Document:

Exhibit 10.59

LIQUIDMETAL TECHNOLOGIES, INC.

 

INDEMNITY AGREEMENT

 

THIS INDEMNITY AGREEMENT (“Agreement”) is made and
entered into as of this          day of
            , 200      ,
by and between LIQUIDMETAL TECHNOLOGIES, INC., a Delaware corporation (“Company”),
and                     ,
a director and/or officer of the Company or an Affiliate (“Executive”).

 

WITNESSETH:

 

A.            WHEREAS,
the Company and the Executive recognize that the vagaries of public policy and
the interpretation of, among other things, Delaware General Corporation Law
Section 145, court opinions and the Company’s certificate of incorporation and
bylaws are often ambiguous, conflicting and/or uncertain and, therefore, fail
to provide the Company’s directors and/or officers (collectively, “executive(s)”)
with adequate or reliable advance knowledge or guidance with respect to the
legal risks and potential liabilities to which they may become personally
exposed as a result of performing their duties for the Company or by reason of
their status as such executives.

 

B.            WHEREAS,
the Company and the Executive are aware of the substantial growth in the number
of lawsuits filed against corporate directors and/or officers in connection
with their activities in such capacities and by reason of their status as such
and, in particular, those lawsuits appearing to be promoted by attorneys who
seem to encourage and specialize in the filing of such lawsuits for the main
purpose of seeking a settlement thereof in order to personally collect
attorneys’ fees rather than attempting to obtain an equitable resolution of
such litigation that would ultimately be in the interests of the stockholders
of such corporation.

 

C.            WHEREAS,
the Company and the Executive recognize that the cost of defending against such
lawsuits, whether or not meritorious, is typically well beyond the financial
resources of most executives.

 

D.            WHEREAS,
the Company and the Executive recognize that the legal risks and potential
liabilities, and the very threat thereof, associated with lawsuits filed
against the executives, and the resultant substantial time, expense,
harassment, ridicule, abuse and anxiety spent and endured in defending against
such lawsuits bears no reasonable or logical relationship to the amount of
compensation received by the executives and, thus, poses a significant
deterrent to experienced and capable individuals, such as the Executive,
agreeing to serve as an executive.

 

E.             WHEREAS,
Section 145 of the Delaware General Corporation Law and the Company’s Bylaws,
which set forth certain provisions relating to the mandatory and permissive
indemnification of directors and officers (amongst others) by the Company, are
specifically not exclusive of other rights to which those indemnified
thereunder may be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise and

 

 

thus does not by itself
limit the extent to which the Company may indemnify, contribute or advance
expenses to persons serving as its executives (amongst others).

 

F.             WHEREAS,
in order to induce and encourage highly experienced and capable individuals,
such as the Executive, to serve as an executive and to foster an atmosphere in
which such executives will feel unrestrained by the threat of incurring
personal liability and, therefore, take the business and entrepreneurial risks
necessary to ensure the continued success and growth of the Company, secure in
the knowledge that they will receive the maximum indemnification protection
against such risks and liabilities as may be afforded by law, the Company’s
Board of Directors (“Board”) has determined, after due consideration and
investigation of the terms and provisions of this Agreement, in light of the
circumstances and considerations set forth in the foregoing recitals and in the
exercise of its good faith business judgment, that this Agreement is not only
reasonable, fair and prudent, but also necessary to promote and ensure the best
interests of the Company and its stockholders.

 

NOW, THEREFORE, in consideration of the premises,
mutual covenants and agreements of the parties contained herein and the mutual
benefits to be derived from this Agreement, and the delivery of other good and
valuable consideration by the Executive, the receipt and sufficiency of which
is hereby acknowledged by the Company, the parties hereto, intending to be
legally bound, hereby covenant and agree as follows:

 

1.             Certain
Definitions.  The following terms as
used in this Agreement shall be defined as follows:

 

a.             “Action(s)”
shall include, without limitation, any threatened, pending or completed action,
claim, litigation, suit or proceeding, whether civil, criminal, administrative,
arbitrative or investigative, whether predicated on foreign, Federal, state or
local law (including any brought under and/or predicated upon the Securities
Act of 1933, as amended, and/or the Securities Exchange Act of 1934, as
amended, and/or their respective state counterparts and/or any rule or
regulation promulgated thereunder), whether a Derivative Action and whether
formal or informal.

 

b.             “Affiliate”
shall include, without limitation, any corporation, partnership, joint venture,
employee benefit plan, trust, or other similar enterprise that directly or
indirectly through one or more intermediaries, controls or is controlled by, or
is under common control with, the Company.

 

c.             “Authority”
shall mean the panel of arbitrators or independent legal counsel selected under
Paragraph 5 of the Agreement.

 

d.             “Breach
of Duty” shall mean the Executive breached or failed to perform his duties to
the Company or an Affiliate, as the case may be, and the Executive’s breach of
or failure to perform those duties constitute:

 

(1)           a breach
of “duty of loyalty” (as defined herein) to the Company or its stockholders;

 

2

 

(2)           acts or
omissions not in “good faith” (as further defined herein) or which involve
intentional misconduct or a knowing violation of the law;

 

(3)           a
violation of Section 174 of the Delaware General Corporation Law; or

 

(4)           a transaction
from which the Executive derived an improper personal financial profit (unless
such profit is determined to be immaterial in light of all the circumstances).

 

In determining
whether the Executive has acted or omitted to act otherwise than in “good
faith,” as such term is used herein, the Authority, or the court, shall
determine solely whether the Executive (i) in the case of conduct in his “official
capacity” (as defined herein) with the Company, believed in the exercise of his
business judgment, that his conduct was in the best interests of the Company;
and (ii) in all other cases, reasonably believed that his conduct was at least
not opposed to the best interests of the Company.

 

e.             “Derivative
Action” shall mean any Action brought by or in the right of the Company and/or
an Affiliate.

 

f.              “Duty
of loyalty” shall mean a breach of fiduciary duty by the Executive which
constitutes a willful failure to deal fairly with the Company or its
stockholders in connection with a transaction in which the Executive has a
material undisclosed personal conflict of interest.

 

g.             “Expenses”
shall include, without limitation, any and all expenses, fees, costs, charges,
attorneys’ fees and disbursements, other out-of-pocket costs,
reasonable compensation for time spent by the Executive in connection with the
Action for which he or she is not otherwise compensated by the Company, any
Affiliate, any third party or other entity, and any and all other direct and
indirect costs of any type or nature whatsoever.

 

h.             “Liabilities”
shall include, without limitation, judgments, amounts incurred in settlement,
fines, penalties, and, with respect to any employee benefit plan, any excise
tax or penalty incurred in connection therewith, and any and all liabilities of
every type or nature whatsoever.

 

i.              “Official
capacity” shall mean the office of director or officer of the Company,
membership on any committee of directors, any other offices of the Company held
by the Executive and any other employment or agency relationship between the
Executive and the Company and “official capacity,” as such term is used herein,
shall not include service for any Affiliate or other foreign or domestic
corporation or any partnership, joint venture, trust, employee benefit plan, or
other enterprise.

 

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j.              “Statute”
shall mean Delaware General Corporation Law Section 145 (or any successor
provisions).

 

k.             “Termination
Date” shall mean the date the Executive ceases, for whatever reason, to serve
as a director or in an employment relationship with the Company and/or any
Affiliate.

 

2.             Not
an Employment Contract.  Nothing
contained in this Agreement shall create or constitute a contract of employment
between the Company and the Executive and the termination of the Executive’s
relationship with the Company and/or any Affiliate by either party hereto shall
not be restricted by this Agreement.

 

3.             Indemnity.

 

a.             In
consideration of Executive’s continued service to the Company and/or its
Affiliates and the consideration set forth in the recitals to this Agreement,
in all cases other than those set forth in Paragraph 3b hereof, the Company
hereby covenants and agrees, subject to the conditions and limitations set
forth hereinafter in this Paragraph 3 and elsewhere in this Agreement, to
indemnify and hold the Executive harmless if he is or was a party, or is
threatened to be made a party, to any Action by reason of his status as, or the
fact that he is or was or has agreed to become, a director or officer of the Company,
and/or is or was serving or has agreed to serve as a director or officer of an
Affiliate, and/or as to acts performed in the course of the Executive’s duty to
the Company and/or to an Affiliate, against Liabilities and reasonable Expenses
incurred by or on behalf of the Executive in connection with any Action,
including, without limitation, in connection with the investigation, defense,
settlement or appeal of any Action; provided, that it is not determined by the
Authority, or by a court, pursuant to Paragraph 5 that the Executive has
engaged in misconduct which constitutes a Breach of Duty.

 

b.             To the
extent the Executive has been successful on the merits or otherwise in
connection with any Action, including, without limitation, the settlement,
dismissal, abandonment or withdrawal of any such Action where the Executive
does not pay, incur or assume any material Liabilities, or in connection with
any claim, issue or matter therein, he shall be indemnified by the Company
against reasonable Expenses incurred by or on behalf of him in connection
therewith.  The Company shall pay such
Expenses to the Executive (net of all Expenses, if any, previously advanced to
the Executive pursuant to Paragraph 4), or to such other person or entity as
the Executive may designate in writing to the Company, within ten (10) days
after the receipt of the Executive’s written request therefor, without regard
to the provisions of Paragraph 5.  In the
event the Company refuses to pay such requested Expenses, the Executive may petition
a court to order the Company and the Shareholder to make such payment pursuant
to Paragraph 6.

 

c.             Notwithstanding
any other provisions contained in this Agreement to the contrary, the Company
shall not:

 

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(1)           indemnify,
contribute or advance Expenses to the Executive with respect to any Action
initiated or brought voluntarily by the Executive and not by way of defense,
except with respect to Actions:

 

(a)           brought to
establish or enforce a right to indemnification, contribution and/or an advance
of Expenses under Paragraph 6 of this Agreement or under the Statute as it may
then be in effect or any other applicable statute or law or otherwise as
required;

 

(b)           initiated
or brought voluntarily by the Executive to the extent the Executive is
successful on the merits or otherwise in connection with such Action in
accordance with and pursuant to Paragraph 3b. of this Agreement; or

 

(c)           as to
which the Board determines it be appropriate.

 

(2)           indemnify
the Executive against judgments, fines or penalties incurred in a Derivative
Action if the Executive is finally adjudged liable to the Company by a court
(unless the court before which such Derivative Action was brought determines
that the Executive is fairly and reasonably entitled to indemnity for any or
all of such judgments, fines or penalties); or

 

(3)           indemnify
the Executive under this Agreement for any amounts paid in settlement or any
Action effected without the Company’s written consent.

 

The Company shall
not settle any Action in any manner which would impose any Liabilities or other
type of limitation on the Executive without the Executive’s written
consent.  Neither the Company nor the
Executive shall unreasonably withhold their consent to any proposed settlement.

 

d.             The
Executive’s conduct with respect to an employee benefit plan sponsored by or
otherwise associated with the Company and/or an Affiliate for a purpose he
reasonably believed to be in the interests of the participants in and
beneficiaries of such plan is conduct which does not constitute a breach or
failure to perform his duties to the Company or an Affiliate, as the case may
be.

 

4.             Advance
Payment of Expenses.

 

a.             The
Company shall pay to the Executive, or such other person or entity as the
Executive may designate in writing to the Company, in advance of the final
disposition or conclusion of any Action (or claim, issue or matter associated
with such Action) the Executive’s reasonable Expenses incurred by or on behalf
of the Executive in connection with such Action (or claim, issue or matter
associated with any such Action), within ten (10) days after the receipt of
Executive’s written request therefor; provided, the following conditions are
satisfied:

 

5

 

(1)           the
Executive has first requested an advance of such Expenses in writing (and
delivered a copy of such request to the Company)  from the insurance carrier(s), if any, to
whom a claim has been reported under an applicable insurance policy purchased
by the Company and each such insurance carrier, if any, has declined to make
such an advance;

 

(2)           the
Executive furnishes to the Company an executed written statement affirming his
good faith belief that he has not engaged in misconduct constituting a Breach
of Duty; and

 

(3)           the
Executive furnishes to the Company an executed written agreement to repay any
advances made under this Paragraph 4 if it is ultimately determined that he is
not entitled to be indemnified by the Company for such Expenses pursuant to
this Agreement.

 

b.             In the
event the Company makes an advance payment of Expenses to the Executive
pursuant to this Paragraph 4, the Company shall be subrogated to every right of
recovery the Executive may have against any insurance carrier from whom the
Company has purchased insurance for such purpose.

 

5.             Determination
of Right to Indemnification.

 

a.             Except
as otherwise set forth in this Paragraph 5 or in Paragraph 3c, any
indemnification to be provided to the Executive by the Company under Paragraph
3a. of this Agreement upon the final disposition or conclusion of any Action,
or a claim, issue or matter associated with any such Action, unless otherwise
ordered by a court, shall be paid by the Company to the Executive (net of all
Expenses, if any, previously advanced to the Executive pursuant to Paragraph
4), or to such other person or entity as the Executive may designate in writing
to the Company within sixty (60) days after the receipt of Executive’s written
request therefor.  Such request shall
include an accounting of all amounts for which indemnification is being
sought.  No further corporate
authorization for such payment shall be required other than this Paragraph 5a.

 

b.             Notwithstanding
the foregoing, the payment of such requested indemnifiable amounts pursuant to
Paragraph 3a may be denied by the Company in the event:

 

(1)           the Board
by a majority vote thereof determines that the Executive engaged in misconduct
which constitutes a Breach of Duty; or

 

(2)           a majority
of the Board are party in interest to such Action.

 

In either event of
nonpayment, the Board shall immediately authorize and direct, by resolution,
that an independent determination be made as to whether the Executive engaged
in misconduct which constitutes a Breach of Duty and, therefore, whether
indemnification of the Executive is proper pursuant to this Agreement.

 

6

 

c.             Such
independent determination shall be made, at the option of the Executive, by (i)
a panel of three arbitrators (selected as set forth in Paragraph 5e from the
panels of arbitrators of the American Arbitration Association) in Orange
County, California in accordance with the Commercial Arbitration Rules then
prevailing of the American Arbitration Association; (ii) an independent legal
counsel mutually selected by the Executive and the Board by a majority vote of
a quorum thereof consisting of directors who were not parties in interest to
such Action (or, if such quorum is not obtainable, by a majority vote of the
entire Board); or (iii) a court in accordance with Paragraph 5i of this
Agreement.

 

d.             In any
such determination there shall exist a rebuttable presumption that the
Executive has not engaged in misconduct which constitutes a Breach of Duty and,
therefore, is entitled to indemnification pursuant to this Agreement.  The burden of rebutting such presumption by
clear and convincing evidence shall be on the Company, the Shareholder and any
other party challenging such indemnification.

 

e.             In the
event a panel of arbitrators is to be employed hereunder, one of such
arbitrators shall be selected by the Board by a majority vote of a quorum
thereof consisting of directors who were not parties in interest to such Action
(or, if such quorum is not obtainable, by an independent legal counsel chosen
by a majority vote of the entire Board), the second by the Executive and the
third by the previous two arbitrators.

 

f.              The
Authority shall make its independent determination hereunder within sixty (60)
days of being selected and shall simultaneously submit a written opinion of its
conclusions to the Company and the Executive.

 

g.             In the
event the Authority determines that the Executive is entitled to be indemnified
for any amounts pursuant to this Agreement, the Company shall pay such amounts
to the Executive (net of all Expenses, if any, previously advanced to the
Executive pursuant to Paragraph 4), or to such other person or entity as the
Executive may designate in writing to the Company, within ten (10) days of
receipt of such opinion.

 

h.             The
Expenses associated with the indemnification process set forth in this
Paragraph 5, including, without limitation, the Expenses of the Authority
selected hereunder, shall be paid by the Company.

 

i.              In the
event that the Executive elects to have the independent determination made by a
court pursuant to Paragraph 5c(iii), the following shall apply:

 

(i)                    If
the court determines that the Executive has engaged in misconduct which
constitutes a Breach of Duty, it may nonetheless order indemnification to be
paid by the Company if it determines that the Executive is fairly and
reasonably entitled to indemnification in view of all of the circumstances of
such Action.

 

7

 

(ii)                   In
the event the court determines that the Executive is entitled to be indemnified
for any Liabilities and/or Expenses, or to receive the advancement of Expenses,
pursuant to this Agreement, unless otherwise ordered by such court, the Company
shall pay such Liabilities and/or Expenses to the Executive (net of all
Expenses, if any, previously advanced to the Executive pursuant to Paragraph
4), including reasonable interest thereon as provided in Paragraph 8c, or to
such other person or entity as the Executive may designate in writing to the
Company, within ten (10) days of the rendering of such determination.

 

(iii)                  The
Executive shall pay all Expenses incurred by the Executive in connection with
any judicial determination provided in this Paragraph 5i, unless it shall
ultimately be determined by the court that he is entitled, in whole or in part,
to be indemnified by, or to receive advances from, the Company as authorized by
this Agreement.  All Expenses incurred by
the Executive in connection with any subsequent appeal of any judicial
determination provided for in this Paragraph 5i shall be paid by the Executive
regardless of the disposition of such appeal.

 

j.              In the
event the Company does not (a) advance requested Expenses to the Executive
within ten (10) days of the Executive’s compliance with Paragraph 4; or (b)
indemnify the Executive with respect to requested Expenses under Paragraph 3b
within ten (10) days of Executive’s written request therefor, the Executive may
petition the court before which such Action was brought, if any, or any other
court of competent jurisdiction to order the Company to pay such reasonable
Expenses immediately.  Such court, after
giving any notice the court considers necessary, shall order the Company to pay
such Expenses if it determines that the Executive has complied with the
applicable provisions of Paragraph 4 or 3b, as the case may be.

 

6.             Termination
of an Action Nonconclusive.  The
adverse termination of any Action against the Executive by judgment, order,
settlement, conviction, or upon a plea of no contest or its equivalent, shall
not, of itself, create a presumption that the Executive has engaged in
misconduct which constitutes a Breach of Duty.

 

7.             Partial
Indemnification; Reasonableness; Interest.

 

a.             In the
event it is determined by the Authority, or by a court, that the Executive is
entitled to indemnification as to some claims, issues or matters, but not as to

 

8

 

other claims, issues or matters, involved in any Action, the Authority,
or the court, shall authorize the reasonable proration and payment by the
Company of such Liabilities and/or reasonable Expenses, with respect to which
indemnification is sought by the Executive, among such claims, issues or
matters as the Authority, or the court, shall deem appropriate in light of all
of the circumstances of such Action.

 

b.             In the
event it is determined by the Authority, or by a court, that certain Expenses
incurred by the Executive are for whatever reason unreasonable in amount, the
Authority, or the court, shall nonetheless authorize indemnification to be paid
by the Company to the Executive for such Expenses as the Authority, or the
court, shall deem reasonable in light of all of the circumstances of such
Action.

 

c.             Interest
shall be paid by the Company to the Executive, to the extent deemed appropriate
by the Authority, or a court, at a reasonable interest rate, for amounts for
which the Company indemnifies or advances to the Executive.

 

8.             Insurance;
Subrogation.

 

a.             The
Company may purchase and maintain insurance on behalf of the Executive against
any Liability and/or Expense asserted against him and/or incurred by or on
behalf of him in such capacity as an executive or other employee or agent of
the Company and/or of an Affiliate, or arising out of his status as such,
whether or not the Company would have the power to indemnify him against such
Liability or advance of Expenses under the provisions of this Agreement or
under the Statute as it may then be in effect. 
Except as expressly provided herein, the purchase and maintenance of
such insurance shall not in any way limit or affect the rights and obligations
of the Company and/or the Executive under this Agreement and the execution and
delivery of this Agreement by the Company and the Executive shall not in any
way be construed to limit or affect the rights and obligations of the Company
and/or of the other party or parties thereto under any such policy or agreement
of insurance.

 

b.             In the
event the Executive shall receive payment from any insurance carrier and/or
from the plaintiff in any Action against the Executive in respect of
indemnified amounts after payments on account of all or part of such
indemnified amounts have been made by the Company pursuant to this Agreement,
the Executive shall promptly reimburse the Company for the amount, if any, by
which the sum of such payment by such insurance carrier and/or such plaintiff
and payments by the Company to the Executive exceeds such indemnified amounts;
provided, however, that such portions, if any, of such insurance proceeds that
are required to be reimbursed to the insurance carrier under the terms of its
insurance policy, such as co-insurance, retention or deductible amounts, shall
not be deemed to be payments to the Executive hereunder.

 

c.             In
addition, upon payment of indemnified amounts under this Agreement, the Company
shall be subrogated to the Executive’s right against any insurance carrier in
respect of such indemnified amounts and the Executive shall execute and deliver
any

 

9

 

and all instruments and/or documents and perform any and all other acts
or deeds which the Company deems necessary or advisable to secure such
rights.  The Executive shall do nothing
to prejudice such rights of recovery or subrogation.

 

9.             Witness
Expenses.  The Company shall pay in
advance or reimburse any and all reasonable Expenses incurred by the Executive
in connection with his appearance as a witness in any Action at a time when he
has not been formally named a defendant or respondent to such an Action, within
ten (10) days after the receipt of the Executive’s written request therefor.

 

10.           Contribution.

 

a.             Subject
to the limitations of this Paragraph 10, in the event the indemnity provided
for in Paragraph 3 of this Agreement is unavailable to the Executive for any
reason whatsoever, the Company, in lieu of indemnifying the Executive, shall
contribute to the amount incurred by or on behalf of the Executive, whether for
Liabilities and/or for reasonable Expenses in connection with any Action, in
such proportion as is deemed fair and reasonable by the Authority, or by a
court, in light of all of the circumstances of such Action in order to reflect:

 

(1)           the
relative benefits received by the Company and the Executive as a result of the
event(s) and/or transaction(s) giving cause to such Action; and/or

 

(2)           the
relative fault of the Company (and its other executives, employees and/or
agents) and the Executive in connection with such event(s) and/or transaction(s).

 

b.             The
relative fault of the Company (and its other executives, employees and/or
agents), on the one hand, and of the Executive, on the other hand, shall be
determined by reference to among other things, the parties’ relative intent,
knowledge, access to information and opportunity to correct or prevent the
circumstances resulting in such Liabilities and/or Expenses.  The Company and the Executive agree that it
would not be just and equitable if contribution pursuant to this Paragraph 10
were determined by pro rata allocation or any other method of allocation which
does not take into account the foregoing equitable considerations.

 

c.             The
Executive shall not be entitled to contribution from the Company under this
Paragraph 10 in the event it is determined by the Authority, or by a court,
that the Executive engaged in misconduct which constitutes a Breach of Duty,
unless a court otherwise determines.

 

d.             The
Company’s payment of, and the Executive’s right to, contribution under this
Paragraph 10 shall be made and determined in accordance with, pursuant to and
in the same manner as, the provisions in Paragraph 5 and/or 6 hereof relating
to the Company’s payment of, and the Executive’s right to, indemnification
under this Agreement.

 

10

 

11.           Nonexclusivity
of Agreement.  The rights to
indemnification, contribution and the advancement of Expenses provided to the
Executive by this Agreement shall not be deemed exclusive of any other rights
to which the Executive may be entitled under any charter provision, bylaw,
agreement, resolution, vote of stockholders or disinterested directors of the
Company or otherwise, including, without limitation, under the Statute as it
may then be in effect, both as to acts in his official capacity as such
executive or other employee or agent of the Company and/or of an Affiliate or
as to acts in any other capacity while holding such office or position, whether
or not the Company would otherwise have the power to indemnify, contribute or
advance Expenses to the Executive.

 

12.           Notice
to the Company; Defense of Actions.

 

a.             The
Executive agrees to promptly notify the Company in writing upon being served
with or having actual knowledge of any citation, summons, complaint, indictment
or any other similar document relating to any Action which may result in a
claim of indemnification, contribution or advancement of Expenses hereunder,
but the omission so to notify the Company will not relieve the Company from any
liability which it may have to the Executive otherwise than under this
Agreement unless the Company shall have been irreparably prejudiced by such
omission.

 

b.             With
respect to any such Action as to which the Executive notifies the Company of
the commencement thereof:

 

(1)           The Company
shall be entitled to participate therein at its own expense; and

 

(2)           Except as
otherwise provided below, to the extent that it may wish, the Company (or any
other indemnifying party, including any insurance carrier, similarly notified
by the Executive and/or the Company) shall be entitled to assume the defense
thereof, with counsel selected by the Company (or such other indemnifying
party) and reasonably satisfactory to the Executive.

 

c.             After
notice from the Company (or such other indemnifying party) to the Executive of
its election to assume the defense of an Action, the Company shall not be
liable to the Executive under this Agreement for any Expenses subsequently
incurred by the Executive in connection with the defense thereof other than
reasonable costs of investigation or as otherwise provided below.  The Executive shall have the right to employ
his counsel in such Action but the Expenses of such counsel incurred after
notice from the Company (or such other indemnifying party) of its assumption of
the defense thereof shall be at the expense of the Executive unless (i) the
employment of counsel by the Executive has been authorized by the Company; (ii)
the Executive shall have reasonably concluded that there may be a conflict of
interest between the Company (or such other indemnifying party) and the
Executive in the conduct of the defense of such Action; or (iii) the Company
(or such other indemnifying party) shall not in fact have employed counsel to
assume the defense of such Action, in each of which

 

11

 

cases the Expenses of counsel shall be at the expense of the
Company.  The Company shall not be
entitled to assume the defense of any Derivative Action or any Action as to
which the Executive shall have made the conclusion provided for in clause (ii)
above.

 

13.           Continuation
of Rights and Obligations.  Subject
to Paragraph 15, the terms and provisions of this Agreement shall continue as
to the Executive subsequent to the Termination Date, and such terms and
provisions shall inure to the benefit of the heirs, executors, estate and
administrators of the Executive and the successors and assigns of the Company,
including, without limitation, any successor to the Company by way of merger,
consolidation and/or sale or disposition of all or substantially all of the
assets or capital stock of the Company. 
Except as provided herein, all rights and obligations of the Company and
the Executive hereunder shall continue in full force and effect despite the
subsequent amendment or modification of the Company’s Certificate of
Incorporation or bylaws, as such are in effect on the date hereof, and such
rights and obligations shall not be affected by any such amendment or
modification, any resolution of directors or stockholders of the Company, or by
any other corporate action which conflicts with or purports to amend, modify,
limit or eliminate any of the rights or obligations of the Company and/or of
the Executive hereunder.

 

14.           Amendment.  This Agreement may only be amended, modified
or supplemented by the written agreement of the Company and the Executive.

 

15.           Assignment.  This Agreement shall not be assigned by the
Company or the Executive without the prior written consent of the other party
hereto, except that the Company may freely assign its rights and obligations
under this Agreement to any Affiliate for whom the Executive is serving as an
executive thereof; provided, however, that no permitted assignment shall
release the Company from its obligations hereunder.

 

16.           Governing
Law.  All matters with respect to
this Agreement, including, without limitation, matters of validity,
construction, effect and performance shall be governed by the internal laws of
the State of Delaware applicable to contracts made and to be performed therein
between the residents thereof (regardless of the laws that might otherwise be
applicable under principles of conflicts of law).

 

17.           Counterparts.  This Agreement may be executed in two or more
fully or partially executed counterparts each of which shall be deemed an
original binding the signer thereof against the other signing parties, but all
counterparts together shall constitute one and the same instrument.  Executed signature pages may be removed from
counterpart agreements and attached to one or more fully executed copies of
this Agreement.

 

18.           Headings.  The headings used in this Agreement are for
convenience and reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.

 

19.           Severability.
 If any provision of this Agreement shall
be deemed invalid or inoperative, or in the event a court of competent jurisdiction
determines that any of the

 

12

 

provisions of this Agreement contravene public policy in any way, this
Agreement shall be construed so that the remaining provisions shall not be
affected, but shall remain in full force and effect, and any such provisions
which are invalid or inoperative or which contravene public policy shall be
deemed, without further action or deed on the part of any person, to be
modified, amended and/or limited, but only to the limited extent necessary to
render the same valid and enforceable, and the Company shall indemnify and hold
harmless the Executive against Liabilities and reasonable Expenses with respect
to any Action to the fullest extent permitted by any applicable provision of
this Agreement that shall not have been invalidated and otherwise to the
fullest extent otherwise permitted by the Statute as it may then be in effect.

 

20.           Notices.  All notices, requests, demands and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given when delivered by hand or when mailed by
certified registered mail, return receipt requested, with postage prepaid:

 

If to the Executive, to his or her address as set
forth on the signature page below.

or to such other
person or address which the Executive shall furnish to the Company in writing
pursuant to the above.

 

If to the Company, to:

 

Liquidmetal
Technologies, Inc.

25800 Commercentre
Dr.

Suite 100

Lake Forest,
California 92630Attention:  Chief
Executive Officer

 

or to such other
person or address as the Company shall furnish to the Executive in writing
pursuant to the above.

 

13

 

IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be duly executed, all as of the day and year first above
written.

 

LIQUIDMETAL
TECHNOLOGIES, INC.

(“Company”)

 

	
  By:

  	
   

  	
   

  
	
   

  	
  John Kang,
  President and Chief Executive Officer

  
				

 

 

	
  EXECUTIVE

  	
   

  
	
   

  
	
  Sign:

  	
   

  	
   

  
	
   

  
	
  Name:

  	
   

  	
   

  
	
   

  
	
  Address:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
					

 

 

14Exhibit 10.60

 

FACTORING, LOAN & SECURITY AGREEMENT

 

This Factoring, Loan and Security Agreement (this “Agreement”), dated
and effective as of the Effective Date, and entered into between Hana Financial, Inc.,
a California corporation, with offices at 1055 Wilshire Blvd., Los Angeles, CA
90017, Telecopy No.: (213) 482-1212 (“Hana”), and Liquidmetal Technologies, Inc., a
Delaware corporation, whose address is 25800 Commercentre Drive, Suite 100,
Lake Forest, CA 92630, Telecopy No.: (949) 206-8088 (“Client”).  Certain capitalized terms used herein will
have the meanings assigned to such terms in Section 12 of this Agreement.

 

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

 

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

 

SECTION 1.         Sale and
Approval of Accounts

 

1.1           Client hereby agrees to sell, assign and
transfer 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 the
sole and exclusive owner thereof.  Hana
will purchase an Account on the shortest selling terms for the Purchase Price
thereof upon receipt by Hana of the invoice copy evidencing such Account.

 

1.2           (a)           Client
will submit for Hana’s credit approval the credit requirements of Client’s
customers, a description of Client’s normal selling terms and such other
Information 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 normal
selling terms or on other selling terms approved by Hana by Written Notice
and/or Transmission.  Client may also
submit for Hana’s credit approval specific orders from Client’s customers and
Hana may, in Hana’s sole credit judgment, approve such orders on a single order
credit approval basis.  All of Hana’s
credit approvals will be by Written Notice to Client.  All sales to a customer within the credit
line established for such customer on Client’s normal selling terms or within
the single order credit approvals given by Hana for orders from such customer
will be Approved Accounts provided that: (i) Delivery is completed while
the credit line or single order credit approval remains in effect and (ii) the
Account is assigned to Hana within thirty (30) days of Delivery and (iii) the
Account is not past due at the time of assignment.

 

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

 

(c)           Hana will have no
liability to Client or to any customer for Hana’s refusal to credit approve an
Account or Hana’s withdrawal or amendment of a credit approval.

 

1

 

1.3           Hana will assume only
Eighty Percent (80%) of the Credit
Risk on all Approved Accounts which means that Hana shall indemnify the Client
for only Qualifying Losses incurred in connection with Eligible
Receivables and directly caused by the failure of the Customer to
pay the Client all or part of the Net Invoice Value of the Eligible
Receivable(s) due to the Insolvency of the Customer, such Insolvency
having occurred during the Agreement or within six (6) months
thereafter.  The amount payable by Hana
will be calculated in accordance with Section 7, Proof and Payment of
Claims, and will be subject always to the Deductible, Financing
Limits and other applicable terms and conditions of the Agreement.

 

1.4           In the event that
monies are at any time owing by a Customer for both Approved Accounts and
Non-Approved Accounts, any amount when paid by or credited to the customer will
be applied as follows:

 

(a)           If Hana issued single
order approvals, all amounts paid by or credited to the customer will be deemed
applied first to Approved Accounts.

 

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

 

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

 

SECTION 2.         Advances,
Payments, Commissions and Fees.

 

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

 

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

 

(ii)           if
the Eligible Account is a Non-Approved Account, Hana may advance to Client up
to thirty percent (30%) of the
Purchase Price of such Non-Approved Account.

 

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

 

2

 

of Advances herein.

 

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

 

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

 

(ii)           Accounts
with 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’s
Affiliates; and

 

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

 

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

 

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

 

(vi)          cash-on-delivery
Accounts; and

 

(vii)         cash
sale Accounts; and

 

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

 

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

 

(x)            Non-Approved
Accounts that are thirty (30) or
more days past due; and

 

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

 

(xii)          Accounts
due from a customer whose principal place of business is located outside the
United 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 otherwise
Approved Accounts.

 

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

 

3

 

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 any
such advance would cause the aggregate amount of outstanding Obligations to
exceed one million five hundred thousand
dollars ($1,500,000.00) (the “Credit Limit”).

 

(e)           Notwithstanding the
foregoing, in no event shall the total of outstanding Advances at any one time
exceed the Credit Limit.  To the extent
that the total of aggregate outstanding Advances exceeds the Credit Limit,
Client shall pay to Hana upon its demand any and all amounts necessary to
reduce the aggregate outstanding Advances to or below the Credit Limit.

 

2.2           As payment for an
Account, the Collected Amount of the Purchase Price of an Account will be
credited to Client’s account as of the Collection Date and disbursed to Client
on 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.  If
an Approved Account remains partially or fully unpaid solely as a result of the
financial inability of the customer thereon to pay such Approved Account and if
such Account is not subject to a Dispute, the Purchase Price of such Approved
Account less any Collected Amounts previously credited to Client’s account with
respect to such Approved Account and less advances, interest and any other
amounts due Hana will be credited to Client’s account on the Approved Payment Date for such Approved Account.

 

2.3           At the time Hana
purchases an Account, 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 Approved Accounts
plus the Surcharge Amount, as applicable. At the time Hana purchases an
Account, 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 Accounts
bearing payment terms in excess of sixty (60) days, the factoring commission
will 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 agrees
to pay to Hana factoring commissions aggregating at least thirty thousand dollars ($30,000.00) (“Minimum
Annual Commission”).  If at the end of
any Contract Year the aggregate of factoring commissions paid by Client is less
than the Minimum Annual Commission, then Client shall pay to Hana, or Hana may
charge Client’s account with, an amount equal to the difference between the
Minimum Annual Commission and the factoring commissions actually paid during
that Contract Year.  If Client terminates
this Agreement at any time during a Contract Year or if Hana terminates this
Agreement at any time during a Contract Year upon the occurrence of an Event of
Default, Client shall nevertheless remain obligated to pay the Minimum Annual
Commission for such Contract Year.

 

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

 

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

 

4

 

customer set-up on our data base, as follows: (i) a fee of $10.00
will be charged when you submit an order or invoice for any customer that has
not had any activity with us for at least eighteen (18) months prior thereto
and is not established in our files; and (ii) a fee of $5.00 will be
charged when you submit an order or invoice for any customer that has not had
any activity with us for at least eighteen (18) months, but has been active
during 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) months
from the Effective Date of this Agreement.

 

2.7.             Proof and Payment of Claims and Recoveries

 

A.      Payment
by Hana for Qualifying Losses shall be calculated as follows, subject always to
the Deductible, if any, Financing Limit, and other applicable terms and
conditions of the Agreement:

 

a)       Calculate
the amount of the Qualifying Loss.

 

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

 

c)       Should
the sum be equal to a number less than 0, then no payment shall be made by
Hana.

 

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

 

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

 

C.      The
responsibility for proving a Qualifying Loss under this Agreement and
evidencing that all conditions and warranties have been complied with shall at
all times rest with the Client.

 

D.      For
the purpose of determining Hana’s liability under this Agreement, all funds or
salvage received from the Customer, or from any other source whatsoever as or
towards payment of the Customer’s obligations to the Client after the Customer
is in default of any payment obligation to the Client for more than one hundred
twenty (120) days, or is Insolvent, whichever happens first, shall be applied
in chronological order of due dates until Hana indemnifies the Client for the
Qualifying Loss.

 

The application of funds described in this paragraph shall apply
regardless of any designation of funds by the Customer or any other party
unless specifically agreed in writing by Hana.

 

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

 

5

 

1.       Hana
shall receive the Client Percentage of all sums recovered, and the Client shall
receive the remaining percentage of such sums, until the amount of Hana’s
payment of a Qualifying Loss and Hana’s cost of recovery have been fully
reimbursed;

 

2.       All
further sums recovered shall inure to the benefit of the Client.

 

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

 

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

 

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

 

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

 

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

 

2.9           Exclusions

 

A.      Losses
caused by or resulting from the following shall not constitute Qualifying Losses
and are not covered under this Agreement:

 

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

 

2.       Any
material breach of or inaccuracy regarding any warranty or representations made
herein or failure to perform or to fulfill any warranty, covenant or agreement
made herein by the Client;

 

3.       Nuclear
reaction 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) between
the Customer’s country and the country of the Client.

 

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

 

6

 

1.       Any
Customer that, as of the first day of the Agreement, is Insolvent or past due
in any payment obligations to the Client unless

 

(a)     the
total aggregate amount of such past due payment obligations does not exceed the
Non Qualifying Loss Amount (payment obligations that are disputed by the
Customer in writing will not be considered past due for the purposes of this
paragraph); or

 

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

 

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

 

3.       Any
Customer about which the Client knowingly provided inaccurate information to
Hana.  If the inaccurate information was
based on the representation or statements of third parties and was true to the
best knowledge of the Client after a reasonable investigation, this exclusion
shall not apply;

 

4.       Any
receivables that are sold or otherwise transferred by the Client to any other
person or entity, unless otherwise agreed in writing by Hana;

 

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

 

6.       Sales
made on terms of Confirmed or Unconfirmed Irrevocable Letter of Credit.

 

7.       Sales
made on terms of Cash in Advance or Cash on Delivery.

 

SECTION 3.         Factor/Supplier
Guaranties and Ledger Debt

 

3.1           The
Factor/Supplier Guaranty facility shall be subject to the following terms and
conditions:

 

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

 

7

 

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

 

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

 

(c)           No extensions,
modifications or amendments to a Factor/Supplier Guaranty shall be made without
Hana’s prior written consent.

 

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

 

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

 

(f)            As compensation for
the issuance of Factor/Supplier Guarantees, Client shall pay to Hana the
Factor/Supplier Guaranty Fee upon issuance of each Factor/Supplier Guaranty
issued.

 

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

 

3.3           In
no event shall the total amount of outstanding Advances, Factor/Supplier
Guaranties, and Ledger Debt, and any other Obligations exceed the Credit
Limit.  To the extent that, at any time,
the foregoing limit is exceeded, Client shall pay on demand and all amounts
necessary to reduce the aggregate outstanding Obligations to or below the
Credit Limit.

 

8

 

SECTION 4.         Interest
and Collection Clearance Charges

 

4.1           Client will pay Hana
interest on the Daily Balance.  Interest
will 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 account
monthly at the end of each month.  The
Interest Rate will also be charged to Client on all other obligations, except
those specifying a different rate, from the date incurred through the date
paid.  Any publicly announced decrease or
increase in the Base Rate will result in an adjustment to the Interest Rate on
the next business day.  After the occurrence
of an Event of Default and for so long as such Event of Default continues, all
the Obligations will, at Hana’s option, bear interest at a rate per annum equal
to five percent (5.0%) plus the Interest Rate. 
Interest will be calculated on the basis of a 360-day year for the
actual number of days elapsed.  In no
event will the total amount of interest received by Hana exceed the maximum
rate permitted by applicable law and in the event excess interest is determined
by a court of competent jurisdiction to have been paid by Client to Hana, such
excess interest will be applied as a credit against the outstanding Obligations
and Client will not have any action against Hana for any damages arising out of
the payment or collection of such excess interest.

 

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

 

4.3           To allow for collection
clearance on all checks and other payments remitted by Client’s customers,
Client will, in addition to interest, pay Hana a collection clearance charge
computed as follows: (a) total cash collections for the day, multiplied by
(b) four (4) business
days, 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 indebtedness
incurred by the named customer for goods actually sold and delivered; there are
no setoffs, offsets or counterclaims, genuine or otherwise, against the
Account; the Account does not represent a sale to any of Client’s subsidiaries,
affiliates, directors, officers, agents, stockholders, or employees, or a
consignment, guaranteed sale, or bill and hold transaction, or a cash on
delivery sale; no agreement exists permitting any deduction or discount (other
than the discount stated on the invoice); Client is the lawful owner of the
Account and has the right to sell and assign the same to Hana; the Account is
free 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 accordance
with its terms.

 

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

 

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

 

9

 

5.4           Client will maintain or
cause to be maintained in good repair, working order, and condition all
material properties used in Client’s business and will make or cause to be made
all appropriate repairs, renewals, and replacements thereof.  Client has and will maintain or cause to be
maintained, with financially sound and reputable insurers, public liability,
product liability, and property damage insurance with respect to Client’s
business and properties against loss or damage of the kinds customarily carried
or maintained by corporations of established reputation engaged in similar
businesses and in amounts reasonably acceptable to Hana, including business
interruption insurance.  At all times
Client shall have and maintain insurance with respect to all Inventory, to the
fullest extent of the insurable value thereof, against risks of fire, theft,
sprinklers, and such other risks as Hana may require, in such form, for such
periods, and written by such insurers as may be reasonably satisfactory to
Hana, such insurance to bear endorsements, in form acceptable to Hana, naming
Hana as additional insured and designating Hana as loss payee.  Client shall deliver to Hana promptly as
rendered true copies of all monthly reports made to insurance companies under
any reporting forms of insurance policies. 
Client shall promptly deliver to Hana copies of all such policies.  Except as to business record insurance, if
Client fails to maintain such insurance, Hana may, but need not, obtain the
same and charge the cost thereof to Client’s Factoring Agreement.  The proceeds of any such insurance shall be
applied in reduction of Client’s Revolving Loans.

 

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

 

5.6           Client will not change
Client’s corporate name or the location of Client’s office or open any new
offices without giving Hana at least thirty (30) days prior Written
Notice.  At the present time, Client
carries on business only at the above address and at the addresses set forth
below:  None.

 

5.7           All books and records
pertaining to the Accounts or to any inventory owned by Client will be
maintained solely and exclusively at the above address or the addresses listed
in Section 5.5 hereof and no such books and records will be moved or
transferred 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 to
Accounts coming into Client’s possession in trust for Hana and all such goods
will be segregated and identified as held in trust for Hana’s benefit and
Client will, at Hana’s request, and at Client’s expense, deliver such goods to
such place or places as Hana may designate.

 

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

 

10

 

use of any trade names or styles is in compliance with all laws
regarding the use of such trade names or styles.  Client will give Hana thirty (30) days prior
Written Notice of the change of any trade name or style or Client’s use of any
new trade name or style: None.

 

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

 

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

 

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

 

5.12         Client agrees that no
provision in this Agreement and no course of dealing between the parties shall
be deemed to create any fiduciary duty by Hana to Client.  Client agrees that neither Hana nor any of
Hana’s affiliates, officers, directors, shareholders, employees, attorneys, or
agents 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 Client
in connection with, arising out of, or in any way related to this Agreement of
any of the transactions contemplated by this Agreement.  Client hereby waives, releases, and agrees
not to sue Hana or any of Hana’s affiliates, officers, directors, shareholders,
employees, attorneys, or agents for punitive damages in respect of any claim in
connection with, arising out of, or in any way related to this Agreement or any
of the transactions contemplated by this Agreement.

 

SECTION 6.         Disputes
and Chargebacks

 

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

 

6.2           Client will notify Hana
immediately, by Written Notice, in the event that a customer alleges any
Dispute, or returns or desires to return any goods purchased from Client
relating to an Account.  After an Event
of Default, Hana may but is not obligated to

 

11

 

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

 

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

 

6.4           Hana may at any time
charge back to Client’s account the amount of: (a) any Approved Account
which is not paid in full when due for any reason other than Credit Risk; (b) any
Approved 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 customer
on any Account; (d) customer claims; (e) any Account for which there
is a breach of any representation or warranty. 
A charge back does not constitute a reassignment of an Account.  Hana shall immediately charge any deduction
taken 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 Hana
receives with respect to a Non-Approved Account if such payment is subsequently
disgorged by Hana, whether as a result of any proceeding in bankruptcy or
otherwise.

 

6.6           Client shall purchase
promptly all Accounts charged back by Hana, provided, however, that until
payment by Client to Hana of all monies due with respect to such charged back
account, title shall pass to Client subject, however, to Hana’s security
interest therein.  Client agrees to
indemnify and save Hana harmless from and against any and all loss, costs and
expenses caused by or arising out of disputed Accounts, including, but not
limited to, collection expenses and attorney’s fees incurred with respect
thereto.

 

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

 

SECTION 7.         Administration

 

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

 

12

 

one copy of each invoice, acceptable evidence of shipment and such
other documentation and proofs of delivery as Hana may require or (ii) transmit
to Hana by Transmission information concerning Accounts in a format acceptable to
Hana and, upon Hana’s request, deliver to Hana copies of invoices, acceptable
evidence of shipment and such other documentation and proofs of delivery as
Hana may require relating to Accounts so transmitted.  Client will not deliver Assignment Schedules
in connection with Transmissions, but Client acknowledges and agrees that every
invoice transmitted to Hana by Transmission will be deemed to have been sent
pursuant to the terms and conditions of an Assignment Schedule.  Each invoice relating to an Account and all
copies thereof will bear a notice, in form satisfactory to Hana, that the
Account has been sold and assigned to and is payable only to Hana.  Client agrees that Client will not change
such notice on invoices and will not direct its customers to pay Client or any
third party amounts due under invoices. 
Client agrees to prepare and mail all invoices relating to Accounts, but
Hana may do so at Hana’s option.  Client
agrees to execute and deliver to Hana such further instruments of assignment,
financing statements and instruments of further assurance as Hana may
reasonably require.  Client authorizes
Hana to execute on Client’s behalf and file such UCC financing statements, as
Hana may deem necessary in order to perfect and maintain the security interests
granted by Client in accordance with this Agreement.  Client further agrees that Hana may file this
Agreement or a copy thereof as such UCC financing statement.

 

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

 

7.3           Client shall permit
Hana and any authorized representatives designated by Hana to visit and inspect
any of the properties of Client, including its financial and accounting
records, and to make copies and take extracts therefrom, and to discuss its
affairs, finances, and business with its officers at such times during normal
business 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 to
Accounts.

 

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

 

7.5           Hana will render a
monthly statement of account to Client within twenty (20) days after the end of
each month.  Such statement of account
will constitute an account stated unless Client makes written objection thereto
by Written Notice within thirty (30) days from the date such statement is
rendered to Client.

 

7.6           Client will maintain a
system of accounting established and administered in

 

13

 

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

 

(i) Year-End Financials: As soon as available and in any
event within seventy-five (75) days after the end of each of Client’s fiscal
year Client will deliver the balance sheet of Client as of the end of such
period and the statements of income, stockholders’ equity cash flows such
Fiscal Year and such financial statements shall have been audited by a firm of
independent certified public accountants selected by Client and reasonably
acceptable to Hana.  For the purposes of
this Section and the Section below, based upon the information
currently available to Hana, the accountancy firm of                               ,
shall be acceptable to Hana.  If after
the Effective Date Hana discovers information that causes Hana to determine, in
its sole and reasonable discretion, that such firm is no longer acceptable to
Hana, than Client shall be required to retain the services on new accountants
reasonably acceptable to Hana.

 

(ii) Semi-Annual Financials. As fairly soon as available
but not later than forty-five (45) days after the end of each six (6) month
period of Client’s fiscal year, Client will deliver the balance sheet of Client
as 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 for
the period from the beginning of the then current Fiscal Year to the end of
such six (6) month period of a Fiscal Year and such have been prepared by
Client and reasonably acceptable to Hana.

 

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

 

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

 

SECTION 8.         Collateral
Security

 

As collateral security for all Obligations, Client hereby assigns and
grants to Hana a continuing security interest in all of the following property,
whether now owned by Client or hereafter acquired by Client or arising in
Client’s favor: (i) Factored Accounts; (ii) general intangibles
including payment intangibles; (iii) monies, securities and other property
now or hereafter held or received by, or in transit to Hana from or for Client,
whether for safekeeping, pledge, custody, transmission, collection or
otherwise, and all of Client’s deposits and credit balances in Hana’s
possession; (iv) books, records and other property at any time evidencing
or relating to any of the foregoing property and; (v) proceeds of any of
the foregoing property including, without limitation, the proceeds of any
insurance policies covering any of the foregoing property and deposit
accounts.  Recourse to the collateral
security herein provided will not be required, and Client will at all times
remain liable for the payment and performance of the Obligations upon demand by
Hana.

 

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

 

14

 

all of the trademarks and trade names owned by Client in connection
with any sales of inventory by Hana made pursuant to the terms of this
Agreement.  The grant of the License
shall be irrevocable, but shall terminate concurrently with the repayment in
full by Client of all Obligations and the termination of this Agreement
pursuant to Section 9 of this Agreement. 
Client agrees to use its best efforts to obtain the consent of its
licensors, if any, to permit Hana to sell inventory otherwise subject to a
license in the manner and to the extent permitted to Client under the
applicable license agreement.

 

SECTION 9.         Events of Default

 

The
occurrence of any of the following acts or events will constitute an Event of
Default: (a) if Client fails to make payment of any of the Obligations
when due; (b) if Client fails to make any remittance required by this
Agreement; (c) if Client commits any breach of any of the terms,
representations, warranties, covenants, conditions or provisions of this
Agreement, or of any present or future supplement or amendment hereto or of any
other agreement between Hana and Client; (d) if Client becomes insolvent
or unable to meet Client’s debts as they mature; (e) if Client fails to
pay when due any material obligations or liabilities owing by Client to any
person or entity (including without limitation, any United States and state
taxes); (f) if Client delivers to Hana a false financial statement or if
any representation, warranty, certification, or other statement made by Client
to 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 any
bankruptcy proceeding, insolvency arrangement or similar proceeding is
commenced by or against Client; (i) if Client suspends or discontinues
doing business for any reason; (j) if a receiver or trustee of any kind is
appointed for Client or any of Client’s property; (k) if any guarantor of
Client’s Obligations dies or becomes insolvent or has commenced by or against
such guarantor any bankruptcy proceeding, insolvency arrangement or similar
proceeding; (l) if any guaranty of Client’s Obligations is terminated or any
guarantor alleges that the guaranty is unenforceable, or if there is a default
under any such guaranty; (m) if there shall be a change in the beneficial
ownership and control, directly or indirectly of the majority of the
outstanding voting securities or other interests entitled (without regard to
the occurrence of any contingency) to elect or appoint members of the board of
directors or other managing body of Client; or (n) if a notice of lien, money
judgment, levy, assessment, seizure or writ, or warrant of attachment is
entered or filed against Client or with respect to the Accounts or any other
collateral in which Client has granted Hana a security interest; or (o) if
Client sells, leases, transfers or otherwise disposes of all or substantially
all of Client’s property or assets, or consolidates with or merges into or with
any corporation or entity.

 

Upon
the occurrence and during the continuance of an Event of Default, Hana will
have the right to terminate this Agreement and all other arrangements existing
between Hana forthwith and without notice, and the Obligations will mature and
become immediately due and payable and Hana will have the right to withhold any
further payments to Client until all Obligations have been paid in full.

 

If
either party to this Agreement shall bring any action for any relief against
the other, declaratory or otherwise, arising out of this Agreement, the losing
party shall pay to the prevailing party a reasonable sum for attorney fees
incurred in bringing such suit and/or enforcing any judgment granted therein,
all of which shall be deemed to have accrued upon the commencement of such
action and shall be paid whether or not such action is prosecuted to
judgment.  Any judgment or order entered
in such action shall contain a 

 

15

 

specific
provision providing for the recovery of attorney fees and costs incurred in
enforcing such judgment.  For the purpose
of this section, attorney fees shall include, without limitation, fees incurred
in 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 and
effect for one (1) year from
the Effective Date and shall renew for one (1) year terms thereafter
unless either party hereto gives the other party not less than sixty (60) days
prior Written Notice prior to the end of the initial or any renewal term of
their intention to terminate this Agreement as of the end of such term.

 

10.2         In the event that this Agreement is terminated
by Client prior to an Anniversary Date, Hana shall be entitled to the unpaid
portion of the Minimum Annual Commission, if any, for such Period, as provided
in section 2.4 above, as of the effective date of termination.  Except as otherwise provided, Hana may
terminate this Agreement at any time by giving Client at least sixty (60) days
prior 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 by
messenger, registered or certified mail, facsimile or commercial delivery
service; provided, however, that Client will not terminate this
Agreement so long as Client is indebted or obligated to Hana in connection with
any other agreements between Hana and Client. 
Notwithstanding any such Written Notice of termination, all of Hana’s
rights, liens and security interests hereinabove granted to Hana (including
Accounts arising, acquired or created after the date of termination of this
Agreement) will continue and remain in full force and effect after any
termination of this Agreement and pending a final accounting, Hana may withhold
any balances in Client’s account unless Hana is supplied with an indemnity
satisfactory to Hana to cover all Obligations. 
Client agrees to continue to assign accounts receivable to Hana and to
remit to Hana all collections on accounts receivable, until all Obligations
have been paid in full or Hana has been supplied with an indemnity satisfactory
to Hana to cover all Obligations. All of the representations, warranties and
indemnities and covenants made by Client herein will survive the termination of
this Agreement.

 

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

 

10.5         Notice of termination
shall be given by messenger, registered or certified mail, facsimile or
commercial delivery service; provided, however, that Client will
not terminate this Agreement so long as Client is indebted or obligated to Hana
in connection with any other agreements between Hana and Client.  Notwithstanding any such Written Notice of
termination, all of Hana’s rights, liens and security interests hereinabove
granted to Hana (including Accounts arising, acquired or created after the date
of termination of this Agreement) will continue and remain in full force and
effect after any termination of this Agreement and pending a final accounting,
Hana may withhold any balances in Client’s

 

16

 

account unless Hana is supplied with an indemnity satisfactory to Hana
to cover all Obligations.  Client agrees
to continue to assign accounts receivable to Hana and to remit to Hana all
collections on accounts receivable, until all Obligations have been paid in
full or Hana has been supplied with an indemnity satisfactory to Hana to cover
all Obligations. All of the representations, warranties and indemnities and
covenants made by Client herein will survive the termination of this Agreement.

 

10.6         If Client shall terminate
during the term of this Agreement, Client shall pay to Hana, in addition to all
other Obligations, a termination fee (the “Termination Fee”) equal to One
Percent (1.0%) of Credit Limit.

 

SECTION 11.       Governing Law, Venue and Waiver
of Jury

 

APPLICABLE
LAW.           THIS AGREEMENT SHALL BE GOVERNED BY AND SHALL BE CONSTRUED AND ENFORCED
IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF CALIFORNIA OR ANY OTHER
JURISDICTION IN WHICH THE COLLATERAL SECURITY IS LOCATED, WITHOUT REGARD TO
CONFLICTS OF LAW PRINCIPLES.

 

CONSENT
TO JURISDICTION.        CLIENT HEREBY CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT
LOCATED WITHIN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA OR ANY OTHER
JURISDICTION IN WHICH THE COLLATERAL SECURITY IS LOCATED AND IRREVOCABLY AGREES
THAT, SUBJECT TO HANA’S ELECTION, ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR
RELATING TO THIS AGREEMENT SHALL BE LITIGATED IN SUCH COURTS.  CLIENT EXPRESSLY SUBMITS AND CONSENTS TO THE
JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON
CONVENIENS.  CLIENT HEREBY WAIVES
PERSONAL SERVICE OF ANY AND ALL PROCESS AND AGREES THAT ALL SUCH SERVICE OF
PROCESS MAY BE MADE UPON CLIENT BY CERTIFIED OR REGISTERED MAIL, RETURN
RECEIPT REQUESTED, ADDRESSED TO CLIENT, AT THE ADDRESS SET FORTH IN THIS
AGREEMENT AND SERVICE SO MADE SHALL BE COMPLETE TEN (10) DAYS AFTER THE
SAME HAS BEEN POSTED.

 

WAIVER
OF JURY TRIAL.                CLIENT AND HANA HEREBY WAIVE THEIR RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING
OUT OF THIS AGREEMENT.  CLIENT AND HANA
ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS
RELATIONSHIP THAT EACH HAS RELIED ON THE WAIVER IN ENTERING INTO THIS AGREEMENT
AND THAT EACH WILL CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED FUTURE
DEALINGS.  CLIENT AND HANA WARRANT AND
REPRESENT THAT EACH AS HAD THE OPPORTUNITY OF REVIEWING THIS JURY WAIVER WITH
LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL
RIGHTS.

 

SECTION 12.       Modifications, Waivers and
Miscellaneous Provisions

 

This Agreement may not be changed or terminated orally; it constitutes
the entire agreement between Client and Hana and will be binding upon Client’s
and Hana’s respective successors and assigns, but may not be assigned by Client
without Hana’s

 

17

 

prior written consent.  No delay
or failure on Hana’s part in exercising any right, privilege, or option
hereunder will operate as a waiver thereof or of any other right, privilege or
option.  No waiver whatsoever will be
valid unless in a Written Notice, signed by Hana, and then only to the extent
therein set forth.  If any term or
provision of this Agreement is held invalid under any statute, rule or
regulation of any jurisdiction competent to make such a decision, the remaining
terms and provisions will not be affected, but will remain in full force and effect.

 

Any
Written Notice to be given under this Agreement will be in writing addressed to
the respective party as set forth in the heading to this Agreement and will be
personally served, telecopied or sent by overnight courier service or United
States mail and will be deemed to have been given: (a) if delivered in
person, when delivered; (b) if delivered by telecopy, on the date of
transmission if transmitted on a Business Day before 4:00 p.m. (Los
Angeles time) or, if not, on the next succeeding Business Day; (c) if
delivered by overnight courier, two (2) days after delivery to such
courier properly addressed; or (d) if by U.S. Mail, four (4) Business
Days after depositing in the United States mail, with postage prepaid and
properly addressed.

 

Hana conducts business under California commercial finance lender
license 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

  

 

18

 

	
  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.

  

 

19

 

	
  “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

  
	
   

  	
   

  	
   

  
					

 

20

 

	
   

  	
  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

 

	
   

  	
   

  	
  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.

  
							

 

22

 

	
  “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

 

In
Witness Whereof, the undersigned have caused this agreement to be executed and
delivered 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, 2005
before me, Kyeong H. Cho, a Notary Public in and for said State,
personally appeared John Kang, personally known to me (or proved to me
on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are
subscribed to the within instrument and acknowledged to me that he/she/they
executed the same in his/her/their authorized capacity(ies), and that by
his/her/their signature(s) on the instrument the person(s), or the entity upon
behalf of which the person(s) acted, executed the instrument.

 

WITNESS my hand and official
seal.

 

	
  Signature

  	
  /s/ Kyeong H. Cho

  	
   

  
	
  Notary Public in and
  for said County and State

  

 

24

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