Document:

Exhibit 10.1

 

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,
  2010

  	
  Principal:
  U.S.                

  

 

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

 

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

(c)           Mechanics of Conversion.

 

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

 

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

 

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

 

(iii)          Book-Entry. Notwithstanding anything to the contrary
set forth herein, upon

 

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

 

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

 

(d)           Limitations on Conversions.

 

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

 

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

 

(ii)                                  INTENTIONALLY
OMITTED.

 

(4)                                  RIGHTS UPON
EVENT OF DEFAULT.

 

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

 

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

 

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

 

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

 

6

 

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;

 

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

 

(ix)           INTENTIONALLY OMITTED;

 

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

 

7

 

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

 

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

 

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

 

(5)                                  RIGHTS UPON
CHANGE OF CONTROL.

 

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

 

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

 

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

 

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

 

8

 

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

 

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

 

(c)           Redemption Right. 
At any time during the period beginning after the Holder’s receipt of a
Change of Control Notice and ending on the date of the consummation of such
Change of Control (or, in the event a Change of Control Notice is not delivered
at least 10 days prior to a Change of Control, at any time on or after the date
which is 10 days prior to a Change of Control and ending ten days after the
consummation of such Change of Control), the Holder may require the Company to
redeem all or any portion of this Note by delivering written notice thereof (“Change of Control Redemption Notice”) to
the Company, which Change of Control Redemption Notice shall indicate the
Conversion Amount the Holder is electing to redeem; provided, however, that the
Company shall not be under any obligation to redeem all or any portion of this
Note or to deliver the applicable Change of Control Redemption Price unless and
until the applicable Change of Control is consummated.  The portion of this Note subject to
redemption pursuant to this Section 5 shall be redeemed by the Company in
cash at a price equal to the sum of (i) the Conversion Amount of the
portion to be redeemed, plus (ii) the Black Scholes Value, as of the date
immediately preceding the date the Change of Control is consummated, of the
Holder’s right to convert the Conversion Amount hereunder upon the terms set
forth herein (the “Change of Control
Redemption Price”).  For the
purpose of this Note, “Black Scholes Value”
means the value, as reasonably calculated by the Company, of this Note, which
shall be determined by use of the Black Scholes Option Pricing Model reflecting
(i) a risk-free interest rate corresponding to the U.S. Treasury rate for
a period equal to the remaining term of this Note as of such date of request
and (ii) an expected volatility equal to the greater of 60% and the 100
day volatility obtained from the HVT function on Bloomberg; provided that the

 

9

 

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

 

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

 

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

 

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

 

(7)                                  RIGHTS UPON
ISSUANCE OF OTHER SECURITIES.

 

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

 

10

 

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

 

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

 

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

 

11

 

appraiser shall be borne
equally by the Company, on the hand, and the Holders of the Notes, on the other
hand.

 

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

 

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

 

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

 

(8)                                  INTENTIONALLY
OMITTED.

 

(9)                                  COMPANY’S RIGHT
OF MANDATORY CONVERSION.  (a) Mandatory
Conversion.  If at any time from and
after the Issuance Date, the Weighted Average Price of the Common Stock exceeds
250% of the conversion price of the Original Notes as of the Original Issuance
Date (subject to appropriate adjustments for stock splits, stock dividends,
stock combinations and other similar transactions after the Original Issuance
Date) for each of any 20 consecutive Trading Days (the “Mandatory Conversion Measuring Period”)
and the Conditions to Mandatory Conversion (as set forth in Section 9(c))
are satisfied or waived in writing by the Holder, the Company shall have the
right to require the Holder to convert all or any such portion of the
Conversion Amount of this Note designated in the Mandatory Conversion Notice
into fully paid, validly issued and nonassessable shares of Common Stock in
accordance with Section 3(c) hereof at the Conversion Rate as of the
Mandatory Conversion Date (as defined below) (a “Mandatory Conversion”). 
The Company may exercise its right to require conversion under this Section 9(a) by
delivering within not more than five Trading Days

 

12

 

following the end of such
Mandatory Conversion Measuring Period a written notice thereof by facsimile and
overnight courier to all, but not less than all, of the Holders of Notes and
the Transfer Agent (the “Mandatory Conversion
Notice” and the date all of the Holders received such notice is
referred to as the “Mandatory Conversion Notice
Date”).  The Mandatory
Conversion Notice shall be irrevocable.

 

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

 

(c)           Conditions to Mandatory Conversion.  For purposes of this Section 9, “Conditions to Mandatory Conversion” means  the following conditions: (i) during
the

 

13

 

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

 

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

 

(11)                            RESERVATION OF
AUTHORIZED SHARES.

 

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

 

14

 

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

 

15

 

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

 

(13)                            SUBORDINATION
TO SENIOR INDEBTEDNESS.

 

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

 

(b)           No Payment if Default in Senior Indebtedness.

 

(i)            no cash payment on account of Principal or Redemption
Price of, or Interest on, this Note or any other payment payable with respect
to this Note shall be made, and no portion of this Note shall be redeemed or
purchased directly or indirectly by the Company, if at the time of such payment
or purchase or immediately after giving effect thereto, (A) a default in
the payment of principal, premium, if any, interest or other obligations in
respect of any Senior Indebtedness occurs and is continuing (or, in the case of
Senior Indebtedness for which there is a period of grace, in the event of such
a default that continues beyond the period of grace, if any, specified in the
instrument evidencing such Senior Indebtedness) (a “Payment
Default”), unless and until such Payment Default shall have been
cured or waived or shall have ceased to exist or (B) the Company shall
have received notice (a “Payment Blockage Notice”)
from the holder or holders of Senior Indebtedness that there exists under such
Senior Indebtedness a default, which shall not have been cured or waived,
permitting the holder or holders thereof to declare

 

16

 

such Senior Indebtedness due
and payable, but in the case of this clause (B), only for the period (the “Payment Blockage Period”) commencing on the date of receipt
of the Payment Blockage Notice and ending on the date such default shall have
been cured or waived.  The Company shall
resume payments on and distributions in respect of this Note, including any
past scheduled payments of the principal of (and premium, if any) and interest
on this Note to which the Holder would have been entitled but for the
provisions of this Section 13(b)(ii), within five (5) Business Days
of the date upon which such Payment Default is cured or waived or ceases to
exist or the date on which the Payment Blockage Period ends (and if payment is
made within such time period, any Event of Default with respect to such
nonpayment shall be cured).

 

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

 

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

 

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

 

17

 

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

 

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

 

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

 

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

 

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

 

(h)           Holders of Senior Indebtedness.  These provisions regarding subordination will
constitute a continuing offer to all Persons who, in reliance upon such provisions,
become holders of, or continue to hold, Senior Indebtedness; such provisions
are made for the benefit of the holders of Senior Indebtedness, and such
holders are hereby made obligees under such provisions to the same extent as if
they were named therein, and they or any of them may proceed to enforce such
subordination and no amendment or modification of the provisions contained
herein shall diminish the rights of such holders unless such holders have
agreed in writing thereto.  The holders
of Senior Indebtedness may, at any time and from time to time, without the
consent of or notice to the Holder, without incurring responsibility to the

 

18

 

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

 

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

 

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

 

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

 

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

 

(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

 

19

 

Corporation Law, and as
expressly provided in this Note.

 

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

 

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

 

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

 

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

 

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

 

(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

 

20

 

or elsewhere) and had held
such shares of Common Stock on the record date for such dividends and
distributions.  Payments (if any) under
the preceding sentence shall be made concurrently with the dividend or distribution
to the holders of Common Stock.

 

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

 

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

 

(19)                            REISSUANCE OF
THIS NOTE.

 

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

 

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

 

21

 

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

 

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

 

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

 

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

 

22

 

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

 

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

 

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

 

(25)                            NOTICES;
PAYMENTS.

 

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

 

23

 

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.

 

(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,

 

24

 

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

 

(b)           “Bloomberg”
means Bloomberg Financial Markets.

 

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

 

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

 

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

 

25

 

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

 

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

 

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

 

(i)            “Issuance Date”
means May 1, 2010.

 

26

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

(s)           “Trading Day”
means any day on which the Common Stock is traded on the Principal Market, or,
if the Principal Market is not the principal trading market for the Common
Stock, then on the principal securities exchange or securities market on which
the Common Stock is then traded; provided that “Trading Day” shall not include
any day on which the Common Stock is scheduled to trade on such exchange or
market for less than 4.5 hours or

 

27

 

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

 

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

 

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

 

[Signature Page Follows]

 

28

 

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

 

	
   

  	
  LIQUIDMETAL
  TECHNOLOGIES, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Tony Chung

  
	
   

  	
   

  	
  Title:

  	
  Chief Financial Officer

  

 

 

EXHIBIT I

 

LIQUIDMETAL TECHNOLOGIES, INC.

CONVERSION NOTICE

 

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

 

	
  Date of Conversion:

  	
   

  
	
   

  
	
  Aggregate Conversion Amount
  to be converted:

  	
   

  
			

 

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

 

Please confirm the following
information:

 

	
  Conversion Price:

  	
   

  
	
   

  
	
  Number of shares of Common
  Stock to be issued:

  	
   

  
			

 

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

 

	
  Issue to:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  
	
  Facsimile Number:

  	
   

  
	
   

  
	
  Authorization:

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  
	
  Title:  

  	
   

  
	
   

  	
   

  
	
  Dated:

  	
   

  
	
   

  	
   

  
	
  Account Number:

  	
   

  
	
   (if electronic book
  entry transfer)

  	
   

  
	
   

  	
   

  
	
  Transaction Code Number:

  	
   

  
	
   (if electronic book
  entry transfer)

  	
   

  
										

 

 

ACKNOWLEDGMENT

 

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

 

	
   

  	
  LIQUIDMETAL
  TECHNOLOGIES, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:Exhibit 4.4

 

FORM OF

SHARE REDEMPTION PROGRAM

OF

BEHRINGER HARVARD MULTIFAMILY
REIT II, INC.

 

This amended and restated share redemption program,
effective as of [    ], 2011 (our “Program”), is intended
to provide limited interim liquidity for our stockholders until a bona fide
secondary market develops for our shares of common stock (the “Shares”).  No such market presently exists, and we can
provide no assurance that any market for the Shares will ever develop.

 

Prior to the time that a bona fide secondary market
for our Shares has developed, stockholders who meet the applicable
requirements, as described herein, may receive the benefit of limited liquidity
by presenting for redemption all or a portion of their Shares to us at any time
in accordance with the procedures outlined herein.  At that time, we may, subject to the
conditions and the Redemption Limitations described below, redeem for cash such
Shares.  The terms on which we redeem
Shares may differ between redemptions upon the death or “qualifying disability”
(as defined herein) of the stockholder or requests for redemption sought upon a
stockholder’s confinement to a long-term care facility (collectively referred
to herein as “Exceptional Redemptions”) and all other redemptions (referred to
herein as “Ordinary Redemptions”).

 

Ordinary Redemptions

 

In the case of Ordinary Redemptions, the purchase
price per Share for the redeemed Shares will equal 90% of (i) the most
recently disclosed estimated value per Share (the “Valuation”) as determined in
accordance with our valuation policy (the “Valuation Policy”), as such
Valuation Policy is amended from time to time, less (ii) the aggregate
distributions per Share of any net sale proceeds from the sale of one or more
of our assets, or other special distributions so designated by our Board of
Directors (our “Board”), distributed to stockholders after the Valuation was
determined (the “Valuation Adjustment”); provided, however, that the purchase
price per Share shall not exceed: (1) prior to the first Valuation
conducted by the Board, or a committee thereof (the “Initial Board Valuation”),
under the Valuation Policy, 90% of (i) the Original Share Price (as
defined herein) less (ii) any special distributions so designated by the
Board, distributed to stockholders prior to the redemption date (the “Special
Distributions”); or (2) on or after the Initial Board Valuation, the
Original Share Price less any Special Distributions.  As used herein “Original Share Price” means
the average price per Share the original purchaser or purchasers of Shares paid
to us for all of his or her Shares (as adjusted for any stock dividends,
combinations, splits, recapitalizations and the like with respect to our common
stock).

 

Exceptional Redemptions

 

In addition, and subject to the conditions and
limitations described below, we may redeem Shares upon the death of a
stockholder who is a natural person, including Shares held by the stockholder
through a revocable grantor trust, or an IRA or other retirement or
profit-sharing plan, after receiving written notice from the estate of the
stockholder, the recipient of the Shares through bequest or inheritance, or, in
the case of a revocable grantor trust, the trustee of the trust, having the
sole ability to request redemption on behalf of the trust.  We must, however, receive the written notice
within one year after the death of the stockholder.  Requests not received within the one-year
period will not be eligible to be treated as a redemption request in connection
with the death of a stockholder, but instead will be treated as an Ordinary
Redemption.  If spouses are joint
registered holders of Shares, the request to redeem the Shares may be made if
either of the registered holders dies. 
If the stockholder is not a natural person, such as a trust (other than
a revocable grantor trust), partnership, corporation or other similar entity,
the right of redemption upon death does not apply.

 

Furthermore, and subject to the conditions and
limitations described below, we may redeem Shares held by a stockholder who is
a natural person with a qualifying disability, or upon confinement to a
long-term care facility, including Shares held by the stockholder through a
revocable grantor trust, or an IRA or other retirement or profit-sharing plan,
after receiving written notice from the stockholder, provided that the
condition causing the qualifying disability was not pre-existing on the date
that the stockholder became a stockholder or that the stockholder seeking
redemption was not confined to a long-term care facility on the date the person
became a stockholder.  We must, however,
receive the written notice within one year after the determination of the
stockholder’s qualifying disability or with respect to redemptions sought upon
a stockholder’s confinement to a long-term care facility, within one year of
the earlier of (1) the one year anniversary of the stockholder’s
admittance to the long-term care facility or (2) the date of the
determination of the stockholder’s indefinite confinement to the long-term care
facility by a licensed

 

1

 

physician.  Requests not received within the one-year
period will not be eligible to be treated as a redemption request in connection
with a qualifying disability of a stockholder or confinement to a long-term
care facility, but instead will be treated as an Ordinary Redemption.  If the stockholder is not a natural person,
such as a trust (other than a revocable grantor trust), partnership, corporation
or other similar entity, the right of redemption described in this paragraph
does not apply.

 

In order for a disability to be considered a “qualifying
disability,” (1) the stockholder must receive a determination of
disability based upon a physical or mental condition or impairment arising
after the date the stockholder acquired the Shares to be redeemed, and (2) the
determination of disability must be made by the governmental agency responsible
for reviewing the disability retirement benefits that the stockholder could be
eligible to receive (the “applicable governmental agency”).  The “applicable governmental agencies” are
limited to the following: (a) if the stockholder paid Social Security
taxes and therefore could be eligible to receive Social Security disability
benefits, then the applicable governmental agency is the Social Security
Administration or the agency charged with responsibility for administering
Social Security disability benefits at that time if other than the Social
Security Administration; (b) if the stockholder did not pay Social
Security benefits and therefore could not be eligible to receive Social
Security disability benefits, but the stockholder could be eligible to receive
disability benefits under the Civil Service Retirement System (CSRS), then the
applicable governmental agency is the U.S. Office of Personnel Management or
the agency charged with responsibility for administering CSRS benefits at that
time if other than the Office of Personnel Management; or (c) if the
stockholder did not pay Social Security taxes and therefore could not be
eligible to receive Social Security benefits but suffered a disability that
resulted in the stockholder’s discharge from military service under conditions
that were other than dishonorable and therefore could be eligible to receive
military disability benefits, then the applicable governmental agency is the
Veteran’s Administration or the agency charged with the responsibility for
administering military disability benefits at that time if other than the
Veteran’s Administration.

 

Disability determinations by governmental agencies
for purposes other than those listed above, including but not limited to worker’s
compensation insurance, administration or enforcement of the Rehabilitation Act
or Americans with Disabilities Act, or waiver of insurance premiums, will not
entitle a stockholder to the terms available for Exceptional Redemptions,
unless permitted in the discretion of our Board.  Redemption requests following an award by the
applicable governmental agency of disability benefits must be accompanied by (1) the
stockholder’s initial application for disability benefits and (2) a Social
Security Administration Notice of Award, a U.S. Office of Personnel Management
determination of disability under CSRS, a Veteran’s Administration record of
disability-related discharge or such other documentation issued by the
applicable governmental agency that we deem acceptable and demonstrates an
award of the disability benefits.

 

We understand that the following disabilities do not
entitle a worker to Social Security disability benefits:

 

·                  disabilities occurring after
the legal retirement age;

 

·                  temporary disabilities; and

 

·                  disabilities that do not
render a worker incapable of performing substantial gainful activity.

 

Therefore,
these disabilities will not qualify for the terms available for Exceptional
Redemptions.  However, where a
stockholder requests the redemption of his or her Shares due to a disability
and the stockholder does not have a “qualifying disability” under the terms
described above, but has become subject to similar circumstances, our Board may
redeem the stockholder’s Shares, in its sole discretion, on the terms available
for Exceptional Redemptions.

 

With respect to Exceptional Redemptions sought upon
a stockholder’s confinement to a long-term care facility, a “long-term care
facility” shall mean an institution that: (1) either (a) is approved
by Medicare as a provider of skilled nursing care or (b) is licensed as a
skilled nursing home by the state or territory in which it is located (it must
be within the United States, Puerto Rico, or U.S. Virgin Islands) and (2) meets
all of the following requirements: (a) its main function is to provide
skilled, intermediate or custodial nursing care; (b) it provides
continuous room and board to three or more persons; (c) it is supervised
by a registered nurse or licensed practical nurse; (d) it keeps daily
medical records of all medication dispensed; and (e) its primary service
is other than to provide housing for residents. 
A stockholder seeking an Exceptional Redemption of his or her Shares due
to confinement to a long-term care facility must submit a written statement
from a licensed physician certifying either (1) the stockholder’s
continuous and continuing confinement to a long-term care facility over the
course of the last year or (2) that the licensed physician has determined
that the stockholder will be indefinitely confined to a long-

 

2

 

term
care facility.  Notwithstanding the
above, where a stockholder requests an Exceptional Redemption of his or her
Shares due to confinement to a long-term care facility but does not meet the
definition set forth above, but has become subject to similar circumstances,
our Board may redeem the stockholder’s Shares, in the Board’s sole discretion,
on the terms available for Exceptional Redemptions.

 

In the case of Exceptional Redemptions, the purchase
price per Share will be equal to: (1) prior to the Initial Board
Valuation, the Original Share Price less any Special Distributions; or (2) on
or after the Initial Board Valuation, the most recently disclosed Valuation
less any Valuation Adjustment, provided, however, that the purchase price per
Share shall not exceed the Original Share Price less any Special Distributions.

 

General Terms for Redemption

 

Our Program, whether for Ordinary Redemptions or
Exceptional Redemptions, is available only for stockholders who have held their
Shares for at least one year and who acquired their Shares directly from us or
the transferees mentioned below, and is not intended to provide liquidity to
any stockholder who acquired his or her Shares by purchase from another
stockholder.  In connection with a
request for redemption, the stockholder or his or her estate, heir or
beneficiary will be required to certify to us that the stockholder either (1) acquired
the Shares requested to be repurchased directly from us or (2) acquired
the Shares from the original subscriber by way of a bona fide gift not for
value to, or for the benefit of, a member of the subscriber’s immediate or
extended family (including the subscriber’s spouse, parents, siblings, children
or grandchildren and including relatives by marriage) or through a transfer to
a custodian, trustee or other fiduciary for the account of the subscriber or
members of the subscriber’s immediate or extended family in connection with an
estate planning transaction, including by bequest or inheritance upon death or
operation of law.

 

For purposes of the one-year holding period, limited
partners of Behringer Harvard Multifamily OP II LP (“Behringer Harvard
Multifamily OP II”) who exchange their limited partnership units for Shares
will be deemed to have owned their Shares as of the date they were issued their
limited partnership units in Behringer Harvard Multifamily OP II.

 

We will not redeem Shares that are subject to liens
or other encumbrances until the stockholder presents evidence that the liens or
encumbrances have been removed.  If any
Shares subject to a lien are inadvertently redeemed or we shall otherwise be
required to pay to any other party all or any amount in respect of the value of
redeemed Shares, then the recipient of amounts in respect of redemption shall
repay to us the amount paid for such redemption up to the amount we are
required to pay to such other party.

 

Notwithstanding the redemption prices established
above, the Board may determine, whether pursuant to formulae or processes
approved by our Board or otherwise set by our Board, the redemption price of
the Shares, which may differ between Ordinary Redemptions and Exceptional
Redemptions; provided, however, that we must provide at least 30 days’ notice
to stockholders before applying the new price that is set pursuant to this
sentence to either Ordinary Redemptions or Exceptional Redemptions.

 

Any Shares approved for redemption will be redeemed
on a periodic basis as determined from time to time by our Board, and no less
frequently than annually. We will not redeem, during any twelve-month period,
more than 5% of the weighted average number of Shares outstanding during the
twelve-month period immediately prior to the date of redemption (the “5%
Limitation”). Generally, the cash available for redemption on any particular
date will be limited to the proceeds from our distribution reinvestment plan
(our “DRP”) during the period consisting of the preceding four fiscal quarters
for which financial statements are available, less any cash already used for
redemptions during the same period, plus, if we had positive operating cash
flow during such preceding four fiscal quarters, 1% of all operating cash flow
during such preceding four fiscal quarters (the “Funding Limitation” and,
together with the 5% Limitation, the “Redemption Limitations”).  The Redemption Limitations apply to all
redemptions, whether Ordinary or Exceptional Redemptions.

 

Our Board reserves the right in its sole discretion
at any time and from time to time to (1) waive the one-year holding
requirement in the event of other exigent circumstances such as bankruptcy, a
mandatory distribution requirement under a stockholder’s IRA or with respect to
Shares purchased under or through our DRP, (2) reject any request for
redemption, (3) change the purchase price for redemptions, (4) limit
the funds to be used for redemptions hereunder or otherwise change the
Redemption Limitations or (5) amend, suspend (in whole or in part) or
terminate the Program.  If we suspend our
Program (in whole or in part), except as otherwise provided by the Board, until
the suspension is lifted, we will not accept any requests for redemption in
respect of Shares to which such suspension applies in subsequent periods and
any such requests and all pending requests that are subject to the suspension
will

 

3

 

not
be honored or retained, but will be returned to the requestor.  Our advisor and its affiliates will defer
their own redemption requests, if any, until all other requests for redemption
have been satisfied in any particular period. 
Provided that a request for an Exceptional Redemption is made within one
year of the event giving rise to eligibility for an Exceptional Redemption, we
will waive the one-year holding requirement (a) upon the request of the
estate, heir or beneficiary of a deceased stockholder or (b) upon the
qualifying disability of a stockholder or upon a stockholder’s confinement to a
long-term care facility, provided that the condition causing such disability or
need for long-term care was not preexisting on the date that such person became
a stockholder.

 

A request for redemption may be withdrawn in whole
or in part by a stockholder in writing at any time prior to redemption.  We cannot guarantee that we will accommodate
all requests made in any particular redemption period.  If we do not redeem all Shares presented for
redemption during any period, the stockholder or his or her estate, heir or
beneficiary can (1) withdraw the request for redemption, or (2) if we
have not suspended the redemption of the Shares that are subject to the
redemption request (in which case the request will be returned as provided
above), ask that we honor the request during the next period in which requests
are considered.  Further, if we do not
redeem all Shares presented for redemption during any period in which we are
redeeming Shares, then all Shares will be redeemed on a pro rata basis during
the relevant period.  Any portion of a
redemption request that is not honored will be automatically treated as a
request for redemption during the next period in which requests will be
considered, unless the stockholder seeking redemption affirmatively asks us to
withdraw that portion of the request. 
The stockholder will then be required to resubmit a request for
redemption.  Unless otherwise determined
by the Board, we will not retain any redemption requests that are withdrawn.

 

In general, a stockholder or his or her estate, heir
or beneficiary may present to us fewer than all of the Shares then owned for
redemption, except that the minimum number of Shares that must be presented for
redemption must be at least 25% of the holder’s Shares.  If, however, redemption is being requested (1) within
the one-year timeframe discussed above, on behalf of a deceased stockholder or
by a stockholder with a qualifying disability or who is confined to a long-term
care facility or (2) by a stockholder due to other exigent circumstances,
such as bankruptcy or a mandatory distribution requirement under such
stockholder’s IRA, a minimum of 10% of the stockholder’s Shares may be
presented for redemption; provided, however, that any future redemption request
by the stockholder must present for redemption at least 25% of the stockholder’s
remaining Shares.  Except in the case of
redemptions due to a mandatory distribution under a stockholder’s IRA, we will
treat a redemption request that would cause a stockholder to own fewer than 200
Shares as a request to redeem all of his or her Shares, and we will vary from
pro rata treatment of redemptions as necessary to avoid having stockholders
holding fewer than 200 Shares.  In the
case of stockholders who undertake a series of partial redemptions, appropriate
adjustments in the purchase price for the redeemed Shares will be made so that
the blended price per Share for all redeemed Shares reflects the Original Share
Price of all Shares owned by the stockholder through the date of each
redemption.

 

A stockholder who wishes to have Shares redeemed
must mail or deliver to us a written request on a form provided by us and
executed by the stockholder, its trustee or authorized agent.  An estate, heir or beneficiary that wishes to
have Shares redeemed following the death of a stockholder must mail or deliver
to us a written request on a form provided by us, including evidence acceptable
to our Board of the death of the stockholder, and executed by the executor or
executrix of the estate, the heir or beneficiary, or their trustee or
authorized agent.  A stockholder
requesting the redemption of his or her Shares due to a qualifying disability or
confinement to a long-term care facility must mail or deliver to us a written
request on a form provided by us, including the evidence and documentation
described above, or evidence acceptable to our Board of the stockholder’s
permanent disability or confinement to a long-term care facility.  If the Shares are to be redeemed under the
conditions outlined herein, we will forward the documents necessary to affect
the redemption, including any signature guaranty we may require.

 

The effective date of any redemption (the “Effective
Date”), and the date on which the purchase price per Share is determined,
calculated in accordance with the procedures discussed herein, will be the last
day of the calendar month preceding the date that the Board accepts the request
for redemption (the “Determination Date”). 
Commencing on the Effective Date, any Shares accepted for redemption
will no longer be deemed outstanding and will no longer be eligible to receive
distributions.  Our Board will consider
only properly completed redemption requests that we received on or before the
end of the period ending no later than the last day of the calendar month
preceding the Determination Date. 
Payment for the Shares so approved for redemption, assuming that we have
not exceeded the Redemption Limitations and that all necessary conditions have
been satisfied, will be made no later than 15 days after the Determination
Date.

 

4

 

Subject to the restrictions in Behringer Harvard
Multifamily OP II’s limited partnership agreement and any other applicable
agreement, we may cause Behringer Harvard Multifamily OP II to offer to its
limited partners (other than our subsidiaries, BHMF II, Inc. and BHMF
Business Trust II) a partnership unit redemption program equivalent to our
Program.  Any units redeemed under the
partnership unit redemption program will be redeemed upon terms substantially
equivalent to the redemption terms of our Program and will be treated as Shares
for purposes of calculating the Redemption Limitations.

 

Neither our advisor, any member of our Board nor any
of their affiliates will receive any fee on the repurchase of Shares by us
pursuant to our Program. The Shares we purchase under our Program will be
cancelled, and will have the status of authorized but unissued Shares.  We will not reissue repurchased Shares unless
they are first registered with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, and under appropriate state securities laws
or otherwise issued in compliance with or exemption from registration under
these laws.

 

The foregoing provisions regarding our Program in no
way limit our ability to repurchase Shares or other of our securities or those
of Behringer Harvard Multifamily OP II from holders thereof by any other
legally available means for any reason that the advisor or our Board, each in
its discretion, deems to be in our best interest.

 

5

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