, during the twelve (12) months immediatelyprior to the first day of the Agreement, rescheduled or extended the due dateof any amounts owing for larger than the Maximum Extension Period unlesscoverage for such Customer is specifically approved by Hana;

 

3.       AnyCustomer about which the Client knowingly provided inaccurate information toHana.  If the inaccurate information wasbased on the representation or statements of third parties and was true to thebest knowledge of the Client after a reasonable investigation, this exclusionshall not apply;

 

4.       Anyreceivables that are sold or otherwise transferred by the Client to any otherperson or entity, unless otherwise agreed in writing by Hana;

 

5.       Anyreceivables that are past due as of the inception date of this Agreement.

 

6.       Salesmade on terms of Confirmed or Unconfirmed Irrevocable Letter of Credit.

 

7.       Salesmade on terms of Cash in Advance or Cash on Delivery.

 

**SECTION 3.****         Factor/SupplierGuaranties and Ledger Debt**

 

3.1           TheFactor/Supplier Guaranty facility shall be subject to the following terms andconditions:

 

(a)           Subject to the termsand conditions of this Agreement and provided that there does not exist aDefault or an Event of Default and in reliance upon Client’s representationsand warranties herein set forth and provided that there exists sufficient 

 

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Factor/Supplier Availability, Hana may issue guaranties (“Factor/SupplierGuaranties”) to factors and certain of Client’s domestic and foreign suppliers.

 

(b)           The Factor/SupplierGuaranties shall be issued for valid purchases of merchandise.  Client shall furnish Hana with theapplication for issuance of each guarantee. Hana may issue a Factor/Supplier Guaranty in connection with each suchapplication if such application, including the amount and all terms of theFactor/Supplier Guaranty to be issued, shall be acceptable to Hana, in its solediscretion and so long as each Factor/Supplier Guaranty has an expiration datewhich is at least thirty (30) days before the Termination Date.

 

(c)           No extensions,modifications or amendments to a Factor/Supplier Guaranty shall be made withoutHana’s prior written consent.

 

(d)           Hana’s Factor/SupplierGuaranties shall in no way be construed to create any liability, obligation,warranty or representation on Hana’s part with respect to any matter other thanClient’s payment at maturity of the invoices to which such Factor/SupplierGuaranties relate.

 

(e)           Client shall, ondemand, reimburse Hana for any and all sums paid by Hana in any way relating tothe factor/Supplier Guaranties and Client shall indemnify Hana and hold Hanaharmless from and against any and all liability, loss, costs, fees andexpenses, including reasonable attorneys’ fees, that Hana may sustain or incurbased upon, arising under, or in any way relating to the Factor/SupplierGuaranties provided; however, that the foregoing indemnity shall not apply toany liabilities, losses , costs, fees and expenses sustained or incurred byHana solely from Hana’s gross negligence or willful misconduct.  Client’s obligation to reimburse andindemnify Hana shall be conclusive but shall not prejudice any rights Clientmay have against any other person in the event that Client disputes liabilityof amounts owing under invoices subject to a Factor/Supplier Guaranty

 

(f)            As compensation forthe issuance of Factor/Supplier Guarantees, Client shall pay to Hana theFactor/Supplier Guaranty Fee upon issuance of each Factor/Supplier Guarantyissued.

 

3.2           Hana may, in its solediscretion, approve credits for Client, in amounts determined from time to timeby Hana, to enable Client to purchase goods or services from other factoringclients of Hana.  There would be no chargefor such credit approval to the extent that Client did not pay ledger debt whendue.  All indebtedness owing by Clientfor purchases from other factoring clients of Hana is hereafter referred to as “LedgerDebt”.  The aggregate amount of LedgerDebt outstanding at any time shall not exceed the Ledger DebtAvailability.  Hana would have the rightto pay such amounts and to charge such payments to Client’s account.

 

3.3           Inno event shall the total amount of outstanding Advances, Factor/SupplierGuaranties, and Ledger Debt, and any other Obligations exceed the CreditLimit.  To the extent that, at any time,the foregoing limit is exceeded, Client shall pay on demand and all amountsnecessary to reduce the aggregate outstanding Obligations to or below theCredit Limit.

 

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**SECTION 4.****         Interestand Collection Clearance Charges**

 

4.1           Client will pay Hanainterest on the Daily Balance.  Interestwill be calculated daily at a rate equal to the sum of **two whole percent (2.0%)** plus the Base Rate(the “Interest Rate”) and will be paid by Client or charged to Client’s accountmonthly at the end of each month.  TheInterest Rate will also be charged to Client on all other obligations, exceptthose specifying a different rate, from the date incurred through the datepaid.  Any publicly announced decrease orincrease in the Base Rate will result in an adjustment to the Interest Rate onthe next business day.  After the occurrenceof an Event of Default and for so long as such Event of Default continues, allthe Obligations will, at Hana’s option, bear interest at a rate per annum equalto five percent (5.0%) plus the Interest Rate. Interest will be calculated on the basis of a 360-day year for theactual number of days elapsed.  In noevent will the total amount of interest received by Hana exceed the maximumrate permitted by applicable law and in the event excess interest is determinedby a court of competent jurisdiction to have been paid by Client to Hana, suchexcess interest will be applied as a credit against the outstanding Obligationsand Client will not have any action against Hana for any damages arising out ofthe payment or collection of such excess interest.

 

4.2           If an Account or anypayment is charged back to Client after the Collection Date or Approved PaymentDate, as applicable, Client will pay Hana interest at the Interest Rate on theNet Amount of such Account or on such payment from such date to the charge backdate.

 

4.3           To allow for collectionclearance on all checks and other payments remitted by Client’s customers,Client will, in addition to interest, pay Hana a collection clearance chargecomputed as follows: (a) total cash collections for the day, multiplied by(b) **four (4) **businessdays, multiplied by (c) the Interest Rate, divided by (d) 360 days.

 

**SECTION 5.****         Representations,Warranties and Covenants**

 

5.1           Client represents,warrants and covenants as to each Account that, at the time of its creation,the Account is a valid, bona fide account, representing an undisputed indebtednessincurred by the named customer for goods actually sold and delivered; there areno setoffs, offsets or counterclaims, genuine or otherwise, against theAccount; the Account does not represent a sale to any of Client’s subsidiaries,affiliates, directors, officers, agents, stockholders, or employees, or aconsignment, guaranteed sale, or bill and hold transaction, or a cash ondelivery sale; no agreement exists permitting any deduction or discount (otherthan the discount stated on the invoice); Client is the lawful owner of theAccount and has the right to sell and assign the same to Hana; the Account isfree of all security interests, liens and encumbrances (including tax liens)other than those in favor of Hana, and the Account is due and payable in accordancewith its terms.

 

5.2           Client represents,warrants and covenants that there are no liens on any of the collateralsecurity described in Section 8 of this Agreement as of the Effective Dateof this Agreement, and if, at any time, there is any lien that is senior toHana’s lien on the collateral security, Client will take all actions necessaryto subordinate the lien so that the lien is junior to Hana’s lien on thecollateral security.

 

5.3           Client will not grantor suffer to exist in favor of any party other than Hana any lien upon orsecurity interest in Client’s inventory.

 

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5.4           Client will maintain orcause to be maintained in good repair, working order, and condition allmaterial properties used in Client’s business and will make or cause to be madeall appropriate repairs, renewals, and replacements thereof.  Client has and will maintain or cause to bemaintained, with financially sound and reputable insurers, public liability,product liability, and property damage insurance with respect to Client’sbusiness and properties against loss or damage of the kinds customarily carriedor maintained by corporations of established reputation engaged in similarbusinesses and in amounts reasonably acceptable to Hana, including businessinterruption insurance.  At all timesClient shall have and maintain insurance with respect to all Inventory, to thefullest extent of the insurable value thereof, against risks of fire, theft,sprinklers, and such other risks as Hana may require, in such form, for suchperiods, and written by such insurers as may be reasonably satisfactory toHana, such insurance to bear endorsements, in form acceptable to Hana, namingHana as additional insured and designating Hana as loss payee.  Client shall deliver to Hana promptly asrendered true copies of all monthly reports made to insurance companies underany reporting forms of insurance policies. Client shall promptly deliver to Hana copies of all such policies.  Except as to business record insurance, ifClient fails to maintain such insurance, Hana may, but need not, obtain thesame and charge the cost thereof to Client’s Factoring Agreement.  The proceeds of any such insurance shall beapplied in reduction of Client’s Revolving Loans.

 

5.5           Client is a solvent corporation; dulyincorporated and in good standing under the laws of the State of Delaware andqualified in all States where such qualification is required; the execution,delivery and performance of this Agreement have been duly authorized and arenot in contravention of any applicable law, Client’s corporate charter orby-laws or any agreement or order by which Client is bound; Client is not, tothe best of Client’s knowledge, in violation of any law, ordinance, rule,regulation, order or other requirement of any government or any instrumentalityor agency thereof.

 

5.6           Client will not changeClient’s corporate name or the location of Client’s office or open any newoffices without giving Hana at least thirty (30) days prior WrittenNotice.  At the present time, Clientcarries on business only at the above address and at the addresses set forthbelow:  **None**.

 

5.7           All books and recordspertaining to the Accounts or to any inventory owned by Client will bemaintained solely and exclusively at the above address or the addresses listedin Section 5.5 hereof and no such books and records will be moved ortransferred without giving Hana thirty (30) days prior Written Notice.

 

5.8           After Hana’s request,Client will hold all returned, replevined or reclaimed goods relating toAccounts coming into Client’s possession in trust for Hana and all such goodswill be segregated and identified as held in trust for Hana’s benefit andClient will, at Hana’s request, and at Client’s expense, deliver such goods tosuch place or places as Hana may designate.

 

5.9           The trade names orstyles set forth below are the only trade names or styles under which Clienttransacts business or has transacted business during the last five (5) years;Accounts sold to Hana hereunder and represented by invoices bearing such tradenames or styles are wholly owned by Client; the undertakings, representationsand warranties made in connection therewith will be identical to and of thesame force and effect as those made with respect to invoices bearing Client’scorporate name; Client’s

 

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use of any trade names or styles is in compliance with all lawsregarding the use of such trade names or styles.  Client will give Hana thirty (30) days priorWritten Notice of the change of any trade name or style or Client’s use of anynew trade name or style: **None**.

 

Client hereby assigns, transfers, and conveys to Hana, effective uponthe occurrence of any Event of Default hereunder, the non-exclusive right andlicense to use all trade names and trade styles owned or used by Clienttogether with any goodwill associated therewith, all to the extent necessary toenable Hana to realize on any assets of Client in which Client has granted Hanaa security interest.  Such right andlicense is granted free of charge without requirement that any monetary paymentwhatsoever be made to Client or third party by Hana.

 

5.10         Client may, in theordinary course of business and in good faith, issue, grant or allow discounts,credits and allowances on Accounts to customers and accept returns until: (a) thereexists a Default or an Event of Default or (b) Hana notifies Client to thecontrary by Written Notice or Transmission. Such discount, credit or allowanceonce issued may be claimed only by the customer.   Client will promptly issue and assign toHana all full invoice credit memos and promptly notify Hana of any other creditmemos.  Failure to promptly notify Hanaof any discounts, credits, and allowances or other adjustment on a customersaccount may result in Hana’s disallowance of any such credit given.

 

5.11         To the best of Client’sknowledge, (a) there are no judgments outstanding against or affectingClient, its officers, directors or affiliates or any of Client’s property, (b) thereare no actions, charges, claims, demands, suits, proceedings, or governmentalinvestigations now pending or threatened against Client or any of Client’sproperty, and (c) none of Client’s inventory has been produced in violationof the Fair Labor Standards Act or any similar law, nor imported in violationof any United States customs regulation.

 

5.12         Client agrees that noprovision in this Agreement and no course of dealing between the parties shallbe deemed to create any fiduciary duty by Hana to Client.  Client agrees that neither Hana nor any ofHana’s affiliates, officers, directors, shareholders, employees, attorneys, oragents shall have any liability with respect to, and Client hereby waives,releases, and agrees not to sue any of them upon, any claim for any special,indirect, incidental, or consequential damages suffered or incurred by Clientin connection with, arising out of, or in any way related to this Agreement ofany of the transactions contemplated by this Agreement.  Client hereby waives, releases, and agreesnot to sue Hana or any of Hana’s affiliates, officers, directors, shareholders,employees, attorneys, or agents for punitive damages in respect of any claim inconnection with, arising out of, or in any way related to this Agreement or anyof the transactions contemplated by this Agreement.

 

**SECTION 6.****         Disputesand Chargebacks**

 

6.1           With respect to anyAccount, upon the occurrence of a breach of any of the representations orwarranties contained in Section 4.1, or upon the assertion by a customerof a Dispute, such Account may, at Hana’s option, be charged back to Client.

 

6.2           Client will notify Hanaimmediately, by Written Notice, in the event that a customer alleges anyDispute, or returns or desires to return any goods purchased from Clientrelating to an Account.  After an Eventof Default, Hana may but is not obligated to

 

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settle, compromise, adjust or litigate all such Disputes or returnsupon such terms as Hana deems advisable. If an unadjusted Dispute delays the payment of any Approved Account whendue, Hana will have the right to charge back to Client that Account.

 

6.3           Client will supplycustomers, in the format required by customers, with all forms, documents,certificates, etc. that customer requires to process the Account forpayment.  If Hana notifies Clientverbally and/or by Written Notice that a customer which only accepts invoicesfor payment from Client through Transmission is requesting that Client reviewits invoice data for correctness and re-transmit invoices by Transmission andif after thirty (30) days from the date of such Notice such invoices remainunposted to such customer’s records, Hana will place the Accounts evidenced bysuch invoices in Dispute.

 

6.4           Hana may at any timecharge back to Client’s account the amount of: (a) any Approved Accountwhich is not paid in full when due for any reason other than Credit Risk; (b) anyApproved Account which is not paid in full when due because of an act of God,civil strife, or war; (c) anticipation (interest) deducted by a customeron any Account; (d) customer claims; (e) any Account for which thereis a breach of any representation or warranty. A charge back does not constitute a reassignment of an Account.  Hana shall immediately charge any deductiontaken by a customer to Client’s account.

 

6.5           Client will pay Hana,or Hana may charge Client’s account with, the amount of any payment which Hanareceives with respect to a Non-Approved Account if such payment is subsequentlydisgorged by Hana, whether as a result of any proceeding in bankruptcy orotherwise.

 

6.6           Client shall purchasepromptly all Accounts charged back by Hana, provided, however, that untilpayment by Client to Hana of all monies due with respect to such charged backaccount, title shall pass to Client subject, however, to Hana’s securityinterest therein.  Client agrees toindemnify and save Hana harmless from and against any and all loss, costs andexpenses caused by or arising out of disputed Accounts, including, but notlimited to, collection expenses and attorney’s fees incurred with respectthereto.

 

6.7           Hana may maintain suchreserves as Hana, in Hana’s sole discretion, deems advisable as security forthe payment and performance of the Obligations, including, without limitation, (i) reservesfor the amount of any Account which is subject to a Dispute, (ii) reservesfor the amount of any Approved Accounts from any single customer that isgreater than **thirty percent (30%)**of all Accounts **five hundred thousand dollars($500,000.00)**, (iii) reserves for the amount of anyNon-Approved Accounts from any single customer that is greater than **fifteen percent (15%)** of all Accounts **one hundred fifty thousand dollars ($150,000.00)**,(iv) reserves for the amount of any Non-Approved Account that is **thirty (30)** or more days past due, and (v) reservesfor the amount of all Non-Approved Accounts from any single customer if **forty percent (40%)** or more of suchcustomer’s outstanding Accounts are **fortyfive (45)** or more days past due.

 

## **SECTION 7.**         Administration

## ** **

7.1           Client will, from timeto time, (i) execute and deliver to Hana confirmatory schedules ofAccounts assigned to Hana (each an Assignment Schedule), together with

 

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one copy of each invoice, acceptable evidence of shipment and suchother documentation and proofs of delivery as Hana may require or (ii) transmitto Hana by Transmission information concerning Accounts in a format acceptable toHana and, upon Hana’s request, deliver to Hana copies of invoices, acceptableevidence of shipment and such other documentation and proofs of delivery asHana may require relating to Accounts so transmitted.  Client will not deliver Assignment Schedulesin connection with Transmissions, but Client acknowledges and agrees that everyinvoice transmitted to Hana by Transmission will be deemed to have been sentpursuant to the terms and conditions of an Assignment Schedule.  Each invoice relating to an Account and allcopies thereof will bear a notice, in form satisfactory to Hana, that theAccount has been sold and assigned to and is payable only to Hana.  Client agrees that Client will not changesuch notice on invoices and will not direct its customers to pay Client or anythird party amounts due under invoices. Client agrees to prepare and mail all invoices relating to Accounts, butHana may do so at Hana’s option.  Clientagrees to execute and deliver to Hana such further instruments of assignment,financing statements and instruments of further assurance as Hana mayreasonably require.  Client authorizesHana to execute on Client’s behalf and file such UCC financing statements, asHana may deem necessary in order to perfect and maintain the security interestsgranted by Client in accordance with this Agreement.  Client further agrees that Hana may file thisAgreement or a copy thereof as such UCC financing statement.

 

7.2           Notwithstanding thatClient has agreed to pay the Misdirected Payment Fee pursuant hereto, if anyremittances are made directly to Client, Client’s employees or agents, Clientwill act as trustee of an express trust for Hana’s benefit, hold the same asHana’s property and deliver the same to Hana forthwith in kind.  Hana and/or such designee as Hana may fromtime to time appoint are hereby appointed Client’s attorney-in-fact to endorseClient’s name on any and all checks or other forms of remittances received byHana where such endorsement is required to effect collection and to transmit noticesto customers, in Client’s or Hana’s name, that amounts owing by them have beenassigned and are payable directly to Hana; this power, being coupled with aninterest, is irrevocable.

 

7.3           Client shall permitHana and any authorized representatives designated by Hana to visit and inspectany of the properties of Client, including its financial and accountingrecords, and to make copies and take extracts therefrom, and to discuss itsaffairs, finances, and business with its officers at such times during normalbusiness hours and as often as Hana requests. Hana may, at any time after the occurrence of an Event of Default,remove from Client’s premises all such records, files and books relating toAccounts.

 

7.4           If Hana determines thatthe credit standing of a customer has deteriorated after Hana has assumed theCredit Risk on an Account, Client will, at Hana’s request, exercise such rightsas Client may have to reclaim or stop the goods in transit, and Client herebygrants to Hana the right to take such steps in Client’s or Hana’s name.

 

7.5           Hana will render amonthly statement of account to Client within twenty (20) days after the end ofeach month.  Such statement of accountwill constitute an account stated unless Client makes written objection theretoby Written Notice within thirty (30) days from the date such statement isrendered to Client.

 

7.6           Client will maintain asystem of accounting established and administered in

 

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accordance with sound business practice to permit preparation offinancial statements in conformity with GAAP. Client will promptly furnish Hana with such statements prepared by orfor Client showing Client’s financial condition and the results of Client’soperations as Hana may request verbally or by Written Notice; provided,however, that if the request is made verbally, such request shall be promptlyconfirmed in writing.  Client willdeliver to Hana the financial statements and other reports described below:

 

(i) Year-End Financials: As soon as available and in anyevent within seventy-five (75) days after the end of each of Client’s fiscalyear Client will deliver the balance sheet of Client as of the end of suchperiod and the statements of income, stockholders’ equity cash flows suchFiscal Year and such financial statements shall have been audited by a firm ofindependent certified public accountants selected by Client and reasonablyacceptable to Hana.  For the purposes ofthis Section and the Section below, based upon the informationcurrently available to Hana, the accountancy firm of                               ,shall be acceptable to Hana.  If afterthe Effective Date Hana discovers information that causes Hana to determine, inits sole and reasonable discretion, that such firm is no longer acceptable toHana, than Client shall be required to retain the services on new accountantsreasonably acceptable to Hana.

 

(ii) Semi-Annual Financials. As fairly soon as availablebut not later than forty-five (45) days after the end of each six (6) monthperiod of Client’s fiscal year, Client will deliver the balance sheet of Clientas of the end of such period and the related statements of income, stockholders’equity and cash flow for such six (6) month period of a Fiscal Year and forthe period from the beginning of the then current Fiscal Year to the end ofsuch six (6) month period of a Fiscal Year and such have been prepared byClient and reasonably acceptable to Hana.

 

(iii) Access to Accountants. Client authorizes Hana tocommunicate directly with Client’s independent certified public accountants andauthorizes such accountants to discuss Client’s financial condition andfinancial statements directly with Hana.

 

7.7           Client authorizes Hanato disclose such information, as Hana deems appropriate to persons makingcredit inquiries about Client.

 

**SECTION 8.****         CollateralSecurity**

 

As collateral security for all Obligations, Client hereby assigns andgrants to Hana a continuing security interest in all of the following property,whether now owned by Client or hereafter acquired by Client or arising inClient’s favor: (i) Factored Accounts; (ii) general intangiblesincluding payment intangibles; (iii) monies, securities and other propertynow or hereafter held or received by, or in transit to Hana from or for Client,whether for safekeeping, pledge, custody, transmission, collection orotherwise, and all of Client’s deposits and credit balances in Hana’spossession; (iv) books, records and other property at any time evidencingor relating to any of the foregoing property and; (v) proceeds of any ofthe foregoing property including, without limitation, the proceeds of anyinsurance policies covering any of the foregoing property and depositaccounts.  Recourse to the collateralsecurity herein provided will not be required, and Client will at all timesremain liable for the payment and performance of the Obligations upon demand byHana.

 

Client hereby grants to Hana a fully paid-up non-exclusive license (the“License”) to use

 

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all of the trademarks and trade names owned by Client in connectionwith any sales of inventory by Hana made pursuant to the terms of thisAgreement.  The grant of the Licenseshall be irrevocable, but shall terminate concurrently with the repayment infull by Client of all Obligations and the termination of this Agreementpursuant to Section 9 of this Agreement. Client agrees to use its best efforts to obtain the consent of itslicensors, if any, to permit Hana to sell inventory otherwise subject to alicense in the manner and to the extent permitted to Client under theapplicable license agreement.

 

**SECTION 9.****        ****Events of Default**

 

Theoccurrence of any of the following acts or events will constitute an Event ofDefault: (a) if Client fails to make payment of any of the Obligationswhen due; (b) if Client fails to make any remittance required by thisAgreement; (c) if Client commits any breach of any of the terms,representations, warranties, covenants, conditions or provisions of thisAgreement, or of any present or future supplement or amendment hereto or of anyother agreement between Hana and Client; (d) if Client becomes insolventor unable to meet Client’s debts as they mature; (e) if Client fails topay when due any material obligations or liabilities owing by Client to anyperson or entity (including without limitation, any United States and statetaxes); (f) if Client delivers to Hana a false financial statement or ifany representation, warranty, certification, or other statement made by Clientto Hana is false in any material respect when made; (g) if Client calls,or has called by a third party, a meeting of creditors; (h) if anybankruptcy proceeding, insolvency arrangement or similar proceeding iscommenced by or against Client; (i) if Client suspends or discontinuesdoing business for any reason; (j) if a receiver or trustee of any kind isappointed for Client or any of Client’s property; (k) if any guarantor ofClient’s Obligations dies or becomes insolvent or has commenced by or againstsuch guarantor any bankruptcy proceeding, insolvency arrangement or similarproceeding; (l) if any guaranty of Client’s Obligations is terminated or anyguarantor alleges that the guaranty is unenforceable, or if there is a defaultunder any such guaranty; (m) if there shall be a change in the beneficialownership and control, directly or indirectly of the majority of theoutstanding voting securities or other interests entitled (without regard tothe occurrence of any contingency) to elect or appoint members of the board ofdirectors or other managing body of Client; or (n) if a notice of lien, moneyjudgment, levy, assessment, seizure or writ, or warrant of attachment isentered or filed against Client or with respect to the Accounts or any othercollateral in which Client has granted Hana a security interest; or (o) ifClient sells, leases, transfers or otherwise disposes of all or substantiallyall of Client’s property or assets, or consolidates with or merges into or withany corporation or entity.

 

Uponthe occurrence and during the continuance of an Event of Default, Hana willhave the right to terminate this Agreement and all other arrangements existingbetween Hana forthwith and without notice, and the Obligations will mature andbecome immediately due and payable and Hana will have the right to withhold anyfurther payments to Client until all Obligations have been paid in full.

 

Ifeither party to this Agreement shall bring any action for any relief againstthe other, declaratory or otherwise, arising out of this Agreement, the losingparty shall pay to the prevailing party a reasonable sum for attorney feesincurred in bringing such suit and/or enforcing any judgment granted therein,all of which shall be deemed to have accrued upon the commencement of suchaction and shall be paid whether or not such action is prosecuted tojudgment.  Any judgment or order enteredin such action shall contain a 

 

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specificprovision providing for the recovery of attorney fees and costs incurred inenforcing such judgment.  For the purposeof this section, attorney fees shall include, without limitation, fees incurredin the following: (1) postjudgment motions; (2) contempt proceedings;(3) garnishment, levy, and debtor and third party examination; (4) discovery;and (5) bankruptcy litigation.

 

**SECTION 10.****      ****Term and Termination**

 

10.1         This Agreement will continue in full force andeffect for **one (1) **year fromthe Effective Date and shall renew for one (1) year terms thereafterunless either party hereto gives the other party not less than sixty (60) daysprior Written Notice prior to the end of the initial or any renewal term oftheir intention to terminate this Agreement as of the end of such term.

 

10.2         In the event that this Agreement is terminatedby Client prior to an Anniversary Date, Hana shall be entitled to the unpaidportion of the Minimum Annual Commission, if any, for such Period, as providedin section 2.4 above, as of the effective date of termination.  Except as otherwise provided, Hana mayterminate this Agreement at any time by giving Client at least sixty (60) daysprior written notice of termination.  However,Hana may terminate this Agreement immediately, without prior notice to Client,upon the occurrence of an Event of Default (defined in section 8 above).

 

10.3         Notice of termination shall be given bymessenger, registered or certified mail, facsimile or commercial deliveryservice; provided, however, that Client will not terminate thisAgreement so long as Client is indebted or obligated to Hana in connection withany other agreements between Hana and Client. Notwithstanding any such Written Notice of termination, all of Hana’srights, liens and security interests hereinabove granted to Hana (includingAccounts arising, acquired or created after the date of termination of thisAgreement) will continue and remain in full force and effect after anytermination of this Agreement and pending a final accounting, Hana may withholdany balances in Client’s account unless Hana is supplied with an indemnitysatisfactory to Hana to cover all Obligations. Client agrees to continue to assign accounts receivable to Hana and toremit to Hana all collections on accounts receivable, until all Obligationshave been paid in full or Hana has been supplied with an indemnity satisfactoryto Hana to cover all Obligations. All of the representations, warranties andindemnities and covenants made by Client herein will survive the termination ofthis Agreement.

 

10.4         Upon termination, Clientshall cause Hana to be released from all liability under the outstandingLetters of Credit and factor/Supplier Guaranties, or, at Hana’s option, Clientwill deposit cash collateral with Hana in an amount equal to one hundred fivepercent (105%) of the Letter of Credit Liability and Factor/Supplier Liabilitythat will remain outstanding after repayment.

 

10.5         Notice of terminationshall be given by messenger, registered or certified mail, facsimile orcommercial delivery service; provided, however, that Client willnot terminate this Agreement so long as Client is indebted or obligated to Hanain connection with any other agreements between Hana and Client.  Notwithstanding any such Written Notice oftermination, all of Hana’s rights, liens and security interests hereinabovegranted to Hana (including Accounts arising, acquired or created after the dateof termination of this Agreement) will continue and remain in full force andeffect after any termination of this Agreement and pending a final accounting,Hana may withhold any balances in Client’s

 

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account unless Hana is supplied with an indemnity satisfactory to Hanato cover all Obligations.  Client agreesto continue to assign accounts receivable to Hana and to remit to Hana allcollections on accounts receivable, until all Obligations have been paid infull or Hana has been supplied with an indemnity satisfactory to Hana to coverall Obligations. All of the representations, warranties and indemnities andcovenants made by Client herein will survive the termination of this Agreement.

 

10.6         If Client shall terminateduring the term of this Agreement, Client shall pay to Hana, in addition to allother Obligations, a termination fee (the “Termination Fee”) equal to OnePercent (1.0%) of Credit Limit.

 

**SECTION 11.****      ****Governing Law, Venue and Waiverof Jury**

 

APPLICABLELAW.           THIS AGREEMENT SHALL BE GOVERNED BY AND SHALL BE CONSTRUED AND ENFORCEDIN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF CALIFORNIA OR ANY OTHERJURISDICTION IN WHICH THE COLLATERAL SECURITY IS LOCATED, WITHOUT REGARD TOCONFLICTS OF LAW PRINCIPLES.

 

CONSENTTO JURISDICTION.        CLIENT HEREBY CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURTLOCATED WITHIN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA OR ANY OTHERJURISDICTION IN WHICH THE COLLATERAL SECURITY IS LOCATED AND IRREVOCABLY AGREESTHAT, SUBJECT TO HANA’S ELECTION, ALL ACTIONS OR PROCEEDINGS ARISING OUT OF ORRELATING TO THIS AGREEMENT SHALL BE LITIGATED IN SUCH COURTS.  CLIENT EXPRESSLY SUBMITS AND CONSENTS TO THEJURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NONCONVENIENS.  CLIENT HEREBY WAIVESPERSONAL SERVICE OF ANY AND ALL PROCESS AND AGREES THAT ALL SUCH SERVICE OFPROCESS MAY BE MADE UPON CLIENT BY CERTIFIED OR REGISTERED MAIL, RETURNRECEIPT REQUESTED, ADDRESSED TO CLIENT, AT THE ADDRESS SET FORTH IN THISAGREEMENT AND SERVICE SO MADE SHALL BE COMPLETE TEN (10) DAYS AFTER THESAME HAS BEEN POSTED.

 

WAIVEROF JURY TRIAL.                CLIENT AND HANA HEREBY WAIVE THEIR RESPECTIVERIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISINGOUT OF THIS AGREEMENT.  CLIENT AND HANAACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESSRELATIONSHIP THAT EACH HAS RELIED ON THE WAIVER IN ENTERING INTO THIS AGREEMENTAND THAT EACH WILL CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED FUTUREDEALINGS.  CLIENT AND HANA WARRANT ANDREPRESENT THAT EACH AS HAD THE OPPORTUNITY OF REVIEWING THIS JURY WAIVER WITHLEGAL COUNSEL, AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIALRIGHTS.

 

**SECTION 12.****      ****Modifications, Waivers andMiscellaneous Provisions**

 

This Agreement may not be changed or terminated orally; it constitutesthe entire agreement between Client and Hana and will be binding upon Client’sand Hana’s respective successors and assigns, but may not be assigned by Clientwithout Hana’s

 

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prior written consent.  No delayor failure on Hana’s part in exercising any right, privilege, or optionhereunder will operate as a waiver thereof or of any other right, privilege oroption.  No waiver whatsoever will bevalid unless in a Written Notice, signed by Hana, and then only to the extenttherein set forth.  If any term orprovision of this Agreement is held invalid under any statute, rule orregulation of any jurisdiction competent to make such a decision, the remainingterms and provisions will not be affected, but will remain in full force and effect.

 

AnyWritten Notice to be given under this Agreement will be in writing addressed tothe respective party as set forth in the heading to this Agreement and will bepersonally served, telecopied or sent by overnight courier service or UnitedStates mail and will be deemed to have been given: (a) if delivered inperson, when delivered; (b) if delivered by telecopy, on the date oftransmission if transmitted on a Business Day before 4:00 p.m. (LosAngeles time) or, if not, on the next succeeding Business Day; (c) ifdelivered by overnight courier, two (2) days after delivery to suchcourier properly addressed; or (d) if by U.S. Mail, four (4) BusinessDays after depositing in the United States mail, with postage prepaid andproperly addressed.

 

Hana conducts business under California commercial finance lenderlicense number 6032324.

 

**SECTION 13.****      ****Definitions**

 
| “Accounts”                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | — | All  presently existing or outstanding and all hereafter created or acquired  accounts |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------|
| (as  that term is defined in the UCC), contract rights, documents, notes, drafts  and other forms of obligations owed to or owned by Client arising or  resulting from the sale of goods or the rendering of services by Client, all  general intangibles relating thereto, all proceeds thereof, all guaranties and  security therefore, and all goods and rights represented thereby or arising  therefrom, including, but not limited to, returned, reclaimed and repossessed  goods, and the rights of stoppage in transit, replevin and reclamation. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                                                                                   |
| “Agreement”                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | — | means  this Agreement.                                                                 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                                                                                   |
| “Anniversary  Date”                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | — | twelve  months after the Effective Date and each anniversary thereof.                  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                                                                                   |
| “Approved  Account”                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | — | An  Account representing a sale to a customer within the credit line established  for  |
| such  customer on Client’s normal selling terms or within the single order credit  approval given by Hana for orders from such customer provided that Delivery  is completed while the credit line or single order credit approval remains in  effect and which has not been charged back to Client.                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                                                                                   |
| “Approved  Payment Date”                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | — | The  date which is one hundred twenty (120) days after the due date for payment of     |
| an  Approved Account.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                                                                                   |
| “Base  Rate”                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | — | The  highest prime rate publicly announced from time to time by Wall Street            |
| Journal  as its prime or base rate or equivalent rate.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                                                                                   |
| “Business  Day”                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | — | Any  day excluding Saturday, Sunday and any day which is a legal holiday under         |
| the  laws of the State of California or is a day on                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |

 

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| which  banking institutions located in such State are closed.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |   |
| “Client Percentage”                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | — | means  Eighty Percent (80%). |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |   |
| “Client”                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | — | means  the seller of goods or provider of services to the Customer and the |
| undersigned.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |   |
| “Collected  Amount”                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | — | The  amount received by Hana from a Customer in payment of an Account up to the |
| Net  Amount of such Account.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |   |
| “Collection  Date”                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | — | The  date on which Hana receives payment of an Account. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |   |
| **“**Contract Currency”                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | — | means  the currency in which the Customer is obligated to pay and to deliver to the |
| Client  under the terms of the contract of sale.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |   |
| “Contract  Year”                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | — | The  twelve-month period immediately following the Effective Date and each |
| anniversary  thereof.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |   |
| “Costs”                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | — | All  costs, fees and expenses (including audit fees, attorney’s fees and the  allocated |
| costs  of internal counsel) incurred by Hana in connection with (i) the  creation, negotiation or administration of this Agreement, any related  instrument, document or agreement, or any waiver, forbearance, amendment or  modification thereof (ii) the perfection, protection, preservation or  enforcement of Hana’s rights in any collateral in which Hana has been granted  a security interest and (iii) all filing fees, filing taxes or search  reports.                                                                                                                                                                                                                                                                                                                                                                          |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| “Credit  Balance”                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | — | The  amount determined by subtracting the Daily Balance from the amount of all |
| Accounts.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |   |
| “Credit  Risk”                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | — | The  risk that a Customer will be financially unable to pay an Account at  maturity, |
| provided  that the merchandise has been received or services rendered and accepted by  the Customer without Dispute.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |   |
| “Customer”                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | — | means  i) a duly organized and legally existing corporation, proprietorship, |
| partnership  or government entity in the Customer’s country, except for subsidiary  or associated companies of the Client, which shall be excluded from  coverage, or ii) the receiver, trustee, liquidator, custodian or similar  representative of any Customer or its creditors, or the Customer  as debtor in possession under Chapter 11 of Title 11 of the United States  Code or any similar statute in another country (hereinafter “debtor in  possession”).  Any Customer  referred to in clause (i) and any successor to such Customer  referred to in clause (ii) shall be considered the same entity. For the  purposes of applying the Customer Limit, the term Customer  shall include the Customer and all corporations and other entities  controlling, controlled by, or under common control with the Customer. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| “Customer Limit”                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | — | means  (a) the limit specified in writing by Hana for that Customer or (b) where  no |
| such  limit has been specified by Hana, then an amount not exceeding the  Discretionary Credit Limit, provided such amount has been approved in writing  by Hana for that Customer.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |

 

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| “Daily  Balance”                                                                                                                                                                                                                                                                                                                                    | — | The  outstanding balance of all advances made by Hana to Client or for Client’s                 |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------|
| account  in accordance with Section 2 and 3 hereof less all amounts credited to  Client’s account in accordance with subsection 2.2 hereof.                                                                                                                                                                                                    |
|                                                                                                                                                                                                                                                                                                                                                          |   |                                                                                                 |
| “Deductible”                                                                                                                                                                                                                                                                                                                                        | — | means  the sum of thirty thousand dollars ($30,000.00).                                              |
|                                                                                                                                                                                                                                                                                                                                                          |   |                                                                                                 |
| “Default”                                                                                                                                                                                                                                                                                                                                           | — | A  condition or event that, after notice or lapse of time or both, would  constitute an              |
| Event  of Default if that condition or event were not cured or removed within any  applicable grace or cure period.                                                                                                                                                                                                                                           |
|                                                                                                                                                                                                                                                                                                                                                          |   |                                                                                                 |
| “Delivery”                                                                                                                                                                                                                                                                                                                                          | — | The  delivery of goods or performance of services in accordance with the terms                       |
| agreed  to in writing between Client and a customer, provided that if no such terms  are specified in writing, delivery shall mean delivery of goods or performance  of services at the customer’s place of business.                                                                                                                                    |
|                                                                                                                                                                                                                                                                                                                                                          |   |                                                                                                 |
| “Dilution”                                                                                                                                                                                                                                                                                                                                          | — | The  amount determined by the following formula: (i) the total amount of all  non-              |
| cash  reductions to Accounts, including but not limited to chargebacks, discounts  and returns, during the calendar month then ending; divided by (ii) the  total amount of (a) all Accounts which have their Payment Date during  such calendar month, plus, (b) the total amount of all chargebacks and  returns during such calendar month. |
|                                                                                                                                                                                                                                                                                                                                                          |   |                                                                                                 |
| “Dilution  Percentage”                                                                                                                                                                                                                                                                                                                              | — | The  amount determined by multiplying the historical Dilution, expressed as a                        |
| percentage  of all Accounts, by the current outstanding Accounts.                                                                                                                                                                                                                                                                                             |
|                                                                                                                                                                                                                                                                                                                                                          |   |                                                                                                 |
| “Discretionary  Credit Limit”                                                                                                                                                                                                                                                                                                                       | — | means  Five Thousand Dollars ($5,000.00)                                                             |
|                                                                                                                                                                                                                                                                                                                                                          |   |                                                                                                 |
| “Dispute”                                                                                                                                                                                                                                                                                                                                           | — | A  dispute or claim, bona fide or otherwise, as to price, terms, quantity,  quality,                 |
| delivery,  or any cause or defense to payment of an Account whatsoever other than  financial inability of a customer to pay the Account.                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                                                                          |   |                                                                                                 |
| “Effective  Date”                                                                                                                                                                                                                                                                                                                                   | — | The  date set forth below Hana’s signature hereto.                                              |
|                                                                                                                                                                                                                                                                                                                                                          |   |                                                                                                 |
| “Eligible  Credit Balance”                                                                                                                                                                                                                                                                                                                          | — | The  Credit Balance less the Dilution Percentage of all outstanding  Accounts.                       |
|                                                                                                                                                                                                                                                                                                                                                          |   |                                                                                                 |
| **“**Eligible Receivables”                                                                                                                                                                                                                                                                                                                          | — | means  all accounts receivables evidenced by an invoice or other accounting entry                    |
| arising  from the shipment of goods or the provision of services by the Client  to a Customer provided that:                                                                                                                                                                                                                                                  |
|                                                                                                                                                                                                                                                                                                                                                          |   |                                                                                                 |
|                                                                                                                                                                                                                                                                                                                                                          | a)     | Hana  has approved and accepted the credit risk on the accounts receivables; and                     |
|                                                                                                                                                                                                                                                                                                                                                          |   |                                                                                                 |
|                                                                                                                                                                                                                                                                                                                                                          | b)     | the  terms of payment provided to the Customer are no longer than the Maximum  Terms of Payment; and |
|                                                                                                                                                                                                                                                                                                                                                          |   |                                                                                                 |
|                                                                                                                                                                                                                                                                                                                                                               |        |                                                                                                      |  |  |

 

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|                                                                                                                                                                                                                                                                                                                        | c)     | the  accounts receivable are factored, owned or purchased by Hana during the Agreement.                                                                                                                                                                                                                                                                                                                            |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                        |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| “Factor/Supplier  Availability”                                                                                                                                                                                                                                                                                   | — | The  sum of Eligible Credit Balance less the sum of all Factor/Supplier  Guaranties                                                                                                                                                                                                                                                                                                                                |
| outstanding,  approved Ledger Debt outstanding and approved backorder, but in no event in  excess of the Credit Limit.                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                                        |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| “Factor/Supplier  Guaranty Fee”                                                                                                                                                                                                                                                                                   | — | the  greater of: (i) one hundred dollars ($100.00) or, (ii) one whole  percent (1.00%)                                                                                                                                                                                                                                                                                                                   |
| of  the original face amount of a Factor/Supplier Guaranty. On Factor/Supplier  Guaranties bearing payment terms in excess of thirty (30) days, the  Factor/Supplier Guaranty Fee will be increased by one whole percent (1.00%)  for each thirty (30) days or part thereof that the stated terms exceed thirty  (30) days. |
|                                                                                                                                                                                                                                                                                                                        |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| “Foreign  Sales”                                                                                                                                                                                                                                                                                                  | — | Sales  to customers located outside of the United States and its Territories. U.S.                                                                                                                                                                                                                                                                                                                                 |
| Territories  include Puerto Rico, Bahamas, Guam and U.S. Virgin Islands.                                                                                                                                                                                                                                                    |
|                                                                                                                                                                                                                                                                                                                        |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| “GAAP”                                                                                                                                                                                                                                                                                                            | — | Generally  accepted accounting principles set forth in the opinions and                                                                                                                                                                                                                                                                                                                                            |
| pronouncements  of the Accounting Principles Boards of the American Institute of Certified  Public Accountants and statements and pronouncements of the Financial  Accounting Standards Board that are applicable to the circumstances as of the  date of determination.                                                    |
|                                                                                                                                                                                                                                                                                                                        |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| “Goods Insured”                                                                                                                                                                                                                                                                                                   | — | are  limited to the Accounts Receivables.                                                                                                                                                                                                                                                                                                                                                                          |
|                                                                                                                                                                                                                                                                                                                        |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| “Hana  Clients”                                                                                                                                                                                                                                                                                                   | — | Any  persons, corporations, partnerships, companies, associations or entitles  (other                                                                                                                                                                                                                                                                                                                              |
| than  Client) which have entered into factoring, inter-credit or financing  agreements with any of Hana’s offices.                                                                                                                                                                                                     |
|                                                                                                                                                                                                                                                                                                                        |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| “Insolvent/Insolvency”                                                                                                                                                                                                                                                                                            | — | means  that:                                                                                                                                                                                                                                                                                                                                                                                                       |
|                                                                                                                                                                                                                                                                                                                        |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
|                                                                                                                                                                                                                                                                                                                        | i)     | a  voluntary or involuntary petition for relief under the applicable chapter of  Title 11 of the United States Code, or any similar statute in another  country, has been filed by or against the Customer, or a receiver, trustee,  liquidator, custodian or similar representative has been appointed for the  Customer, or a court having jurisdiction has taken an equivalent action  against the Customer; or |
|                                                                                                                                                                                                                                                                                                                        |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
|                                                                                                                                                                                                                                                                                                                        | ii)    | the  Customer has made a valid assignment, composition or similar arrangement for  the benefit of creditors generally; or                                                                                                                                                                                                                                                                                          |
|                                                                                                                                                                                                                                                                                                                        |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
|                                                                                                                                                                                                                                                                                                                        | iii)   | a  judicial order has been made against the Customer for the winding-up or  dissolution of the Customer; or                                                                                                                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                                                                                                        |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
|                                                                                                                                                                                                                                                                                                                        | iv)    | the  Board of Directors (or comparable body) of the Customer has passed a  resolution authorizing the voluntary winding-up or dissolution of the  Customer; or                                                                                                                                                                                                                                                     |
|                                                                                                                                                                                                                                                                                                                        |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
|                                                                                                                                                                                                                                                                                                                        | v)     | a  compromise or arrangement of the Customer’s debts has been made binding on  all, or substantially all, of the Customer’s trade creditors.                                                                                                                                                                                                                                                             |
|                                                                                                                                                                                                                                                                                                                             |        |                                                                                                                                                                                                                                                                                                                                                                                                                    |  |  |  |  |

 

21

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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                     | The  date that such offer of compromise is accepted by the trade creditors shall  be the date of Insolvency.                                           |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                     |                                                                                                                                                   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | The  date of Insolvency will be the date on which the first of the above events  occurs. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                     |
| “Ledger  Debt”                                                                                                                                                                                                                                                                                                                                                                                                                                                | —                                                                                   | Indebtedness  owing by Client to Hana as a result of Hana’s purchases of invoices                                                                 |
| evidencing  sales to Client by Hana Clients.                                                                                                                                                                                                                                                                                                                                                                                                                            |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                     |                                                                                                                                                   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                     |                                                                                                                                                   |
| “Ledger  Debt Availability”                                                                                                                                                                                                                                                                                                                                                                                                                                   | —                                                                                   | The  sum of Eligible Credit Balance less the sum of all Factor/Supplier  Guaranties                                                                    |
| outstanding,  approved Ledger Debt outstanding and approved backlog, but in no event in  excess of the Credit Limit.                                                                                                                                                                                                                                                                                                                                                    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                     |                                                                                                                                                   |
| “Loan  Documents”                                                                                                                                                                                                                                                                                                                                                                                                                                             | —                                                                                   | Collectively,  means this Agreement, the Note, the Guaranties, {the Subordination                                                                      |
| Agreement,  the Assignment of Monies Due Under the Factoring Agreement}, and all other  instruments, documents and agreements executed by or on behalf of Client  and/or Guarantors(s) and delivered concurrently herewith or at any time  hereafter to Hana in connection with the Advances, Ledger Debt,  Factor/Supplier Guaranties, and other transactions contemplated by this  Agreement, all as amended, restated, supplemented, or modified from time to  time. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                     |                                                                                                                                                   |
| “Maximum Terms of Payment                                                                                                                                                                                                                                                                                                                                                                                                                                          | —                                                                                   | means  the longest initial period of credit the Client may extend to the Customer,                                                                     |
| except  as may be otherwise specified.                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                     |                                                                                                                                                   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                     |                                                                                                                                                   |
| “Misdirected  Payment Fee”                                                                                                                                                                                                                                                                                                                                                                                                                                    | —                                                                                   | Fifteen  percent (15.00%) of the face amount of a purchased Account on which                                                                           |
| payment  has been received by Client and not delivered in kind to Hana within two  (2) business days following the date of receipt by Client.                                                                                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                     |                                                                                                                                                   |
| “Net  Amount”                                                                                                                                                                                                                                                                                                                                                                                                                                                 | —                                                                                   | The  gross amount of an Account less the discount offered by Client and taken by                                                                       |
| Hana  at the time Hana purchases such Account.                                                                                                                                                                                                                                                                                                                                                                                                                          |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                     |                                                                                                                                                   |
| “Net Invoice Value”                                                                                                                                                                                                                                                                                                                                                                                                                                           | —                                                                                   | means  the gross invoice amount of the Goods Insured in the Contract  Currency,                                                                        |
| less:                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                     |                                                                                                                                                   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                     |                                                                                                                                                   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | (i)                                                                                      | any  credits or similar allowances excluding trade discounts,                                                                                          |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                     |                                                                                                                                                   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | (ii)                                                                                     | all  expenses saved by non-payment of the invoice,                                                                                                     |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                     |                                                                                                                                                   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | (iii)                                                                                    | before  the Insolvency, any amount received from any source as or towards  payment to the Client, including from the resale of the Goods  Insured, and |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                     |                                                                                                                                                   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | (iv)                                                                                     | any  interest charges, including post-maturity interest charges.                                                                                       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                     |                                                                                                                                                   |
| “Non-Approved  Account”                                                                                                                                                                                                                                                                                                                                                                                                                                       | —                                                                                   | (a) An  Account with respect to which Hana has not issued a credit approval or has                                                                |
| subsequently  withdrawn a credit approval or (b) an Approved Account that has been  charged back to Client.                                                                                                                                                                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                     |                                                                                                                                                   |
| “Non-Qualifying  Amount”                                                                                                                                                                                                                                                                                                                                                                                                                                      | —                                                                                   | means  Five Thousand Dollars ($5,000.00) per Customer.                                                                                                 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                          |                                                                                                                                                        |  |  |  |  |

 

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| “Obligations”                                                                                                                                                                                                                                                                                                                                                                                                         | — | All  loans, advances, debts, liabilities, obligations, covenants and duties owing  by |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------|
| Client  to Hana, direct or indirect, absolute or contingent, due or to become due,  now existing or hereafter arising, including, without limitations, Ledger  Debt and indebtedness arising under any guaranty made by Client for Hana’s  benefit or issued by Hana on Client’s behalf.                                                                                                                              |
|                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                                                                  |
| “Overadvance  Fee”                                                                                                                                                                                                                                                                                                                                                                                                    | — | An  amount, as determined by Hana from time to time, on Advances made in excess       |
| of  amounts available as set forth in Section 2.1 and evidenced by the  accepted Notice of Overadvance Fee letter agreement.                                                                                                                                                                                                                                                                                               |
|                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                                                                  |
| “Purchase  Price”                                                                                                                                                                                                                                                                                                                                                                                                     | — | An  amount equal to the Net Amount of an Account, less factoring commissions,         |
| credits  (including, without limitation, merchandise returns and credit memos), charge  backs, allowances, and all other charges provided thereunder.                                                                                                                                                                                                                                                                           |
|                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                                                                  |
| “Qualifying  Loss”                                                                                                                                                                                                                                                                                                                                                                                                    | — | means  the total amount of the Net Invoice Values unpaid by the Customer due to its   |
| Insolvency  and established as a valid and legally sustainable obligation of the Customer  to the Client, provided such amount is in excess of the Non Qualifying Loss  Amount. If such amount does not exceed the Non Qualifying Loss Amount, then  such amount shall be borne by the Client for its own account, and shall not  be applied to the Deductible and shall otherwise be excluded for purposes of  this Agreement. |
|                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                                                                  |
| “Remittance  Date”                                                                                                                                                                                                                                                                                                                                                                                                    | — | That  date which is the Wednesday immediately following the previous week’s      |
| Collection  Dates; provided, however, that if any such Wednesday is not a Business Day,  such Collected Amount of the Purchase Price shall be remitted to Client on  the next Business Day thereafter.                                                                                                                                                                                                                          |
|                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                                                                  |
| “Surcharge  Amount”                                                                                                                                                                                                                                                                                                                                                                                                   | — | An  amount, as determined by Hana from time to time, on Approved Accounts             |
| arising  from Foreign Sales or high risk customers and evidenced by the accepted  Notice of the Surcharge Amount agreement.                                                                                                                                                                                                                                                                                                     |
|                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                                                                  |
| “Takeover  Account”                                                                                                                                                                                                                                                                                                                                                                                                   | — | An  Account created or existing prior to the Effective Date.                          |
|                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                                                                  |
| “Transmission”                                                                                                                                                                                                                                                                                                                                                                                                        | — | Transmission  through Hana’s proprietary system or through Electronic Data       |
| Exchange  (“EDI”)                                                                                                                                                                                                                                                                                                                                                                                                     |   |                                                                                  |
|                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                                                                  |
| “UCC”                                                                                                                                                                                                                                                                                                                                                                                                                 | — | The  Uniform Commercial Code as in effect on the date hereof in the States of         |
| California,  as amended from time to time, and any successor statute.                                                                                                                                                                                                                                                                                                                                                           |
|                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                                                                  |
| “Written  Notice”                                                                                                                                                                                                                                                                                                                                                                                                     | — | Notice  given in writing in accordance with Section 9 of this Agreement.         |

 

//

//

 

23

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InWitness Whereof, the undersigned have caused this agreement to be executed anddelivered by their thereunto duly authorized officers as of the Effective Date.

 

 
| **HANA  FINANCIAL, INC.,**   | **LIQUIDMETAL  TECHNOLOGIES, INC.,** |
|------------------------------|--------------------------------------|
| **a California corporation** | **a Delaware corporation**           |
| ** **                   | ** **                           |
| ** **                   | ** **                           |
| /s/  Ken Lee                 |                                 | /s/  John Kang |   |
| Ken  Lee                     | John  Kang                           |
| Assistant  Vice President    | President                            |
|                         |                                 |
|                         |                                 |
| Effective  Date:             | April 21, 2005                  |   |
|                         |                                 |   |
|                         |                                 |   |
| STATE OF                     | California)                          |   |
| COUNTY OF                    | Los Angeles) ss.                     |   |
|                              |                                      |  |  |  |

 

On April 25, 2005before me, Kyeong H. Cho, a Notary Public in and for said State,personally appeared John Kang, personally known to me (or proved to meon the basis of satisfactory evidence) to be the person(s) whose name(s) is/aresubscribed to the within instrument and acknowledged to me that he/she/theyexecuted the same in his/her/their authorized capacity(ies), and that byhis/her/their signature(s) on the instrument the person(s), or the entity uponbehalf of which the person(s) acted, executed the instrument.

 

WITNESS my hand and officialseal.

 
| Signature                                       | /s/ Kyeong H. Cho |   |
|-------------------------------------------------|-------------------|--------|
| Notary Public in and  for said County and State |

 

24

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