Exhibt 10.6


 


SECURITY AGREEMENT


 


THIS SECURITY AGREEMENT (this “Agreement”) is
made and entered into as of the 1st day of May, 2009, by and between LIQUIDMETAL
TECHNOLOGIES, INC., a Delaware corporation (“Borrower”), and WC
COLLATERAL AGENT LLC, a Delaware limited liability company (“Agent”) and
each other person or entity listed as a Secured Party on Schedule 1
attached to this Agreement (the “Investors” and, together with Agent,
the “Secured Parties”).


 


Recitals


 


WHEREAS, the Secured Parties have agreed to purchase
8% Senior Secured Convertible Notes (the “Notes”) from the Borrower
pursuant to the terms of a Securities Purchase and Exchange Agreement (the “Purchase
Agreement”), of even date herewith, between the Borrower and the Secured
Parties.


 


WHEREAS, the Secured Parties have required, as a
condition to purchasing the Notes, that Borrower grant the Agent, for the
benefit of the Investors, a security interest in all of Borrower’s assets
listed on Exhibit A hereto, on the terms and conditions set forth
herein.


 


NOW, THEREFORE, in consideration of the mutual
covenants and agreements contained in the Notes, the Purchase Agreement, and
herein, the parties hereto, intending to be legally bound, agree as follows:


 


1.             Incorporation
of Recitals, Purchase Agreement, and Notes.  The foregoing Recitals, the Purchase
Agreement, the Notes, and the terms and provisions thereof, are hereby
incorporated herein in their entirety by this reference.


 


2.             Definitions.  The following terms shall have the meanings
set forth below:


 


“Collateral” means all assets and personal and
fixture property of Borrower of any kind and nature whatsoever now owned or
hereafter acquired by Borrower, whether tangible or intangible, including
without limitation all of Borrower’s right, title, and interest in and to the
property and assets listed on Exhibit A, including all proceeds
thereof and all increases, substitutions, replacements, additions, and
accretions thereof.


 


“Obligations” has the meaning given in Section 3(a) below.


 


“Patents” mean, collectively, all of Borrower’s
letters patent under the laws of the United States listed on Schedule A
hereto, all recordings and registrations thereof and applications therefor,
including, without limitation, the inventions described therein, all reissues,
continuations, divisions, renewals, extensions, continuations-in-part thereof,
in each case whether now owned or existing or hereafter acquired or arising.


 


“Permitted Liens” mean any of the following: (i) liens
for current taxes or other governmental or regulatory assessments which are not
delinquent, or which are being contested in good faith by the appropriate
procedures and for which appropriate reserves are maintained; 


 

















 


(ii) liens granted
in favor of the Agent and/or the Secured Parties; (iii) licenses or
sublicenses of Patents, in each instance granted to others not interfering in
any material respect with the business of the Borrower; (iv) liens or
security interests existing on the date hereof in connection with indebtedness
or obligations disclosed in Schedule 3(p) of the Purchase Agreement, but
only if the existence of the lien or security interest is disclosed on Schedule
3(p) (“Existing Indebtedness”); or (v) liens or security
interests granted by the Borrower to secure Senior Indebtedness.


 


“Security Interest” has the meaning given in Section 3(b) below.


 


“Senior Indebtedness” shall have the meaning
set forth in the Notes.


 


3.             Security
for Obligations.


 


a.             This
Agreement secures, and the Collateral is collateral security for, the prompt
payment or performance in full when due, whether at stated maturity, by
required prepayment, declaration, acceleration, conversion, demand or otherwise
(including the payment of amounts that would become due but for the operation
of the automatic stay under Section 363(a) of the Bankruptcy Code, 11
U.S.C. §362(a)) of all obligations and liabilities of every nature of Borrower
now or hereafter existing under or arising out of the Notes and this Agreement
and all extensions or renewals thereof, whether for principal, interest,
(including, without limitation, interest that, but for the filing of a petition
in bankruptcy with respect to Borrower, would accrue on such obligations),
fees, expenses, indemnities or otherwise, whether voluntary or involuntary,
direct or indirect, absolute or contingent, liquidated or unliquidated, whether
or not jointly owed with others, and whether or not from time to time decreased
or extinguished and later increased, created or incurred, and all or any
portion of such obligations or liabilities that are paid, to the extent all or
any part of such payment is avoided or recovered directly or indirectly from
Agent or any Secured Party as a preference, fraudulent transfer or otherwise
(all such obligations of Borrower being the “Obligations”).


 


b.             As
security for the payment of the Obligations, the Borrower hereby grants to the
Agent, its successors and its assigns, for the pro rata benefit of the
Investors, their successors and their assigns, a security interest in the
Collateral (the “Security Interest”). 
Without limiting the foregoing, the Agent is hereby authorized to file
one or more financing statements, continuation statements or other documents
for the purpose of perfecting, confirming, continuing, enforcing or protecting
the Security Interest, naming the Borrower as debtors and the Agent as secured
party.


 


c.             The
Borrower agrees at all times to keep in all material respects accurate and
complete accounting records with respect to the Collateral, including, but not
limited to, a record of all payments and proceeds received.


 


4.             Representations
and Warranties.  Borrower
represents and warrants as follows:


 


a.             Financing
Statements.  Except for the financing
statements in favor of the Agent, at the time of granting the security interest
described herein, no financing statement covering the Collateral or any portion
thereof will be on file in any public 


 


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office, and,
except for Permitted Liens, Borrower agrees not to execute or authorize the
filing of any such additional financing statement in favor of any person,
entity or governmental agency (whether federal, state or local) other than
Agent as long as any portion of the Obligations evidenced by the Notes remain
unpaid.


 


b.             No Other Liens. 
Except as set forth on Schedule 4(b) hereto, no effective
security agreement, financing statement, equivalent security or lien instrument
or continuation statement covering all or any part of the Collateral is on file
or of record in any public office.


 


c.             Legal
Name.  Borrower’s exact legal name is
as set forth in the first paragraph of this Agreement.  Borrower shall not change its legal name or
its form of organization without 30 days’ prior written notice to the Agent.


 


d.             Title
and Authority.  Borrower has (i) rights
in and good title to the Collateral in which it is granting a security interest
hereunder and (ii) the requisite corporate power and authority to grant to
the Agent the Security Interest in such Collateral pursuant hereto and to execute,
deliver and perform its obligations in accordance with the terms of this
Agreement, without the consent or approval of any other person other than any
consent or approval which has been obtained. 
Borrower has the sole, full and clear title to each of the Patents shown
on Schedule A hereto and the registrations thereof are valid and
subsisting and in full force and effect. 
None of the Patents has been abandoned or dedicated, and, except to the
extent that the Agent, upon prior written notice by Borrower, shall consent,
Borrower will not do any act, or omit to do any act, whereby the Patents may
become abandoned or dedicated and shall notify the Agent immediately if it
knows of any reason or has reason to know that any application or registration
may become abandoned or dedicated. 
Borrower hereby represents and warrants that the Patents shown on Schedule
A are the only issued U.S. patents owned by Borrower as of the date of this
Agreement.


 


e.             Filing.  Fully executed Uniform Commercial Code
financing statements containing a description of the Collateral shall have
been, or shall be delivered to the Agent in a form such that they can be, filed
of record in every governmental, municipal or other office in every
jurisdiction in which any portion of the Collateral is located necessary to
publish notice of and protect the validity of and to establish a valid, legal
and perfected security interest in favor of the Agent in respect of the
Collateral in which a security interest may be perfected by filing in the United
States and its territories and possessions, and no further or subsequent
filing, refiling, recording, rerecording, registration or reregistration is
necessary in any such jurisdiction, except as provided under applicable law
with respect to the filing of Uniform Commercial Code continuation statements.


 


f.              Validity
of Security Interest.  The Security
Interest constitutes a valid, legal and perfected security interest in all of
the Collateral for payment and performance of the Obligations subject only to
Permitted Liens.


 


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g.             Locations
of Collateral; Place of Business. 
Borrower hereby represents and warrants that all the Collateral is
located at the locations listed on Schedule A hereto and that its federal
employer identification number is as set forth on said Schedule.  The Borrower agrees not to establish, or
permit to be established, any other location for Collateral unless all filings
under the Uniform Commercial Code as in effect in any state or otherwise which
are required by this Agreement or the Notes to be made with respect to the
Collateral have been made and the Agent has a valid, legal and perfected
security interest in the Collateral. 
Borrower confirms that its chief executive office is located at the
office indicated on Schedule A hereto and that Borrower is incorporated
in the State of Delaware.  Borrower
agrees not to change, or permit to be changed, the location of its chief
executive office unless all filings under the Uniform Commercial Code or
otherwise which are required by this Agreement or the Notes to be made have
been made and the Agent has a valid, legal and perfected security interest.


 


5.             Covenants
and Agreements.  Borrower
covenants and agrees as follows:


 


a.             Restrictions.  Borrower agrees that until the Obligations
shall have been satisfied in full, Borrower shall not, without Agent’s prior
written consent, assign, transfer, encumber or otherwise dispose of the
Collateral, or any interest therein, except that Borrower may (i) license
(other than on an exclusive basis for all known fields of use for the duration
of the term of the patent) or grant similar rights and interests on an arm’s
length basis consistent with good industry practice in all or any part of the
Patents to unrelated third parties pursuant to its business; (ii) sell,
license on an exclusive basis for all known fields of use for the duration of
the term of the patent or otherwise transfer for value all or any part of the
Patents with the prior written consent of the Agent, which consent will not be
unreasonably withheld; (iii) sell Inventory (as such term is defined in Exhibit A
hereto) in the ordinary course of business or sell obsolete equipment or
inventory for the reasonable fair value thereof; or (iv) grant a Permitted
Lien.  In addition, the Borrower agrees
that, until the Obligations shall have been satisfied in full, the Borrower
will not form any new direct or indirect subsidiary with material assets unless
the subsidiary, upon formation, executes a joinder to this Agreement in which
all of the subsidiary’s assets become included as a part of the Collateral
hereunder and the subsidiary enters into a guarantee of the Notes.  The Borrower agrees that none of its
subsidiaries has any material assets other than Liquidmetal Korea Co., Ltd. and
Liquidmetal Coatings, LLC.


 


b.             Defense.  Borrower shall at its own expense take any
and all actions reasonably necessary to protect and defend the Collateral
against all claims or demands and to defend the Security Interest of the Agent
in such Collateral, and the priority thereof, against any adverse lien of any
nature whatsoever (other than Permitted Liens).


 


c.             Maintenance.  Borrower shall at all times and at its own
expense maintain and keep, or cause to be maintained and kept, the
Collateral.  Borrower shall perform all
acts and execute all documents, including, without limitation, security
agreements with respect to patents in form suitable for filing with the United
States Patent and Trademark Office, substantially in the form of Exhibit B,
hereof requested by the Agent at any time to evidence, perfect, maintain,
record and enforce the Agent’s interest in the Collateral 


 


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that consists of
patents or otherwise in furtherance of the provisions of this Agreement, and
Borrower hereby authorizes the Agent to execute and file one or more financing
statements (and similar documents) or copies thereof or of this Agreement with
respect to the Collateral signed only by the Agent.  Borrower will take all necessary steps in any
proceeding before the United States Patent and Trademark Office or any similar
office or agency of the United States or any State thereof to maintain each
application and registration of the Patents, including, without limitation,
filing of renewals, affidavits of use, affidavits of incontestability and
opposition, interference and cancellation proceedings.


 


d.             Agent’s
Right to Take Action.  If, after ten
days written notice from Agent, Borrower fails to perform or observe any of its
covenants or agreements set forth in this Section 5 or if Borrower
notifies Agent that it intends to abandon all or any part of the Collateral,
Agent may (but need not) perform or observe such covenant or agreement or take
steps to prevent such intended abandonment on behalf and in the name, place,
and stead of Borrower (or, in the case of intended abandonment, in Agent’s own
name) and may (but need not) take any and all other actions that Agent may
reasonably deem necessary to cure or correct such failure or prevent such
intended abandonment.


 


e.             Costs
and Expenses.  Except to the extent
that the effect of such payment would be to render any loan or forbearance of
money usurious or otherwise illegal under any applicable law, Borrower shall
pay the Agent on demand the amount of all moneys expended and all costs and
expenses (including reasonable attorneys’ fees and disbursements) incurred by
the Agent or the Secured Parties in connection with or as a result of the Agent’s
taking action under subsection 5(d), except for intended abandonment of the
Collateral by Borrower, or exercising its rights under Section 7, together
with interest thereon from the date expended or incurred by Agent or the
Secured Parties.


 


f.              Use
and Disposition of Collateral. 
Borrower shall not make or permit to be made any assignment, pledge or
hypothecation of the Collateral other than Permitted Liens or as permitted by Section 5(a) above,
or grant any security interest in the Collateral except for the Security Interest
and Permitted Liens.  Borrower shall not
make or permit to be made any transfer of any Collateral, except in the
ordinary course of business or as permitted by Section 5(a) above,
and Borrower shall remain at all times in possession of the Collateral owned by
it other than transfers to the Agent pursuant to the provisions hereof and as
otherwise provided in this Agreement. 
The Agent shall have the right, as the true and lawful agent of the
Borrower, with power of substitution for the Borrower and in the Borrower’s
name, the Agent’s name or otherwise, for the use and benefit of the Investors
and solely to effect the purposes of this Agreement, (i) to endorse the
Borrower’s name upon any notes, acceptances, checks, drafts, money orders or
other evidences of payment with respect to the Collateral that may come into
its possession; (ii) to sign the name of the Borrower on any invoice
relating to any of the Collateral and (iii) upon the occurrence and during
the continuance of an event of default under this Agreement or under the Notes,
(A) to receive, endorse, assign and/or deliver any and all notes,
acceptances, checks, drafts, money orders or other evidences or instruments of
payment relating to the Collateral or any part thereof, and Borrower hereby
waives notice 


 


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of presentment,
protest and non-payment of any instrument so endorsed, (B) to demand,
collect, receive payment of, give receipt for, extend the time of payment of
and give discharges and releases of all or any of the Collateral and/or release
the obligor thereon, (C) to commence and prosecute any and all suits,
actions or proceedings at law or in equity in any court of competent
jurisdiction to collect or otherwise realize on all or any of the Collateral or
to enforce any rights in respect of any Collateral, (D) to settle,
compromise, compound, adjust or defend any actions, suits or proceedings
relating to or pertaining to all or any of the Collateral, and (E) to use,
sell, assign, transfer, pledge, make any agreement with respect to or otherwise
deal with all or any of the Collateral, and to do all other acts and things
necessary to carry out the purposes of this Agreement, as fully and completely
as though the Agent were the absolute owner of the Collateral for all purposes;
provided, however, that nothing herein contained shall be construed as
requiring or obligating the Agent or any Investor to make any commitment or to
make any inquiry as to the nature or sufficiency of any payment received by the
Agent or such Investor or to present or file any claim or notice, or to take
any action with respect to the Collateral or any part thereof or the moneys due
or to become due in respect thereof or any property covered thereby, and no
action taken by the Agent or any Investor or omitted to be taken with respect
to the Collateral or any part thereof shall give rise to any defense,
counterclaim or offset in favor of Borrower or to any claim or action against
the Agent or any Investor in the absence of the gross negligence or willful
misconduct of the Agent or such Investor; and provided further that, the Agent
shall at all times act reasonably and in good faith.  It is understood and agreed that the
appointment of the Agent as the agent of the Borrower for the purposes set
forth above in this Section 5(f) is coupled with an interest and is
irrevocable.  The provisions of this Section 5(f) shall
in no event relieve Borrower of any of its obligations hereunder with respect
to the Collateral or any part thereof (other than obligations which are
impaired as a result of actions taken by the Agent pursuant to this Section 5(f))
or impose any obligation on the Agent or any Investor to proceed in any
particular manner with respect to the Collateral or any part thereof, or in any
way limit the exercise by the Agent or any Investor of any other or further
right which it may have on the date of this Agreement or hereafter, whether
hereunder or by law or otherwise. 
Anytime action is taken under this Section 5(f), prompt written
notice of such action shall be provided to Borrower by Agent.


 


g.             Account
Control Agreement.  Borrower agrees
to use best efforts to obtain as soon as practicable the signature of Bank of
America to an account control agreement for all Deposit Accounts of the
Company.  Such account control agreement
shall be in substantially the form set forth as Exhibit C, with
such reasonable changes as shall be requested by Bank of America.  Upon Bank of America’s agreement to the form
of account control agreement, the Borrower will promptly execute such agreement
and deliver a duly executed counterpart to Agent.


 


h.             Further
Assurances.  Borrower agrees, at its
expense, to execute, acknowledge, deliver and cause to be duly filed all such
further instruments and documents and take all such actions as the Agent may
from time to time reasonably request for the assuring and preserving of the
Security Interest and the rights and remedies created hereby, including,
without limitation, the payment of any fees and taxes required in connection
with the execution and delivery of this Agreement, the granting of 


 


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the Security
Interest and the filing of any financing statements or other documents in
connection herewith.


 


6.             Events of
Default.  Each of the
following occurrences shall constitute an event of default under this Agreement
(herein called “Event of Default”):


 


a.             an
Event of Default, as defined in the Notes, shall occur; or


 


b.             Borrower
shall fail promptly to observe or perform any covenant or agreement herein
binding on it and such failure is not cured within 20 days after written notice
from the Agent; or


 


c.             there
is any levy, seizure, or attachment of all or any material portion of the
Collateral, other than as set forth in this Agreement; or


 


d.             any of
the representations or warranties contained in Section 4 shall prove to
have been incorrect in any material respect when made.


 


7.             Remedies.  Subject to the provisions of Section 8
hereof, upon the occurrence of an Event of Default and at any time thereafter,
the Agent may, at its option, take any or all of the following actions:


 


a.             exercise
any or all remedies available under this Agreement or the Notes including,
without limitation, any and all rights afforded to a secured party under, and
subject to its obligations contained in, the Uniform Commercial Code as in
effect in any state or other applicable law; or


 


b.             sell,
assign, transfer, pledge, encumber, or otherwise dispose of the Collateral; or


 


c.             enforce
the patents comprising the Collateral and if Agent shall commence any suit for
such enforcement, Borrower shall, at the request of Agent, do any and all
lawful acts and execute any and all proper documents reasonably required by
Agent in aid of such enforcement; or


 


d.             incur
expenses, including attorneys’ fees at the regular hourly rates of the Agent’s
counsel from time to time in effect, legal expenses and costs for the exercise
of any right or power under this Agreement, which expenses are secured by this
Agreement;


 


8.             Subordination of Security Interest to Senior
Creditors.  The Secured
Parties hereby subordinate any and every lien and security interest in the
Collateral (as defined in the Loan Agreement) now or hereafter held by them
(but only to the extent it secures the Senior Indebtedness) to any and every
Permitted Lien (as defined in the Notes) that any holder of the Existing
Indebtedness or any Senior Indebtedness (“Senior Creditors”) now or
hereafter holds in the Collateral with respect to Existing Indebtedness or
Senior Indebtedness, notwithstanding any statement or provision contained in
this Agreement or the Notes to the contrary and irrespective of the time or
order of filing or recording of financing statements, deeds of trust, mortgages
or other notices of security interests, liens or assignments granted pursuant
thereto, and irrespective 


 


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of anything contained in any filing or agreement to which any party
hereto or its respective successors and assigns may now or hereafter be a
party, and irrespective of the ordinary rules for determining priorities
under the Uniform Commercial Code or under any other law governing the relative
priorities of secured creditors.  Senior
Creditors shall have the exclusive right to manage, perform and enforce the
terms of their respective privileges, rights, and agreements with respect to
their respective Collateral according to their discretion and the exercise of
their business judgment including, but not limited to, the exclusive right to
take or retake possession of the Collateral and to hold, prepare for sale,
process, sell, lease, dispose of, or liquidate the Collateral, pursuant to a
foreclosure or otherwise. 
Notwithstanding anything to the contrary contained in this Agreement or
the Notes, only the Senior Creditors shall have the right to restrict or
permit, or approve or disapprove, the sale, transfer or other disposition of
their respective Collateral. 
Accordingly, should a Senior Creditor elect to exercise its rights and
remedies with respect to any of the Collateral, such Senior Creditor may
proceed to do so without regard to any interest of the Secured Parties, and the
Secured Parties waive any claims that they may have against Senior Creditors
for any disposition of the Collateral. 
In the event Secured Party receives the proceeds of any Collateral in
which a Senior Creditor has a lien or security interest, such Secured Party
shall be deemed to hold all of such proceeds in trust for the benefit of Senior
Creditor until all secured obligations to the Senior Creditor are paid in full.
A Secured Party shall not, without the prior written consent of the applicable
Senior Creditor, be permitted to enforce any rights or exercise any remedies
with respect to the Collateral in which a Senior Creditor has a security
interest or lien (including, without limitation, the right to take any action
to foreclose, repossess, marshall, control or exercise any remedies with
respect to the Collateral), so long as any obligation to a Senior Creditor
secured by such Collateral shall continue to exist.  Upon the request of a holder or prospective
holder of Senior Indebtedness, each Secured Party will execute any reasonable
written affirmation, in favor of such holder or prospective holder, of the
provisions of this paragraph and/or the provisions of Section 13 of the
Notes.  In addition, each Secured Party
hereby agrees to comply with the provisions of Section 13 of the Notes,
including without limitation paragraphs (b) and (c) thereof.


 


9.             Collateral
Agent.  Pursuant to a
Collateral Agent Agreement of even date herewith among the Investors, Agent,
and Borrower, the Investors have designated Agent as their administrative agent
with respect to the Collateral upon the terms and conditions set forth in said
agreement.


 


10.           Application
of Proceeds.  The proceeds
of any collection or sale of Collateral, as well as any Collateral consisting
of cash, shall be applied by the Agent as follows:


 


FIRST, to the payment of all reasonable costs and expenses
incurred by the Agent in connection with such collection or sale or otherwise
in connection with this Agreement or any of the Obligations, including, but not
limited to, all court costs and the reasonable fees and expenses of its agents
and legal counsel, the repayment of all advances made by the Agent hereunder on
behalf of the Borrower and any other reasonable costs or expenses incurred in
connection with the exercise of any right or remedy hereunder;


 


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SECOND, pro rata to the payment in full of accrued
interest, and then outstanding principal in respect of any amount of the Notes
outstanding (pro rata as among the Investors in accordance with the principal
amount of the Notes held by them);


 


THIRD, to the Borrower, its successors and assigns, or
as a court of competent jurisdiction may otherwise direct.


 


11.           Security
Interest Absolute. All rights of the Agent hereunder, the
Security Interest, and all obligations of the Borrower hereunder, shall be
absolute and unconditional irrespective of (i) any partial invalidity or
unenforceability of the Notes, any other agreement with respect to any of the
Obligations or any other agreement or instrument relating to any of the
foregoing, (ii) any change in the time, manner or place of payment of, or
in any other term of, all or any of the Obligations, or any other amendment or
waiver of or consent to any departure from the Notes or any other agreement or
instrument, (iii) any exchange, release or nonperfection of any other
Collateral, or any release or amendment or waiver of or consent to or departure
from any guarantee, for all or any of the Obligations, or (iv) any other
circumstance which might otherwise constitute a defense available to, or
discharge of the Borrower in respect of the Obligations or in respect of this
Agreement.


 


12.           Miscellaneous.  This Agreement can be waived, modified,
amended, terminated or discharged, and the Security Interest can be released,
only explicitly in a writing signed by the party against whom such waiver,
modification, amendment, termination, discharge or release is sought to be
enforced. Mere delay or failure to act shall not preclude the exercise or
enforcement of any of the Secured Parties’ rights or remedies. All rights and
remedies of a Secured Party shall be cumulative and may be exercised singularly
or concurrently and the exercise or enforcement of any one such right or remedy
shall neither be a condition to nor bar the exercise or enforcement of any
other.  The Secured Parties shall not be
obligated to preserve any rights Borrower may have against prior parties, to
realize on the Collateral at all or in any particular manner or order, or to
apply any cash proceeds of the Collateral in any particular order of
application. This Agreement shall be binding upon and inure to the benefit of
Borrower and the Secured Parties and their respective participants, successors,
and permitted assigns and shall take effect when signed by Borrower and the
Secured Parties, and Borrower waives notice of Secured Parties’ acceptance
hereof; provided, however, that the Secured Parties’ rights hereunder may not
be transferred or assigned to any third party without the prior written consent
of Borrower.  This Agreement shall be
governed by the internal law of the State of New York without regard to
conflicts of law provisions. If any provision or application of this Agreement
is held unlawful or unenforceable in any respect, such illegality or
unenforceability shall not affect other provisions or applications which can be
given effect and this Agreement shall be construed as if the unlawful or
unenforceable provision or application had never been contained herein or
prescribed hereby. All representations and warranties contained in this
Agreement shall survive the execution, delivery and performance of this
Agreement and the creation and payment of the Obligations.


 


13.           Notices.  Any notices 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 


 


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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.

30452 Esperanza

Rancho Santa Margarita, California  92688

Facsimile: 949-635-2188

Attention:  Tony Chung, CFO

Email:  Tony.Chung@Liquidmetal.com


 


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


 


Foley &
Lardner LLP


100
North Tampa Street, Suite 2700


Tampa,
Florida 33602


Facsimile:  813-221-4210


Attention:
Curt P. Creely


 


If
to the Agent to:


 


WC Collateral Agent LLC


450 7th Avenue, Suite 509


New York, NY 10123


 


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


 


Gersten Savage LLP


600 Lexington Avenue, 9th Floor


New York, NY   10022


Facsimile:                                            (212)
980-5192


Attention:                                       David
E. Danovitch, Esq.


Email:                                                                 ddanovitch@gerstensavage.com


 


If
to a Investor, to its address, electronic mail address, or facsimile number set
forth on the Schedule 1 hereto, 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 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.


 


14.           Waiver of
Jury Trial:  BORROWER HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES THE RIGHT BORROWER MAY 


 


10





















 


HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
BASED HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT AND
ANY AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONJUNCTION HEREWITH, OR ANY
COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR
ACTIONS OF EITHER PARTY.  THIS PROVISION
IS A MATERIAL INDUCEMENT FOR THE SECURED PARTIES ENTERING INTO THIS AGREEMENT.


 


15.           Termination.  This Agreement and the Security Interest
shall terminate when all the Obligations have been fully and indefeasibly paid
in full, at which time the Agent shall execute and deliver to the Borrower all
Uniform Commercial Code termination statements and similar documents which the
Borrower shall reasonably request to evidence such termination; provided,
however, that all indemnities of the Borrower contained in this Agreement shall
survive, and remain operative and in full force and effect regardless of, the
termination of this Agreement for a period of six (6) months following the
termination of this Agreement.


 


*** Signatures on
following page(s) ***


 


11

















 


IN WITNESS WHEREOF, the parties
have duly executed and delivered this Security Agreement as of the date and
year first written above.


 


	
   

  	
  AGENT:

  
	
   

  	
   

  
	
   

  	
  WC COLLATERAL
  AGENT LLC

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Nelson Obus

  
	
   

  	
  Name: Nelson
  Obus

  
	
   

  	
  Title: President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  BORROWER:

  
	
   

  	
   

  
	
   

  	
  LIQUIDMETAL
  TECHNOLOGIES, INC.

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Tony Chung

  
	
   

  	
  Name:

  	
  Tony Chung

  
	
   

  	
  Title:

  	
  Chief Financial
  Officer

  
				



 

















 


COUNTERPART SIGNATURE PAGE

TO SECURITY AGREEMENT


 


DATED MAY 1, 2009,

AMONG LIQUIDMETAL TECHNOLOGIES, INC.,

THE “AGENT” INDENTIFIED THEREIN AND

THE “INVESTORS” IDENTIFIED THEREIN


 


The undersigned hereby executes and delivers the
Security Agreement to which this Signature Page is attached, which,
together with all counterparts of the Security Agreement and Signature Pages of
the Borrower, Agent, and other “Investors” under the Security Agreement, shall
constitute one and the same document in accordance with the terms of the
Security Agreement.


 


	
   

  	
  INVESTORS:

  
	
   

  	
   

  
	
   

  	
  /s/ Fort Mason
  Master, LP

  
	
   

  	
   

  
	
   

  	
  /s/ Fort Mason
  Partners, LP

  
	
   

  	
   

  
	
   

  	
  /s/ The Tail
  Wind Fund Ltd.

  
	
   

  	
   

  
	
   

  	
  /s/ Solomon
  Strategic Holdings, Inc.

  
	
   

  	
   

  
	
   

  	
  /s/ Castlerigg
  Master Investments Ltd.

  
	
   

  	
   

  
	
   

  	
  /s/ Diamond
  Opportunity Fund, LLC

  
	
   

  	
   

  
	
   

  	
  /s/ Rockmore
  Investment Master Fund Ltd.

  
	
   

  	
   

  
	
   

  	
  /s/ BridgePointe
  Master Fund Ltd.

  
	
   

  	
   

  
	
   

  	
  /s/ Iroquois
  Master Fund

  
	
   

  	
   

  
	
   

  	
  /s/ Rodd
  Friedman

  
	
   

  	
   

  
	
   

  	
  /s/ Myron
  Neugeboren

  
	
   

  	
   

  
	
   

  	
  /s/ Ed
  Neugeboren

  
	
   

  	
   

  
	
   

  	
  /s/ Wynnefield
  Partners Small Cap Value LP

  
	
   

  	
   

  
	
   

  	
  /s/ Wynnefield
  Partners Small Cap Value LP I

  
	
   

  	
   

  
	
   

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

  



 

















 


	
   

  	
  /s/ Vestal
  Venture Capital

  



 


2

















 


SCHEDULE
1 TO SECURITY AGREEMENT


 


“INVESTORS”


 


	
  Buyer

  	
   

  	
  Address, E-Mail

  and Facsimile

  Number

  	
   

  	
  Principal Amount

  of Notes

  	
   

  	
  Legal

  Representative’s

  Address and

  Facsimile Number

  
	
  Fort Mason Master, LP

  	
   

  	
  580 California Street

  Suite 1925

  San Francisco, CA 94104

  (415) 288-8113

  	
   

  	
  $

  	
   910,341.27

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Fort Mason Partners, LP

  	
   

  	
  580 California Street

  Suite 1925  

  San Francisco, CA 94104

  (415) 288-8113

  	
   

  	
  $

  	
   59,035.02

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Tail Wind Fund Ltd.

  	
   

  	
  c/o Tail Wind Advisory and Management Ltd

  767 Third Avenue, 6th Floor

  New York, NY 10017

  (212) 676-5665

  	
   

  	
  $

  	
   1,060,151.56

  	
   

  	
  Peter J. Weisman, PC

  767 Third Avenue, 6th Floor

  New York, NY 10017

  (212) 676-5665

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Solomon Strategic Holdings Inc.

  	
   

  	
  c/o Tail Wind Advisory and Management Ltd  

  767 Third Avenue, 6th Floor

  New York, NY 10017

  (212) 676-5665

  	
   

  	
  $

  	
   212,030.29

  	
   

  	
  Peter J. Weisman, PC

  767 Third Avenue, 6th Floor

  New York, NY 10017

  (212) 676-5665

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Castlerigg Master Investments Ltd.

  	
   

  	
  c/o Sandell Asset Management Corporation

  40 West 57th Street

  26th Floor  
 New York, NY 10019

  (212) 603-5710

  	
   

  	
  $

  	
   1,696,242.47

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Diamond Opportunity Fund

  	
   

  	
  500 Skokie Blvd, Suite 310

  Northbrook, IL 60062

  (847) 919-4410

  	
   

  	
  $

  	
   277,368.60

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Rockmore Investment Master Fund Ltd.

  	
   

  	
  150 East 58th Street, 28th Floor

  New York, NY 10155

  (212) 258-2315

  	
   

  	
  $

  	
   848,121.24

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  BridgePointe Master Fund Ltd.

  	
   

  	
  c/o Roswell Capital Partners

  1120 Sanctuary Parkway

  Suite 325

  Alpharetta, GA 30004

  (770) 777-5844

  	
   

  	
  $

  	
   615,934.03

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Iroquois Master Fund

  	
   

  	
  641 Lexington Avenue

  26th Floor

  New York, NY 10022

  (212) 207-3452

  	
   

  	
  $

  	
   161,562.72

  	
   

  	
   

  



 

















 


	
  Rodd Friedman

  	
   

  	
  93 Hillspoint Road

  Westport, CT 06880

  (203) 663-1303

  	
   

  	
  $

  	
   48,104.98

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Myron Neugeboren

  	
   

  	
  P.O. Box 1410

  Lakeville, Ct 06309

  (860) 435-2603

  	
   

  	
  $

  	
   9,339.72

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Ed Neugeboren

  	
   

  	
  282 New Norwalk Road

  New Canaan, CT 06840

  (212) 618-0202

  	
   

  	
  $

  	
   6,493.26

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Wynnefield Partners Small Cap Value LP

  	
   

  	
  450 Seventh Avenue

  Suite 509

  New York, NY 10123

  (212) 760-0824

  	
   

  	
  $

  	
   359,539.32

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Wynnefield Partners Small Cap Value LP I

  	
   

  	
  450 Seventh Avenue

  Suite 509

  New York, NY 10123

  (212) 760-0824

  	
   

  	
  $

  	
   470,825.34

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Wynnefield Small Cap Value Offshore

  	
   

  	
  450 Seventh Avenue

  Suite 509

  New York, NY 10123

  (212) 760-0824

  	
   

  	
  $

  	
   453,704.41

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Vestal Venture Capital

  	
   

  	
  6471 Enclave Way

  Boca Raton, FL 33496

  (561) 912-9979

  	
   

  	
  $

  	
   311,205.78

  	
   

  	
   

  



 
















 


SCHEDULE
4(B)


 


The security interest in favor of Hana Financial,
Inc.


 

















 


SCHEDULE
A


 


Collateral
Location:


 


30452 Esperanza,
Rancho Santa Margarita, California, 92688, USA


 


Federal
Employer Identification Number:


 


33-0264467


 

















 


Patents Described in Section 4(d):


 


	
  Title of Patent

  	
   

  	
  US Patent Number

  	
   

  
	
  Porous Amorphous Alloy for Catalysts

  	
   

  	
  4,608,319

  	
   

  
	
  Materials Transformable (Armacore)

  	
   

  	
  4,725,512

  	
   

  
	
  WC Containing Coating

  	
   

  	
  5,030,519

  	
   

  
	
  Be Containing Alloys (Compositon)

  	
   

  	
  5,288,344

  	
   

  
	
  Be Containing Alloys (Method)

  	
   

  	
  5,368,659

  	
   

  
	
  Joining Using Bulk Alloys

  	
   

  	
  5,482,580

  	
   

  
	
  Composites of Bulk Alloy (Method)

  	
   

  	
  5 567 251

  	
   

  
	
  Diamond Composites of Bulk Alloys

  	
   

  	
  5,567,532

  	
   

  
	
  Zr-T-Ni-Cu Bulk Alloys (-101 Series)

  	
   

  	
  5,618,359

  	
   

  
	
  Ti-Containing Hard-Facing Coating

  	
   

  	
  5,695,825

  	
   

  
	
  Die-Casting of Bulk Alloys

  	
   

  	
  5,711,363

  	
   

  
	
  Quinary Bulk Alloys (-105 type)

  	
   

  	
  5 735 975

  	
   

  
	
  Torsional Spring of Bulk Alloys

  	
   

  	
  5,772,803

  	
   

  
	
  Casting of Zr-base Bulk Alloys

  	
   

  	
  5,797,443

  	
   

  
	
  Composites of Bulk Alloy (Article)

  	
   

  	
  5,866,254

  	
   

  
	
  Die-Forming (Molding) of Bulk Alloys

  	
   

  	
  5,896,642

  	
   

  
	
  Apparatus for Hard-Facing Coating

  	
   

  	
  5,942,289

  	
   

  
	
  Replication with Bulk Alloys

  	
   

  	
  5,950,704

  	
   

  
	
  Composite Kinetic Energy Penetrator

  	
   

  	
  6,010,580

  	
   

  
	
  Vacuum Die-Casting

  	
   

  	
  6,021,840

  	
   

  
	
  Zirconia Containing Coating

  	
   

  	
  6,376,091

  	
   

  
	
  Shaped-Charge Projectiles

  	
   

  	
  6,446,558

  	
   

  
	
  Casting of Amorphous Metallic Parts (Hot Mold
  Quenching)

  	
   

  	
  6,620,264

  	
   

  
	
  Yttrium Addition (Chinese Group)

  	
   

  	
  6,682,611

  	
   

  
	
  Golf Club Made of Bulk Alloy

  	
   

  	
  6,685,577

  	
   

  
	
  Centrifugal-Method

  	
   

  	
  6,695,936

  	
   

  
	
  In-Situ Ductile Composite

  	
   

  	
  6,709,536

  	
   

  
	
  Metal Frame

  	
   

  	
  6,771,490

  	
   

  
	
  Joining by Casting

  	
   

  	
  6,818,078

  	
   

  
	
  Gliding Boards

  	
   

  	
  6,843,496

  	
   

  
	
  Forming Molded Articles

  	
   

  	
  6,875,293

  	
   

  
	
  Cutting Tools

  	
   

  	
  6,887,586

  	
   

  
	
  Improving Bulk Alloys

  	
   

  	
  7,008,490

  	
   

  
	
  Thermoplastic Casting (TPC)

  	
   

  	
  7,017,645

  	
   

  
	
  Foamed Structures

  	
   

  	
  7,073,560

  	
   

  
	
  Encapsulated Ceramic Armor

  	
   

  	
  7,157,158

  	
   

  
	
  Investment Casting of Bulk-Solidifying Amorphous
  Alloys

  	
   

  	
  7,293,599

  	
   

  
	
  Retractable Memory Stick

  	
   

  	
  D563,954

  	
   

  
	
  Bulk Amorphous Refractory Glasses Based on the
  NI-NB-SN Ternary Alloy System

  	
   

  	
  7,368,022

  	
   

  
	
  Golf Club Made of Bulk-Solidifying Amorphous Metal

  	
   

  	
  7,357,731

  	
   

  
	
  Jewelry Made of Precious Amorphous Metal and Method
  of Making Such Articles

  	
   

  	
  7,412,848

  	
   

  



 


2

















 


EXHIBIT
A


 


Collateral


 


The term “Collateral” shall mean the following assets
of the Borrower:


 


(a)           All “accounts,” as that term is
defined in Article 9 of the Uniform Commercial Code, as in effect in the
State of New York (“UCC”), including, without limitation, every right to
payment for goods or other property of any kind sold or leased or for services
rendered or for any other transaction, whether or not the right to payment has
been earned by performance, and including without limitation every account
receivable, all purchase orders, all interest in goods the sale or lease of
which gives rise to the right to payment (including returned or repossessed
goods and unpaid seller’s rights), and the rights pertaining to such goods,
including the right to stoppage in transit, every right to payment under
any contract, and every lien, guaranty, or security interest that secures a
right to payment for any of the foregoing (“Accounts”);


 


(b)           All chattel paper, consisting of a
writing or writings evidencing both a monetary obligation and a security
interest in or lease of goods, together with any guarantees, letters of credit,
and other security therefore (“Chattel Paper”);


 


(c)           All “deposit accounts,” as defined in
the UCC (“Deposit Accounts”);


 


(d)           All “inventory” of whatever kind, as
that term is used in the UCC, including without limitation all goods held by
the Borrower for sale or lease, goods furnished or to be furnished under a
contract for service, and supplies, packaging, raw materials, goods in transit,
work-in-process, and materials used or consumed or to be used or consumed in
the Borrower’s business, or in the processing, packaging, or shipping of same,
all finished goods, and all property, the sale or lease of which has given rise
to Accounts, Chattel Paper, or Instruments, and that has been returned to the
Borrower or repossessed by the Borrower or stopped in transit, and all
warranties and related claims, credits, setoffs, and other rights of recovery
with respect to any of the foregoing (“Inventory”);


 


(e)           All “equipment,” as that term is used
in the UCC, including without limitation all equipment, machinery, and other
property held for use in or purchased for the Borrower’s business, together
with all increases, parts, fittings, accessories, repair equipment, and special
tools now or later affixed to, or used in connection with, that property, all
transferable rights of the Borrower to the licenses and warranties (express and
implied) received from the sellers and manufacturers of the foregoing property,
all related claims, credits, setoffs, and other rights of recovery (“Equipment”);


 


(f)            All “instruments,” including without
limitation every instrument of any kind, as that term is used in the UCC, and
includes every promissory note, negotiable instrument, certificated security,
or other writing that evidences a right to payment of money, that is not a
lease or security agreement, and that is transferred in the ordinary course of
business by delivery with any necessary assignment or indorsement (“Instruments”);


 

















 


(g)           “Investment property,” as that term
is defined in the UCC (“Investment Property”);


 


(h)           All documents, including without
limitation any paper that is treated in the regular course of business as
adequate evidence that the person in possession of the paper is entitled to
receive, hold, and dispose of the goods the paper covers, including warehouse
receipts, bills of lading, certificates of title, and applications for
certificates of title;


 


(i)            All “general intangibles” of any
kind, as that term is used in the UCC, and includes without limitation all intangible
personal property other than Accounts, Documents, Instruments, and Chattel
Paper, and includes without limitation money, contract rights, corporate or
other business records, deposit accounts, inventions, designs, formulas,
Patents (as defined in Section 2 of this Agreement), service marks,
trademarks, trade names, trade secrets, engineering drawings, goodwill, rights
to prepaid expenses, registrations, franchises, copyrights, licenses, customer
lists, computer programs and other software, source code, tax refund claims,
royalty, licensing and product rights, all claims under guarantees, security
interests or other security held by or granted to Borrower to secure payment of
any of the Accounts by an Account Debtor, all indemnification rights, and
rights to retrieval from third parties of electronically processed and recorded
data pertaining to any Collateral, things in action, items, checks, drafts, and
orders in transit to or from Borrower, credits or deposits of Borrower (whether
general or special) that are held by Secured Parties (“General Intangibles”)


 


(j)            “Supporting obligations,” as that
term is defined in the UCC (“Supporting Obligations”); and


 


(k)           To the extent not listed above in
this Exhibit A as original collateral, proceeds and products of the
foregoing.


 


2

















 


EXHIBIT
B


 


SECURITY
AGREEMENT


 


(PATENTS)


 


WHEREAS, LIQUIDMETAL
TECHNOLOGIES, INC., a Delaware corporation (herein referred to as “Borrower”),
owns the letters patent, and/or applications for letters patent, of the United
States, more particularly described on Schedule A annexed hereto as part
hereof (the “Patents”);


 


WHEREAS, Borrower is obligated
to WC Collateral Agent LLC, as agent (herein referred to as the “Secured
Party”) for the Investors named in those certain Secured Convertible Notes
dated as of the date hereof issued by the Borrower (each such note, as amended,
modified or supplemented from time to time in accordance with its terms, shall
collectively be referred to as the “Note”) and Borrower has entered into
a Security Agreement dated the date hereof (the “Agreement”) in favor of
Secured Party; and


 


WHEREAS, pursuant to the
Agreement, Borrower has assigned to Secured Party, and granted to Secured Party
a security interest in, all right, title and interest of Borrower in and to the
Patents, together with any reissue, continuation, continuation-in-part or
extension thereof, and all proceeds thereof, including, without limitation, any
and all causes of action which may exist by reason of infringement thereof for
the full term of the Patents (the “Collateral”), to secure the prompt
payment, performance and observance of the Obligations, as defined in the
Agreement;


 


NOW, THEREFORE, for good and valuable consideration,
receipt of which is hereby acknowledged, Borrower does hereby further assign
unto Secured Party and grant to Secured Party a security interest in, the
Collateral to secure the prompt payment, performance and observance of the
Obligations.


 


Borrower does hereby further acknowledge and affirm
that the rights and remedies of Secured Party with respect to the assignment of
the security interest in the Collateral made and granted hereby are more fully
set forth in the Agreement, the terms and provisions of which are hereby
incorporated herein by reference as if fully set forth herein.


 


Secured Party’s address is 450 7th Avenue, Suite 509,
New York, NY 10123


 


IN WITNESS WHEREOF,
Borrower has caused this Agreement to be duly executed by its officer thereunto
duly authorized as of the      day of             
2009.


 


	
   

  	
  LIQUIDMETAL
  TECHNOLOGIES, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
   

  
	
   

  	
  Name: 

  	
   

  
	
   

  	
  Title: 

  	
   

  
					



 

















 


EXHIBIT C


 


FORM OF ACCOUNT CONTROL AGREEMENT