**Exhibit 10.5**

 

**AMENDEDAND RESTATED SECURITY AGREEMENT**

 

**THIS AMENDED AND RESTATED SECURITYAGREEMENT** (this “Agreement”) is made and entered intoas of the August 2, 2005, by and between LIQUIDMETAL TECHNOLOGIES, INC., aDelaware corporation (“Borrower”), and COMMONWEALTH ASSOCIATES, L.P., a NewYork limited partnership (“CA” or “Agent”) and each other person or entitylisted as an “Investor” on Schedule 1 attached to this Agreement (the “Investors”and together with CA the “Secured Parties”).  Capitalized terms used herein and nototherwise defined shall have the meanings set forth in that Securities PurchaseAgreement of even date herewith between the Company and the Investors (“SecuritiesPurchase Agreement”).  

 

**Recitals**

 

**WHEREAS**, certain Secured Parties haveagreed to purchase Notes from the Borrower pursuant to the terms of theSecurities Purchase Agreement, and certain Secured Parties continue to hold July 2007Notes previously issued by the Borrower.

 

**WHEREAS**, the Secured Parties have required,as a condition to entering into the Securities Purchase Agreement, thatBorrower grant Secured Parties a first priority security interest in all ofBorrower’s Collateral listed in Exhibit A hereto, and to that end hasrequired the execution and delivery of this Agreement by Borrower.

 

**WHEREAS**, this Agreement shall amend andrestate, and supersede in their entirety, the Security Agreements, dated March 1,2004 and as amended on July 29, 2004, previously entered into among theCompany and the holders of the July 2005 Notes and July 2006 Notes(the “Prior Security Agreements”).

 

**NOW, THEREFORE**, in consideration of themutual covenants and agreements contained in the Securities Purchase Agreementand herein, the parties hereto, intending to be legally bound, agree as follows:

 

# 1.             **Incorporation of Recitals, Purchase Agreement, andNote**.  The foregoingRecitals are hereby incorporated herein in their entirety by this reference.

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# 2.             **Definitions**.  The following terms shall have the meaningsset forth below:

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“Collateral”shall mean all of the items set forth on Exhibit A hereto.  Notwithstanding the foregoing, the securityinterest granted herein shall not extend to, and the term “Collateral” shallnot include,  (i) the Borrower’srights under that certain Amended and Restated License Agreement, dated September 1,2001, between the Borrower and California Institute of Technology, and (ii) theBorrower’s rights under the Liquidmetal/UVAPF License Agreement, dated May 1,2002, between the Borrower and the University of Virginia Patent Foundation.

 

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“Patents”shall mean, collectively, all of Borrower’s letters patent under the laws ofthe United States, all recordings and registrations thereof and applicationstherefor, including, without limitation, the inventions described therein, allreissues, continuations, divisions, renewals, extensions, continuations-in-partthereof, in each case whether now owned or existing or hereafter acquired orarising.

 

“PermittedLiens” shall mean, collectively, the following: (i) liens for currenttaxes or other governmental or regulatory assessments which are not delinquent,or which are being contested in good faith by the appropriate procedures andfor which appropriate reserves are maintained; (ii) liens in favor ofAgent and/or the Secured Parties; (iii) licenses or sublicenses ofPatents, in each instance granted to others not interfering in any materialrespect with the business of the Borrower, (iv) liens or securityinterests granted by the Borrower pursuant to a Qualified Credit Facility (asdefined in the Securities Purchase Agreement). 

 

“Proceeds”shall mean any consideration received from the sale, exchange, lease or otherdisposition of any asset or property which constitutes Collateral, any othervalue received as a consequence of the possession of any Collateral and anypayment received from any insurer or other person or entity as a result of thedestruction, loss, theft or other involuntary conversion of whatever nature ofany asset or property that constitutes Collateral.

 

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

 

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

 

3.             **Security for Obligations.**

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a.             ThisAgreement secures, and the Collateral is collateral security for, the promptpayment or performance in full when due, whether at stated maturity, byrequired prepayment, declaration, acceleration, conversion, demand or otherwise(including the payment of amounts that would become due but for the operationof the automatic stay under Section 363(a) of the Bankruptcy Code, 11U.S.C. §362(a)) of all obligations and liabilities of every nature of Borrowernow or hereafter existing under or arising out of the Notes, the July 2007Notes, and this Agreement and all extensions or renewals thereof, whether forprincipal, interest, (including, without limitation, interest that, but for thefiling of a petition in bankruptcy with respect to Borrower, would accrue onsuch obligations), fees, expenses, indemnities or otherwise, whether voluntaryor involuntary, direct or indirect, absolute or contingent, liquidated orunliquidated, whether or not jointly owed with others, and whether or not fromtime to time decreased or extinguished and later increased, created orincurred, and all or any portion of such obligations or liabilities that arepaid, to the extent all or any part of such payment is avoided or recovereddirectly or indirectly from Agent or any Secured Party as a preference,fraudulent transfer or otherwise (all such obligations of Borrower being the **“**Secured Obligations**”**).

 

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b.             SecurityInterest.  As security for thepayment or performance, as the case may be, of the Secured Obligations, theBorrower hereby creates and grants to the Agent, its successors and itsassigns, for its own benefit and for the pro rata benefit of the Investors,their successors and their assigns, a security interest in the Collateral (the “SecurityInterest”).  Without limiting theforegoing, the Agent is hereby authorized to file one or more financingstatements, continuation statements or other documents for the purpose ofperfecting, confirming, continuing, enforcing or protecting the SecurityInterest, naming the Borrower as debtors and the Agent as secured party.

 

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

 

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

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## a.             FinancingStatements.  Except for the financingstatements in favor of Secured Parties, at the time of granting the securityinterest described herein, no financing statement covering the Collateral orany portion thereof will be on file in any public office, and except forPermitted Liens, Borrower agrees not to execute or authorize the filing of anysuch additional financing statement in favor of any person, entity orgovernmental agency (whether federal, state or local) other than SecuredParties as long as any portion of the Secured Obligations evidenced by the Noteremain unpaid.

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## b.             LegalName.  Borrower’s exact legal name isas set forth in the first paragraph of this Security Agreement.  Borrower shall not change its legal name orits form of organization without 30 days’ prior written notice to the Agent.

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## c.             Titleand Authority.  Borrower has (i) rightsin and good title to the Collateral in which it is granting a security interesthereunder and (ii) the requisite corporate power and authority to grant tothe Agent the Security Interest in such Collateral pursuant hereto and toexecute, deliver and perform its obligations in accordance with the terms ofthis Agreement, without the consent or approval of any other person other thanany consent or approval which has been obtained.  Borrower has the sole, full and clear titleto each of the Patents shown on Schedule A hereto and theregistrations thereof are valid and subsisting and in full force andeffect.  None of the Patents has beenabandoned or dedicated, and, except to the extent that the Agent, upon priorwritten notice by Borrower, shall consent, Borrower will not do any act, oromit to do any act, whereby the Patents may become abandoned or dedicated and shallnotify the Agent immediately if it knows of any reason or has reason to knowthat any application or registration may become abandoned or dedicated.  Borrower hereby represents and warrants thatthe Patents shown on Schedule A are the only issued U.S. patentsowned by Borrower as of the date of this Agreement.

 

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d.             Filing.  Fully executed Uniform Commercial Codefinancing statements containing a description of the Collateral shall havebeen, or shall be delivered to the Agent in a form such that they can be, filedof record in every governmental, municipal or other office in everyjurisdiction in which any portion of the Collateral is located necessary topublish notice of and protect the validity of and to establish a valid, legaland perfected security interest in favor of the Agent in respect of theCollateral in which a security interest may be perfected by filing in theUnited States and its territories and possessions, and no further or subsequentfiling, refiling, recording, rerecording, registration or reregistration isnecessary in any such jurisdiction, except as provided under applicable lawwith respect to the filing of Uniform Commercial Code continuation statements.

 

## e.             Validityof Security Interest.  The SecurityInterest constitutes a valid, legal and perfected first priority securityinterest in all of the Collateral for payment and performance of the SecuredObligations subject only to Permitted Liens.

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f.              Locationsof Collateral; Place of Business. Borrower hereby represents and warrants that all the Collateral islocated at the locations listed on Schedule A hereto and that itsfederal employer identification number is as set forth on said Schedule.  The Borrower agrees not to establish, orpermit to be established, any other location for Collateral unless all filingsunder the Uniform Commercial Code as in effect in any state or otherwise whichare required by this Agreement or the Note to be made with respect to theCollateral have been made and the Agent has a valid, legal and perfected firstpriority security interest in the Collateral. Borrower confirms that its chief executive office is located at theoffice indicated on Schedule A hereto.  Borrower agrees not to change, or permit tobe changed, the location of its chief executive office unless all filings underthe Uniform Commercial Code or otherwise which are required by this Agreementor the Note to be made have been made and the Agent has a valid, legal andperfected first priority security interest.

 

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

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## a.             Restrictions.  Borrower agrees that until the SecuredObligations shall have been satisfied in full, Borrower shall not, without theAgent’s prior written consent, assign, transfer, encumber or otherwise disposeof the Collateral, or any interest therein, except that Borrower may (i) license(other than on an exclusive basis for all known fields of use for the durationof the term of the patent) or grant similar rights and interests on an arm’slength basis consistent with good industry practice in all or any part of thePatents to unrelated third parties pursuant to its business, (ii) sell,license on an exclusive basis for all known fields of use for the duration ofthe term of the patent or otherwise transfer for value all or any part of thePatents with the prior written consent of the Agent, which consent will not beunreasonably withheld, provided that the restriction on exclusive licensesshall terminate beginning on the date that more than one-half of the principalamount of the Notes secured by the Collateral has been repaid by the Company orhas been converted to Common Stock and (iii) sell

 

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## Inventory in the ordinary course of business or sellobsolete equipment or inventory for the reasonable fair value thereof.  Borrower further agrees that it will not takeany action, or permit any action to be taken by others subject to its control,including licensees, or fail to take any action, which would affect thevalidity or enforcement of the rights transferred to the Secured Parties underthis Agreement.

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## b.             Defense.  Borrower shall, at its own cost and expense,take any and all actions reasonably necessary to defend title to the Collateralowned by it against all persons and to defend the Security Interest in suchCollateral, and the priority thereof, against any adverse lien of any naturewhatsoever (other than Permitted Liens).

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c.             Maintenance.  Borrower shall at all times and at its ownexpense maintain and keep, or cause to be maintained and kept, theCollateral.  Borrower shall perform allacts and execute all documents, including, without limitation, security agreementswith respect to patents in form suitable for filing with the United StatesPatent and Trademark Office, substantially in the form of Exhibit B,hereof requested by the Agent at any time to evidence, perfect, maintain,record and enforce the Agent’s interest in the Collateral that consists ofpatents or otherwise in furtherance of the provisions of this Agreement, andBorrower hereby authorizes the Agent to execute and file one or more financingstatements (and similar documents) or copies thereof or of this Agreement withrespect to the Collateral signed only by the Agent.  Borrower will take all necessary steps in anyproceeding before the United States Patent and Trademark Office or any similaroffice or agency of the United States or any State thereof to maintain eachapplication and registration of the Patents, including, without limitation,filing of renewals, affidavits of use, affidavits of incontestability andopposition, interference and cancellation proceedings.

 

## d.             Agent’sRight to Take Action.  If, after tendays written notice from Agent, Borrower fails to perform or observe any of itscovenants or agreements set forth in this Section 5 or if Borrowernotifies Agent that it intends to abandon all or any part of the Collateral,the Agent may (but need not) perform or observe such covenant or agreement ortake steps to prevent such intended abandonment on behalf and in the name,place, and stead of Borrower (or, in the case of intended abandonment, in Agent’sown name) and may (but need not) take any and all other actions that Agent mayreasonably deem necessary to cure or correct such failure or prevent suchintended abandonment. 

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## e.             Costsand Expenses.  Except to the extentthat the effect of such payment would be to render any loan or forbearance ofmoney usurious or otherwise illegal under any applicable law, Borrower shallpay Agent on demand the amount of all moneys expended and all costs andexpenses (including reasonable attorneys’ fees and disbursements) incurred byAgent or the Secured Parties in connection with or as a result of Agent’staking action under subsection 5(d), except for intended abandonment ofthe Collateral by Borrower, or exercising its rights under Section 7,together with interest thereon from the date expended or incurred by the Agentor Secured Parties.

 

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## f.              Useand Disposition of Collateral. Borrower shall not make or permit to be made any assignment, pledge orhypothecation of the Collateral other than Permitted Liens or as permitted by Section 5(a) above,or grant any security interest in the Collateral except for the SecurityInterest and Permitted Liens.  Borrowershall not make or permit to be made any transfer of any Collateral, except inthe ordinary course of business or as permitted by Section 5(a) above,and Borrower shall remain at all times in possession of the Collateral owned byit other than transfers to the Agent pursuant to the provisions hereof and asotherwise provided in this Agreement. The Agent shall have the right, as the true and lawful agent of theBorrower, with power of substitution for the Borrower and in the Borrower’sname, the Agent’s name or otherwise, for the use and benefit of the Agent andthe Investors and solely to effect the purposes of this Agreement, (i) toendorse the Borrower’s name upon any notes, acceptances, checks, drafts, moneyorders or other evidences of payment with respect to the Collateral that maycome into its possession; (ii) to sign the name of the Borrower on anyinvoice relating to any of the Collateral and (iii) upon the occurrenceand during the continuance of an event of default under this Agreement or underthe Note, (A) to receive, endorse, assign and/or deliver any and allnotes, acceptances, checks, drafts, money orders or other evidences or instrumentsof payment relating to the Collateral or any part thereof, and Borrower herebywaives notice of presentment, protest and non-payment of any instrument soendorsed, (B) to demand, collect, receive payment of, give receipt for,extend the time of payment of and give discharges and releases of all or any ofthe Collateral and/or release the obligor thereon, (C) to commence andprosecute any and all suits, actions or proceedings at law or in equity in anycourt of competent jurisdiction to collect or otherwise realize on all or anyof the Collateral or to enforce any rights in respect of any Collateral, (D) tosettle, compromise, compound, adjust or defend any actions, suits orproceedings relating to or pertaining to all or any of the Collateral, and (H) touse, sell, assign, transfer, pledge, make any agreement with respect to orotherwise deal with all or any of the Collateral, and to do all other acts andthings necessary to carry out the purposes of this Agreement, as fully andcompletely as though the Agent were the absolute owner of the Collateral forall purposes; provided, however, that nothing herein containedshall be construed as requiring or obligating the Agent or any Investor to makeany commitment or to make any inquiry as to the nature or sufficiency of anypayment received by the Agent or such Investor or to present or file any claimor notice, or to take any action with respect to the Collateral or any partthereof or the moneys due or to become due in respect thereof or any property coveredthereby, and no action taken by the Agent or any Investor or omitted to betaken with respect to the Collateral or any part thereof shall give rise to anydefense, counterclaim or offset in favor of Borrower or to any claim or actionagainst the Agent or any Investor in the absence of the gross negligence orwillful misconduct of the Agent or such Investor; and provided further that,the Agent shall at all times act reasonably and in good faith.  It is understood and agreed that theappointment of the Agent as the agent of the Borrower for the purposes setforth above in this Section 5(f) is coupled with an interest and isirrevocable.  The provisions of this Section 5(f) shallin no event relieve Borrower of

 

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## any of its obligations hereunder with respect to theCollateral or any part thereof (other than obligations which are impaired as aresult of actions taken by the Agent pursuant to this Section 5(f)) orimpose any obligation on the Agent or any Investor to proceed in any particularmanner with respect to the Collateral or any part thereof, or in any way limitthe exercise by the Agent or any Investor of any other or further right whichit may have on the date of this Agreement or hereafter, whether hereunder or bylaw or otherwise.  Anytime action istaken under this Section 5(f), prompt written notice of such action shallbe provided to Borrower by Agent.

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## g.             FurtherAssurances.  Borrower agrees, at itsexpense, to execute, acknowledge, deliver and cause to be duly filed all suchfurther instruments and documents and take all such actions as the Agent mayfrom time to time reasonably request for the assuring and preserving of theSecurity Interest and the rights and remedies created hereby, including,without limitation, the payment of any fees and taxes required in connectionwith the execution and delivery of this Agreement, the granting of the SecurityInterest and the filing of any financing statements or other documents inconnection herewith.  If any amountpayable under or in connection with any of the Collateral shall be or becomeevidenced by any promissory note or other instrument, such note or instrumentshall be promptly pledged and delivered to the Agent, duly endorsed in a mannersatisfactory to the Agent.  Borroweragrees to notify promptly the Agent of any change in its corporate name or inthe location of its chief executive office, its chief place of business or theoffice where it keeps its records. 

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

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## a.             an Eventof Default, as defined in the Notes or July 2007 Notes, shall occur; or 

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## b.             Borrowershall fail promptly to observe or perform any covenant or agreement hereinbinding on it and such failure is not cured within 20 days after written noticefrom the Agent; or

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## c.             there isany levy, seizure, or attachment of all or any material portion of theCollateral, other than as set forth in this Agreement; or

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## d.             any ofthe representations or warranties contained in Section 4 shall prove tohave been incorrect in any material respect when made.

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# 7.             **Remedies**.  Upon the occurrence of an Event of Defaultand at any time thereafter, the Agent may, at its option, take any or all ofthe following actions:

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## a.             exerciseany or all remedies available under this Agreement or the Note including,without limitation, any and all rights afforded to a secured party under, andsubject to its obligations contained in, the Uniform Commercial Code as ineffect in

 

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## any state or other applicable law; or

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

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## c.             enforcethe patents comprising the Collateral and if Agent shall commence any suit forsuch enforcement, Borrower shall, at the request of Agent, do any and alllawful acts and execute any and all proper documents reasonably required byAgent in aid of such enforcement; or

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## d.             incurexpenses, including attorneys’ fees at the regular hourly rates of the Agent’scounsel from time to time in effect, legal expenses and costs for the exerciseof any right or power under this Security Agreement, which expenses are securedby this Security Agreement.

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Any disposition ofCollateral by Agent shall be subject to the mandatory requirements ofapplicable law and subject to the requirement that Agent act reasonably and ingood faith.  Subject to such conditions,Agent may sell or otherwise dispose of all or any part of the Collateral, atpublic or private sale, for cash, upon credit or for future delivery as theAgent shall deem appropriate.  Eachpurchaser at any such sale shall hold the property sold absolutely free fromany claim or right on the part of the Borrower, and Borrower hereby waives (tothe extent permitted by law) all rights of redemption, stay and appraisal whichBorrower now has or may at any time in the future have under any rule oflaw or statute now existing or hereafter enacted.  The Agent shall give the Borrower ten (10) days’written notice (which Borrower agrees is reasonable notice within the meaningof Section 9-504(3) of the Uniform Commercial Code) of the Agent’sintention to make any sale of Collateral. Such notice, in the case of a public sale, shall state the time andplace for such sale.  Any such publicsale shall be held at such time or times within ordinary business hours and atsuch place or places as the Agent may fix and state in the notice (if any) ofsuch sale.  At any such sale, theCollateral, or portion thereof, to be sold may be sold in one lot, as anentirety or in separate parcels, as the Agent may (in its sole and absolutediscretion) determine.  The Agent shallnot be obligated to make any sale of any Collateral if it shall determine notto do so, regardless of the fact that notice of sale of such Collateral shallhave been given.  The Agent may, withoutnotice or publication, adjourn any public or private sale or cause the same tobe adjourned from time to time by announcement at the time and place fixed forsale, and such sale may, without further notice, be made at the time and placeto which the same was so adjourned.  Incase any sale of all or any part of the Collateral is made on credit or forfuture delivery, the Collateral so sold may be retained by the Agent until thesale price is paid by the purchaser or purchasers thereof, but the Agent shallnot incur any liability in case any such purchaser or purchasers shall fail totake up and pay for the Collateral so sold and, in case of any such failure,such Collateral may be sold again upon like notice.  At any public sale made pursuant to this Section 6,any Investor may bid for or purchase, free (to the extent permitted by law)from any right of redemption, stay or appraisal on the part of Borrower (allsaid rights being also hereby waived and released to the extent permitted bylaw), with respect to the Collateral or any part thereof offered for sale andany such Investor may make payment on

 

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account thereof by usingany claim then due and payable to any such Investor from Borrower as a creditagainst the purchase price, and any such Investor may, upon compliance with theterms of sale, hold, retain and dispose of such property without furtheraccountability to Borrower therefor.  Forpurposes hereof, a written agreement to purchase the Collateral or any portionthereof shall be treated as a sale thereof; the Agent shall be free to carry outsuch sale and purchase pursuant to such agreement, and Borrower shall not beentitled to the return of the Collateral or any portion thereof subjectthereto, notwithstanding the fact that after the Agent shall have entered intosuch an agreement all events of default shall have been remedied and theSecured Obligations paid in full. Borrower shall remain liable for any deficiency.  As an alternative to exercising the power ofsale herein conferred upon it, the Agent may proceed by a suit or suits at law orin equity to foreclose this Agreement and to sell the Collateral or any portionthereof pursuant to a judgment or decree of a court or courts having competentjurisdiction or pursuant to a proceeding by a court appointed receiver.

 

# 8.             **Designation of Agent**.  The Investors hereby irrevocably designate CA(and its successors and assigns) as their agent and CA hereby accepts suchdesignation, in order to execute any and all instruments or other documents onbehalf of the Investors and to do any and all other acts or things on behalf ofthe Investors that CA (or its successors or assigns) in its sole discretiondeems necessary or advisable or that may be required pursuant to this Agreementor otherwise, to exercise the Secured Parties’ rights and remedies under thisAgreement.  None of the Investors maytake any action or exercise any rights under this Agreement except through CAas their agent.  Each Secured Partyhereby appoints the Agent the attorney-in-fact of such Secured Party solely forthe purpose of carrying out the provisions of this Agreement and taking anyaction and executing any instrument which the Agent may reasonably deemnecessary or advisable to accomplish the purposes hereof, which appointment isirrevocable so long as this Agreement and the Security Interest have not beenterminated and coupled with an interest

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9.             **Application of Proceeds**.  The proceeds of any collection or sale ofCollateral, as well as any Collateral consisting of cash, shall be applied bythe Agent as follows:

 

FIRST,to the payment of all reasonable costs and expenses incurred by the Agent inconnection with such collection or sale or otherwise in connection with thisAgreement or any of the Secured Obligations, including, but not limited to, allcourt costs and the reasonable fees and expenses of its agents and legalcounsel, the repayment of all advances made by the Agent hereunder on behalf ofthe Borrower and any other reasonable costs or expenses incurred in connectionwith the exercise of any right or remedy hereunder;

 

SECOND,pro rata to the payment in full of principal and interest in respect of anyamount of the Notes or July 2007 Notes outstanding, subject to the lastsentence of Section 2 of the Notes (pro rata as among the Investors inaccordance with the aggregate principal amount of the Notes or July 2007Notes held by them, subject to the last sentence of Section 2 of theNotes); 

 

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

 

# 10.           **Security Interest Absolute**.  All rights of the Agent hereunder, theSecurity Interest, and all obligations of the Borrower hereunder, shall beabsolute and unconditional irrespective of (i) any partial invalidity or unenforceabilityof the Note, any other agreement with respect to any of the Secured Obligationsor any other agreement or instrument relating to any of the foregoing, (ii) anychange in the time, manner or place of payment of, or in any other term of, allor any of the Secured Obligations, or any other amendment or waiver of orconsent to any departure from the Notes, July 2007 Notes, or any otheragreement or instrument, (iii) any exchange, release or nonperfection ofany other Collateral, or any release or amendment or waiver of or consent to ordeparture from any guarantee, for all or any of the Secured Obligations, or (iv) anyother circumstance which might otherwise constitute a defense available to, ordischarge of the Borrower in respect of the Secured Obligations or in respectof this Agreement.

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# 11.           **Miscellaneous.**  This Agreement can be waived, modified,amended, terminated or discharged, and the Security Interest can be released,only explicitly in a writing signed by the Agent.  A waiver signed by the Agent shall beeffective only in the specific instance and for the specific purpose given.Mere delay or failure to act shall not preclude the exercise or enforcement ofany of any Secured Parties’ or the Agent’s rights or remedies. All rights andremedies of a Secured Party shall be cumulative and may be exercised singularlyor concurrently, at Agent’s option, and the exercise or enforcement of any onesuch right or remedy shall neither be a condition to nor bar the exercise orenforcement of any other.  The SecuredParties shall not be obligated to preserve any rights Borrower may have againstprior parties, to realize on the Collateral at all or in any particular manneror order, or to apply any cash proceeds of the Collateral in any particularorder of application. This Agreement shall be binding upon and inure to thebenefit of Borrower and Secured Parties and their respective participants,successors, and permitted assigns and shall take effect when signed by Borrowerand Secured Parties, and Borrower waives notice of Secured Parties’ acceptancehereof; provided, however, that the Secured Parties’ rights hereunder may notbe transferred or assigned to any third party without the prior written consentof Borrower.  This Agreement shall begoverned by the internal law of the State of New York without regard toconflicts of law provisions. If any provision or application of this Agreementis held unlawful or unenforceable in any respect, such illegality orunenforceability shall not affect other provisions or applications which can begiven effect and this Agreement shall be construed as if the unlawful orunenforceable provision or application had never been contained herein orprescribed hereby. All representations and warranties contained in this Agreementshall survive the execution, delivery and performance of this Agreement and thecreation and payment of the Secured Obligations.

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# 12.           **Waiver of Jury Trial**:  **BORROWERHEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES THE RIGHT BORROWER MAY HAVETO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON OR ARISING OUT OF,UNDER OR IN CONNECTION WITH THIS AGREEMENT**

 

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# **AND ANYAGREEMENT CONTEMPLATED TO BE EXECUTED IN CONJUNCTION HEREWITH, OR ANY COURSE OFCONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONSOF EITHER PARTY.  THIS PROVISION IS AMATERIAL INDUCEMENT FOR THE SECURED PARTIES ENTERING INTO THIS AGREEMENT.**

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# 13.           **Termination**.  This Agreement and the Security Interestshall terminate when all the Secured Obligations have been fully andindefeasibly paid in full, at which time the Agent shall execute and deliver tothe Borrower all Uniform Commercial Code termination statements and similardocuments which the Borrower shall reasonably request to evidence suchtermination; provided, however, that all indemnities of theBorrower contained in this Agreement shall survive, and remain operative and infull force and effect regardless of, the termination of this Agreement for aperiod of six (6) months following the termination of this Agreement.

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# 14.           **Prior Security Agreements**.  This Agreement shall amend and restate, andreplace in their entirety, each of the Prior Security Agreements.  Each Secured Party who was a party to one ormore of the Prior Security Agreements hereby agrees that (i) the PriorSecurity Agreements are terminated as of the date hereof, (ii) suchSecured Parties have no further rights under the Prior Security Agreements, (iii) suchSecured Parties hereby forever waive and release the Company from any currentor prior breach of, and any current or prior damages, claims, expenses, orother entitlements arising from or under, the Prior Security Agreements.

 

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

 

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**IN WITNESS WHEREOF**, the parties have dulyexecuted and delivered this Security Agreement as of the date and year firstwritten above.

 
|       | **AGENT:**                      |
|------------|---------------------------------|
|       | ** **                      |
|       | COMMONWEALTH  ASSOCIATES, L.P.  |
|       |                            |
|       | By:                             |  /s/  Robert O’ Sullivan |   |
|       | Name:                           |  Robert O’ Sullivan |   |
|       | Title:                          | President and CEO |   |
|       |                            |
|       |                            |
|       | **BORROWER:**                   |
|       | ** **                      |
|       | LIQUIDMETAL  TECHNOLOGIES, INC. |
|       |                            |
|       |                            |
|       | By:                             | /s/ | John Kang |   |
|       |                            |   | John  Kang, |   |
|       |                            |   | President  and Chief Executive Officer |   |
|       |                            |
|       | **PRIOR  AGENT:**               |
|       | ** **                      |
|       | MIDDLEBURY CAPITAL, LLC         |
|       |                            |
|       | By:                             | /s/  Eric Brachfeld |   |
|       | Name:                           | Eric Brachfeld |   |
| ** ** | Title:                          | Managing Member | ** ** |
|            |                                 |  |  |  |  |  |  |  |  |  |  |  |  |

 

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COUNTERPART SIGNATUREPAGE

TO AMENDED ANDRESTATED SECURITY AGREEMENT

DATED AUGUST 2,2005,

AMONG LIQUIDMETALTECHNOLOGIES, INC.,

COMMONWEALTH ASSOCIATES, L.P., AND

THE “INVESTORS”IDENTIFIED THEREIN

 

The undersigned herebyexecutes and delivers the Amended and Restated Security Agreement to which thisSignature Page is attached, which, together with all counterparts of theAmended and Restated Security Agreement and Signature Pages of theCompany, Agent, and other “Investors” under the Amended and Restated SecurityAgreement, shall constitute one and the same document in accordance with theterms of the Amended and Restated Security Agreement.

 

 
| INVESTOR: | Jess S.  Morgan & Co., Inc.                                |             |
|-----------|--------------------------------------------------------------------------|------------------|
| By:       | /s/                                                                      | Gary Levenstein  |   |
| Name:     | Gary Levenstein                                                          |             |
| Title:    | President, Investment  Division Jess S. Morgan & Co., Inc. |             |
|      |
| INVESTOR: | Prana, LLC                                                               |             |
| By:       | /s/                                                                      | Renee Vallese    |   |
| Name:     | Renee Vallese                                                            |             |
| Title:    | Managing Director                                                        |             |
|      |
| INVESTOR: | DKR Soundshore Oasis  Holding Fund Ltd.                                  |             |
| By:       | /s/                                                                      | Bradford Caswell |   |
| Name:     | Bradford Caswell                                                         |             |
| Title:    | Director                                                                 |             |
|      |
| INVESTOR: | Rodd Friedman                                                            |             |
| By:       | /s/                                                                      | Rodd Friedman    |   |
| Name:     | Rodd Friedman                                                            |             |
| Title:    | N/A                                                                      |             |
|      |
| INVESTOR: | Bruce Rosen                                                              |             |
| By:       | /s/                                                                      | Bruce Rosen      |   |
| Name:     | Bruce Rosen                                                              |             |
| Title:    | N/A                                                                      |             |
|      |
| INVESTOR: | Caydal, LLC                                                              |             |
| By:       | /s/                                                                      | Kevin Daly       |   |
| Name:     | Kevin Daly                                                               |             |
| Title:    | Managing Member                                                          |             |
|           |                                                                          |                  |  |  |  |

 

13

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| INVESTOR: | Marlin Fund, LP                            |               |
|-----------|--------------------------------------------|--------------------|
| By:       | /s/                                        | Michael W. Masters |   |
| Name:     | Michael W. Masters                         |               |
| Title:    | Managing Member of the  General Partner    |               |
|      |
| INVESTOR: | Marlin Fund II, LP                         |               |
| By:       | /s/                                        | Michael W. Masters |   |
| Name:     | Michael W. Masters                         |               |
| Title:    | Managing Member of the  General Partner    |               |
|      |
| INVESTOR: | Marlin Fund Offshore,  Ltd.                |               |
| By:       | /s/                                        | Michael W. Masters |   |
| Name:     | Michael W. Masters                         |               |
| Title:    | Managing Member of the  Investment Manager |               |
|      |
| INVESTOR: | Larry Bouts                                |               |
| By:       | /s/                                        | Larry Bouts        |   |
| Name:     | Larry Bouts                                |               |
| Title:    | N/A                                        |               |
|      |
| INVESTOR: | Really Cool Group, Ltd.                    |               |
| By:       | /s/                                        | J. Segal           |   |
| Name:     | J. Segal                                   |               |
| Title:    | Director                                   |               |
|      |
| INVESTOR: | Myron Neugeboren                           |               |
| By:       | /s/                                        | Myron Neugeboren   |   |
| Name:     | Myron Neugeboren                           |               |
| Title:    | N/A                                        |               |
|      |
| INVESTOR: | Jonas Brachfeld                            |               |
| By:       | /s/                                        | Jonas Brachfeld    |   |
| Name:     | Jonas Brachfeld                            |               |
| Title:    | N/A                                        |               |
|      |
| INVESTOR: | Greg Osborn                                |               |
| By:       | /s/                                        | Greg Osborn        |   |
| Name:     | Greg Osborn                                |               |
| Title:    | N/A                                        |               |
|      |
| INVESTOR: | Richard Molinsky                           |               |
| By:       | /s/                                        | Richard Molinsky   |   |
| Name:     | Richard Molinsky                           |               |
| Title:    | N/A                                        |               |
|           |                                            |                    |  |  |  |

 

14

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| INVESTOR: | Richard and Joanne Kane                    |                               |
|-----------|--------------------------------------------|------------------------------------|
| By:       | /s/                                        | Richard Kane and Joanne  Kane      |   |
| Name:     | Richard Kane and Joanne  Kane              |                               |
| Title:    | N/A                                        |                               |
|      |
| INVESTOR: | Ricardo A. Salas                           |                               |
| By:       | /s/                                        | Ricardo A. Salas                   |   |
| Name:     | Ricardo A. Salas                           |                               |
| Title:    | N/A                                        |                               |
|      |
| INVESTOR: | Wry Ltd.                                   |                               |
| By:       | /s/                                        | J. Segal                           |   |
| Name:     | J. Segal                                   |                               |
| Title:    | Director                                   |                               |
|      |
| INVESTOR: | Keith Barksdale                            |                               |
| By:       | /s/                                        | Keith Barksdale                    |   |
| Name:     | Keith Barksdale                            |                               |
| Title:    | N/A                                        |                               |
|      |
| INVESTOR: | Winvest Venture  Partners, Inc.       |                               |
| By:       | /s/                                        | Chang Ki Cho                       |   |
| Name:     | Chang Ki Cho                               |                               |
| Title:    | President and CEO                          |                               |
|      |
| INVESTOR: | Eric Brachfeld                             |                               |
| By:       | /s/                                        | Eric Brachfeld                     |   |
| Name:     | Eric Brachfeld                             |                               |
| Title:    | N/A                                        |                               |
|      |
| INVESTOR: | Edward Neugeboren                          |                               |
| By:       | /s/                                        | Edward Neugeboren                  |   |
| Name:     | Edward Neugeboren                          |                               |
| Title:    | N/A                                        |                               |
|      |
| INVESTOR: | Dolphin Offshore  Partners, LP             |                               |
| By:       | /s/                                        | Peter E. Salas                     |   |
| Name:     | Peter E. Salas                             |                               |
| Title:    | General Partner                            |                               |
|      |
| INVESTOR: | Harvard  Developments, Inc.           |                               |
| By:       | /s/                                        | Arden Giesbrecht and  Terry Downie |   |
| Name:     | Arden Giesbrecht and  Terry Downie         |                               |
| Title:    | Controller and VP,  Finance (respectively) |                               |
|           |                                            |                                    |  |  |  |  |

 

15

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| INVESTOR: | Echo Capital Growth  Corporation         |                       |
|-----------|------------------------------------------|----------------------------|
| By:       | /s/                                      | Paul J. Hill               |   |
| Name:     | Paul J. Hill                             |                       |
| Title:    | President                                |                       |
|      |
| INVESTOR: | Terrence L. Mealy                        |                       |
| By:       | /s/                                      | Terrence L. Mealy          |   |
| Name:     | Terrence L. Mealy                        |                       |
| Title:    | Self                                     |                       |
|      |
| INVESTOR: | Shinnston Enterprises,  Ltd.             |                       |
| By:       | /s/                                      | James K.  Murray, Jr. |   |
| Name:     | James K.  Murray, Jr.               |                       |
| Title:    | Limited Partner                          |                       |
|      |
| INVESTOR: | Shea Diversified  Investments, Inc. |                       |
| By:       | /s/                                      | Ronald Lakey               |   |
| Name:     | Ron Lakey                                |                       |
| Title:    | Assistant Secretary                      |                       |
|      |
| INVESTOR: | Commonwealth  Associates, LP             |                       |
| By:       | /s/                                      | Robert A. O’Sullivan  |   |
| Name:     | Robert A. O’Sullivan                |                       |
| Title:    | CEO and President                        |                       |
|      |
| INVESTOR: | Neal I. Goldman                          |                       |
| By:       | /s/                                      | Neal I. Goldman            |   |
| Name:     | Neal I. Goldman                          |                       |
| Title:    | N/A                                      |                       |
|      |
| INVESTOR: | LBJ Holdings, LLC                        |                       |
| By:       | HSP Group, Inc.  (Its Manager)      |                       |
| By:       | /s/                                      | Brian Potiker              |   |
| Name:     | Brian Potiker                            |                       |
| Title:    | Vice President                           |                       |
|      |
| INVESTOR: | John D. Stout                            |                       |
| By:       | /s/                                      | John D. Stout              |   |
| Name:     | John D. Stout                            |                       |
| Title:    | Individually                             |                       |
|           |                                          |                            |  |  |  |

 

16

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| INVESTOR: | MicroCapital Fund Ltd.                          |                   |
|-----------|-------------------------------------------------|------------------------|
| By:       | /s/                                             | Christopher P. Swenson |   |
| Name:     | Christopher P. Swenson                          |                   |
| Title:    | Vice President                                  |                   |
|      |
| INVESTOR: | MicroCapital Fund LP                            |                   |
| By:       | /s/                                             | Christopher P. Swenson |   |
| Name:     | Christopher P. Swenson                          |                   |
| Title:    | Vice President                                  |                   |
|      |
| INVESTOR: | Journeys End Partners,  LLC                     |                   |
| By:       | /s/                                             | Gerald B. Cramer       |   |
| Name:     | Gerald B. Cramer                                |                   |
| Title:    | Manager                                         |                   |
|      |
| INVESTOR: | Wynnefield Partners  Small Cap Value, LP        |                   |
| By:       | /s/                                             | Nelson Obus            |   |
| Name:     | Nelson Obus                                     |                   |
| Title:    | Managing Member                                 |                   |
|      |
| INVESTOR: | Wynnefield Partners  Small Cap Value, LP I      |                   |
| By:       | /s/                                             | Nelson Obus            |   |
| Name:     | Nelson Obus                                     |                   |
| Title:    | Managing Member                                 |                   |
|      |
| INVESTOR: | Wynnefield Small Cap  Value Offshore Fund, Ltd. |                   |
| By:       | /s/                                             | Nelson Obus            |   |
| Name:     | Nelson Obus                                     |                   |
| Title:    | President                                       |                   |
|      |
| INVESTOR: | Min Capital Corp  Retirement Trust              |                   |
| By:       | /s/                                             | Robert Friedman        |   |
| Name:     | Robert Friedman                                 |                   |
| Title:    | Trustee                                         |                   |
|           |                                                 |                        |  |  |  |

 

17

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**SCHEDULE ITO SECURITY AGREEMENT**

 

18

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**SCHEDULE A**

 

 

**CollateralLocations**

 

25800 Commercentre Dr., Suite 100

Lake Forest, California92630

(also principal executiveoffice)

 

Texas office:

12070 FM 3083

Conroe, TX 77301-6104

 

**FederalEmployer Identification Number:**

 

33-0264467

 

**PatentsDescribed in Section 4(c):**

 
| **Title of Patent**                     | ** ** | **U.S. Patent Number** | ** ** |
|-----------------------------------------|------------|------------------------|------------|
| **Materials  Transformable Coatings**   |       | 4,725,512              |       |
| **WC  Containing Coating**              |       | 5,030,519              |       |
| **Joining  Using Bulk Alloys**          |       | 5 482 580              |       |
| **Diamond  Composites of Bulk Alloys**  |       | 5,567,532              |       |
| **Composites  of Bulk Alloy (Method)**  |       | 5 567 251              |       |
| **Composites  of Bulk Alloy (Article)** |       | 5 866 254              |       |
| **Ti-Containing  Hard-Facing Coating**  |       | 5 695 825              |       |
| **Die-Casting  of Bulk Alloys**         |       | 5 711 363              |       |
| **Torsional  Spring of Bulk Alloys**    |       | 5 772 803              |       |
| **Apparatus  for Hard-Facing Coating**  |       | 5 942 289              |       |
| **Zirconia  Containing Coating**        |       | 6,376,091              |       |
| **Shaped-Charge  Projectiles**          |       | 6,446,558              |       |
| **Vacuum  Die-Casting of Bulk Alloys**  |       | 6,021,840              |       |

 

19

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**EXHIBIT A**

 

**DESCRIPTION OF COLLATERAL**

 

### The term “Collateral” shall mean the following assetsof the Company:

###  

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

###  

### (b)           Allchattel paper, consisting of a writing or writings evidencing both a monetaryobligation and a security interest in or lease of goods, together with anyguarantees, letters of credit, and other security therefore (“Chattel Paper”);

###  

### (c)           All “depositaccounts,” as defined in the UCC (“Deposit Accounts”);

###  

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

###  

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

###  

### (f)            All “instruments,”including without limitation every instrument of any kind, as that term is usedin the UCC, and includes every promissory note, negotiable instrument, certificatedsecurity, or other writing that evidences a right to payment of money,

 

20

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### that is not a lease or security agreement, and that istransferred in the ordinary course of business by delivery with any necessaryassignment or indorsement (“Instruments”);

###  

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

###  

### (h)           Alldocuments, including without limitation any paper that is treated in theregular course of business as adequate evidence that the person in possessionof the paper is entitled to receive, hold, and dispose of the goods the papercovers, including warehouse receipts, bills of lading, certificates of title,and applications for certificates of title;

###  

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

###  

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

###  

### (k)           To theextent not listed above in this Exhibit A as original collateral, proceedsand products of the foregoing.

###  

### The term “Collateral” shall not include, (i) theBorrower’s rights under that certain Amended and Restated License Agreement,dated September 1, 2001, between the Borrower and California Institute ofTechnology, and (ii) the Borrower’s rights under the Liquidmetal/UVAPFLicense Agreement, dated May 1, 2002, between the Borrower and theUniversity of Virginia Patent Foundation.

 

21

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**EXHIBIT B**

 

SECURITY AGREEMENT

 

(PATENTS)

 

WHEREAS,LIQUIDMETAL TECHNOLOGIES, INC., a Delaware corporation (herein referred to as “Borrower”),owns the letters patent, and/or applications for letters patent, of the UnitedStates, more particularly described on Schedule 1-A annexed heretoas part hereof (the “Patents”);

 

WHEREAS,Borrower is obligated to COMMONWEALTH ASSOCIATES, L.P., a New York limitedpartnership, as agent (herein referred to as the “Secured Party”) forthe Investors named in those certain Secured Convertible Notes dated as of thedate hereof issued by the Borrower (each such note, as amended, modified orsupplemented from time to time in accordance with its terms, shall collectivelybe referred to as the “Note”) and Borrower has entered into a SecurityAgreement dated the date hereof (the “Agreement”) in favor of SecuredParty; and

 

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

 

NOW, THEREFORE, for good and valuableconsideration, receipt of which is hereby acknowledged, Borrower does herebyfurther assign unto Secured Party and grant to Secured Party a securityinterest in, the Collateral to secure the prompt payment, performance andobservance of the Secured Obligations.

 

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

 

SecuredParty’s address is 830 Third Avenue, 8th Floor, New York, NY 10022

 

IN WITNESS WHEREOF, Borrower has caused thisAgreement to be duly executed by its officer thereunto duly authorized as ofthe 2nd day of August 2005.

 
|   | LIQUIDMETAL  TECHNOLOGIES, INC. |
|--------|---------------------------------|
|   |                            |
|   |                            |
|   | By:                             | /s/  John Kang |   |
|   |                            | John  Kang, |
|   |                            | President  and Chief Executive Officer |

 

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