Document:

Exhibit 10.1

 

SECURITIES
PURCHASE AND EXCHANGE AGREEMENT

 

SECURITIES
PURCHASE AND EXCHANGE AGREEMENT (the “Agreement”), dated as of May 1, 2009,
among Liquidmetal Technologies, Inc., a Delaware corporation  (the “Company”), and the investors listed on the
Schedule of Buyers attached hereto (individually, a “Buyer” and collectively, the “Buyers”).

 

WHEREAS:

 

A.            The Company and each Buyer are executing and delivering
this Agreement in reliance upon the exemption from securities registration
afforded by Rule 144A (“Rule 144A”)
of the Securities Act of 1933, as amended (the “1933 Act”), by Section 4(2) of the 1933 Act, and/or
by Rule 506 of Regulation D (“Regulation
D”) as promulgated by the United States Securities and Exchange
Commission (the “SEC”) under the 1933
Act.

 

B.            The Company currently has outstanding: (i) a series
of 8% Convertible Subordinated Notes in the aggregate principal amount of $20,624,933.33  that were issued in a January 2007
private placement by the Company and were also issued as interest on such notes
(the “Existing Notes”), and (ii) common
stock purchase warrants to purchase up to an aggregate of 8,138,352 shares of the
Company’s common stock, par value $.001 per share (the “Common Stock”),
which warrants were issued in connection with the Existing Notes and which have
(a) an original exercise price of $1.93 per share and an expiration date
of January 3, 2012 or (b) an original exercise price of $1.55 per
share and an expiration date of December 28, 2012 (the “Existing Warrants”).

 

C.            The Company and Buyers desire to enter into a transaction
under which, subject to the terms and conditions of this Agreement: (i) each
holder of the Existing Notes will exchange such holder’s Existing Notes and
Existing Warrants for a new series of convertible notes, shares of a new class
of preferred stock, or a combination of such new notes and new shares of
preferred stock, together with new warrants issued thereon and (ii) certain
investors will purchase for cash consideration shares of a new class of preferred
stock of the Company (collectively, the “Transactions”
or the “Offering”).

 

D.            In order to effectuate the Transactions, the Company has
authorized and/or approved:  (1) a new series of convertible preferred stock of
the Company to be designated as the Company’s “Series A-1 Preferred Stock,”
par value $0.001 per share (the “Series A-1 Preferred”);
(2) a new series of preferred stock of the Company to be designated as the
Company’s “Series A-2 Preferred Stock,” par value $0.001 per share (the “Series A-2 Preferred”); 
(3) a series of 8% Senior Secured Convertible Notes of the Company
in the form attached hereto as Exhibit A (the “Exchange
Notes”); (4) a series of Common Stock Purchase Warrants in the
form attached hereto as Exhibit B to be issued in connection with
the issuance of shares of Series A-1 Preferred and Series A-2
Preferred (the “Preferred Warrants”); and (5) a series of Common Stock Purchase
Warrants in the form attached hereto as Exhibit C to be issued in
connection with the issuance of the Exchange Notes (the “Exchange
Warrants”).

 

 

E.             Contemporaneously with the
execution and delivery of this Agreement, the parties hereto are executing and
delivering a Registration Rights Agreement, in substantially the form attached
hereto as Exhibit D (the “Registration
Rights Agreement”), pursuant to which the Company has agreed to
provide certain registration rights with respect to the Conversion Shares and
the Warrant Shares (each as defined below) under the 1933 Act and the rules and
regulations promulgated thereunder, and applicable state securities laws.

 

NOW, THEREFORE, the Company and each Buyer
hereby agree as follows:

 

1.                                       PURCHASE OF
SERIES A-1 SHARES, SERIES A-2 SHARES, EXCHANGE NOTES, AND WARRANTS; OPTION TO
PURCHASE ADDITIONAL SERIES A-1 SHARES.

 

(a)           Purchase of Series A-1 Shares and Preferred
Warrants.  Subject to the
satisfaction (or waiver) of the conditions set forth in Sections 6 and 7 below,
the Company shall issue and sell to each Buyer, and each such Buyer severally,
but not jointly, agrees to purchase and acquire from the Company on the First
Closing Date (as defined below), the number of Series A-1 Shares set forth
opposite such Buyer’s name in Column (3) on the Schedule of Buyers and the
Preferred Warrants set forth opposite such Buyer’s name in Column (4) on
the Schedule of Buyers.  This paragraph
shall not apply to any Buyer for which the number of shares of Series A-1
Shares set forth next to the Buyer’s name on the Schedule of Buyers is zero
(0).

 

(b)           Purchase of Series A-2 Shares and Preferred
Warrants.  Subject to the
satisfaction (or waiver) of the conditions set forth in Sections 6 and 7 below,
the Company shall issue and sell to each Buyer, and each such Buyer severally,
but not jointly, agrees to purchase and acquire from the Company on the First
Closing Date (as defined below), the number of Series A-2 Shares set forth
opposite such Buyer’s name in Column (5) on the Schedule of Buyers and the
Preferred Warrants set forth opposite such Buyer’s name in Column (6) on
the Schedule of Buyers.  This paragraph
shall not apply to any Buyer for which the number of shares of Series A-2
Shares set forth next to the Buyer’s name on the Schedule of Buyers is zero
(0).

 

(c)           Purchase of Exchange Notes and Exchange Warrants.  Subject to the satisfaction (or waiver) of
the conditions set forth in Sections 6 and 7 below, on the First Closing Date
(as defined below), the Company shall issue to each Buyer, and each Buyer
severally, but not jointly, agrees to purchase and acquire from the Company an
Exchange Note in the aggregate principal amount set forth opposite the Buyer’s
name in Column (7) on the Schedule of Buyers and the Exchange Warrants set
forth opposite the Buyer’s name in Column (8) on the Schedule of
Buyers.  This paragraph shall not apply
to any Buyer for which the amount of Exchange Notes set forth next to the Buyer’s
name on the Schedule of Buyers is zero (0). 
The Company
agrees and acknowledges that the Exchange Notes, Exchange Warrants, and Series A-2
Shares are being issued hereunder to the Buyers thereof solely in exchange for
other securities of the Company for purposes of Rule 144(d)(3)(ii) under
the 1933 Act.

 

(d)           Purchase Price. 
The purchase price for the Series A-1 Shares (together with the
related Preferred Warrants described in Section 1(a) above) shall be
$5.00 per Series A-1 Share.  The
purchase price for the Series A-2 Shares (including the related Preferred
Warrants described in Section 1(b) above) shall be $5.00 principal
amount of Existing Notes per Series A-2

 

2

 

Share.  The
purchase price for the Exchange Notes (including the related Exchange Warrants
described in Section 1(c) above) shall be equal to $1.00 for each
$1.00 of principal amount under the Exchange Notes.

 

(e)           Payment of Purchase Price.  On the First Closing Date (as defined below),
the aggregate purchase price to be paid by each Buyer for all of the Preferred
Shares, Exchange Notes, and Warrants being purchased hereunder (referred to as
the “Investment Amount”) shall be paid in
the form of:  (i) cash, in the
amount set forth opposite the Buyer’s name in Column (2) on the Schedule
of Buyers, by wire transfer of immediately available funds in accordance with
the Company’s written wire instructions and (ii) the surrender and
exchange of all rights under the Existing Notes, with the total remaining
value, including unpaid principal and accrued but unpaid interest, set forth
opposite the Buyer’s name in Column (1) on the Schedule of Buyers, and the
surrender and exchange of all rights under and with respect to the Existing
Warrants.  Upon the First Closing and
receipt of the Investment Amounts described above, the Company shall deliver to
each Buyer the Series A-1 Shares, the Series A-2 Shares, the Exchange
Notes, and the Warrants which such Buyer is then purchasing, duly executed on
behalf of the Company and registered in the name of such Buyer or its designee.

 

(f)            Option to Purchase Series A-1 Shares.

 

(i)            The Company hereby grants to the Buyers of Preferred Stock
(as defined below) an option (the “Series A-1 Option”),
upon the terms and subject to the conditions herein contained, to purchase up
to an aggregate of one million (1,000,000) Series A-1 Shares (the “Option Shares”) for a purchase price of $5.00 per Series A-1
Share.  Notwithstanding the foregoing and
subject to the terms and conditions set forth below in this Section 1(f), (A) the
Buyers of Series A-1 Shares (the “A-1 Buyers”)
shall have the first right to purchase the first three hundred fifty thousand
(350,000) Option Shares (the “Initial Option Shares”)
pursuant to this Series A-1 Option and (B) the Buyers of Series A-2
Shares (the “A-2 Buyers”) shall have the first
right to purchase the remaining six hundred fifty thousand (650,000) Option
Shares plus the Initial Option Shares, if any, not purchased by the A-1 Buyers
(the “Remaining Shares”).  The right of the A-2 Buyers to purchase the
Remaining Shares shall be contingent upon (1) the purchase by the A-1
Buyers of all, but not less than all, of the Initial Option Shares or (2) the
failure of the A-1 Buyers to purchase all of the Initial Option Shares on or
before the date that is five (5) months from the date of the First Closing
(the “Remaining Share Condition”).

 

(ii)           With regard to the purchase of the Initial Option Shares,
each A-1 Buyer shall be entitled to purchase a maximum number of Initial Option
Shares pursuant to the Series A-1 Option in the same proportion as its
purchase obligation set forth in Column (3) on the Schedule of Buyers;
provided that any A-1 Buyer may assign its rights to purchase Initial Option
Shares under this Section 1(f)(ii) to any other Buyer.  The Series A-1 Option may be exercised
by the A-1 Buyers for the purchase of Initial Option Shares by delivering an
Exercise Notice (as defined below) to the Company at any time and from time to
time after the date hereof up until 5:00 p.m., New York City time, on the
date that is five (5) months from the date of the First Closing.  Any A-1 Buyer who elects to purchase Initial
Option Shares in accordance with this Section 1(f)(ii) must provide
the Company with written notice (an “Exercise Notice”)
stating that such Buyer is exercising its Series A-1 Option and setting
forth the number of Initial

 

3

 

Option Shares such Buyer intends to purchase.

 

(iii)          Upon the occurrence of the Remaining Share Condition, each
A-2 Buyer shall be entitled to purchase a maximum number of Remaining Shares
pursuant to the Series A-1 Option in the same proportion as its purchase
obligation set forth in Column (5) on the Schedule of Buyers; provided
that any A-2 Buyer may assign its rights to purchase Remaining Shares under
this Section 1(f)(iii) to any other Buyer.  The Series A-1 Option may be exercised
by the A-2 Buyers for the purchase of Remaining Shares by delivering an
Exercise Notice to the Company at any time after the Remaining Share Condition
occurs and from time to time thereafter until 5:00 p.m., New York City
time, on the date that is six (6) months from the date of the First
Closing (the “Option Expiration Date”).

 

(iv)          In addition to any other limitation provided herein, in no
event shall any part of the Series A-1 Option be exercisable unless the
applicable Exercise Notice is delivered to the Company on or before the Option
Expiration Date, provided that in the event that the A-1 Buyers purchased all
of the Initial Option Shares pursuant to the Series A-1 Option and the A-2
Buyers did not purchase all of the Remaining Shares pursuant hereto, then the
A-1 Buyers shall have the right to purchase any Remaining Shares not purchased
by the A-2 Buyers (the “Remaining Unpurchased
Shares”) by delivering to the Company an Exercise Notice with
respect thereto no later than thirty (30) days after the Option Expiration
Date.  Each A-1 Buyer shall have the
right to purchase the Remaining Unpurchased Shares in the same proportion as
its purchase obligation set forth in Column (3) on the Schedule of Buyers;
provided that any A-1 Buyer may assign its rights to purchase the Remaining
Unpurchased Shares under this Section 1(f)(iv) to any other Buyer.

 

(v)           Notwithstanding
anything in this Agreement to the contrary, upon the Company’s receipt of an
Exercise Notice, if the Board of Directors of the Company determines in good
faith that the Company’s anticipated capital resources (including access to
borrowing availability under credit facilities) will be sufficient to fund the
Company’s operations for a period of at least twelve (12) months after the
Company’s receipt of the Exercise Notice, then the Company shall have the right
to refuse the exercise of the Series A-1 Option by delivering, prior to
the Option Closing Date (as defined below), a written notice to the exercising
Buyers stating that the Board of Directors has made such determination, in
which event the Buyers will not have the right to exercise the Series A-1
Option (a “Refusal Notice”).  After any such Refusal Notice, the Buyers
will have the right to deliver a subsequent Exercise Notice at any time after
the thirtieth (30th) day after
receipt of the Refusal Notice, subject to the Company’s right to issue a
Refusal Notice again at such time. 
Notwithstanding the foregoing, in the event that a Refusal Notice is
delivered in response to an Exercise Notice properly delivered by the A-1
Buyers on or before the date that is five (5) months from the date of the
First Closing, then the A-2 Buyers shall not have a right to purchase any
Remaining Shares unless the A-1 Buyers are first provided with an opportunity
to purchase the Initial Option Shares covered by such Exercise Notice.  In addition, in the event that a Refusal
Notice is delivered in response to an Exercise Notice properly delivered by the
A-2 Buyers prior to the Option Expiration Date, then the A-1 Buyers shall not
have the right to purchase any Remaining Unpurchased Shares unless the A-2
Buyers are first provided with an opportunity to purchase the Remaining Shares
covered by such Exercise Notice.

 

4

 

(g)           Closing.  The
purchase and sale of the Series A-1 Shares, the Series A-2 Shares,
the Exchange Notes, and the Warrants (the “First Closing”)
shall occur on the First Closing Date at the offices of Foley &
Lardner LLP, 100 North Tampa Street, Suite 2700, Tampa, Florida
33602.  The date and time of the First
Closing (the “First  Closing Date”) shall be 10:00 a.m., New York, NY Time, on
the date hereof, subject to notification of satisfaction (or waiver) of the
conditions to the First Closing set forth in Sections 6 and 7 below (or such
later date as is mutually agreed to by the Company and each Buyer).  The closing with respect to each exercise of
the Series A-1 Option shall occur on a date (each such date, an “Option Closing Date”) specified by the exercising Buyer that
is not less than fifteen (15) business days nor more than twenty (20) business
days following the date upon which such Buyer provides the Company with an
Exercise Notice.  The First Closing Date
and each Option Closing Date are herein referred to as a “Closing Date”
and each closing hereunder is referred to as a “Closing.”

 

(h)           Certain Definitions.  For purposes of this Agreement, the following
capitalized terms shall have the following meanings:

 

(i)            “Conversion Shares”
means shares of Common Stock issuable upon the conversion of the Preferred
Shares or Exchange Notes.

 

(ii)           “Preferred Shares”
means shares of Series A-1 Shares and/or Series A-2 Shares, as
applicable.

 

(iii)          “Schedule of Buyers”
means the Schedule of Buyers attached to this Agreement.

 

(iv)          “Securities”
means the Exchange Notes, Preferred Shares, Conversion Shares, and Warrant
Shares.

 

(v)           “Series A-1 Shares”
means shares of Series A-1 Preferred (including any shares issued as
dividends on the Series A-1 Preferred), and “Series A-2
Shares” means shares of Series A-2 Preferred (including any
shares issued as dividends on the Series A-2 Preferred).

 

(vi)          “Warrants” means
the Preferred Warrants and Exchange Warrants.

 

(vii)         “Warrant Shares”
means the shares of Common Stock issuable upon the exercise of the Warrants.

 

2.             BUYER’S
REPRESENTATIONS AND WARRANTIES.

 

Each Buyer represents and
warrants with respect to only itself that:

 

(a)           No Public Sale or Distribution.  Such Buyer is acquiring the Preferred Shares,
the Exchange Notes, and the Warrants, as applicable, for its own account and
not with a view towards, or for resale in connection with, the public sale or
distribution thereof, except pursuant to sales registered or exempted under the
1933 Act; provided, however, that by making the representations
herein, such Buyer does not agree to hold any of the Securities for any minimum
or other specific term and reserves the right to dispose of the Securities at
any time in

 

5

 

accordance with or pursuant to a registration
statement or an exemption from the registration requirements of the 1933 Act
and applicable state securities laws. 
Such Buyer presently does not have any agreement or understanding,
directly or indirectly, with any person to distribute any of the Securities.

 

(b)           Qualified Institutional Buyer; Accredited Investor
Status.  Such Buyer is a “qualified institutional buyer” as
defined in Rule 144A under the 1933 Act (a “QIB”) and/or such Buyer is an “accredited investor” as that term is defined
in Rule 501(a) of Regulation D.

 

(c)           Transfer
or Resale.  In connection with such Buyer’s subsequent
offers to sell, such Buyer (i) will offer the Securities for resale only
upon the terms and conditions set forth in this Agreement (the “Exempt Resales”), and (ii) will
solicit offers to buy the Securities only from, and will offer and sell the
Securities only to, (A) persons reasonably believed by such Buyer to be
QIBs or (B) persons reasonably believed by such Buyer to be an “accredited
investor” as that term is defined in Rule 501(a) of Regulation D (an “Accredited Investor”) or (C) persons reasonably
believed by such Buyer to be non-U.S. persons referred to in Regulation S under
the 1933 Act (“Non-U.S. Persons”), and in
connection with each such sale, it will take reasonable steps to ensure that
the purchaser of such Securities is aware that such sale is being made in
reliance on Rule 144A, Regulation D or Regulation S, as applicable.

 

(d)           General
Solicitation.  No form of general
solicitation or general advertising in violation of the 1933 Act has been or
will be used nor will any offers in any manner involving a public offering
within the meaning of Section 4(2) of the 1933 Act or, with respect
to any Securities to be sold in reliance on Regulation S, by means of any
directed selling efforts be made by such Buyer or any of its representatives in
connection with the offer and sale of any of the Securities.

 

(e)           Reliance on Exemptions.  Such Buyer understands that the Securities
are being offered and sold to it in reliance on specific exemptions from the
registration requirements of United States federal and state securities laws
and that the Company is relying in part upon the truth and accuracy of, and
such Buyer’s compliance with, the representations, warranties, agreements,
acknowledgments, and understandings of such Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of such Buyer
to acquire the Securities.

 

(f)            Information. 
Such Buyer and its advisors, if any, have been furnished with all
materials relating to the business, finances and operations of the Company and
materials relating to the offer and sale of the Securities which have been
requested by such Buyer.  Such Buyer and
its advisors, if any, have been afforded the opportunity to ask questions of
the Company and have received what such Buyer and its advisors, if any, believe
to be satisfactory answers to any such inquiries.  Such Buyer understands that its investment in
the Securities involves a high degree of risk. 
Such Buyer has sought such accounting, legal and tax advice as it has
considered necessary to make an informed investment decision with respect to
its acquisition of the Securities.

 

(g)           No Governmental Review.  Such Buyer understands that no United States
federal or state agency or any other government or governmental agency has
passed on or made

 

6

 

any recommendation or endorsement of the Securities
or the fairness or suitability of the investment in the Securities nor have
such authorities passed upon or endorsed the merits of the offering of the
Securities.

 

(h)           Restrictions. 
Such Buyer understands that except as provided in this Agreement and the
Registration Rights Agreement: (i) the Securities have not been and are
not being registered under the 1933 Act or any state securities laws, and may
not be offered for sale, sold, assigned or transferred unless (A) subsequently
registered thereunder, (B) such Buyer shall have delivered to the Company
an opinion of counsel, in a form reasonably acceptable to the Company, to the
effect that such Securities to be sold, assigned or transferred may be sold,
assigned or transferred pursuant to an exemption from such registration, such
as Rule 144 or Rule 144A promulgated under the 1933 Act (or a
successor rule thereto) (collectively, “Rule 144”);
(ii) any sale of the Securities made in reliance on Rule 144 may be
made only in accordance with the terms of Rule 144 and further, if Rule 144
is not applicable, any resale of the Securities under circumstances in which
the seller (or the Person (as defined in Section 3(p)) through whom the
sale is made) may be deemed to be an underwriter (as that term is defined in
the 1933 Act) may require compliance with some other exemption under the 1933
Act or the rules and regulations of the SEC thereunder; and (iii) except
as set forth in the Registration Rights Agreement, neither the Company nor any
other Person is under any obligation to register the Securities under the 1933
Act or any state securities laws or to comply with the terms and conditions of
any exemption thereunder.  The Securities may be pledged in
connection with a bona fide margin account or other loan secured by the
Securities and such pledge of Securities shall not be deemed to be a transfer,
sale or assignment of the Securities hereunder, and no Buyer effecting a pledge
of Securities shall be required to provide the Company with any notice thereof
or otherwise make any delivery to the Company pursuant to this Agreement or any
other Transaction Document (as defined below), including, without limitation,
this Section 2(h); provided, that in order to make any sale,
transfer or assignment of Securities, such Buyer and its pledgee makes such
disposition in accordance with or pursuant to a registration statement or an
exemption under the 1933 Act.

 

(i)            Legends. 
Buyer understands that the certificates or other instruments
representing the Preferred Shares, the Exchange Notes and the Warrants and,
until such time as the resale of the Conversion Shares and the Warrant Shares
have been registered under the 1933 Act as contemplated by the Registration
Rights Agreement, the certificates representing the Securities, except as set
forth below, shall bear any legend as required by the “blue sky” laws of any
state and a restrictive legend in substantially the following form (and a
stop-transfer order may be placed against transfer of such stock certificates):

 

NEITHER
THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE
SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN/THE SECURITIES
REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR
SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF (A) AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED,

 

7

 

OR
(B) AN OPINION OF COUNSEL, IN A FORM REASONABLY ACCEPTABLE TO THE
COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT.  NOTWITHSTANDING THE FOREGOING, THE SECURITIES
MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN
OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

 

The legend set forth above shall be removed and the
Company shall issue a certificate without such legend to the holder of the
Securities upon which it is stamped, if, unless otherwise required by state
securities laws, (i) such Securities are registered for resale under the
1933 Act or (ii) in connection with a sale, assignment or other transfer,
such holder provides the Company with an opinion of counsel, in a form
reasonably acceptable to the Company, to the effect that such sale, assignment
or transfer of the Securities may be made without registration under the
applicable requirements of the 1933 Act.

 

(j)            Validity; Enforcement.  This Agreement and the Registration Rights
Agreement have been duly and validly authorized, executed and delivered on
behalf of such Buyer and shall constitute the legal, valid and binding
obligations of such Buyer enforceable against such Buyer in accordance with
their respective terms, except as such enforceability may be limited by general
principles of equity or by applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation and other similar laws relating to, or affecting
generally, the enforcement of applicable creditors’ rights and remedies, and
except that any rights to indemnity or contribution under the Transaction
Documents (as defined below) may be limited by federal and state securities
laws and public policy considerations.

 

(k)           No Conflicts. 
The execution, delivery and performance by such Buyer of this Agreement
and the Registration Rights Agreement and the consummation by such Buyer of the
transactions contemplated hereby and thereby will not (i) result in a
violation of the organizational documents of such Buyer, (ii) conflict
with, or constitute a default (or an event which with notice or lapse of time
or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which such Buyer is a party, or (iii) result in
a violation of any law, rule, regulation, order, judgment or decree (including
federal and state securities laws) applicable to such Buyer, except in the case
of clauses (ii) and (iii) above, for such conflicts, defaults, rights
or violations which would not, individually or in the aggregate, reasonably be
expected to have a material adverse effect on the ability of such Buyer to
perform its obligations hereunder.

 

(l)            Residency. 
Such Buyer is a resident of that jurisdiction specified below its address
on the Schedule of Buyers.  Such Buyer
represents that it was not organized solely for purposes of making an
investment in the Company.

 

(m)          Certain Trading Activities.  Such Buyer has not directly or indirectly,
nor has any Person acting on behalf of or pursuant to any understanding with
such Buyer, engaged in any transactions in the securities of the Company
(including, without limitation, any Short Sales (as defined in Regulation SHO
promulgated under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”)) involving the Company’s
securities) since the time that such Buyer was first contacted by the Company
or any other Person regarding an investment in the

 

8

 

Company.  Such
Buyer covenants that neither it nor any Person acting on its behalf or pursuant
to any understanding with it will engage in any transactions in the securities
of the Company (including Short Sales) prior to the time that the transactions
contemplated by this Agreement are publicly disclosed by the Company.  Such Buyer has maintained, and covenants that
until such time as the transactions contemplated by this Agreement are publicly
disclosed by the Company pursuant to Section 4(e) such Buyer will
maintain, the confidentiality of all disclosures made to it in connection with
this transaction (including the existence and terms of this transaction) and
any information other than the terms of this transaction that the Company
provided to such Buyer on a confidential basis.

 

(n)           No Group. 
Other than affiliates of such Buyer who are also Buyers under this
Agreement, such Buyer is not under common control with or acting in concert
with any other Buyer and is not part of a “group.”  Other than Carlyle Liquid, LLC, Carlyle
Holdings, LLC, Abdi Mahamedi, Atlantic Realty, and Ricardo Salas (the “Affiliated Investors”), no Buyer, together with its
affiliates, will, following any Closing, beneficially own more than 10% of the
voting power of the Company’s then-outstanding capital stock.

 

(o)           Buyer Due Diligence.  Such Buyer acknowledges that, except for the
matters that are expressly covered by the provisions of this Agreement,
including the exhibits and schedules hereto, such Buyer is relying on its own
investigation and analysis in entering into this Agreement and consummating the
transactions contemplated hereby.  Such
Buyer is informed and sophisticated in the transactions contemplated by this
Agreement and has undertaken such investigation, and has been provided with and
has evaluated such documents and information, as it has deemed necessary in
connection with the execution, delivery and performance of this Agreement.  Such Buyer is consummating the transactions
contemplated by this Agreement without any representation or warranty, expressed
or implied, by the Company except as expressly set forth in this Agreement and
the exhibits and schedules hereto.  Such Buyer acknowledges and agrees that
the Company does not make and has not made any representations or warranties
with respect to the transactions contemplated hereby other than those
specifically set forth in Section 3.

 

3.             REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

 

The Company represents and
warrants to each of the Buyers that:

 

(a)           Organization and Qualification.  The Company and its “Subsidiaries” (which
for purposes of this Agreement means any entity in which the Company, directly
or indirectly, owns capital stock or holds an equity or similar interest) are
corporations or other legal entities duly organized and validly existing in
good standing under the laws of the jurisdictions in which they are organized,
as set forth on Schedule 3(a), and have the requisite power and
authorization to own their properties and to carry on their business as now
being conducted.  The Company and each
Subsidiary is duly qualified as a foreign corporation or other legal entity to
do business and is in good standing in every jurisdiction in which its
ownership of property or the nature of the business conducted by it makes such
qualification necessary, as set forth on Schedule 3(a), except to the
extent that the failure to be so qualified or be in good standing would not
have a Material Adverse Effect.  As used
in this Agreement, “Material Adverse Effect”
means any material adverse effect on the business, properties, assets,

 

9

 

operations,
results of operations, or condition (financial or otherwise) of the Company and
its Subsidiaries, taken as a whole.  The
Company has no Subsidiaries except as set forth on Schedule 3(a).

 

(b)           Authorization; Enforcement;
Validity.  The Company has the
requisite corporate power and authority to enter into and perform its
obligations under this Agreement, the Securities, the Registration Rights
Agreement, the Security Agreement, the Irrevocable Transfer Agent Instructions
(as defined in Section 5) and each of the other agreements entered into by
the parties hereto in connection with the Transactions contemplated by this
Agreement (collectively, the “Transaction
Documents”) and to issue the Securities in accordance with the terms
hereof and thereof.  The execution and
delivery of the Transaction Documents by the Company and the consummation by
the Company of the transactions contemplated hereby and thereby, including,
without limitation, the issuance of the Preferred Shares, the Exchange Notes
and the Warrants and the reservation for issuance and the issuance of the
Conversion Shares and the Warrant Shares issuable upon conversion, issuance or
exercise thereof, as the case may be, have been duly authorized by the Company’s
Board of Directors and no further consent or authorization is required by the
Company, its Board of Directors or its stockholders.  This Agreement and the other Transaction
Documents of even date herewith have been duly executed and delivered by the
Company, and constitute the legal, valid and binding obligations of the Company
enforceable against the Company in accordance with their respective terms,
except as such enforceability may be limited by general principles of equity or
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally, the enforcement of applicable
creditors’ rights and remedies, and except that any rights to indemnity or
contribution under the Transaction Documents may be limited by federal and state
securities laws and public policy considerations.

 

(c)           Issuance of Securities.  The Preferred Shares, the Exchange Notes and
the Warrants are duly authorized and, upon issuance in accordance with the
terms hereof, shall be free from all taxes, liens and charges with respect to
the issue thereof.  Upon the filing of
the Charter Amendment (as defined in Section 4(m) hereof) with the
Delaware Secretary of State, the number of shares of Common Stock which equals
the sum of 100% of the number of shares of Common Stock issuable upon
conversion of the Preferred Shares and the Exchange Notes and exercise of the
Warrants to be issued at the First Closing will be duly authorized and reserved
for issuance.  Upon conversion, exercise
or issuance in accordance with the terms of the Preferred Shares, the Exchange
Notes and the Warrants, the Conversion Shares and the Warrant Shares, as the
case may be, will be validly issued, fully paid and nonassessable and free from
all taxes, liens and charges with respect to the issue thereof, with the
holders being entitled to all rights accorded to a holder of Common Stock.  Assuming the accuracy of each of the
representations and warranties of the Buyers contained in Section 2, the
issuance by the Company of the Securities is exempt from the registration
requirements of Section 5 of the 1933 Act.

 

(d)           No Conflicts.  The execution, delivery and performance of
the Transaction Documents by the Company and the consummation by the Company of
the transactions contemplated hereby and thereby (including, without
limitation, the issuance of the Preferred Shares, the Exchange Notes and the
Warrants and the reservation for issuance and issuance of the Conversion Shares
and the Warrant Shares) will not (i) result in a violation of the
certificate of incorporation, any certificate of designations, preferences and
rights of any outstanding series 

 

10

 

of
preferred stock or the bylaws of the Company or any of its Subsidiaries, (ii) conflict
with, or constitute a default (or an event which with notice or lapse of time
or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any material
agreement, indenture or instrument to which the Company or any of its
Subsidiaries is a party, except which are the subject of written waivers or
consents which have been obtained or effected on or prior to the applicable
Closing Date or (iii) result in a violation of any law, rule, regulation,
order, judgment or decree (including federal and state securities laws and
regulations and the rules and regulations of the Principal Market (as
defined below)) applicable to the Company or any of its Subsidiaries or by
which any property or asset of the Company or any of its Subsidiaries is bound
or affected, except in the case of clauses (ii) and (iii), for such
breaches or defaults as could not reasonably be expected to have a Material
Adverse Effect.

 

(e)           Consents.  Except as disclosed in Schedule 3(e),
the Company is not required to obtain any consent, authorization or order of,
or make any filing or registration with, any court, governmental agency or any
regulatory or self-regulatory agency or any other Person in order for it to
execute, deliver or perform any of its obligations under or contemplated by the
Transaction Documents, in each case in accordance with the terms hereof or
thereof.  All consents, authorizations,
orders, filings and registrations which the Company is required to obtain
pursuant to the preceding sentence have been obtained or effected on or prior
to the First Closing Date (other than filings and reports relating to the offer
and sale of the Securities required under Regulation D or applicable securities
or “Blue Sky” laws as contemplated under Section 4(b) of this
Agreement), and the Company and its Subsidiaries are unaware of any facts or
circumstances which might prevent the Company from obtaining or effecting any
of the registration, application or filings pursuant to the preceding
sentence.  The Company is not in
violation of the listing requirements of the Principal Market (as defined
below) and has no knowledge of any facts which would reasonably lead to
delisting or suspension of the Common Stock in the foreseeable future.

 

(f)            Acknowledgment Regarding Buyer’s
Purchase of Securities.  The Company
acknowledges and agrees that each Buyer is acting solely in the capacity of arm’s
length purchaser with respect to the Transaction Documents and the transactions
contemplated hereby and thereby and that, except as set forth on Schedule
3(f), no Buyer is (i) an officer or director of the Company, (ii) an
“affiliate” of the Company (as defined in Rule 144) or (iii) to the
knowledge of the Company, a “beneficial owner” of more than 10% of the Common
Stock (as defined for purposes of Rule 13d-3 of the Exchange Act).  The Company further acknowledges that no
Buyer is acting as a financial advisor or fiduciary of the Company (or in any
similar capacity) with respect to the Transaction Documents and the
Transactions contemplated hereby and thereby, and any advice given by a Buyer
or any of its representatives or agents in connection with the Transaction
Documents and the Transactions contemplated hereby and thereby is merely
incidental to such Buyer’s purchase of the Securities.

 

(g)           No General Solicitation; Placement
Agent’s Fees.  Neither the Company,
nor any of its affiliates, nor any Person acting on its or their behalf, has
engaged in any form of general solicitation or general advertising (within the
meaning of Regulation D) in connection with the offer or sale of the
Securities.  The Company shall be
responsible for the payment of any placement agent’s fees, financial advisory
fees, or brokers’ commissions (other than for 

 

11

 

persons
engaged by any Buyer or its investment advisor) relating to or arising out of
the transactions contemplated hereby.

 

(h)           No Integrated Offering.  None of the Company, its Subsidiaries, any of
their affiliates, and any Person acting on their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of any of
the Securities under the 1933 Act or cause this offering of the Securities to
be integrated with prior offerings by the Company for purposes of the 1933 Act
or any applicable stockholder approval provisions, including, without
limitation, under the rules and regulations of any exchange or automated quotation
system on which any of the securities of the Company are listed or designated.

 

(i)            Rights Agreement.  The Company has not adopted a
stockholder rights plan or similar arrangement relating to accumulations of
beneficial ownership of Common Stock or a change in control of the Company.

 

(j)            SEC Documents.  The Company has filed all reports, schedules,
forms, statements and other documents required to be filed by it with the SEC
pursuant to the reporting requirements of the Exchange Act (all of the foregoing
filed prior to the date hereof (whether or not required to be filed), and all
exhibits included therein and financial statements and schedules thereto and
documents incorporated by reference therein being hereinafter referred to as
the “SEC Documents”).  As of their respective dates, the SEC
Documents complied in all material respects with the requirements of the
Exchange Act and the rules and regulations of the SEC promulgated
thereunder applicable to the SEC Documents, and, to the Company’s knowledge,
none of the SEC Documents, at the time they were filed with the SEC, contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.

 

(k)           Financial Statements.  As of their respective dates, the financial
statements of the Company included in the SEC Documents complied as to form in
all material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto.  Such financial statements have been prepared
in accordance with generally accepted accounting principles, consistently
applied, during the periods involved (except (i) as may be otherwise
indicated in such financial statements or the notes thereto, or (ii) in
the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).

 

(l)            Absence of Certain Changes.  Except as disclosed in Schedule 3(l) or
in the SEC Documents, since December 31, 2008 (i) there has been no
Material Adverse Effect, and (ii) the Company has not (A) declared or paid any dividends, (B) sold
any assets, individually or in the aggregate, in excess of $100,000 outside of the ordinary course of business,
or (C) had capital expenditures, individually or in the aggregate, in
excess of $250,000.  The Company has not
taken any steps to seek protection pursuant to any bankruptcy law nor does the
Company have any knowledge or reason to believe that its creditors intend to
initiate involuntary 

 

12

 

bankruptcy
proceedings or any actual knowledge of any fact which would reasonably lead a creditor
to do so.  The Company is not as of the
date hereof, and after giving effect to the transactions contemplated hereby to
occur at the First Closing, will not be Insolvent (as defined below).  For purposes of this Section 3(l), “Insolvent” means (i) the Company is
unable to pay its debts and liabilities, subordinated, contingent or otherwise,
as such debts and liabilities become absolute and matured, or (ii) the
Company intends to incur or believes that it will incur debts that would be
beyond its ability to pay as such debts mature.

 

(m)          Conduct of Business.  Neither the Company nor its Subsidiaries is
in violation of any term of or in default under its Certificate of
Incorporation or Bylaws or their organizational charter or bylaws,
respectively.  Except as disclosed in Schedule
3(m), neither the Company nor any of its Subsidiaries is in violation of
any judgment, decree or order or any statute, ordinance, rule or
regulation applicable to the Company or its Subsidiaries, and neither the
Company nor any of its Subsidiaries will conduct its business in violation of
any of the foregoing, except for possible violations which would not,
individually or in the aggregate, have a Material Adverse Effect.  Without limiting the generality of the
foregoing, the Company is not in violation of any of the rules, regulations or
requirements of the OTC Bulletin Board (the “Principal
Market”) other than violations which could not reasonably be
expected, individually or in the aggregate, to have a Material Adverse Effect
and has no knowledge of any facts or circumstances which would reasonably lead
to delisting or suspension of the Common Stock by the Principal Market in the
foreseeable future.  Except as disclosed
on Schedule 3(m), since January 1, 2006, (i) the Common Stock
has been designated for quotation on the Principal Market, (ii) trading in
the Common Stock has not been suspended by the SEC or the Principal Market and (iii) the
Company has received no communication, written or oral, from the SEC or the
Principal Market regarding the suspension or delisting of the Common Stock from
the Principal Market.

 

(n)           Regulatory
Permits.  The Company and its
Subsidiaries possess all certificates, authorizations and permits issued by the
appropriate federal, state or foreign regulatory authorities necessary to
conduct their respective businesses, except where the failure to possess such
certificates, authorizations or permits would not have, individually or in the
aggregate, a Material Adverse Effect, and neither the Company nor any such
Subsidiary has received any notice of proceedings relating to the revocation or
modification of any such certificate, authorization or permit.

 

(o)           Equity Capitalization.  As of the date hereof, the number of shares
and type of all authorized, issued, and outstanding capital stock of the
Company, and all shares of Common Stock reserved for issuance under the Plans
(as defined below), is set forth in Schedule 3(o).  All of such outstanding shares have been, or
upon issuance will be, validly issued and are fully paid and
nonassessable.  All of such outstanding
shares of capital stock are duly authorized, validly issued, fully paid and
nonassessable.  No shares of capital stock
of the Company are subject to preemptive rights or any other similar rights of
the shareholders of the Company or any liens or encumbrances imposed through
the actions or failure to act of the Company. 
Except as disclosed in the SEC Documents and other than pursuant to this
Agreement and as contemplated by the Company’s employee and director benefit,
incentive, or option plans disclosed in the Company’s SEC Documents (the “Plans”), (i) there are no outstanding options,
warrants, scrip, rights to subscribe for, puts, calls, rights of first refusal,
and (ii) there are no 

 

13

 

agreements,
understandings, claims, antidilution protection or other commitments or rights
of any character whatsoever that could require the Company to issue additional
shares of capital stock of the Company or adjust the purchase or exercise price
of any such instrument.  Except as
disclosed in the SEC Documents, there are no agreements or arrangements (other
than the Registration Rights Agreement) under which the Company is obligated to
register the sale of any of its securities under the 1933 Act.

 

(p)           Indebtedness and Other Contracts.  Except as disclosed in Schedule 3(p) or
in the SEC Documents, neither the Company nor any of its Subsidiaries (i) has
any outstanding Indebtedness, or (ii) is in violation of any term of or in
default under any contract, agreement or instrument relating to any
Indebtedness.  For purposes of this
Agreement:  (x) “Indebtedness” of any Person means, without
duplication (A) all indebtedness for borrowed money, (B) all
obligations issued, undertaken or assumed as the deferred purchase price of
property or services (other than trade payables entered into in the ordinary
course of business), (C) all reimbursement or payment obligations with
respect to letters of credit, surety bonds and other similar instruments, (D) all
obligations evidenced by notes, bonds, debentures or similar instruments,
including obligations so evidenced incurred in connection with the acquisition
of property, assets or businesses, (E) all indebtedness created or arising
under any conditional sale or other title retention agreement, or incurred as
financing, in either case with respect to any property or assets acquired with
the proceeds of such indebtedness (even though the rights and remedies of the
seller or bank under such agreement in the event of default are limited to
repossession or sale of such property), (F) all monetary obligations under
any leasing or similar arrangement which, in connection with generally accepted
accounting principles, consistently applied for the periods covered thereby, is
classified as a capital lease, (G) all indebtedness referred to in clauses
(A) through (F) above secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any mortgage, lien, pledge, charge, security interest or other encumbrance upon
or in any property or assets (including accounts and contract rights) owned by
any Person, even though the Person which owns such assets or property has not
assumed or become liable for the payment of such indebtedness, and (H) all
Contingent Obligations (as defined below) in respect of indebtedness or
obligations of others of the kinds referred to in clauses (A) through (G) above;
(y) “Contingent Obligation” means, as to any Person, any
direct or indirect liability, contingent or otherwise, of that Person with
respect to any indebtedness, lease, dividend or other obligation of another
Person if the primary purpose or intent of the Person incurring such liability,
or the primary effect thereof, is to provide assurance to the obligee of such
liability that such liability will be paid or discharged, or that any
agreements relating thereto will be complied with, or that the holders of such
liability will be protected (in whole or in part) against loss with respect
thereto; and (z) “Person” means an individual, a
limited liability company, a partnership, a joint venture, a corporation, a
trust, an unincorporated organization and a government or any department or
agency thereof.

 

(q)           Absence of Litigation.  Except as disclosed in the SEC Documents,
there is no action, suit, proceeding, inquiry or investigation before or by the
Principal Market, any court, public board, government agency, self-regulatory
organization or body pending or, to the knowledge of the Company, threatened
against or affecting the Company, the Common Stock or any of the Company’s
Subsidiaries that would, individually or in the aggregate, reasonably be
expected to result in a Material Adverse Effect.

 

14

 

(r)            Insurance.  The Company and each of its Subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as management of the Company reasonably believes
to be prudent and customary in the businesses in which the Company and its
Subsidiaries are engaged.  Neither the
Company nor any such Subsidiary has been refused any insurance coverage sought
or applied for and neither the Company nor any such Subsidiary has any reason
to believe that it will not be able to renew its existing insurance coverage as
and when such coverage expires or to obtain similar coverage from similar
insurers as may be necessary to continue its business at a cost that would not have
a Material Adverse Effect.

 

(s)           Employee Relations.  Except as disclosed in Schedule 3(s),
neither the Company nor any of its Subsidiaries is a party to any collective
bargaining agreement or employs any member of a union.  The Company and its Subsidiaries believe that
their relations with their employees are good. 
No executive officer of the Company (as defined in Rule 501(f) of
the 1933 Act) has notified the Company that such officer intends to leave the
Company or otherwise terminate such officer’s employment with the Company.  No executive officer of the Company, to the
knowledge of the Company, is, or is now expected to be, in violation of any
material term of any employment contract, confidentiality, disclosure or
proprietary information agreement, non-competition agreement, or any other
contract or agreement or any restrictive covenant.  The Company and its Subsidiaries are in
compliance with all federal, state, local and foreign laws and regulations
respecting employment and employment practices, terms and conditions of
employment and wages and hours, except where failure to be in compliance would
not, either individually or in the aggregate, reasonably be expected to result
in a Material Adverse Effect.

 

(t)            Title.  The Company and its Subsidiaries have good
and marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them which is material to the business
of the Company and its Subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described in Schedule 3(t) or
such as do not materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by the
Company and any of its Subsidiaries.  Any
real property and facilities held under lease by the Company and any of its
Subsidiaries are held by them under valid, subsisting and enforceable leases
with such exceptions as are not material and do not interfere with the use made
and proposed to be made of such property and buildings by the Company and its
Subsidiaries.

 

(u)           Intellectual Property Rights.  To the knowledge of the Company and except as
set forth in the SEC Documents, the Company and its Subsidiaries own or possess
adequate rights or licenses to use all trademarks, trade names, service marks,
service mark registrations, service names, patents, patent rights, copyrights,
inventions, licenses, approvals, governmental authorizations, trade secrets and
other intellectual property rights (“Intellectual
Property Rights”) necessary to conduct their respective businesses
as now conducted.  The Company does not
have any knowledge of any infringement by the Company or its Subsidiaries of
Intellectual Property Rights of others. 
Except as set forth in Schedule 3(u), there is no claim, action
or proceeding being made or brought, or to the knowledge of the Company, being
threatened, against the Company or its Subsidiaries regarding its Intellectual
Property Rights which could have a Material Adverse Effect.

 

15

 

(v)           Environmental Laws.  The Company and its Subsidiaries (i) are
in material compliance with any and all Environmental Laws (as hereinafter
defined), (ii) have received all material permits, licenses or other
approvals required of them under applicable Environmental Laws to conduct their
respective businesses and (iii) are in material compliance with all terms
and conditions of any such permit, license or approval where, in each of the
foregoing clauses (i), (ii) and (iii), the failure to so comply could be
reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect.  The term “Environmental Laws” means all federal,
state, local or foreign laws relating to pollution or protection of human
health or the environment (including, without limitation, ambient air, surface
water, groundwater, land surface or subsurface strata), including, without
limitation, laws relating to emissions, discharges, releases or threatened
releases of chemicals, pollutants, contaminants, or toxic or hazardous
substances or wastes (collectively, “Hazardous
Materials”)  into the
environment, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials, as well as all authorizations, codes, decrees, demands or
demand letters, injunctions, judgments, licenses, notices or notice letters,
orders, permits, plans or regulations issued, entered, promulgated or approved
thereunder.

 

(w)          Tax Status.  The Company and each of its Subsidiaries (i) has
made or filed all federal and state income and all other tax returns, reports
and declarations required by any jurisdiction in which such filings are
required, (ii) has paid all taxes and other governmental assessments and
charges that are owed by it, including all taxes shown or determined to be due
on such returns, reports and declarations, except those being contested in good
faith and for which adequate reserves have been established on the Company’s
books, and (iii) has set aside on its books provision reasonably adequate
for the payment of all taxes for periods subsequent to the periods to which
such returns, reports or declarations apply. 
There are no unpaid taxes in any material amount claimed to be due by
the taxing authority of any jurisdiction.

 

(x)            Disclosure.  The Company confirms that it has not provided
any of the Buyers or their respective agents or counsel with any information
that will constitute material,
nonpublic information on the First Closing Date, other than information and
documentation regarding the transactions contemplated by this Agreement, which
information shall be included on the 8-K Filing (as defined in Section 4(e) below).  The Company understands and confirms that
each of the Buyers will rely on the foregoing representations in effecting
transactions in securities of the Company. 
The Company acknowledges and agrees that no Buyer makes or has made any
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in Section 2.

 

(y)           Manipulation of Price.  The Company has not, and to its knowledge no
one acting on its behalf has, (i) taken, directly or indirectly, any
action designed to cause or to result in, or that has constituted or which
might reasonably be expected to constitute, the stabilization or manipulation
of the price of any security of the Company to facilitate the sale or resale of
any of the Securities, (ii) sold, bid for, purchased, or paid anyone any
compensation for soliciting purchases of, any of the Securities, or (iii) paid
or agreed to pay to any person any compensation for soliciting another to
purchase any other securities of the Company.

 

16

 

(z)            Internal Accounting and
Disclosure Controls.  The Company and
each of its Subsidiaries maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management’s general or specific authorizations, (ii) transactions
are recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
and liability accountability, (iii) access to assets or incurrence of
liabilities is permitted only in accordance with management’s general or
specific authorization and (iv) the recorded accountability for assets and
liabilities is compared with the existing assets and liabilities at reasonable
intervals and appropriate action is taken with respect to any difference.  Except as set forth in the SEC Documents, the
Company maintains disclosure controls and procedures (as such term is defined
in Rule 13a-14 under the Exchange Act) that are effective in ensuring that
information required to be disclosed by the Company in the reports that it
files or submits under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the rules and forms of the
SEC, including, without limitation, controls and procedures designed to ensure
that information required to be disclosed by the Company in the reports that it
files or submits under the Exchange Act is accumulated and communicated to the
Company’s management, including its principal executive officer or officers and
its principal financial officer or officers, as appropriate, to allow timely
decisions regarding required disclosure. 
Except as set forth in the SEC Documents, during the twelve months prior
to the date hereof neither the Company nor any of its Subsidiaries have
received any notice or correspondence from any accountant relating to any
potential material weakness in any part of the system of internal accounting
controls of the Company or any of its Subsidiaries.

 

(aa)         Investment Company Status. 
The Company is not, and upon consummation of the sale of the Securities will
not be, an “investment company,” a company controlled by an “investment company”
or an “affiliated person” of, or “promoter” or “principal underwriter” for, an “investment
company” as such terms are defined in the Investment Company Act of  1940,
as amended.

 

(bb)         U.S. Real Property Holding
Corporation.  The Company is not, nor has ever been, a U.S. real
property holding corporation within the meaning of Section 897 of the
Internal Revenue Code of 1986, as amended, and the Company shall so certify
upon Buyer’s request.

 

(cc)         Bank Holding Company Act. 
Neither the Company nor any of its Subsidiaries is subject to the Bank Holding
Company Act of 1956, as amended (the “BHCA”) and to
regulation by the Board of Governors of the Federal Reserve System (the “Federal Reserve”).  Neither the Company nor any of its
Subsidiaries or affiliates owns or controls, directly or indirectly, five
percent (5%) or more of the outstanding shares of any class of voting
securities or twenty-five (25%) or more of the total equity of a bank or
any  equity that is subject to the BHCA and to regulation by the Federal
Reserve.  Neither the Company nor any of its Subsidiaries or affiliates
exercises a controlling influence over the management or policies of a bank or
any entity that is subject to the BHCA and to regulation by the Federal
Reserve.

 

(dd)         Trading Activities.  It is understood and acknowledged by the
Company that, except as set forth in Section 4(l) of this Agreement
(which contains certain covenants by the Buyers):  (i) none of the
Buyers have been asked to agree, nor has any Buyer agreed, to desist 

 

17

 

from
purchasing or selling, long and/or short, securities of the Company, or “derivative”
securities based on securities issued by the Company or to hold the Securities
for any specified term; (ii) any Buyer, and counter parties in “derivative”
transactions to which any such Buyer is a party, directly or indirectly,
presently may have a “short” position in the Common Stock, and (iii) each
Buyer shall not be deemed to have any affiliation with or control over any arm’s
length counter-party in any “derivative” transaction.  The Company further
understands and acknowledges that one or more Buyers may engage in hedging
and/or trading activities at various times during the period that the
Securities are outstanding, including, without limitation, during the periods that
the value of the Conversion Shares and the Warrant Shares are being determined
and (b) such hedging and/or trading activities, if any, can reduce the
value of the existing stockholders’ equity interest in the Company both at and
after the time the hedging and/or trading activities are being conducted. 
The Company acknowledges that such aforementioned hedging and/or trading
activities do not constitute a breach of this Agreement, the Notes, the
Warrants or any of the documents executed in connection herewith, except to the
extent such hedging and/trading activities violate the provisions of Section 4(l) of
this Agreement.

 

(ee)         Shell Company Status.  The Company is not, nor has it at any time
previously been, considered a “shell company” within the meaning of Rule 144(i)(1)(i) (or
any successor rule) under the 1933 Act.

 

4.             COVENANTS.

 

(a)           Best Efforts. 
Each party shall use its best efforts timely to satisfy each of the
conditions to be satisfied by it as provided in Sections 6 and 7 of this
Agreement.

 

(b)           Form D and Blue Sky.  The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof to each Buyer promptly after such filing.  The Company shall, on or before any
applicable Closing Date, take such action as the Company shall reasonably
determine is necessary in order to obtain an exemption for or to qualify the
Securities for sale to the Buyers at the Closing pursuant to this Agreement
under applicable securities or “Blue Sky” laws of the states of the United
States (or to obtain an exemption from such qualification), and shall provide
evidence of any such action so taken to the Buyers on or prior to the Closing
Date.  The Company shall make all filings
and reports relating to the offer and sale of the Securities required under
applicable securities or “Blue Sky” laws of the states of the United States
following any Closing Date.

 

(c)           Reporting Status.  With a view to making available to the
Buyers the benefits of Rule 144 promulgated under the 1933 Act or any
similar rule or regulation of the Commission that may at any time permit
the Buyers to sell securities of the Company to the public without
registration, the Company shall use its commercially reasonable efforts to: (i) make
and keep public information available, as those terms are understood and
defined in Rule 144; (ii) file with the Commission in a timely manner
all reports and other documents required of the Company under the 1933 Act and
the Exchange Act; and (iii) furnish to each Buyer, so long as such Buyer
owns Registrable Securities (as defined in the Registration Rights Agreement)
(the “Reporting Period”), promptly
upon request, (A) a written statement by the Company, if true, that it has
complied with the applicable reporting requirements of Rule 144, the 1933
Act and the 

 

18

 

Exchange Act, (B) a
copy of the most recent annual or quarterly report of the Company and copies of
such other reports and documents so filed by the Company, (C) the
information required by Rule 144A(d)(4) (or any successor rule) under
the 1933 Act, and (D) such other information as may be reasonably
requested to permit the Buyers to sell such securities pursuant to Rule 144
without registration.

 

(d)           Fees.  The Company shall be responsible for the
payment of any placement agent’s fees, transfer taxes or stamp duties,
financial advisory fees, or broker’s commissions (other than for Persons
engaged by any Buyer) relating to or arising out of the transactions
contemplated hereby.  Except as otherwise
set forth in this Agreement or in the Transaction Documents, each party to this
Agreement shall bear its own expenses in connection with the sale of the
Securities to the Buyers.

 

(e)           Disclosure of Transactions and
Other Material Information.  On or
before 8:30 a.m., New York, NY Time, on  the
fourth Business Day following the date hereof, the Company shall file a Current
Report on Form 8-K describing the terms of the transactions contemplated
by the Transaction Documents in the form required by the Exchange Act, and
attaching the material Transaction Documents (including, without limitation,
this Agreement (and all schedules to this Agreement), the form of Exchange
Note, the Security Agreement, and the Registration Rights Agreement) as
exhibits to such filing (including all attachments, the “8-K Filing”).  Neither the Company nor any Buyer shall issue
any press releases or any other public statements with respect to the
Transactions; provided, however, that the Company shall be
entitled, without the prior approval of any Buyer, to make any press release or
other public disclosure with respect to such Transactions (i) in
substantial conformity with the 8-K Filing and (ii) as is required by
applicable law and regulations.

 

(f)            Reservation of Shares.  From and after the filing of the Charter
Amendment with the Delaware Secretary of State, the Company shall take all
action necessary to at all times have authorized, and reserved for the purpose
of issuance, 100% of the Conversion
Shares and the Warrant Shares.

 

(g)           Sales by Buyers.  Each Buyer will sell any Securities sold by
it in compliance with applicable prospectus delivery requirements, if any, or
otherwise in compliance with the requirements for an exemption from registration
under the 1933 Act and the rules and regulations promulgated
thereunder.  No Buyer will make any sale,
transfer or other disposition of the Securities in violation of the federal or
state securities laws.

 

(h)           Like Treatment of Noteholders.  The terms of the Exchange Note(s) issued to each Buyer pursuant to
the terms of this Agreement and the Transaction Documents shall be identical in
all material respects.  In addition,
neither the Company nor any of its affiliates shall, directly or indirectly, pay
or cause to be paid any consideration (immediate or contingent), whether by way
of interest, fee, payment for the redemption or conversion of the Exchange
Notes, or otherwise, to any Buyer of Exchange Notes or holder of Exchange
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 Transaction
Documents, unless such consideration is required to be paid to all Buyers of
Exchange Notes or holders of Exchange Notes bound by such consent, waiver or
amendment.  The Company shall not,
directly or indirectly, redeem any Exchange

 

19

 

Notes unless such offer of redemption is made pro
rata to all Buyers of Exchange Notes or holders of Exchange Notes, as the case
may be, on identical terms.  For
clarification purposes, this provision constitutes a separate right granted by
the Company to each Buyer of Exchange Notes and negotiated separately by each
Buyer of Exchange Notes, is intended for the Company to treat the Buyers of
Exchange Notes as a class, and shall not in any way be construed as the Buyers
of Exchange Notes acting in concert or as a group with respect to the purchase,
disposition or voting of Exchange Notes or otherwise.

 

(i)            Indemnification.  In consideration of each Buyer’s execution
and delivery of the Transaction Documents and acquiring the Securities
thereunder and in addition to all of the Company’s other obligations under the
Transaction Documents, the Company shall defend, protect, indemnify and hold
harmless each Buyer and each other holder of the Securities and all of their
stockholders, partners, members, officers, directors, employees and direct or
indirect investors and any of the foregoing Persons’ agents or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the “Indemnitees”) from and against any and all
actions, causes of action, suits, claims, losses, costs, penalties, fees,
liabilities and damages, and expenses in connection therewith (irrespective of
whether any such Indemnitee is a party to the action for which indemnification
hereunder is sought), and including reasonable attorneys’ fees and
disbursements (the “Indemnified Liabilities”),
incurred by any Indemnitee as a result of, or arising out of, or relating to (a) any
material misrepresentation or breach of any material representation or warranty
made by the Company in the Transaction Documents or any other certificate,
instrument or document contemplated hereby or thereby, (b) any breach of
any material covenant, agreement or obligation of the Company contained in the
Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby or (c) any cause of action, suit or claim
brought or made against such Indemnitee by a third party (including for these
purposes a derivative action brought on behalf of the Company) and arising out
of or resulting from (i) the execution, delivery, performance or
enforcement of the Transaction Documents or any other certificate, instrument
or document contemplated hereby or thereby, (ii) any transaction financed
or to be financed in whole or in part, directly or indirectly, with the
proceeds of the issuance of the Securities, or (iii) any disclosure made
by such Buyer pursuant to Section 4(e). 
To the extent that the foregoing undertaking by the Company may be
unenforceable for any reason, the Company shall make the maximum contribution
to the payment and satisfaction of each of the Indemnified Liabilities that is
permissible under applicable law.  Except
as otherwise set forth herein, the mechanics and procedures with respect to the
rights and obligations under this Section 4(i) shall be the same as
those set forth in Section 5 of the Registration Rights Agreement.  Notwithstanding anything herein to the
contrary, the Company shall have no indemnification obligations to any Buyer
hereunder to the extent that an Indemnified Liability is attributable to the
gross negligence or willful misconduct of such Buyer.

 

(j)            Tax Matters. 
The Buyers and the Company agree that each of (i) the Series A-1
Shares and the Preferred Warrants issued thereon, (ii) the Series A-2
Shares and the Preferred Warrants issued thereon, and (iii) the Exchange
Notes and the Exchange Warrants constitute an “investment unit” for purposes of
Section 1273(c)(2) of the Internal Revenue Code of 1986, as amended
(the “Code”).  The Buyers shall notify the Company of their
determination of the allocation of the issue price of such investment unit
among the Series A-1 Shares and the Preferred Warrants, the Series A-2
Shares and the Preferred Warrants, and the Exchange Notes 

 

20

 

and the Exchange Warrants in accordance with Section 1273(c)(2) of
the Code and Treasury Regulation Section 1.1273-2(h), and neither the
Buyers nor the Company shall take any position inconsistent with such
allocation in any tax return or in any judicial or administrative proceeding in
respect of taxes so long as the same allocation is made by all Buyers.

 

(k)           RESERVED.

 

(l)            No Transactions Pending Announcement of Transaction.  Each Buyer covenants that neither it nor any
Person acting on its behalf or pursuant to any understanding with it has
engaged or will engage in any transactions in the securities of the Company
(including short sales within the meaning of SEC Regulation SHO) from the time
that it has first learned of the transactions contemplated by this Agreement
until the time that the transactions contemplated by this Agreement are
publicly disclosed by the Company.  Such
Buyer has maintained, and covenants that until such time as the transactions
contemplated by this Agreement are publicly disclosed by the Company pursuant
to Section 4(e) hereof, such Buyer will maintain, the confidentiality
of all disclosures made to it in connection with this transaction (including
the existence and terms of this transaction) and any information other than the
terms of this transaction that the Company provided to Buyer on a confidential
basis.

 

(m)          Shareholder
Approval of Charter Amendment.  The Buyers have
been informed by the Company that the Company does not have sufficient shares
of Common Stock authorized to enable the Buyers to fully convert the Exchange
Notes and the Preferred Shares and to fully exercise the purchase rights
represented by the Warrants.  The Company shall hold a special meeting
of shareholders (which may also be at the annual meeting of shareholders) at
the earliest practical date, and in any event on or before July 31, 2009,
for the purpose of obtaining shareholder approval of an amendment to the Company’s
Certificate of Incorporation (“Shareholder Approval”)
in substantially the form attached as Exhibit I hereto (the “Charter Amendment”), with the recommendation of the Company’s
Board of Directors that such proposal be approved, and the Company shall solicit
proxies from its shareholders in connection therewith in the same manner as all
other management proposals in such proxy statement, and shall otherwise use
commercially reasonable efforts to solicit from its shareholders proxies in
favor of such matters and to obtain Shareholder Approval.  All management-appointed proxy holders shall
vote their proxies in favor of such proposal. 
If the Company does not obtain Shareholder Approval at the first
meeting, the Company shall call a meeting every four months thereafter to seek
Shareholder Approval until the earlier of (i) the date Shareholder
Approval is obtained or (ii) the date that there are no Exchange Notes or
Preferred Shares outstanding.  Upon
obtaining Shareholder Approval, the Company will, as soon as practicable
thereafter, file the Charter Amendment with the Delaware Secretary of State.

 

(n)           Approval
of Charter Amendment by Buyers of Series A-1 Shares and Series A-2
Shares.  Each Buyer of Series A-1
Shares and each Buyer of Series A-2 Shares agrees to vote all shares of
capital stock of the Company, including, without limitation, shares of the
Company’s Common Stock, shares of the Company’s Series A-1 Preferred, and
shares of the Company’s Series A-2 Preferred, registered in his, her or
its name, beneficially owned by him, her or it, or for which he, she or it
holds a proxy (including those shares identified in the Voting Proxy Agreements
described in Section 7(j) hereof) as of the date of this Agreement
and any and all other shares of capital stock or other voting securities of the
Company legally or beneficially 

 

21

 

owned
by him, her or it or for which he, she or it holds a proxy (including those
shares identified in the Voting Proxy Agreements described in Section 7(j) hereof)  after the date of this Agreement or acquired by him, her or
it after the date of this Agreement (including, without limitation, through new
issuances, exercises of stock options or warrants, conversion or exchange of
convertible or exchangeable securities, stock splits, stock dividends,
recapitalizations and similar events) in favor of the Charter Amendment to
increase the number of authorized shares of Common Stock to 300,000,000.

 

(o)           Information Rights. 
The holders of the Exchange Notes shall have the right to receive
unaudited monthly financial statements of the Company (consisting of a balance
sheet and income statement in a form ordinarily prepared by the Company) upon
written request to the Company and upon entering into a mutually agreeable
nondisclosure agreement with the Company acknowledging that such financial
statements constitute “material nonpublic information” of the Company.

 

(p)           Board Observation Rights. The Buyers of
Exchange Notes hereunder hereby appoint Dwight Mamanteo (the “Observer”)
as their representative to serve as an observer to the Board of Directors of
the Company (the “Board”).  The Company agrees that, beginning on the
date of the First Closing and continuing for so long as fifty percent (50%) of
the original principal amount of the Exchange Notes issued on the date of the
First Closing remain outstanding, the Observer:

 

(i)            will have the right to attend all
regular and special meetings of the Board or any committees thereof, provided
that the Board or any such committee may excuse the Observer from portions of
the meeting for any discussions that they reasonably believe to be appropriate
only for members of the Board;

 

(ii)           will be copied on all Board-wide or
committee-wide communications made by the Company and/or Board members and will
be provided with all Board-wide or committee-wide distributed materials,
including Board books, unless the Observer requests in writing not to be copied
on such communications and materials;

 

(iii)          will treat all information received in
connection with its Board observation rights hereunder (“Board
Information”) confidentially and not disclose it to any other third
party and will not use the Board Information for any purposes other than
representing the interests of the holders of the Exchange Notes with respect to
their rights under the Exchange Notes; notwithstanding the foregoing, the
Observer may share Board Information with any holder of Exchange Notes that
enters into a confidentiality agreement with the Company in a form reasonably
acceptable to the Company;

 

Observer agrees that much of
the Board Information will be “material nonpublic information” and that
Observer will at all times comply with SEC Regulation FD and applicable insider
trading laws with respect thereto. 
Observer also agrees that its rights under this Section 3(p) are
being granted to Observer personally and that Observer may not designate any
other person to attend Board or committee meetings in lieu of Observer, unless
otherwise consented to in writing by the Company.  The Company agrees to reimburse Observer for
any reasonable out-of-pocket 

 

22

 

travel expenses incurred by
the Observer in attending any Board or committee meeting pursuant to this Section 4(p).

 

(q)           Sale of South Korean Manufacturing Facility.  In the event that Liquidmetal Korea Co. Ltd.,
a subsidiary of the Company organized under the laws of the Republic of Korea (“LMK”), sells its manufacturing facility in the Republic of
Korea (the “Facility”), the Company will cause
LMK to use its best efforts to transfer and distribute the proceeds of sale
(net of transaction expenses and the payoff of obligations encumbering the
Facility), or as much thereof as shall be permitted to be transferred under the
laws and procedures of the Republic of Korea, to the Company.  The Company will use any such proceeds
received by it solely to pay the outstanding principal of the Exchange Notes
pursuant to Section 1(i) of the Exchange Notes as promptly as
practicable after the Company’s receipt of such proceeds.

 

5.             TRANSFER AGENT INSTRUCTIONS.  Within three (3) business days after the
First Closing Date, the Company shall issue irrevocable instructions to its
transfer agent, and any subsequent transfer agent, to issue certificates or
credit shares to the applicable balance accounts at The Depository Trust
Company (“DTC”), registered in the
name of each Buyer or its respective nominee(s), for the Conversion Shares  and
the Warrant Shares in such amounts as specified from time to time by
each Buyer to the Company upon conversion of the Series A-1 Shares, the Series A-2
Shares, and the Exchange Notes or exercise of the Warrants in the form of Exhibit E
attached hereto (the “Irrevocable Transfer
Agent Instructions”).  No
instruction other than the Irrevocable Transfer Agent Instructions referred to
in this Section 5, and stop transfer instructions to give effect to Section 2(h) hereof,
will be given by the Company to its transfer agent with respect to the Warrant
Shares and Conversion Shares, and that the Conversion Shares and the Warrant
Shares shall otherwise be freely transferable on the books and records of the
Company as and to the extent provided in this Agreement and the other
Transaction Documents.  If a Buyer
effects a sale, assignment or transfer of the Securities in accordance with
Sections 2(c), (h), and (i) hereof, the Company shall permit the transfer
and shall promptly instruct its transfer agent to issue one or more
certificates or credit notes or shares to the applicable balance accounts at
DTC in such name and in such denominations as specified by such Buyer to effect
such sale, transfer or assignment.  In
the event that such sale, assignment or transfer involves Securities sold,
assigned or transferred pursuant to an effective registration statement or
pursuant to Rule 144, the transfer agent shall issue such Securities to
the Buyer, assignee or transferee, as the case may be, without any restrictive
legend so long as the Buyer complies with the terms of Section 2(h) and
Section 2(i).  The Company
acknowledges that a breach by it of its obligations under this Section 5
will cause irreparable harm to a Buyer. 
Accordingly, the Company acknowledges that the remedy at law for a
breach of its obligations under this Section 5 will be inadequate and
agrees, in the event of a breach or threatened breach by the Company of the
provisions of this Section 5, that a Buyer shall be entitled, in addition
to all other available remedies, to an order and/or injunction restraining any
breach and requiring immediate issuance and transfer.  Nothing in this Section 5 will affect in
any way the Buyer’s obligations and agreements set forth in Section 4
hereof to comply with all applicable prospectus delivery requirements, upon
resale of the Securities.

 

6.             CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE
COMPANY.  The obligation of the
Company hereunder to issue the Series A-1 Shares, the Series A-2
Shares, 

 

23

 

the Exchange Notes and the Warrants to each respective Buyer at the First Closing is
subject to the satisfaction, at or before the First Closing Date, of each of
the following conditions, provided that these conditions are for the Company’s
sole benefit and may be waived by the Company at any time in its sole
discretion by providing each Buyer with prior written notice thereof:

 

(a)           Such Buyer shall have executed each of the
Transaction Documents to which it is a party and delivered the same to the
Company.

 

(b)           Such Buyer and each other Buyer shall have delivered to
the Company the Investment Amount for the Series A-1 Shares, the Series A-2
Shares, the Exchange Notes, and the Warrants being purchased by such Buyer and
each other Buyer at the First Closing by wire transfer of immediately available
funds pursuant to the wire instructions provided by the Company and/or by
surrender of such Buyer’s and each other Buyers’ Existing Notes.  Such Buyer and each other Buyer surrendering
Existing Notes shall also surrender his, her, or its Existing Warrants.

 

(c)           The representations and warranties of such Buyer shall be
true and correct in all material respects as of the First Closing Date (except
for representations and warranties that speak as of a different date), and such
Buyer shall have performed, satisfied and complied in all material respects
with the covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by such Buyer at or prior to the First
Closing Date.

 

(d)           The Company shall have received written resignations of
all members of the Company’s Board of Directors, other than John Kang and
Robert Biehl, resigning their positions as directors of the Company.

 

7.             CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE BUYERS.  The obligation of each Buyer hereunder to
purchase the Series A-1 Shares, the Series A-2 Shares, the Exchange
Notes and the Warrants at the
First Closing is subject to the satisfaction, at or before the First Closing
Date, of each of the following conditions, provided that these conditions are
for each Buyer’s sole benefit and may be waived by such Buyer at any time in
its sole discretion by providing the Company with prior written notice thereof:

 

(a)           The Company shall have executed and delivered to such
Buyer (i) each of the Transaction Documents and (ii) the Exchange
Notes and the Warrants being purchased by such Buyer at the First Closing
pursuant to this Agreement.  In addition,
the Company shall have issued to such Buyer the Series A-1 Shares and the Series A-2
Shares being purchased by such Buyer at the First Closing pursuant to this
Agreement.

 

(b)           All of the Buyers shall have executed their respective
Transaction Documents and paid the respective purchase price for their
Securities hereunder (including the wiring of the cash purchase price for the Series A-1
Shares).

 

(c)           The Company shall have filed with the Delaware Secretary
of State a Certificate of Designation for the Preferred Stock in substantially
the form attached hereto as Exhibit F.

 

(d)           The Company shall have delivered to such Buyer a copy of
the Irrevocable 

 

24

 

Transfer Agent Instructions, in the form of Exhibit E
attached hereto, which instructions shall have been delivered to and
acknowledged in writing by the Company’s transfer agent.

 

(e)           The Company shall have delivered to such Buyer a
certificate evidencing the incorporation and good standing of the Company
issued by the Secretary of State of Delaware, as of a date within 10 days of
the First Closing Date and a bring-down good standing certificate issued by the
Secretary of State of Delaware dated as of the First Closing Date.

 

(f)            The Company shall have delivered to such Buyer a
certificate, executed by the Secretary of the Company and dated as of the First
Closing Date, as to (i) the resolutions consistent with Sections 3(b) and
4(k) as adopted by the Company’s Board of Directors (the “Resolutions”), (ii) the Certificate of
Incorporation and (iii) the Bylaws, each as in effect at the First Closing.

 

(g)           Each Buyer shall have received the opinion of Foley &
Lardner LLP, the Company’s counsel, dated
as of the First Closing Date, in substantially the form of Exhibit G
attached hereto.

 

(h)           The representations and warranties of the Company shall be
true and correct as of the First Closing Date (except for representations and
warranties that speak as of a different date) and the Company shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by the Transaction Documents to be
performed, satisfied or complied with by the Company at or prior to the First
Closing Date.

 

(i)            The Company shall have received the written resignations
of all of the members of the Company’s Board of Directors, other than John Kang
and Robert Biehl, resigning their positions as directors of the Company.  Following the receipt of such resignations, John Kang
and Robert Biehl, as the only remaining directors, shall (i) set the size
of the Company’s Board of Directors at five (5) members, (ii) appoint
Abdi Mahamedi, Bill Scott, and Iraj Azarm to fill the vacancies on the Company’s
Board of Directors (provided, however, that Bill Scott shall not take office as
a director prior to the next regularly scheduled meeting of the stockholders
unless and until the Company first complies with Rule 14f-1 of the Exchange Act
with respect to his appointment), (iii) approve the Charter Amendment, and
(iv) approve the calling of a meeting of the shareholders for the purpose
of obtaining Shareholder Approval of the Charter Amendment.

 

(j)            The following shareholders of the Company shall have
entered into a Voting Proxy Agreement in substantially the form attached hereto
as Exhibit H:  John Kang,
Abdi Mahamedi,  Jack Chitayat, and Ricardo
Salas.

 

8.             RELEASE AND WAIVER.  In exchange for the agreements and covenants
of the Company hereunder and effective upon the First Closing, each of the
Buyers, on behalf of himself, herself, or itself and his, her, or its agents,
assigns, heirs, devisees, and successors, releases, waives, and forever
discharges the Company, its agents, officers, directors, shareholders,
employees, attorneys, and representatives, from any and all claims, causes of
action, suits, debts, liabilities, damages and expenses (including attorneys’
fees and costs) of any type whatsoever (collectively, “Claims”),
whether known or unknown, that any of the Buyers have or may have or may have
at any time through the date hereof as a result of any breach or default under
the Existing Notes, the Existing Warrants, or the related Securities Purchase
Agreement dated January 3, 2007, or under the related Registration Rights
Agreement dated 

 

25

 

January 3, 2007.  Upon the First Closing and the issuance of
the Securities in accordance with this Agreement, each of the Existing Notes
will be deemed satisfied and paid in full and the Existing Warrants will be
deemed to be terminated.

 

9.             MISCELLANEOUS.

 

(a)           Governing Law; Jurisdiction; Jury Trial.  All questions concerning the construction,
validity, enforcement and interpretation of this Agreement shall be governed by
the internal laws of the State of New York, without giving effect to any choice
of law or conflict of law provision or rule (whether of the State of New
York or any other jurisdictions) that would cause the application of the laws
of any jurisdictions other than the State of New York.  Each party hereby irrevocably submits to the
non-exclusive jurisdiction of the state and federal courts sitting in the City
of New York, Borough of Manhattan, for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein, and hereby irrevocably waives, and agrees not to assert in
any suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of any such court, that such suit, action or proceeding is
brought in an inconvenient forum or that the venue of such suit, action or
proceeding is improper.  Each party
hereby irrevocably waives personal service of process and consents to process
being served in any such suit, action or proceeding by mailing a copy thereof
to such party at the address for such notices to it under this Agreement and
agrees that such service shall constitute good and sufficient service of
process and notice thereof.  Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law.

 

(b)           Counterparts. 
This Agreement may be executed in two or more identical counterparts,
all of which shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to the
other parties; provided that a facsimile signature (including electronic copies
of documents in Adobe PDF format) shall be considered due execution and shall
be binding upon the signatory thereto with the same force and effect as if the
signature were an original, not a facsimile signature.

 

(c)           Headings.  The
headings of this Agreement are for convenience of reference and shall not form
part of, or affect the interpretation of, this Agreement.

 

(d)           Severability. 
If any provision of this Agreement shall be invalid or unenforceable in
any jurisdiction, such invalidity or unenforceability shall not affect the
validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.

 

(e)           Entire Agreement; Amendments.  This Agreement supersedes all other prior
oral or written agreements between the Buyers, the Company, their affiliates
and Persons acting on their behalf with respect to the matters discussed
herein, and this Agreement and the instruments referenced herein contain the
entire understanding of the parties with respect to the matters covered herein
and therein and, except as specifically set forth herein or therein, neither
the Company nor any Buyer makes any representation, warranty, covenant or undertaking
with respect to such matters.  No
provision of this Agreement may be amended other than by an instrument in
writing signed by the Company, the holders of more than one-half of the 

 

26

 

outstanding Preferred Shares, and the holders of
Exchange Notes representing more than one-half of the aggregate principal
amount of the outstanding Exchange Notes, and any amendment to this Agreement
made in conformity with the provisions of this Section 9(e) shall be binding
on all Buyers and holders of Series A-1 Shares, Series A-2 Shares,
Exchange Notes, and Warrants, as applicable. 
No provision hereof may be waived other than by an instrument in writing
signed by the party against whom enforcement of the waiver is sought.  The Company has not, directly or indirectly,
made any agreements with any Buyers relating to the terms or conditions of the
transactions contemplated by the Transaction Documents except as set forth in
the Transaction Documents.

 

(f)            Notices. 
Any notices, consents, waivers or other communications required or
permitted to be given under the terms of this Agreement must be in writing and
will be deemed to have been delivered:  (i) upon
receipt, when delivered personally; (ii) upon receipt, when sent by
electronic mail or facsimile (provided confirmation of transmission is
mechanically or electronically generated and kept on file by the sending
party); or (iii) one business day after deposit with an overnight courier
service, in each case properly addressed to the party to receive the same.  The addresses and facsimile numbers for such
communications shall be:

If to the Company:

 

Liquidmetal Technologies, Inc.

30452 Esperanza

Rancho Santa Margarita, California  92688

Facsimile: (949)
635-2188

Attention:  Tony Chung, CFO

Email:  Tony.Chung@Liquidmetal.com

 

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

 

Foley & Lardner LLP

100 North Tampa Street, Suite 2700

Tampa, Florida  33602

Facsimile:                                            (813)
221-4210

Attention:                                         Curt Creely, Esq.

Email:                                                                 ccreely@foley.com

 

If to a Buyer, to its address, electronic mail
address, and facsimile number set forth on the Schedule of Buyers, with copies
to such Buyer’s representatives as set forth on the Schedule of Buyers, or to
such other address and/or facsimile number and/or to the attention of such
other Person as the recipient party has specified by written notice given to
each other party five (5) days prior to the effectiveness of such
change.  Written confirmation of receipt (A) given
by the recipient of such notice, consent, waiver or other communication, (B) mechanically
or electronically generated by the sender’s facsimile machine containing the
time, date, recipient facsimile number and an image of the first page of
such transmission or (C) provided by an overnight courier service shall be
rebuttable evidence of personal service, receipt by facsimile or receipt from
an overnight courier service in accordance with clause (i), (ii) or (iii) above,

 

27

 

respectively.

 

(g)           Successors and Assigns.  This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and
assigns, including any purchasers of the Preferred Shares, the Exchange Notes,
and the Warrants.  The Company shall not
assign this Agreement or any rights or obligations hereunder without the prior
written consent of at least a majority of the outstanding Preferred Shares and
the holders of Exchange Notes representing at least a majority of the aggregate
principal amount of the Exchange Notes then outstanding, except pursuant to a
sale of all or substantially all of the business and assets of the Company
whether by means of merger, consolidation, asset sale, stock sale, or
otherwise.

 

(h)           No Third Party Beneficiaries.  This Agreement is intended for the benefit of
the parties hereto and their respective permitted successors and assigns, and
is not for the benefit of, nor may any provision hereof be enforced by, any
other Person.

(i)            Survival. 
The representations and warranties of the Company and the Buyers
contained in Sections 2 and 3 and the agreements and covenants set forth in
Sections 4, 5, and 9 shall survive the First Closing.  Each Buyer shall be responsible only for its
own representations, warranties, agreements and covenants hereunder.

 

(j)            Further Assurances.  Each party shall do and perform, or cause to
be done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
any other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.

 

(k)           Payment Set Aside. 
To the extent that the Company makes a payment or payments to the Buyers
hereunder or pursuant to any of the other Transaction Documents or the Buyers
enforce or exercise their rights hereunder or thereunder, and such payment or
payments or the proceeds of such enforcement or exercise or any part thereof
are subsequently invalidated, declared to be fraudulent or preferential, set
aside, recovered from, disgorged by or are required to be refunded, repaid or
otherwise restored to the Company, a trustee, receiver or any other Person
under any law (including, without limitation, any bankruptcy law, state or
federal law, common law or equitable cause of action), then to the extent of
any such restoration the obligation or part thereof originally intended to be
satisfied shall be revived and continued in full force and effect as if such
payment had not been made or such enforcement or setoff had not occurred.

 

(l)            Independent Nature of Buyers’ Obligations and Rights. 
The obligations of each Buyer under any Transaction Document are several
and not joint with the obligations of any other Buyer, and no Buyer shall be
responsible in any way for the performance of the obligations of any other
Buyer under any Transaction Document. 
Nothing contained herein or in any other Transaction Document, and no
action taken by any Buyer pursuant hereto or thereto, shall be deemed to
constitute the Buyers as a partnership, an association, a joint venture or any
other kind of entity, or create a presumption that the Buyers are in any way
acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Documents.  Each Buyer confirms that it has independently
participated in the negotiation of the transaction 

 

28

 

contemplated
hereby with the advice of its own counsel and advisors.  Each Buyer shall be entitled to independently
protect and enforce its rights, including, without limitation, the rights
arising out of this Agreement or out of any other Transaction Documents, and it
shall not be necessary for any other Buyer to be joined as an additional party
in any proceeding for such purpose.

 

(m)          Reimbursement
of Counsel Expenses.  The Company
shall reimburse the holders of the Existing Notes for the reasonable legal fees
of one joint legal counsel to represent them in connection with the
transactions contemplated by this Agreement, provided that such reimbursement
shall not exceed $10,000 in total for such counsel’s fees.

 

29

 

IN WITNESS
WHEREOF, each Buyer and the Company have caused their
respective signature page to this Securities Purchase and Exchange
Agreement to be duly executed as of the date first written above.

 

	
   

  	
  COMPANY:

  
	
   

  	
   

  
	
   

  	
  LIQUIDMETAL TECHNOLOGIES, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/
  Tony Chung

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name: Tony
  Chung

  
	
   

  	
   

  	
  Title:   Chief
  Financial Officer

  

 

[Counterpart Signature Page to Securities Purchase and
Exchange Agreement]

 

 

IN WITNESS
WHEREOF, each Buyer and the Company have caused their
respective signature page to this Securities Purchase and Exchange
Agreement to be duly executed as of the date first written above.

 

 

	
   

  	
  BUYERS

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Carlyle Liquid Holdings, LLC

  
	
   

  	
   

  
	
   

  	
  /s/ Fort Mason Master, LP

  
	
   

  	
   

  
	
   

  	
  /s/ Fort Mason Partners, LP

  
	
   

  	
   

  
	
   

  	
  /s/ The Tail Wind Fund Ltd.

  
	
   

  	
   

  
	
   

  	
  /s/ Solomon Strategic Holdings, Inc.

  
	
   

  	
   

  
	
   

  	
  /s/ Carlyle Liquid, LLC

  
	
   

  	
   

  
	
   

  	
  /s/ Carlyle Holdings, LLC

  
	
   

  	
   

  
	
   

  	
  /s/ Castlerigg Master Investments Ltd.

  
	
   

  	
   

  
	
   

  	
  /s/ Diamond Opportunity Fund, LLC

  
	
   

  	
   

  
	
   

  	
  /s/ Rockmore Investment Master Fund Ltd.

  
	
   

  	
   

  
	
   

  	
  /s/ Abdi Mahamedi

  
	
   

  	
   

  
	
   

  	
  /s/ BridgePointe Master Fund Ltd.

  
	
   

  	
   

  
	
   

  	
  /s/ Iroquois Master Fund

  
	
   

  	
   

  
	
   

  	
  /s/ Rodd Friedman

  
	
   

  	
   

  
	
   

  	
  /s/ Myron Neugeboren

  
	
   

  	
   

  
	
   

  	
  /s/ Ricardo Salas

  
	
   

  	
   

  
	
   

  	
  /s/ Chang Ki Cho

  
	
   

  	
   

  
	
   

  	
  /s/ Eric Brachfeld

  
	
   

  	
   

  
	
   

  	
  /s/ Ed Neugeboren

  
	
   

  	
   

  
	
   

  	
  /s/ Wynnefield Partners Small Cap Value LP

  

 

[Counterpart Signature Page to Securities Purchase and
Exchange Agreement]

 

 

	
   

  	
  /s/ Wynnefield Partners Small Cap Value LP I

  
	
   

  	
   

  
	
   

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

  
	
   

  	
   

  
	
   

  	
  /s/ Kenneth Lisiak

  
	
   

  	
   

  
	
   

  	
  /s/ Vestal Venture Capital

  
	
   

  	
   

  
	
   

  	
  /s/ Mermelstein Development

  
	
   

  	
   

  
	
   

  	
  /s/ Atlantic Realty

  

 

[Counterpart Signature
Page to Securities Purchase and Exchange Agreement]

 

SCHEDULE OF
BUYERS

 

	
   

  	
   

  	
   

  	
   

  	
  (1)

  	
   

  	
  (2)

  	
   

  	
  (3)

  	
   

  	
  (4)

  	
   

  	
  (5)

  	
   

  	
  (6)

  	
   

  	
  (7)

  	
   

  	
  (8)

  	
   

  	
   

  	
   

  
	
  Buyer

  	
   

  	
  Address, E-Mail and

  Facsimile Number

  	
   

  	
  Value of Existing

  Notes to be

  Exchanged

  	
   

  	
  Cash Investment

  	
   

  	
  Series A-1

  Shares to be

  Purchased

  	
   

  	
  Preferred

  Warrants to be

  Issued in

  Connection with

  Series A-1

  Shares

  	
   

  	
  Series A-2

  Shares to be

  Purchased

  	
   

  	
  Preferred

  Warrants to be

  Issued in

  Connection with

  Series A-2

  Shares

  	
   

  	
  Aggregate

  Principal Amount

  of Exchange Notes

  to be Purchased

  	
   

  	
  Exchange

  Warrants to be

  Issued in

  Connection with

  Exchange Notes

  	
   

  	
  Legal Representative’s

  Address and Facsimile

  Number

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Carlyle Liquid Holdings,
  LLC

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  $

  	
  2,500,000.00

  	
   

  	
  500,000

  	
   

  	
  12,500,000

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Carlyle Liquid Holdings,
  LLC

  	
   

  	
   

  	
   

  	
  $

  	
  4,443,710.48

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  888,743

  	
   

  	
  10,099,343

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Fort Mason Master, LP

  	
   

  	
  580 California
  Street

  Suite 1925

  San Francisco, CA 94104

  (415) 288-8113

  	
   

  	
  $

  	
  1,334,979.22

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  84,928

  	
   

  	
  965,087

  	
   

  	
  $

  	
  910,341.27

  	
   

  	
  379,309

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Fort Mason Partners, LP

  	
   

  	
  580 California
  Street

  Suite 1925

  San Francisco, CA 94104

  (415) 288-8113

  	
   

  	
  $

  	
  86,572.51

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  5,508

  	
   

  	
  62,586

  	
   

  	
  $

  	
  59,035.02

  	
   

  	
  24,598

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Tail Wind Fund Ltd.

  	
   

  	
  c/o Tail Wind
  Advisory and Management Ltd

  767 Third Avenue, 6th Floor

  New York, NY 10017

  (212) 676-5665

  	
   

  	
  $

  	
  1,554,670.05

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  98,904

  	
   

  	
  1,123,906

  	
   

  	
  $

  	
  1,060,151.56

  	
   

  	
  441,730

  	
   

  	
  Peter J. Weisman,
  PC

  767 Third Avenue, 6th Floor

  New York, NY 10017

  (212) 676-5665

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Solomon Strategic Holdings
  Inc.

  	
   

  	
  c/o Tail Wind
  Advisory and Management Ltd

  767 Third Avenue, 6th Floor

  New York, NY 10017

  (212) 676-5665

  	
   

  	
  $

  	
  310,933.98

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  19,781

  	
   

  	
  224,782

  	
   

  	
  $

  	
  212,030.29

  	
   

  	
  88,346

  	
   

  	
  Peter J. Weisman,
  PC

  767 Third Avenue, 6th Floor

  New York, NY 10017

  (212) 676-5665

  	
   

  
																									

 

 

 

SCHEDULE OF
BUYERS

(Continued)

 

	
   

  	
   

  	
   

  	
   

  	
  (1)

  	
   

  	
  (2)

  	
   

  	
  (3)

  	
   

  	
  (4)

  	
   

  	
  (5)

  	
   

  	
  (6)

  	
   

  	
  (7)

  	
   

  	
  (8)

  	
   

  	
   

  	
   

  
	
  Buyer

  	
   

  	
  Address, E-Mail and

  Facsimile Number

  	
   

  	
  Value of Existing

  Notes to be

  Exchanged

  	
   

  	
  Cash Investment

  	
   

  	
  Series A-1

  Shares to be

  Purchased

  	
   

  	
  Preferred

  Warrants to be

  Issued in

  Connection with

  Series A-1

  Shares

  	
   

  	
  Series A-2

  Shares to be

  Purchased

  	
   

  	
  Preferred

  Warrants to be

  Issued in

  Connection with

  Series A-2

  Shares

  	
   

  	
  Aggregate

  Principal Amount

  of Exchange Notes

  to be Purchased

  	
   

  	
  Exchange

  Warrants to be

  Issued in

  Connection with

  Exchange Notes

  	
   

  	
  Legal Representative’s

  Address and Facsimile

  Number

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Carlyle
  Liquid, LLC

  	
   

  	
  2
  Gannett Drive

  Suite 201

  White Plains, NY 10604

  (914) 694-6789

  	
   

  	
  $

  	
  2,338,056.05

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  467,612

  	
   

  	
  5,313,764

  	
   

  	
  $

  	
  —

  	
   

  	
  0

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Carlyle
  Holdings, LLC

  	
   

  	
  2
  Gannett Drive

  Suite 201

  White Plains, NY 10604

  (914) 694-6789

  	
   

  	
  $

  	
  290,535.70

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  58,108

  	
   

  	
  660,309

  	
   

  	
  $

  	
  —

  	
   

  	
  0

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Castlerigg
  Master Investments Ltd.

  	
   

  	
  c/o
  Sandell Asset Management Corporation

  40 West 57th Street

  26th Floor

  New York, NY 10019

  (212) 603-5710

  	
   

  	
  $

  	
  2,487,472.04

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  158,246

  	
   

  	
  1,798,250

  	
   

  	
  $

  	
  1,696,242.47

  	
   

  	
  706,768

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Diamond
  Opportunity Fund

  	
   

  	
  500
  Skokie Blvd, Suite 310

  Northbrook, IL 60062

  (847) 919-4410

  	
   

  	
  $

  	
  406,750.00

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  25,877

  	
   

  	
  294,049

  	
   

  	
  $

  	
  277,368.60

  	
   

  	
  115,571

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Rockmore
  Investment Master Fund Ltd.

  	
   

  	
  150
  East 58th Street, 28th Floor

  New York, NY 10155

  (212) 258-2315

  	
   

  	
  $

  	
  1,243,736.02

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  79,123

  	
   

  	
  899,125

  	
   

  	
  $

  	
  848,121.24

  	
   

  	
  353,384

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Abdi
  Mahamedi

  	
   

  	
  c/o
  Carlyle Development Group

  2 Gannett Drive, Suite 201

  White Plains, NY 10604

  (914) 694-6789

  	
   

  	
  $

  	
  581,071.42

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  116,215

  	
   

  	
  1,320,617

  	
   

  	
  $

  	
  —

  	
   

  	
  0

  	
   

  	
   

  	
   

  

 

 

SCHEDULE OF
BUYERS

(Continued)

 

	
   

  	
   

  	
   

  	
   

  	
  (1)

  	
   

  	
  (2)

  	
   

  	
  (3)

  	
   

  	
  (4)

  	
   

  	
  (5)

  	
   

  	
  (6)

  	
   

  	
  (7)

  	
   

  	
  (8)

  	
   

  	
   

  	
   

  
	
  Buyer

  	
   

  	
  Address, E-Mail and

  Facsimile Number

  	
   

  	
  Value of Existing

  Notes to be

  Exchanged

  	
   

  	
  Cash Investment

  	
   

  	
  Series A-1

  Shares to be

  Purchased

  	
   

  	
  Preferred

  Warrants to be

  Issued in

  Connection with

  Series A-1

  Shares

  	
   

  	
  Series A-2

  Shares to be

  Purchased

  	
   

  	
  Preferred

  Warrants to be

  Issued in

  Connection with

  Series A-2

  Shares

  	
   

  	
  Aggregate

  Principal Amount

  of Exchange Notes

  to be Purchased

  	
   

  	
  Exchange

  Warrants to be

  Issued in

  Connection with

  Exchange Notes

  	
   

  	
  Legal Representative’s

  Address and Facsimile

  Number

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  BridgePointe
  Master Fund Ltd.

  	
   

  	
  c/o
  Roswell Capital Partners

  1120 Sanctuary Parkway

  Suite 325

  Alpharetta, GA 30004

  (770) 777-5844

  	
   

  	
  $

  	
  903,242.73

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  57,462

  	
   

  	
  652,975

  	
   

  	
  $

  	
  615,934.03

  	
   

  	
  256,640

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Iroquois
  Master Fund

  	
   

  	
  641
  Lexington Avenue 

  26th Floor

  New York, NY 10022

  (212) 207-3452

  	
   

  	
  $

  	
  236,925.29

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  15,073

  	
   

  	
  171,279

  	
   

  	
  $

  	
  161,562.72

  	
   

  	
  67,318

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Rodd
  Friedman

  	
   

  	
  93
  Hillspoint Road

  Westport, CT 06880

  (203) 663-1303

  	
   

  	
  $

  	
  70,544.03

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  4,488

  	
   

  	
  50,998

  	
   

  	
  $

  	
  48,104.98

  	
   

  	
  20,044

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Myron
  Neugeboren

  	
   

  	
  P.O. Box 1410

  Lakeville, Ct 06309

  (860) 435-2603

  	
   

  	
  $

  	
  13,696.33

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  872

  	
   

  	
  9,902

  	
   

  	
  $

  	
  9,339.72

  	
   

  	
  3,892

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Ricardo
  Salas

  	
   

  	
  64
  Ritz Cove Drive

  Monarch Beach, CA 92629

  (949) 315-3096

  	
   

  	
  $

  	
  411,664.31

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  82,333

  	
   

  	
  935,601

  	
   

  	
  $

  	
  —

  	
   

  	
  0

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Chang
  Ki Cho

  	
   

  	
   

  	
   

  	
  $

  	
  542,485.01

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  108,498

  	
   

  	
  1,232,921

  	
   

  	
  $

  	
  —

  	
   

  	
  0

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Eric
  Brachfeld

  	
   

  	
  890
  West End Avenue

  Suite 160

  New York, NY 10025

  (212) 298-9933

  	
   

  	
  $

  	
  67,810.63

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  13,563

  	
   

  	
  154,116

  	
   

  	
  $

  	
  —

  	
   

  	
  0

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Ed
  Neugeboren

  	
   

  	
  282
  New Norwalk Road

  New Canaan, CT 06840

  (212) 618-0202

  	
   

  	
  $

  	
  9,522.11

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  606

  	
   

  	
  6,884

  	
   

  	
  $

  	
  6,493.26

  	
   

  	
  2,706

  	
   

  	
   

  	
   

  

 

 

SCHEDULE OF
BUYERS

(Continued)

 

	
   

  	
   

  	
   

  	
   

  	
  (1)

  	
   

  	
  (2)

  	
   

  	
  (3)

  	
   

  	
  (4)

  	
   

  	
  (5)

  	
   

  	
  (6)

  	
   

  	
  (7)

  	
   

  	
  (8)

  	
   

  	
   

  	
   

  
	
  Buyer

  	
   

  	
  Address, E-Mail and

  Facsimile Number

  	
   

  	
  Value of Existing

  Notes to be

  Exchanged

  	
   

  	
  Cash Investment

  	
   

  	
  Series A-1

  Shares to be

  Purchased

  	
   

  	
  Preferred

  Warrants to be

  Issued in

  Connection with

  Series A-1

  Shares

  	
   

  	
  Series A-2

  Shares to be

  Purchased

  	
   

  	
  Preferred

  Warrants to be

  Issued in

  Connection with

  Series A-2

  Shares

  	
   

  	
  Aggregate

  Principal Amount

  of Exchange Notes

  to be Purchased

  	
   

  	
  Exchange

  Warrants to be

  Issued in

  Connection with

  Exchange Notes

  	
   

  	
  Legal Representative’s

  Address and Facsimile

  Number

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Wynnefield
  Partners Small Cap Value LP

  	
   

  	
  450
  Seventh Avenue

  Suiite 509

  New York, NY 10123

  (212) 760-0824

  	
   

  	
  $

  	
  527,250.09

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  33,543

  	
   

  	
  381,161

  	
   

  	
  $

  	
  359,539.32

  	
   

  	
  149,809

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Wynnefield
  Partners Small Cap Value LP I

  	
   

  	
  450
  Seventh Avenue

  Suiite 509

  New York, NY 10123

  (212) 760-0824

  	
   

  	
  $

  	
  690,446.62

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  43,925

  	
   

  	
  499,140

  	
   

  	
  $

  	
  470,825.34

  	
   

  	
  196,178

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Wynnefield
  Small Cap Value Offshore

  	
   

  	
  450
  Seventh Avenue

  Suiite 509

  New York, NY 10123

  (212) 760-0824

  	
   

  	
  $

  	
  665,339.46

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  42,328

  	
   

  	
  480,989

  	
   

  	
  $

  	
  453,704.41

  	
   

  	
  189,044

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Kenneth
  Lisiak

  	
   

  	
  17
  Ross Lane

  Middleton, MA 01949

  (978) 774-3778

  	
   

  	
  $

  	
  79,541.24

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  15,909

  	
   

  	
  180,776

  	
   

  	
  $

  	
  —

  	
   

  	
  0

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Vestal
  Venture Capital

  	
   

  	
  6471
  Enclave Way

  Boca Raton, FL 33496

  (561) 912-9979

  	
   

  	
  $

  	
  456,370.88

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  29,034

  	
   

  	
  329,921

  	
   

  	
  $

  	
  311,205.78

  	
   

  	
  129,670

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Mermelstein
  Development

  	
   

  	
  302
  Fifth Avenue, 8th Floor

  New York, NY 10001

  	
   

  	
  $

  	
  581,071.42

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  116,215

  	
   

  	
  1,320,617

  	
   

  	
  $

  	
  —

  	
   

  	
  0

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Atlantic
  Realty

  	
   

  	
  c/o
  Jack Chitayat

  1836 El Camino Del Teatro

  La Jolla, CA 92037

  	
   

  	
  $

  	
  290,535.70

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  58,108

  	
   

  	
  660,309

  	
   

  	
  $

  	
  —

  	
   

  	
  0

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Total

  	
   

  	
   

  	
   

  	
  $

  	
  20,624,936.33

  	
   

  	
  $

  	
  2,500,006.00

  	
   

  	
  500,009

  	
   

  	
  12,500,012

  	
   

  	
  2,625,017

  	
   

  	
  29,829,425

  	
   

  	
  $

  	
  7,500,021.00

  	
   

  	
  3,125,031

  	
   

  	
   

  	
   

  
																									

 

 

Schedule 3(a)

 

Subsidiaries

 

	
  Name of
  Subsidiary

  	
   

  	
  Jurisdiction of 

  Incorporation or 

  Organization

  	
   

  	
  Jurisdictions in which 

  Qualified to Do Business as a 

  Foreign Corporation or Entity

  
	
  Liquidmetal Golf

  	
   

  	
  California Corporation

  	
   

  	
  None

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Liquidmetal Korea Co., Ltd.

  	
   

  	
  South Korean organized entity

  	
   

  	
  South Korea

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Amorphous Technologies International (Asia) PTE Ltd.

  	
   

  	
  Singapore organized entity 

  (inactive, dissolution in progress)

  	
   

  	
  Singapore

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Liquidmetal Coatings, LLC

  	
   

  	
  Delaware Limited Liability Company

  	
   

  	
  None

  

 

 

Schedule 3(e)

 

None.

 

 

Schedule 3(f)

 

None other than that disclosed in SEC Documents.

 

 

Schedule 3(l)

 

None other than that disclosed in SEC Documents.

 

 

Schedule 3(m)

 

None.

 

 

Schedule 3(o)

 

	
  Shares of Common Stock
  outstanding

  	
   

  	
  44,825,402

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Options to purchase Common
  Stock outstanding:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  1996 Stock Option Plan

  	
   

  	
  3,039,198

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  2002 Equity Incentive Plan

  	
   

  	
  2,621,421

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  2002 Non-employee Director Stock Option Plan

  	
   

  	
  540,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Options Not Under a Plan

  	
   

  	
  1,845,163

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Total Options Outstanding

  	
   

  	
  8,045,782

  	
   

  

 

 

Schedule 3(p)

 

None other than (i) that disclosed in SEC
Documents, and (ii)  the default by Liquidmetal Korea Co. Ltd., the
Company’s subsidiary organized under the laws of the Republic of Korea under
its loan from Kookmin Bank.

 

 

Schedule 3(s)

 

None.

 

 

Schedule 3(t)

 

None other than that disclosed in SEC Documents.

 

 

Schedule 3(u)

 

None.

 

 

EXHIBITS

 

	
  Exhibit A

  	
   

  	
  Form of Exchange Note

  
	
  Exhibit B

  	
   

  	
  Form of Preferred Warrant

  
	
  Exhibit C

  	
   

  	
  Form of Exchange Warrant

  
	
  Exhibit D

  	
   

  	
  Form of Registration Rights Agreement

  
	
  Exhibit E

  	
   

  	
  Form of Irrevocable Transfer Agent
  Instructions

  
	
  Exhibit F

  	
   

  	
  Form of Certificate of Designation

  
	
  Exhibit G

  	
   

  	
  Form of Opinion of Foley & Lardner
  LLP

  
	
  Exhibit H

  	
   

  	
  Form of Voting Proxy Agreement

  
	
  Exhibit I

  	
   

  	
  Form of Charter Amendment

  

 

 

Exhibit A

 

Filed separately,
therefore omitted.

 

 

Exhibit B

 

Filed separately,
therefore omitted.

 

 

Exhibit C

 

Filed separately,
therefore omitted.

 

 

Exhibit D

 

Filed separately,
therefore omitted.

 

 

Exhibit E

 

Form of Irrevocable
Transfer Agent Instructions 

 

 

TRANSFER AGENT INSTRUCTIONS

 

LIQUIDMETAL TECHNOLOGIES, INC.

 

May 1, 2009

 

American Stock Transfer &
Trust Company

Attn:  Mr. Joe Wolf

59 Maiden Lane

New York, NY 10038

 

Re:          Private Placement of 8 % Senior
Secured Convertible Notes,  Series A
Preferred Shares and Warrants

 

Ladies and Gentlemen:

 

This letter refers to that
certain Securities Purchase and Exchange Agreement, dated as of May 1,
2009 (the “Securities Purchase Agreement”), by and among Liquidmetal
Technologies, Inc., a Delaware corporation (the “Company”), and the
investors listed on the Schedule of Buyers attached thereto (collectively, the “Buyers”)
pursuant to which the Company has issued the following to certain of the
Buyers: (i) 8 % Senior Secured Convertible Notes (the “Exchange Notes”), which
are convertible into shares of common stock of the Company, par value $0.001
per share (the “Common Stock”), (ii) shares of the Company’s Series A-1
Preferred Stock, par value $0.001 per share (the “Series A-1 Shares”),
which are convertible into shares of Common Stock, (iii) shares of the
Company’s Series A-2 Preferred Stock, par value $0.001 per share (the “Series A-2
Shares,” and together with the Series A-1 Shares, the “Series A
Shares”), which are convertible into shares of Common Stock; (iv) Common
Stock Purchase Warrants issued in connection with the issuance of Series A
Shares (the “Preferred Warrants”); and (v) Common Stock Purchase Warrants
issued in connection with the issuance of the Exchange Notes (the “Exchange
Warrants”, and together with the Preferred Warrants, the “Warrants”).

 

The Company hereby
authorizes and instructs you (provided that you are the transfer agent of the
Company at such time):

 

(i)            to establish as of the date of this letter a reserve of
32,985,406 shares of Common Stock for issuance to holders of Exchange Notes
upon conversion of their Exchange Notes, conversion of the Series A
Shares, and exercise of the Warrants (the “Conversion Share Reserve”).  Upon the Company’s notification to you that
the Company has filed with the Delaware Secretary of State a Certificate of
Amendment to the Company’s Certificate of Incorporation increasing the number
of the Shares of the Company’s Common Stock to 300,000,000 (a “Charter
Amendment Notification”), the Conversion Share Reserve will be increased to
217,613,202.  The Conversion Share
Reserve shall be adjusted to appropriately reflect the effect of any stock
split, reverse stock split, stock dividend (including any dividend or
distribution of securities convertible into Common Stock), reorganization,
recapitalization, reclassification, exchange or other like change with respect
to Common Stock occurring on or after the date hereof; and

 

(ii)           to issue shares of Common Stock upon conversion of the
Exchange Notes (the “Note Conversion Shares”) to or upon the order of a Buyer
from time to time upon delivery to you of a properly completed and duly
executed Notice, in the form attached hereto as Exhibit I, which
has been acknowledged by the Company as indicated by the signature of a duly
authorized officer of the Company thereon; and

 

 

(iii)          to issue shares of Common Stock upon conversion of the Series A
Shares (the “Series A Conversion Shares”, and together with the Note
Conversion Shares, the “Conversion Shares”) to or upon the order of a Buyer
from time to time upon delivery to you of a properly completed and duly
executed Notice, in the form attached hereto as Exhibit II, which
has been acknowledged by the Company as indicated by the signature of a duly
authorized officer of the Company thereon; and

 

(iv)          to issue shares of Common Stock upon exercise of the
Warrants (the “Warrant Shares”) to or upon the order of a Buyer from time to
time upon delivery to you of a properly completed and duly executed Notice, in
the form attached hereto as Exhibit III, which has been
acknowledged by the Company as indicated by the signature of a duly authorized
officer of the Company thereon.

 

Notwithstanding the
foregoing, until you have received the Charter Amendment Notification, you will
not issue any Conversion Shares or Warrant Shares to any Buyer as aforesaid to
the extent that the aggregate number of such shares would exceed the number of
shares set forth next to the Buyer’s name on Exhibit V hereto.

 

You acknowledge and agree
that so long as you have previously received (a) written confirmation from
the Company’s outside legal counsel that either (1) a registration
statement covering resales of all or some of the Conversion Shares and Warrant
Shares (the “Securities”) has been declared effective by the Securities and
Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended
(the “Securities Act”), or (2) that sales of all or some of the Securities
may be made in conformity with Rule 144 under the Securities Act and (b) if
applicable, a copy of such registration statement identifying the Securities
covered thereby, then within two (2) business days of your receipt of any
Notice described in (ii)-(iv) above, you shall issue the certificates
representing the Conversion Shares or the Warrant Shares, as applicable, and to
the extent that the Notice identifies Securities that are covered by foregoing
either of clause (1) or (2) above, such certificates shall not bear
any legend restricting transfer of the Conversion Shares or Warrant Shares and
should not be subject to any stop-transfer restriction; provided, however,
that if such Conversion Shares or Warrant Shares are not registered for resale
under the Securities Act or able to be sold under Rule 144, then, the
certificates for such Conversion Shares or Warrant Shares shall bear the
following legend:

 

NEITHER THE ISSUANCE AND
SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO
WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN/THE SECURITIES REPRESENTED BY
THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS. 
THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR
ASSIGNED IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL, IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT. 
NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
ARRANGEMENT SECURED BY THE SECURITIES.

 

A form of written
confirmation from the Company’s legal counsel that a registration statement
covering resales of the Conversion Shares or the Warrant Shares has been
declared effective by the SEC under the Securities Act is attached hereto as Exhibit IV.

 

 

In furtherance of the
foregoing, with respect to any Conversion Shares issuable pursuant to the
conversion of the Exchange Notes or Series A-2 Preferred Stock in the
manner set forth above to a Buyer who represents in writing that such Buyer is
not, and has not been for a period of at least ninety (90) days thereto, an “affiliate”
within the meaning of Rule 144 and that such Buyer has a holding period of
at least six months with respect to such Conversion Shares for purposes of Rule 144,
such Conversion Shares shall be issued without any restrictive legend thereon
based on the Buyer’s compliance with Rule 144.

 

These instructions may not
be rescinded or revoked other than by means of a communication signed by the
Company.

 

Please execute this letter
in the space indicated to acknowledge your agreement to act in accordance with
these instructions.  Should you have any
questions concerning this matter, please contact Curt Creely of Foley &
Lardner LLP, our outside legal counsel, at (813) 225-4122.

 

 

	
   

  	
  Very truly yours,

  
	
   

  	
   

  
	
   

  	
  THE COMPANY:

  
	
   

  	
   

  
	
   

  	
  LIQUIDMETAL TECHNOLOGIES, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Tony Chung

  
	
   

  	
   

  	
  Chief Financial Officer

  

 

 

THE FOREGOING INSTRUCTIONS ARE

ACKNOWLEDGED AND AGREED TO

 

this
       day of
                      ,
2009

 

	
  AMERICAN
  STOCK TRANSFER & TRUST COMPANY

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
					

 

Enclosures

 

 

EXHIBIT I

LIQUIDMETAL TECHNOLOGIES, INC.

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)

 

6

 

ACKNOWLEDGMENT

 

The Company hereby
acknowledges this 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:

  

 

 

7

 

EXHIBIT II

 

NOTICE

 

To Liquidmetal Technologies, Inc.

 

In accordance with and
pursuant to the Certificate of Designation of Liquidmetal Technologies, Inc.
(the “Company”), the undersigned
hereby elects to convert shares of Series A-1 Preferred Stock, par value
$0.001 per share (the “Series A-1 Shares”)
and/or shares of Series A-2 Preferred Stock, par value $0.001 per share
(the “Series A-2 Shares”, and
together with the Series A-1 Shares, the “Series A Shares”) 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:

 

Amount
of Series A-1 Shares to be converted:

 

Amount
of Series A-2 Shares to be converted:

 

Liquidation
Preference:

 

Conversion
Price for Series A-1 Shares:

 

Conversion
Price for Series A-2 Shares:

 

Number
of shares of Common Stock to be issued upon conversion of Series A-1
Shares:

 

Number of shares of Common
Stock to be issued upon conversion of Series A-2 Shares:

 

Total number of shares of
Common Stock to be issued upon conversion of Series A Shares:

 

The undersigned requests
that certificates for the shares of Common Stock issuable upon conversion of
the Series A Shares be issued in the name of

 

 

	
   

  	
  Print Name of Holder:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Signature:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  HOLDER’S SOCIAL SECURITY
  OR

  
	
   

  	
  TAX IDENTIFICATION NUMBER:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Holder’s Address:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
				

 

8

 

ACKNOWLEDGMENT

 

                The Company hereby acknowledges this 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:

  
				

 

9

 

EXHIBIT III

 

NOTICE

 

To Liquidmetal Technologies, Inc.

 

The undersigned hereby
irrevocably elects to purchase 
                          
shares of common stock, par value $0.001 per share, of Liquidmetal Technologies, Inc.
(“Common Stock”), pursuant to
Warrant No. [  ], originally issued May 1,
2009 (the “Warrant”), and, if not
a Cashless Exercise in accordance with Section 4, encloses herewith
$                
in cash, federal funds or other immediately available funds, which sum
represents the aggregate Exercise Price (as defined in the Warrant) for the
number of shares of Common Stock to which this Exercise Notice relates,
together with any applicable taxes payable by the undersigned pursuant to the
Warrant.

 

The undersigned  hereby certifies to the Company that the
undersigned’s exercise of the amount set forth above 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 exercise, calculated in accordance with
Section 4(b) of the Warrant; provided that if the undersigned has
waived the 4.99% beneficial ownership requirement  by providing the Company with notice at least
61 days prior to the date hereof, the undersigned hereby certifies to the
Company that the undersigned’s exercise 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 4(b) of the Warrant.  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 Warrant).

 

The undersigned requests
that certificates for the shares of Common Stock issuable upon this exercise be
issued in the name of

 

 

	
   

  	
  Print Name of Holder:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Signature:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  HOLDER’S SOCIAL SECURITY
  OR

  
	
   

  	
  TAX IDENTIFICATION NUMBER:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Holder’s Address:

  
	
   

  	
   

  
	
   

  	
   

  
				

 

10

 

ACKNOWLEDGMENT

 

                The Company hereby acknowledges this 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:

  
				

 

11

 

EXHIBIT IV

 

FORM OF NOTICE OF
EFFECTIVENESS

OF REGISTRATION STATEMENT

 

American Stock Transfer &
Trust Company

Attn:  Mr. Joe Wolf

59 Maiden Lane

New York, NY 10038

 

Re:          Liquidmetal Technologies, Inc.

 

Ladies and Gentlemen:

 

We are counsel to
Liquidmetal Technologies, Inc., a Delaware corporation (the “Company”),
and have represented the Company in connection with the negotiation and
execution of that certain Securities Purchase and Exchange Agreement, dated as
of May 1,, 2009, by and among the investors named on the Schedule of
Buyers attached thereto (the “Buyers”) and the Company (the “Purchase Agreement”).  Upon the terms and subject to the conditions
of the Purchase Agreement, the Company has issued the following to certain of
the Buyers: (i) 8 % Senior Secured Convertible Notes (the “Exchange Notes”),
which are convertible into shares of common stock of the Company, par value
$0.001 per share (the “Common Stock”), (ii) shares of the Company’s Series A-1
Preferred Stock, par value $0.001 per share (the “Series A-1 Shares”),
which are convertible into shares of Common Stock, (iii) shares of the
Company’s Series A-2 Preferred Stock, par value $0.001 per share (the “Series A-2
Shares,” and together with the Series A-1 Shares, the “Series A
Shares”), which are convertible into shares of Common Stock; (iv) Common
Stock Purchase Warrants issued in connection with the issuance of Series A
Shares (the “Preferred Warrants”); and (v) Common Stock Purchase Warrants
issued in connection with the issuance of the Exchange Notes (the “Exchange
Warrants”, and together with the Preferred Warrants, the “Warrants”).   Pursuant to the Purchase Agreement, the
Company entered into a Registration Rights Agreement with the Buyers, dated as
of May 1, 2009 (the “Registration Rights Agreement”), pursuant to which
the Company agreed, among other things, to register the resale of the Registrable
Securities (as defined in the Registration Rights Agreement).  In connection with the Company’s obligations
under the Registration Rights Agreement, on
              
      , 2009, the Company filed the Registration
Statement on Form S-1 (File No. 333-                  )
(the “Registration Statement”) with the Securities and Exchange Commission (the
“SEC”) relating to the Registrable Securities which names each of the Buyers as
a selling stockholder thereunder.

 

In connection with the
Registration Statement, we advise you that a member of the SEC’s staff has
advised us by telephone that the SEC has entered an order declaring the
Registration Statement effective under the Securities Act at [ENTER TIME OF
EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS], and we have no knowledge,
after telephonic inquiry of a member of the SEC’s staff, that any stop order
suspending its effectiveness has been issued or that any proceedings for that
purpose are pending before, or threatened by, the SEC and the Registrable
Securities are available for resale under the Securities Act of 1933, as
amended, pursuant to the Registration Statement.

 

	
   

  	
  Very truly yours,

  
	
   

  	
   

  
	
   

  	
  [COMPANY’S COUNSEL]

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  

CC:          [LIST NAMES OF BUYERS]

 

12

 

EXHIBIT V

Allocation of Conversion Cap

 

	
  Buyer

  	
   

  	
  Allocation of Conversion Cap 

  (Based on Investment Amount)

  	
   

  
	
  Carlyle Liquid Holdings, LLC

  	
   

  	
  3,566,000

  	
   

  
	
  Carlyle Liquid Holdings, LLC

  	
   

  	
  6,338,509

  	
   

  
	
  Fort Mason Master, LP

  	
   

  	
  1,904,214

  	
   

  
	
  Fort Mason Partners, LP

  	
   

  	
  123,487

  	
   

  
	
  Tail Wind Fund Ltd.

  	
   

  	
  2,217,581

  	
   

  
	
  Solomon Strategic Holdings Inc.

  	
   

  	
  443,516

  	
   

  
	
  Carlyle Liquid, LLC

  	
   

  	
  3,335,003

  	
   

  
	
  Carlyle Holdings, LLC

  	
   

  	
  414,420

  	
   

  
	
  Castlerigg Master Investments Ltd.

  	
   

  	
  3,548,130

  	
   

  
	
  Diamond Opportunity Fund

  	
   

  	
  580,188

  	
   

  
	
  Rockmore Investment Master Fund Ltd.

  	
   

  	
  1,774,065

  	
   

  
	
  Abdi Mahamedi

  	
   

  	
  828,840

  	
   

  
	
  BridgePointe Master Fund Ltd.

  	
   

  	
  1,288,385

  	
   

  
	
  Iroquois Master Fund

  	
   

  	
  337,950

  	
   

  
	
  Rodd Friedman

  	
   

  	
  100,624

  	
   

  
	
  Myron Neugeboren

  	
   

  	
  19,536

  	
   

  
	
  Ricardo Salas

  	
   

  	
  587,198

  	
   

  
	
  Chang Ki Cho

  	
   

  	
  773,801

  	
   

  
	
  Eric Brachfeld

  	
   

  	
  96,725

  	
   

  
	
  Ed Neugeboren

  	
   

  	
  13,582

  	
   

  
	
  Wynnefield Partners Small Cap Value LP

  	
   

  	
  752,070

  	
   

  
	
  Wynnefield Partners Small Cap Value LP I

  	
   

  	
  984,853

  	
   

  
	
  Wynnefield Small Cap Value Offshore

  	
   

  	
  949,040

  	
   

  
	
  Kenneth Lisiak

  	
   

  	
  113,458

  	
   

  
	
  Vestal Venture Capital

  	
   

  	
  650,967

  	
   

  
	
  Mermelstein Development

  	
   

  	
  828,840

  	
   

  
	
  Atlantic Realty

  	
   

  	
  414,420

  	
   

  
	
  Total

  	
   

  	
  32,985,406

  	
   

  

 

13

 

Exhibit F

 

Filed separately, therefore omitted.

 

 

Exhibit G

 

Form of Opinion of Foley &
Lardner LLP

 

 

 

	
  May 1, 2009

  	
   

  	
  ATTORNEYS AT LAW
  

  100 NORTH TAMPA STREET, SUITE 2700
  

  TAMPA, FL 33602-5810  

  P.O. BOX 3391  

  TAMPA, FL 33601-3391  

  813.229.2300 TEL  

  813.221.4210 FAX 

  www.foley.com 

   

  CLIENT/MATTER
  NUMBER 

  078489-0130

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  

 

To the Addressees
Set Forth on 

Attached Schedule A

Re:                               Liquidmetal
Technologies, Inc.

 

Ladies and Gentlemen:

 

We have acted as counsel to Liquidmetal Technologies, Inc., a
Delaware corporation (the “Company”), in connection with the
transactions contemplated by the Securities Purchase and Exchange Agreement,
dated as of the date hereof (the “Purchase Agreement”), among the
Company and the persons and entities set forth in Schedule A hereto (the
“Buyers”).  This letter is being
delivered to you pursuant to Section 7(g) of the Purchase
Agreement.  Capitalized terms not
otherwise defined in this letter shall have the respective meanings ascribed to
them in the Purchase Agreement.  The
Uniform Commercial Code as currently in effect in the State of New York is
referred to herein as the “New York UCC”, and the Uniform Commercial
Code as currently in effect in the State of Delaware is referred to herein as
the “Delaware UCC”.

 

In rendering this opinion, we have examined (i) the Purchase Agreement,
the Exchange Notes, the Warrants, the Registration Rights Agreement, the Voting
Proxy Agreement, the Security Agreement, the Account Control Agreement, and the
Certificate of Designations, Preferences and Rights of Series A Preferred
Stock of the Company (collectively, the “Transaction Documents”), (ii) a
copy of the Certificate of Incorporation of the Company certified by the
Secretary of the State of Delaware on April 21, 2009 (the “Certificate”),
(iii) a certificate of good standing with respect to the Company issued by
the Delaware Secretary of State dated April 21, 2009, (iv) a copy of
the Bylaws of the Company certified by the Secretary of the Company on or about
the date of this letter (the “Bylaws”), (v) a copy of the
resolutions of the Board of Directors of the Company adopted on April 30,
2009, as certified by the Secretary of the Company on the date of this letter,
and (vi) an unfiled copy of the financing statement attached hereto as Exhibit A
(the “UCC Financing Statement”) naming the Company as debtor and WC
Collateral Agent LLC (“Agent”), as secured party and agent for the
persons or entities listed as a Secured Party on Schedule 1 to the Security
Agreement (the “Investors”), which we understand will be filed in the
office of the Secretary of State of 
Delaware (the “Filing Office”). 
We have also considered such matters of law and of fact, including the
examination of originals or copies, certified or otherwise identified to our
satisfaction, of such records and documents of the Company, certificates of
officers, directors and representatives of the Company, certificates of public
officials and such other documents as we have deemed appropriate as a basis for
the opinions set forth below.  We also
have relied upon the factual representations made by the Company in the
Transaction Documents.  We have made no
attempt to independently verify the factual statements and representations
contained in certificates or in the Transaction Documents.

 

	
  BOSTON 

  BRUSSELS 

  CHICAGO 

  DETROIT 

  JACKSONVILLE

  	
   

  	
  LOS ANGELES 

  MADISON 

  MILWAUKEE 

  NEW YORK 

  ORLANDO

  	
   

  	
  SACRAMENTO 

  SAN DIEGO 

  SAN DIEGO/DEL MAR 

  SAN FRANCISCO 

  SILICON VALLEY

  	
   

  	
  TALLAHASSEE 

  TAMPA 

  TOKYO 

  WASHINGTON, D.C.

  

 

 

As to the incorporation and good standing of the Company under the laws
of the State of Delaware, we have relied solely on certificates from the
Delaware Secretary of State dated April 21, 2009, which we assume remain
accurate as of the date of this letter.

 

The opinions set forth in this letter are limited to the federal laws
of the United States of America, the laws of the State of New York, and, with
respect to our opinions in paragraphs 1, 2 and 3, the Delaware General
Corporation Law as set forth in the Aspen Publishers Guide, Volume 3, and, we
express no opinion as to the laws of any other jurisdiction.  In addition, we express no opinion relating
to usury laws, Federal Reserve Board margin regulations, and local laws
(including statutes, administrative decisions, and rules and regulations
of county, municipal and political subdivisions), as well as any choice-of-law
provisions in the Transaction Documents.

 

Our opinion in paragraph 4 concerning the validity, binding effect, and
enforceability of the Transaction Documents means that (i) the Transaction
Documents constitute effective contracts under applicable law, and (ii) subject
to the remainder of this paragraph, a remedy will be available to the
applicable party if the Company is in material default under the Transaction
Documents to obtain the practical realization of benefits contemplated by the
Purchase Agreement.  This opinion does
not mean that (a) any particular remedy is available upon a material
default, or (b) every provision of the Transaction Documents will be
upheld or enforced in any or each circumstance by a court. Furthermore, the
validity, binding effect and enforceability of the Transaction Documents may be
limited or otherwise affected by (y) bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other similar statutes,
rules, regulations or other laws affecting the enforcement of creditors’ rights
and remedies generally and (z) the unavailability of, or limitation on the
availability of, specific performance or injunctive relief or a particular
right or remedy (whether in a proceeding in equity or at law) because of an
equitable principle or a requirement as to commercial reasonableness,
conscionability, or good faith.

 

For purposes of our opinion set forth in opinion paragraph 11 herein as
it relates to the laws of the State of Delaware, we have reviewed standard
compilations of the version of the UCC as enacted in such state, as set forth
in the Commerce Clearing House Secured Transactions Guide, Volume 2 and 5, and
our opinion is based solely on such review. 
We are not licensed to practice law in the State of Delaware, do not
purport to be experts on the laws of Delaware, and did not consult local
counsel in such state.

 

Our security interest opinion in paragraph 11 is limited to Article 9
of the Delaware UCC, and therefore this opinion paragraph does not address (i) laws
of any jurisdiction other than Article 9 of the Delaware UCC, (ii) collateral
of a type not subject to Article 9 of the Delaware UCC, or (iii) under
§§ 9-301 through 9-307 of the Delaware UCC, what law governs perfection, the effect
of perfection or non-perfection, or priority of security interests granted in
the collateral covered by this opinion letter.

 

In rendering the opinions set forth below, we have made the following
assumptions, in addition to the other assumptions set forth in this letter: (i) the
genuineness of all signatures other than those on behalf of the Company; (ii) the
authenticity and completeness of all documents submitted to us as originals; (iii) the
conformity to originals of all documents and instruments submitted to us as
photostatic copies, and the authenticity and completeness of the originals of
such latter 

 

2

 

documents;  (iv) the legal
capacity of each natural person; (v) the legal existence of all parties to
the Transaction Documents other than the Company; (vi) the power and
authority of each person other than the Company to execute, deliver and perform
each document executed and delivered and to do each other act done or to be
done by such person; (vii) the authorization, execution, and delivery by
each person other than the Company of each document executed and delivered or
to be executed and delivered by such person; (viii) the legality,
validity, binding effect, and enforceability as to each person other than the
Company of each document executed and delivered or to be executed and delivered
and of each other act done or to be done by such person; (ix) the payment
of all required documentary stamps, taxes and fees imposed upon the execution,
filing or recording of documents; (x) that there have been no undisclosed
modifications of any documents reviewed by us in connection with the rendering
of the opinion and no undisclosed prior waiver of any right or remedy contained
in any of the documents; (xi) the truthfulness of each statement as to all
factual matters contained in any document reviewed by us in connection with
this opinion; (xii) the accuracy on the date of the opinion as well as on the
date stated in all governmental certifications of each statement as to each
factual matter contained in such governmental certifications;  (xiii) that with respect to the Transaction
Documents, there has been no mutual mistake of fact and there exists no fraud
or duress; (xiv) the constitutionality and validity of all relevant laws,
regulations and agency actions; (xv) that the UCC Financing Statement contains
the correct name of the Company and all other information which is contained in
the UCC Financing Statement and required for filing by Section 9-516 of the
Delaware UCC is true and correct; and (xvi) that the Company has the power to
transfer rights in the Article 9 Collateral (as hereinafter defined) and
value (as described in Section 9-203(2) of the New York UCC) has been
given.

 

For purposes of this opinion, “to our knowledge” or “known to us” means
the actual current conscious awareness of those attorneys in our firm who have
given substantive attention to the transactions contemplated by the Transaction
Documents, without independent investigation to determine the existence or
absence of any facts or circumstances.

 

Based on the foregoing, and subject to the qualifications, assumptions
and limitations set forth herein, we are of the opinion that:

 

1.                                       The
Company is a corporation incorporated and in good standing under the laws of
the State of Delaware.

 

2.                                       Except
for any obligations, rights, or other matters that are contingent upon or
dependent on the completion of the Charter Amendment Approval/Filing (as that
term is defined below), the Company has all requisite corporate power and
authority to execute, deliver and perform the Transaction Documents, to issue,
sell and deliver the Exchange Notes, the Preferred Shares, and the Warrants
pursuant to the Transaction Documents, and to carry out and perform its
obligations under, and to consummate the transactions contemplated by, the
Transaction Documents. Upon the completion of the Charter Amendment
Approval/Filing, the Company will have the requisite corporate power and
authority to issue, sell and deliver the Conversion Shares and the Warrant
Shares pursuant to the Transaction Documents. 
For purposes of this opinion, the term “Charter Amendment
Approval/Filing” shall mean the process of obtaining Shareholder Approval
(as defined in the 

 

3

 

Purchase
Agreement), filing the Charter Amendment (as defined in the Purchase Agreement)
with the Delaware Secretary of State, and the acceptance of the Charter
Amendment for filing by the Delaware Secretary of State.

 

3.                                       Except
for the Charter Amendment Approval/Filing, all corporate action on the part of
the Company necessary for the authorization, execution and delivery by the
Company of the Transaction Documents, the authorization, issuance, sale and
delivery of the Exchange Notes, the Preferred Shares and the Warrants pursuant
to the Purchase Agreement, the issuance and delivery of Conversion Shares and
Warrant Shares, and the consummation by the Company of the transactions
contemplated by the Transaction Documents has been duly taken.

 

4.                                       The
Transaction Documents have been duly and validly executed and delivered by the
Company and constitute the legal, valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms, except (a) that
such enforceability may be limited by bankruptcy, insolvency or other similar
laws affecting the enforcement of creditors’ rights in general and (b) that
the remedies of specific performance and injunctive and other forms of
injunctive relief may be subject to equitable defenses.  Notwithstanding the foregoing, we render no
opinion as to the validity, attachment, perfection, or enforceability of any
security interest in the Collateral (as defined in the Security Agreement).

 

5.                                       The
authorized capital stock of the Company as of the date hereof is 100,000,000
shares of common stock, par value $.001 per share (the “Common Stock”), and
10,000,000 shares of preferred stock, par value $.001 per share. The issuance
of the Exchange Notes, the Preferred Shares, and the Warrants has been duly
authorized, and when issued and paid for in accordance with the terms of the
Transaction Documents, such securities will be validly issued, and in the case
of the Preferred Shares, fully paid and non-assessable.  Upon the completion of the Charter Amendment
Approval/Filing, the shares of Common Stock issuable upon conversion of the
Exchange Notes, conversion of the Preferred Shares and exercise of the Warrants
will be duly reserved, and when issued in accordance with the terms of the
Preferred Shares, the Exchange Notes and the Warrants, as applicable, will be
validly issued, fully paid and nonassessable.

 

6.                                       Assuming
(i) the accuracy of the information provided by the purchasers in the
Transaction Documents including the relevant information with respect to the
status of each Buyer as an “accredited investor” within the meaning of
Regulation D under the Securities Act of 1933, as amended (the “Securities
Act”), (ii) the absence of any form of general solicitation or general
advertising with respect to the offer or sale of the Securities, (iii) the
observance of all limitations on resale of the Securities, and (iv) the
timely filing of a Form D with respect to the offer or sale of the
Securities, the issuance and sale of the Securities by the Company to the
Buyers is exempt from registration under the Securities Act by virtue of  Regulation D promulgated thereunder.

 

7.                                       The
execution, delivery and performance by the Company of, and the compliance by
the Company with the terms of, the Transaction Documents and the issuance, sale
and delivery of the Exchange Notes, Preferred Shares, Conversion Shares,
Warrants, and Warrant Shares pursuant to the Purchase Agreement do not, after
giving effect to the Charter Amendment Approval/Filing: (a) conflict with
or result in a violation of any 

 

4

 

provision of
the Certificate or Bylaws, (b) conflict with or result in a violation of
any provision of law, rule, or regulation known to us to be applicable to the
Company,  or (c) to our knowledge,
conflict with, result in a breach of or constitute a default (or an event which
with notice or lapse of time or both would become a default) under, or result
in or permit the termination or modification of, any agreement, instrument,
order, writ, judgment or decree known to us to which the Company is a party or
is subject.

 

8.                                       To
our knowledge, no consent, license, permit, waiver, approval or authorization
of, or designation, declaration, registration or filing with, any court,
governmental or regulatory authority, or self-regulatory organization, is
required in connection with the valid execution, delivery and performance by
the Company of the Transaction Documents, or the offer, sale, issuance or
delivery of the Exchange Notes, the Preferred Shares, Conversion Shares,
Warrants, or Warrant Shares or the consummation of the transactions
contemplated thereby.

 

9.                                       Based
solely on (i) our review of Rule 144 under the Securities Act of
1933, as amended (“Rule 144”), and applicable “no-action” letters
issued by the Securities and Exchange Commission, and (ii) the veracity of
the assumptions set forth in the following sentence, the Conversion Shares
issuable to a Buyer pursuant to the conversion of the Exchange Notes and Series A-2
Preferred Stock will be deemed to have been acquired, for purposes of Rule 144(d)(3)(ii),
on the date on which the Buyer acquired and paid the full purchase price for
the Existing Notes which were surrendered in exchange for the Exchange Notes.  The opinion in the preceding sentence is
based on the following assumptions:  (a) that
any conversion of the Exchange Notes and Series A-2 Preferred Stock will
be made in accordance with the terms and provisions of the Exchange Notes and Series A-2
Preferred Stock, as applicable, and (b) no other consideration was paid
for the Exchange Notes and Series A-2 Preferred Stock other than the Buyer’s
surrender of the Existing Notes.

 

10.                                 The
Security Agreement creates a valid security interest in favor of Agent, as
agent for the Investors, as security for the payment of the Obligations (as
defined in the Security Agreement) in the right, title, and interest of the
Company in the collateral described in the Security Agreement to the extent
such a security interest can be created under article 9 of the New York UCC
(the “Article 9 Collateral”).

 

11.                                 The
UCC Financing Statement is in appropriate form for filing in the Filing
Office.  Upon the filing of the UCC
Financing Statement with the Filing Office, the security interests in the Article 9
Collateral granted by the Company to Agent pursuant to the Security Agreement
will be perfected to the extent that such security interest may be perfected
under the Delaware UCC by filing said UCC Financing Statement in the Filing
Office.  We have not been asked to file
continuation statements with respect to the UCC Financing Statement.

 

The foregoing opinions are subject to the following additional
assumptions and qualifications:

 

a.             Our opinion is
limited by:

 

5

 

i.              The requirement
that the enforcing party act in a commercially reasonable manner and in good
faith in exercising its rights under the Security Agreement and comply with the
provisions of part 6 of article 9 of the 
New York UCC; and

 

ii              The possible
rights of third parties to the extent that (a) any of the collateral
described in the Security Agreement prohibits, restricts or requires the
consent of the obligor to the assignment or transfer of, or the creation of a security
interest in such collateral, or provides that any such action constitutes a
default or gives rise to any right or remedy of such obligor; (b) such
collateral is not an account, chattel paper, promissory note, or general
intangible subject to and within the meaning of the New York UCC; and (c) the
consent of such obligor has not been obtained; provided, however, that to the
extent such collateral is a general intangible which is not a payment
intangible, or the transaction is the sale of a payment intangible or
promissory note, the security interest in such collateral may be subject to the
provisions of section 9-408(c) of the New York UCC.

 

b.             We have not
examined the records of Agent or the Investors, and except as set forth herein,
the Company, or any court or any public, quasi-public, private, or other office
in any jurisdiction, and our opinions are subject to matters that an
examination of such records would reveal.

 

c.             In the case of
proceeds, continuation of perfection of Agent’s security interest therein is
limited to the degree set forth in section 9-315 of the Delaware UCC.

 

d.             We express no
opinion as to any actions that may be required to be taken under the New York
UCC or the Delaware UCC, or other applicable law in order for the effectiveness
of the UCC Financing Statement, or the validity or perfection of any security
interest, to be maintained.

 

e.             We express no
opinion with respect to consumer goods, investment property in a consumer
transaction, as-extracted collateral, timber to be cut, commercial tort claims,
or goods represented by a certificate of title.

 

f.              We  call to your attention that in the case of
property which becomes collateral after the date hereof, section 547 of the
United States Bankruptcy Code (the “Code”) provides that a transfer is
not made until the debtor has rights in the property transferred, so a security
interest in after-acquired property may be treated as a voidable preference
under the conditions (and subject to the exceptions) provided by section 547,
and section 552 of the Code limits the extent to which property acquired by a
debtor after the commencement of a case under the Code may be subject to a
security interest arising from a security agreement entered into by the debtor
before the commencement of such case.

 

g.             We have made no
examination of, and express no opinion as to, (a) the adequacy of any
description of collateral, (b) title to the real property, fixtures,
personal property, or other collateral described in the Security Agreement or
the existence of any liens, charges, or encumbrances thereon, or (c) the
priority of the security interests created or evidenced by the Security
Agreement.

 

6

 

h.             We express no
opinion as to the effect on the opinions expressed herein of (i) the
compliance or non-compliance of any party to the Transaction Documents (other
than the Company to the extent set forth herein) with any state, federal or
other laws or regulations applicable to it or (ii) the legal or regulatory
status or the nature of the business of any party (other than the Company to
the extent expressly set forth herein).

 

This opinion letter is provided to you for your exclusive use solely in
connection with the Transaction Documents and the transactions contemplated
thereby and may not be relied upon by any person other than you or for any
other purpose without our prior written consent. This opinion letter may not be
used, quoted, referred to, copied, published, or relied upon by, or furnished
to, any other person without our prior written consent.  This opinion letter speaks only as of the
date hereof and to its addressees and we have no responsibility or obligation
to update this opinion, to consider its applicability or correctness to other
than its addressees, or to take into account changes in law, facts or any other
developments of which we may later become aware.

 

	
   

  	
  Very truly yours,

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Foley &
  Lardner LLP

  

 

7

 

SCHEDULE A

 

	
  Carlyle Liquid Holdings, LLC

  	
   

  	
  2 Gannett Drive 

  Suite 201 

  White Plains, NY 10604 

  (914) 694-6789

  
	
   

  	
   

  	
   

  
	
  Fort Mason Master, LP

  	
   

  	
  580 California Street 

  Suite 1925 

  San Francisco, CA 94104 

  (415) 288-8113

  
	
   

  	
   

  	
   

  
	
  Fort Mason Partners, LP

  	
   

  	
  580 California Street 

  Suite 1925 

  San Francisco, CA 94104 

  (415) 288-8113

  
	
   

  	
   

  	
   

  
	
  Tail Wind Fund Ltd.

  	
   

  	
  c/o Tail Wind Advisory and 

  Management Ltd 

  767 Third Avenue, 6th Floor 

  New York, NY 10017 

  (212) 676-5665

  
	
   

  	
   

  	
   

  
	
  Solomon Strategic Holdings Inc.

  	
   

  	
  c/o Tail Wind Advisory and 

  Management Ltd 

  767 Third Avenue, 6th Floor 

  New York, NY 10017 

  (212) 676-5665

  
	
   

  	
   

  	
   

  
	
  Carlyle Liquid, LLC

  	
   

  	
  2 Gannett Drive 

  Suite 201 

  White Plains, NY 10604 

  (914) 694-6789

  
	
   

  	
   

  	
   

  
	
  Carlyle Holdings, LLC

  	
   

  	
  2 Gannett Drive 

  Suite 201 

  White Plains, NY 10604 

  (914) 694-6789

  
	
   

  	
   

  	
   

  
	
  Castlerigg Master Investments Ltd.

  	
   

  	
  c/o Sandell Asset Management 

  Corporation 

  40 West 57th Street 

  26th Floor 

  New York, NY 10019 

  (212) 603-5710

  
	
   

  	
   

  	
   

  
	
  Diamond Opportunity Fund

  	
   

  	
  500 Skokie Blvd, Suite 310 

  Northbrook, IL 60062 

  (847) 919-4410

  
	
   

  	
   

  	
   

  
	
  Rockmore Investment Master Fund Ltd.

  	
   

  	
  150 East 58th Street, 28th Floor 

  New York, NY 10155 

  (212) 258-2315

  

 

8

 

	
  Abdi Mahamedi

  	
   

  	
  c/o Carlyle Development Group 

  2 Gannett Drive, Suite 201 

  White Plains, NY 10604 

  (914) 694-6789

  
	
   

  	
   

  	
   

  
	
  BridgePointe Master Fund Ltd.

  	
   

  	
  c/o Roswell Capital Partners 

  1120 Sanctuary Parkway 

  Suite 325 

  Alpharetta, GA 30004 

  (770) 777-5844

  
	
   

  	
   

  	
   

  
	
  Iroquois Master Fund

  	
   

  	
  641 Lexington Avenue 

  26th Floor 

  New York, NY 10022 

  (212) 207-3452

  
	
   

  	
   

  	
   

  
	
  Rodd Friedman

  	
   

  	
  93 Hillspoint Road 

  Westport, CT 06880 

  (203) 663-1303

  
	
   

  	
   

  	
   

  
	
  Myron Neugeboren

  	
   

  	
  P.O. Box 1410 

  Lakeville, Ct 06309 

  (860) 435-2603

  
	
   

  	
   

  	
   

  
	
  Ricardo Salas

  	
   

  	
  64 Ritz Cove Drive 

  Monarch Beach, CA 92629 

  (949) 315-3096

  
	
   

  	
   

  	
   

  
	
  Chang Ki Cho

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Eric Brachfeld

  	
   

  	
  890 West End Avenue 

  Suite 160 

  New York, NY 10025 

  (212) 298-9933

  
	
   

  	
   

  	
   

  
	
  Ed Neugeboren

  	
   

  	
  282 New Norwalk Road 

  New Canaan, CT 06840 

  (212) 618-0202

  
	
   

  	
   

  	
   

  
	
  Wynnefield Partners Small Cap Value LP

  	
   

  	
  450 Seventh Avenue 

  Suite 509 

  New York, NY 10123 

  (212) 760-0824

  
	
   

  	
   

  	
   

  
	
  Wynnefield Partners Small Cap Value LP I

  	
   

  	
  450 Seventh Avenue 

  Suite 509 

  New York, NY 10123 

  (212) 760-0824

  
	
   

  	
   

  	
   

  
	
  Wynnefield Small Cap Value Offshore

  	
   

  	
  450 Seventh Avenue 

  Suite 509 

  New York, NY 10123 

  (212) 760-0824

  
	
   

  	
   

  	
   

  
	
  Kenneth Lisiak

  	
   

  	
  17 Ross Lane 

  Middleton, MA 01949 

  (978)774-3778

  

 

9

 

	
  Vestal Venture Capital

  	
   

  	
  6471 Enclave Way 

  Boca Raton, FL 33496 

  (561) 912-9979

  
	
   

  	
   

  	
   

  
	
  Mermelstein Development

  	
   

  	
  302 Fifth Avenue, 8th Floor 

  New York, NY 10001

  
	
   

  	
   

  	
   

  
	
  Atlantic Realty

  	
   

  	
  c/o Jack Chitayat 

  1836 El Camino Del Teatro 

  La Jolla, CA 92037

  

 

10

 

EXHIBIT
A

 

Financing Statement

 

11

 

Exhibit H

 

Form of Voting Proxy Agreement
 

 
VOTING PROXY AGREEMENT
 

THIS
VOTING PROXY AGREEMENT (this “Agreement”), dated as of May 1, 2009,
by and among the shareholders listed on Schedule A hereto (each a “Holder”
and collectively, the “Holders”) and Carlyle Liquid Holdings LLC, a New
York limited liability company (the “Carlyle” or, the “Proxyholder”).  Capitalized terms used but not defined herein
shall have the meaning ascribed to such terms in the Exchange Agreement (as
defined below).

 

WHEREAS, each Holder owns a number of shares of common stock of Liquidmetal Technologies, Inc., a Delaware corporation (the “Company”), as set forth next to each Holder’s name on Schedule A hereto (such shares of common stock, the “Shares”); and
 
WHEREAS, the Securities Purchase and Exchange Agreement (the “Exchange Agreement”), dated as of May 1, 2009, among the Company and the Holders, provides in Section 7(j) that, as a condition to closing, the Company must provide Carlyle with an executed Voting Proxy Agreement signed by a sufficient number of Holders to give Carlyle the power to vote a majority of the Company’s shares of common stock for the purposes of approving an amendment (the “Charter Amendment”) to the Company’s Certificate of Incorporation to increase the number of authorized shares of common stock to 300,000,000 to meet the Company’s obligation under the Exchange Agreement to reserve for issuance a number of shares of common stock equal to the sum of 100% of the number of shares of common stock issuable upon conversion of the Preferred Shares and the Exchange Notes and exercise of the Warrants to be issued at such Closing (such rights, the “Voting Rights”); and
 
WHEREAS, the parties hereto desire to provide for certain rights and obligations relating to the Voting Rights of the Holder and certain other matters.
 
NOW, THEREFORE, in consideration of the mutual promises set forth below (the mutuality, adequacy and sufficiency of which are hereby acknowledged), the parties hereto agree as follows:
 
ARTICLE 1
 
PROXY
 
SECTION 1.01. Voting Rights; Irrevocable Proxy. (a) The Holders hereby irrevocably constitute and appoint the Proxyholder, its true and lawful attorney, agent and proxy for and in their name, place and stead, with the exclusive right to exercise the Voting Rights on the Charter Amendment attributable to Holders’ Shares, in such Proxyholder’s sole and absolute discretion, at any annual or special meeting of stockholders of the Company, at any and all adjournments thereof, and on any other occasion in respect of which the consent of Holders relating to the Voting Rights on the Charter Amendment may be given or may be requested or solicited by the Company or any other Person, whether at a meeting, pursuant to the execution of a written consent or otherwise, and Holder hereby ratifies and confirms all that the Proxyholder may do by virtue hereof. The Holders agree with the Proxyholder that, without the prior written consent of 
 

 
the Proxyholder, they will not, so long as this Agreement shall be in effect, take any action with respect to the Voting Rights on the Charter Amendment, appoint any person other than the Proxyholder as their attorney, agent or proxy with respect to such Shares, or take any action inconsistent with the appointment of the Proxyholder as their lawful attorney, agent and proxy, or the exercise by the Proxyholder of the powers granted to it, hereunder.
 
(b)   The powers granted pursuant to this Section 1.01, and the proxy granted pursuant hereto, are coupled with an interest and shall be irrevocable during the term of this Agreement.
 
SECTION 1.02. Acceptance of Appointment. Carlyle accepts its appointment as the Proxyholder and agrees to serve in such capacity pursuant to the terms hereof.
 
ARTICLE 2
 
MISCELLANEOUS
 
SECTION 2.01. Lock-Up. John Kang and Ricardo Salas agree that, until the Shareholder Approval, they will not, directly or indirectly, sell, assign, transfer or dispose of any of their Shares.
 
SECTION 2.02. Expenses. All costs and expenses incurred in connection with this Agreement shall be paid by the party incurring such cost or expense.
 
SECTION 2.03. Reasonable Best Efforts. Each party hereto will use its reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary or desirable under applicable laws and regulations to consummate the transactions contemplated by this Agreement.
 
SECTION 2.04. Remedies. Each party hereto acknowledges that the remedies at law of the other parties for a breach or threatened breach of this Agreement would be inadequate and, in recognition of this fact, any party to this Agreement, without posting any bond, and in addition to all other remedies which may be available, shall be entitled to obtain equitable relief in the form of specific performance, a temporary restraining order, a temporary or permanent injunction or any other equitable remedy which may then be available. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law.
 
SECTION 2.05. Notices. All notices, requests and other communications to any party hereunder shall be in writing (including telecopier) and shall be deemed to have been duly given or made if sent by telecopy, delivered personally, sent by electronic mail (provided confirmation of transmission is electronically generated and kept on file by the sending party) or sent by registered or certified mail (postage prepaid, return receipt requested) to such party at its address  or telecopier number set forth on Schedule A hereto or the signature pages hereof, or such other address or telecopier number as such party may hereinafter specify for the purpose to the party giving such notice. All such notices, requests and other communications shall be deemed received on the date of receipt by the recipient thereof if received prior to 5:00 p.m. in the place 
 
2

 
of receipt and such day is a business day in the place of receipt. Otherwise, any such notice, request or communication shall be deemed not to have been received until the next succeeding business day in the place of receipt.
 
SECTION 2.06. Waivers; Amendments. (a) No failure or delay on the part of any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege.
 
(b) Any provision of this Agreement may be waived if, but only if, such waiver is in writing and is signed, by the party or parties against whom the waiver is to be effective. No provision of this Agreement may be amended or otherwise modified except by an instrument in writing executed by each of the parties hereto.
 
SECTION 2.07. Termination. This Agreement shall terminate and be of no further force and effect on the earlier to occur of (i) the second anniversary of the date hereof and (ii) the date on which the Charter Amendment is duly approved by the Company’s stockholders.
 
SECTION 2.08. Successors and Assigns; Third Party Rights. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. Nothing in this Agreement, expressed or implied, is intended to confer on any entity other than the parties hereto and their respective successors and permitted assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement.
 
SECTION 2.09. Applicable Law; Submission to Jurisdiction. This Agreement shall be construed in accordance with and governed by the laws of the State of New York, without regard to the conflicts of law rules of such state. Each of the parties hereto hereby consents to the non-exclusive jurisdiction of the United States District Court for the Southern District of New York, or any other New York State court sitting in New York County, New York (and of the appropriate appellate courts therefrom) over any suit, action or proceeding arising out of or relating to this Agreement. Each party hereto irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of venue in any such court or that any such proceeding which is brought in accordance with this Section has been brought in an inconvenient forum. Subject to applicable law, process in any such proceeding may be served on any party anywhere in the world, whether within or without the jurisdiction of any such court. Without limiting the foregoing and subject to applicable law, each party agrees that service of process on such party as provided in Section 2.05 shall be deemed effective service of process on such party. Nothing herein shall affect the right of any party to serve legal process in any other manner permitted by law or at equity or to enforce in any lawful manner a judgment obtained in one jurisdiction in any other jurisdiction.
 
WITH RESPECT TO A PROCEEDING IN ANY SUCH COURT, EACH OF THE PARTIES IRREVOCABLY WAIVES AND RELEASES TO THE OTHER ITS RIGHT TO A TRIAL BY JURY, AND AGREES THAT IT WILL NOT SEEK A TRIAL BY JURY IN ANY SUCH PROCEEDING.
 
3

 
SECTION 2.10. Severability. The invalidity or unenforceability of any provisions of this Agreement in any jurisdiction shall not affect the validity, legality or enforceability of the remainder of this Agreement in such jurisdiction or the validity, legality or enforceability of this Agreement, including any such provision, in any other jurisdiction, it being intended that all rights and obligations of the parties hereunder shall be enforceable to the fullest extent permitted by law.
 
SECTION 2.11. Entire Agreement. This Agreement constitutes the entire agreement and understanding of the parties hereto in respect of the subject matter contained herein, and there are no restrictions, promises, representations, warranties, covenants, or undertakings with respect to the subject matter hereof, other than those expressly set forth or referred to herein.
 

SECTION 2.12. Counterparts. This Agreement may be executed
in two or more identical counterparts, all of which shall be considered one and
the same agreement and shall become effective when counterparts have been
signed by each party and delivered to the other parties; provided that a
facsimile signature (including documents in Adobe PDF format) shall be
considered due execution and shall be binding upon the signatory thereto with
the same force and effect as if the signature were an original, not a facsimile
signature.

 

SECTION 2.13. Headings. The headings in this Agreement are for convenience of reference only and shall not control or affect the meaning or construction of any provisions hereof.
 
4

 
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.
 
 

	PROXYHOLDER:
	 

	 
	 

	CARLYLE LIQUID HOLDINGS LLC
	 

	 
	 

	By:
	 
	 

	Name:
	 

	Title:
	 

	 
	 

	 
	 

	HOLDERS:
	 

	 
	 

	 
	 

	By:
	 
	 

	Name: John Kang
	 

	Title:
	 

	 
	 

	 
	 

	By:
	 
	 

	Name: Ricardo Salas
	 

	Title:
	 

	 
	 

	 
	 

	By:
	 
	 

	Name: Jack Chitayat
	 

	Title:
	 

	 
	 

	 
	 

	By:
	 
	 

	Name: Abdi Mahamedi
	 

	Title:
	 

 

 

 

SCHEDULE
A

 

	
  1.

  	
   

  	
  John Kang

  
	
   

  	
   

  	
   

  
	
  2.

  	
   

  	
  Ricardo Salas

  
	
   

  	
   

  	
   

  
	
  3.

  	
   

  	
  Jack Chitayat

  
	
   

  	
   

  	
   

  
	
  4.

  	
   

  	
  Abdi Mahamedi

  

 

 

 

Exhibit I

 

FORM OF CHARTER AMENDMENT

 

 

CERTIFICATE OF AMENDMENT

TO
THE CERTIFICATE OF INCORPORATION OF

LIQUIDMETAL
TECHNOLOGIES, INC.

 

Liquidmetal Technologies, Inc., a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware (the “General Corporation Law”), does hereby certify as follows:

 

FIRST:  That the original Certificate of
Incorporation of Liquidmetal Technologies, Inc. (the “Corporation”) was
filed with the Secretary of State of the State of Delaware on May 15,
2003, and that a Certificate of Ownership and Merger of Liquidmetal
Technologies (a California corporation) with and into the Corporation was filed
with the Secretary of State of the State of Delaware on May 21, 2003.

 

SECOND:  That,
at a meeting of the Board of Directors of the Corporation, resolutions were
duly adopted setting forth proposed amendments to the Certificate of
Incorporation of the Corporation, declaring said amendments to be advisable,
and calling a meeting of the stockholders of the Corporation for consideration
thereof.  The resolution setting forth
the proposed amendments is as follows:

 

RESOLVED, that the
Certificate of Incorporation of this Corporation be amended by changing Article IV
thereof so that, as amended, Article IV shall be and read as follows:

 

“The Corporation shall
have authority to issue Three Hundred Ten Million (310,000,000) shares of
capital stock, consisting of Three Hundred Million (300,000,000) shares of
common stock, $0.001 par value per share 
(the “Common Stock”), and Ten Million (10,000,000) shares of preferred
stock, $0.001 par value per share (the “Preferred Stock”), of which One Million
Eight Hundred Seventy-Five Thousand (1,875,000) shares are hereby designated as
“Series A-1 Preferred Stock” and Three Million Two Hundred Eighty-One
Thousand Two Hundred Fifty-Three (3,281,253) shares are hereby designated as “Series A-2
Preferred Stock.”  The Preferred Stock
authorized by the Certificate of Incorporation, as amended, may be issued from
time to time in one or more series.  The
Board of Directors is hereby authorized to fix or alter the rights,
preferences, privileges and restrictions granted to or imposed upon any series
of Preferred Stock, and the number of shares constituting any such series and
the designation thereof, or any of them. 
The voting powers, designations, preferences and other special rights,
and qualifications, limitations and restrictions  of the Series A-1 Preferred Stock and Series A-2
Preferred Stock (collectively, the “Series A Preferred Stock”) are set
forth in a Certificate of Designation, Preferences, and Rights previously filed
by the Corporation with the Secretary of State of Delaware on May 1, 2009
(the “Series A Certificate of Designation”).”

 

 

RESOLVED, that the Certificate of Incorporation
of this Corporation be amended by changing Article VIII thereof so that,
as amended, Article VIII shall be and read as follows:

 

“(a)         Directors — General.  Subject to Section (b) below, the
number of directors of the Corporation shall be determined by resolution of the
Board of Directors.  Elections of
directors need not be by written ballot, unless the Bylaws of the Corporation
shall so provide.

 

(b)           Series A Directors and Common
Directors.     Notwithstanding the
foregoing, for as long as at least 25% of the number of shares of Series A
Preferred Stock issued on May 1, 2009 (the initial issuance date of the Series A
Preferred Stock) are outstanding, the Board of Directors of the Company shall
consist of five (5) members.  In any
election of directors taking place after May 1, 2009, as long as at least
25% of the number of shares of Series A Preferred Stock issued on May 1,
2009 are outstanding, (i) the holders of the Series A Preferred
Stock, voting as a separate class, shall have the right to elect two of the members
of the Corporation’s Board of Directors, (ii) the holders of the Common
Stock, voting as a separate class, shall have the right to elect two of the members
of Company’s Board of Directors (the “Common Directors”), and (iii) the
holders of the Common Stock and the holders of the Series A Preferred
Stock, voting together as a single class (with the holders of Preferred Stock
voting on an as converted to Common Stock basis as described in the last
sentence of this Section (b)), shall have the right to elect one of the members
of the Company’s Board of Directors.

 

In
addition to any class voting rights provided by law and the Certificate of
Incorporation, and subject to the first paragraph of this Section (b), the
holders of Series A Preferred Stock shall have the right to vote together
with the holders of Common Stock as a single class on any matter on which the
holders of Common Stock are entitled to vote, at any annual or special meeting
of the stockholders and not as a separate class, and may act by written consent
in the same manner of the holders of the Common Stock; provided, however,
that the holders of Series A Preferred Stock shall not have the right to
vote on the election of the Common Directors. With respect to the voting rights
of the holders of the Series A Preferred Stock pursuant to the preceding
sentence, each holder of Series A Preferred Stock shall be entitled to one
vote for each share of Common Stock that would be issuable to such holder upon
the conversion of all the shares of Series A Preferred Stock held by such
holder on the record date for the determination of shareholders entitled to
vote at such meeting or the effective date of such written consent (after
taking into account the conversion limitation set forth in Section 4M(1) of
the Series A Certificate of Designation but disregarding the conversion
limitation set forth in Section 4M(2) of the Series A
Certificate of Designation), and shall have 

 

2

 

voting
rights and powers equal to the voting rights and powers of the Common Stock,
and shall be entitled to notice of any stockholders’ meeting in accordance with
the Bylaws of the Company.”

 

THIRD:  That
thereafter, pursuant to a resolution of the Board of Directors of the
Corporation, a special  meeting of the
stockholders of the Corporation was duly called and held upon notice in
accordance with Section 222 of the General Corporation Law at which
meeting the necessary number of shares as required by statute were voted in
favor of the amendments.

 

FOURTH:  That said amendments were duly adopted in
accordance with the provisions of Section 242 of the General Corporation
Law.

 

FIFTH:  That said amendments shall be effective upon
filing in the Office of the Secretary of State of the State of Delaware.

 

IN WITNESS WHEREOF, the Corporation
has caused this Certificate of Amendment to be signed by a duly authorized
officer this          day of                       ,
2009.

 

	
   

  	
  LIQUIDMETAL TECHNOLOGIES, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
					

 

3Exhibit 10.2

 

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: May 1, 2009

  	
  Principal: U.S.
  $[                      ]

  

 

 

FOR VALUE RECEIVED, LIQUIDMETAL TECHNOLOGIES, INC., a Delaware corporation (the “Company”), hereby promises to pay to the
order of [INSERT HOLDER] 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 (collectively, the “Notes”
and such other 8% Senior Secured Convertible Notes, the “Other Notes”) issued on the Issuance Date
pursuant to the Securities Purchase and Exchange Agreement (as defined
below).  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 October and April 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.

 

(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

 

2

 

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, 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 

 

3

 

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.

 

(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 

 

4

 

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) 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 

 

5

 

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)           Additional Conversion Limitation.  Until the Charter Amendment (as defined in
the Securities Purchase and Exchange Agreement) has been filed with, and
accepted by, the Delaware Secretary of State, no Buyer (as defined in the
Securities Purchase and Exchange Agreement) shall be issued, upon conversion or
exercise of such Buyer’s Notes, Preferred Shares (as defined in the
Securities Purchase and Exchange Agreement), or Warrants, a number of shares of Common Stock in the aggregate for
all such conversions or exercises greater than the product of the Conversion
Cap (as defined below) multiplied by a fraction, the numerator of which
is the aggregate purchase price paid by the Buyer for all of the Notes,
Preferred Shares, and Warrants purchased by the Buyer pursuant to the
Securities Purchase and Exchange Agreement and the denominator of which is
$23,124,933.33, which is the aggregate purchase price paid by all of the Buyers
for all of the Notes, Preferred Shares, and Warrants purchased pursuant to the
Securities Purchase and Exchange Agreement
(with respect to each Buyer, the “Conversion
Cap Allocation”).  In the
event that any Buyer shall sell or otherwise transfer any of such Buyer’s
Notes, the transferee shall be allocated a pro rata portion of such Buyer’s
Conversion Cap Allocation based on the principal amount of the Notes purchased
by the Buyer, and the restrictions of the prior sentence shall apply to such
transferee with respect to the portion of the Conversion Cap Allocation
allocated to such transferee. The term “Conversion Cap”
shall mean 32,985,406 shares of
Common Stock, which represents all shares of authorized but unissued Common
Stock as of the date of the Securities Purchase and Exchange Agreement to the
extent not previously reserved for issuance pursuant to Convertible Securities
and Options existing prior to such date.

 

(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;

 

6

 

(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;

 

(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;

 

7

 

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

 

(ix)           the failure of the Charter Amendment
to be filed with, and accepted for filing by, the Delaware Secretary of State
by August 31, 2009;

 

(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;

 

(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.

 

8

 

 

(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.

 

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

 

9

 

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% 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 

 

10

 

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 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, 

 

11

 

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
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 

 

12

 

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 as of the Issuance Date (subject to appropriate
adjustments for stock splits, stock dividends, stock combinations and other
similar transactions after the 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 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 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 Notes and 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 

 

13

 

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 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.

 

14

 

(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.

 

(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 

 

15

 

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.

 

(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 

 

16

 

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 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.

 

17

 

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 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 

 

18

 

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 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 

 

19

 

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.

 

(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 initial
purchasers of the 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 

 

20

 

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.

 

(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.

 

21

 

(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.

 

(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.

 

22

 

(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)         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

 

23

 

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.

 

(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.

 

24

 

(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 (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

 

25

 

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.

 

(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.

 

26

 

(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 May 1, 2009.

 

(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 between the Company and the initial
Holders of the Notes relating to the registration of the resale of the shares
of Common Stock issuable upon conversion of the Notes and the exercise of the
Warrants.

 

27

 

(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 Notes pursuant to which the Company issued the
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 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 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 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

 

28

 

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]

 

29

 

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-00158-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00158-of-00352.parquet"}]]