Exhibit 10.1

 

SECURITIES PURCHASE AGREEMENT

 

SECURITIES PURCHASE AGREEMENT (the “Agreement”), dated as of January 3, 2007,
among Liquidmetal Technologies, Inc., a Delaware corporation (the “Company”),
and the investors listed on the Schedule of Buyers attached hereto
(individually, a “Buyer” and collectively, the “Buyers”).

 

WHEREAS:

 

A.            The Company and each Buyer are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Rule 144A (“Rule 144A”) of the Securities Act of 1933, as amended (the “1933
Act”), by Section 4(2) of the 1933 Act and/or Rule 506 of Regulation D
(“Regulation D”) and as promulgated by the United States Securities and Exchange
Commission (the “SEC”) under the 1933 Act;

 

B.            The Company has authorized 8% subordinated convertible notes of
the Company in the form attached hereto as Exhibit A (together with any
subordinated convertible notes issued in replacement thereof in accordance with
the terms thereof, the “Notes”), which Notes shall be convertible into shares of
the Company’s Common Stock, par value $0.001 per share (the “Common Stock”) (as
converted, the “Conversion Shares”), in accordance with the terms of the Notes;

 

C.            The Company has authorized warrants in the form attached hereto as
Exhibit B (together with all warrants issued to the placement agents in
connection with the transactions contemplated by this Agreement, the
“Warrants”), which Warrants shall be exercisable for shares of Common Stock (as
exercised, the “Warrant Shares”), in accordance with the terms of the Warrants;

 

D.            Each Buyer wishes to purchase, and the Company wishes to sell,
upon the terms and conditions stated in this Agreement, that aggregate principal
amount of Notes set forth opposite such Buyer’s name in column (3) on the
Schedule of Buyers (in each case, the “Investment Amount”);

 

E.             Contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration Rights
Agreement, substantially in the form attached hereto as Exhibit C (the
“Registration Rights Agreement”), pursuant to which the Company has agreed to
provide certain registration rights with respect to the Conversion Shares and
the Warrant Shares under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws; and

 

F.             The Notes, the Conversion Shares, the Warrants, and the Warrant
Shares collectively are referred to herein as the “Securities”.

1

--------------------------------------------------------------------------------

 

NOW, THEREFORE, the Company and each Buyer hereby agree as follows:

 

1.             PURCHASE AND SALE OF NOTES AND WARRANTS.

 

(a)           Purchase of Notes and Warrants.

 

(i)            Notes and Warrants. Subject to the satisfaction (or waiver) of
the conditions set forth in Sections 6(a) and 7(a) below, the Company shall
issue and sell to each Buyer, and each Buyer severally, but not jointly, agrees
to purchase from the Company on the Closing Date (as defined below), a principal
amount of Notes and the Warrants, as is set forth opposite such Buyer’s name in
column (3) on the Schedule of Buyers (the “Closing”). The aggregate principal
amount of Notes to be sold at the Closing pursuant to this Agreement shall not
be less than Fifteen Million Dollars ($15,000,000) and shall not be more than
Thirty Million Dollars ($30,000,000).

 

(ii)           Closing. The Closing shall occur on the Closing Date at the
offices of Foley & Lardner LLP, 100 North Tampa St., Suite 2700, Tampa, Florida
33602.

 

(iii)          Purchase Price. The purchase price for each Buyer (the “Purchase
Price”) of the Notes and Warrants to be purchased by each such Buyer at the
Closing shall be equal to $1.00 for each $1.00 of principal amount of Notes
being purchased by such Buyer at the Closing.

 

(b)           Closing Date. The date and time of the Closing (the “Closing
Date”) shall be 10:00 a.m., New York, NY Time, on the date hereof, subject to
notification of satisfaction (or waiver) of the conditions to the Closing set
forth in Sections 6(a) and 7(a) below (or such later date as is mutually agreed
to by the Company and each Buyer).

 

(c)           Form of Payment. On the Closing Date, (i) each Buyer shall pay its
Purchase Price to the Company for the Notes and Warrants to be issued and sold
to such Buyer at the Closing, by wire transfer of immediately available funds in
accordance with the Company’s written wire instructions, and (ii) the Company
shall deliver to each Buyer the Notes and Warrants which such Buyer is then
purchasing, duly executed on behalf of the Company and registered in the name of
such Buyer or its designee.

 

2.             BUYER’S REPRESENTATIONS AND WARRANTIES.

 

Each Buyer represents and warrants with respect to only itself that:

 

(a)           No Public Sale or Distribution. Such Buyer is (i) acquiring the
Notes and Warrants and (ii) upon conversion of the Notes and exercise of the
Warrants will acquire the Conversion Shares and the Warrant Shares issuable upon
conversion of the Notes and the exercise of the Warrants, as the case may be,
for its own account and not with a view towards, or for resale in connection
with, the public sale or distribution thereof, except pursuant to sales
registered or exempted under the 1933 Act; provided, however, that by making the
representations herein, such Buyer does not agree to hold any of the Securities
for any minimum or other specific term and reserves the right to dispose of the
Securities at any time in accordance with or pursuant to a registration
statement or an exemption from the registration requirements of the 1933 Act and
applicable state securities laws. Such Buyer presently does not have any
agreement or understanding, directly or indirectly, with any person to
distribute any of the Securities.

 

(b)           Qualified Institutional Buyer; Accredited Investor Status. Such
Buyer is a “qualified institutional buyer” as defined in Rule 144A under the
1933 Act (a “QIB”) and/or such Buyer is an “accredited investor” as that term is
defined in Rule 501(a) of Regulation D.

 

2

--------------------------------------------------------------------------------

 

(c)           Transfer or Resale. In connection with such Buyer’s subsequent
offers to sell, such Buyer (i) will offer the Notes and Warrants for resale only
upon the terms and conditions set forth in this Agreement (the “Exempt
Resales”), and (ii) will solicit offers to buy the Notes and Warrants only from,
and will offer and sell the Notes only to, (A) persons reasonably believed by
such Buyer to be QIBs or (B) persons reasonably believed by such Buyer to be an
“accredited investor” as that term is defined in Rule 501(a) of Regulation D (an
“Accredited Investor”) or (C) persons reasonably believed by such Buyer to be
non-U.S. persons referred to in Regulation S under the 1933 Act (“Non-U.S.
Persons”), and in connection with each such sale, it will take reasonable steps
to ensure that the purchaser of such Notes and Warrants is aware that such sale
is being made in reliance on Rule 144A, Regulation D or Regulation S, as
applicable.

 

(d)           General Solicitation. No form of general solicitation or general
advertising in violation of the 1933 Act has been or will be used nor will any
offers in any manner involving a public offering within the meaning of Section
4(2) of the 1933 Act or, with respect to Notes and Warrants to be sold in
reliance on Regulation S, by means of any directed selling efforts be made by
such Buyer or any of its representatives in connection with the offer and sale
of any of the Notes and Warrants.

 

(e)           Reliance on Exemptions. Such Buyer understands that the Securities
are being offered and sold to it in reliance on specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Company is relying in part upon the truth and accuracy of, and such
Buyer’s compliance with, the representations, warranties, agreements,
acknowledgments, and understandings of such Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of such Buyer
to acquire the Securities.

 

(f)            Information. Such Buyer and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities
which have been requested by such Buyer. Such Buyer and its advisors, if any,
have been afforded the opportunity to ask questions of the Company and have
received what such Buyer and its advisors, if any, believe to be satisfactory
answers to any such inquiries. Such Buyer understands that its investment in the
Securities involves a high degree of risk. Such Buyer has sought such
accounting, legal and tax advice as it has considered necessary to make an
informed investment decision with respect to its acquisition of the Securities.

 

(g)           No Governmental Review. Such Buyer understands that no United
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.

 

(h)           Restrictions. Such Buyer understands that except as provided in
this Agreement and the Registration Rights Agreement: (i) the Securities have
not been and are not being registered under the 1933 Act or any state securities
laws, and may not be offered for sale, sold, assigned or transferred unless (A)
subsequently registered thereunder, (B) such Buyer shall

 

3

--------------------------------------------------------------------------------

 

have delivered to the Company an opinion of counsel, in a form reasonably
acceptable to the Company, to the effect that such Securities to be sold,
assigned or transferred may be sold, assigned or transferred pursuant to an
exemption from such registration, such as Rule 144 or Rule 144A promulgated
under the 1933 Act, as amended, (or a successor rule thereto) (collectively,
“Rule 144”); (ii) any sale of the Securities made in reliance on Rule 144 may be
made only in accordance with the terms of Rule 144 and further, if Rule 144 is
not applicable, any resale of the Securities under circumstances in which the
seller (or the Person (as defined in Section 3(s)) through whom the sale is
made) may be deemed to be an underwriter (as that term is defined in the 1933
Act) may require compliance with some other exemption under the 1933 Act or the
rules and regulations of the SEC thereunder; and (iii) except as set forth in
the Registration Rights Agreement, neither the Company nor any other Person is
under any obligation to register the Securities under the 1933 Act or any state
securities laws or to comply with the terms and conditions of any exemption
thereunder. The Securities may be pledged in connection with a bona fide margin
account or other loan secured by the Securities and such pledge of Securities
shall not be deemed to be a transfer, sale or assignment of the Securities
hereunder, and no Buyer effecting a pledge of Securities shall be required to
provide the Company with any notice thereof or otherwise make any delivery to
the Company pursuant to this Agreement or any other Transaction Document,
including, without limitation, this Section 2(h); provided, that in order to
make any sale, transfer or assignment of Securities, such Buyer and its pledgee
makes such disposition in accordance with or pursuant to a registration
statement or an exemption under the 1933 Act.

 

(i)            Legends. Buyer understands that the certificates or other
instruments representing the Notes and the Warrants and, until such time as the
resale of the Conversion Shares and the Warrant Shares have been registered
under the 1933 Act as contemplated by the Registration Rights Agreement, the
stock certificates representing the Conversion Shares and the Warrant Shares,
except as set forth below, shall bear any legend as required by the “blue sky”
laws of any state and a restrictive legend in substantially the following form
(and a stop-transfer order may be placed against transfer of such stock
certificates):

 

[NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN][THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN] REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE
ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL, IN A FORM
REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER
SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
ARRANGEMENT SECURED BY THE SECURITIES.

 

The legend set forth above shall be removed and the Company shall issue a
certificate without

 

4

--------------------------------------------------------------------------------

 

such legend to the holder of the Securities upon which it is stamped, if, unless
otherwise required by state securities laws, (i) such Securities are registered
for resale under the 1933 Act, (ii) in connection with a sale, assignment or
other transfer, such holder provides the Company with an opinion of counsel, in
a form reasonably acceptable to the Company, to the effect that such sale,
assignment or transfer of the Securities may be made without registration under
the applicable requirements of the 1933 Act.

 

(j)            Validity; Enforcement. This Agreement and the Registration Rights
Agreement have been duly and validly authorized, executed and delivered on
behalf of such Buyer and shall constitute the legal, valid and binding
obligations of such Buyer enforceable against such Buyer in accordance with
their respective terms, except as such enforceability may be limited by general
principles of equity or to applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation and other similar laws relating to, or affecting
generally, the enforcement of applicable creditors’ rights and remedies, and
except that any rights to indemnity or contribution under the Transaction
Documents may be limited by federal and state securities laws and public policy
considerations.

 

(k)           No Conflicts. The execution, delivery and performance by such
Buyer of this Agreement and the Registration Rights Agreement and the
consummation by such Buyer of the transactions contemplated hereby and thereby
will not (i) result in a violation of the organizational documents of such Buyer
or (ii) conflict with, or constitute a default (or an event which with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which such Buyer is a party, or (iii)
result in a violation of any law, rule, regulation, order, judgment  or decree
(including federal and state securities laws) applicable to such Buyer, except
in the case of clauses (ii) and (iii) above, for such conflicts, defaults,
rights or violations which would not, individually or in the aggregate,
reasonably be expected to have a material adverse effect on the ability of such
Buyer to perform its obligations hereunder.

 

(l)            Residency. Such Buyer is a resident of that jurisdiction
specified below its address on the Schedule of Buyers. Such Buyer represents
that it was not organized solely for purposes of making an investment in the
Company.

 

(m)          Certain Trading Activities. Such Buyer has not directly or
indirectly, nor has any Person acting on behalf of or pursuant to any
understanding with such Buyer, engaged in any transactions in the securities of
the Company (including, without limitations, any Short Sales (as defined in
Regulation SHO promulgated under the Exchange Act) involving the Company’s
securities) since the time that such Purchaser was first contacted by the
Company or any other Person regarding an investment in the Company. Such Buyer
covenants that neither it nor any Person acting on its behalf or pursuant to any
understanding with it will engage in any transactions in the securities of the
Company (including Short Sales) prior to the time that the transactions
contemplated by this Agreement are publicly disclosed by the Company. Such Buyer
has maintained, and covenants that until such time as the transactions
contemplated by this Agreement are publicly disclosed by the Company  pursuant
to Section 4(e) such Buyer will maintain, the confidentiality of all disclosures
made to it in connection with this transaction (including the existence and
terms of this transaction) and any information other than the terms of this
transaction that the Company provided to Buyer on a confidential basis.

 

5

--------------------------------------------------------------------------------

 

(n)           No Group. Other than Affiliates of such Buyer who are also Buyers
under this Agreement, such Buyer is not under common control with or acting in
concert with any other Buyer and is not part of a “group.”  No Buyer, together
with its Affiliates, will, following the Closing of the transactions
contemplated hereby, beneficially own more than 10% of the voting power of the
Company’s then-outstanding capital stock.

 

(o)           Buyer Due Diligence. Such Buyer acknowledges that, except for the
matters that are expressly covered by the provisions of this Agreement,
including the exhibits and schedules hereto, such Buyer is relying on its own
investigation and analysis in entering into this Agreement and consummating the
transactions contemplated hereby. Such Buyer is an informed and sophisticated in
the transactions contemplated by this Agreement and has undertaken such
investigation, and has been provided with and has evaluated such documents and
information, as it has deemed necessary in connection with the execution,
delivery and performance of this Agreement. Such Buyer is consummating the
transactions contemplated by this Agreement without any representation or
warranty, expressed or implied, by the Company except as expressly set forth in
this Agreement and the exhibits and schedules hereto. Such Buyer acknowledges
and agrees that the Company does not make and has made any representations or
warranties with respect to the transactions contemplated hereby other than those
specifically set forth in Section 3.

 

3.             REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

 

The Company represents and warrants to each of the Buyers that:

 

(a)           Organization and Qualification. The Company and its “Subsidiaries”
(which for purposes of this Agreement means any entity in which the Company,
directly or indirectly, owns capital stock or holds an equity or similar
interest) are corporations duly organized and validly existing in good standing
under the laws of the jurisdiction in which they are incorporated, and have the
requisite corporate power and authorization to own their properties and to carry
on their business as now being conducted. The Company and each Subsidiary is
duly qualified as a foreign corporation to do business and is in good standing
in every jurisdiction in which its ownership of property or the nature of the
business conducted by it makes such qualification necessary, except to the
extent that the failure to be so qualified or be in good standing would not have
a Material Adverse Effect. As used in this Agreement, “Material Adverse Effect”
means any material adverse effect on the business, properties, assets,
operations, results of operations, or condition (financial or otherwise) of the
Company and its Subsidiaries, taken as a whole. The Company has no Subsidiaries
except as set forth on Schedule 3(a) or on the Company’s Annual Report on Form
10-K for the year ended December 31, 2005.

 

(b)           Authorization; Enforcement; Validity. The Company has the
requisite corporate power and authority to enter into and perform its
obligations under this Agreement, the Notes, the Warrants, the Registration
Rights Agreement, the Irrevocable Transfer Agent Instructions (as defined in
Section 5(b)) and each of the other agreements entered into by the parties
hereto in connection with the transactions contemplated by this Agreement
(collectively, the “Transaction Documents”) and to issue the Securities in
accordance with the terms hereof and thereof. The execution and delivery of the
Transaction Documents by the Company and the

 

6

--------------------------------------------------------------------------------

 

consummation by the Company of the transactions contemplated hereby and thereby,
including, without limitation, the issuance of the Notes and the Warrants and
the reservation for issuance and the issuance of the Conversion Shares and the
Warrant Shares issuable upon conversion, issuance or exercise thereof, as the
case may be, have been duly authorized by the Company’s Board of Directors and
no further consent or authorization is required by the Company, its Board of
Directors or its stockholders. This Agreement and the other Transaction
Documents of even date herewith have been duly executed and delivered by the
Company, and constitute the legal, valid and binding obligations of the Company
enforceable against the Company in accordance with their respective terms,
except as such enforceability may be limited by general principles of equity or
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally, the enforcement of applicable
creditors’ rights and remedies, and except that any rights to indemnity or
contribution under the Transaction Documents may be limited by federal and state
securities laws and public policy considerations.

 

(c)           Issuance of Securities. The Notes and Warrants are duly authorized
and, upon issuance in accordance with the terms hereof, shall be free from all
taxes, liens and charges with respect to the issue thereof. As of the Closing, a
number of shares of Common Stock shall have been duly authorized and reserved
for issuance which equals the sum of 100% of the number of shares of Common
Stock issuable upon conversion of the Notes and exercise of the Warrants to be
issued at such Closing. Upon conversion, exercise or issuance in accordance with
the Notes and the Warrants, the Conversion Shares and the Warrant Shares, as the
case may be, will be validly issued, fully paid and nonassessable and free from
all taxes, liens and charges with respect to the issue thereof, with the holders
being entitled to all rights accorded to a holder of Common Stock. Assuming the
accuracy of each of the representations and warranties of the Buyers contained
in Section 2, the issuance by the Company of the Securities is exempt from the
registration requirements of Section 5 of the 1933 Act.

 

(d)           No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby (including, without limitation, the
issuance of the Notes and Warrants and reservation for issuance and issuance of
the Conversion Shares and the Warrant Shares) will not (i) result in a violation
of the certificate of incorporation, any certificate of designations,
preferences and rights of any outstanding series of preferred stock or bylaws of
the Company or any of its Subsidiaries or (ii) conflict with, or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any material agreement, indenture or instrument
to which the Company or any of its Subsidiaries is a party, except which are the
subject of written waivers or consents which have been obtained or effected on
or prior to the Closing Date or (iii) result in a violation of any law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations and the rules and regulations of the Principal Market)
applicable to the Company or any of its Subsidiaries or by which any property or
asset of the Company or any of its Subsidiaries is bound or affected, except in
the case of clauses (ii) and (iii), for such breaches or defaults as could not
reasonably be expected to have a Material Adverse Effect.

 

7

--------------------------------------------------------------------------------

 

(e)           Consents. Except as disclosed in Schedule 3(e), the Company is not
required to obtain any consent, authorization or order of, or make any filing or
registration with, any court, governmental agency or any regulatory or
self-regulatory agency or any other Person in order for it to execute, deliver
or perform any of its obligations under or contemplated by the Transaction
Documents, in each case in accordance with the terms hereof or thereof. All
consents, authorizations, orders, filings and registrations which the Company is
required to obtain pursuant to the preceding sentence have been obtained or
effected on or prior to the Closing Date (other then filings and reports
relating to the offer and sale of the Securities required under Regulation D or
applicable securities or “Blue Sky” laws as contemplated under Section 4(b) of
this Agreement), and the Company and its Subsidiaries are unaware of any facts
or circumstances which might prevent the Company from obtaining or effecting any
of the registration, application or filings pursuant to the preceding sentence.
The Company is not in violation of the listing requirements of the Principal
Market and has no knowledge of any facts which would reasonably lead to
delisting or suspension of the Common Stock in the foreseeable future.

 

(f)            Acknowledgment Regarding Buyer’s Purchase of Securities. The
Company acknowledges and agrees that each Buyer is acting solely in the capacity
of arm’s length purchaser with respect to the Transaction Documents and the
transactions contemplated hereby and thereby and that no Buyer is (i) an officer
or director of the Company, (ii) an “affiliate” of the Company (as defined in
Rule 144) or (iii) to the knowledge of the Company, a “beneficial owner” of more
than 10% of the Common Stock (as defined for purposes of Rule 13d-3 of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”)). The Company
further acknowledges that no Buyer is acting as a financial advisor or fiduciary
of the Company (or in any similar capacity) with respect to the Transaction
Documents and the transactions contemplated hereby and thereby, and any advice
given by a Buyer or any of its representatives or agents in connection with the
Transaction Documents and the transactions contemplated hereby and thereby is
merely incidental to such Buyer’s purchase of the Securities.

 

(g)           No General Solicitation; Placement Agent’s Fees. Neither the
Company, nor any of its affiliates, nor any Person acting on its or their
behalf, has engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D) in connection with the offer or sale of the
Securities. The Company shall be responsible for the payment of any placement
agent’s fees, financial advisory fees, or brokers’ commissions (other than for
persons engaged by any Buyer or its investment advisor) relating to or arising
out of the transactions contemplated hereby.

 

(h)           No Integrated Offering. None of the Company, its Subsidiaries, any
of their affiliates, and any Person acting on their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of any of
the Securities under the 1933 Act or cause this offering of the Securities to be
integrated with prior offerings by the Company for purposes of the 1933 Act or
any applicable stockholder approval provisions, including, without limitation,
under the rules and regulations of any exchange or automated quotation system on
which any of the securities of the Company are listed or designated.

 

(i)            Rights Agreement. The Company has not adopted a stockholder
rights plan or similar arrangement relating to accumulations of beneficial
ownership of Common Stock or a change in control of the Company.

 

8

--------------------------------------------------------------------------------

 

(j)            SEC Documents. The Company has filed all reports, schedules,
forms, statements and other documents required to be filed by it with the SEC
pursuant to the reporting requirements of the Exchange Act (all of the foregoing
filed prior to the date hereof (whether or not required to be filed), and all
exhibits included therein and financial statements and schedules thereto and
documents incorporated by reference therein being hereinafter referred to as the
“SEC Documents”). As of their respective dates, the SEC Documents complied in
all material respects with the requirements of the Exchange Act and the rules
and regulations of the SEC promulgated thereunder applicable to the SEC
Documents, and, to the Company’s knowledge, none of the SEC Documents, at the
time they were filed with the SEC, contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.

 

(k)           Financial Statements. As of their respective dates, the financial
statements of the Company included in the SEC Documents complied as to form in
all material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto. Such financial statements
have been prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).

 

(l)            Absence of Certain Changes. Except as disclosed in Schedule 3(l)
or in the SEC Documents, since September 30, 2006 (i) there has been no Material
Adverse Effect, and (ii) the Company has not (A) declared or paid any dividends,
(B) sold any assets, individually or in the aggregate, in excess of $250,000
outside of the ordinary course of business, or (C) had capital expenditures,
individually or in the aggregate, in excess of $1,000,000. The Company has not
taken any steps to seek protection pursuant to any bankruptcy law nor does the
Company have any knowledge or reason to believe that its creditors intend to
initiate involuntary bankruptcy proceedings or any actual knowledge of any fact
which would reasonably lead a creditor to do so. The Company is not as of the
date hereof, and after giving effect to the transactions contemplated hereby to
occur at the Closing, will not be Insolvent (as defined below). For purposes of
this Section 3(l), “Insolvent” means (i) the present fair saleable value of the
Company’s assets is less than the amount required to pay the Company’s total
Indebtedness (as defined in Section 3(p)), (ii) the Company is unable to pay its
debts and liabilities, subordinated, contingent or otherwise, as such debts and
liabilities become absolute and matured, or (iii) the Company intends to incur
or believes that it will incur debts that would be beyond its ability to pay as
such debts mature.

 

(m)          Conduct of Business. Neither the Company nor its Subsidiaries is in
violation of any term of or in default under its Certificate of Incorporation,
Bylaws or their organizational charter or bylaws, respectively. Except as
disclosed in Schedule 3(m), neither the Company nor any of its Subsidiaries is
in violation of any judgment, decree or order or any statute, ordinance, rule or
regulation applicable to the Company or its Subsidiaries, and neither the
Company nor any of its Subsidiaries will conduct its business in violation of
any of the

 

9

--------------------------------------------------------------------------------

 

foregoing, except for possible violations which would not, individually or in
the aggregate, have a Material Adverse Effect. Without limiting the generality
of the foregoing, the Company is not in violation of any of the rules,
regulations or requirements of the OTC Bulletin Board (the “Principal Market”)
other than violations which could not reasonably be expected, individually or in
the aggregate, to have a Material Adverse Effect and has no knowledge of any
facts or circumstances which would reasonably lead to delisting or suspension of
the Common Stock by the Principal Market in the foreseeable future. Except as
disclosed on Schedule 3(m), since January 1, 2006, (i) the Common Stock has been
designated for quotation on the Principal Market, (ii) trading in the Common
Stock has not been suspended by the SEC or the Principal Market and (iii) the
Company has received no communication, written or oral, from the SEC or the
Principal Market regarding the suspension or delisting of the Common Stock from
the Principal Market.

 

(n)           Regulatory Permits. The Company and its Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct their respective
businesses, except where the failure to possess such certificates,
authorizations or permits would not have, individually or in the aggregate, a
Material Adverse Effect, and neither the Company nor any such Subsidiary has
received any notice of proceedings relating to the revocation or modification of
any such certificate, authorization or permit.

 

(o)           Equity Capitalization. As of the date hereof, the number of shares
and type of all authorized, issued, and outstanding capital stock of the
Company, and all shares of Common Stock reserved for issuance under the Plans
(as defined below), is set forth in Schedule 3(o). All of such outstanding
shares have been, or upon issuance will be, validly issued and are fully paid
and nonassessable. All of such outstanding shares of capital stock are duly
authorized, validly issued, fully paid and nonassessable. No shares of capital
stock of the Company are subject to preemptive rights or any other similar
rights of the shareholders of the Company or any liens or encumbrances imposed
through the actions or failure to act of the Company. Except as disclosed in the
SEC Documents and other than pursuant to this Agreement and as contemplated by
the Company’s employee and director benefit, incentive, or option plans
disclosed in the Company’s SEC Documents (the “Plans”), (i) there are no
outstanding options, warrants, scrip, rights to subscribe for, puts, calls,
rights of first refusal, and (ii) there are no agreements, understandings,
claims, antidilution protection or other commitments or rights of any character
whatsoever that could require the Company to issue additional shares of capital
stock of the Company or adjust the purchase or exercise price of any such
instrument. Except as disclosed in the SEC Documents, there are no agreements or
arrangements (other than the Registration Rights Agreement) under which the
Company is obligated to register the sale of any of its securities under the
1933 Act.

 

(p)           Indebtedness and Other Contracts. Except as disclosed in Schedule
3(p) or in the SEC Documents, neither the Company nor any of its Subsidiaries
(i) has any outstanding Indebtedness, or (ii) is in violation of any term of or
in default under any contract, agreement or instrument relating to any
Indebtedness, except where such violations and defaults would not result,
individually or in the aggregate, in a Material Adverse Effect. For purposes of
this Agreement:  (x) “Indebtedness” of any Person means, without duplication (A)
all indebtedness for borrowed money, (B) all obligations issued, undertaken or
assumed as the

 

10

--------------------------------------------------------------------------------

 

deferred purchase price of property or services (other than trade payables
entered into in the ordinary course of business), (C) all reimbursement or
payment obligations with respect to letters of credit, surety bonds and other
similar instruments, (D) all obligations evidenced by notes, bonds, debentures
or similar instruments, including obligations so evidenced incurred in
connection with the acquisition of property, assets or businesses, (E) all
indebtedness created or arising under any conditional sale or other title
retention agreement, or incurred as financing, in either case with respect to
any property or assets acquired with the proceeds of such indebtedness (even
though the rights and remedies of the seller or bank under such agreement in the
event of default are limited to repossession or sale of such property), (F) all
monetary obligations under any leasing or similar arrangement which, in
connection with generally accepted accounting principles, consistently applied
for the periods covered thereby, is classified as a capital lease, (G) all
indebtedness referred to in clauses (A) through (F) above secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any mortgage, lien, pledge, charge, security
interest or other encumbrance upon or in any property or assets (including
accounts and contract rights) owned by any Person, even though the Person which
owns such assets or property has not assumed or become liable for the payment of
such indebtedness, and (H) all Contingent Obligations in respect of indebtedness
or obligations of others of the kinds referred to in clauses (A) through (G)
above; (y) “Contingent Obligation” means, as to any Person, any direct or
indirect liability, contingent or otherwise, of that Person with respect to any
indebtedness, lease, dividend or other obligation of another Person if the
primary purpose or intent of the Person incurring such liability, or the primary
effect thereof, is to provide assurance to the obligee of such liability that
such liability will be paid or discharged, or that any agreements relating
thereto will be complied with, or that the holders of such liability will be
protected (in whole or in part) against loss with respect thereto; and (z)
“Person” means an individual, a limited liability company, a partnership, a
joint venture, a corporation, a trust, an unincorporated organization and a
government or any department or agency thereof.

 

(q)           Absence of Litigation. Except as disclosed in the SEC Documents,
there is no action, suit, proceeding, inquiry or investigation before or by the
Principal Market, any court, public board, government agency, self-regulatory
organization or body pending or, to the knowledge of the Company, threatened
against or affecting the Company, the Common Stock or any of the Company’s
Subsidiaries that would, individually or in the aggregate, reasonably be
expected to result in a Material Adverse Effect

 

(r)            Insurance. The Company and each of its Subsidiaries are insured
by insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its Subsidiaries are
engaged. Neither the Company nor any such Subsidiary has been refused any
insurance coverage sought or applied for and neither the Company nor any such
Subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not have a Material Adverse Effect.

 

(s)           Employee Relations. Except as disclosed in Schedule 3(s), neither
the Company nor any of its Subsidiaries is a party to any collective bargaining
agreement or employs any member of a union. The Company and its Subsidiaries
believe that their relations

 

11

--------------------------------------------------------------------------------

 

with their employees are good. No executive officer of the Company (as defined
in Rule 501(f) of the 1933 Act) has notified the Company that such officer
intends to leave the Company or otherwise terminate such officer’s employment
with the Company. No executive officer of the Company, to the knowledge of the
Company, is, or is now expected to be, in violation of any material term of any
employment contract, confidentiality, disclosure or proprietary information
agreement, non-competition agreement, or any other contract or agreement or any
restrictive covenant. The Company and its Subsidiaries are in compliance with
all federal, state, local and foreign laws and regulations respecting employment
and employment practices, terms and conditions of employment and wages and
hours, except where failure to be in compliance would not, either individually
or in the aggregate, reasonably be expected to result in a Material Adverse
Effect.

 

(t)            Title. The Company and its Subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title to all
personal property owned by them which is material to the business of the Company
and its Subsidiaries, in each case free and clear of all liens, encumbrances and
defects except such as are described in Schedule 3(t) or such as do not
materially affect the value of such property and do not interfere with the use
made and proposed to be made of such property by the Company and any of its
Subsidiaries. Any real property and facilities held under lease by the Company
and any of its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by the
Company and its Subsidiaries.

 

(u)           Intellectual Property Rights. To the knowledge of the Company and
except as set forth in the SEC Documents, the Company and its Subsidiaries own
or possess adequate rights or licenses to use all trademarks, trade names,
service marks, service mark registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and other intellectual property rights
(“Intellectual Property Rights”) necessary to conduct their respective
businesses as now conducted. The Company does not have any knowledge of any
infringement by the Company or its Subsidiaries of Intellectual Property Rights
of others. Except as set forth in Schedule 3(u), there is no claim, action or
proceeding being made or brought, or to the knowledge of the Company, being
threatened, against the Company or its Subsidiaries regarding its Intellectual
Property Rights which could have a Material Adverse Effect.

 

(v)           Environmental Laws. The Company and its Subsidiaries (i) are in
material compliance with any and all Environmental Laws (as hereinafter
defined), (ii) have received all material permits, licenses or other approvals
required of them under applicable Environmental Laws to conduct their respective
businesses and (iii) are in material compliance with all terms and conditions of
any such permit, license or approval where, in each of the foregoing clauses
(i), (ii) and (iii), the failure to so comply could be reasonably expected to
have, individually or in the aggregate, a Material Adverse Effect. The term
“Environmental Laws” means all federal, state, local or foreign laws relating to
pollution or protection of human health or the environment (including, without
limitation, ambient air, surface water, groundwater, land surface or subsurface
strata), including, without limitation, laws relating to emissions, discharges,
releases or threatened releases of chemicals, pollutants, contaminants, or toxic
or hazardous substances or wastes (collectively, “Hazardous Materials”) into the
environment, or

 

12

--------------------------------------------------------------------------------

 

otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Hazardous Materials, as well as all
authorizations, codes, decrees, demands or demand letters, injunctions,
judgments, licenses, notices or notice letters, orders, permits, plans or
regulations issued, entered, promulgated or approved thereunder.

 

(w)          Tax Status. The Company and each of its Subsidiaries (i) has made
or filed all federal and state income and all other tax returns, reports and
declarations required by any jurisdiction in which such filings are required,
(ii) has paid all taxes and other governmental assessments and charges that are
owed by it, including all taxes shown or determined to be due on such returns,
reports and declarations, except those being contested in good faith and for
which adequate reserves have been established on the Company’s books, and (iii)
has set aside on its books provision reasonably adequate for the payment of all
taxes for periods subsequent to the periods to which such returns, reports or
declarations apply. There are no unpaid taxes in any material amount claimed to
be due by the taxing authority of any jurisdiction.

 

(y)           Disclosure. The Company confirms that it has not provided any of
the Buyers or their respective agents or counsel with any information that will
constitute material, nonpublic information on the Closing Date, other than
information and documentation regarding the transactions contemplated by this
Agreement, which information shall be included on the 8-K Filing (as defined in
Section 4(e) below). The Company understands and confirms that each of the
Buyers will rely on the foregoing representations in effecting transactions in
securities of the Company. The Company acknowledges and agrees that no Buyer
makes or has made any representations or warranties with respect to the
transactions contemplated hereby other than those specifically set forth in
Section 2.

 

(z)            Manipulation of Price. The Company has not, and to its knowledge
no one acting on its behalf has, (i) taken, directly or indirectly, any action
designed to cause or to result in, or that has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of any of
the Securities, (ii) sold, bid for, purchased, or paid anyone any compensation
for soliciting purchases of, any of the Securities, or (iii) paid or agreed to
pay to any person any compensation for soliciting another to purchase any other
securities of the Company.

 

(aa)         Internal Accounting and Disclosure Controls. The Company and each
of its Subsidiaries maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed in
accordance with management’s general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset and liability accountability, (iii) access to assets or
incurrence of liabilities is permitted only in accordance with management’s
general or specific authorization and (iv) the recorded accountability for
assets and liabilities is compared with the existing assets and liabilities at
reasonable intervals and appropriate action is taken with respect to any
difference. Except as set forth in the SEC Documents, the Company maintains
disclosure controls and procedures (as such term is defined in Rule 13a-14 under
the Exchange Act) that are effective in ensuring that information required to be
disclosed by the Company in the reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported, within the time
periods specified in the rules and forms of the SEC, including, without
limitation, controls and

 

13

--------------------------------------------------------------------------------

 

procedures designed in to ensure that information required to be disclosed by
the Company in the reports that it files or submits under the Exchange Act is
accumulated and communicated to the Company’s management, including its
principal executive officer or officers and its principal financial officer or
officers, as appropriate, to allow timely decisions regarding required
disclosure. Except as set forth in the SEC Documents, during the twelve months
prior to the date hereof neither the Company nor any of its Subsidiaries have
received any notice or correspondence from any accountant relating to any
potential material weakness in any part of the system of internal accounting
controls of the Company or any of its Subsidiaries.

 

4.             COVENANTS.

 

(a)           Best Efforts. Each party shall use its best efforts timely to
satisfy each of the conditions to be satisfied by it as provided in Sections 6
and 7 of this Agreement.

 

(b)           Form D and Blue Sky. The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof to each Buyer promptly after such filing. The Company shall, on or
before the Closing Date, take such action as the Company shall reasonably
determine is necessary in order to obtain an exemption for or to qualify the
Securities for sale to the Buyers at the Closing pursuant to this Agreement
under applicable securities or “Blue Sky” laws of the states of the United
States (or to obtain an exemption from such qualification), and shall provide
evidence of any such action so taken to the Buyers on or prior to the Closing
Date. The Company shall make all filings and reports relating to the offer and
sale of the Securities required under applicable securities or “Blue Sky” laws
of the states of the United States following the Closing Date.

 

(c)           Reporting Status. With a view to making available to the Investors
(as that term is defined in the Registration Rights Agreement) the benefits of
Rule 144 promulgated under the Securities Act or any similar rule or regulation
of the Commission that may at any time permit the Investors to sell securities
of the Company to the public without registration (“Rule 144”), the Company
shall use its commercially reasonable efforts to: (i) make and keep public
information available, as those terms are understood and defined in Rule 144;
(2) file with the Commission in a timely manner all reports and other documents
required of the Company under the Securities Act and the Exchange Act; and (3)
furnish to each Investor, so long as such Investor owns Registrable Securities
(the “Reporting Period”), promptly upon request, (A) a written statement by the
Company, if true, that it has complied with the applicable reporting
requirements of Rule 144, the Securities Act and the Exchange Act, (B) a copy of
the most recent annual or quarterly report of the Company and copies of such
other reports and documents so filed by the Company, (C) the information
required by Rule 144A(d)(4) (or any successor rule) under the Securities Act,
and (D) such other information as may be reasonably requested to permit the
Investors to sell such securities pursuant to Rule 144 without registration.

 

(d)           Fees. The Company shall be responsible for the payment of any
placement agent’s fees, transfer taxes or stamp duties, financial advisory fees,
or broker’s commissions (other than for Persons engaged by any Buyer) relating
to or arising out of the transactions contemplated hereby. Except as otherwise
set forth in this Agreement or in the Transaction Documents, each party to this
Agreement shall bear its own expenses in connection with the sale of the
Securities to the Buyers.

 

14

--------------------------------------------------------------------------------

 

(e)           Disclosure of Transactions and Other Material Information. On or
before 8:30 a.m., New York, NY Time, on the first Business Day following the
date hereof, the Company shall file a Current Report on Form 8-K describing the
terms of the transactions contemplated by the Transaction Documents in the form
required by the Exchange Act, and attaching the material Transaction Documents
(including, without limitation, this Agreement (and all schedules to this
Agreement), the form of Note, and the Registration Rights Agreement) as exhibits
to such filing (including all attachments, the “8-K Filing”). Neither the
Company nor any Buyer shall issue any press releases or any other public
statements with respect to the transactions contemplated hereby; provided,
however, that the Company shall be entitled, without the prior approval of any
Buyer, to make any press release or other public disclosure with respect to such
transactions (i) in substantial conformity with the 8-K Filing and (ii) as is
required by applicable law and regulations.

 

(f)            Reservation of Shares. The Company shall take all action
necessary to at all times have authorized, and reserved for the purpose of
issuance, 100% of the number of shares of Common Stock issuable upon conversion
of the Notes and exercise of the Warrants being issued at the Closing.

 

(g)           Sales by Buyers. Each Buyer will sell any Securities sold by it in
compliance with applicable prospectus delivery requirements, if any, or
otherwise in compliance with the requirements for an exemption from registration
under the Securities Act and the rules and regulations promulgated thereunder.
No Buyer will make any sale, transfer or other disposition of the Securities in
violation of the federal or state securities laws.

 

(h)           Bank Account Balance; Payment of 6% Notes. At any time while there
are still outstanding any of the Company’s 6% Senior Secured Notes Due July 29,
2007 (the “6% Notes”), the Company shall take all action necessary to have on
deposit in the Company’s bank accounts an amount in cash equal to no less than
the then-outstanding principal amount of the 6% Notes plus all accrued but
unpaid interest thereon. On or before the July 29, 2007 maturity date of the 6%
Notes, the Company will pay in full all principal and accrued but unpaid
interest of any 6% Notes that are then outstanding, and the Company will not
prior to such maturity date enter into any agreement to increase the principal
amount of the 6% Notes, extend the maturity date of the 6% Notes, or materially
increase the Company’s obligations under the 6% Notes.

 

(i)            Debt Repayment. Within five (5) days after the Closing, the
Company will pay off all of its indebtedness other than the indebtedness set
forth on Schedule 4(i) and other than trade debt, capital leases, and equipment
financing incurred in the ordinary course of business.

 

(j)            Like Treatment of Investors. The terms of Securities issued to
Buyers per the terms of this Agreement and the Transaction Documents shall be
identical in all material respects. In addition, neither the Company nor any of
its affiliates shall, directly or indirectly, pay or cause to be paid any
consideration (immediate or contingent), whether by way of interest, fee,
payment for the redemption, conversion of the Notes or exercise of the Warrants,
or otherwise, to any Buyer or holder of Securities, for or as an inducement to,
or in connection with the solicitation of, any consent, waiver or amendment. of
any terms or provisions of the

 

15

--------------------------------------------------------------------------------

 

Transaction Documents, unless such consideration is required to be paid to all
Buyers or holders of Securities bound by such consent, waiver or amendment. The
Company shall not, directly or indirectly, redeem any Securities unless such
offer of redemption is made pro rata to all Buyers or holders of Securities, as
the case may be, on identical terms. For clarification purposes, this provision
constitutes a separate right granted by the Company to each Buyer of Securities
and negotiated separately by each Buyer, is intended for the Company to treat
the Buyers as a class, and shall not in any way be construed as the Buyers
acting in concert or as a group with respect to the purchase, disposition or
voting of Securities or otherwise.

 

(k)           Indemnification. In consideration of each Buyer’s execution and
delivery of the Transaction Documents and acquiring the Securities thereunder
and in addition to all of the Company’s other obligations under the Transaction
Documents, the Company shall defend, protect, indemnify and hold harmless each
Buyer and each other holder of the Securities and all of their stockholders,
partners, members, officers, directors, employees and direct or indirect
investors and any of the foregoing Persons’ agents or other representatives
(including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the “Indemnitees”)
from and against any and all actions, causes of action, suits, claims, losses,
costs, penalties, fees, liabilities and damages, and expenses in connection
therewith (irrespective of whether any such Indemnitee is a party to the action
for which indemnification hereunder is sought), and including reasonable
attorneys’ fees and disbursements (the “Indemnified Liabilities”), incurred by
any Indemnitee as a result of, or arising out of, or relating to (a) any
misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, (b) any breach of any covenant,
agreement or obligation of the Company contained in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby or
(c) any cause of action, suit or claim brought or made against such Indemnitee
by a third party (including for these purposes a derivative action brought on
behalf of the Company) and arising out of or resulting from (i) the execution,
delivery, performance or enforcement of the Transaction Documents or any other
certificate, instrument or document contemplated hereby or thereby, (ii) any
transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Securities, (iii) any
disclosure made by such Buyer pursuant to Section 4(e), or (iv) the status of
such Buyer or holder of the Securities as an investor in the Company pursuant to
the transactions contemplated by the Transaction Documents. To the extent that
the foregoing undertaking by the Company may be unenforceable for any reason,
the Company shall make the maximum contribution to the payment and satisfaction
of each of the Indemnified Liabilities that is permissible under applicable law.
Except as otherwise set forth herein, the mechanics and procedures with respect
to the rights and obligations under this Section 9(k) shall be the same as those
set forth in Section 5 of the Registration Rights Agreement. Notwithstanding
anything herein to the contrary, the Company shall have no indemnification
obligations to any Buyer hereunder to the extent that an Indemnified Liability
is attributable to the gross negligence or willful misconduct of such Buyer.

 

(l)            Tax Matters. The Buyers and the Company agree that the Notes and
the Warrants constitute an “investment unit” for purposes of Section 1273(c)(2)
of the Internal Revenue Code of 1986, as amended (the “Code”). The Buyers shall
notify the Company of

 

16

--------------------------------------------------------------------------------

 

their determination of the allocation of the issue price of such investment unit
among the Notes and the Warrants in accordance with Section 1273(c)(2) of the
Code and Treasury Regulation Section 1.1273-2(h), and neither the Buyers nor the
Company shall take any position inconsistent with such allocation in any tax
return or in any judicial or administrative proceeding in respect of taxes so
long as the same allocation is made by all Buyers.

 

(m)          Additional Notes; Variable Securities; Dilutive Issuances. So long
as any Buyer beneficially owns any Notes, the Company will not issue any Notes
other than to the Buyers as contemplated hereby and will not issue any other
securities that would cause a breach or default under the Notes. For so long as
any Notes or Warrants remain outstanding, the Company shall not, in any manner,
issue or sell any rights, warrants or options to subscribe for or purchase
Common Stock or directly or indirectly convertible into or exchangeable or
exercisable for Common Stock at a price which varies or may vary with the market
price of the Common Stock, including by way of one or more reset(s) to any fixed
price, unless the conversion, exchange or exercise price of any such security
cannot be less than the then applicable Conversion Price (as defined in the
Notes) with respect to the Common Stock into which any Note is convertible;
provided that anti-dilution provisions similar to those contained in the Notes
or Warrants (including “full-ratchet” or “weighted-average” anti-dilutions
rights), as well as provisions similar to those contained in the Notes for the
payment of interest or principal in shares of Common Stock solely at the option
of the Company, shall not be deemed for the purposes of this provision to be
securities convertible or exercisable at prices that vary with the market price
of the Common Stock.

 

5.             TRANSFER AGENT INSTRUCTIONS. The Company shall issue irrevocable
instructions to its transfer agent, and any subsequent transfer agent, to issue
certificates or credit shares to the applicable balance accounts at The
Depository Trust Company (“DTC”), registered in the name of each Buyer or its
respective nominee(s), for the Conversion Shares and the Warrant Shares in such
amounts as specified from time to time by each Buyer to the Company upon
conversion of the Notes or exercise of the Warrants in the form of Exhibit D
attached hereto (the “Irrevocable Transfer Agent Instructions”). No instruction
other than the Irrevocable Transfer Agent Instructions referred to in this
Section 5, and stop transfer instructions to give effect to Section 2(h) hereof,
will be given by the Company to its transfer agent, and that the Conversion
Shares and the Warrant Shares shall otherwise be freely transferable on the
books and records of the Company as and to the extent provided in this Agreement
and the other Transaction Documents. If a Buyer effects a sale, assignment or
transfer of the Securities in accordance with Sections 2(c), (h), and (i), the
Company shall permit the transfer and shall promptly instruct its transfer agent
to issue one or more certificates or credit Notes or shares to the applicable
balance accounts at DTC in such name and in such denominations as specified by
such Buyer to effect such sale, transfer or assignment. In the event that such
sale, assignment or transfer involves Securities sold, assigned or transferred
pursuant to an effective registration statement or pursuant to Rule 144, the
transfer agent shall issue such Securities to the Buyer, assignee or transferee,
as the case may be, without any restrictive legend so long as the Buyer complies
with the terms of Section 2(h) and Section 2(i). The Company acknowledges that a
breach by it of its obligations under this Section 5 will cause irreparable harm
to a Buyer. Accordingly, the Company acknowledges that the remedy at law for a
breach of its obligations under this Section 5 will be inadequate and agrees, in
the event of a

 

17

--------------------------------------------------------------------------------

 

breach or threatened breach by the Company of the provisions of this Section 5,
that a Buyer shall be entitled, in addition to all other available remedies, to
an order and/or injunction restraining any breach and requiring immediate
issuance and transfer. Nothing in this Section 5 will affect in any way the
Buyer’s obligations and agreements set forth in Section 4 hereof to comply with
all applicable prospectus delivery requirements, upon resale of the Securities.

 

6.             CONDITIONS TO THE COMPANY’S OBLIGATION TO SELL. The obligation of
the Company hereunder to issue and sell the Notes and Warrants to each Buyer at
the Closing is subject to the satisfaction, at or before the Closing Date, of
each of the following conditions, provided that these conditions are for the
Company’s sole benefit and may be waived by the Company at any time in its sole
discretion by providing each Buyer with prior written notice thereof:

 

(a)           Such Buyer shall have executed each of the Transaction Documents
to which it is a party and delivered the same to the Company.

 

(b)           Such Buyer and each other Buyer shall have delivered to the
Company the Purchase Price for the Notes being purchased by such Buyer and each
other Buyer at the Closing by wire transfer of immediately available funds
pursuant to the wire instructions provided by the Company.

 

(c)           The representations and warranties of such Buyer shall be true and
correct in all material respects as of the date when made and as of the Closing
Date as though made at that time (except for representations and warranties that
speak as of a specific date), and such Buyer shall have performed, satisfied and
complied in all material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by such
Buyer at or prior to the Closing Date.

 

7.             CONDITIONS TO EACH BUYER’S OBLIGATION TO PURCHASE. The obligation
of each Buyer hereunder to purchase the Notes and Warrants at the Closing is
subject to the satisfaction, at or before the Closing Date, of each of the
following conditions, provided that these conditions are for each Buyer’s sole
benefit and may be waived by such Buyer at any time in its sole discretion by
providing the Company with prior written notice thereof:

 

(a)           The Company shall have executed and delivered to such Buyer (i)
each of the Transaction Documents and (ii) the Notes and the Warrants being
purchased by such Buyer at the Closing pursuant to this Agreement.

 

(b)           Such Buyer shall have received the opinion of Foley & Lardner LLP,
the Company’s counsel, dated as of the Closing Date, in substantially the form
of Exhibit E attached hereto.

 

(c)           The Company shall have delivered to such Buyer a copy of the
Irrevocable Transfer Agent Instructions, in the form of Exhibit D attached
hereto, which instructions shall have been delivered to and acknowledged in
writing by the Company’s transfer agent.

 

(d)           The Company shall have delivered to such Buyer a certificate
evidencing the incorporation and good standing of the Company issued by the
Secretary of State of Delaware, as of a date within 10 days of the Closing Date.

 

18

--------------------------------------------------------------------------------

 

(e)           The Company shall have delivered to such Buyer a certificate,
executed by the Secretary of the Company and dated as of the Closing Date, as to
(i) the resolutions consistent with Section 3(b) as adopted by the Company’s
Board of Directors (the “Resolutions”), (ii) the Certificate of Incorporation
and (iii) the Bylaws, each as in effect at the Closing.

 

(f)            The representations and warranties of the Company shall be true
and correct in all material respects as of the date when made and as of the
Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by the Transaction Documents to be performed,
satisfied or complied with by the Company at or prior to the Closing Date.

 

8.             TERMINATION. In the event that the Closing shall not have
occurred with respect to a Buyer on or before five (5) Business Days from the
date hereof due to the Company’s or such Buyer’s failure to satisfy the
conditions set forth in Sections 6 and 7 above (and the nonbreaching party’s
failure to waive such unsatisfied condition(s)), the nonbreaching party shall
have the option to terminate this Agreement with respect to such breaching party
at the close of business on such date without liability of any party to any
other party.

 

9.             MISCELLANEOUS.

 

(a)           Governing Law; Jurisdiction; Jury Trial. All questions concerning
the construction, validity, enforcement and interpretation of this Agreement
shall be governed by the internal laws of the State of New York, without giving
effect to any choice of law or conflict of law provision or rule (whether of the
State of New York or any other jurisdictions) that would cause the application
of the laws of any jurisdictions other than the State of New York. Each party
hereby irrevocably submits to the non-exclusive jurisdiction of the state and
federal courts sitting in the City of New York, Borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof to such
party at the address for such notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law.

 

(b)           Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.

 

19

--------------------------------------------------------------------------------

 

(c)           Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.

 

(d)           Severability. If any provision of this Agreement shall be invalid
or unenforceable in any jurisdiction, such invalidity or unenforceability shall
not affect the validity or enforceability of the remainder of this Agreement in
that jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.

 

(e)           Entire Agreement; Amendments. This Agreement supersedes all other
prior oral or written agreements between the Buyers, the Company, their
affiliates and Persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be amended other than by an instrument in writing signed by the
Company and the holders of Notes representing more than one-half of the
aggregate principal amount of the Notes, or, if prior to the Closing Date, the
Company and the Buyers listed on the Schedule of Buyers as being obligated to
purchase at least a majority of the aggregate principal amount of the Notes, and
any amendment to this Agreement made in conformity with the provisions of this
Section 9(e) shall be binding on all Buyers and holders of Notes, as applicable.
No provision hereof may be waived other than by an instrument in writing signed
by the party against whom enforcement is sought. No such amendment shall be
effective to the extent that it applies to less than all of the holders of the
Notes then outstanding. No consideration shall be offered or paid to any Person
to amend or consent to a waiver or modification of any provision of any of the
Transaction Documents unless the same consideration also is offered to all of
the parties to the Transaction Documents, holders of Notes. The Company has not,
directly or indirectly, made any agreements with any Buyers relating to the
terms or conditions of the transactions contemplated by the Transaction
Documents except as set forth in the Transaction Documents.

 

(f)            Notices. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered:  (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by electronic mail or
facsimile (provided confirmation of transmission is mechanically or
electronically generated and kept on file by the sending party); or (iii) one
Business Day after deposit with an overnight courier service, in each case
properly addressed to the party to receive the same. The addresses and facsimile
numbers for such communications shall be:

 

If to the Company:

 

Liquidmetal Technologies, Inc.
25800 Commercentre Drive, Suite 100
Lake Forest, California  92630
Facsimile: (949) 206-8008
Attention:  Larry Buffington, President and CEO
Email:  Larry.Buffington@Liquidmetal.com

 

20

--------------------------------------------------------------------------------

 

with a copy (which shall not constitute notice) to:

 

Foley & Lardner LLP
100 North Tampa Street, Suite 2700
Tampa, Florida  33602
Facsimile:              (813) 221-4210

Attention:              Curt Creely, Esq.

Email:                     ccreely@foley.com

 

If to a Buyer, to its address, electronic mail address, and facsimile number set
forth on the Schedule of Buyers, with copies to such Buyer’s representatives as
set forth on the Schedule of Buyers, or to such other address and/or facsimile
number and/or to the attention of such other Person as the recipient party has
specified by written notice given to each other party five (5) days prior to the
effectiveness of such change. Written confirmation of receipt (A) given by the
recipient of such notice, consent, waiver or other communication, (B)
mechanically or electronically generated by the sender’s facsimile machine
containing the time, date, recipient facsimile number and an image of the first
page of such transmission or (C) provided by an overnight courier service shall
be rebuttable evidence of personal service, receipt by facsimile or receipt from
an overnight courier service in accordance with clause (i), (ii) or (iii) above,
respectively.

 

(g)           Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and assigns,
including any purchasers of the Notes. The Company shall not assign this
Agreement or any rights or obligations hereunder without the prior written
consent of the holders of Notes representing at least a majority of the
aggregate principal amount of the Notes then outstanding, including by merger or
consolidation, except pursuant to a Change of Control (as defined in the Notes).

 

(h)           No Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person.

 

(i)            Survival. Unless this Agreement is terminated under Section 8,
the representations and warranties of the Company and the Buyers contained in
Sections 2 and 3 and the agreements and covenants set forth in Sections 4, 5 and
9 shall survive the Closing. Each Buyer shall be responsible only for its own
representations, warranties, agreements and covenants hereunder.

 

(j)            Further Assurances. Each party shall do and perform, or cause to
be done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
any other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.

 

21

--------------------------------------------------------------------------------

 

(k)           Payment Set Aside. To the extent that the Company makes a payment
or payments to the Buyers hereunder or pursuant to any of the other Transaction
Documents or the Buyers enforce or exercise their rights hereunder or
thereunder, and such payment or payments or the proceeds of such enforcement or
exercise or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, recovered from, disgorged by or are
required to be refunded, repaid or otherwise restored to the Company, a trustee,
receiver or any other Person under any law (including, without limitation, any
bankruptcy law, state or federal law, common law or equitable cause of action),
then to the extent of any such restoration the obligation or part thereof
originally intended to be satisfied shall be revived and continued in full force
and effect as if such payment had not been made or such enforcement or setoff
had not occurred.

 

(l)            Independent Nature of Buyers’ Obligations and Rights. The
obligations of each Buyer under any Transaction Document are several and not
joint with the obligations of any other Buyer, and no Buyer shall be responsible
in any way for the performance of the obligations of any other Buyer under any
Transaction Document. Nothing contained herein or in any other Transaction
Document, and no action taken by any Buyer pursuant hereto or thereto, shall be
deemed to constitute the Buyers as a partnership, an association, a joint
venture or any other kind of entity, or create a presumption that the Buyers are
in any way acting in concert or as a group with respect to such obligations or
the transactions contemplated by the Transaction Documents. Each Buyer confirms
that it has independently participated in the negotiation of the transaction
contemplated hereby with the advice of its own counsel and advisors. Each Buyer
shall be entitled to independently protect and enforce its rights, including,
without limitations, the rights arising out of this Agreement or out of any
other Transaction Documents, and it shall not be necessary for any other Buyer
to be joined as an additional party in any proceeding for such purpose.

 

22

--------------------------------------------------------------------------------

 

IN WITNESS WHEREOF, each Buyer and the Company have caused have caused their
respective signature page to this Securities Purchase Agreement to be duly
executed as of the date first written above.

 

 

COMPANY:

 

 

 

LIQUIDMETAL TECHNOLOGIES, INC.

 

 

 

 

 

By:

  /s/ Larry E. Buffington

 

 

 

Name:  Larry E. Buffington

 

 

Title:    CEO/President

 

[Signature Page to Securities Purchase Agreement]

 

--------------------------------------------------------------------------------

 

IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.

 

 

BUYERS:

 

 

 

/s/ Diamond Opportunity Fund, LLC

 

 

 

 

/s/ Fort Mason Master, LP

 

 

 

 

/s/ Fort Mason Partners, LP

 

 

 

 

/s/ Solomon Strategic Holdings, Inc.

 

 

 

 

/s/ The Tail Wind Fund Ltd.

 

 

 

 

/s/ Abdi Mahamedi

 

 

 

 

/s/ Whitebox Intermarket Partners LP

 

 

 

 

/s/ BridgePointe Master Fund Ltd.

 

 

 

 

/s/ Rockmore Investment Master Fund Ltd.

 

 

 

 

/s/ Castlerigg Master Investments Ltd.

 

 

 

 

/s/ Iroquois Master Fund

 

 

 

 

/s/ Wynnefield Partners Small Cap Value, LP

 

 

 

 

/s/ Wynnefield Partners Small Cap Value, LP I

 

 

 

 

/s/ Wynnefield Small Cap Value Offshore Fund, Ltd.

 

 

 

 

/s/ Rodd Friedman

 

 

 

 

/s/ Eric Brachfeld

 

 

 

 

/s/ Myron Neugeboren

 

 

 

 

/s/ Ricardo Salas

 

 

 

 

/s/ Winvest Venture Partners Inc.

 

 

 

 

/s/ Ed Neugeboren

 

 

 

 

/s/ Gryphon Master Fund, L.P.

 

 

[Signature Page to Securities Purchase Agreement]

 

--------------------------------------------------------------------------------

 

 

/s/ GSSF Master Fund, LP

 

 

 

 

/s/ Leon Frenkel

 

 

 

 

/s/ Triage Capital Management L.P.

 

 

 

 

/s/ Triage Capital Management B, L.P.

 

 

 

 

/s/ Stratford Partners, LP

 

 

 

 

/s/ Kenneth Lisiak

 

 

 

 

/s/ Vestal Venture Capital

 

 

 

 

/s/ James Kang

 

 

 

 

/s/ Kurtis Jang

 

 

 

 

/s/ Charles Kim

 

 

 

 

/s/ Chuck Myong

 

 

 

 

/s/ Hamilton Investment Partners, LLC

 

 

 

 

/s/ Rockport Funding, LLC

 

 

 

 

/s/ Jay Deahna

 

 

--------------------------------------------------------------------------------

 

SCHEDULE OF BUYERS

 

(1)

 

(2)

 

(3)

 

(4)

 

(5)

 

Buyer

 

Address, Email and 
Facsimile Number

 

Aggregate 
Principal Amount 
of Notes

 

Number of 
Warrants

 

Legal Representative’s 
Address and Facsimile Number

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

--------------------------------------------------------------------------------

 

Schedule 3 (a)

 

•      Liquidmetal Golf (a California corporation)

 

•      Liquidmetal Korea Co., Ltd. (a South Korean organized entity)

 

•      Amorphous Technologies International (Asia) PTE Ltd.  (an entity
organized under Singapore law — Inactive, dissolution in progress.)

 

•      Weihai Liquidmetal Company Ltd.  (an entity organized under Chinese law)

 

--------------------------------------------------------------------------------

 

Schedule 3 (e)

 

None

 

--------------------------------------------------------------------------------

 

Schedule 3 (l)

 

None other than that disclosed in SEC Documents

 

--------------------------------------------------------------------------------

 

Schedule 3 (m)

 

None

 

--------------------------------------------------------------------------------

 

Schedule 3 (o)

 

Shares outstanding:

 

44,261,768

 

 

 

 

 

Options Outstanding

 

 

 

1996 Long-Term Incentive Plan

 

3,257,265

 

2002 Director Plan - 2004

 

330,000

 

2002 Equity Plan

 

72,260

 

2002 Equity Plan - 2003

 

620,873

 

2002 Equity Plan - 2004

 

2,021,317

 

Options Not Under a Plan

 

2,221,508

 

Total

 

8,523,223

 

 

--------------------------------------------------------------------------------

 

Schedule 3 (p)

 

None other than that disclosed in SEC Documents

 

--------------------------------------------------------------------------------

 

Schedule 3 (s)

 

None

 

--------------------------------------------------------------------------------

 

Schedule 3 (t)

 

None

 

--------------------------------------------------------------------------------

 

Schedule 3 (u)

 

None

 

--------------------------------------------------------------------------------

 

SCHEDULE 4(i)

 

Debt not required to be paid off after Closing

 

Creditor

 

Outstanding Principal

 

Kookmin Bank

 

$

1,746,000

 

Hana Financial

 

$

1,344,000

 

6% Senior Convertible Notes Due July 2007

 

$

2,113,000

 

 

--------------------------------------------------------------------------------

 

EXHIBITS

 

Exhibit A

 

Form of Note

Exhibit B

 

Form of Warrant

Exhibit C

 

Form of Registration Rights Agreement

Exhibit D

 

Form of Irrevocable Transfer Agent Instructions

Exhibit E

 

Form of Company Counsel Opinion

 

--------------------------------------------------------------------------------

 

Exhibit A

 

Filed separately, therefore omitted.

 

--------------------------------------------------------------------------------

 

Exhibit B

 

Filed separately, therefore omitted.

 

--------------------------------------------------------------------------------

 

Exhibit C

 

Filed separately, therefore omitted.

 

--------------------------------------------------------------------------------

 

Exhibit D

 

TRANSFER AGENT INSTRUCTIONS

 

LIQUIDMETAL TECHNOLOGIES, INC.

 

January 3, 2007

 

American Stock Transfer & Trust Company

Attn:  Mr. Joe Wolf

59 Maiden Lane

New York, NY 10038

 

Re:          Private Placement of Convertible Subordinated Notes

 

Ladies and Gentlemen:

 

This letter refers to that certain Securities Purchase Agreement, dated as of
January 3, 2007 (the “Securities Purchase Agreement”), by and among Liquidmetal
Technologies, Inc., a Delaware corporation (the “Company”), and the investors
listed on the Schedule of Buyers attached thereto (collectively, the “Buyers”)
pursuant to which the Company is issuing to the Buyers Convertible Subordinated
Notes (the “Notes”), which are convertible into shares of common stock of the
Company, par value $0.001 per share (the “Common Stock”).

 

The Company hereby authorizes and instructs you (provided that you are the
transfer agent of the Company at such time):

 

(i)            to establish as of the date of this letter a reserve of
[                  ] shares of Common Stock for issuance to holders of Notes
upon conversion of their Notes (the “Conversion Share Reserve”). The Conversion
Share Reserve shall be adjusted to appropriately reflect the effect of any stock
split, reverse stock split, stock dividend (including any dividend or
distribution of securities convertible into Common Stock), reorganization,
recapitalization, reclassification, exchange or other like change with respect
to Common Stock occurring on or after the date hereof; and

 

(ii)           to issue shares of Common Stock upon conversion of the Notes (the
“Conversion Shares”) to or upon the order of a Buyer from time to time upon
delivery to you of a properly completed and duly executed Conversion Notice, in
the form attached hereto as Exhibit I, which has been acknowledged by the
Company as indicated by the signature of a duly authorized officer of the
Company thereon.

 

You acknowledge and agree that so long as you have previously received (a)
written confirmation from the Company’s outside legal counsel that either (i) a
registration statement covering resales of the Conversion Shares has been
declared effective by the Securities and Exchange Commission (the “SEC”) under
the Securities Act of 1933, as amended (the “Securities Act”), or (ii) that
sales of the Conversion Shares may be made in conformity with Rule 144 under the
Securities Act and (b) if applicable, a copy of such registration statement,
then within two (2) business days of your receipt of the Conversion Notice, you
shall issue the certificates representing the Conversion Shares, as applicable,
and such certificates shall not bear any legend restricting transfer of the
Conversion Shares thereby and should not be subject to any stop-transfer
restriction; provided, however, that if such Conversion Shares are not
registered for resale under the Securities Act or able to be sold under Rule
144, then, the certificates for such Conversion Shares shall bear the following
legend:

 

--------------------------------------------------------------------------------

 

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE
ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL, IN A FORM
REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER
SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
ARRANGEMENT SECURED BY THE SECURITIES.”

 

A form of written confirmation from the Company’s legal counsel that a
registration statement covering resales of the Conversion Shares has been
declared effective by the SEC under the Securities Act is attached hereto as
Exhibit II.

 

These instructions may not be rescinded or revoked other than by means of a
communication signed by the Company.

 

Please execute this letter in the space indicated to acknowledge your agreement
to act in accordance with these instructions. Should you have any questions
concerning this matter, please contact Curt Creely of Foley & Lardner LLP, our
outside legal counsel, at (813) 225-4122.

 

 

Very truly yours,

 

 

 

THE COMPANY:

 

 

 

LIQUIDMETAL TECHNOLOGIES, INC.

 

 

 

 

 

By:

 

 

 

 

Young Ham

 

 

Chief Financial Officer

 

 

THE FOREGOING INSTRUCTIONS ARE

ACKNOWLEDGED AND AGREED TO

 

this        day of January, 2007

 

AMERICAN STOCK TRANSFER & TRUST COMPANY

 

By:

 

 

 

Name:

 

 

 

Title:

 

 

 

Enclosures

 

2

--------------------------------------------------------------------------------

 

EXHIBIT I

 

LIQUIDMETAL TECHNOLOGIES, INC.
CONVERSION NOTICE

 

Reference is made to the Convertible Subordinated Note (the “Note”) issued to
the undersigned by Liquidmetal Technologies, Inc. (the “Company”). In accordance
with and pursuant to the Note, the undersigned hereby elects to convert the
Conversion Amount (as defined in the Note) of the Note indicated below into
shares of Common Stock, par value $0.001 per share (the “Common Stock”), of the
Company as of the date specified below.

 

Date of Conversion:

 

Aggregate Conversion Amount to be converted:

 

The undersigned hereby certifies to the Company that the undersigned’s
conversion of the amount set forth above in accordance with Section 3(a) of the
Note will not directly result in the undersigned (together with the
undersigned’s affiliates) beneficially owning in excess of 4.99% of the number
of shares of Common Stock outstanding immediately after giving effect to such
conversion, calculated in accordance with Section 3(d)(i) of the Note; provided
that if the undersigned has previously waived the 4.99% beneficial ownership
limitation upon no less than sixty one (61) days prior written notice, the
undersigned certifies to the Company that the undersigned’s conversion of the
amount set forth above will not directly result in the undersigned (together
with the undersigned’s affiliates) beneficially owning in excess of 9.99% of the
number of shares of Common Stock outstanding immediately after giving effect to
such conversion, calculated in accordance with Section 3(d)(i) of the Note.

 

Please confirm the following information:

 

Conversion Price:

 

Number of shares of Common Stock to be issued:

 

Please issue the Common Stock into which the Note is being converted in the
following name and to the following address:

 

Issue to:

 

 

Facsimile Number:

 

Authorization:

 

By:

 

 

Title:

 

 

--------------------------------------------------------------------------------

 

Dated:

 

 

Account Number:               

(if electronic book entry transfer)

 

Transaction Code Number:

(if electronic book entry transfer)

 

4

--------------------------------------------------------------------------------

 

ACKNOWLEDGMENT

 

The Company hereby acknowledges this Conversion Notice and hereby directs
American Stock Transfer & Trust Co. to issue the above indicated number of
shares of Common Stock in accordance with the Transfer Agent Instructions dated
January 3, 2007 from the Company.

 

 

LIQUIDMETAL TECHNOLOGIES, INC.

 

 

 

 

 

By:

 

 

 

Name:

 

Title:

 

5

--------------------------------------------------------------------------------

 

EXHIBIT II

 

FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT

 

American Stock Transfer & Trust Company

Attn:  Mr. Joe Wolf

59 Maiden Lane

New York, NY 10038

 

Re:          Liquidmetal Technologies, Inc.

 

Ladies and Gentlemen:

 

We are counsel to Liquidmetal Technologies, Inc., a Delaware corporation (the
“Company”), and have represented the Company in connection with the negotiation
and execution of that certain Securities Purchase Agreement, dated as of January
3, 2007, by and among the investors named on the Schedule of Buyers attached
thereto (the “Buyers”) and the Company (the “Purchase Agreement”). Upon the
terms and subject to the conditions of the Purchase Agreement, the Company has
issued to the Buyers its convertible subordinated notes (the “Notes”)
convertible into shares of the Company’s Common Stock, par value $0.001 per
share (the “Common Stock”). Pursuant to the Purchase Agreement, the Company
entered into a Registration Rights Agreement with the Buyers, dated as of
January 3, 2007 (the “Registration Rights Agreement”), pursuant to which the
Company agreed, among other things, to register the resale of the Registrable
Securities (as defined in the Registration Rights Agreement), including the
shares of its Common Stock issuable upon conversion of the Notes under the
Securities Act of 1933, as amended (the “Securities Act”). In connection with
the Company’s obligations under the Registration Rights Agreement, on
                     , 2007, the Company filed the Registration Statement on
Form S-1 (File No. 333-                  ) (the “Registration Statement”) with
the Securities and Exchange Commission (the “SEC”) relating to the Registrable
Securities which names each of the Buyers as a selling stockholder thereunder.

 

In connection with the Registration Statement, we advise you that a member of
the SEC’s staff has advised us by telephone that the SEC has entered an order
declaring the Registration Statement effective under the Securities Act at
[ENTER TIME OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS], and we have no
knowledge, after telephonic inquiry of a member of the SEC’s staff, that any
stop order suspending its effectiveness has been issued or that any proceedings
for that purpose are pending before, or threatened by, the SEC and the
Registrable Securities are available for resale under the Securities Act
pursuant to the Registration Statement.

 

 

Very truly yours,

 

 

 

[COMPANY’S COUNSEL]

 

 

 

By:

 

 

 

CC:          [LIST NAMES OF BUYERS]

 

6

--------------------------------------------------------------------------------

 

Exhibit E

 

 

 

ATTORNEYS AT LAW

 

 

 

 

 

100 NORTH TAMPA STREET, SUITE 2700

 

 

TAMPA, FL 33602-5810

 

 

P.O. BOX 3391

January 3, 2007

 

TAMPA, FL 33601-3391

 

 

813.229.2300 TEL

 

 

813.221.4210 FAX

 

 

www.foley.com

 

 

 

 

 

CLIENT/MATTER NUMBER

 

 

078489-0103

 

To the Addressees Set Forth on

Attached Schedule A

 

Re:          Liquidmetal Technologies, Inc.

 

Ladies and Gentlemen:

 

We have acted as counsel to Liquidmetal Technologies, Inc., a Delaware
corporation (the “Company”), in connection with the transactions contemplated by
the Securities Purchase Agreement, dated as of the date hereof (the “Purchase
Agreement”), among the Company and the persons and entities set forth in
Schedule A hereto (the “Purchasers”). This letter is being delivered to you
pursuant to Section 7(b) of the Purchase Agreement. Capitalized terms not
otherwise defined in this letter shall have the respective meanings ascribed to
them in the Purchase Agreement.

 

In rendering this opinion, we have examined (i) the Purchase Agreement, the
Notes, the Warrants, and the Registration Rights Agreement (collectively, the
“Transaction Documents”), (ii) a copy of the Certificate of Incorporation of the
Company certified by the Secretary of the State of Delaware on December 28, 2006
(the “Certificate”), (iii) a certificate of good standing with respect to the
Company issued by the Delaware Secretary of State dated December 28, 2006, (iv)
a copy of the Bylaws of the Company certified by the Secretary of the Company on
or about the date of this letter (the “Bylaws”), and (v) a copy of the
resolutions of the Board of Directors of the Company adopted on December 28,
2006, as certified by the Secretary of the Company on the date of this letter.
We have also considered such matters of law and of fact, including the
examination of originals or copies, certified or otherwise identified to our
satisfaction, of such records and documents of the Company, certificates of
officers, directors and representatives of the Company, certificates of public
officials and such other documents as we have deemed appropriate as a basis for
the opinions set forth below. We also have relied upon the factual
representations made by the Company in the Transaction Documents. We have made
no attempt to independently verify the factual statements and representations
contained in certificates or in the Transaction Documents.

 

As to the incorporation and good standing of the Company under the laws of the
State of Delaware, we have relied solely on certificates from the Delaware
Secretary of State dated December 28, 2006, which we assume remain accurate as
of the date of this letter.

 

Our opinion in paragraph 4 concerning the validity, binding effect, and
enforceability of the Transaction Documents means that (i) the Transaction
Documents constitute effective contracts under applicable law, and (ii) subject
to the remainder of this paragraph, a remedy will be

 

BOSTON

LOS ANGELES

SACRAMENTO

TALLAHASSEE

BRUSSELS

MADISON

SAN DIEGO

TAMPA

CHICAGO

MILWAUKEE

SAN DIEGO/DEL MAR

TOKYO

DETROIT

NEW YORK

SAN FRANCISCO

WASHINGTON, D.C.

JACKSONVILLE

ORLANDO

SILICON VALLEY

 

 

--------------------------------------------------------------------------------

 

available to the applicable party if the Company is in material default under
the Transaction Documents to obtain the practical realization of benefits
contemplated by the Purchase Agreement. This opinion does not mean that (a) any
particular remedy is available upon a material default, or (b) every provision
of the Transaction Documents will be upheld or enforced in any or each
circumstance by a court. Furthermore, the validity, binding effect and
enforceability of the Transaction Documents may be limited or otherwise affected
by (y) bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance
or other similar statutes, rules, regulations or other laws affecting the
enforcement of creditors’ rights and remedies generally and (z) the
unavailability of, or limitation on the availability of, specific performance or
injunctive relief or a particular right or remedy (whether in a proceeding in
equity or at law) because of an equitable principle or a requirement as to
commercial reasonableness, conscionability, or good faith.

 

The opinions set forth in this letter are limited solely to the laws of the
State of Florida, the Delaware General Corporation Law and the federal laws of
the United States of America, and we express no opinion as to the laws of any
other jurisdiction. We note that the Transaction Documents provide that they are
governed by the laws of the State of New York, and we have assumed, with your
permission, that laws of the State of New York are the same as the laws of the
State of Florida in all relevant respects. This letter has been prepared and is
to be construed in accordance with the Reports on Standards for Opinions of
Florida Legal Counsel for Business and Real Estate Transactions (September 1998)
(the “Report”), and the Report is incorporated by reference in this letter.

 

In rendering the opinions set forth below, we have made the following
assumptions, in addition to the other assumptions set forth in this letter: (i)
the genuineness of all signatures other than those on behalf of the Company;
(ii) the authenticity and completeness of all documents submitted to us as
originals; (iii) the conformity to originals of all documents and instruments
submitted to us as photostatic copies, and the authenticity and completeness of
the originals of such latter documents;  (iv) the legal capacity of each natural
person; (v) the legal existence of all parties to the Transaction Documents
other than the Company; (vi) the power and authority of each person other than
the Company to execute, deliver and perform each document executed and delivered
and to do each other act done or to be done by such person; (vii) the
authorization, execution, and delivery by each person other than the Company of
each document executed and delivered or to be executed and delivered by such
person; (viii) the legality, validity, binding effect, and enforceability as to
each person other than the Company of each document executed and delivered or to
be executed and delivered and of each other act done or to be done by such
person; (ix) the payment of all required documentary stamps, taxes and fees
imposed upon the execution, filing or recording of documents; (x) that there
have been no undisclosed modifications of any documents reviewed by us in
connection with the rendering of the opinion and no undisclosed prior waiver of
any right or remedy contained in any of the documents; (xi) the truthfulness of
each statement as to all factual matters contained in any document reviewed by
us in connection with this opinion; (xii) the accuracy on the date of the
opinion as well as on the date stated in all governmental certifications of each
statement as to each factual matter contained in such governmental
certifications;  (xiii) that with respect to the Transaction Documents, there
has been no mutual mistake of fact and there exists no fraud or duress; and
(xiv) the constitutionality and validity of all relevant laws, regulations and
agency actions.

 

2

--------------------------------------------------------------------------------

 

For purposes of this opinion, “to our knowledge” or “known to us” means the
actual current conscious awareness of those attorneys in our firm who have given
substantive attention to the transactions contemplated by the Transaction
Documents, without independent investigation to determine the existence or
absence of any facts or circumstances.

 

Based on the foregoing, and subject to the qualifications, assumptions and
limitations set forth herein, we are of the opinion that:

 

1.             The Company is a corporation incorporated and in good standing
under the laws of the State of Delaware.

 

2.             The Company has all requisite corporate power and authority to
execute, deliver and perform the Transaction Documents, to issue, sell and
deliver the Notes, the Warrants, the Conversion Shares, and the Warrant Shares
pursuant to the Transaction Documents and to carry out and perform its
obligations under, and to consummate the transactions contemplated by, the
Transaction Documents.

 

3.             All corporate action on the part of the Company necessary for the
authorization, execution and delivery by the Company of the Transaction
Documents, the authorization, issuance, sale and delivery of the Notes and the
Warrants pursuant to the Purchase Agreement, the issuance and delivery the
Conversion Shares and Warrant Shares, and the consummation by the Company of the
transactions contemplated by the Transaction Documents has been duly taken.

 

4.             The Transaction Documents have been duly and validly executed and
delivered by the Company and constitute the legal, valid and binding obligation
of the Company, enforceable against the Company in accordance with their terms,
except (a) that such enforceability may be limited by bankruptcy, insolvency or
other similar laws affecting the enforcement of creditors’ rights in general and
(b) that the remedies of specific performance and injunctive and other forms of
injunctive relief may be subject to equitable defenses.

 

5.             The authorized capital stock of the Company as of the date hereof
is 100,000,000 shares of common stock, par value $.001 per share, and 10,000,000
shares of preferred stock, par value $.001 per share. The Conversion Shares and
Warrant Shares to be issued to the Purchasers have been duly authorized and,
when issued and paid for in accordance with the terms of the Transaction
Documents, will be validly issued, fully paid and nonassessable and no subject
to any preemptive rights. The issuance of the Notes and the Warrants has been
duly authorized, and when issued and paid for in accordance with the terms of
the Transaction Documents, such securities will be validly issued. The shares of
Common Stock issuable upon conversion of the Notes and exercise of the Warrants
have been duly reserved, and when issued in accordance with the terms of the
Notes and Warrants, as applicable, will be validly issued, fully paid and
nonassessable and not subject to any preemptive rights.

 

3

--------------------------------------------------------------------------------

 

6.             Assuming (i) the accuracy of the information provided by the
purchasers in the Transaction Documents including the relevant information with
respect to the status of each purchaser (each, a “Purchaser” and collectively,
the “Purchasers”) as an “accredited investor” within the meaning of Regulation D
under the Securities Act of 1933, as amended (the “Securities Act”), (ii) that
the Placement Agent has complied in all respects with the requirements of
Section 4(2) of the Securities Act (including, without limitation, the
provisions of Regulation D promulgated thereunder), (iii) the absence of any
form of general solicitation or general advertising with respect to the offer or
sale of the Securities, (iv) the registration or qualification of the Placement
Agent as a broker-dealer in each jurisdiction in which the Placement Agent has
placed or attempted to place the Securities, (v) the observance of all
limitations on resale of the Securities, and (vi) the timely filing of a Form D
with respect to the offer or sale of the Securities, the issuance and sale of
the Securities by the Company to the Purchasers is exempt from registration
under the Securities Act by virtue of Regulation D promulgated thereunder.

 

7.             The execution, delivery and performance by the Company of, and
the compliance by the Company with the terms of, the Transaction Documents and
the issuance, sale and delivery of the Notes, Conversion Shares, Warrants, and
Warrant Shares pursuant to the Purchase Agreement do not (a) conflict with or
result in a violation of any provision of the Certificate or Bylaws, (b)
conflict with or result in a violation of any provision of law, rule, or
regulation known to us to be applicable to the Company,  or (c) to our
knowledge, conflict with, result in a breach of or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or result in or permit the termination or modification of, any agreement,
instrument, order, writ, judgment or decree known to us to which the Company is
a party or is subject.

 

8.             To our knowledge, no consent, license, permit, waiver, approval
or authorization of, or designation, declaration, registration or filing with,
any court, governmental or regulatory authority, or self-regulatory
organization, is required in connection with the valid execution, delivery and
performance by the Company of the Transaction Documents, or the offer, sale,
issuance or delivery of the Notes, Conversion Shares, Warrants, or Warrant
Shares or the consummation of the transactions contemplated thereby.

 

This opinion letter is provided to you for your exclusive use solely in
connection with the Transaction Documents and the transactions contemplated
thereby and may not be relied upon by any person other than you or for any other
purpose without our prior written consent. This opinion letter may not be used,
quoted, referred to, copied, published, or relied upon by, or furnished to, any
other person without our prior written consent. This opinion letter speaks only
as of the date hereof and to its addressee and we have no responsibility or
obligation to update this opinion, to consider its applicability or correctness
to other than its addressees, or to take into account changes in law, facts or
any other developments of which we may later become aware.

 

 

Very truly yours,

 

 

 

DRAFT

 

 

 

Foley & Lardner LLP

 

4

--------------------------------------------------------------------------------

 

SCHEDULE A

 

[to be inserted]

 

[to be inserted]

 

--------------------------------------------------------------------------------