Document:

EXHIBIT 10.1

 

 

 

 

AMENDMENT NO. 1

TO NOTE PURCHASE AGREEMENT

DATED AS OF NOVEMBER 5, 2009

 

 

dated
as of August 18, 2010

 

 

by
and among

 

XPLORE
TECHNOLOGIES CORP.,

 

XPLORE
TECHNOLOGIES CORPORATION OF AMERICA,

 

and

 

SG PHOENIX LLC,

as Agent for the Purchasers

 

 

 

 

This AMENDMENT NO. 1 TO  NOTE PURCHASE AGREEMENT
DATED AS OF NOVEMBER 5, 2009
is entered into as of August 18, 2009 (this “Amendment Agreement”) by and among
XPLORE TECHNOLOGIES CORP., a Delaware corporation (the “Parent”), XPLORE
TECHNOLOGIES CORPORATION OF AMERICA, a Delaware corporation (the “Subsidiary”,
and together with the Parent, the “Borrowers”), SG PHOENIX LLC, a
Delaware limited liability company, as agent for the Purchasers (the “Agent”),
and PHOENIX VENTURE FUND LLC, a Delaware limited liability company (“Phoenix”).
Phoenix and such other persons designated by Phoenix to purchase a Bridge Note
(as defined below) from the Borrowers under this Amendment Agreement are hereby
referred to as the “Bridge Note Purchasers” and each, a “Bridge Note
Purchaser”.

 

W I T N E S S E T H:

 

WHEREAS, the Borrowers
and certain Purchasers are parties to the Note Purchase Agreement, dated as of November 5,
2009 (the “Original NPA”), pursuant to which the Borrowers (a) on
the Initial Closing Date, sold to the Initial Purchasers the Initial Closing
Notes and issued to the Initial Purchasers the Initial Closing Warrants, and
such Initial Purchasers purchased such Initial Closing Notes and such Initial
Closing Warrants from the Borrowers, and (b) on the Subsequent Closing
Date, sold to the Additional Purchasers the Additional Notes and issued to the
Additional Purchasers the Additional Warrants, and such Additional Purchasers
purchased such Additional Notes and such Additional Warrants from the
Borrowers;

 

WHEREAS, the Borrowers and
the Agent desire to amend the Original NPA to, among other things, allow the
Borrowers to issue and sell in the sole and absolute discretion of the Agent
one or more senior secured promissory notes in the aggregate principal amount
of up to $2,000,000 (the “Bridge Notes” and each, a “Bridge Note”)
to a Bridge Note Purchaser;

 

WHEREAS, Section 11.8
of the Original NPA provides that, subject to Section 11.18(b) of the
Original NPA, any term of the Original NPA may be amended, and the observance
of any term hereof may be waived (either generally or in a particular
instance), with the written consent of the Agent, acting on behalf of the
Purchasers, and the Borrowers, and that any amendment or waiver effected in
accordance with such Section 11.8 shall be binding upon each of the
parties to the Original NPA;

 

NOW, THEREFORE, in
consideration of the premises and agreements contained in this Amendment
Agreement, and for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, THE PARTIES HERETO AGREE AS FOLLOWS:

 

SECTION 1.         DEFINITIONS IN THIS AMENDMENT
AGREEMENT

 

Except as otherwise defined
in this Amendment Agreement (including the preamble and the recitals hereof),
capitalized terms are used herein with the meanings ascribed to such terms in
the Original NPA.

 

 

SECTION 2.         AMENDMENTS TO ORIGINAL NPA

 

2.1           Amendment to Recitals of the
Original NPA.  The
Recitals of the Original NPA are hereby amended and restated in their entirety
to read as follows:

 

“WHEREAS,
subject to the terms and conditions set forth herein, the Borrowers desire to
issue and sell to the Initial Purchasers on the Initial Closing Date (i) senior
secured subordinated promissory notes in the aggregate principal amount of not
greater than $3,300,000 maturing on the Maturity Date (each, an “Initial
Closing Note” and, collectively, the “Initial Closing Notes”) and (ii) warrants
to purchase up to such number of shares of Common Stock as determined by
dividing (x) 100% of the aggregate principal amount of the Initial Closing
Notes purchased by such Initial Purchasers, by (y) the Warrant Exercise
Price (each, an “Initial Closing Warrant” and, collectively, the “Initial
Closing Warrants”), and the Initial Purchasers shall purchase the Initial
Closing Notes and the Initial Closing Warrants from the Borrowers on the terms
and conditions set forth herein;

 

WHEREAS,
subject to the terms and conditions set forth herein, the Borrowers desire to
issue and sell to the Additional Purchasers on any Subsequent Closing Date (i) senior
secured subordinated promissory notes (each, an “Additional Note” and,
collectively, the “Additional Notes”), in an aggregate principal amount
which together with the aggregate principal amount of the Initial Closing Notes
does not exceed $3,300,000 maturing on the Maturity Date and (ii) warrants
to purchase such number of shares of Common Stock as determined by dividing (x)
100% of the aggregate principal amount of the Additional Notes purchased by
such Additional Purchasers, by (y) the Warrant Exercise Price (each, an “Additional
Warrant” and, collectively, the “Additional Warrants”) and such
Additional Purchasers shall purchase such Additional Notes and such Additional
Warrants from the Borrowers on the terms and conditions set forth herein;

 

WHEREAS,
subject to the terms and conditions set forth herein, the Borrowers desire to
issue and sell to the Bridge Note Purchasers, in the sole and absolute
discretion of the Agent, on any Bridge Closing Date (i) senior secured
subordinated promissory notes (each, a “Bridge Note” and, collectively,
the “Bridge Notes” and, together with the Additional Notes and the
Initial Closing Notes, the “Notes”), in an aggregate principal amount
not exceed $2,000,000 maturing on the Maturity Date and (ii) warrants to
purchase such number of shares of Common Stock as determined by dividing (x) 100%
of the aggregate principal amount of the Bridge Notes purchased by such Bridge
Note Purchasers, by (y) $0.07 (each, a “Bridge Note Warrant” and,
collectively, the “Bridge Note Warrants” and together with the
Additional Warrants and the Initial Closing Warrants, the “Warrants”),
and such Bridge Note Purchasers shall purchase such Bridge Notes and such
Bridge Note Warrants from the Borrowers on the terms and conditions set forth
herein; and

 

2

 

WHEREAS,
the board of directors of each of the Parent and of the Subsidiary has approved
the execution and delivery of this Agreement, all ancillary agreements related
hereto, and the transactions contemplated hereby.”

 

2.2           Amendments to Section 1
of the Original NPA.

 

(a)           Amendment to Section 1.1
of the Original NPA.  Section 1.1
of the Original NPA is hereby amended by the addition of Section 1.1(c) at
the end of Section 1.1, such added Section 1.1(c) to read in its
entirety as follows:

 

“(c)         Subject to the terms and
conditions of this Agreement, on or prior to any Bridge Closing Date, the
Borrowers shall have authorized the issuance and sale to the Bridge Note
Purchasers of (i) all Bridge Notes to be issued at any Bridge Closing in
the form attached hereto as Exhibit A, and (ii) the Bridge
Note Warrants, in the form attached hereto as Exhibit B.”

 

(b)           Amendment to Section 1.3
of the Original NPA.  The last
sentence of Section 1.3 of the Original NPA is hereby amended and restated
in its entirety to read as follows:

 

“1.3         At any time and
from time to time, in the sole discretion of the Agent, one or more Bridge Note
Purchasers may purchase at one or more Bridge Closings, (i) Bridge Notes,
the aggregate purchase price of which shall not exceed $2,000,000 and (ii) Bridge
Note Warrants for the number of shares of Common Stock as determined by
dividing (x) 100% of the principal amount of such Bridge Notes purchased
by such Bridge Note Purchasers by $0.07. 
Schedule III attached hereto shall be amended from time to time
concurrent with each Bridge Closing to include the names of the Bridge Note
Purchasers purchasing the Bridge Notes and Bridge Note Warrants at such Bridge
Closing as well as the purchase price of the Bridge Notes, and the number of
shares of Common Stock that can be purchased on exercise of the Bridge Note
Warrants issued in connection with such Bridge Closing.  The aggregate purchase price for the Notes
and Warrants shall not exceed $5,300,000.”

 

(c)           Amendment to Section 1.4
of the Original NPA.  Section 1.4
of the Original NPA is hereby and restated in its entirety as follows:

 

“The Borrowers agree to use the net proceeds from the sale and issuance
of the Notes and Warrants pursuant to this Agreement for working capital,
product development and other general corporate purposes.”

 

(d)           Amendment to Section 1
of the Original NPA.  Section 1
of the Original NPA is hereby amended by the addition of the following as a new
Section 1.7:

 

“1.7         Bridge Closings.  Subject to the satisfaction or waiver of the
closing conditions set forth in Sections 5.1, 5.3 and 5.4, in the sole and
absolute discretion of the Agent, closings with respect to the Bridge Notes and
Bridge Warrants shall 

 

3

 

take place at the offices of Pillsbury Winthrop Shaw Pittman, 1540
Broadway, New York, NY 10036 on such date and at such time as the Borrowers and
the Agent, acting on behalf of the Purchasers, mutually agree upon in writing
(each a “Bridge Closing” and collectively, the “Bridge Closings”).  The date of each Bridge Closing is referred
to herein as a “Bridge Closing Date”.

 

At each Bridge Closing, the
Borrowers shall deliver to each Bridge Note Purchaser (i) a Bridge Note,
dated as of such Bridge Closing Date, in an original principal amount equal to
the dollar amount set forth opposite such Bridge Note Purchaser’s name under
the heading “Bridge Note Purchase Price” on Schedule III hereto,
which shall be updated by the Borrowers and the Agent, acting on behalf of the
Purchasers, from time to time as necessary upon each Bridge Closing, with
respect to such Bridge Purchaser and (ii) Bridge Note Warrants for the
number of shares of Common Stock set forth opposite such Bridge Note Purchaser’s
name under the heading “Number of Bridge Note Warrant Shares” in Schedule
III hereto, which shall be updated by the Borrowers and the Agent, acting
on behalf of the Purchasers, from time to time as necessary upon each Bridge
Closing, all against payment in the amounts set forth opposite such Bridge Note
Purchaser’s name under the heading “Bridge Note Purchase Price” on Schedule
III hereto, by any combination of (i) check or (ii) wire transfer
of immediately available funds to such account as the Borrowers designate.”

 

2.3           Amendment to Section 2.1
of the Original NPA.  Section 2.1
of the Original NPA is hereby amended and restated in its entirety to read as
follows:

 

“The Notes shall be issued in the aggregate principal amount of up to
$5,300,000 and shall bear interest, and otherwise be in the form attached
hereto as Exhibit A.  Payment
of all principal and accrued and unpaid interest on any Note shall be made in
full no later than the Maturity Date.”

 

2.4           Amendment to Section 2.3
of the Original NPA.  Section 2.3
of the Original NPA is hereby amended and restated in its entirety to read as
follows:

 

“The indebtedness under the Notes (including the right of repayment of
principal of and interest on the Notes) and the security interest of the
Purchasers in the assets of the Borrowers shall be subordinated to the
indebtedness and security interest of DSCH Capital Partners, LLC, d/b/a Far
West Capital, a Texas limited liability company (“Far West”), up to a
maximum amount of $4,750,000 under that certain Accounts Receivable Purchasing
Agreement, dated December 10, 2009 (as the same may from time to time be
amended, modified, supplemented or refinanced with Far West, the “Senior
Credit Agreement”), in accordance with the Far West Subordination Agreement
executed on December 10, 2009 (the “Far West Subordination Agreement”).”

 

4

 

2.5           Amendments to Section 5
of the Original NPA.

 

(a)           Amendment to Section 5.3
of the Original NPA.  The heading
and preamble to Section 5.3 of the Original NPA are hereby amended and
restated to read as follows:

 

“Conditions of Additional Purchasers’ and Bridge Note Purchasers’
Obligations at any Subsequent Closing or Bridge Closing.  In addition to the conditions set forth in Section 5.1,
the obligations of each Additional Purchaser or Bridge Note Purchaser, as the
case may be, under Section 1.3 of this Agreement are subject to the
satisfaction by the Borrowers on each Subsequent Closing Date or Bridge Closing
Date, as the case may be, of the following conditions:”

 

(b)           Amendment to Section 5.3
of the Original NPA.  Section 5.3
is hereby amended by the addition of the following subsections at the end of Section 5.3,
such added subsections to read as follows:

 

“(g)         Supplemental Schedule III.  On or before any Bridge Closing Date, the
Parent shall deliver to the Agent, acting on behalf of each Bridge Note
Purchaser, a supplement to Schedule III reflecting the amount of the Bridge
Notes and the Bridge Note Warrants that the Borrowers will issue to each Bridge
Note Purchaser on such Bridge Closing Date and the aggregate purchase price
therefor.

 

(h)           Bridge Notes.  The Parent shall deliver to the Agent, acting
on behalf of each Bridge Note Purchaser, such Bridge Note Purchaser’s Bridge
Notes.

 

(i)            Bridge Note Warrants.  With respect to any Bridge Closing, the
Parent shall deliver to the Agent, acting on behalf of each Bridge Note
Purchaser, such Bridge Note Purchaser’s Bridge Note Warrants.”

 

2.6           Amendments to, and Addition
of, Certain Definitions in Section 9 of the Original NPA.

 

(a)           Amendment to Definition of “Purchasers”
in the Original NPA.  The
definition of “Purchasers” in the Original NPA shall be deemed to include the
Bridge Note Purchaser(s).

 

(b)           Amendment to Definition of “Warrant
Exercise Price” in Section 9 of the Original NPA.  The definition of “Warrant Exercise Price” in
Section 9 of the Original NPA is hereby amended and restated in its
entirety to read as follows:

 

““Warrant
Exercise Price” shall mean, with respect to the Initial Closing Warrants
and any Additional Warrants, $0.10 per share; and with respect to the Bridge
Note Warrants, $0.07 per share.”

 

(c)           Amendment to Definition of “Closing
Date” in Section 9 of the Original NPA.  The definition of “Closing Date” in Section 9
of the Original NPA is hereby amended to include any Bridge Closing Dates.

 

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(d)           Amendment to Definition of “Loan
Documents” in Section 9 of the Original NPA.  The definition of “Loan Documents” in Section 9
of the Original NPA is hereby amended to delete the reference to the SVB
Subordination Agreement and include the term the “Bridge Note Warrants”.

 

(e)           Addition of Certain
Definitions to Section 9 of the Original NPA.  The following definitions are hereby added to
Section 9 of the Original NPA:

 

““Bridge
Note(s)” shall have the meaning ascribed to it in the recitals.”

 

““Bridge
Note Warrant(s)” shall have the meaning ascribed to it in the recitals.”

 

““Far
West Subordination Agreement” shall have the meaning ascribed to it in Section 2.3.”

 

““Financial
Statements” shall mean the audited consolidated financial statements of the
Parent as at and for the years ended March 31, 2010 and 2009 and the
unaudited financial statements of the Parent as at and for the periods ended June 30,
2010 and 2009.”

 

““Loan
Documents” shall mean the Notes, the Security Agreement, the Subordination
Agreement, the Far West Subordination Agreement, the Warrants and all
agreements related hereto and thereto.”

 

““SEC
Reports” shall mean the Parent’s Annual Report on Form 10-K for the
year ended March 31, 2010 and its Quarterly Report on Form 10-Q for
the quarter ended June 30, 2010.”

 

2.7           Amendment to Section 11.6
of the Original NPA.  Subsection (b) of
the Original NPA is hereby amended and restated to read as follows:

 

“if
(i) to an Additional Purchaser, to such Additional Purchaser’s address set
forth on Schedule II hereto, or at such other address or facsimile
number as such Additional Purchaser shall have furnished to the Parent in
writing or (ii) to a Bridge Note Purchaser, to such Bridge Note Purchaser’s
address set forth on Schedule III hereto, or at such other address or
facsimile number as such Bridge Note Purchaser shall have furnished to the
Parent in writing; or”

 

SECTION 3.         JOINDER OF BRIDGE NOTE PURCHASER

 

Each Bridge Note Purchaser
hereby acknowledges, agrees and confirms that, by its execution of this
Amendment Agreement, such Bridge Note Purchaser will be deemed to be a party to
the Agreement and a “Purchaser” for all purposes of the Agreement, and shall be
deemed to have made all representations and warranties of a Purchaser
thereunder and shall have the rights and be subject to all of the obligations
of a Purchaser thereunder as if it had 

 

6

 

executed the Agreement as an
original signatory.  Each Bridge Note
Purchaser hereby ratifies, as of the date hereof, and agrees to be bound by,
all of the terms, provisions and conditions applicable to the Purchasers contained
in the Agreement.  On or prior to any
Bridge Note Closing any additional Bridge Note Purchasers shall be required to
execute a joinder to this Amendment Agreement or the Agreement making all of
the foregoing acknowledgements, agreements, confirmations and ratifications.

 

SECTION 4.         REPRESENTATIONS AND WARRANTIES

 

The Borrowers represent and
warrant to the Bridge Note Purchasers and the Agent that, except as set forth
on the Bring-Down Disclosure Schedule attached hereto as Annex A (the “Bring-Down
Disclosure Schedule”), all representations and warranties contained in the
Agreement and in the Security Agreement are true and correct in all respects at
and as of the date hereof as if made on the date hereof and on any Bridge
Closing Date as if made on such date; provided,
however, that, for the purpose of the representations and warranties made by
the Borrowers under this Section 4, the references in the Agreement
to the schedules in the Disclosure Schedule attached to the Agreement shall be
deemed to be the references to the schedules in the Bring-Down Disclosure
Schedule.  The Borrowers further
represent and warrant to the Bridge Note Purchasers and the Agent that (a) no
Event of Default has occurred, or will occur, before and after giving effect to
the transactions contemplated by this Amendment Agreement, (b) the
Borrowers do not have outstanding, as of the date hereof, and will not have
after giving effect to the issuance of the Bridge Notes, any indebtedness for
borrowed money other than the Note Indebtedness and the indebtedness under the
Senior Credit Agreement, and (c) the Borrowers maintains the same insurance
coverage (including scope and amounts) with the same carriers as Borrowers had
on the Initial Closing Date.

 

In addition to the foregoing,
the Borrowers, jointly and severally, hereby represent and warrant to each
Bridge Note Purchaser as of the applicable Bridge Closing Date the following:

 

4.1           Corporate Power and
Authority.  Each of the
Borrowers has all requisite corporate power and authority to execute and
deliver the Loan Documents and this Amendment Agreement to which it is a
party.  The Borrowers have all requisite
corporate power and authority to issue and sell the Bridge Notes and the Bridge
Warrants to the Bridge Note Purchasers hereunder.  Each of the Borrowers has all requisite
corporate power and authority to carry out and perform its obligations under
the terms of this Amendment Agreement and the Loan Documents.

 

4.2           Authorization.  The execution, delivery and performance by
each Borrower of this Amendment Agreement and the related Loan Agreements, the
sale, issuance and delivery of the Bridge Notes and the Bridge Warrants and the
performance of all of the obligations of the Borrowers under this Amendment
Agreement and each of the related Loan Documents have been authorized by each
Borrower’s Board of Directors, no other corporate action on the part of any
Borrower and, except as set forth on Schedule 4.2, no other corporate or
other approval or authorization is required on the part of any Borrower or any
other Person, by Law or otherwise, in order to make this Amendment Agreement
and the related Loan Documents the valid, binding and enforceable obligations
(subject to (i) Laws of general application relating to bankruptcy,

 

7

 

insolvency, and the relief
of debtors, and (ii) rules of Law governing specific performance,
injunctive relief, or other equitable remedies) of the Borrowers, as the case
may be.  This Amendment Agreement and
each of the related Loan Documents, when executed and delivered by each of the
Borrowers that is a party thereto, will constitute a valid and legally binding
obligation of such Borrower, enforceable against such Borrower in accordance
with its respective terms, subject to (i) Laws of general application
relating to bankruptcy, insolvency, and the relief of debtors, and (ii) rules of
Law governing specific performance, injunctive relief, or other equitable
remedies.

 

4.3           Permits.  No Permit will be suspended, cancelled or
adversely modified as a result of the execution and delivery of this Amendment
Agreement and the related Loan Documents.

 

4.4           Material Contracts.  There is no material breach, violation or
default by a Borrower under any Material Contract, and to each Borrower’s
Knowledge, no event (including, without limitation, the transactions
contemplated by this Amendment Agreement) has occurred which, with notice or
lapse of time or both, would (A) constitute a material breach, violation
or default by a Borrower under any such Material Contract, or (B) give
rise to any Lien (other than a Permitted Lien) or right of termination,
modification, cancellation, prepayment, suspension, limitation, revocation or
acceleration against a Borrower under any such Material Contract, which
expiration, termination or event would cause a Material Adverse Effect.

 

4.5           Absence of Conflicts.  The execution, delivery, and performance of,
and compliance with this Amendment Agreement and the related Loan Documents,
and the consummation of the transactions contemplated hereby and thereby, have
not and will not:

 

(a)           violate, conflict with or
result in a breach of any provision of or constitute a default (or an event
which, with notice or lapse of time or both, would constitute a default) under,
or result in the termination of, or accelerate the performance required by, any
of the terms, conditions or provisions of (i) Borrower’s Certificate of
Incorporation or its Bylaws, or (ii) any Material Contract, or result in
the creation of any Lien (other than a Permitted Lien or the liens granted
under the Security Agreement) upon any of the assets, properties or business of
either Borrower; or

 

(b)           violate any judgment,
ruling, order, writ, injunction, award, decree, or any Law or regulation of any
court or federal, state, county or local government or any other governmental,
regulatory or administrative agency or authority which is applicable to either
Borrower or any of their assets, properties or businesses.

 

4.6           Consents.  No consent, approval, waiver or
authorization, or designation, declaration, notification, or filing with any
person or entity (governmental or private), is required by any Borrower in
connection with the valid execution, delivery and performance of this Amendment
Agreement or the related Loan Documents, the offer, sale or issuance of the
Bridge Notes and Bridge Warrants other than notifications or filings as
provided on Schedule 4.5.

 

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4.7           Offering of Bridge Notes and
Bridge Warrants.  No form of
general solicitation or general advertising was used by the Borrowers or any of
their agents or representatives in connection with the offer and sale of the
Bridge Notes and the Bridge Warrants.

 

4.8           SEC Reports; Disclosure.  (a)  The Parent has made available to
the Bridge Note Purchasers, in the form filed with the SEC (including any
amendments thereto) its Annual Report on Form 10-K for the year ended March 31,
2010 and its Quarterly Report on Form 10-Q for the quarter ended June 30,
2010 (collectively, the “SEC Reports”).

 

(b)           None of (i) this
Amendment Agreement (including, without limitation, the Bring-Down Disclosure
Schedule and the Schedules and Exhibits attached hereto), (ii) any related
Loan Document, or (iii) the SEC Reports contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements contained herein in light of the circumstances under which they were
made not misleading.  There is no fact
which, to the Knowledge of either Borrower, has not been disclosed to the
Bridge Note Purchasers, which could reasonably be expected to have a Material
Adverse Effect on the ability of either Borrower to perform its obligations
under this Amendment Agreement or the related Loan Documents.

 

4.9           Financial Statements.  Included in the SEC Reports are the audited
consolidated financial statements of the Parent as at and for the years ended March 31,
2010 and 2009 and the unaudited financial statements of the Parent as at and
for the periods ended June 30, 2010 and 2009 (collectively, the “Financial
Statements”).  The Financial
Statements have been prepared in accordance with GAAP and fairly present the
financial condition and operating results of the Borrowers on a Consolidated
basis as of the dates and for the periods, indicated therein.  Except as set forth in the Financial
Statements, the Borrowers have no liabilities, obligations or commitments of
any nature (whether accrued, absolute, contingent, unliquidated or otherwise,
due or to become due and regardless of when addressed), which are required to
be included in the Financial Statements in accordance with GAAP other than (a) liabilities
that have arisen in the ordinary course of business since June 30, 2010
that are not reasonably be expected to have a Material Adverse Effect and (b) obligations
to perform after the date hereof any contracts or agreements which have been
disclosed or which are not required to be disclosed in the SEC Reports because
such contracts and agreements are not material to the Borrowers.

 

SECTION 5.         ADDITIONAL CONDITIONS PRECEDENT

 

The effectiveness of this
Amendment Agreement and additional conditions to the Bridge Note Purchaser’s
obligations to purchase the Bridge Notes on the date of this Amendment
Agreement and from time to time thereafter, in its sole and absolute discretion
of the Agent, in all events is subject to satisfaction, in sole determination
by the Agent, of all of the following additional conditions.

 

5.1           Financial Reports.  Upon the request of the Agent at least five
business days prior to a Bridge Closing, delivery to the Agent of a financial
report as of the date three business days prior to such Bridge Closing setting
forth the following: the current amount of cash the Borrowers have in all of
its bank accounts, and detailed accounts receivable and 

 

9

 

accounts payable ageing for
the current period and for 1-30 days, 31-60 days, 61-90 days and over 90 days
past due periods in reasonable detail.

 

5.2           Executed Documents.  This Amendment Agreement and all other
documents and instruments contemplated hereby and thereby shall have been duly
authorized and executed by each of the parties thereto in form and substance
satisfactory to the Agent, and the Borrowers shall have delivered sufficient
original counterparts thereof to the Agent.

 

5.3           Lien Priority.  The security interests in favor of the Agent
and pursuant to the Security Agreement shall be valid and perfected Liens on
the Collateral, subject to no Liens other than Permitted Liens.

 

5.4           No Litigation.  No action, suit, proceeding, claim or dispute
shall have been brought or otherwise have arisen at law, in equity, in
arbitration or by or before any Governmental Authority or arbitrator against
the Borrowers or any of their respective assets that could reasonably be
expected to have a Material Adverse Effect.

 

5.5           Closing Certificates.

 

(a)           Officer’s Certificate.  The Agent shall have received a certificate
from the chief financial officer of each of the Borrowers in form and substance
reasonably satisfactory to the Agent, to the effect that, except as set forth
in the Bring-Down Disclosure Schedule and the other schedules to Section 4,
all representations and warranties of the Borrowers contained in this Amendment
Agreement and the Agreement are true, correct and complete; that neither
Borrower is in violation of any of the covenants contained in the Agreement;
that, before and after giving effect to the transactions contemplated by this
Amendment Agreement, no Event of Default has occurred and is continuing; and
that the Borrowers have satisfied each of the closing conditions to be
satisfied hereby; and that the Borrowers have filed all required tax returns
and have paid or made provision for payment of all taxes and other assessments
shown as due on such returns.

 

(b)           Certificate of Secretary of
Borrowers.  On the date
hereof, the Agent shall have received a certificate of the secretary or
assistant secretary of each Borrower certifying as to the incumbency and
genuineness of the signature of each officer of such Borrower executing any
document in connection with the transactions contemplated hereby and certifying
that attached thereto is (i) a true and complete copy of the certificate
of incorporation of the Parent, and all amendments thereto including the
Certificate of Designation of the Series C Preferred Stock, certified by
the appropriate Governmental Authority in its jurisdiction of incorporation,
which is in full force and effect on the date hereof; (ii) a true and
complete copy of the certificate of incorporation of the Subsidiary and all
amendments thereto, certified by the appropriate Governmental Authority in its
jurisdiction of incorporation, which is in full force and effect on the date
hereof; (iii) a true and complete copy of the bylaws of the Parent as in
effect on the date hereof; (iv) a true and complete copy of resolutions
duly adopted by the Board of Directors of each Borrower authorizing the
issuance of the Bridge Notes, the execution, delivery and performance of this
Amendment Agreement, and the other documents 

 

10

 

relating hereto or thereto; and (v) true,
complete and correct copies of certificates of insurance for each of the
Borrower’s insurance policies each showing the Agent as an additional insured
and/or loss payee, other than its directors and officers insurance policy.  On each Bridge Closing Date, after the
initial Bridge Closing Date, the Agent shall have received a certificate of the
secretary or assistant secretary of each Borrower certifying that since the
initial Bridge Closing Date (i) the certificate of incorporation of the
Parent, and all amendments thereto, including the Certificate of Designation of
the Series C Preferred Stock, has not been amended, modified or cancelled
and is in full force and effect; (ii) the certificate of incorporation of
the Subsidiary, and all amendments thereto, have not been amended, modified or
cancelled and are in full force and effect; (iii) the bylaws of the Parent
have not been amended, modified or cancelled and are in full force and effect; (iv) the
resolutions duly adopted by the Board of Directors of each Borrower authorizing
the issuance of the Bridge Notes, the execution, delivery and performance of
this Amendment Agreement, and the other documents relating hereto or thereto
have not been amended or modified and remain in full force and effect; (v) the
Borrower’s insurance policies have not been amended, modified or cancelled and
are in full force and effect; and (vi) certificates of insurance for each
of the Borrower’s insurance policies each showing the Agent as an additional
insured and/or loss payee, other than its directors and officers insurance
policy, have not been amended, modified or cancelled and are in full force and
effect.

 

(c)           Certificates of Good
Standing.  On or
before the date hereof, the Agent shall have received certificates as of a
recent date of the good standing of each Borrower under the laws of its
jurisdiction of incorporation and the State of Texas.

 

5.6           Consents.  The Borrowers shall have delivered to the
Agent all necessary approvals, authorizations and consents, if any, of all
Persons, Governmental Authorities, and courts having jurisdiction with respect
to the execution and delivery of this Amendment Agreement and the other
documents relating hereto or thereto and all such approvals shall be in form
and substance satisfactory to the Agent.

 

5.7           No Injunction, Etc.  No action, proceeding, investigation,
regulation or legislation shall have been instituted, threatened or proposed
before any Governmental Authority or arbitrator challenging or seeking to
enjoin, restrain or prohibit, or to obtain substantial damages in respect of,
or which is related to or arises out of this Amendment Agreement and the other
documents relating hereto or thereto, or the consummation of the transactions
contemplated hereby or thereby, or which, as determined by the Agent in its
sole discretion, would make it inadvisable to consummate such transactions.  No order, decree, temporary restraining
order, preliminary or permanent injunction or other order issued by any
Governmental Authority or arbitrator preventing such transactions shall be in
effect.  The issuance of the Bridge Notes
on the date hereof or any subsequent Bridge Closing Date and the consummation
of such transactions shall not be prohibited by any applicable Law or other
legal requirement and shall not subject any Bridge Note Purchaser to any
penalty or, in the sole judgment of the Agent, any other liability or onerous
condition under any applicable Law.

 

11

 

5.8           Proceedings and Documents.  All opinions, certificates and other
instruments and all proceedings in connection with the transactions
contemplated by this Amendment Agreement and the other documents relating
hereto or thereto shall be reasonably satisfactory in form and substance to the
Agent.  The Agent shall have received
copies of all other instruments and other evidence as the Agent may reasonably
request, in form and substance reasonably satisfactory to the Agent, with
respect to the transactions contemplated by this Amendment Agreement and the
other documents relating hereto or thereto and the taking of all actions in
connection herewith or therewith.  The
Agent shall have received such other agreements, instruments, approvals,
opinions, certificates and other documents as the Agent may reasonably request
in connection with such transactions and actions, all in form and substance
satisfactory to the Agent, in its sole discretion.

 

SECTION 6.         COVENANTS

 

Section 2(d) of Exhibit F
to the Original NPA is hereby amended by adding the following to the end of
such sentence: “and as provided under the Senior Credit Agreement up to a
maximum amount of $4,750,000.”

 

Section 2(g) of Exhibit F
to the Original NPA is hereby amended and restated in its entirety as follows:

 

“(g) incur any indebtedness other than under the Senior Credit
Agreement up to a maximum of $4,750,000 thereunder or with the prior written consent
of the Agent.”

 

Section 2(h) of Exhibit F
to the Original NPA is hereby amended and restated in its entirety as follows:

 

“(h) guarantee or otherwise become liable with respect to the
obligations of another party or entity.”

 

SECTION 7.         EFFECTIVENESS OF AMENDMENTS

 

The
amendments to the Original NPA contained in this Amendment Agreement shall
become effective on and as of the date hereof. 
From and after such date, each reference in the Original NPA (including
the schedules and exhibits thereto) to the “Agreement”, or any like expression
referring to the Original NPA, shall be deemed to refer to the Original NPA as
amended by this Amendment Agreement.  The
Original NPA, other than as amended hereby, shall remain unchanged and in full
force and effect.

 

SECTION 8.         MISCELLANEOUS

 

8.1           Severability.  Whenever possible, each provision of this
Amendment Agreement will be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Amendment Agreement is
held to be invalid, illegal or unenforceable in any respect under any
applicable law or rule in any jurisdiction, such invalidity, illegality or

 

12

 

unenforceability will not
affect any other provision or any other jurisdiction, but this Amendment
Agreement will be reformed, construed and enforced in such jurisdiction to the
greatest extent possible to carry out the intentions of the parties hereto.

 

8.2           Titles and Subtitles.  The titles and subtitles used in this Amendment
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Amendment Agreement.

 

8.3           Governing Law; Consent to
Jurisdiction.  This
Amendment Agreement shall be construed and enforced in accordance with, and the
rights of the parties shall be governed by, the laws of the State of New York,
excluding the application of any conflicts of laws principles which would
require the application of the Laws of another state. Each of the parties
hereto hereby irrevocably consents to the (non-exclusive) jurisdiction of the
courts of the State of New York and of any Federal court located therein in
connection with any suit, action or other proceeding arising out of or relating
to this Amendment Agreement and waives any objection to venue in the State of
New York.

 

8.4           Counterparts. This Amendment Agreement
may be executed in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.

 

[Signatures follow.]

 

13

 

IN
WITNESS WHEREOF, the parties hereto have caused this Amendment
Agreement to be duly executed by their respective officers as of the day and
year first above written.

 

 

	
  BORROWERS:

  	
   

  	
  XPLORE TECHNOLOGIES CORP.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/
  MICHAEL J. RAPISAND

  
	
   

  	
   

  	
   

  	
  Name:

  	
  Michael J. Rapisand

  
	
   

  	
   

  	
   

  	
  Title:

  	
  Chief Financial Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  XPLORE TECHNOLOGIES CORPORATION
  OF AMERICA

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/
  MICHAEL J. RAPISAND

  
	
   

  	
   

  	
   

  	
  Name:

  	
  Michael J. Rapisand

  
	
   

  	
   

  	
   

  	
  Title:

  	
  Chief Financial Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  AGENT:

  	
   

  	
  SG PHOENIX LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/
  ANDREA GOREN

  
	
   

  	
   

  	
   

  	
  Name:

  	
  Andrea Goren

  
	
   

  	
   

  	
   

  	
  Title:

  	
  Member

  

 

 

ACKNOWLEDGED AND AGREED TO:

 

 

	
  BRIDGE NOTE PURCHASER:

  	
   

  	
  PHOENIX VENTURE FUND LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  SG Phoenix Ventures LLC,

  
	
   

  	
   

  	
   

  	
  its Managing Member

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
  /s/ ANDREA GOREN

  
	
   

  	
   

  	
   

  	
   

  	
  Name:

  	
  Andrea Goren

  
	
   

  	
   

  	
   

  	
   

  	
  Title:

  	
  MemberExhibit 10.52

 

NEITHER THE
ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE
SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR
SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF (A) AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR (B) AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE
FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT.  ANY TRANSFEREE OF THIS NOTE SHOULD CAREFULLY
REVIEW THE TERMS OF THIS NOTE, INCLUDING SECTIONS 3(c)(iii) AND 19(a) HEREOF.  THE PRINCIPAL AMOUNT REPRESENTED BY THIS NOTE
AND, ACCORDINGLY, THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE
LESS THAN THE AMOUNTS SET FORTH ON THE FACE HEREOF PURSUANT TO SECTION 3(c)(iii) OF
THIS NOTE.

 

8% SENIOR SECURED CONVERTIBLE NOTE

 

	
  Issuance Date:
  November 1, 2009

  	
   

  	
  Principal:
  U.S. $XXXX

  

 

FOR VALUE
RECEIVED, LIQUIDMETAL TECHNOLOGIES, INC., a Delaware
corporation (the “Company”),
hereby promises to pay to the order of                                 
or registered assigns (“Holder”)
the amount set out above as the Principal (as reduced pursuant to the terms hereof
pursuant to redemption, conversion or otherwise, the “Principal”) when due, whether upon the Maturity Date (as
defined below), acceleration, redemption or otherwise (in each case in
accordance with the terms hereof) and to pay interest (“Interest”) on any outstanding Principal at
the rate of interest as determined pursuant to Section 2, from the date
set out above as the Issuance Date (the “Issuance
Date”) until the same becomes due and payable, whether upon an
Interest Date (as defined below), the Maturity Date, acceleration, conversion,
redemption or otherwise (in each case in accordance with the terms
hereof).  This 8% Senior Secured
Convertible Note (including all 8% Senior Secured Convertible Notes issued in exchange,
transfer or replacement hereof, this “Note”)
is one of an issue of 8% Senior Secured Convertible Notes issued on May 1,
2009 (the “Original Issuance Date”) pursuant
to the Securities Purchase and Exchange Agreement (the “Original
Notes”) or issued after May 1, 2009 in satisfaction of interest
and/or other amounts owing by the Company to the holders of the Original Notes
(the “Interest Notes”) (the Original Notes
and Interest Notes are collectively referred to as the “Notes”
herein, and any Notes other than this Note are collectively referred to as the “Other Notes”).  This
Note is deemed to be issued pursuant to Section 2 of the Holder’s Original
Note and is subject to the terms and provisions of the Securities Purchase
Agreement.  Certain capitalized terms are
defined in Section 29.

 

 

(1)                                  MATURITY.  On January 3, 2011 (the “Maturity Date”), the Company shall pay to
the Holder an amount in cash representing all outstanding Principal and accrued
and unpaid Interest, and following receipt of such payment, the Holder shall
mark this Note as “Cancelled” and shall surrender such cancelled Note to the
Company by courier, registered mail, or other traceable means.  The Company may, upon thirty (30) calendar
days prior written notice to Holder and at the sole election of the Company,
prepay this Note in whole or in part for a cash redemption price equal to: (i) if
the cash redemption price is being paid, in whole or in part, from the proceeds
of sales of the Company’s assets, which shall include fees received from
licensing the Company’s intellectual property assets, One Hundred Percent
(100%) of the portion of the principal amount being redeemed plus all accrued
and unpaid interest on the portion of the principal amount being redeemed or (ii) if
the cash redemption price is being paid solely from the Company’s income from
continuing operations, One Hundred Three Percent (103%) of the portion of the
principal amount being redeemed plus all accrued and unpaid interest on the
portion of the principal amount being redeemed; provided that (as to both clauses
(i) and (ii) above) following such notice the Holder may convert all
or any part of the portion of the Note to be redeemed so long as the Company
receives a duly executed Conversion Notice pursuant to Section 3 of this
Note prior to the date on which prepayment is actually made.

 

(2)                                  INTEREST;
INTEREST RATE.  Interest on
this Note shall commence accruing on the Issuance Date and shall be computed on
the basis of a 365-day year and actual days elapsed and shall be payable in
arrears on the first Business Day of November and May during the
period beginning on the Issuance Date and ending on, and including, the
Maturity Date (each, an “Interest Date”).  Interest shall be payable on each Interest
Date at the option of the Company (i) in cash at the rate of 8.00% per
annum (the “Cash Interest Rate”)
or (ii) at the rate of 10.00% per annum (the “Note Interest Rate”, and together with the Cash Interest
Rate, referred to sometimes herein as the “Interest
Rate”) in the form of one or more additional 8% Senior Secured
Convertible Notes, upon the same terms and conditions of the form of this Note,
in the principal amount of such Interest. 
Prior to the payment of Interest on an Interest Date, Interest on
this Note shall accrue at the Cash Interest Rate and be payable by way of
inclusion of the Interest in the Conversion Amount in accordance with Section 3(b)(i).  From and after the occurrence of an Event of
Default, the Interest Rate shall be increased so that the Cash Interest Rate
shall be twelve percent (12.00%) per annum and the Note Interest Rate per annum
shall be fifteen percent (15%) per annum. 
In the event that such Event of Default is subsequently cured, the
adjustment referred to in the preceding sentence shall cease to be effective as
of the date of such cure; provided that the Interest as calculated at such
increased rate during the continuance of such Event of Default shall continue
to apply to the extent relating to the days after the occurrence of such Event
of Default through and including the date of cure of such Event of Default.

 

(3)                                  CONVERSION OF
NOTES.  This Note shall be convertible
into shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”), on the terms and
conditions set forth in this Section 3.

 

2

 

(a)                                  Conversion
Right.  Subject to the provisions of Section 3(d),
at any time or times on or after the Issuance Date, the Holder shall be
entitled to convert any portion of the outstanding and unpaid Conversion Amount
(as defined below) into fully paid and nonassessable shares of Common Stock in
accordance with Section 3(c), at the Conversion Rate (as defined
below).  The Company shall not issue any
fraction of a share of Common Stock upon any conversion.  If the issuance would result in the issuance
of a fraction of a share of Common Stock, the Company shall round such fraction
of a share of Common Stock up to the nearest whole share.  The Company shall pay any and all taxes that
may be payable with respect to the issuance and delivery of Common Stock upon
conversion of any Conversion Amount.

 

(b)                                 Conversion Rate.  The number of shares of Common Stock issuable
upon conversion of any Conversion Amount (as defined below) pursuant to Section 3(a) shall
be determined by dividing (x) such Conversion Amount by (y) the
Conversion Price (as defined below) (the “Conversion
Rate”).

 

(i)                                     “Conversion Amount” means the sum of (A) the portion of the
Principal to be converted, redeemed or otherwise with respect to which this
determination is being made, plus (B) accrued and unpaid Interest with
respect to such Principal, plus (C) any fees and penalties (if any) that
become due under this Note and that are not paid by the Company within three (3) days
of written demand therefor.

 

(ii)                                  “Conversion Price” means, as of any Conversion Date (as defined
below) or other date of determination, and subject to adjustment as provided
herein, $0.60.

 

(c)                                  Mechanics of
Conversion.

 

(i)                                     Optional
Conversion.  To convert
any Conversion Amount into shares of Common Stock on any date (a “Conversion Date”), the Holder shall (A) transmit
by facsimile (or otherwise deliver), for receipt on or prior to 5:00 p.m.,
New York Time, on such date, a copy of an executed notice of conversion in the
form attached hereto as Exhibit I (the “Conversion Notice”) to the Company and (B) if required
by Section 3(c)(iii), surrender this Note to a common carrier for delivery
to the Company as soon as practicable on or following such date (or an
indemnification undertaking with respect to this Note in the case of its loss,
theft or destruction).  On or before the
first Business Day following the date of receipt of a Conversion Notice, the
Company shall transmit by facsimile a confirmation of receipt of such
Conversion Notice to the Holder and the Company’s transfer agent (the “Transfer Agent”).  On or before the second Business Day
following the date of receipt of a Conversion Notice (the “Share Delivery Date”), the Company shall (X) credit
such aggregate number of shares of Common Stock to which the Holder shall be
entitled to the Holder’s or its designee’s balance account with Depository
Trust Company (“DTC”) through its
Deposit/Withdrawal At Custodian system or (Y) if the Transfer Agent is not
participating in DTC Fast Automated Securities Transfer Program, issue and
deliver to the address as specified in the Conversion Notice, 

 

3

 

a certificate, registered in
the name of the Holder or its designee, for the number of shares of Common Stock
to which the Holder shall be entitled. 
If this Note is physically surrendered for conversion as required by Section 3(c)(iii) and
the outstanding Principal of this Note is greater than the Principal portion of
the Conversion Amount being converted, then the Company shall as soon as
practicable and in no event later than five Business Days after receipt of this
Note and at its own expense, issue and deliver to the Holder a new Note (in
accordance with Section 19(d)) representing the outstanding Principal not
converted.  The Person or Persons
entitled to receive the shares of Common Stock issuable upon a conversion of
this Note shall be treated for all purposes as the record holder or holders of
such shares of Common Stock on the Conversion Date.

 

(ii)                                  Company’s
Failure to Timely Convert.  If
the Company shall fail to issue a certificate to the Holder or credit the
Holder’s balance account with DTC for the number of shares of Common Stock to
which the Holder is entitled upon conversion of any Conversion Amount on or
prior to the date which is five Business Days after the Conversion Date (a “Conversion Failure”), then (A) the
Company shall pay liquidated damages to the Holder for each day of such
Conversion Failure in an amount equal to 1.0%
of the product of (I) the sum of the number of shares of Common
Stock not issued to the Holder on or prior to the Share Delivery Date and to
which the Holder is entitled, and (II) the Closing Sale Price of the
Common Stock on the Share Delivery Date and (B) the Holder, upon written
notice to the Company, may void its Conversion Notice with respect to, and
retain or have returned, as the case may be, any portion of this Note that has
not been converted pursuant to such Conversion Notice; provided that the
voiding of a Conversion Notice shall not affect the Company’s obligations to
make any payments which have accrued prior to the date of such notice pursuant
to this Section 3(c)(ii) or otherwise.  In addition to the foregoing, if within three
(3) Trading Days after the Company’s receipt of the facsimile copy of a
Conversion Notice the Company shall fail to issue and deliver a certificate to
the Holder or credit the Holder’s balance account with DTC for the number of
shares of Common Stock to which the Holder is entitled upon such Holder’s
conversion of any Conversion Amount, and if on or after such Trading Day the
Holder purchases (in an open market transaction or otherwise) Common Stock to
deliver in satisfaction of a sale by the Holder of Common Stock issuable upon
such conversion that the Holder anticipated receiving from the Company (a “Buy-In”), then the Company shall, within
five (5) Business Days after the Holder’s request and in the Holder’s
discretion, either (i) pay cash to the Holder in an amount equal to the
Holder’s total purchase price (including brokerage commissions and other
out-of-pocket expenses, if any) for the shares of Common Stock so purchased
(the “Buy-In Price”), at which
point the Company’s obligation to deliver such certificate (and to issue such
Common Stock) shall terminate, or (ii) promptly honor its obligation to
deliver to the Holder a certificate or certificates representing such Common
Stock and pay cash to the Holder in an amount equal to the excess (if any) of
the Buy-In Price over the product of (A) such number of shares of Common
Stock, times (B) the Closing Bid Price on the Conversion Date.

 

4

 

(iii)                               Book-Entry.
Notwithstanding anything to the contrary set forth herein, upon conversion of
any portion of this Note in accordance with the terms hereof, the Holder shall
not be required to physically surrender this Note to the Company unless (A) the
full Conversion Amount represented by this Note is being converted or (B) the
Holder has provided the Company with prior written notice (which notice may be
included in a Conversion Notice) requesting physical surrender and reissue of
this Note.  The Holder and the Company
shall maintain records showing the Principal and Interest converted and the
dates of such conversions or shall use such other method, reasonably
satisfactory to the Holder and the Company, so as not to require physical
surrender of this Note upon conversion.

 

(iv)                              Pro Rata
Conversion; Disputes.  In the
event that the Company receives a Conversion Notice from more than one Holder
of Notes for the same Conversion Date and the Company can convert some, but not
all, of such portions of the Notes submitted for conversion, the Company,
subject to Section 3(d), shall convert from each Holder of Notes electing
to have Notes converted on such date a pro rata amount of such Holder’s portion
of its Notes submitted for conversion based on the principal amount of Notes
submitted for conversion on such date by such Holder relative to the aggregate
principal amount of all Notes submitted for conversion on such date.  In the event of a dispute as to the number of
shares of Common Stock issuable to the Holder in connection with a conversion
of this Note, the Company shall issue to the Holder the number of shares of
Common Stock not in dispute and resolve such dispute in accordance with Section 24.

 

(d)                                 Limitations on
Conversions.

 

(i)                                     Beneficial
Ownership.  Unless
waived by the Holder upon no less than sixty one (61) days prior written notice
to the Company, the Company shall not effect any conversion of this Note
pursuant to Section 3(a) to the extent that after giving effect to
such conversion the Holder (together with the Holder’s affiliates) would
beneficially own in excess of 4.99% of the number of shares of Common Stock
outstanding immediately after giving effect to such conversion.  Even if the Holder waives the limitation set
forth in the preceding sentence, the Company shall in no event effect any
conversion of this Note, and the Holder of this Note shall not have the right
to convert any portion of this Note pursuant to Section 3(a), to the
extent that after giving effect to such conversion, the Holder (together with
the Holder’s affiliates) would beneficially own in excess of 9.99% of the
number of shares of Common Stock outstanding immediately after giving effect to
such conversion.  For purposes of the
foregoing sentences, the number of shares of Common Stock beneficially owned by
the Holder and its affiliates shall include the number of shares of Common
Stock issuable upon conversion of this Note with respect to which the
determination of such sentence is being made, but shall exclude the number of
shares of Common Stock which would be issuable upon (A) conversion of the
remaining, nonconverted portion of this Note beneficially owned by the Holder
or any of its affiliates and (B) exercise or conversion of the unexercised
or nonconverted portion of any other securities of the Company (including,
without limitation, any Other Notes or warrants) 

 

5

 

subject to a limitation on
conversion or exercise analogous to the limitation contained herein
beneficially owned by the Holder or any of its affiliates.  Except as set forth in the preceding
sentence, for purposes of this Section 3(d)(i), beneficial ownership shall
be calculated in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended.  For
purposes of this Section 3(d)(i), in determining the number of outstanding
shares of Common Stock, the Holder may rely on the number of outstanding shares
of Common Stock as reflected in (x) the Company’s most recent Form 10-Q
or Form 10-K, (y) a more recent public announcement by the Company or
(z) any other notice by the Company or the Transfer Agent setting forth
the number of shares of Common Stock outstanding.  For any reason at any time, upon the written
or oral request of the Holder, the Company shall within two Business Days
confirm orally and in writing to the Holder the number of shares of Common
Stock then outstanding.  In any case, the
number of outstanding shares of Common Stock shall be determined after giving
effect to the conversion or exercise of securities of the Company, including
this Note, by the Holder or its affiliates since the date as of which such
number of outstanding shares of Common Stock was reported.  Notwithstanding the foregoing, the
limitations of this paragraph shall not apply to any Holder who is an
Affiliated Investor (as that term is defined in the Securities Purchase and
Exchange Agreement).

 

(ii)                                  INTENTIONALLY
OMITTED.

 

(4)                                  RIGHTS UPON
EVENT OF DEFAULT.

 

(a)                                  Event of
Default.  Each of the following events
shall constitute an “Event of Default”:

 

(i)                                     the Company’s
failure to pay to the Holder any amount of Principal or Interest when and as
due under this Note if such failure continues for a period of at least five
Business Days;

 

(ii)                                  the Company’s
failure to pay to the Holder any amounts other than Principal or Interest when
and as due under this Note, the Securities Purchase and Exchange Agreement, or
the Registration Rights Agreement, which failure is not cured within five
Business Days after notice of such default sent by the Holder to the Company;

 

(iii)                               any default
under, redemption prior to maturity of, or acceleration prior to maturity of
any Indebtedness (as defined below) of the Company or any of its Subsidiaries
(as defined in the Securities Purchase and Exchange Agreement) other than with
respect to (A) the Other Notes and (B) the default by Liquidmetal Korea
Co. Ltd., the Company’s subsidiary organized under the laws of the Republic of
Korea, in existence as of the Original Issuance Date under its loan from
Kookmin Bank; provided that in the case of a payment default of such
Indebtedness, such default is not cured within applicable cure periods; further
provided that in the case of a non-payment default of such Indebtedness that
has not resulted in an acceleration or redemption of such Indebtedness prior to
its maturity, only upon acceleration or redemption of such Indebtedness;

 

6

 

(iv)                              the Company
shall fail to observe or perform any other material covenant or agreement
contained in the Securities Purchase and Exchange Agreement or the other
Transaction Documents (as defined in the Securities Purchase and Exchange
Agreement), which failure is not cured within ten Business Days after notice of
such default sent by the Holder to the Company;

 

(v)                                 the Company or
any of its Subsidiaries, pursuant to or within the meaning of Title 11, U.S.
Code, or any similar Federal or state law for the relief of debtors
(collectively, “Bankruptcy Law”), (A) commences
a voluntary case, (B) consents to the entry of an order for relief against
it in an involuntary case, (C) consents to the appointment of a receiver,
trustee, assignee, liquidator or similar official (a “Custodian”),
or (D) makes a general assignment for the benefit of its creditors;

 

(vi)                              a court of
competent jurisdiction enters an order or decree under any Bankruptcy Law that (A) is
for relief against the Company or any of its Subsidiaries in an involuntary
case that remains undismissed for a period of 90 days, (B) appoints a
Custodian of the Company or any of its Subsidiaries that remains undischarged
or unstayed for a period of 90 days, or (C) orders the liquidation of the
Company or any of its Subsidiaries;

 

(vii)                           a final
judgment or judgments for the payment of money aggregating in excess of
$250,000 are rendered against the Company or any of its Subsidiaries and which
judgments are not, within 60 days after the entry thereof, bonded, discharged
or stayed pending appeal, or are not discharged within 60 days after the
expiration of such stay; provided, however, that any judgment which is covered
by insurance or an indemnity from a credit worthy party shall not be included
in calculating the $250,000 amount set forth above;

 

(viii)                        any breach or
failure to comply with Section 15 of this Note;

 

(ix)                              INTENTIONALLY
OMITTED;

 

(x)                                   any security
interest created by the Security Agreement shall at any time not constitute a
valid and perfected first priority security interest on the collateral intended
to be covered thereby (to the extent perfection by filing, registration,
recordation or possession is required herein or therein) in favor of the
Holder, or any of the security interests granted pursuant to the Security
Agreement shall be determined to be void, voidable, invalid or unperfected, are
subordinated or are ineffective to provide the Holder with a perfected, first
priority security interest in the collateral covered by the Security Agreement
(except to the extent expressly subordinated under the terms of the Security
Agreement), or, except for expiration or termination in accordance with its
terms, the Security Agreement shall for whatever reason be terminated or cease
to be in full force and effect, or the enforceability thereof shall be
contested by the Company;

 

7

 

(xi)                                the Company or
any Subsidiary commits a default under any material contract to which it is a
party and as a result of which default the Company or its Subsidiaries will be
legally obligated to pay damages in an aggregate amount in excess of $250,000
for such default; or

 

(x)                                   any Event of
Default (as defined in the Other Notes) occurs with respect to any Other Notes.

 

(b)                                 Redemption
Right.  Promptly after the occurrence
of an Event of Default with respect to this Note or any Other Note, the Company
shall deliver written notice thereof via facsimile and overnight courier (an “Event of Default Notice”) to the
Holder.  At any time after the earlier of
the Holder’s receipt of an Event of Default Notice and the Holder becoming
aware of an Event of Default, the Holder may require the Company to redeem all
or any portion of this Note by delivering written notice thereof (the “Event of Default Redemption Notice”) to
the Company, which Event of Default Redemption Notice shall indicate the
portion of this Note the Holder is electing to redeem.  Each portion of this Note subject to
redemption by the Company pursuant to this Section 4(b) shall be
redeemed by the Company at a price equal to the greater of (i) the
Conversion Amount to be redeemed and (ii) the product of (A) the
Conversion Rate with respect to such Conversion Amount in effect at such time
as the Holder delivers an Event of Default Redemption Notice and (B) the
Closing Sale Price of the Common Stock on the date immediately preceding such
Event of Default (the “Event of Default
Redemption Price”). 
Redemptions required by this Section 4(b) shall be made in
accordance with the provisions of Section 12.

 

(5)                                  RIGHTS UPON
CHANGE OF CONTROL.

 

(a)                                  Change of
Control.  Each of the following events
shall constitute a “Change of Control”:

 

(i)                                     the
consolidation, merger or other business combination (including, without
limitation, a reorganization or recapitalization) of the Company with or into
another Person (other than (A) a consolidation, merger or other business
combination (including, without limitation, reorganization or recapitalization)
in which Holders of the Company’s voting power immediately prior to the
transaction continue after the transaction to hold, directly or indirectly, the
voting power of the surviving entity or entities necessary to elect a majority
of the members of the board of directors (or their equivalent if other than a
corporation) of such entity or entities, or (B) pursuant to a migratory
merger effected solely for the purpose of changing the jurisdiction of
incorporation of the Company);

 

(ii)                                  the sale or
transfer of all or substantially all of the Company’s assets; or

 

(iii)                               a purchase,
tender or exchange offer made to and accepted by the Holders of more than the
50% of the outstanding shares of Common Stock.

 

8

 

No sooner than 15 days nor
later than 10 days prior to the consummation of a Change of Control, but not
prior to the public announcement of such Change of Control, the Company shall
deliver written notice thereof via facsimile and overnight courier to the
Holder (a “Change of Control Notice”).  The transactions contemplated by the
Securities Purchase and Exchange Agreement shall not be deemed to constitute a
Change of Control for purposes of this Agreement.

 

(b)                                 Assumption.  Prior to the consummation of any Change of
Control, the Company will secure from any Person purchasing the Company’s
assets or Common Stock or any successor resulting from such Change of Control
(in each case, an “Acquiring Entity”)
a written agreement (in form and substance satisfactory to the Holders of Notes
representing at least a majority of the aggregate principal amount of the Notes
then outstanding) to deliver to each Holder of Notes in exchange for such
Notes, a security of the Acquiring Entity evidenced by a written instrument
substantially similar in form and substance to the Notes, including, without
limitation, having a principal amount and interest rate equal to the principal
amounts and the interest rates of the Notes held by such Holder, and
satisfactory to the Holders of Notes representing at least a majority of the
principal amount of the Notes then outstanding. 
In the event that an Acquiring Entity is directly or indirectly
controlled by a company or entity whose common stock or similar equity interest
is listed, designated or quoted on a securities exchange or trading market, the
Holders of Notes representing at least a majority of the aggregate principal
amount of the Notes then outstanding may elect to treat such Person as the
Acquiring Entity for purposes of this Section 5(b).

 

(c)                                  Redemption
Right.  At any time during the period
beginning after the Holder’s receipt of a Change of Control Notice and ending
on the date of the consummation of such Change of Control (or, in the event a
Change of Control Notice is not delivered at least 10 days prior to a Change of
Control, at any time on or after the date which is 10 days prior to a Change of
Control and ending ten days after the consummation of such Change of Control),
the Holder may require the Company to redeem all or any portion of this Note by
delivering written notice thereof (“Change of
Control Redemption Notice”) to the Company, which Change of Control
Redemption Notice shall indicate the Conversion Amount the Holder is electing
to redeem; provided, however, that the Company shall not be under any
obligation to redeem all or any portion of this Note or to deliver the
applicable Change of Control Redemption Price unless and until the applicable
Change of Control is consummated.  The
portion of this Note subject to redemption pursuant to this Section 5
shall be redeemed by the Company in cash at a price equal to the sum of (i) the
Conversion Amount of the portion to be redeemed, plus (ii) the Black
Scholes Value, as of the date immediately preceding the date the Change of
Control is consummated, of the Holder’s right to convert the Conversion Amount
hereunder upon the terms set forth herein (the “Change of Control Redemption Price”).  For the purpose of this Note, “Black Scholes Value” means the value, as reasonably
calculated by the Company, of this Note, which shall be determined by use of
the Black Scholes Option Pricing Model reflecting (i) a risk-free interest
rate corresponding to the U.S. Treasury rate for a period equal to the
remaining term of this Note as of such date of request and (ii) an
expected volatility equal to the greater of 60% 

 

9

 

and the 100 day volatility
obtained from the HVT function on Bloomberg; provided that the Black Scholes
Value of this Note shall not for this purpose exceed an amount equal to $2.50
multiplied by the number of shares of Common Stock for which this Note may be
converted at the time the Change of Control is consummated (with such $2.50 cap
being subject to adjustment for stock dividends, stock splits, reverse stock
splits, and the like).

 

(6)                                  RIGHTS UPON
ISSUANCE OF PURCHASE RIGHTS AND OTHER CORPORATE EVENTS.

 

(a)                                  Purchase Rights.  If at any time the Company grants, issues or
sells any Options, Convertible Securities or rights to purchase stock,
warrants, securities or other property pro rata to the record holders of any
class of Common Stock (the “Purchase Rights”),
then the Holder will be entitled to acquire, upon the terms applicable to such
Purchase Rights, the aggregate Purchase Rights which the Holder could have
acquired if the Holder had held the number of shares of Common Stock acquirable
upon complete conversion of this Note (without taking into account any
limitations or restrictions on the convertibility of this Note) immediately
before the date on which a record is taken for the grant, issuance or sale of
such Purchase Rights, or, if no such record is taken, the date as of which the
record holders of Common Stock are to be determined for the grant, issue or sale
of such Purchase Rights.

 

(b)                                 Other Corporate
Events. Prior to the consummation of any recapitalization, reorganization,
consolidation, merger, spin-off or other business combination (other than a
Change of Control) pursuant to which holders of Common Stock are entitled to
receive securities or other assets with respect to or in exchange for Common
Stock (a “Corporate Event”), the
Company shall make appropriate provision to insure that the Holder will
thereafter have the right to receive upon a conversion of this Note, (i) in
addition to the shares of Common Stock receivable upon such conversion, such
securities or other assets to which the Holder would have been entitled with
respect to such shares of Common Stock had such shares of Common Stock been held
by the Holder upon the consummation of such Corporate Event or (ii) in
lieu of the shares of Common Stock otherwise receivable upon such conversion,
such securities or other assets received by the holders of Common Stock in
connection with the consummation of such Corporate Event in such amounts as the
Holder would have been entitled to receive had this Note initially been issued
with conversion rights for the form of such consideration (as opposed to shares
of Common Stock) at a conversion rate for such consideration commensurate with
the Conversion Rate.  Provision made
pursuant to the preceding sentence shall be in a form and substance
satisfactory to the Holders of Notes representing at least a majority of the aggregate
principal amount of the Notes then outstanding.

 

(7)                                  RIGHTS UPON
ISSUANCE OF OTHER SECURITIES.

 

(a)                                  Adjustment of
Conversion Price upon Issuance of Common Stock.  If and whenever on or after the Issuance
Date, the Company issues or sells, or in accordance with this Section 7(a) is
deemed to have issued or sold, any shares of Common Stock (including the
issuance or sale of shares of Common Stock owned or held by or for the account
of the

 

10

 

Company, but excluding
shares of Common Stock deemed to have been issued or sold by the Company in
connection with any Excluded Security) for a consideration per share (the “New Securities Issuance Price”) less than the Conversion
Price in effect immediately prior to such issue or sale (the foregoing a “Dilutive Issuance”), then immediately
after such Dilutive Issuance, the Conversion Price then in effect shall be
reduced effective concurrently with such Dilutive Issuance to an amount equal
to the New Securities Issuance Price. 
For purposes of determining the adjusted Conversion Price under this Section 7(a),
the following shall be applicable:

 

(i)                                     Change in
Option Price or Rate of Conversion.  If the purchase price provided for in any
Options, the additional consideration, if any, payable upon the issue,
conversion, exchange or exercise of any Convertible Securities, or the rate at
which any Convertible Securities are convertible into or exchangeable or
exercisable for Common Stock changes at any time, the Conversion Price in
effect at the time of such change shall be adjusted to the Conversion Price
which would have been in effect at such time had such Options or Convertible
Securities provided for such changed purchase price, additional consideration
or changed conversion rate, as the case may be, at the time initially granted,
issued or sold in the Dilutive Issuance.

 

(ii)                                  Calculation of
Consideration Received.  In
case any Option is issued in connection with the issue or sale of other
securities of the Company, together comprising one integrated transaction in
which no specific consideration is allocated to such Options by the parties
thereto, the Options will be deemed to have been issued for a consideration of
$.01.  If any Common Stock, Options or
Convertible Securities are issued or sold or deemed to have been issued or sold
for cash, the consideration received therefor will be deemed to be the net
amount received by the Company therefor. 
If any Common Stock, Options or Convertible Securities are issued or
sold for a consideration other than cash, the amount of the consideration other
than cash received by the Company will be the fair value of such consideration,
except where such consideration consists of securities, in which case the
amount of consideration received by the Company will be the Closing Sale Price
of such securities on the date of receipt. 
If any Common Stock, Options or Convertible Securities are issued to the
owners of the non-surviving entity in connection with any merger in which the
Company is the surviving entity, the amount of consideration therefor will be
deemed to be the fair value of such portion of the net assets and business of
the non-surviving entity as is attributable to such Common Stock, Options or
Convertible Securities, as the case may be. 
The fair value of any consideration other than cash or securities will
be determined jointly by the Company and the Holders of Notes representing at
least a majority of the principal amounts of the Notes then outstanding.  If such parties are unable to reach agreement
within ten days after the occurrence of an event requiring valuation (the “Valuation Event”), the fair value of such
consideration will be determined within five Business Days after the tenth day
following the Valuation Event by an independent, reputable appraiser jointly
selected by the Company and the Holders of Notes representing at least a
majority of the principal amounts of the Notes then outstanding.  The determination of such appraiser shall be 

 

11

 

deemed binding upon all
parties absent manifest error and the fees and expenses of such appraiser shall
be borne equally by the Company, on the hand, and the Holders of the Notes, on
the other hand.

 

(iii)                               Record Date.  If the Company takes a record of the holders
of Common Stock for the purpose of entitling them (A) to receive a
dividend or other distribution payable in Common Stock, Options or in
Convertible Securities or (B) to subscribe for or purchase Common Stock,
Options or Convertible Securities, then such record date will be deemed to be
the date of the issue or sale of the shares of Common Stock deemed to have been
issued or sold upon the declaration of such dividend or the making of such
other distribution or the date of the granting of such right of subscription or
purchase, as the case may be.

 

(b)                                 Adjustment of
Conversion Price upon Subdivision or Combination of Common Stock.  If the Company at any time subdivides (by any
stock split, stock dividend, recapitalization or otherwise) one or more classes
of its outstanding shares of Common Stock into a greater number of shares, the
Conversion Price in effect immediately prior to such subdivision will be
proportionately reduced.  If the Company
at any time combines (by combination, reverse stock split or otherwise) one or
more classes of its outstanding shares of Common Stock into a smaller number of
shares, the Conversion Price in effect immediately prior to such combination
will be proportionately increased.

 

(c)                                  Other Events.  If any event occurs of the type contemplated
by the provisions of this Section 7 but not expressly provided for by such
provisions (including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features), then the
Company’s Board of Directors will make an appropriate adjustment in the
Conversion Price so as to protect the rights of the Holder under this Note;
provided that no such adjustment will increase the Conversion Price as otherwise
determined pursuant to this Section 7.

 

(8)                                 INTENTIONALLY
OMITTED.

 

(9)                                 COMPANY’S RIGHT
OF MANDATORY CONVERSION.  (a) Mandatory
Conversion.  If at any time from and
after the Issuance Date, the Weighted Average Price of the Common Stock exceeds
250% of the conversion price of the Original Notes as of the Original Issuance
Date (subject to appropriate adjustments for stock splits, stock dividends,
stock combinations and other similar transactions after the Original Issuance
Date) for each of any 20 consecutive Trading Days (the “Mandatory Conversion Measuring Period”)
and the Conditions to Mandatory Conversion (as set forth in Section 9(c))
are satisfied or waived in writing by the Holder, the Company shall have the
right to require the Holder to convert all or any such portion of the
Conversion Amount of this Note designated in the Mandatory Conversion Notice
into fully paid, validly issued and nonassessable shares of Common Stock in accordance
with Section 3(c) hereof at the Conversion Rate as of the Mandatory
Conversion Date (as defined below) (a “Mandatory
Conversion”).  The Company may
exercise its right to 

 

12

 

require conversion under
this Section 9(a) by delivering within not more than five Trading
Days following the end of such Mandatory Conversion Measuring Period a written
notice thereof by facsimile and overnight courier to all, but not less than
all, of the Holders of Notes and the Transfer Agent (the “Mandatory Conversion Notice” and the date
all of the Holders received such notice is referred to as the “Mandatory Conversion Notice Date”).  The Mandatory Conversion Notice shall be
irrevocable.

 

(b)                                 Pro Rata
Conversion Requirement.  If
the Company elects to cause a conversion of all or any portion of the
Conversion Amount of this Note pursuant to Section 9(a), then it must
simultaneously take the same action with respect to the Other Notes (except
that the Company is not required to take the same action with respect to the
Other Notes to the extent limited by Section 3(d) in this Note or
similar provisions under the Other Notes). 
If the Company elects to cause the conversion of this Note pursuant to Section 9(a) (or
similar provisions under the Other Notes) with respect to less than all of the
Conversion Amounts of the Notes then outstanding, then the Company shall
require conversion of a Conversion Amount from each of the Holders of the Notes
equal to the product of (I) the aggregate Conversion Amount of Notes which
the Company has elected to cause to be converted pursuant to Section 9(a),
multiplied by (II) the fraction, the numerator of which is the sum of the
aggregate principal amount of the Original Notes purchased by such Holder
pursuant to the Securities Purchase and Exchange Agreement and the denominator
of which is the sum of the aggregate principal amount of the Original Notes
purchased by all Holders pursuant to the Securities Purchase and Exchange
Agreement (except to the extent limited by Section 3(d) in this Note
or similar provisions under the Other Notes) (such fraction with respect to
each Holder is referred to as its “Allocation
Percentage,” and such amount with respect to each Holder is referred
to as its “Pro Rata Conversion Amount”).  In the event that the initial Holder of any
Notes shall sell or otherwise transfer any of such Holder’s Notes, the
transferee shall be allocated a pro rata portion of such Holder’s Allocation
Percentage.  The Mandatory Conversion
Notice shall state (i) the Trading Day selected for the Mandatory Conversion
in accordance with Section 9(a), which Trading Day shall be at least 10
Business Days but not more than 60 Business Days following the Mandatory
Conversion Notice Date (the “Mandatory
Conversion Date”), (ii) the aggregate Conversion Amount of the
Notes which the Company has elected to be subject to mandatory conversion from
all of the Holders of the Notes pursuant to this Section 9 (and analogous
provisions under the Other Notes), (iii) each Holder’s Pro Rata Conversion
Amount of the Conversion Amount of the Notes the Company has elected to cause
to be converted pursuant to this Section 9 (and analogous provisions under
the Other Notes) and (iv) the number of shares of Common Stock to be
issued to such Holder as of the Mandatory Conversion Date.  All Conversion Amounts converted by the
Holder after the Mandatory Conversion Notice Date shall reduce the Conversion
Amount of this Note required to be converted on the Mandatory Conversion
Date.  If the Company has elected a
Mandatory Conversion, the mechanics of conversion set forth in Section 3(c) shall
apply, to the extent applicable, as if the Company and the Transfer Agent had
received from the Holder on the Mandatory Conversion Date a Conversion Notice
with respect to the Conversion Amount being converted pursuant to the Mandatory
Conversion.

 

(c)                                  Conditions to
Mandatory Conversion.  For
purposes of this Section 

 

13

 

9, “Conditions to Mandatory Conversion” means  the following conditions: (i) during
the period beginning on the date that is six months prior to the Mandatory
Conversion Date and ending on and including the Mandatory Conversion Date, the
Company shall have delivered shares of Common Stock upon any conversion of
Conversion Amounts as set forth in Section 3(c)(i); (ii) on each day
during the period beginning on the first Trading Day of the Mandatory
Conversion Measuring Period and ending on and including the Mandatory
Conversion Date, the Common Stock shall be traded, listed, or quoted (as applicable)
on the Principal Market, the NASDAQ Global Market or Global Select Market, the
NASDAQ Capital Market, the New York Stock Exchange, or the American Stock
Exchange; (iii) on the Mandatory Conversion Date either (x) the
Registration Statement or Registration Statements required pursuant to the
Registration Rights Agreement shall be effective and available for the sale for
all of the Registrable Securities in accordance with the terms of the
Registration Rights Agreement or (y) all shares of Common Stock issuable
upon conversion of the Notes shall be eligible for sale without restriction and
without the need for registration under any applicable federal or state
securities laws; (iv) on the Mandatory Conversion Date, an Authorized
Share Failure shall not be in effect; and (v) the average number of shares
of Common Stock traded on the Principal Market for the 20 Trading Days prior to
the Mandatory Conversion Date shall equal or exceed 200,000 shares per day.

 

(10)                          NONCIRCUMVENTION.  The Company hereby covenants and agrees that
the Company will not, by amendment of its Certificate of Incorporation or
through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities, or any other voluntary action, avoid
or seek to avoid the observance or performance of any of the terms of this
Note, and will at all times in good faith carry out all of the provisions of
this Note and take all action as may be required to protect the rights of the
Holder of this Note.

 

(11)                          RESERVATION OF
AUTHORIZED SHARES.

 

(a)                                 Reservation.  Upon the filing of the Charter Amendment (as
defined in the Securities Purchase and Exchange Agreement) with the Delaware
Secretary of State, the Company shall initially reserve out of its authorized
and unissued Common Stock a number of shares of Common Stock for each of the
Notes equal to 125% of the Conversion Rate with respect to the Conversion
Amount of each such Note as of the Issuance Date.  Thereafter, the Company, so long as any of
the Notes are outstanding, shall use commercially reasonable efforts to reserve
and keep available out of its authorized and unissued Common Stock, solely for
the purpose of effecting the conversion of the Notes, 125% of the number of
shares of Common Stock as shall from time to time be necessary to effect the
conversion of all of the Notes then outstanding (without regard to any
limitations on conversions) (the “Required
Reserve Amount”).  The number
of shares of Common Stock reserved for conversions of the Notes shall be
allocated pro rata among the Holders of the Notes based on the principal amount
of the Notes held by each Holder at the time of Issuance Date or increase in
the number of reserved shares, as the case may be (the “Authorized Share Allocation”).  In the event that a Holder shall sell or otherwise
transfer any of such Holder’s Notes, each transferee shall be allocated a pro
rata portion of such Holder’s Authorized Share Allocation.  Any shares of Common Stock reserved and
allocated to any Person which ceases to hold any Notes shall be allocated to
the remaining Holders of Notes, pro rata based on the principal amount of the
Notes then held by such Holders.

 

14

 

(b)                                 Insufficient
Authorized Shares.  If at any
time after the filing of the Charter Amendment with the Delaware Secretary of
State and while any of the Notes remain outstanding the Company does not have a
sufficient number of authorized and unreserved shares of Common Stock to
satisfy its obligation to reserve for issuance upon conversion of the Notes at
least a number of shares of Common Stock equal to the Required Reserve Amount
(an “Authorized Share Failure”),
then the Company shall as soon as practicable use commercially reasonable
efforts to increase the Company’s authorized shares of Common Stock to an
amount sufficient to allow the Company to reserve the Required Reserve Amount
for the Notes then outstanding.

 

(12)                          HOLDER’S
REDEMPTIONS.

 

(a)                                 Mechanics.  In the event that the Holder has sent an
Event of Default Redemption Notice or a Change of Control Redemption Notice to
the Company pursuant to Section 4(b) or Section 5(c),
respectively (each, a “Redemption Notice”),
the Holder shall promptly submit this Note to the Company.  If the Holder has submitted an Event of
Default Redemption Notice in accordance with Section 4(b), the Company
shall deliver the applicable Event of Default Redemption Price to the Holder
within five Business Days after the Company’s receipt of the Holder’s Event of
Default Redemption Notice.  If the Holder
has submitted a Change of Control Redemption Notice in accordance with Section 5(c),
the Company shall deliver the applicable Change of Control Redemption Price to
the Holder concurrently with the consummation of such Change of Control if such
notice is received prior to the consummation of such Change of Control and
within five Business Days after the Company’s receipt of such notice if such
notice is received after the consummation of such Change of Control.  In the event of a redemption of less than all
of the Conversion Amount of this Note, the Company shall promptly cause to be
issued and delivered to the Holder, at the Holder’s request, a new Note (in
accordance with Section 19(d)) representing the outstanding Principal
which has not been redeemed.  In the
event that the Company does not pay the Event of Default Redemption Price or
the Change of Control Redemption Price (each, the “Redemption Price”), as applicable, to the Holder (or deliver
any Common Stock to be issued pursuant to a Redemption Notice) within the time
period required, at any time thereafter and until the Company pays such unpaid
Redemption Price (and issues any Common Stock required pursuant to a Redemption
Notice) in full, the Holder shall have the option, in lieu of redemption, to
require the Company to promptly return to the Holder all or any portion of this
Note representing the Conversion Amount that was submitted for redemption and
for which the applicable Redemption Price (or any Common Stock required to be
issued pursuant to a Redemption Notice) has not been paid.  Upon the Company’s receipt of such notice, (x) the
Redemption Notice shall be null and void with respect to such Conversion
Amount, (y) the Company shall immediately return this Note, or issue a new
Note (in accordance with Section 19(d)) to the Holder representing such
Conversion Amount and (z) the Conversion Price of this Note or such new Notes
shall be adjusted to the lesser of (A) the Conversion Price as in effect
on the date on which the Redemption Notice is voided and (B) the Closing
Bid Price on the date on which the Redemption Notice is voided.

 

15

 

(b)                                 Redemption by
Other Holders.  Upon the
Company’s receipt of notice from any of the Holders of the Other Notes for
redemption or repayment as a result of an event or occurrence substantially
similar to the events or occurrences described in Section 4(b) or Section 5(c) (each,
an “Other Redemption Notice”), the
Company shall immediately forward to the Holder by facsimile a copy of such
notice.  If the Company receives a
Redemption Notice and one or more Other Redemption Notices during the seven
Business Day period beginning on and including the date which is three Business
Days prior to the Company’s receipt of the Holder’s Redemption Notice and
ending on and including the date which is three Business Days after the Company’s
receipt of the Holder’s Redemption Notice and the Company is unable to redeem
all principal, interest and other amounts designated in such Redemption Notice
and such Other Redemption Notices received during such seven Business Day
period, then the Company shall redeem a pro rata amount from each Holder of the
Notes (including the Holder) based on the principal amount of the Notes submitted
for redemption pursuant to such Redemption Notice and such Other Redemption
Notices received by the Company during such seven Business Day period.

 

(13)                          SUBORDINATION
TO SENIOR INDEBTEDNESS.

 

(a)                                 General.  The Company and the Holder covenant and agree
that this Note shall be subject to the provisions of this Section 13 and
to the extent and in the manner set forth in this Section 13, the
indebtedness represented by this Note and the payment of Principal, Interest,
the Redemption Price, and any redemption amount, liquidated damages, fees,
expenses, or any other amounts in respect of this Note are hereby expressly
made subordinate and junior and subject in right of payment to the prior
payment in full in cash of all Senior Indebtedness of the Company now
outstanding or hereinafter incurred. 
However, notwithstanding anything to the contrary set forth in this
Note, the provisions of this Section 13 shall apply only to Senior
Indebedness described in clause (ii) of Section 29(q) of this
Note.

 

(b)                                 No Payment if
Default in Senior Indebtedness.

 

(i)                                     no cash payment
on account of Principal or Redemption Price of, or Interest on, this Note or
any other payment payable with respect to this Note shall be made, and no
portion of this Note shall be redeemed or purchased directly or indirectly by
the Company, if at the time of such payment or purchase or immediately after
giving effect thereto, (A) a default in the payment of principal, premium,
if any, interest or other obligations in respect of any Senior Indebtedness
occurs and is continuing (or, in the case of Senior Indebtedness for which
there is a period of grace, in the event of such a default that continues
beyond the period of grace, if any, specified in the instrument evidencing such
Senior Indebtedness) (a “Payment Default”),
unless and until such Payment Default shall have been cured or waived or shall
have ceased to exist or (B) the Company shall have received notice (a “Payment Blockage Notice”) from the holder or holders of
Senior Indebtedness that there exists under such Senior Indebtedness a default,
which 

 

16

 

shall not have been cured or
waived, permitting the holder or holders thereof to declare such Senior
Indebtedness due and payable, but in the case of this clause (B), only for the
period (the “Payment Blockage Period”)
commencing on the date of receipt of the Payment Blockage Notice and ending on
the date such default shall have been cured or waived.  The Company shall resume payments on and
distributions in respect of this Note, including any past scheduled payments of
the principal of (and premium, if any) and interest on this Note to which the
Holder would have been entitled but for the provisions of this Section 13(b)(ii),
within five (5) Business Days of the date upon which such Payment Default
is cured or waived or ceases to exist or the date on which the Payment Blockage
Period ends (and if payment is made within such time period, any Event of
Default with respect to such nonpayment shall be cured).

 

(c)                                  Payment upon
Dissolution, Etc.  In
the event of any bankruptcy, insolvency, reorganization, receivership,
composition, assignment for benefit of creditors or other similar proceeding
initiated by or against the Company or any dissolution or winding up or total
or partial liquidation or reorganization of the Company (being hereinafter
referred to as a “Proceeding”),
the Holder agrees that such Holder shall, upon request of a holder of Senior
Indebtedness, and at such holder of Senior Indebtedness’ own expense, take all
reasonable actions (including but not limited to the execution and filing of
documents and the giving of testimony in any Proceeding, whether or not such
testimony could have been compelled by process) necessary to prove the full amount
of all its claims in any Proceeding, and the Holder shall not waive any claim
in any Proceeding without the written consent of such holder.  If the Holder does not file a proper proof of
claim or proof of debt in the form required in any Proceeding at least thirty
(30) days before the expiration of the time to file such claim, the holders of
any Senior Indebtedness are hereby authorized to file an appropriate claim for
and on behalf of the Holder.

 

The Holder shall retain the
right to vote and otherwise act with respect to the claims under this Note
(including, without limitation, the right to vote to accept or reject any plan
of partial or complete liquidation, reorganization, arrangement, composition or
extension); provided that the Holder shall
not vote with respect to any such plan or take any other action in any way so
as to (i) contest the validity of any Senior Indebtedness or any
collateral therefor or guaranties thereof, (ii) contest the relative
rights and duties of any of the lenders under the Senior Indebtedness
established in any instruments or agreement creating or evidencing the Senior
Indebtedness with respect to any of such collateral or guaranties, or (iii) contest
the Holders’ obligations and agreements set forth in this Section 13.

 

Upon payment or distribution
to creditors in a Proceeding of assets of the Company of any kind or character,
whether in cash, property or securities, all principal and interest due upon
any Senior Indebtedness shall first be paid in full before the Holder shall be
entitled to receive or, if received, to retain any payment or distribution on
account of this Note, and upon any such Proceeding, any payment or distribution
of assets of the Company of any kind or character, whether in cash, property or
securities, to which the Holder would be entitled except for the provisions of
this Section 13, shall be paid by the Company or by any receiver, trustee
in 

 

17

 

bankruptcy, liquidating
trustee, agent or other Person making such payment or distribution, or by the
Holder who shall have received such payment or distribution, directly to the
holders of the Senior Indebtedness (pro rata to each such holder on the basis
of the respective amounts of such Senior Indebtedness held by such holder) or
their representatives to the extent necessary to pay all such Senior
Indebtedness in full after giving effect to any concurrent payment or
distribution to or for the holders of such Senior Indebtedness, before any
payment or distribution is made to the Holder or any Holders of the Notes.

 

(d)                                 Payments on
Notes.  Subject to Sections 13(b) and
13(c), the Company may make regularly scheduled payments of the Principal of,
or Interest on, this Note or any other payment payable with respect to this
Note, if at the time of payment, and immediately after giving effect thereto,
there exists no Payment Default or a Payment Blockage Period.

 

(e)                                  Certain Rights.  Nothing contained in this Section 13 or
elsewhere in this Note is intended to or shall impair, as among the Company,
its creditors including the holders of Senior Indebtedness and the Holder, the
right, which is absolute and unconditional, of the Holder to convert this Note
in accordance herewith.

 

(f)                                   Subrogation.  Subject to payment in full in cash of all
Senior Indebtedness, the rights of the Holder shall be subrogated to the rights
of the holders of Senior Indebtedness to receive payments or distributions of
the assets of the Company made on such Senior Indebtedness until all principal and
interest on this Note shall be paid in full in cash; and for purposes of such
subrogation, no payments or distributions to the holders of Senior Indebtedness
of any cash, property or securities to which the Holder would be entitled
except for the subordination provisions of this Section 13 shall, as
between the Holder and the Company and/or its creditors other than the holders
of the Senior Indebtedness, be deemed to be a payment on account of the Senior
Indebtedness.

 

(g)                                  Rights of
Holders Unimpaired.  The
provisions of this Section 13 are and are intended solely for the purposes
of defining the relative rights of the Holder and the holders of Senior
Indebtedness and nothing in this Section 13 shall impair, as between the
Company and the Holder, the obligation of the Company, which is unconditional
and absolute, to pay to the Holder the principal thereof (and premium, if any)
and interest thereon, in accordance with the terms of this Note.

 

(h)                                 Holders of
Senior Indebtedness.  These
provisions regarding subordination will constitute a continuing offer to all
Persons who, in reliance upon such provisions, become holders of, or continue
to hold, Senior Indebtedness; such provisions are made for the benefit of the
holders of Senior Indebtedness, and such holders are hereby made obligees under
such provisions to the same extent as if they were named therein, and they or
any of them may proceed to enforce such subordination and no amendment or
modification of the provisions contained herein shall diminish the rights of
such holders unless such holders have agreed in writing thereto.  The holders of Senior Indebtedness may, at
any time and from time to 

 

18

 

time, without the consent of
or notice to the Holder, without incurring responsibility to the Holder and
without impairing or releasing the subordination provisions of this Section 13,
(i) subject to the limitations set forth herein, increase the amount of,
change the manner, terms or place of payment of, or renew or alter, any Senior
Indebtedness, or otherwise amend, modify, restate or supplement the same
(provided that any such modified indebtedness continues to be constitute Senior
Indebedness within the meaning of this Agreement), (ii) sell, exchange or
release any collateral mortgaged, pledged or otherwise securing the Senior
Indebtedness, (iii) release any Person liable in any manner for the Senior
Indebtedness and (iv) exercise or refrain from exercising any rights
against the Company or any other Person.

 

(i)                                     Proceeds Held
in Trust.  In the
event that notwithstanding the foregoing, any payment or distribution of assets
of the Company of any kind or character, whether in cash, property or
securities (including, without limitation, by way of setoff or otherwise)
prohibited by the provisions hereof shall be received by the Holder before all
Senior Indebtedness if paid in full in cash, such payment or distribution shall
be held in trust for the benefit of and shall be paid over or delivered to the
holders of Senior Indebtedness, as their respective interests may appear, as
calculated by the Company, for application to, or to be held as collateral for,
the payment of any Senior Indebtedness remaining unpaid to the extent necessary
to pay all Senior Indebtedness in full in cash after giving effect to any
concurrent payment or distribution to or for the holders of such Senior
Indebtedness.

 

(j)                                    Blockage of
Remedies.  In addition
to any restrictions included in the Security Agreement, during any Payment
Default or any Payment Blockage Period, if an Event of Default has occurred and
is continuing under this Note, the Holder will not commence or join with any
creditor of the Company in asserting or commencing any proceedings to collect
or enforce its rights hereunder or take any action to foreclose or realize upon
the indebtedness hereunder for a period beginning on the date of such Event of
Default and ending on the date such Payment Default is cured, waived or ceases
to exist or the date such Payment Blockage Period ends, as the case may be.

 

(k)                                 Subsequent
Senior Indebtedness Requested Modifications.  In connection with the incurrence of any
future Senior Indebtedness, the Holder agrees that it shall act reasonably and
negotiate in good faith any modifications to the provisions of this Section 13
reasonably requested by the holder of such Senior Indebtedness; provided that
nothing in this section shall restrict the holders of Notes representing at
least a majority of the aggregate principal amount of the Notes then outstanding
from changing or amending this Section 13 pursuant to Section 17
hereof upon the request of the Company.

 

(l)                                     Failure to Make
Payment.  In the event that the Company
is prohibited or restricted from making any payment required under this Note by
reason of the provisions of this Section 13, such prohibition or
restriction shall not preclude the failure to make such payment from being an
Event of Default under Section 4(a) of this Note.

 

19

 

(14)                          VOTING RIGHTS.  The Holder shall have no voting rights as the
holder of this Note, except as required by law, including but not limited to
the Delaware General Corporation Law, and as expressly provided in this Note.

 

(15)                          RANK; SECURITY;
ADDITIONAL INDEBTEDNESS; LIENS.

 

(a)                                 Rank.               All payments
due under this Note (a) shall rank pari
passu in right of payment with all Other Notes (“Pari Passu Indebtedness”), (b) shall
be subordinate in right of payment to the prior payment of all existing and
future Senior Indebtedness upon the terms set forth in Section 13 above,
and (c) shall be senior in right of payment to all other Indebtedness of
the Company, other than Senior Indebtedness and Pari Passu Indebtedness.

 

(b)                                 Security.  This Note is secured by assets of the Company
under that certain Security Agreement, dated May 1, 2009, among the
Company and the purchasers of the Original Notes (the “Security
Agreement”).

 

(c)                                  Incurrence of
Certain Indebtedness.  So long as
this Note is outstanding, the Company shall not, and the Company shall not
permit any of its Subsidiaries to, directly or indirectly, incur or guarantee,
assume or suffer to exist any Indebtedness which shall rank senior to the
Notes, other than Senior Indebtedness and Qualified Subsidiary Indebtedness.  “Qualified Subsidiary
Indebtedness” means: (i) Indebtedness incurred by Liquidmetal
Coatings, LLC or its Subsidiaries, but only to the extent not guaranteed by, or
secured by the assets of, the Company or any other Company Subsidiary, and (ii) Indebtedness
incurred by the Company’s foreign subsidiaries, but only to the extent not
guaranteed by, or secured by the assets of, the Company or any Company
Subsidiary incorporated in the United States. 
“Qualified Subsidiary Indebtedness”
shall not include any Indebtedness incurred by Liquidmetal Korea Co. Ltd., a
subsidiary of the Company organized under the laws of the Republic of Korea (“LMK”), after the date of the Securities Purchase and
Exchange Agreement except to the extent that such Indebtedness is incurred to
refinance Indebtedness existing prior to the date of the Securities Purchase
and Exchange Agreement on terms than are more favorable or the same to LMK as
the terms of such existing Indebtedness.

 

(d)                                 Restricted
Payments.  The Company
shall not, and the Company shall not permit any of its Subsidiaries to,
directly or indirectly, redeem, defease, repurchase, repay or make any payments
in respect of, by the payment of cash or cash equivalents (in whole or in part,
whether by way of open market purchases, tender offers, private transactions or
otherwise), all or any portion of any Indebtedness, other than Senior
Indebtedness, Pari Passu Indebtedness, or Qualified Subsidiary Indebtedness,
whether by way of payment in respect of principal of (or premium, if any) or interest
on, such Indebtedness if at the time such payment is due or is otherwise made
or, after giving effect to such payment, an event constituting an Event of
Default has occurred and is continuing.

 

20

 

(16)                          PARTICIPATION.  The Holder, as the holder of this Note, shall
be entitled to such dividends paid and distributions made to the holders of
Common Stock (each, a “Distribution”),
in each such case to the extent of the Distribution as if the Holder had converted
this Note into Common Stock (without regard to any limitations on conversion
herein or elsewhere) and had held such shares of Common Stock on the record
date for such dividends and distributions. 
Payments (if any) under the preceding sentence shall be made
concurrently with the dividend or distribution to the holders of Common Stock.

 

(17)                          AMENDMENT TO
THE TERMS OF NOTES; LIKE TREATMENT OF NOTES.  This Note shall not be modified, amended,
changed, terminated, supplemented, or any term or condition hereof waived
except in writing signed by the Company and Holder.  In addition, neither the Company nor any of
its affiliates shall, directly or indirectly, pay or cause to be paid any
consideration (immediate or contingent), whether by way of interest, fee,
payment for the redemption or conversion of the Notes, or otherwise, to any
Holder of Notes, for or as an inducement to, or in connection with the
solicitation of, any consent, waiver or amendment of any terms or provisions of
the Notes, unless such consideration is required to be paid to all Holders of
Notes.  The Company shall not, directly
or indirectly, redeem any Notes unless such offer of redemption is made pro
rata to all Holders of Notes on identical terms.  For clarification purposes, this provision
constitutes a separate right granted by the Company to each Holder of Notes and
negotiated separately by each Holder of Notes, is intended for the Company to
treat the Holders of Notes as a class, and shall not in any way be construed as
the Holders of Notes acting in concert or as a group with respect to the
purchase, disposition or voting of Notes or otherwise.

 

(18)                          TRANSFER.  This Note may be offered, sold, assigned or
transferred by the Holder without the consent of the Company, subject only to
the provisions of Section 2(f) of the Securities Purchase and
Exchange Agreement.

 

(19)                          REISSUANCE OF
THIS NOTE.

 

(a)                                 Transfer.  If this Note is to be transferred, the Holder
shall surrender this Note to the Company, whereupon the Company will forthwith
issue and deliver upon the order of the Holder a new Note (in accordance with Section 19(d)),
registered as the Holder may request, representing the outstanding Principal
being transferred by the Holder and, if less then the entire outstanding
Principal is being transferred, a new Note (in accordance with Section 19(d))
to the Holder representing the outstanding Principal not being
transferred.  The Holder and any
assignee, by acceptance of this Note, acknowledge and agree that, by reason of
the provisions of Section 3(c)(iii) and this Section 19(a),
following conversion or redemption of any portion of this Note, the outstanding
Principal represented by this Note may be less than the Principal stated on the
face of this Note.

 

(b)                                 Lost, Stolen or
Mutilated Note.  Upon
receipt by the Company of evidence reasonably satisfactory to the Company of
the loss, theft, destruction or mutilation of this Note, and, in the case of
loss, theft or destruction, of any indemnification undertaking by the Holder to
the Company in customary form and, in the case of mutilation, upon surrender
and cancellation of this Note, the Company shall execute and deliver to the
Holder a new Note (in accordance with Section 19(d)) representing the
outstanding Principal.

 

21

 

(c)                                  Note
Exchangeable for Different Denominations.  This Note is exchangeable, upon the surrender
hereof by the Holder at the principal office of the Company, for a new Note or
Notes (in accordance with Section 19(d) and in principal amounts of
at least $100,000) representing in the aggregate the outstanding Principal of
this Note, and each such new Note will represent such portion of such
outstanding Principal as is designated by the Holder at the time of such
surrender.

 

(d)                                 Issuance of New
Notes.  Whenever the Company is
required to issue a new Note pursuant to the terms of this Note, such new Note (i) shall
be of like tenor with this Note, (ii) shall represent, as indicated on the
face of such new Note, the Principal remaining outstanding (or in the case of a
new Note being issued pursuant to Section 19(a) or Section 19(c),
the Principal designated by the Holder which, when added to the principal
represented by the other new Notes issued in connection with such issuance,
does not exceed the Principal remaining outstanding under this Note immediately
prior to such issuance of new Notes), (iii) shall have an issuance date,
as indicated on the face of such new Note, which is the same as the Issuance
Date of this Note, (iv) shall have the same rights and conditions as this
Note, and (v) shall represent accrued Interest on the Principal and
Interest of this Note, from the Issuance Date.

 

(20)                            REMEDIES,
CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF.  The remedies provided in this Note shall be
cumulative and in addition to all other remedies available under this Note, the
Securities Purchase and Exchange Agreement and the Registration Rights
Agreement, at law or in equity (including a decree of specific performance
and/or other injunctive relief), and nothing herein shall limit the Holder’s
right to pursue actual and consequential damages for any failure by the Company
to comply with the terms of this Note. 
Amounts set forth or provided for herein with respect to payments,
conversion and the like (and the computation thereof) shall be the amounts to
be received by the Holder and shall not, except as expressly provided herein,
be subject to any other obligation of the Company (or the performance
thereof).  The Company acknowledges that
a breach by it of its obligations hereunder will cause irreparable harm to the
Holder and that the remedy at law for any such breach may be inadequate.  The Company therefore agrees that, in the
event of any such breach or threatened breach, the Holder shall be entitled, in
addition to all other available remedies, to an injunction restraining any
breach, without the necessity of showing economic loss and without any bond or
other security being required.

 

(21)                            PAYMENT OF
COLLECTION, ENFORCEMENT AND OTHER COSTS.  If (a) this Note is placed in the hands
of an attorney for collection or enforcement or is collected or enforced
through any legal proceeding or the Holder otherwise takes action to collect
amounts due under this Note or to enforce the provisions of this Note or (b) there
occurs any bankruptcy, reorganization, receivership of the Company or other
proceedings affecting Company creditors’ rights and involving a claim under
this Note, then the Company shall pay the costs incurred by the Holder for such
collection, enforcement or action or in connection with such bankruptcy,
reorganization, receivership or other proceeding, including, but not limited
to, attorneys’ fees and disbursements.

 

22

 

(22)                            CONSTRUCTION;
HEADINGS.  This Note
shall be deemed to be jointly drafted by the Company and all the Purchasers and
shall not be construed against any person as the drafter hereof.  The headings of this Note are for convenience
of reference and shall not form part of, or affect the interpretation of, this
Note.

 

(23)                            FAILURE OR
INDULGENCE NOT WAIVER.  No
failure or delay on the part of the Holder in the exercise of any power, right
or privilege hereunder shall operate as a waiver thereof, nor shall any single
or partial exercise of any such power, right or privilege preclude other or
further exercise thereof or of any other right, power or privilege.

 

(24)                            DISPUTE
RESOLUTION.  In the case
of a dispute as to the determination of the Redemption Price or the arithmetic
calculation of the Conversion Rate or the Redemption Price, the Company shall
submit the disputed determinations or arithmetic calculations via facsimile
within one Business Day of receipt of the Conversion Notice or Redemption
Notice or other event giving rise to such dispute, as the case may be, to the
Holder.  If the Holder and the Company
are unable to agree upon such determination or calculation within one Business
Day of such disputed determination or arithmetic calculation being submitted to
the Holder, then the Company shall, within one Business Day submit via
facsimile (a) the disputed determination of the Closing Bid Price or the
Closing Sale Price to an independent, reputable investment bank selected by the
Company and approved by the Holder or (b) the disputed arithmetic
calculation of the Conversion Rate or the Redemption Price to the Company’s
independent, outside accountant.  The
Company, at the Company’s expense, shall cause the investment bank or the
accountant, as the case may be, to perform the determinations or calculations
and notify the Company and the Holder of the results no later than five
Business Days from the time it receives the disputed determinations or
calculations.  Such investment bank’s or
accountant’s determination or calculation, as the case may be, shall be binding
upon all parties absent demonstrable error.

 

(25)                            NOTICES;
PAYMENTS.

 

(a)                                  Notices.  Whenever notice is required to be given under
this Note, unless otherwise provided herein, such notice shall be given in
accordance with Section 9(f) of the Securities Purchase and Exchange
Agreement.  The Company shall provide the
Holder with prompt written notice of all actions taken pursuant to this Note,
including in reasonable detail a description of such action and the reason therefore.  Without limiting the generality of the
foregoing, the Company will give written notice to the Holder (i) immediately
upon any adjustment of the Conversion Price, setting forth in reasonable
detail, and certifying, the calculation of such adjustment and (ii) at
least twenty days prior to the date on which the Company closes its books or
takes a record (A) with respect to any dividend or distribution upon the
Common Stock, (B) with respect to any pro rata subscription offer to
holders of Common Stock or (C) for determining rights to vote with respect
to any Change of Control, dissolution or liquidation, provided in each case
that such information shall be made known to the public prior to or in
conjunction with such notice being provided to the Holder.  Notwithstanding the foregoing, Section 4(i) of
the Securities Purchase and Exchange Agreement shall apply to all notices given
pursuant to this Note.

 

23

 

(b)                                 Payments.  Whenever any payment of cash is to be made by
the Company to any Person pursuant to this Note, such payment shall be made in
lawful money of the United States of America by a check drawn on the account of
the Company and sent via overnight courier service to such Person at such
address as previously provided to the Company in writing (which address, in the
case of each of the Purchasers, shall initially be as set forth on the Schedule
of Buyers attached to the Securities Purchase and Exchange Agreement); provided
that the Holder may elect to receive a payment of cash via wire transfer of
immediately available funds by providing the Company with prior written notice
setting out such request and the Holder’s wire transfer instructions.  Whenever any amount expressed to be due by
the terms of this Note is due on any day which is not a Business Day, the same
shall instead be due on the next succeeding day which is a Business Day and, in
the case of any Interest Date which is not the date on which this Note is paid
in full, the extension of the due date thereof shall not be taken into account
for purposes of determining the amount of Interest due on such date.

 

(26)                            CANCELLATION.  After all Principal, accrued Interest and
other amounts at any time owed on this Note has been paid in full, this Note shall
automatically be deemed canceled, shall be surrendered to the Company for
cancellation and shall not be reissued.

 

(27)                            WAIVER OF
NOTICE.  To the extent permitted by
law, the Company hereby waives demand, notice, protest and all other demands
and notices in connection with the delivery, acceptance, performance, default
or enforcement of this Note and the Securities Purchase and Exchange Agreement.

 

(28)                            GOVERNING LAW.  This Note shall be construed and enforced in
accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Note shall be governed by, the internal
laws of the State of New York, without giving effect to any choice of law or
conflict of law provision or rule (whether of the State of New York or any
other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New York.

 

(29)                            CERTAIN
DEFINITIONS.  For
purposes of this Note, the following terms shall have the following meanings:

 

(a)                                  “Approved Stock Plan” means any employee benefit,
option or incentive plan which has been approved by the Board of Directors and
shareholders of the Company, pursuant to which the Company’s securities may be
issued to any employee, consultant, officer or director for services provided
to the Company; provided that the number of shares of the Company’s Common
Stock issuable pursuant to such plans, in the aggregate, shall not exceed 10%
of the shares of the Company’s Common Stock outstanding on a fully-diluted basis
on the date of the First Closing (as defined in the Securities Purchase and
Exchange Agreement) after giving effect to the First Closing and the full
exercise of the Series A-1 Option 

 

24

 

(as defined in the Securities
Purchase and Exchange Agreement), as adjusted for stock splits, reverse stock
splits, and the like, unless such increased amount of shares is approved by the
holders of the Company’s Common Stock and the holders of the Company’s Series A-1
Preferred Stock and Series A-2 Preferred Stock voting together as a single
class.  For purposes of this definition, “fully-diluted
basis” shall take into account all outstanding shares of Common Stock as well
as all shares of Common Stock issuable upon the conversion of all outstanding
convertible securities of the Company, including all options and warrants
granted.

 

(b)                                 “Bloomberg” means Bloomberg Financial
Markets.

 

(c)                                  “Business Day” means any day other than Saturday, Sunday or other
day on which commercial banks in The City of New York are authorized or
required by law to remain closed.

 

(d)                                 “Closing Bid Price” and “Closing
Sale Price” means, for any security as of any date, the last closing
bid price and last closing trade price, respectively, for such security on the
Principal Market, as reported by Bloomberg, or, if the Principal Market begins
to operate on an extended hours basis and does not designate the closing bid
price or the closing trade price, as the case may be, then the last bid price
or last trade price, respectively, of such security prior to 4:00 p.m.,
New York Time, as reported by Bloomberg, or, if the Principal Market is not the
principal securities exchange or trading market for such security, the last
closing bid price or last trade price, respectively, of such security on the
principal securities exchange or trading market where such security is listed
or traded as reported by Bloomberg, or if the foregoing do not apply, the last
closing bid price or last trade price, respectively, of such security in the
over-the-counter market on the electronic bulletin board for such security as
reported by Bloomberg, or, if no closing bid price or last trade price,
respectively, is reported for such security by Bloomberg, the average of the
bid prices, or the ask prices, respectively, of any market makers for such
security as reported in the “pink sheets” by Pink Sheets LLC (formerly the
National Quotation Bureau, Inc.). 
If the Closing Bid Price or the Closing Sale Price cannot be calculated
for a security on a particular date on any of the foregoing bases, the Closing
Bid Price or the Closing Sale Price, as the case may be, of such security on
such date shall be the fair market value as mutually determined by the Company
and the Holder.  If the Company and the
Holder are unable to agree upon the fair market value of such security, then
such dispute shall be resolved pursuant to Section 24.  All such determinations to be appropriately
adjusted for any stock dividend, stock split, stock combination or other
similar transaction during the applicable calculation period.

 

(e)                                  “Contingent Obligation” means, as to any Person,
any direct or indirect liability, contingent or otherwise, of that Person with
respect to any indebtedness, lease, dividend or other obligation of another
Person if the primary purpose or intent of the Person incurring such liability,
or the primary effect thereof, is to provide assurance to the obligee of such
liability that such liability will be paid or discharged, or that any agreements
relating thereto will be complied with, or that the holders of such liability
will be protected (in whole or in part) against loss with respect thereto.

 

25

 

(f)                                    “Convertible Securities” means any stock or
securities (other than Options) directly or indirectly convertible into or
exercisable or exchangeable for Common Stock.

 

(g)                                 “Excluded Security” means any share of Common Stock issued or
issuable: (i) in connection with any Approved Stock Plan; (ii) upon
conversion or exercise of any Notes, Other Notes, warrants or shares of Series A-1
Preferred Stock or Series A-2 Preferred Stock of the Company issued (A) pursuant
to the Securities Purchase and Exchange Agreement, (B) as dividends on the
Series A Preferred Stock, or (C) as interest under the Notes or Other
Notes; (iii) upon conversion or exercise of any Options or Convertible
Securities which are outstanding on the Issuance Date, (iv) pursuant to or
in connection with commercial credit arrangements, equipment lease financings,
acquisitions of other assets or businesses, and strategic transactions not
primarily for financing purposes (including licensing or development
agreements), but only to the extent the transactions described in this clause (iv) are
entered into with non-affiliates of the Company.

 

(h)                                 “Indebtedness” of any Person means, without duplication (A) all
indebtedness for borrowed money, (B) all obligations issued, undertaken or
assumed as the deferred purchase price of property or services, (C) all
reimbursement or payment obligations with respect to letters of credit, surety
bonds and other similar instruments, (D) all obligations evidenced by
notes, bonds, debentures or similar instruments, including obligations so
evidenced incurred in connection with the acquisition of property, assets or
businesses, (E) all indebtedness created or arising under any conditional
sale or other title retention agreement, or incurred as financing, in either
case with respect to any property or assets acquired with the proceeds of such
indebtedness (even though the rights and remedies of the seller or bank under
such agreement in the event of default are limited to repossession or sale of
such property), (F) all monetary obligations under any leasing or similar
arrangement which, in connection with generally accepted accounting principles,
consistently applied for the periods covered thereby, is classified as a
capital lease, (G) off-balance sheet liabilities retained in connection
with asset securitization programs, synthetic leases, sale and leaseback
transactions or other similar obligations arising with respect to any other
transaction which is the functional equivalent of or takes the place of
borrowing but which does not constitute a liability on the consolidated balance
sheet of such Person and its subsidiaries, and (H) all indebtedness
referred to in clauses (A) through (G) above secured by (or for which
the holder of such Indebtedness has an existing right, contingent or otherwise,
to be secured by) any mortgage, lien, pledge, charge, security interest or
other encumbrance upon or in any property or assets (including accounts and
contract rights) owned by any Person, even though the Person which owns such
assets or property has not assumed or become liable for the payment of such
indebtedness, and (I) all Contingent Obligations in respect of
indebtedness or obligations of others of the kinds referred to in clauses (A) through
(H) above.  Notwithstanding the
foregoing, trade payables incurred in the ordinary course of business shall not
constitute “Indebtedness” for purposes of this Note.

 

(i)                                     “Issuance Date” means November 1, 2009.

 

26

 

(j)                                     “Options” means any rights, warrants or
options to subscribe for or purchase Common Stock or Convertible Securities.

 

(k)                                  “Original Issuance Date” means the First Closing Date, as
defined in the Securities Purchase and Exchange Agreement.

 

(l)                                     “Person” means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated organization,
any other entity and a government or any department or agency thereof.

 

(m)                               “Principal Market” means the OTC Bulletin
Board.

 

(n)                                 “Registration Rights Agreement” means that
certain Registration Rights Agreement, dated May 1, 2009, between the
Company and the initial Holders of the Original Notes.

 

(o)                                 “SEC” means the United States Securities and Exchange
Commission.

 

(p)                                 “Securities Purchase and Exchange Agreement” means the
Securities Purchase and Exchange Agreement, dated May 1, 2009, among the
Company and the initial Holders of the Original Notes pursuant to which the
Company issued the Original Notes.

 

(q)                                 “Senior Indebtedness” means the principal of (and
premium, if any), interest on, and all fees and other amounts (including,
without limitation, any reasonable costs, enforcement expenses (including
reasonable legal fees and disbursements, collateral protection expenses and
other reimbursement or indemnity obligations relating thereto)), and all other
obligations of the Company under (i) any of the agreements or instruments
evidencing any Indebtedness of the Company and its Subsidiaries arising after
the Original Issuance Date to an unaffiliated, third-party commercial lender
(together with any renewals, refundings, refinancings or other extensions
thereof) for purposes of purchasing equipment (which debt shall be secured only
by the assets purchased with such financing), and (ii) Indebtedness not to
exceed $4,000,000 in the aggregate that is secured solely by the Company’s
and/or its Subsidiaries’ accounts receivable and/or inventory.

 

(r)                                    “Subsidiary” means any business entity as to which the
Company directly or indirectly owns or has the power to vote or control 50% or
more of any class or series of capital stock or other equity securities of such
entity.

 

(s)                                  “Trading Day” means any day on which the Common Stock is traded
on the Principal Market, or, if the Principal Market is not the principal
trading market for the Common Stock, then on the principal securities exchange
or securities market on which the Common Stock is then traded; provided that “Trading
Day” shall not include any day on which 

 

27

 

the Common Stock is
scheduled to trade on such exchange or market for less than 4.5 hours or any
day that the Common Stock is suspended from trading during the final hour of
trading on such exchange or market (or if such exchange or market does not
designate in advance the closing time of trading on such exchange or market,
then during the hour ending at 4:00:00 p.m., New York Time).

 

(t)                                    “Warrants” means the warrants issued under the Securities
Purchase and Exchange Agreement to the initial Holders of the Original Notes.

 

(u)                                 “Weighted Average Price” means, for any security as
of any date, the dollar volume-weighted average price for such security on the
Principal Market during the period beginning at 9:30:01 a.m., New York
Time (or such other time as the Principal Market publicly announces is the
official open of trading), and ending at 4:00:00 p.m., New York Time (or
such other time as the Principal Market publicly announces is the official
close of trading) as reported by Bloomberg through its “Volume at Price”
functions, or, if the foregoing does not apply, the dollar volume-weighted
average price of such security in the over-the-counter market on the electronic
bulletin board for such security during the period beginning at 9:30:01 a.m.,
New York Time (or such other time as such market publicly announces is the
official open of trading), and ending at 4:00:00 p.m., New York Time (or
such other time as such market publicly announces is the official close of
trading) as reported by Bloomberg, or, if no dollar volume-weighted average
price is reported for such security by Bloomberg for such hours, the average of
the highest closing bid price and the lowest closing ask price of any of the
market makers for such security as reported in the “pink sheets” by Pink Sheets
LLC (formerly the National Quotation Bureau, Inc.).  If the Weighted Average Price cannot be
calculated for a security on a particular date on any of the foregoing bases,
the Weighted Average Price of such security on such date shall be the fair
market value as mutually determined by the Company and the Holder.  If the Company and the Holder are unable to
agree upon the fair market value of such security, then such dispute shall be
resolved pursuant to Section 24. 
All such determinations to be appropriately adjusted for any stock
dividend, stock split, stock combination or other similar transaction during
the applicable calculation period.

 

[Signature Page Follows]

 

28

 

IN WITNESS
WHEREOF, the Company has caused this Note to be duly
executed as of the Issuance Date set out above.

 

	
   

  	
  LIQUIDMETAL
  TECHNOLOGIES, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
  Tony Chung

  
	
   

  	
  Title:

  	
  Chief Financial Officer

  

 

 

EXHIBIT I

 

LIQUIDMETAL TECHNOLOGIES, INC.

CONVERSION NOTICE

 

Reference is made to the 8%
Senior Secured Convertible Note (the “Note”)
issued to the undersigned by Liquidmetal Technologies, Inc. (the “Company”). 
In accordance with and pursuant to the Note, the undersigned hereby
elects to convert the Conversion Amount (as defined in the Note) of the Note
indicated below into shares of Common Stock, par value $0.001 per share (the “Common Stock”), of the Company as of the
date specified below.

 

	
  Date of Conversion:

  	
   

  	
   

  
	
   

  	
   

  
	
  Aggregate Conversion
  Amount to be converted:

  	
   

  

 

The undersigned hereby
certifies to the Company that the undersigned’s conversion of the amount set
forth above in accordance with Section 3(a) of the Note will not
directly result in the undersigned (together with the undersigned’s affiliates)
beneficially owning in excess of 4.99% of the number of shares of Common Stock
outstanding immediately after giving effect to such conversion, calculated in
accordance with Section 3(d)(i) of the Note; provided that if the
undersigned has previously waived the 4.99% beneficial ownership limitation
upon no less than sixty one (61) days prior written notice, the undersigned
certifies to the Company that the undersigned’s conversion of the amount set
forth above will not directly result in the undersigned (together with the
undersigned’s affiliates) beneficially owning in excess of 9.99% of the number
of shares of Common Stock outstanding immediately after giving effect to such
conversion, calculated in accordance with Section 3(d)(i) of the
Note.  Notwithstanding the foregoing, the
certification set forth in this paragraph shall not apply to, and shall not be
deemed to be made by, any Affiliated Investor (as that term is defined in the
Purchase Agreement referred to in the Note).

 

Please confirm the following
information:

 

	
  Conversion Price:

  	
   

  	
   

  
	
   

  	
   

  
	
  Number of shares of Common
  Stock to be issued:

  	
   

  

 

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

 

	
  Issue to:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
  Facsimile Number:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Authorization:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
						

 

	
  Dated:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
  Account Number:

  	
   

  	
   

  
	
  (if electronic book entry
  transfer)

  	
   

  
	
   

  	
   

  
	
  Transaction Code Number:

  	
   

  	
   

  
	
  (if electronic book entry
  transfer)

  	
   

  
					

 

 

ACKNOWLEDGMENT

 

The Company hereby
acknowledges this Conversion Notice and hereby directs American Stock Transfer &
Trust Co. to issue the above indicated number of shares of Common Stock in
accordance with the Transfer Agent Instructions dated May 1, 2009, from
the Company.

 

	
   

  	
  LIQUIDMETAL
  TECHNOLOGIES, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00177-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00177-of-00352.parquet"}]]