Document:

Exhibit 10.3

 

NEITHER THESE SECURITIES NOR THE SECURITIES FOR WHICH
THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES REGULATORS OF ANY STATE IN RELIANCE UPON
AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE, NOR MAY ANY
INTEREST THEREIN BE, OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION
FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS
EVIDENCED BY, SUBJECT TO CERTAIN EXCEPTIONS, A LEGAL OPINION OF COUNSEL TO THE
TRANSFEROR TO SUCH EFFECT, IN FORM AND SUBSTANCE REASONABLY ACCEPTABLE TO
THE COMPANY.  THESE SECURITIES AND THE
SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT SECURED BY SUCH SECURITIES IN
ACCORDANCE WITH APPLICABLE LAWS.

 

LIQUIDMETAL TECHNOLOGIES, INC.

 

COMMON STOCK PURCHASE WARRANT

 

	
  Warrant
  No. [      ]

  	
  Date of Original Issuance: May 1, 2009

  

 

Liquidmetal Technologies, Inc., a Delaware
corporation (together with any entity that shall succeed to or assume the
obligations of Liquidmetal Technologies, Inc. hereunder, the “Company”), hereby certifies that, for value received,
[INSERT GRANTEE] or its registered assigns (the “Holder”),
is entitled to purchase from the Company up to a total of
[                    ]
shares of common stock, par value $0.001 per share (the “Common
Stock”), of the Company (each such share, a “Warrant
Share” and all such shares, the “Warrant Shares”)
at an exercise price equal to $0.60  per share (as adjusted from time to time
as provided in Section 9, the “Exercise Price”),
at any time and from time to time from and after the date hereof and through
and including January 3, 2012 (the “Expiration Date”),
and subject to the following terms and conditions:

 

1.             Definitions.  In addition to the terms defined elsewhere in
this Warrant, capitalized terms that are not otherwise defined herein shall
have the meanings given to such terms in the Securities Purchase and Exchange
Agreement dated May 1, 2009 to which the Company and the original Holder
are parties (the “Purchase Agreement”).  The term “Common
Stock” shall mean the Company’s common stock, par value $0.001 per
share as authorized on the date of the Purchase Agreement and any other
securities or property of the Company or of any other person (corporate or
otherwise) which the Holder at any time shall be entitled to receive on the
exercise hereof in lieu of or in addition to such common stock, or which 

 

 

at any time shall be issuable in exchange for or in
replacement of such common stock.  The
term “Affiliate” shall mean any Person that,
directly or indirectly through one or more intermediaries, controls or is
controlled by or is under common control with a Person, as such terms are used
in and construed under Rule 144 promulgated by the SEC pursuant to the
Securities Act of 1933, as amended.

 

2.             Holder of Warrant.  The Company shall register this Warrant, upon
records to be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record Holder hereof
from time to time.  The Company may deem
and treat the registered Holder of this Warrant as the absolute owner hereof
for the purpose of any exercise hereof or any distribution to the Holder, and
for all other purposes, absent actual notice to the contrary from the
transferee and transferor.

 

3.             Recording of
Transfers.  Subject to Section 6,
the Company shall register the transfer of any portion of this Warrant in the
Warrant Register, upon surrender of this Warrant, with the Form of
Assignment attached hereto duly completed and signed, to the Company at its
address specified herein.  As a condition
to the transfer, the Company may request a legal opinion as contemplated by the
legend above and related terms of the Purchase Agreement.  Upon any such registration or transfer, a new
Warrant to purchase Common Stock, in substantially the form of this Warrant
(any such new Warrant, a “New Warrant”),
evidencing the portion of this Warrant so transferred shall be issued to the
transferee and a New Warrant evidencing the remaining portion of this Warrant
not so transferred, if any, shall be issued to the transferring Holder. The
acceptance of the New Warrant by the transferee thereof shall be deemed the
acceptance by such transferee of all of the rights and obligations of a holder
of a Warrant.

 

4.             Exercise and
Duration of Warrants.

 

(a)           This Warrant shall be exercisable by
the registered Holder in whole or in part at any time and from time to time on
or after the date hereof to and including the Expiration Date by delivery to
the Company of a duly executed facsimile copy of the Exercise Notice form
annexed  hereto (or such other office or
agency of the Company as it may designate by notice in writing to the
registered Holder at the address of such Holder appearing on the books of the
Company).  At 6:30 p.m., New York
City time on the Expiration Date, the portion of this Warrant not exercised
prior thereto shall be and become void and of no value.  The Company may not call or redeem all or any
portion of this Warrant without the prior written consent of the Holder.  If at any time (i) this Warrant is
exercised after one year from the date of issuance of this Warrant but before
the Expiration Date and (ii) during the Trading Day period immediately
preceding the Holder’s delivery of an Exercise Notice in respect of such
exercise, a Registration Statement (as defined in the Registration Rights
Agreement) covering the Warrant Shares that are the subject of the Exercise
Notice (the “Unavailable Warrant Shares”) is
not available for the resale of such Unavailable Warrant Shares, the Holder of
this Warrant also may exercise this Warrant as to any or all of such
Unavailable Warrant Shares and, in lieu of making the cash payment otherwise
contemplated to be made to the Company upon such exercise in payment of the
aggregate Exercise Price, elect instead to receive upon such exercise a reduced
number of shares of Common Stock (the “Net Number”)
determined according to the following formula (a “Cashless
Exercise”):

 

Net Number = (A x B) - (A x C)

--------------------

B

 

2

 

For purposes of the foregoing formula:

 

A= the total number of shares with respect to which this Warrant is
then being exercised in a Cashless Exercise.

 

B= the VWAP on the Trading Day immediately preceding the date of the
Exercise Notice.

 

C= the Exercise Price then in effect for the applicable Warrant Shares
at the time of such exercise.

 

VWAP = For any date, the price
determined by the first of the following clauses that applies: (a) if the
Common Stock is then listed or quoted on a Trading Market, the daily volume
weighted average price per share of the Common Stock for such date (or the
nearest preceding date) on the Trading Market on which the Common Stock is then
listed or quoted as reported by Bloomberg Financial L.P. (based on a Trading
Day from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time); (b) if
the Common Stock is not then listed or quoted on a Trading Market and if prices
for the Common Stock are then quoted on the OTC Bulletin Board, the volume
weighted average price per share of the Common Stock for such date (or the
nearest preceding date) on the OTC Bulletin Board; (c) if the Common Stock
is not then listed or quoted on the OTC Bulletin Board and if prices for the
Common Stock are then reported in the “Pink Sheets” published by the Pink
Sheets, LLC (or a similar organization or agency succeeding to its functions of
reporting prices), the most recent bid price per share of the Common Stock so
reported; or (d) in all other cases, the fair market value of a share of
Common Stock as determined by an independent appraiser selected in good faith
by the Holder and reasonably acceptable to the Company.

 

There cannot be a Cashless Exercise unless “B” exceeds “C”.

 

(b)           The Company shall not effect any
exercise of this Warrant, and a Holder shall not have the right to exercise any
portion of this Warrant, pursuant to Section 4(a) or otherwise, to
the extent that after giving effect to such issuance after exercise as set
forth on the applicable Notice of Exercise, such Holder (together with such
Holder’s Affiliates, and any other person or entity acting as a group together
with such Holder or any of such Holder’s Affiliates), as set forth on the
applicable Notice of Exercise, would beneficially own in excess of the
Beneficial Ownership Limitation (as defined below). For purposes of the
foregoing sentence, the number of shares of Common Stock beneficially owned by
such Holder and its Affiliates shall include the number of shares of Common
Stock issuable upon exercise of this Warrant with respect to which such
determination is being made, but shall exclude the number of shares of Common
Stock which would be issuable upon (A) exercise of the remaining,
nonexercised portion of this Warrant beneficially owned by such Holder or any
of its Affiliates and (B) 

 

3

 

exercise or conversion of the unexercised or
nonconverted portion of any other securities of the Company (including, without
limitation, any other Warrants) subject to a limitation on conversion or
exercise analogous to the limitation contained herein beneficially owned by
such Holder or any of its affiliates. Except as set forth in the preceding
sentence, for purposes of this Section 4(b), beneficial ownership shall be
calculated in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”) and the rules and regulations
promulgated thereunder, it being acknowledged by a Holder that the Company is
not representing to such Holder that such calculation is in compliance with Section 13(d) of
the Exchange Act and such Holder is solely responsible for any schedules
required to be filed in accordance therewith. To the extent that the limitation
contained in this Section 4(b) applies, the determination of whether
this Warrant is exercisable (in relation to other securities owned by such
Holder together with any Affiliates) and of which a portion of this Warrant is
exercisable shall be in the sole discretion of a Holder, and the submission of
a Notice of Exercise shall be deemed to be each Holder’s determination of
whether this Warrant is exercisable (in relation to other securities owned by
such Holder together with any Affiliates) and of which portion of this Warrant
is exercisable, in each case subject to such aggregate percentage limitation,
and the Company shall have no obligation to verify or confirm the accuracy of
such determination. In addition, a determination as to any group status as
contemplated above shall be determined in accordance with Section 13(d) of
the Exchange Act and the rules and regulations promulgated thereunder. For
purposes of this Section 4(b), in determining the number of outstanding
shares of Common Stock, a 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, as the case may be, (y) a more recent public
announcement by the Company or (z) any other notice by the Company or the
Company’s transfer agent setting forth the number of shares of Common Stock
outstanding.  For any reason and at any time, upon the written or oral request
of a Holder, the Company shall within two Trading Days confirm orally and in
writing to such 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 Warrant, by such Holder or its Affiliates since the
date as of which such number of outstanding shares of Common Stock was
reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of
shares of the Common Stock outstanding immediately after giving effect to the
issuance of shares of Common Stock issuable upon exercise of this Warrant. The
Beneficial Ownership Limitation provisions of this Section 4(b) may
be waived by such Holder, at the election of such Holder, upon not less than 61
days’ prior notice to the Company to change the Beneficial Ownership Limitation
to 9.99% of the number of shares of the Common Stock outstanding immediately
after giving effect to the issuance of shares of Common Stock upon exercise of
this Warrant, and the provisions of this Section 4(b) shall continue
to apply. Upon such a change by a Holder of the Beneficial Ownership Limitation
from such 4.99% limitation to such 9.99% limitation, the Beneficial Ownership
Limitation may not be further waived by such Holder. The provisions of this
paragraph shall be construed and implemented in a manner otherwise than in
strict conformity with the terms of this Section 4(b)) to correct this
paragraph (or any portion hereof) which may be defective or inconsistent with
the intended Beneficial Ownership Limitation herein contained or to make
changes or supplements necessary or desirable to properly give effect to such
limitation. The limitations contained in this paragraph shall apply to a
successor holder of this Warrant. 
Notwithstanding anything contained 

 

4

 

in this Warrant to the contrary, the limitations of
this paragraph shall not apply to any Affiliated Investor, as that term is
defined in the Purchase Agreement.

 

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

 

5.             Delivery of
Warrant Shares.

 

(a)           To effect exercises hereunder, the
Holder shall not be required to physically surrender this Warrant upon exercise
unless this Warrant ceases to be further exercisable for additional Warrant
Shares.  Upon delivery of the Exercise
Notice to the Company (with the attached Warrant Shares Exercise Log) at its
address for notice set forth herein and upon payment of the Exercise Price
multiplied by the number of Warrant Shares that the Holder intends to purchase
hereunder, the Company shall promptly (but in no event later than three Trading
Days after the Date of Exercise (as defined herein)) issue and deliver to the
Holder, a certificate for the Warrant Shares issuable upon such exercise,
which, unless otherwise required by the Purchase Agreement, shall be free of
restrictive legends.  A “Date of Exercise” means the date on which the Holder shall
have delivered to Company: (i) the Exercise Notice (with the Warrant
Shares Exercise Log attached to it), appropriately completed and duly signed
and (ii) except in the case of a Cashless Exercise, payment in full of the
Exercise Price in immediately available funds or federal funds for the number
of Warrant Shares so indicated by the Holder to be purchased.

 

(b)           If by the third Trading Day after a
Date of Exercise the Company fails to deliver the required number of Warrant
Shares in the manner required pursuant to Section 5(a), then the Holder
will have the right to rescind such exercise.

 

5

 

(c)           If by the third Trading Day after a
Date of Exercise the Company fails to deliver the required number of Warrant
Shares in the manner required pursuant to Section 5(a), and if after such
third Trading Day and prior to the receipt of such Warrant Shares, the Holder
purchases in a bona fide arm’s length transaction for fair market value (in an
open market transaction or otherwise) the number of shares of Common Stock
necessary to deliver in satisfaction of a bona fide arm’s length sale for fair
market value by the Holder of the Warrant Shares which the Holder was entitled
to receive upon such exercise (a “Buy-In”), then
the Company shall (1) pay in cash to the Holder the amount by which (x) the
Holder’s total purchase price (including brokerage commissions, if any) for the
shares of Common Stock so purchased exceeds (y) the Holder’s total sales
price (including brokerage commissions, if any) for the shares of Common Stock
so sold and (2) at the option of the Holder, either reinstate the portion
of the Warrant and equivalent number of Warrant Shares for which such exercise
was not honored or deliver to the Holder the number of shares of Common Stock
that would have been issued had the Company timely complied with its exercise
and delivery obligations hereunder.  The
Holder shall provide the Company written notice and reasonably detailed
documentation indicating the amounts requested by the Holder in respect of the
Buy-In.

 

(d)           The Company’s obligations to issue
and deliver Warrant Shares in accordance with the terms hereof are absolute and
unconditional, irrespective of any action or inaction by the Holder to enforce
the same, any waiver or consent with respect to any provision hereof, the
recovery of any judgment against any Person or any action to enforce the same,
or any setoff, counterclaim, recoupment, limitation or termination, or any
breach or alleged breach by the Holder or any other Person of any obligation to
the Company or any violation or alleged violation of law by the Holder or any other
Person, and irrespective of any other circumstance which might otherwise limit
such obligation of the Company to the Holder in connection with the issuance of
Warrant Shares.  Nothing herein shall
limit a Holder’s right to pursue any other remedies available to it hereunder,
at law or in equity including, without limitation, a decree of specific
performance and/or injunctive relief with respect to the Company’s failure to
timely deliver certificates representing shares of Common Stock upon exercise
of the Warrant as required pursuant to the terms hereof.

 

6.             Charges, Taxes and
Expenses.  Issuance and delivery of
certificates for shares of Common Stock upon exercise of this Warrant shall be
made without charge to the Holder for any issue or transfer tax, withholding
tax, transfer agent fee or other incidental tax or expense in respect of the
issuance of such certificates, all of which taxes and expenses shall be paid by
the Company; provided, however, that the Company shall not be required to pay
any tax which may be payable in respect of any transfer involved in the
registration of any certificates for Warrant Shares or Warrants in a name other
than that of the Holder.  The Holder
shall be responsible for all other tax liability that may arise as a result of
holding or transferring this Warrant or receiving Warrant Shares upon exercise
hereof.

 

7.             Replacement of
Warrant.  If this Warrant is
mutilated, lost, stolen or destroyed, the Company shall issue or cause to be
issued in exchange and substitution for and upon cancellation hereof, or in
lieu of and substitution for this Warrant, a New Warrant, but only upon receipt
of evidence reasonably satisfactory to the Company of such loss, theft or
destruction and ownership thereof and customary and reasonable indemnity.  Applicants for a New Warrant under such
circumstances shall also comply with such other reasonable regulations and 

 

6

 

procedures and pay such other reasonable third-party
costs as the Company may prescribe.  If a
New Warrant is requested as a result of a mutilation of this Warrant, then the
Holder shall deliver such mutilated Warrant to the Company as a condition
precedent to the Company’s obligation to issue the New Warrant.

 

8.             Reservation of
Warrant Shares.  From and after the
date that the Charter Amendment (as defined in the Purchase Agreement) is filed
with the Delaware Secretary of State, the Company covenants that it will at all
times reserve and keep available out of the aggregate of its authorized but
unissued and otherwise unreserved Common Stock, solely for the purpose of
enabling it to issue Warrant Shares upon exercise of this Warrant as herein
provided, the number of Warrant Shares which are then issuable and deliverable
upon the exercise of this entire Warrant, free from preemptive rights or any
other contingent purchase rights of persons other than the Holder (taking into
account the adjustments and restrictions of Section 9). The Company
covenants that all Warrant Shares so issuable and deliverable shall, upon
issuance and the payment of the applicable Exercise Price in accordance with
the terms hereof and upon the filing of the Charter Amendment with the Delaware
Secretary of State, be duly and validly authorized, issued and fully paid and
nonassessable.

 

9.             Certain
Adjustments.  The Exercise Price and
number of Warrant Shares issuable upon exercise of this Warrant are subject to
adjustment from time to time as set forth in this Section 9.

 

(a)           Stock Dividends and Splits,
Recapitalizations, Etc.  If the
Company, at any time while this Warrant is outstanding, (i) pays a stock
dividend on its Common Stock or otherwise makes a distribution on any class of
capital stock that is payable in shares of Common Stock or subdivides the
outstanding shares of Common Stock into a larger number of shares (by any stock
split, recapitalization or otherwise), then in each such case the Exercise
Price shall be proportionately reduced and the number of Warrant Shares shall
be proportionately increased, and (ii) combines outstanding shares of
Common Stock into a smaller number of shares (by reverse stock split,
recapitalization, or otherwise), then in each such case the Exercise Price
shall be proportionately increased and the number of Warrant Shares shall be proportionately
decreased.  Any adjustment made pursuant
to clauses (i) and (ii) of this paragraph shall become effective
immediately after the record date for the determination of stockholders
entitled to receive such dividend or distribution or immediately after the
effective date of such subdivision or combination (as the case may be). If any
event requiring an adjustment under this paragraph occurs during the period
that an Exercise Price is calculated hereunder, then the calculation of such
Exercise Price shall be adjusted appropriately to reflect such event.

 

(b)           Pro Rata Distributions.  If the Company, at any time while this
Warrant is outstanding, distributes to all holders of Common Stock (i) evidences
of its indebtedness, (ii) any security (other than a distribution of
Common Stock covered by the preceding paragraph), (iii) rights or warrants
to subscribe for or purchase any security, or (iv) any other asset (in
each case, “Distributed Property”), then in
each such case the Exercise Price shall be appropriately adjusted.  Any adjustment made pursuant to this
paragraph shall become effective immediately after the record date for the
determination of stockholders entitled to receive such distribution.  If any event requiring an adjustment under
this paragraph occurs during the period that an Exercise 

 

7

 

Price is calculated hereunder, then the calculation of
such Exercise Price shall be adjusted appropriately to reflect such event.

 

(c)           Adjustment of Exercise Price upon
Issuance of Common Stock.  If and
whenever on or after the Original Issuance Date, the Company issues or sells,
or in accordance with this Section 9(c) is deemed to have issued or
sold, any shares of Common Stock (including the issuance or sale of shares of
Common Stock owned or held by or for the account of the Company, but excluding
shares of Common Stock deemed to have been issued or sold by the Company in
connection with any Excluded Security) for a consideration per share less than the Exercise Price in effect
immediately prior to such issue or sale (the foregoing a “Dilutive Issuance”), then immediately
after such Dilutive Issuance, the Exercise Price then in effect shall be
reduced effective concurrently with such Dilutive Issuance to an amount
determined by multiplying the Exercise Price then in effect by a fraction, (x) the
numerator of which shall be the sum of (1) the number of shares of Common
Stock outstanding immediately prior to such Dilutive Issuance on a fully
diluted basis (the “Outstanding Common”)
plus (2) the number of shares of Common Stock which the aggregate
consideration received by the Company for such additional shares in the
Dilutive Issuance would purchase at the Exercise Price then in effect; and (y) the
denominator of which shall be the number of shares of Outstanding Common
immediately after such Dilutive Issuance but before giving effect to
anti-dilution rights contained in other Securities that would be triggered by
the same Dilutive Issuance.  For purposes of this paragraph, “fully-diluted basis” shall take into account all outstanding
shares of Common Stock as well as shares of Common Stock issuable upon the
exercise of outstanding Options and the conversion of outstanding Convertible
Securities.  In the case of Options or
Convertible Securities, the maximum number of shares of Common Stock issuable
upon exercise, exchange or conversion of such Options or Convertible Securities
shall be deemed to be outstanding, provided that no further adjustment shall be
made upon the actual issuance of Common Stock upon exercise, exchange or
conversion of such Options or Convertible Securities.  For purposes of determining the adjusted
Exercise Price under this Section 9(c), 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 Exercise
Price in effect at the time of such change shall be adjusted to the Exercise
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.

 

(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 

 

8

 

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 by the Company.

 

(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.

 

(d)           Fundamental Transactions.  If, at any time while this Warrant is
outstanding, (1) the Company effects any merger or consolidation of the
Company with or into another Person, (2) the Company effects any sale of
all or substantially all of its assets in one or a series of related
transactions, (3) any tender offer or exchange offer (whether by the
Company or another Person) is completed pursuant to which holders of Common
Stock are permitted to tender or exchange their shares for other securities,
cash or property, or (4) the Company effects any reclassification of the
Common Stock or any compulsory share exchange pursuant to which the Common
Stock is effectively converted into or exchanged for other securities, cash or
property (in any such case, a “Fundamental Transaction”),
then the Holder shall have the right thereafter to receive, upon exercise of
this Warrant, the same amount and kind of securities, cash or property as it
would have been entitled to receive upon the occurrence of such Fundamental
Transaction if it had been, immediately prior to such Fundamental Transaction,
the holder of the number of Warrant Shares then issuable upon exercise in full
of this Warrant (the “Alternate Consideration”).  For purposes of any such exercise, the
determination of the Exercise Price shall be appropriately adjusted to apply to
such Alternate Consideration based on the amount of Alternate Consideration
issuable in respect of one share of Common Stock in such Fundamental
Transaction, and the Company shall apportion the Exercise Price among the
Alternate Consideration in a reasonable manner reflecting the relative value of
any different components of the Alternate Consideration.  If holders of Common Stock are given any
choice as to the securities, cash or property to be received in a Fundamental
Transaction, then the Holder shall be given the same choice as to the Alternate
Consideration it receives upon any exercise of this Warrant following such
Fundamental Transaction.  At the Holder’s
option and request, any successor to the Company or surviving entity in such
Fundamental Transaction shall issue to the Holder a new warrant substantially
in the form of this Warrant and consistent with the foregoing provisions and
evidencing the Holder’s right to purchase the Alternate Consideration for the
aggregate Exercise Price upon exercise thereof. 
Any such successor or surviving entity shall be deemed to be required to
comply with the provisions of this paragraph (d) and shall insure that the
Warrant (or any such replacement security) will be similarly adjusted upon any
subsequent transaction analogous to a Fundamental Transaction.  Notwithstanding the foregoing, in the

 

9

 

event of a Fundamental Transaction that constitutes a
Change in Control (as defined in the 8% Senior Secured Convertible Notes of the
Company issued in connection with the Purchase Agreement), at the request of
the Holder delivered before the 90th day after such Fundamental Transaction is
consummated, the Company (or the successor to the Company) shall purchase this
Warrant from the Holder by paying to the Holder, within five business days
after such request (or, if later, on the effective date of the Fundamental
Transaction), cash in an amount equal to the Black Scholes Value of the
remaining unexercised portion of this Warrant on the date such Fundamental
Transaction is consummated.  For the
purpose of this Warrant, “Black Scholes Value”
means the value, as reasonably calculated by the Company, of this Warrant,
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 Warrant as of
such date of request and (ii) an expected volatility equal to the greater
of 60% and the 100 day volatility obtained from the HVT function on Bloomberg;
provided that the Black Scholes Value of this Warrant shall not for this
purpose exceed an amount equal to $2.50 multiplied by the number of shares of
Common Stock for which this Warrant is exercisable at the time the Fundamental
Transaction is consummated (with such $2.50 cap being subject to adjustment for
stock dividends, stock splits, reverse stock splits, and the like).

 

(e)           Number of Warrant Shares.  Simultaneously with any adjustment to the
Exercise Price pursuant to paragraph (a) of this Section, the number of
Warrant Shares that may be purchased upon exercise of this Warrant shall be
increased or decreased proportionately, so that after such adjustment the
aggregate Exercise Price payable hereunder for the adjusted number of Warrant
Shares shall be the same as the aggregate Exercise Price in effect immediately
prior to such adjustment.

 

(f)            Calculations.  All calculations under this Section 9
shall be made to the nearest cent or the nearest 1/100th of a share, as applicable.  The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held by or for
the account of the Company, and the disposition of any such shares shall be
considered an issue or sale of Common Stock.

 

(g)           Notice of Adjustments.  Upon the occurrence of each adjustment
pursuant to this Section 9, the Company at its expense will
promptly compute such adjustment in accordance with the terms of this Warrant
and prepare a certificate setting forth such adjustment, including a statement
of the adjusted Exercise Price and adjusted number or type of Warrant Shares or
other securities issuable upon exercise of this Warrant (as applicable),
describing the transactions giving rise to such adjustments and showing in
detail the facts upon which such adjustment is based.  Upon written request, the Company will
promptly deliver a copy of each such certificate to the Holder and to the
Company’s transfer agent.  No adjustment
in the Exercise Price shall be required unless such adjustment would require an
increase or decrease of at least 1% in such Exercise Price; provided,
however, that any adjustments which by reason of this Section 9(g) are
not required to be made shall be carried forward  and taken into account in any subsequent
adjustment.

 

(h)           Notice of Corporate Events.  If the Company (i) declares a dividend
or any other distribution of cash, securities or other property in respect of
its Common Stock, including without limitation any granting of rights or
warrants to subscribe for or purchase any capital 

 

10

 

stock of the Company or any Subsidiary, (ii) authorizes
or approves, enters into any agreement contemplating or solicits stockholder
approval for any Fundamental Transaction or (iii) authorizes the voluntary
dissolution, liquidation or winding up of the affairs of the Company, then the
Company shall deliver to the Holder a notice describing the material terms and
conditions of such transaction, at least five calendar days prior to the
applicable record or effective date on which a Person would need to hold Common
Stock in order to participate in or vote with respect to such transaction, and
the Company will take all steps reasonably necessary in order to insure that
the Holder is given the practical opportunity to exercise this Warrant prior to
such time so as to participate in or vote with respect to such transaction;
provided, however, that the failure to deliver such notice or any defect
therein shall not affect the validity of the corporate action required to be
described in such notice.

 

10.           Payment of Exercise Price.  Upon exercise of this Warrant the Holder
shall pay the Exercise Price in immediately available funds unless it is a
Cashless Exercise in accordance with Section 4 hereof.

 

11.           No Fractional Shares.  No fractional shares of Warrant Shares will
be issued in connection with any exercise of this Warrant.  In lieu of any fractional shares which would
otherwise be issuable, the Company shall pay cash equal to the product of such
fraction multiplied by the closing price of one Warrant Share as reported by
Bloomberg L.P. (or the successor to its function of reporting share prices) on
the date of exercise.

 

12.           Notices.  Any and all notices or other communications
or deliveries hereunder (including, without limitation, any Exercise Notice)
shall be in writing and shall be deemed given and effective on the earliest of (i) the
date of transmission, if such notice or communication is delivered via
facsimile at the facsimile number specified in this Section prior to 6:30 p.m.
(New York City time) on a Trading Day, (ii) the next Trading Day after the
date of transmission, if such notice or communication is delivered via
facsimile at the facsimile number specified in this Section on a day that
is not a Trading Day or later than 6:30 p.m. (New York City time) on any
Trading Day, (iii) the Trading Day following the date of mailing, if sent
and delivered by nationally recognized overnight courier service, or (iv) upon
actual receipt by the party to whom such notice is required to be given.  The addresses for such communications shall
be:  (i) if to the Company, to
Liquidmetal Technologies, Inc., 30452 Esperanza, Rancho Santa Margarita,
CA 92688.  Attn: Chief Executive Officer,
Facsimile No.: (949) 635-2188, or (ii) if to the Holder, to the address or
facsimile number appearing on the Warrant Register or such other address or
facsimile number as the Holder may provide to the Company in accordance with
this Section.

 

13.           Warrant Agent.  The Company shall serve as warrant agent
under this Warrant.  Upon 30 days’ notice
to the Holder, the Company may appoint a new warrant agent.  Any corporation into which the Company or any
new warrant agent may be merged or any corporation resulting from any
consolidation to which the Company or any new warrant agent shall be a party or
any corporation to which the Company or any new warrant agent transfers
substantially all of its corporate trust or shareholders services business
shall be a successor warrant agent under this Warrant without any further
act.  Any such successor warrant agent
shall promptly cause notice of its succession as warrant agent to be mailed (by
first class mail, postage prepaid) to the Holder at the Holder’s last address
as shown on the Warrant Register.

 

11

 

14.           Miscellaneous.

 

(a)           This Warrant shall be binding on and
inure to the benefit of the parties hereto and the respective successors and
assigns of the Holder it being understood that transfers of this Warrant by the
Holder are subject to the legend set forth of the face hereof.  Subject to the preceding sentence, nothing in
this Warrant shall be construed to give to any Person other than the Company
and the Holder any legal or equitable right, remedy or cause of action under
this Warrant.  This Warrant may be
amended only in writing signed by the Company and the Holder and their
successors and assigns.

 

(b)           All questions concerning the
construction, validity, enforcement and interpretation of this Warrant shall be
governed by and construed and enforced in accordance with the internal laws of
the State of New York, without regard to the principles of conflicts of law
thereof.  Each party agrees that all
legal proceedings to resolve any dispute concerning the interpretations,
enforcement and defense of this Warrant and the transactions herein
contemplated (“Proceedings”) (whether brought
against a party hereto or its respective Affiliates, employees or agents) shall
be commenced exclusively in the state and federal courts sitting in the City of
New York, Borough of Manhattan (the “New York Courts”),
although depositions may be taken in other locations.  Each party hereto hereby irrevocably submits
to the exclusive jurisdiction of the New York Courts for the adjudication of
any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, and hereby irrevocably waives, and
agrees not to assert in any Proceeding, any claim that it is not personally
subject to the jurisdiction of any New York Court, or that such Proceeding has
been commenced in an improper or inconvenient forum. Each party hereto hereby
irrevocably waives personal service of process and consents to process being
served in any such Proceeding by mailing a copy thereof via registered or
certified mail or overnight delivery (with evidence of delivery) to such party
at the address in effect for notices to it under this Warrant and agrees that
such service shall constitute good and sufficient service of process and notice
thereof.  Nothing contained herein shall
be deemed to limit in any way any right to serve process in any manner
permitted by law.  Each party hereto
hereby irrevocably waives, to the fullest extent permitted by applicable law,
any and all right to trial by jury in any legal proceeding arising out of or
relating to this Warrant or the transactions contemplated hereby.  If any party shall commence a Proceeding to
enforce any provisions of this Warrant, then the prevailing party in such
Proceeding shall be reimbursed by the other party for its attorney’s fees and
other costs and expenses incurred with the investigation, preparation and
prosecution of such Proceeding.

 

(c)           The headings herein are for
convenience only, do not constitute a part of this Warrant and shall not be
deemed to limit or affect any of the provisions hereof.

 

(d)           In case any one or more of the
provisions of this Warrant shall be invalid or unenforceable in any respect,
the validity and enforceability of the remaining terms and provisions of this
Warrant shall not in any way be affected or impaired thereby and the parties
will attempt in good faith to agree upon a valid and enforceable provision
which shall be a commercially reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Warrant.

 

12

 

(e)           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 Warrant, but will at all times in good faith assist in
the carrying out of all such terms and in the taking of all such action as may
be necessary or appropriate in order to protect the rights of the Holder of
this Warrant against such impairment.

 

(f)            This Warrant does not entitle the
Holder to any voting rights or other rights as a shareholder of the Company
prior to the exercise hereof.  In
connection with an exercise of this Warrant in accordance with the terms
hereof, upon the surrender of this Warrant and the payment of the aggregate
Exercise Price (or by means of a Cashless Exercise if permitted hereunder), the
Warrant Shares so purchased shall be and be deemed to be issued to such Holder
as the record owner of such shares as of the close of business on the later of
the date of such surrender or payment.

 

(g)           For purposes of this Warrant, the
following capitalized terms shall have the following meanings:

 

(i)            “Approved
Stock Plan” means
any employee benefit, option or incentive plan which has been approved by the
Board of Directors and shareholders of the Company, pursuant to which the
Company’s securities may be issued to any employee, consultant, officer or
director for services provided to the Company; provided that the number of
shares of the Company’s Common Stock issuable pursuant to such plans, in the
aggregate, shall not exceed 10% of the shares of the Company’s Common Stock
outstanding on a fully-diluted basis on the date of the First Closing
(as defined in the Securities Purchase and Exchange Agreement) after giving
effect to the First Closing and the full exercise of the Series A-1 Option
(as defined in the Securities Purchase and Exchange Agreement), as adjusted for
stock splits, reverse stock splits, and the like, unless such increased amount of shares is approved by the holders of
the Company’s Common Stock and the holders of the Company’s Series A-1
Preferred Stock and Series A-2 Preferred Stock voting together as a single
class.  For purposes of this definition, “fully-diluted
basis” shall take into account all outstanding shares of Common Stock as well
as all shares of Common Stock issuable upon the conversion of all outstanding
convertible securities of the Company, including all options and warrants
granted.

 

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

 

(iii)          “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, warrants or shares of Series A-1 Preferred Stock or Series A-2
Preferred Stock of the Company issued (A) pursuant to the Purchase
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 Original
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 

 

13

 

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.

 

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

 

(v)           “Original Issuance Date”
means the First Closing Date, as defined in the Purchase Agreement.

 

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

 

(vii)         “Trading
Day” means any day on which the Common Stock is traded on the
Principal Market, or, if the Principal Market is not the principal trading
market for the Common Stock, then on the principal securities exchange or securities market on
which the Common Stock is then traded; provided that “Trading Day” shall not
include any day on which the Common Stock is scheduled to trade on such
exchange or market for less than 4.5 hours or any day that the Common Stock is
suspended from trading during the final hour of trading on such exchange or
market (or if such exchange or market does not designate in advance the closing
time of trading on such exchange or market, then during the hour ending at
4:00:00 p.m., New York Time).

 

(viii)        “Trading Market” means the following
markets or exchanges on which the Common Stock is listed or quoted for trading
on the date in question: the NYSE Amex LLC, the Nasdaq Capital Market, the
Nasdaq Global Market, the Nasdaq Global Select Market or the New York Stock
Exchange.

 

[Signature
Follows]

 

14

 

IN WITNESS WHEREOF, the Company has caused this
Warrant to be duly executed by its authorized officer as of the date first
indicated above.

 

 

	
   

  	
  LIQUIDMETAL TECHNOLOGIES, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name: Tony
  Chung

  
	
   

  	
  Title:   Chief
  Financial Officer

  

 

 

EXERCISE NOTICE

 

To Liquidmetal Technologies, Inc.

 

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

 

The undersigned  hereby certifies to the Company that the
undersigned’s exercise of the amount set forth above will not directly result
in the undersigned (together with the undersigned’s affiliates) beneficially
owning in excess of 4.99% of the number of shares of Common Stock outstanding
immediately after giving effect to such exercise, calculated in accordance with
Section 4(b) of the Warrant; provided that if the undersigned has
waived the 4.99% beneficial ownership requirement  by providing the Company with notice at least
61 days prior to the date hereof, the undersigned hereby certifies to the
Company that the undersigned’s exercise of the amount set forth above will not
directly result in the undersigned (together with the undersigned’s affiliates)
beneficially owning in excess of 9.99% of the number of shares of Common Stock
outstanding immediately after giving effect to such conversion, calculated in
accordance with Section 4(b) of the Warrant.  Notwithstanding the foregoing, the
certification set forth in this paragraph shall not apply to, and shall not be
deemed to be made by, any Affiliated Investor (as that term is defined in the
Purchase Agreement referred to in the Warrant).

 

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

 

 

	
   

  	
  Print Name of Holder:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Signature:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  HOLDER’S SOCIAL SECURITY
  OR

  
	
   

  	
  TAX IDENTIFICATION NUMBER:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Holder’s Address:

  
	
   

  	
   

  
	
   

  	
   

  
				

 

 

Warrant Shares Exercise Log

 

	
  Date

  	
   

  	
  Number of Warrant 

  Shares Available to 

  be Exercised

  	
   

  	
  Number of Warrant Shares 

  Exercised

  	
   

  	
  Number of 

  Warrant Shares 

  Remaining to 

  be Exercised

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

 

FORM OF ASSIGNMENT

 

[To be completed and signed only upon transfer of
Warrant]

 

FOR VALUE RECEIVED, the undersigned hereby sells,
assigns and transfers unto
                                                                
the right represented by the within Warrant to purchase 
                        
shares of Common Stock of Liquidmetal Technologies, Inc. to which the
within Warrant relates and appoints
                                
attorney to transfer said right on the books of the Company with full power of
substitution in the premises.

 

Dated:                ,     

 

 

	
   

  	
   

  
	
   

  	
  (Signature must conform in all respects to name of 

  holder as specified on the face of the Warrant)

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Address of Transferee

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Tax Identification Number or Social Security 

  Number of Transferee

  
	
   

  	
   

  
	
   

  	
   

  
	
  In the presence of:Exhibit 10.4

 

NEITHER THESE SECURITIES NOR THE SECURITIES FOR WHICH
THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES REGULATORS OF ANY STATE IN RELIANCE UPON
AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE, NOR MAY ANY
INTEREST THEREIN BE, OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION
FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS
EVIDENCED BY, SUBJECT TO CERTAIN EXCEPTIONS, A LEGAL OPINION OF COUNSEL TO THE
TRANSFEROR TO SUCH EFFECT, IN FORM AND SUBSTANCE REASONABLY ACCEPTABLE TO
THE COMPANY.  THESE SECURITIES AND THE
SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT SECURED BY SUCH SECURITIES IN
ACCORDANCE WITH APPLICABLE LAWS.

 

LIQUIDMETAL TECHNOLOGIES, INC.

 

COMMON STOCK PURCHASE WARRANT

 

	
  Warrant No. [           ]

  	
   

  	
  Date of Original Issuance: May 1, 2009

  

 

Liquidmetal Technologies, Inc., a Delaware
corporation (together with any entity that shall succeed to or assume the
obligations of Liquidmetal Technologies, Inc. hereunder, the “Company”), hereby certifies that, for value received,
[INSERT GRANTEE] or its registered assigns (the “Holder”),
is entitled to purchase from the Company up to a total of [              ]
shares of common stock, par value $0.001 per share (the “Common
Stock”), of the Company (each such share, a “Warrant
Share” and all such shares, the “Warrant Shares”)
at an exercise price equal to $0.50 per share (as adjusted from time to time as
provided in Section 9, the “Exercise Price”),
at any time and from time to time from and after the date hereof and through
and including January 3, 2012 (the “Expiration Date”),
and subject to the following terms and conditions:

 

1.             Definitions.  In addition to the terms defined elsewhere in
this Warrant, capitalized terms that are not otherwise defined herein shall
have the meanings given to such terms in the Securities Purchase and Exchange
Agreement dated May 1, 2009 to which the Company and the original Holder
are parties (the “Purchase Agreement”).  The term “Common Stock” shall mean the Company’s common stock, par
value $0.001 per share as authorized on the date of the Purchase Agreement and
any other securities or property of the Company or of any other person
(corporate or otherwise) which the Holder at any time shall be entitled to
receive on the exercise hereof in lieu of or in addition to such common stock,
or which 

 

 

at any time shall be issuable in exchange for or in
replacement of such common stock.  The
term “Affiliate” shall mean any Person that,
directly or indirectly through one or more intermediaries, controls or is
controlled by or is under common control with a Person, as such terms are used
in and construed under Rule 144 promulgated by the SEC pursuant to the
Securities Act of 1933, as amended.

 

2.             Holder of Warrant.  The Company shall register this Warrant, upon
records to be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record Holder hereof
from time to time.  The Company may deem
and treat the registered Holder of this Warrant as the absolute owner hereof
for the purpose of any exercise hereof or any distribution to the Holder, and
for all other purposes, absent actual notice to the contrary from the
transferee and transferor.

 

3.             Recording of
Transfers.  Subject to Section 6,
the Company shall register the transfer of any portion of this Warrant in the
Warrant Register, upon surrender of this Warrant, with the Form of
Assignment attached hereto duly completed and signed, to the Company at its
address specified herein.  As a condition
to the transfer, the Company may request a legal opinion as contemplated by the
legend above and related terms of the Purchase Agreement.  Upon any such registration or transfer, a new
Warrant to purchase Common Stock, in substantially the form of this Warrant
(any such new Warrant, a “New Warrant”),
evidencing the portion of this Warrant so transferred shall be issued to the
transferee and a New Warrant evidencing the remaining portion of this Warrant
not so transferred, if any, shall be issued to the transferring Holder. The
acceptance of the New Warrant by the transferee thereof shall be deemed the
acceptance by such transferee of all of the rights and obligations of a holder
of a Warrant.

 

4.             Exercise and
Duration of Warrants.

 

(a)           This Warrant shall be exercisable by
the registered Holder in whole or in part at any time and from time to time on
or after the date hereof to and including the Expiration Date by delivery to
the Company of a duly executed facsimile copy of the Exercise Notice form
annexed  hereto (or such other office or
agency of the Company as it may designate by notice in writing to the
registered Holder at the address of such Holder appearing on the books of the
Company).  At 6:30 p.m., New York
City time on the Expiration Date, the portion of this Warrant not exercised
prior thereto shall be and become void and of no value.  The Company may not call or redeem all or any
portion of this Warrant without the prior written consent of the Holder.  If at any time (i) this Warrant is
exercised after one year from the date of issuance of this Warrant but before
the Expiration Date and (ii) during the Trading Day period immediately
preceding the Holder’s delivery of an Exercise Notice in respect of such
exercise, a Registration Statement (as defined in the Registration Rights
Agreement) covering the Warrant Shares that are the subject of the Exercise
Notice (the “Unavailable Warrant Shares”) is
not available for the resale of such Unavailable Warrant Shares, the Holder of
this Warrant also may exercise this Warrant as to any or all of such
Unavailable Warrant Shares and, in lieu of making the cash payment otherwise
contemplated to be made to the Company upon such exercise in payment of the
aggregate Exercise Price, elect instead to receive upon such exercise a reduced
number of shares of Common Stock (the “Net Number”)
determined according to the following formula (a “Cashless
Exercise”):

 

Net Number = (A x B) - (A x C)

--------------------

B

 

2

 

For purposes of the foregoing formula:

 

A= the total number of shares with respect to which this Warrant is
then being exercised in a Cashless Exercise.

 

B= the VWAP on the Trading Day immediately preceding the date of the
Exercise Notice.

 

C= the Exercise Price then in effect for the applicable Warrant Shares
at the time of such exercise.

 

VWAP = For any date, the price
determined by the first of the following clauses that applies: (a) if the
Common Stock is then listed or quoted on a Trading Market, the daily volume
weighted average price per share of the Common Stock for such date (or the
nearest preceding date) on the Trading Market on which the Common Stock is then
listed or quoted as reported by Bloomberg Financial L.P. (based on a Trading
Day from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time); (b) if
the Common Stock is not then listed or quoted on a Trading Market and if prices
for the Common Stock are then quoted on the OTC Bulletin Board, the volume
weighted average price per share of the Common Stock for such date (or the
nearest preceding date) on the OTC Bulletin Board; (c) if the Common Stock
is not then listed or quoted on the OTC Bulletin Board and if prices for the
Common Stock are then reported in the “Pink Sheets” published by the Pink
Sheets, LLC (or a similar organization or agency succeeding to its functions of
reporting prices), the most recent bid price per share of the Common Stock so
reported; or (d) in all other cases, the fair market value of a share of
Common Stock as determined by an independent appraiser selected in good faith
by the Holder and reasonably acceptable to the Company.

 

There cannot be a Cashless Exercise unless “B” exceeds “C”.

 

(b)           The Company shall not effect any
exercise of this Warrant, and a Holder shall not have the right to exercise any
portion of this Warrant, pursuant to Section 4(a) or otherwise, to
the extent that after giving effect to such issuance after exercise as set
forth on the applicable Notice of Exercise, such Holder (together with such
Holder’s Affiliates, and any other person or entity acting as a group together
with such Holder or any of such Holder’s Affiliates), as set forth on the
applicable Notice of Exercise, would beneficially own in excess of the
Beneficial Ownership Limitation (as defined below). For purposes of the
foregoing sentence, the number of shares of Common Stock beneficially owned by
such Holder and its Affiliates shall include the number of shares of Common
Stock issuable upon exercise of this Warrant with respect to which such
determination is being made, but shall exclude the number of shares of Common
Stock which would be issuable upon (A) exercise of the remaining,
nonexercised portion of this Warrant beneficially owned by such Holder or any
of its Affiliates and (B) 

 

3

 

exercise or conversion of the unexercised or
nonconverted portion of any other securities of the Company (including, without
limitation, any other Warrants) subject to a limitation on conversion or
exercise analogous to the limitation contained herein beneficially owned by
such Holder or any of its affiliates. Except as set forth in the preceding
sentence, for purposes of this Section 4(b), beneficial ownership shall be
calculated in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”) and the rules and regulations
promulgated thereunder, it being acknowledged by a Holder that the Company is
not representing to such Holder that such calculation is in compliance with Section 13(d) of
the Exchange Act and such Holder is solely responsible for any schedules
required to be filed in accordance therewith. To the extent that the limitation
contained in this Section 4(b) applies, the determination of whether
this Warrant is exercisable (in relation to other securities owned by such
Holder together with any Affiliates) and of which a portion of this Warrant is
exercisable shall be in the sole discretion of a Holder, and the submission of
a Notice of Exercise shall be deemed to be each Holder’s determination of
whether this Warrant is exercisable (in relation to other securities owned by
such Holder together with any Affiliates) and of which portion of this Warrant
is exercisable, in each case subject to such aggregate percentage limitation,
and the Company shall have no obligation to verify or confirm the accuracy of
such determination. In addition, a determination as to any group status as
contemplated above shall be determined in accordance with Section 13(d) of
the Exchange Act and the rules and regulations promulgated thereunder. For
purposes of this Section 4(b), in determining the number of outstanding
shares of Common Stock, a 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, as the case may be, (y) a more recent public
announcement by the Company or (z) any other notice by the Company or the
Company’s transfer agent setting forth the number of shares of Common Stock
outstanding.  For any reason and at any time, upon the written or oral request
of a Holder, the Company shall within two Trading Days confirm orally and in
writing to such 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 Warrant, by such Holder or its Affiliates since the
date as of which such number of outstanding shares of Common Stock was
reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of
shares of the Common Stock outstanding immediately after giving effect to the
issuance of shares of Common Stock issuable upon exercise of this Warrant. The
Beneficial Ownership Limitation provisions of this Section 4(b) may
be waived by such Holder, at the election of such Holder, upon not less than 61
days’ prior notice to the Company to change the Beneficial Ownership Limitation
to 9.99% of the number of shares of the Common Stock outstanding immediately
after giving effect to the issuance of shares of Common Stock upon exercise of
this Warrant, and the provisions of this Section 4(b) shall continue
to apply. Upon such a change by a Holder of the Beneficial Ownership Limitation
from such 4.99% limitation to such 9.99% limitation, the Beneficial Ownership
Limitation may not be further waived by such Holder. The provisions of this
paragraph shall be construed and implemented in a manner otherwise than in
strict conformity with the terms of this Section 4(b)) to correct this
paragraph (or any portion hereof) which may be defective or inconsistent with
the intended Beneficial Ownership Limitation herein contained or to make
changes or supplements necessary or desirable to properly give effect to such
limitation. The limitations contained in this paragraph shall apply to a
successor holder of this Warrant. 
Notwithstanding anything contained 

 

4

 

in this Warrant to the contrary, the limitations of
this paragraph shall not apply to any Affiliated Investor, as that term is
defined in the Purchase Agreement.

 

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

 

5.             Delivery of
Warrant Shares.

 

(a)           To effect exercises hereunder, the
Holder shall not be required to physically surrender this Warrant upon exercise
unless this Warrant ceases to be further exercisable for additional Warrant
Shares.  Upon delivery of the Exercise
Notice to the Company (with the attached Warrant Shares Exercise Log) at its
address for notice set forth herein and upon payment of the Exercise Price
multiplied by the number of Warrant Shares that the Holder intends to purchase
hereunder, the Company shall promptly (but in no event later than three Trading
Days after the Date of Exercise (as defined herein)) issue and deliver to the
Holder, a certificate for the Warrant Shares issuable upon such exercise,
which, unless otherwise required by the Purchase Agreement, shall be free of
restrictive legends.  A “Date of Exercise” means the date on which the Holder shall
have delivered to Company: (i) the Exercise Notice (with the Warrant
Shares Exercise Log attached to it), appropriately completed and duly signed
and (ii) except in the case of a Cashless Exercise, payment in full of the
Exercise Price in immediately available funds or federal funds for the number
of Warrant Shares so indicated by the Holder to be purchased.

 

(b)           If by the third Trading Day after a
Date of Exercise the Company fails to deliver the required number of Warrant
Shares in the manner required pursuant to Section 5(a), then the Holder
will have the right to rescind such exercise.

 

5

 

(c)           If by the third Trading Day after a
Date of Exercise the Company fails to deliver the required number of Warrant
Shares in the manner required pursuant to Section 5(a), and if after such
third Trading Day and prior to the receipt of such Warrant Shares, the Holder
purchases in a bona fide arm’s length transaction for fair market value (in an
open market transaction or otherwise) the number of shares of Common Stock
necessary to deliver in satisfaction of a bona fide arm’s length sale for fair
market value by the Holder of the Warrant Shares which the Holder was entitled
to receive upon such exercise (a “Buy-In”), then
the Company shall (1) pay in cash to the Holder the amount by which (x) the
Holder’s total purchase price (including brokerage commissions, if any) for the
shares of Common Stock so purchased exceeds (y) the Holder’s total sales
price (including brokerage commissions, if any) for the shares of Common Stock
so sold and (2) at the option of the Holder, either reinstate the portion
of the Warrant and equivalent number of Warrant Shares for which such exercise
was not honored or deliver to the Holder the number of shares of Common Stock
that would have been issued had the Company timely complied with its exercise
and delivery obligations hereunder.  The
Holder shall provide the Company written notice and reasonably detailed
documentation indicating the amounts requested by the Holder in respect of the
Buy-In.

 

(d)           The Company’s obligations to issue
and deliver Warrant Shares in accordance with the terms hereof are absolute and
unconditional, irrespective of any action or inaction by the Holder to enforce
the same, any waiver or consent with respect to any provision hereof, the
recovery of any judgment against any Person or any action to enforce the same,
or any setoff, counterclaim, recoupment, limitation or termination, or any
breach or alleged breach by the Holder or any other Person of any obligation to
the Company or any violation or alleged violation of law by the Holder or any other
Person, and irrespective of any other circumstance which might otherwise limit
such obligation of the Company to the Holder in connection with the issuance of
Warrant Shares.  Nothing herein shall
limit a Holder’s right to pursue any other remedies available to it hereunder,
at law or in equity including, without limitation, a decree of specific
performance and/or injunctive relief with respect to the Company’s failure to
timely deliver certificates representing shares of Common Stock upon exercise
of the Warrant as required pursuant to the terms hereof.

 

6.             Charges, Taxes and
Expenses.  Issuance and delivery of
certificates for shares of Common Stock upon exercise of this Warrant shall be
made without charge to the Holder for any issue or transfer tax, withholding
tax, transfer agent fee or other incidental tax or expense in respect of the
issuance of such certificates, all of which taxes and expenses shall be paid by
the Company; provided, however, that the Company shall not be required to pay
any tax which may be payable in respect of any transfer involved in the
registration of any certificates for Warrant Shares or Warrants in a name other
than that of the Holder.  The Holder
shall be responsible for all other tax liability that may arise as a result of
holding or transferring this Warrant or receiving Warrant Shares upon exercise
hereof.

 

7.             Replacement of
Warrant.  If this Warrant is
mutilated, lost, stolen or destroyed, the Company shall issue or cause to be
issued in exchange and substitution for and upon cancellation hereof, or in
lieu of and substitution for this Warrant, a New Warrant, but only upon receipt
of evidence reasonably satisfactory to the Company of such loss, theft or
destruction and ownership thereof and customary and reasonable indemnity.  Applicants for a New Warrant under such
circumstances shall also comply with such other reasonable regulations and 

 

6

 

procedures and pay such other reasonable third-party
costs as the Company may prescribe.  If a
New Warrant is requested as a result of a mutilation of this Warrant, then the
Holder shall deliver such mutilated Warrant to the Company as a condition
precedent to the Company’s obligation to issue the New Warrant.

 

8.             Reservation of
Warrant Shares.  From and after the
date that the Charter Amendment (as defined in the Purchase Agreement) is filed
with the Delaware Secretary of State, the Company covenants that it will at all
times reserve and keep available out of the aggregate of its authorized but
unissued and otherwise unreserved Common Stock, solely for the purpose of
enabling it to issue Warrant Shares upon exercise of this Warrant as herein
provided, the number of Warrant Shares which are then issuable and deliverable
upon the exercise of this entire Warrant, free from preemptive rights or any
other contingent purchase rights of persons other than the Holder (taking into
account the adjustments and restrictions of Section 9). The Company
covenants that all Warrant Shares so issuable and deliverable shall, upon
issuance and the payment of the applicable Exercise Price in accordance with
the terms hereof and upon the filing of the Charter Amendment with the Delaware
Secretary of State, be duly and validly authorized, issued and fully paid and
nonassessable.

 

9.             Certain
Adjustments.  The Exercise Price and
number of Warrant Shares issuable upon exercise of this Warrant are subject to
adjustment from time to time as set forth in this Section 9.

 

(a)           Stock Dividends and Splits,
Recapitalizations, Etc.  If the
Company, at any time while this Warrant is outstanding, (i) pays a stock
dividend on its Common Stock or otherwise makes a distribution on any class of
capital stock that is payable in shares of Common Stock or subdivides the
outstanding shares of Common Stock into a larger number of shares (by any stock
split, recapitalization or otherwise), then in each such case the Exercise
Price shall be proportionately reduced and the number of Warrant Shares shall
be proportionately increased, and (ii) combines outstanding shares of
Common Stock into a smaller number of shares (by reverse stock split,
recapitalization, or otherwise), then in each such case the Exercise Price
shall be proportionately increased and the number of Warrant Shares shall be proportionately
decreased.  Any adjustment made pursuant
to clauses (i) and (ii) of this paragraph shall become effective
immediately after the record date for the determination of stockholders
entitled to receive such dividend or distribution or immediately after the
effective date of such subdivision or combination (as the case may be). If any
event requiring an adjustment under this paragraph occurs during the period
that an Exercise Price is calculated hereunder, then the calculation of such
Exercise Price shall be adjusted appropriately to reflect such event.

 

(b)           Pro Rata Distributions.  If the Company, at any time while this
Warrant is outstanding, distributes to all holders of Common Stock (i) evidences
of its indebtedness, (ii) any security (other than a distribution of
Common Stock covered by the preceding paragraph), (iii) rights or warrants
to subscribe for or purchase any security, or (iv) any other asset (in
each case, “Distributed Property”), then in
each such case the Exercise Price shall be appropriately adjusted.  Any adjustment made pursuant to this
paragraph shall become effective immediately after the record date for the
determination of stockholders entitled to receive such distribution.  If any event requiring an adjustment under
this paragraph occurs during the period that an Exercise 

 

7

 

Price is calculated hereunder, then the calculation of
such Exercise Price shall be adjusted appropriately to reflect such event.

 

(c)           Adjustment of Exercise Price upon
Issuance of Common Stock.  If and
whenever on or after the Original Issuance Date, the Company issues or sells,
or in accordance with this Section 9(c) is deemed to have issued or
sold, any shares of Common Stock (including the issuance or sale of shares of
Common Stock owned or held by or for the account of the Company, but excluding
shares of Common Stock deemed to have been issued or sold by the Company in
connection with any Excluded Security) for a consideration per share less than the Exercise Price in effect
immediately prior to such issue or sale (the foregoing a “Dilutive Issuance”), then immediately
after such Dilutive Issuance, the Exercise Price then in effect shall be
reduced effective concurrently with such Dilutive Issuance to an amount
determined by multiplying the Exercise Price then in effect by a fraction, (x) the
numerator of which shall be the sum of (1) the number of shares of Common
Stock outstanding immediately prior to such Dilutive Issuance on a fully
diluted basis (the “Outstanding Common”)
plus (2) the number of shares of Common Stock which the aggregate
consideration received by the Company for such additional shares in the
Dilutive Issuance would purchase at the Exercise Price then in effect; and (y) the
denominator of which shall be the number of shares of Outstanding Common
immediately after such Dilutive Issuance but before giving effect to
anti-dilution rights contained in other Securities that would be triggered by
the same Dilutive Issuance.  For purposes of this paragraph, “fully-diluted basis” shall take into account all outstanding
shares of Common Stock as well as shares of Common Stock issuable upon the
exercise of outstanding Options and the conversion of outstanding Convertible
Securities.  In the case of Options or
Convertible Securities, the maximum number of shares of Common Stock issuable
upon exercise, exchange or conversion of such Options or Convertible Securities
shall be deemed to be outstanding, provided that no further adjustment shall be
made upon the actual issuance of Common Stock upon exercise, exchange or
conversion of such Options or Convertible Securities.  For purposes of determining the adjusted
Exercise Price under this Section 9(c), 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 Exercise
Price in effect at the time of such change shall be adjusted to the Exercise
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.

 

(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 

 

8

 

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 by the Company.

 

(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.

 

(d)           Fundamental Transactions.  If, at any time while this Warrant is
outstanding, (1) the Company effects any merger or consolidation of the
Company with or into another Person, (2) the Company effects any sale of
all or substantially all of its assets in one or a series of related
transactions, (3) any tender offer or exchange offer (whether by the
Company or another Person) is completed pursuant to which holders of Common
Stock are permitted to tender or exchange their shares for other securities,
cash or property, or (4) the Company effects any reclassification of the
Common Stock or any compulsory share exchange pursuant to which the Common
Stock is effectively converted into or exchanged for other securities, cash or
property (in any such case, a “Fundamental Transaction”),
then the Holder shall have the right thereafter to receive, upon exercise of
this Warrant, the same amount and kind of securities, cash or property as it
would have been entitled to receive upon the occurrence of such Fundamental
Transaction if it had been, immediately prior to such Fundamental Transaction,
the holder of the number of Warrant Shares then issuable upon exercise in full
of this Warrant (the “Alternate Consideration”).  For purposes of any such exercise, the
determination of the Exercise Price shall be appropriately adjusted to apply to
such Alternate Consideration based on the amount of Alternate Consideration
issuable in respect of one share of Common Stock in such Fundamental
Transaction, and the Company shall apportion the Exercise Price among the
Alternate Consideration in a reasonable manner reflecting the relative value of
any different components of the Alternate Consideration.  If holders of Common Stock are given any
choice as to the securities, cash or property to be received in a Fundamental
Transaction, then the Holder shall be given the same choice as to the Alternate
Consideration it receives upon any exercise of this Warrant following such
Fundamental Transaction.  At the Holder’s
option and request, any successor to the Company or surviving entity in such
Fundamental Transaction shall issue to the Holder a new warrant substantially
in the form of this Warrant and consistent with the foregoing provisions and
evidencing the Holder’s right to purchase the Alternate Consideration for the
aggregate Exercise Price upon exercise thereof. 
Any such successor or surviving entity shall be deemed to be required to
comply with the provisions of this paragraph (d) and shall insure that the
Warrant (or any such replacement security) will be similarly adjusted upon any
subsequent transaction analogous to a Fundamental Transaction.  Notwithstanding the foregoing, in the

 

9

 

event of a Fundamental Transaction that constitutes a
Change in Control (as defined in the 8% Senior Secured Convertible Notes of the
Company issued in connection with the Purchase Agreement), at the request of
the Holder delivered before the 90th day after such Fundamental Transaction is
consummated, the Company (or the successor to the Company) shall purchase this
Warrant from the Holder by paying to the Holder, within five business days
after such request (or, if later, on the effective date of the Fundamental
Transaction), cash in an amount equal to the Black Scholes Value of the
remaining unexercised portion of this Warrant on the date such Fundamental
Transaction is consummated.  For the
purpose of this Warrant, “Black Scholes Value”
means the value, as reasonably calculated by the Company, of this Warrant,
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 Warrant as of
such date of request and (ii) an expected volatility equal to the greater
of 60% and the 100 day volatility obtained from the HVT function on Bloomberg;
provided that the Black Scholes Value of this Warrant shall not for this
purpose exceed an amount equal to $2.50 multiplied by the number of shares of
Common Stock for which this Warrant is exercisable at the time the Fundamental
Transaction is consummated (with such $2.50 cap being subject to adjustment for
stock dividends, stock splits, reverse stock splits, and the like).

 

(e)           Number of Warrant Shares.  Simultaneously with any adjustment to the
Exercise Price pursuant to paragraph (a) of this Section, the number of
Warrant Shares that may be purchased upon exercise of this Warrant shall be
increased or decreased proportionately, so that after such adjustment the
aggregate Exercise Price payable hereunder for the adjusted number of Warrant
Shares shall be the same as the aggregate Exercise Price in effect immediately
prior to such adjustment.

 

(f)            Calculations.  All calculations under this Section 9
shall be made to the nearest cent or the nearest 1/100th of a share, as applicable.  The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held by or for
the account of the Company, and the disposition of any such shares shall be
considered an issue or sale of Common Stock.

 

(g)           Notice of Adjustments.  Upon the occurrence of each adjustment
pursuant to this Section 9, the Company at its expense will
promptly compute such adjustment in accordance with the terms of this Warrant
and prepare a certificate setting forth such adjustment, including a statement
of the adjusted Exercise Price and adjusted number or type of Warrant Shares or
other securities issuable upon exercise of this Warrant (as applicable),
describing the transactions giving rise to such adjustments and showing in
detail the facts upon which such adjustment is based.  Upon written request, the Company will
promptly deliver a copy of each such certificate to the Holder and to the
Company’s transfer agent.  No adjustment
in the Exercise Price shall be required unless such adjustment would require an
increase or decrease of at least 1% in such Exercise Price; provided,
however, that any adjustments which by reason of this Section 9(g) are
not required to be made shall be carried forward  and taken into account in any subsequent
adjustment.

 

(h)           Notice of Corporate Events.  If the Company (i) declares a dividend
or any other distribution of cash, securities or other property in respect of
its Common Stock, including without limitation any granting of rights or
warrants to subscribe for or purchase any capital 

 

10

 

stock of the Company or any Subsidiary, (ii) authorizes
or approves, enters into any agreement contemplating or solicits stockholder
approval for any Fundamental Transaction or (iii) authorizes the voluntary
dissolution, liquidation or winding up of the affairs of the Company, then the
Company shall deliver to the Holder a notice describing the material terms and
conditions of such transaction, at least five calendar days prior to the
applicable record or effective date on which a Person would need to hold Common
Stock in order to participate in or vote with respect to such transaction, and
the Company will take all steps reasonably necessary in order to insure that
the Holder is given the practical opportunity to exercise this Warrant prior to
such time so as to participate in or vote with respect to such transaction;
provided, however, that the failure to deliver such notice or any defect
therein shall not affect the validity of the corporate action required to be
described in such notice.

 

10.           Payment
of Exercise Price.  Upon exercise of
this Warrant the Holder shall pay the Exercise Price in immediately available
funds unless it is a Cashless Exercise in accordance with Section 4
hereof.

 

11.           No Fractional Shares.  No fractional shares of Warrant Shares will
be issued in connection with any exercise of this Warrant.  In lieu of any fractional shares which would
otherwise be issuable, the Company shall pay cash equal to the product of such
fraction multiplied by the closing price of one Warrant Share as reported by
Bloomberg L.P. (or the successor to its function of reporting share prices) on
the date of exercise.

 

12.           Notices.  Any and all notices or other communications
or deliveries hereunder (including, without limitation, any Exercise Notice)
shall be in writing and shall be deemed given and effective on the earliest of (i) the
date of transmission, if such notice or communication is delivered via
facsimile at the facsimile number specified in this Section prior to 6:30 p.m.
(New York City time) on a Trading Day, (ii) the next Trading Day after the
date of transmission, if such notice or communication is delivered via
facsimile at the facsimile number specified in this Section on a day that
is not a Trading Day or later than 6:30 p.m. (New York City time) on any
Trading Day, (iii) the Trading Day following the date of mailing, if sent
and delivered by nationally recognized overnight courier service, or (iv) upon
actual receipt by the party to whom such notice is required to be given.  The addresses for such communications shall
be:  (i) if to the Company, to
Liquidmetal Technologies, Inc., 30452 Esperanza, Rancho Santa Margarita,
CA 92688.  Attn: Chief Executive Officer,
Facsimile No.: (949) 635-2188, or (ii) if to the Holder, to the address or
facsimile number appearing on the Warrant Register or such other address or
facsimile number as the Holder may provide to the Company in accordance with
this Section.

 

13.           Warrant Agent.  The Company shall serve as warrant agent
under this Warrant.  Upon 30 days’ notice
to the Holder, the Company may appoint a new warrant agent.  Any corporation into which the Company or any
new warrant agent may be merged or any corporation resulting from any
consolidation to which the Company or any new warrant agent shall be a party or
any corporation to which the Company or any new warrant agent transfers
substantially all of its corporate trust or shareholders services business
shall be a successor warrant agent under this Warrant without any further
act.  Any such successor warrant agent
shall promptly cause notice of its succession as warrant agent to be mailed (by
first class mail, postage prepaid) to the Holder at the Holder’s last address
as shown on the Warrant Register.

 

11

 

14.           Miscellaneous.

 

(a)           This
Warrant shall be binding on and inure to the benefit of the parties hereto and
the respective successors and assigns of the Holder it being understood that
transfers of this Warrant by the Holder are subject to the legend set forth of
the face hereof.  Subject to the
preceding sentence, nothing in this Warrant shall be construed to give to any
Person other than the Company and the Holder any legal or equitable right,
remedy or cause of action under this Warrant. 
This Warrant may be amended only in writing signed by the Company and
the Holder and their successors and assigns.

 

(b)           All
questions concerning the construction, validity, enforcement and interpretation
of this Warrant shall be governed by and construed and enforced in accordance
with the internal laws of the State of New York, without regard to the
principles of conflicts of law thereof. 
Each party agrees that all legal proceedings to resolve any dispute
concerning the interpretations, enforcement and defense of this Warrant and the
transactions herein contemplated (“Proceedings”)
(whether brought against a party hereto or its respective Affiliates, employees
or agents) shall be commenced exclusively in the state and federal courts
sitting in the City of New York, Borough of Manhattan (the “New York Courts”), although depositions may be taken in
other locations.  Each party hereto
hereby irrevocably submits to the exclusive jurisdiction of the New York Courts
for the adjudication of any dispute hereunder or in connection herewith or with
any transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any Proceeding, any claim that it is not
personally subject to the jurisdiction of any New York Court, or that such
Proceeding has been commenced in an improper or inconvenient forum. Each party
hereto hereby irrevocably waives personal service of process and consents to
process being served in any such Proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Warrant and
agrees that such service shall constitute good and sufficient service of
process and notice thereof.  Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law.  Each
party hereto hereby irrevocably waives, to the fullest extent permitted by
applicable law, any and all right to trial by jury in any legal proceeding
arising out of or relating to this Warrant or the transactions contemplated
hereby.  If any party shall commence a
Proceeding to enforce any provisions of this Warrant, then the prevailing party
in such Proceeding shall be reimbursed by the other party for its attorney’s
fees and other costs and expenses incurred with the investigation, preparation
and prosecution of such Proceeding.

 

(c)           The
headings herein are for convenience only, do not constitute a part of this
Warrant and shall not be deemed to limit or affect any of the provisions hereof.

 

(d)           In
case any one or more of the provisions of this Warrant shall be invalid or
unenforceable in any respect, the validity and enforceability of the remaining
terms and provisions of this Warrant shall not in any way be affected or
impaired thereby and the parties will attempt in good faith to agree upon a
valid and enforceable provision which shall be a commercially reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Warrant.

 

12

 

(e)           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 Warrant, but
will at all times in good faith assist in the carrying out of all such terms
and in the taking of all such action as may be necessary or appropriate in
order to protect the rights of the Holder of this Warrant against such
impairment.

 

(f)            This
Warrant does not entitle the Holder to any voting rights or other rights as a
shareholder of the Company prior to the exercise hereof.  In connection with an exercise of this Warrant
in accordance with the terms hereof, upon the surrender of this Warrant and the
payment of the aggregate Exercise Price (or by means of a Cashless Exercise if
permitted hereunder), the Warrant Shares so purchased shall be and be deemed to
be issued to such Holder as the record owner of such shares as of the close of
business on the later of the date of such surrender or payment.

 

(g)           For
purposes of this Warrant, the following capitalized terms shall have the
following meanings:

 

(i)            “Approved
Stock Plan” means
any employee benefit, option or incentive plan which has been approved by the
Board of Directors and shareholders of the Company, pursuant to which the
Company’s securities may be issued to any employee, consultant, officer or
director for services provided to the Company; provided that the number of
shares of the Company’s Common Stock issuable pursuant to such plans, in the
aggregate, shall not exceed 10% of the shares of the Company’s Common Stock
outstanding on a fully-diluted basis on the date of the First Closing
(as defined in the Securities Purchase and Exchange Agreement) after giving
effect to the First Closing and the full exercise of the Series A-1 Option
(as defined in the Securities Purchase and Exchange Agreement), as adjusted for
stock splits, reverse stock splits, and the like, unless such increased amount of shares is approved by the holders of
the Company’s Common Stock and the holders of the Company’s Series A-1
Preferred Stock and Series A-2 Preferred Stock voting together as a single
class.  For purposes of this definition, “fully-diluted
basis” shall take into account all outstanding shares of Common Stock as well
as all shares of Common Stock issuable upon the conversion of all outstanding
convertible securities of the Company, including all options and warrants
granted.

 

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

 

(iii)          “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, warrants or shares of Series A-1 Preferred Stock or Series A-2
Preferred Stock of the Company issued (A) pursuant to the Purchase
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 Original
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 

 

13

 

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.

 

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

 

(v)           “Original Issuance Date”
means the First Closing Date, as defined in the Purchase Agreement.

 

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

 

(vii)         “Trading
Day” means any day on which the Common Stock is traded on the
Principal Market, or, if the Principal Market is not the principal trading
market for the Common Stock, then on the principal securities exchange or securities market on
which the Common Stock is then traded; provided that “Trading Day” shall not
include any day on which the Common Stock is scheduled to trade on such
exchange or market for less than 4.5 hours or any day that the Common Stock is
suspended from trading during the final hour of trading on such exchange or
market (or if such exchange or market does not designate in advance the closing
time of trading on such exchange or market, then during the hour ending at
4:00:00 p.m., New York Time).

 

(viii)        “Trading Market” means the following
markets or exchanges on which the Common Stock is listed or quoted for trading
on the date in question: the NYSE Amex LLC, the Nasdaq Capital Market, the
Nasdaq Global Market, the Nasdaq Global Select Market or the New York Stock
Exchange.

 

[Signature
Follows]

 

14

 

IN WITNESS WHEREOF, the Company has caused this
Warrant to be duly executed by its authorized officer as of the date first
indicated above.

 

 

	
   

  	
  LIQUIDMETAL TECHNOLOGIES, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name: Tony
  Chung

  
	
   

  	
  Title:   Chief
  Financial Officer

  

 

 

EXERCISE NOTICE

 

To Liquidmetal Technologies, Inc.

 

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

 

The undersigned  hereby certifies to the Company that the
undersigned’s exercise of the amount set forth above will not directly result
in the undersigned (together with the undersigned’s affiliates) beneficially
owning in excess of 4.99% of the number of shares of Common Stock outstanding
immediately after giving effect to such exercise, calculated in accordance with
Section 4(b) of the Warrant; provided that if the undersigned has
waived the 4.99% beneficial ownership requirement  by providing the Company with notice at least
61 days prior to the date hereof, the undersigned hereby certifies to the
Company that the undersigned’s exercise of the amount set forth above will not
directly result in the undersigned (together with the undersigned’s affiliates)
beneficially owning in excess of 9.99% of the number of shares of Common Stock
outstanding immediately after giving effect to such conversion, calculated in
accordance with Section 4(b) of the Warrant.  Notwithstanding the foregoing, the
certification set forth in this paragraph shall not apply to, and shall not be
deemed to be made by, any Affiliated Investor (as that term is defined in the
Purchase Agreement referred to in the Warrant).

 

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

 

 

	
   

  	
  Print Name of Holder:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Signature:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  HOLDER’S SOCIAL SECURITY
  OR

  
	
   

  	
  TAX IDENTIFICATION NUMBER:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Holder’s Address:

  
				

 

 

Warrant Shares Exercise Log

 

	
  Date

  	
   

  	
  Number of Warrant 

  Shares Available to be 

  Exercised

  	
   

  	
  Number of Warrant Shares 

  Exercised

  	
   

  	
  Number of 

  Warrant Shares

  Remaining to 

  be Exercised

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

 

FORM OF ASSIGNMENT

 

[To be completed and signed only upon transfer of
Warrant]

 

FOR VALUE RECEIVED, the undersigned hereby sells,
assigns and transfers unto                                                       
the right represented by the within Warrant to purchase                             
shares of Common Stock of Liquidmetal Technologies, Inc. to which the
within Warrant relates and appoints                            
attorney to transfer said right on the books of the Company with full power of
substitution in the premises.

 

Dated:                           ,
             

 

	
   

  	
   

  
	
   

  	
  (Signature must conform in all respects to name of 

  holder as specified on the face of the Warrant)

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Address of Transferee

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Tax Identification Number or Social Security 

  Number of Transferee

  
	
   

  	
   

  
	
   

  	
   

  
	
  In the presence of:

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