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”.


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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.


 


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(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



 


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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 


 


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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.


 


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(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 


 


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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.


 


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(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.


 


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(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 


 


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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

  



 


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SCHEDULE A


 


[to be inserted]


 


[to be inserted]