**Exhibit 10.1**

 

THESE SECURITIES HAVE NOT BEEN REGISTERED FOR OFFER ORSALE UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS.  THEY MAY NOT BE SOLD OR OFFERED FOR SALEEXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT AND ANYAPPLICABLE STATE SECURITIES LAW OR AN APPLICABLE EXEMPTION FROM SUCHREGISTRATION REQUIREMENTS.

 

**SECURITIESPURCHASE AGREEMENT**

** **

**SECURITIES PURCHASE AGREEMENT**(“**Agreement**”) dated as of August 2, 2005, betweenLiquidmetal Technologies, Inc., a Delaware corporation (the “**Company**”), and each person or entity listed as a Purchaseron Schedule I attached to this Agreement (collectively and individually,the “**Purchaser**”).  Capitalized terms used herein and nototherwise defined shall have the meanings set forth in the Note (as definedbelow).

 

**W I T N E S S E T H:**

** **

**WHEREAS,**the Company desires tosell, and the Purchasers desire to purchase, 7% Senior Secured ConvertibleNotes of the Company, which notes shall be in the aggregate principal amount ofup to Fifteen Million Dollars ($15,000,000.00) and shall be in substantiallythe form of Exhibit A hereto (collectively referred to as the “**Notes**” and individually referred to as a “**Note**”); and

 

**WHEREAS,** in connection with thepurchase of the Notes, this Agreement also provides for the grant to thePurchasers of warrants to purchase additional shares of common stock, par value$0.001 per share, of the Company (“**Common Stock**”).

 

**NOW, THEREFORE,** in considerationof the foregoing premises and the covenants contained herein and other good andvaluable consideration, the receipt and sufficiency of which are herebyacknowledged, the parties hereto agree as follows:

 

# **ARTICLE I****Purchase and Sale of Note**

 

## Section 1.1                                      Purchase of Notes.  At the Closing (as hereinafter defined) and subjectto the terms and conditions hereof and in reliance upon the representations,warranties and agreements contained herein, the Company will issue and sell theNotes to the Purchasers, and the Purchasers will purchase the Notes from theCompany, for the purchase price equal to the original principal amount of theNotes (the “**Purchase Price**”).  The amount of Notes to be purchased by eachPurchaser is set forth on Schedule I hereto, and the Purchase Pricefor the Notes shall be paid (i) in the form of cash, (ii) in exchangefor the Purchaser’s July 2005 Notes and/or June 2006 Notes, and/or (iii) insatisfaction of Accrued Registration Fees. The form of consideration to be paid by each Purchaser is set forthopposite such Purchaser’s name on Schedule I hereto.  For purposes hereof, the term “**Conversion Shares**” means any shares ofCommon Stock into which the Notes are convertible according to their terms.  Notwithstanding the foregoing, any holder of July 2005or July 2007 Notes may elect to receive all or a portion of the AccruedRegistration Fees that have accrued on such notes in cash in lieu of exchangingsuch Accrued Registration Fees for Notes pursuant to this Section 1.1, andsuch cash payment will be made at the Closing.

 

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## Section 1.2                                      TheClosing.  The purchase and sale ofthe Notes shall take place at a closing (the “**Closing**”)on the date hereof or such other date as the Purchasers and the Company mayagree upon (the “**Closing Date**”).  The purchase and sale of Notes may alsooccur, at the Company’s option, on more than one date to accommodate differentPurchasers.  At the Closing, the Companyshall deliver to the Purchasers the Notes purchased hereunder, registered inthe name of the Purchasers or their respective nominees.  On the Closing Date the Purchaser shalldeliver by wire transfer the cash Purchase Price hereunder to an accountdesignated in writing by the Company and shall deliver the July 2005 and June 2006Notes being exchanged hereunder to the Company at its offices.  In addition, each party shall deliver alldocuments, instruments and writings required to be delivered by such partypursuant to this Agreement at or prior to the Closing.  The parties acknowledge that, as a conditionto the Company’s obligation to consummate the transactions contemplated by thisAgreement, (i) all holders of the July 2005 Notes, July 2007Notes, and June 2006 Notes must enter into this Agreement, (ii) allholders of the July 2005 Notes must exchange such notes for the Notes tobe issued pursuant to this Agreement or must elect to have such July 2005Notes redeemed pursuant to Section 1.6 hereof, (iii) all holders ofthe July 2007 Notes must either choose to retain their July 2007Notes or must elect to have such July 2007 Notes redeemed pursuant to Section 1.6hereof, and (iv) all holders of the June 2006 Notes must exchangesuch notes for the Notes to be issued pursuant to this Agreement.

##  

## Section 1.3                                      Warrants.  At the Closing, the Company will execute anddeliver to each Purchaser a warrant, substantially in the form attached heretoas Exhibit B, to purchase such number of shares of Common Stock asshall be equal to fifty percent of the principal amount of such Purchaser’sNote divided by the initial Exercise Price of the warrant (the “**Warrants**”). The shares of Common Stock that are issuable pursuant to the Warrantsare hereafter referred to as the “**WarrantShares**.”

##  

## Section 1.4                                      Amendedand Restated Registration Rights Agreement. At the Closing, the Company and the Purchasers will enter into anAmended and Restated Registration Rights Agreement in substantially the formset forth as Exhibit C hereto (the “**Amended andRestated Registration Rights Agreement**”).  The Amended and Restated Registration RightsAgreement shall amend and restate each of the March 2004 RegistrationRights Agreement, Winvest Registration Rights Agreement, and June 2005Registration Rights Agreement.

##  

## Section 1.5                                      Amendedand Restated Security Agreement.  Atthe Closing, the Company and the Purchasers will enter into an Amended andRestated Security Agreement in substantially the form set forth as Exhibit Dhereto (the “**Amended and Restated Security Agreement**”).  The Amended and Restated Security Agreementwill (i) amend and restate the Security Agreements, dated March 1,2004 and as amended on July 29, 2004, among the Company and the holders ofthe July 2005 Notes and July 2006 Notes and (ii) add the otherPurchasers as secured parties thereunder. In addition to the foregoing, the Company shall, within sixty (60) daysof the date of this Agreement, cause Liquidmetal Korea Co., Ltd., a whollyowned subsidiary of the Company **(“Liquidmetal Korea”**),to grant to the Purchasers as additional security for the Notes and the July 2007Notes a second lien upon and security interest in Liquidmetal Korea’smanufacturing plant in Korea (the **“Factory Lien”**),and Liquidmetal Korea shall obtain any necessary consent and approval of theBank of Korea to the granting of the Factory Lien.** **The Factory Lienshall be inaddition to and subordinate to the prior liens held or to be held by KookminBank (or any financial institution through which the Company’s or LiquidmetalKorea’s indebtedness with Kookmin Bank is refinanced).

##  

## 2

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##  

## Section 1.6                                      RedemptionOption.  Any holder of July 2005Notes or July 2007 Notes (the “**July Notes**”)may, in lieu of exchanging the July 2005 Notes for Notes issued pursuantto this Agreement or in lieu of retaining the July 2007 Notes, elect tohave the July Notes redeemed in whole or in part pursuant to thisAgreement.  Any such redemption shall bereflected on Schedule I hereto. The redemption price (the “**Redemption Price**”)for notes being redeemed pursuant hereto shall be equal to the amount ofprincipal being redeemed.  The portion ofeach such note that is redeemed pursuant hereto is referred to as the “**Redeemed Portion**.”  Onthe Closing Date, the Company will pay to each Purchaser the Redemption Pricewith respect to the Redeemed Portion(s) of the July Notes held by suchPurchaser and as to which this redemption option has been elected, and thePurchaser will return the originally signed July 2005 Note and/or July 2007Note, as applicable, to the Company.  Ifless than the entire principal amount of the July 2005 Note and/or July 2007is being redeemed, then the Company will, within a reasonable period of time,deliver a replacement note to the Purchaser to evidence the remaining principalbalance thereof (or, in the case of a July 2005 Note, the Company willissue a Note to the Holder to evidence the unredeemed amount).  Each redeeming Purchaser acknowledges andagrees that, upon receipt of the Redemption Price, the Redeemed Portion willhave been paid in full and will no longer be outstanding, and such Purchaseracknowledges that the Purchaser will have no further rights or entitlementsunder such note(s) with respect to the Redeemed Portion.   Except for the payment of the RedemptionPrice and the satisfaction of Accrued Registration Fees and accrued interest inaccordance with this Agreement, such Purchaser hereby knowingly and voluntarilywaives, releases and forever discharges the Company and the Company’ssubsidiaries, parent companies, officers, directors, employees, shareholders,and Affiliates (collectively, the “**Released Parties**”)from any and all claims, demands, damages, lawsuits, obligations, promises, andcauses of action of any kind whatsoever, both known and unknown, at law or inequity, that the Purchaser may have had or has against the Released Parties atany time from the beginning of time up to and including the date of thisAgreement relating to or arising from the Redeemed Portion of the July Notes.

##  

## Section 1.7                                      Paymentof Accrued Interest at Closing.  Allaccrued and unpaid interest on the July 2005 Notes, June 2006 Notes,and July 2007 Notes through the date of Closing shall be paid in cash bythe Company at the Closing.  EachPurchaser agrees and acknowledges that the amount set forth next to suchPurchaser’s name on Schedule I under the column “Accrued Interest” representsthe entire amount of accrued and unpaid interest owing through the date ofClosing on such Purchaser’s July 2005 Notes, June 2006 Notes, and July 2007Notes and that, upon the payment of such interest by the Company at the Closing,the issuance and delivery of the Notes in accordance with this Agreement (or,if applicable, the redemption of July Notes pursuant to Section 1.6above), and the satisfaction of Accrued Registration Fees in accordance withthis Agreement, (i) the July 2005 Notes and June 2006 Notesshall be deemed to be paid in full, and (ii) such Purchaser herebyknowingly and voluntarily waives, releases and forever discharges the Companyand the other Released Parties from any and all claims, demands, damages,lawsuits, obligations, promises, and causes of action of any kind whatsoever,both known and unknown, at law or in equity, that the Purchaser may have had orhas against the Released Parties at any time from the beginning of time up toand including the date of this Agreement relating to or arising from July 2005Notes or June 2006 Notes.

##  

## Section 1.8                                      CertainDefinitions.  For purposes of thisAgreement, the following definitions shall apply, unless otherwise indicatedherein:

 

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### (a)                                  “**July 2004 Note Exchange Agreement**” means the NoteExchange Agreement, dated July 29 2004, among the Company, Jess Morgan &Co. and the other parties identified as “Noteholders” therein.

###  

### (b)                                 “**Winvest Note Exchange Agreement**” means the Note ExchangeAgreement, dated July 29, 2004, between the Company and Winvest VenturePartners Inc.

###  

### (c)                                  “**June 2005 Securities Purchase Agreement**” means thatcertain Securities Purchase Agreement, dated June 10, 2005, among theCompany and the parties identified as “Purchasers” therein.

###  

### (d)                                 “**July 2005 Notes**” means the 10% Senior Secured Notes DueJuly 29, 2005 that were previously issued by the Company in an aggregateprincipal amount of $2,854,501, pursuant to the July 2004 Note ExchangeAgreement and Winvest Note Exchange Agreement.

###  

### (e)                                  “**July 2007 Notes**” means the 6% Senior Secured Notes Due July 29, 2007 that were previously issued by theCompany in an aggregate principal amount of $2,854,501, pursuant to the 2004Note Exchange Agreement and Winvest Note Exchange Agreement.

###  

### (f)                                    “**June 2006 Notes**” means the 10% Convertible UnsecuredNotes Due June 10, 2005 that were previously issued by the Company in anaggregate principal amount of $3,250,000, pursuant to the June 2005Securities Purchase Agreement.

###  

### (g)                                 “**March 2004 Registration Rights Agreement**” means theRegistration Rights Agreement, dated March 1, 2004, among the Company,Jess Morgan & Co. and the other parties identified as “Purchasers”therein, as amended by the July 2004 Note Exchange Agreement.

###  

### (h)                                 “**Winvest Registration Rights Agreement**” means theRegistration Rights Agreement, dated March 1, 2004, among the Company,Winvest Venture Partners Inc., and the other parties identified as “Purchasers”therein, as amended by the Winvest Note Exchange Agreement.

###  

### (i)                                     “**June 2005 Registration Rights Agreement**” means theRegistration Rights Agreement, dated June 10, 2005, among the Company andthe holders of the June 2006 Notes.

###  

### (j)                                     “**Accrued Registration Fees**” mean any “Late Filing Payments”and “Late Registration Payments” that have accrued under Section 2(c)(ii) ofthe March 2004 Registration Rights Agreement and Section 2(c)(ii) ofthe Winvest Registration Rights Agreement through June 30, 2005.

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# **ARTICLE II****Representations and Warranties**

 

## Section 2.1                                      Representationsand Warranties of the Company.  TheCompany hereby makes the following representations and warranties to thePurchaser as of the date hereof and the Closing Date:

##  

### (a)                                  *Organization and Qualification; Material Adverse Effect.*  The Company is a corporation dulyincorporated and existing in good standing under the laws of the State ofDelaware and has the requisite corporate power to own its properties and tocarry on its business as now being conducted. The Company is duly qualified as a foreign corporation to do businessand is in good standing in every jurisdiction in which the nature of thebusiness conducted or property owned by it makes such qualification necessaryother than those in which the failure so to qualify would not have a MaterialAdverse Effect.  “**MaterialAdverse Effect**” means any adverse effect on the business,operations, properties, prospects or financial condition of the Company and itssubsidiaries, if any, and which is (either alone or together with all otheradverse effects) material to the Company and its subsidiaries.

###  

### (b)                                 *Authorization; Enforcement.* (i)  The Company has all requisite corporate power and authority toenter into and perform this Agreement, the Notes, the Warrants, the Amended andRestated Registration Rights Agreement, the Amended and Restated SecurityAgreement, the provisions of Section 1.6 hereof, and any other agreementsor documents delivered by the Company at the Closing (“**TransactionDocuments**”) and to issue the Notes and Warrants in accordance withthe terms hereof, (ii) the execution and delivery of the TransactionDocuments by the Company and the consummation by it of the transactionscontemplated hereby and thereby, including the issuance of the Notes, have beenduly authorized by all necessary corporate action, and no further consent orauthorization of the Company or its Board of Directors (or any committee orsubcommittee thereof) or stockholders is required, (iii) the TransactionDocuments have been duly executed and delivered by the Company, (iv) theTransaction Documents constitute valid and binding obligations of the Companyenforceable against the Company, except as such enforceability may be limitedby applicable bankruptcy, insolvency, reorganization, moratorium, liquidationor similar laws relating to, or affecting generally the enforcement ofcreditors’ rights and remedies or by other equitable principles of generalapplication, and (v) the Warrant Shares and the Conversion Shares havebeen duly authorized and, upon issuance thereof and payment therefor inaccordance with the terms of the Warrants and the Notes, as the case may be,will be validly issued, fully paid and non-assessable, free and clear of anyand all liens, claims and encumbrances.

###  

### (c)                                  *No Conflicts*.  Theexecution, delivery and performance of the Transaction Documents by the Companyand the consummation by the Company of the transactions contemplated hereby andthereby and issuance of the Notes, the Conversion Shares, the Warrants and theWarrant Shares will not (i) result in a violation of the Certificate ofIncorporation; (ii) conflict with, or constitute a default (or an eventwhich with notice or lapse of time or both would become a default) under, orgive to others any rights of termination, amendment, acceleration orcancellation of, any agreement, indenture or instrument to which the Company orany of its subsidiaries is a party, or (iii) to the Company’s knowledgeresult in a violation of any law, rule, regulation, order, judgment or decree (includingUnited States federal

 

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### and state securities laws) applicable to the Company or any of itssubsidiaries or by which any property or asset of the Company or any of itssubsidiaries is bound or affected, except in the case of clause (ii), suchconflicts that would not have a Material Adverse Effect.

###  

### (d)                                 *SEC Documents*.  Since December 31,2004, the Company has filed all reports, schedules, forms, statements and otherdocuments required to be filed by it with the SEC pursuant to the reportingrequirements of the Securities Exchange Act of 1934, as amended (the “**1934 Act**”) (all of the foregoing filed prior to the datehereof and all exhibits included therein and financial statements and schedulesthereto and documents incorporated by reference therein being hereinafterreferred to as the “**SEC Documents**”).  To the Company’s knowledge, as of theirrespective dates and except as provided in Item 9A of the Form 10-K/Afiled by the Company on May 10, 2005, the SEC Documents complied in allmaterial respects with the requirements of the 1934 Act and the rules andregulations of the SEC promulgated thereunder applicable to the SEC Documents,and 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 amaterial fact required to be stated therein or necessary in order to make thestatements therein, in light of the circumstances under which they were made,not misleading.

###  

### (e)                                  *No Contemplated Bankruptcy*.* *On the date hereof, the Companydoes not contemplate and has no knowledge of any person contemplating thefiling of any petition against the Company or any subsidiary under any federalor state bankruptcy, insolvency, receivership or other such law.  TheCompany does not intend to, and does not believe that it will, incur debts andliabilities (including, among other things, contingent liabilities and othercommitments) beyond its ability to pay such debts as they mature (taking intoaccount the timing and amounts to be payable on or in respect of obligations ofCompany).  The execution, delivery,observance, performance and fulfillment of Company’s obligations and dutiesunder this Agreement will not render the Company insolvent or unable to pay itsdebts as they become due.  The Companyhas (a) not entered into the transactions contemplated by this Agreementwith the actual intent to hinder, delay, or defraudany creditor and (b) received reasonably equivalent value in exchange forits obligations under this Agreement.

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## Section 2.2                                      Representationsand Warranties of the Purchasers. Each Purchaser (severally and not jointly) hereby makes the followingrepresentations and warranties to the Company as of the date hereof and theClosing Date:

##  

### (a)                                  *Accredited Investor Status; Sophisticated Purchaser*.  The Purchaser is an “accredited investor” asthat term is defined in Rule 501(a) of Regulation D under theSecurities Act of 1933, as amended (the “**1933 Act**”).  The Purchaser has such knowledge andexperience in financial and business matters that the Purchaser is capable ofevaluating the merits and risks of the purchase of the Notes, the ConversionShares, the Warrants and the Warrant Shares. The Purchaser is not registered as a broker or dealer under Section 15(a) ofthe 1934 Act, affiliated with any broker or dealer registered under Section 15(a) ofthe 1934 Act, or a member of the National Association of Securities Dealers, Inc.

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### (b)                                 *Information*.  ThePurchaser and its advisors, if any, have been furnished with all materialsrelating to the business, finances and operations of the Company which havebeen requested and materials relating to the offer and sale of the Notes, the

 

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### Conversion Shares, the Warrants and the WarrantShares, which have been requested by the Purchaser.  The Purchaser and its advisors, if any, havebeen afforded the opportunity to ask questions of the Company.  The Purchaser acknowledges that (i) Purchaserhas been provided with and has reviewed copies of the following filings made bythe Company with the Securities and Exchange Commission: Form 10-Q filedon May 16, 2005, Form 10-K filed on March 30, 2005 (as amendedon May 5, 2005), Form 8-K filed on May 10, 2005, Form 8-Kfiled on April 15, 2005, and Form 8-K filed on June 16, 2005;and (ii) Purchaser’s purchase of the Notes, Warrants, and (if applicable)the Conversion Shares and the Warrant Shares involves a high degree of risk andthat Purchaser may never recover Purchaser’s investment in these securities.

###  

### (c)                                  *Investment Representation.* The Purchaser is purchasing the Note and the Warrant for the Purchaser’sown account and not with a view to distribution in violation of any securitieslaws.  The Purchaser has been advised andunderstands that neither the Note, the Warrant, the Conversion Shares nor theWarrant Shares have been registered under the 1933 Act or under the “blue sky”laws of any jurisdiction and may be resold only if registered pursuant to theprovisions of the 1933 Act or if an exemption from registration is available,except under circumstances where neither such registration nor such anexemption is required by law.  ThePurchaser has been advised and understands that the Company, in issuing the Notesand the Warrants, is relying upon, among other things, the representations andwarranties of the Purchaser contained in this Section 2.2 in concludingthat such issuance is a “private offering” and is exempt from the registrationprovisions of the 1933 Act.

###  

### (d)                                 *Rule 144.*  ThePurchaser understands that there is no public trading market for the Note orWarrant, that none is expected to develop, and that the Note and Warrant mustbe held indefinitely unless and until such Note and the Warrant, or if applicable,the Warrant Shares and Conversion Shares, are registered under the 1933 Act oran exemption from registration is available. The Purchaser has been advised or is aware of the provisions of Rule 144promulgated under the 1933 Act.

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# **ARTICLE III****Covenants and Acknowledgments**

#  

## Section 3.1                                      Prohibitionon Net Short Positions.  Fromand including the date of this Agreement, the Purchaser agrees that suchPurchaser shall not maintain a Net Short Position.  “**Net Short Position**”shall mean that the aggregate number of shares of Common Stock held in a shortposition by such Purchaser exceeds the sum of (i) the number of shares ofCommon Stock owned by such Purchaser, plus (ii) the number of WarrantShares or Conversion Shares issuable to such Purchaser.

##  

## Section 3.2                                      SeniorStatus of Notes.   Beginningon the date of this Agreement and for so long as any Notes remain outstanding,neither the Company nor any subsidiary of the Company shall, without the priorwritten consent of Purchasers holding a majority of the aggregate outstandingPrincipal Amount of the Notes, incur or otherwise become liable with respect toany indebtedness that would rank senior or *paripassu* to the Notes in order of payment, except that (i) indebtednessand obligations in existence on the date hereof and trade payables incurred inthe ordinary course of business shall not be required to be subordinated to theNotes, and the Company may pay such obligations and payables as

 

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## they become due, (ii) the Notes shall besubordinate to the Company’s and its subsidiaries’ outstanding debt to KookminBank and the July 2007 Notes, (iii) the Company shall be permitted toincur secured indebtedness used solely to finance the purchase or lease ofassets (provided that such debt may only be secured by the purchased or leasedassets and not by any other assets of the Company) and shall be permitted topay such indebtedness as it becomes due, (iv) the Notes shall besubordinate to, and the Company shall be permitted to incur, any indebtednessfrom any loan that replaces or refinances the Company’s remaining outstandingbalance under its existing credit facility with Kookmin Bank, provided that theamount of such indebtedness does not exceed such remaining outstanding balance,and (v) the Notes shall be subordinate to, and the Company shall bepermitted to incur, any indebtedness under a Qualified Credit Facility.  For purposes hereof, a “Qualified CreditFacility” shall mean any secured or unsecured credit facility that the Companymay obtain after the date hereof from a lender that makes commercial loans orextends commercial credit facilities in the ordinary course of its businesswhich is secured by inventory and/or accounts receivable, provided that the amountof such indebtedness thereunder shall not exceed fifty percent (50%) of thefair market value of eligible inventory (in the case of a loan based on andsecured by inventory) plus eighty percent (80%) of eligible accounts receivable(in the case of a loan based on and secured by accounts receivable).  Purchaser hereby agrees to execute anyacknowledgment or sign any reasonable subordination agreement evidencing thefact that the Notes are subordinate to such a credit facility in all respects,including right of payment and security.

##  

## Section 3.3                                      Acknowledgmentsby all Purchasers.  Each Purchaserhereby agrees that the issuance of Notes pursuant to this Agreement in exchangefor the July 2005 Notes and June 2006 Notes, or the redemption of July 2005Notes or July 2007 Notes pursuant to Section 1.6 above, shallconstitute full and complete satisfaction of such July 2005 Notes, June 2006Notes, or July 2007 Notes (or the portion of such notes being redeemed, asapplicable), and except for the payment of accrued and unpaid interest on suchnotes through the date of Closing, each such Purchaser hereby irrevocablywaives and releases the Company from any breach or default under such notesoccurring on or prior to the date of Closing.

##  

## Section 3.4                                      FurtherAcknowledgment by Holders of July 2007 Notes.  Each Purchaser that will, immediately afterthe Closing, continue to hold any July 2007 Notes hereby acknowledges andagrees that (i) it shall not be a violation of Section 2 of the July 2007Notes or Section 3.12 of the July 2004 Note Exchange Agreement orWinvest Note Exchange Agreement for the Company to issue the Notes pursuant tothis Agreement and pay interest thereon in accordance with the terms of theNotes, (ii)  the exceptions set forth in clause (v) of Section 3.2above and the two sentences following such clause shall apply to the July 2007Notes, and the holders of the July 2007 Notes shall be subject to theexception and covenants set forth therein, and (iii) except for thepayment of accrued and unpaid interest on the July 2007 Notes through thedate of Closing, each such Purchaser hereby irrevocably waives and releases theCompany from any breach or default under the July 2007 Notes occurring onor prior to the date of Closing.  Eachsuch Purchaser agrees that it will not transfer or assign any July 2007Note to any third party unless the transferee of such note unconditionally andirrevocably acknowledges and agrees in writing to the terms of this Section 3.4and such written acknowledgment and agreement is delivered to the Company.

##  

## Section 3.5                                      CompanyAcknowledgement.  The Companyhereby acknowledges that each Purchaser is purchasing the Notes and Warrantsseparately and independently from each other Purchaser and that the failure ofany Purchaser to enforce a right under this Agreement or under such Purchaser’s

 

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## Note shall not affect the rights of any otherPurchaser under this Agreement or under such other Purchaser’s Note..

##  

# **ARTICLE IV**

#  

# **Legend****and Stock**

 

Upon payment therefor as provided in this Agreement,the Company will issue the Note in the name the Purchaser or its designees andin such denominations to be specified by the Purchaser prior to (or from timeto time subsequent to) Closing.  The Noteand Warrant and any certificate representing Conversion Shares or WarrantShares issued upon conversion or exercise thereof, prior to such ConversionShares or Warrant Shares being registered under the 1933 Act for resale oravailable for resale under Rule 144 under the 1933 Act, shall be stampedor otherwise imprinted with a legend in substantially the following form:

 

THESE SECURITIES HAVE NOTBEEN REGISTERED FOR OFFER OR SALE UNDER THE SECURITIES ACT OF 1933 OR ANY STATESECURITIES LAWS.  THEY MAY NOT BE SOLDOR OFFERED FOR SALE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENTUNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAW OR AN APPLICABLEEXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.

 

The Company agrees to reissue the Note, ConversionShares and Warrant Shares without the legend set forth above, at such time as (i) theholder thereof is permitted to dispose of securities pursuant to Rule 144(k)under the 1933 Act, or (ii) such securities are sold to a purchaser orpurchasers who (in the opinion of counsel to the seller or such purchaser(s),in form and substance reasonably satisfactory to the Company and its counsel)are able to dispose of such shares publicly without registration under the 1933Act, or (iii) such securities have been registered under the 1933 Act.

 

# **ARTICLE V**

#  

# **Governing Law; Miscellaneous**

 

## Section 5.1                                      GoverningLaw.  THIS AGREEMENT SHALL BEGOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEWYORK WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS.

##  

## Section 5.2                                      Counterparts.  This Agreement may be executed in two or moreidentical counterparts, all of which shall be considered one and the sameagreement and shall become effective when counterparts have been signed by eachparty and delivered to the other party; provided that a facsimile signatureshall be considered due execution and shall be binding upon the signatorythereto with the same force and effect as if the signature were an original,not a facsimile signature.

##  

## Section 5.3                                      Headings.  The headings of this Agreement are forconvenience of reference and shall not form part of, or affect theinterpretation of, this Agreement.

##  

## Section 5.4                                      Severability.  If any provision of this Agreement shall beinvalid or unenforceable in any jurisdiction, such invalidity orunenforceability shall not affect the validity or enforceability of the

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## 9

## 

##  

## remainderof this Agreement in that jurisdiction or the validity or enforceability of anyprovision of this Agreement in any other jurisdiction.

##  

## Section 5.5                                      EntireAgreement; Amendments; Waivers. This Agreement supersedes all other prior oral or written agreementsbetween the Purchaser, the Company, their affiliates and persons acting ontheir behalf with respect to the matters discussed herein, and this Agreementand the instruments referenced herein (including the other TransactionDocuments) contain the entire understanding of the parties with respect to thematters covered herein and therein and, except as specifically set forth hereinor therein, neither the Company nor the Purchaser makes any representation,warranty, covenant or undertaking with respect to such matters.  In addition: 

##  

A.                                   Theprovisions of this Agreement may from time to time be amended, modified orwaived, if such amendment, modification or waiver is in writing and consentedto by the Company and the Purchasers holding not less than 50% in principalamount of the Notes then outstanding (the “**Required Holders**”);provided, however, that no such amendment, modification or waiverwhich would (i) modify this Section 5.5, or (ii) reduce theprincipal amount or any amounts payable under the Notes or (iv) not beuniform and non-discriminatory as to any particular Purchaser, shall be madewithout the consent of the Purchaser so affected.

 

B.                                     Exceptas provided herein, no failure or delay on the part of the Purchaser inexercising any power or right under this Agreement shall operate as a waiverthereof, nor shall any single or partial exercise of any such power or rightpreclude any other or further exercise thereof or the exercise of any otherpower or right.  No notice to or demandon the Company in any case shall entitle it to any notice or demand in similaror other circumstances.  No waiver orapproval by the Purchaser shall, except as may be otherwise stated in suchwaiver or approval, be applicable to subsequent transactions.  No waiver or approval hereunder shall requireany similar or dissimilar waiver or approval thereafter to be grantedhereunder.

 

## Section 5.6                                      Notices.  Any notices, consents, waivers or othercommunications required or permitted to be given under the terms of thisAgreement must be in writing, must be delivered by (i) courier, mail orhand delivery or (ii) facsimile, and will be deemed to have beendelivered upon receipt. The addresses and facsimile numbers for suchcommunications shall be:

##  

If to the Company:

 

Liquidmetal Technologies, Inc.

25800 Commercentre Dr., Suite 100

Lake Forest, California 92630

Telephone: (949) 206-8002

Fax:  (949) 206-8008

Attention:  JohnKang, President

 

With a copy to:

 

Foley & Lardner LLP

100 North Tampa Street, Suite 2700

 

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Tampa, Florida 33602

Telephone: (813) 229-2300

Facsimile: (813) 221-4210

Attention:  CurtP. Creely

 

If to the Transfer Agent:

 

American Stock Transfer & Trust Company

59 Maiden Lane

Plaza Level

New York, New York 10039

Telephone: (718) 921-8124

Facsimile: (718) 236-2641

Attention:  JoeWolf

 

If to the Purchasers, to the addresses listed on Schedule Ihereto:

 

Each party shall provide five (5) days priorwritten notice to the other party of any change in address, telephone number orfacsimile number.  Written confirmationof receipt (A) given by the recipient of such notice, consent, waiver orother communication, (B) mechanically or electronically generated by thesender’s facsimile machine containing the time, date, recipient facsimilenumber and an image of the first page of such transmission or (C) providedby a nationally recognized overnight delivery service, shall be rebuttableevidence of personal service, receipt by facsimile or receipt from a nationallyrecognized overnight delivery service in accordance with clause (i), (ii) or(iii) above, respectively.

 

## Section 5.7                                      Successorsand Assigns.  Except as otherwiseprovided herein, this Agreement shall be binding upon and inure to the benefitof the parties and their respective successors and assigns, including anypermitted assignee of the Note and Warrant. The Purchaser may assign some or all of its rights hereunder to anypermitted assignee of the Note or Warrant; provided, however, that anysuch assignment shall not release the Purchaser from its obligations hereunderunless such obligations are assumed by such assignee and the Company hasconsented to such assignment and assumption.

##  

## Section 5.8                                      FurtherAssurances.  Each party shall do andperform, 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 the other party may reasonably request in orderto carry out the intent and accomplish the purposes of this Agreement and theconsummation of the transactions contemplated hereby.

##  

## Section 5.9                                      Days.  Unless the context refers to “business days”or “Trading Days”, all references herein to “days” shall mean calendardays.  “**Trading Day**”shall mean a day on which there is trading on the market or exchange on whichthe Common Stock is then principally traded, listed, or quoted.

##  

## 11

## 

##  

**IN WITNESS WHEREOF**, the partieshereto have caused this Securities Purchase Agreement to be duly executed as ofthe date and year first above written.

 

 

**COMPANY:**

 

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

Signatures of Purchaserson following page(s)

 

12

----

 

COUNTERPART SIGNATURE PAGE

TO SECURITIES PURCHASE AGREEMENT

DATED AUGUST 2, 2005,

AMONG LIQUIDMETALTECHNOLOGIES, INC.

 ANDTHE “PURCHASERS” IDENTIFIED THEREIN

 

The undersigned hereby executes and delivers theSecurities Purchase Agreement to which this Signature Page is attached,which, together with all counterparts of the Securities Purchase Agreement andSignature Pages of the Company and other “Purchasers” under the SecuritiesPurchase Agreement, shall constitute one and the same document in accordancewith the terms of the Securities Purchase Agreement.

 

 
| PURCHASER: | Jess S. Morgan & Co., Inc.                                 |               |
|------------|--------------------------------------------------------------------------|--------------------|
| By:        | /s/                                                                      | Gary Levenstein    |   |
| Name:      | Gary Levenstein                                                          |               |
| Title:     | President, Investment Division Jess S. Morgan &  Co., Inc. |               |
|       |                                                                     |
| PURCHASER: | Prana, LLC                                                               |               |
| By:        | /s/                                                                      | Renee Vallese      |   |
| Name:      | Renee Vallese                                                            |               |
| Title:     | Managing Director                                                        |               |
|       |                                                                     |
| PURCHASER: | Rodd Friedman                                                            |               |
| By:        | /s/                                                                      | Rodd Friedman      |   |
| Name:      | Rodd Friedman                                                            |               |
| Title:     | N/A                                                                      |               |
|       |                                                                     |
| PURCHASER: | Bruce Rosen                                                              |               |
| By:        | /s/                                                                      | Bruce Rosen        |   |
| Name:      | Bruce Rosen                                                              |               |
| Title:     | N/A                                                                      |               |
|       |                                                                     |
| PURCHASER: | Caydal, LLC                                                              |               |
| By:        | /s/                                                                      | Kevin Daly         |   |
| Name:      | Kevin Daly                                                               |               |
| Title:     | Managing Member                                                          |               |
|       |                                                                     |
| PURCHASER: | Marlin Fund, LP                                                          |               |
| By:        | /s/                                                                      | Michael W. Masters |   |
| Name:      | Michael W. Masters                                                       |               |
| Title:     | Managing Member of the General Partner                                   |               |
|       |                                                                     |
| PURCHASER: | Marlin Fund II, LP                                                       |               |
| By:        | /s/                                                                      | Michael W. Masters |   |
| Name:      | Michael W. Masters                                                       |               |
| Title:     | Managing Member of the General Partner                                   |               |
|            |                                                                          |                    |  |  |  |

 

----

 
| PURCHASER: | Marlin Fund Offshore, Ltd.                |                         |
|------------|-------------------------------------------|------------------------------|
| By:        | /s/                                       | Michael W. Masters           |   |
| Name:      | Michael W. Masters                        |                         |
| Title:     | Managing Member of the Investment Manager |                         |
|       |                                      |
| PURCHASER: | Larry Bouts                               |                         |
| By:        | /s/                                       | Larry Bouts                  |   |
| Name:      | Larry Bouts                               |                         |
| Title:     | N/A                                       |                         |
|       |                                      |
| PURCHASER: | Really Cool Group Ltd.                    |                         |
| By:        | /s/                                       | J. Segal                     |   |
| Name:      | J. Segal                                  |                         |
| Title:     | Director                                  |                         |
|       |                                      |
| PURCHASER: | Myron Neugeboren                          |                         |
| By:        | /s/                                       | Myron Neugeboren             |   |
| Name:      | Myron Neugeboren                          |                         |
| Title:     | N/A                                       |                         |
|       |                                      |
| PURCHASER: | Jonas Brachfeld                           |                         |
| By:        | /s/                                       | Jonas Brachfeld              |   |
| Name:      | Jonas Brachfeld                           |                         |
| Title:     | N/A                                       |                         |
|       |                                      |
| PURCHASER: | Greg Osborn                               |                         |
| By:        | /s/                                       | Greg Osborn                  |   |
| Name:      | Greg Osborn                               |                         |
| Title:     | N/A                                       |                         |
|       |                                      |
| PURCHASER: | Richard Molinsky                          |                         |
| By:        | /s/                                       | Richard Molinsky             |   |
| Name:      | Richard Molinsky                          |                         |
| Title:     | N/A                                       |                         |
|       |                                      |
| PURCHASER: | Richard and Joanne Kane                   |                         |
| By:        | /s/                                       | Richard Kane and Joanne Kane |   |
| Name:      | Richard Kane and Joanne Kane              |                         |
| Title:     | N/A                                       |                         |
|       |                                      |
| PURCHASER: | Ricardo A. Salas                          |                         |
| By:        | /s/                                       | Ricardo A. Salas             |   |
| Name:      | Ricardo A. Salas                          |                         |
| Title:     | N/A                                       |                         |
|            |                                           |                              |  |  |  |

 

2

----

 
| PURCHASER: | Wry Ltd.                                  |                              |
|------------|-------------------------------------------|-----------------------------------|
| By:        | /s/                                       | J. Segal                          |   |
| Name:      | J. Segal                                  |                              |
| Title:     | Director                                  |                              |
|       |                                      |
| PURCHASER: | Keith Barksdale                           |                              |
| By:        | /s/                                       | Keith Barksdale                   |   |
| Name:      | Keith Barksdale                           |                              |
| Title:     | N/A                                       |                              |
|       |                                      |
| PURCHASER: | Winvest Venture Partners Inc.             |                              |
| By:        | /s/                                       | Chang Ki Cho                      |   |
| Name:      | Chang Ki Cho                              |                              |
| Title:     | President and CEO                         |                              |
|       |                                      |
| PURCHASER: | Eric Brachfeld                            |                              |
| By:        | /s/                                       | Eric Brachfeld                    |   |
| Name:      | Eric Brachfeld                            |                              |
| Title:     | N/A                                       |                              |
|       |                                      |
| PURCHASER: | Edward Neugeboren                         |                              |
| By:        | /s/                                       | Edward Neugeboren                 |   |
| Name:      | Edward Neugeboren                         |                              |
| Title:     | N/A                                       |                              |
|       |                                      |
| PURCHASER: | Dolphin Offshore Partners, LP             |                              |
| By:        | /s/                                       | Peter E. Salas                    |   |
| Name:      | Peter E. Salas                            |                              |
| Title:     | General Partner                           |                              |
|       |                                      |
| PURCHASER: | Harvard Developments, Inc.           |                              |
| By:        | /s/                                       | Arden Giesbrecht and Terry Downie |   |
| Name:      | Arden Giesbrecht and Terry Downie         |                              |
| Title:     | Controller and VP, Finance (respectively) |                              |
|       |                                      |
| PURCHASER: | Echo Capital Growth Corporation           |                              |
| By:        | /s/                                       | Paul J. Hill                      |   |
| Name:      | Paul J. Hill                              |                              |
| Title:     | President                                 |                              |
|       |                                      |
| PURCHASER: | Terrence L. Mealy                         |                              |
| By:        | /s/                                       | Terrence L. Mealy                 |   |
| Name:      | Terrence L. Mealy                         |                              |
| Title:     | Self                                      |                              |
|            |                                           |                                   |  |  |  |

 

3

----

 
| PURCHASER: | Shinnston Enterprises, Ltd.             |                      |
|------------|-----------------------------------------|---------------------------|
| By:        | /s/                                     | James K. Murray Jr.       |   |
| Name:      | James K. Murray Jr.                     |                      |
| Title:     | Limited Partner                         |                      |
|       |                                    |
| PURCHASER: | Shea Diversified Investments, Inc. |                      |
| By:        | /s/                                     | Ronald Lakey              |   |
| Name:      | Ron Lakey                               |                      |
| Title:     | Assistant Secretary                     |                      |
|       |                                    |
| PURCHASER: | Commonwealth Associates, LP             |                      |
| By:        | /s/                                     | Robert A. O’Sullivan |   |
| Name:      | Robert A. O’Sullivan               |                      |
| Title:     | CEO and President                       |                      |
|       |                                    |
| PURCHASER: | Neal I. Goldman                         |                      |
| By:        | /s/                                     | Neal I. Goldman           |   |
| Name:      | Neal I. Goldman                         |                      |
| Title:     | N/A                                     |                      |
|       |                                    |
| PURCHASER: | LBJ Holdings, LLC                       |                      |
| By:        | HSP Group, Inc. (Its Manager)      |                      |
| By:        | /s/                                     | Brian Potiker             |   |
| Name:      | Brian Potiker                           |                      |
| Title:     | Vice President                          |                      |
|       |                                    |
| PURCHASER: | John D. Stout                           |                      |
| By:        | /s/                                     | John D. Stout             |   |
| Name:      | John D. Stout                           |                      |
| Title:     | Individually                            |                      |
|       |                                    |
| PURCHASER: | MicroCapital Fund Ltd.                  |                      |
| By:        | /s/                                     | Christopher P. Swenson    |   |
| Name:      | Christopher P. Swenson                  |                      |
| Title:     | Vice President                          |                      |
|       |                                    |
| PURCHASER: | MicroCapital Fund LP                    |                      |
| By:        | /s/                                     | Christopher P. Swenson    |   |
| Name:      | Christopher P. Swenson                  |                      |
| Title:     | Vice President                          |                      |
|       |                                    |
| PURCHASER: | Journeys End Partners, LLC              |                      |
| By:        | /s/                                     | Gerald B. Cramer          |   |
| Name:      | Gerald B. Cramer                        |                      |
| Title:     | Manager                                 |                      |
|            |                                         |                           |  |  |  |

 

4

----

 
| PURCHASER: | Wynnefield Partners Small Cap Value, LP        |            |
|------------|------------------------------------------------|-----------------|
| By:        | /s/                                            | Nelson Obus     |   |
| Name:      | Nelson Obus                                    |            |
| Title:     | Managing Member                                |            |
|       |                                           |
| PURCHASER: | Wynnefield Partners Small Cap Value, LP I      |            |
| By:        | /s/                                            | Nelson Obus     |   |
| Name:      | Nelson Obus                                    |            |
| Title:     | Managing Member                                |            |
|       |                                           |
| PURCHASER: | Wynnefield Small Cap Value Offshore Fund, Ltd. |            |
| By:        | /s/                                            | Nelson Obus     |   |
| Name:      | Nelson Obus                                    |            |
| Title:     | President                                      |            |
|       |                                           |
| PURCHASER: | Min Capital Corp Retirement Trust              |            |
| By:        | /s/                                            | Robert Friedman |   |
| Name:      | Robert Friedman                                |            |
| Title:     | Trustee                                        |            |
|            |                                                |                 |  |  |  |

 

5

----

 

**EXHIBIT A**

 

**Form of Note**

 

(See Exhibit 10.2)

 

----

 

**EXHIBIT B**

 

**Form of Warrant**

 

(See Exhibit 10.3)

 

----

 

**EXHIBIT C**

 

**Form of Amended and RestatedRegistration Rights Agreement**

 

(See Exhibit 10.4)

 

----

 

**EXHIBIT D**

 

**Form of Amended and RestatedSecurity Agreement**

 

(See Exhibit 10.5)

 

----

 

**SCHEDULE I**

 
| ** **                                                                 | ** ** | **Principal  Amount of Notes** | ** ** | **Cash  Paid at Closing to Purchasers** | ** ** |
|----------------------------------------------------------------------------|------------|--------------------------------|------------|-----------------------------------------|------------|
| **Purchaser Name and Address**                                             | ** ** | **Cash**                       | ** ** | **July 2005  Notes**               | ** ** | **June 2006  Notes** | ** ** | **Accrued  Interest*** | ** ** | **Accrued  Registration  Fee** | ** ** | **TOTAL** | ** ** | **Redemption  of  Notes** | ** ** | **Accrued  Interest** | ** ** | **Accrued  Registration  Fee** | ** ** |
| ** **                                                                 | ** ** | ** **                     | ** ** | ** **                              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Jess S. Morgan & Co. Inc.**                                     |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 16830 Ventura Blvd, Ste 411                                                |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Encino, CA 91436                                                           | ** ** | 0.00                           |       | 617,500.00                              |       | 996,000.00 |   | 83,776.66 |   | 222,300.00 |   | 1,919,576.66 |   | 20,000.00 |   | 1,976.90 |   | 5,760.00 |   |
|                                                                       |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Prana**                                                                  |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 8491 Sunset Blvd., Suite 415                                          |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Los Angeles, CA 90069-1911                                                 | ** ** | 0.00                           |       | 100,000.00                              |       | — |   | 12,000.00 |   | 36,000.00 |   | 148,000.00 |   | — |   | 133.33 |   | — |   |
|                                                                       |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **DKR Soundshore Oasis Holding Fund Ltd.**                                 |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 1281 East Main Street                                                      | ** ** |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Stamford, CT 06902                                                         |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Attn: Dan Saks                                                             |       | 0.00                           |       | —                                  |       | — |   | — |   | — |   | — |   | 475,000.00 |   | 57,633.33 |   | 171,000.00 |   |
|                                                                       |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Rodd Friedman**                                                          |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 93 Hillspoint Road                                                         | ** ** |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Westport, CT 06880                                                         |       | 0.00                           |       | 100,500.00                              |       | — |   | 12,194.00 |   | 36,180.00 |   | 148,874.00 |   | — |   | — |   | — |   |
|                                                                       |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Bear Stearns f/b/o Rosen Capital LP M/P/P Plan  and Bruce Rosen TTEE**   |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 1365 York Avenue                                                           |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Apt. 34B                                                                   | ** ** |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| New York, NY 10021                                                         |       | 0.00                           |       | —                                  |       | — |   | — |   | — |   | — |   | 49,500.00 |   | 6,006.00 |   | 17,820.00 |   |
|                                                                       |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Caydal, LLC**                                                            |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 90 Madison Street, Suite 301                                          |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Denver, CO 80206                                                           | ** ** | 0.00                           |       | —                                  |       | — |   | — |   | — |   | — |   | 50,000.00 |   | 6,066.67 |   | 18,000.00 |   |
|                                                                       |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Marlin Fund, LP**                                                        |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 3060 Peachtree Road, NW                                                    |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Suite 1815                                                            | ** ** |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Atlanta, GA 30305                                                          |       | 0.00                           |       | —                                  |       | — |   | — |   | — |   | — |   | 290,250.50 |   | 35,217.06 |   | 104,490.18 |   |
|                                                                       |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Marlin Fund II, LP**                                                     |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 3060 Peachtree Road, NW                                                    |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Suite 1815                                                            | ** ** |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Atlanta, GA 30305                                                          |       | 0.00                           |       | —                                  |       | — |   | — |   | — |   | — |   | 54,000.00 |   | 6,552.00 |   | 19,440.00 |   |
|                                                                       |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Marlin Fund Offshore, Ltd.  c/o Hemisphere Management (B.V.I.) Limited** |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Bison Court                                                                |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| P.O. Box 3460                                                         | ** ** |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Road Town                                                                  |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Tortola                                                                    |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| British Virgin Islands                                                     |       | 0.00                           |       | —                                  |       | — |   | — |   | — |   | — |   | 330,750.50 |   | 40,131.06 |   | 119,070.18 |   |
|                                                                       |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Larry Bouts**                                                            |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 140 Delaware Lane                                                          |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Franklin Lakes, NJ 07417                                                   | ** ** | 0.00                           |       | —                                  |       | — |   | — |   | — |   | — |   | 25,000.00 |   | 3,033.33 |   | 9,000.00 |   |
|                                                                       |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Really Cool Group Ltd.**                                                 |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| The Metrepole                                                              |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Roseville Street                                                           |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| St. Helier, Jersey                                                         |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Channel IIslands, UK                                                       |       | 0.00                           |       | —                                  |       | — |   | — |   | — |   | — |   | 100,000.00 |   | 12,133.33 |   | 36,000.00 |   |
|                                                                       |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Myron Neugeboren**                                                       |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 199 Wells Hill Road                                                        | ** ** |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Lakeville, CT 06039                                                        |       | 0.00                           |       | 24,000.00                               |       | — |   | — |   | — |   | 24,000.00 |   | — |   | 2,912.00 |   | 8,640.00 |   |
|                                                                       |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Jonas Brachfeld**                                                        |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 227 Nicholson Drive                                                        | ** ** |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Moorestown, NJ 08057                                                       |       | 0.00                           |       | —                                  |       | — |   | — |   | — |   | — |   | 12,000.00 |   | 1,456.00 |   | 4,320.00 |   |
|                                                                       |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Greg Osborn**                                                            |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 202 Mountain Avenue                                                        | ** ** |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Ridgewood, NJ 07450                                                        |       | 0.00                           |       | 20,000.00                               |       | — |   | — |   | — |   | 20,000.00 |   | 26,250.00 |   | 5,611.67 |   | 16,650.00 |   |
|                                                                       |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Richard Molinsky**                                                       |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 51 Lords Highway East                                                      | ** ** |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Weston, CT 06883                                                           |       | 0.00                           |       | —                                  |       | — |   | — |   | — |   | — |   | 30,000.00 |   | 3,640.00 |   | 10,800.00 |   |
|                                                                       |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Richard and Joanne Kane**                                                |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 95 Wildwood Road                                                           | ** ** |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Ridgewood, NJ 07452                                                        |       | 0.00                           |       | —                                  |       | — |   | — |   | — |   | — |   | 20,000.00 |   | 2,426.67 |   | 7,200.00 |   |
|                                                                       |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Ricardo Salas**                                                          |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 64 Ritz Cove Drive                                                         |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Monarch Beach, CA 92629                                                    | ** ** | 0.00                           |       | 125,000.00                              |       | — |   | 15,166.67 |   | 45,000.00 |   | 185,166.67 |   | — |   | — |   | — |   |
| ** **                                                                 |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Wry Ltd.**                                                               |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| The Metropole                                                              |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Roseville Street                                                           |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| St. Helier, Jersey, Channel                                                | ** ** |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Islands, UK                                                                |       | 0.00                           |       | —                                  |       | — |   | — |   | — |   | — |   | 30,000.00 |   | 3,640.00 |   | 10,800.00 |   |
|                                                                       |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Keith Barksdale**                                                        |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 95 Wildwood Road                                                           | ** ** |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Ridgewood, NJ 07452                                                        |       | 0.00                           |       | —                                  |       | — |   | — |   | — |   | — |   | 46,250.00 |   | 5,611.67 |   | 16,650.00 |   |
|                                                                       |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Winvest Venture Partners Inc.**                                          |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cambridge B/D 2F, 1461-15                                                  |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Seochodong, Seochogu,                                                      | ** ** |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Seoul Korea 137-720                                                        |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Att: Mr. Chang-Ki Cho                                                 |       | 0.00                           |       | 250,000.00                              |       | — |   | 30,333.33 |   | 90,000.00 |   | 370,333.33 |   | — |   | — |   | — |   |

 

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| ** **                                         | ** ** | **Principal  Amount of Notes** | ** ** | **Cash  Paid at Closing to Purchasers** | ** ** |
|----------------------------------------------------|------------|--------------------------------|------------|-----------------------------------------|------------|
| **Purchaser Name and Address**                     | ** ** | **Cash**                       | ** ** | **July 2005  Notes**               | ** ** | **June 2006  Notes** | ** ** | **Accrued  Interest*** | ** ** | **Accrued  Registration  Fee** | ** ** | **TOTAL** | ** ** | **Redemption  of  Notes** | ** ** | **Accrued  Interest** | ** ** | **Accrued  Registration  Fee** | ** ** |
|                                               |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Eric Brachfeld**                                 |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 890 West End Ave.                                  |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Apartment 16D                                      |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| New York, NY 10025                                 |       | 0.00                           |       | 31,250.00                               |       | — |   | 3,791.67 |   | 11,250.00 |   | 46,291.67 |   | — |   | — |   | — |   |
|                                               |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Ed Neugeboren**                                  |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 282 New Norwalk Road                               |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| New Canaan, CT 06840                               |       | 0.00                           |       | 15,625.00                               |       | — |   | — |   | — |   | 15,625.00 |   | 15,625.00 |   | 3,791.67 |   | 11,250.00 |   |
|                                               |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Dolphin Direct Equity Partners, L.P.**           |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| c/o Dolphin Asset Management Corp.                 |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 129 East 17th Street                               |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| New York, NY 10003                                 |       | 0.00                           |       | —                                  |       | — |   | — |   | — |   | — |   | 250,000.00 |   | 2,222.22 |   | — |   |
|                                               |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Dolphin Offshore Partners, L.P.**                |       | ** **                     |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| c/o Dolphin Asset Management Corp.                 |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 129 East 17th Street                               |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| New York, NY 10003                                 |       | 500,000.00                     |       | —                                  |       | — |   | — |   | — |   | 500,000.00 |   | — |   | — |   | — |   |
|                                               |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Harvard Developments Inc.**                      |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 2000-1874 Scarth Street                            |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Regina, Saskatchewan, Canada S4P4B3                |       | 0.00                           |       | —                                  |       | 450,000.00 |   | — |   | — |   | 450,000.00 |   | — |   | 4,000.00 |   | — |   |
|                                               |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Echo Capital Growth Corporation**                |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 2000-1874 Scarth Street                            |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Regina, Saskatchewan, Canada S4P4B3                |       | 0.00                           |       | —                                  |       | 300,000.00 |   | — |   | — |   | 300,000.00 |   | — |   | 2,666.67 |   | — |   |
|                                               |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Terrence L. Mealy**                              |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 1821 Briarwood Lane                                |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Muscatine, IA 52761                                |       | 0.00                           |       | —                                  |       | 250,000.00 |   | — |   | — |   | 250,000.00 |   | — |   | 2,222.22 |   | — |   |
|                                               |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Shinnston Enterprises Ltd**                      |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 1700 S MacDill Ave, Ste 220                        |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Tampa, FL 33629                                    |       | 0.00                           |       | —                                  |       | 100,000.00 |   | — |   | — |   | 100,000.00 |   | — |   | 888.89 |   | — |   |
|                                               |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Shea Diversified Investments, Inc.**             |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 655 Brea Canyon Road                               |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Walnut, CA 91789                                   |       | 500,000.00                     |       | —                                  |       | 750,000.00 |   | — |   | — |   | 1,250,000.00 |   | — |   | 6,666.67 |   | — |   |
|                                               |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Commonwealth Associates, L.P.**                  |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 830 Third Avenue, 8th Fl                           |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| New York, NY 10022                                 |       | 0.00                           |       | —                                  |       | 150,000.00 |   | — |   | — |   | 150,000.00 |   | — |   | 1,333.33 |   | — |   |
|                                               |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Neil I Goldman**                                 |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 812 Park Avenue – 8E                          |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| New York, NY 10021                                 |       | 300,000.00                     |       | —                                  |       | — |   | — |   | — |   | 300,000.00 |   | — |   | — |   | — |   |
|                                               |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **LBJ Holdings, LLC**                              |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 3366 N. Torrey Pines Court, Suite 210         |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| La Jolla, CA 92037                                 |       | 150,000.00                     |       | —                                  |       | — |   | — |   | — |   | 150,000.00 |   | — |   | — |   | — |   |
|                                               |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Jay Stout**                                      |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 885 Third Avenue, 34th FL                          |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| New York, NY 10022                                 |       | 100,000.00                     |       | —                                  |       | — |   | — |   | — |   | 100,000.00 |   | — |   | — |   | — |   |
|                                               |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **MicroCapital Fund Ltd.**                         |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 201 Post St. Suite 1001                       |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| San Francisco, CA 94108                            |       | 500,000.00                     |       | —                                  |       | — |   | — |   | — |   | 500,000.00 |   | — |   | — |   | — |   |
|                                               |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **MicroCapital Fund L.P.**                         |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 201 Post St. Suite 1001                       |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| San Francisco, CA 94108                            |       | 1,000,000.00                   |       | —                                  |       | — |   | — |   | — |   | 1,000,000.00 |   | — |   | — |   | — |   |
|                                               |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Journeys End Partners, LLC**                     |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 707 Westchester Ave., 4th FL                       |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Wite Plains, NY 10604                              |       | 300,000.00                     |       | —                                  |       | — |   | — |   | — |   | 300,000.00 |   | — |   | — |   | — |   |
|                                               |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Wynnefield Partners Small Cap Value LP**         |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 450 Seventh Avenue, Suite 509                 |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| New York, NY 10123                                 |       | 420,000.00                     |       | —                                  |       | — |   | — |   | — |   | 420,000.00 |   | — |   | — |   | — |   |
|                                               |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Wynnefield Partners Small Cap Value LP I**       |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 450** **Seventh  Avenue, Suite 509       |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| New York, NY 10123                                 |       | 550,000.00                     |       | —                                  |       | — |   | — |   | — |   | 550,000.00 |   | — |   | — |   | — |   |
|                                               |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Wynnefield Small Cap Value Offshore Fund, Ltd.** |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 450 Seventh Avenue, Suite 509                 |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| New York, NY 10123                                 |       | 530,000.00                     |       | —                                  |       | — |   | — |   | — |   | 530,000.00 |   | — |   | — |   | — |   |
|                                               |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Min Capital Corp Retirement Trust**              |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 27110 Grand Central Pky, Apt 4c                    |       |                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Floral Park, NY 11005                              |       | 150,000.00                     |       | —                                  |       | — |   | — |   | — |   | 150,000.00 |   | — |   | — |   | — |   |

 

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*These investorselected to be paid certain accrued interest in the form of Notes.

 

**Not a signatoryto this Agreement.

 

----