Document:

Exhibit 10.5

 

REGISTRATION RIGHTS AGREEMENT

 

This
Registration Rights Agreement (this “Agreement”) is
entered into as of May 1, 2009, between Liquidmetal Technologies, Inc.,
a Delaware corporation (the “Company”), and each of the buyers
signatory hereto (each a “Buyer” and collectively, the “Buyers”).

 

W  I
T  N  E  S  S  E  T  H:

 

WHEREAS, the Company and the Buyers have entered
into a Securities Purchase and Exchange Agreement, dated as of May 1,
2009  (the “Purchase
Agreement”), pursuant to which, among other things, the Company has
agreed to issue and sell to the Buyers, in the amounts set forth on the
Schedule of Buyers attached to the Purchase Agreement, (i) shares of the
Company’s Series A-1 Preferred Stock, including those purchasable pursuant
to the Series A-1 Option (as such term is defined in the Purchase
Agreement) (collectively, the “Series A-1 Shares”),
(ii) shares of the Company’s Series A-2 Preferred Stock (the “Series A-2 Shares,” and together with the Series A-1
Shares, the “Series A Shares”), (iii) Common
Stock Purchase Warrants to be issued in connection with the issuance of the Series A
Shares (the “Preferred Warrants”), (iv) 8% Senior Secured Convertible Notes of the
Company (the “Exchange Notes”), and (v) Common
Stock Purchase Warrants to be issued in connection with the issuance of the
Exchange Notes (the “Exchange Warrants,”
and together with the Preferred Warrants, the “Warrants”);

 

WHEREAS, the Series A Shares and the Exchange
Notes are convertible into shares of Common Stock (the “Conversion
Shares”); and

 

WHEREAS, the Warrants are exercisable into shares of
Common Stock pursuant to the terms and conditions set forth in the Warrants
(the “Warrant Shares”).

 

NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in the Purchase
Agreement and this Agreement, the Company and the Buyers agree as follows:

 

1.             Certain
Definitions.  Capitalized terms used
herein and not otherwise defined shall have the meanings ascribed thereto in
the Purchase Agreement.  As used in this
Agreement, the following terms shall have the following respective meanings:

 

“Business Day”  means any day except any Saturday, any Sunday, any day
which shall be a federal legal holiday in the United States or any day on which
banking institutions in the State of New York are authorized or required by law
or other governmental action to close.

 

“Commission” or “SEC” shall mean the Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act (as
defined below).

 

“Common Stock”
means the common stock of the Company, $0.001 par value per share.

 

“Effectiveness
Date”  means, with respect to a
registration statement filed pursuant to Section 2 of this Agreement, the
earlier of (a) the sixtieth (60th) day following the Filing Date (as
defined below) (or, in the event that the registration statement receives a “full
review” by the 

 

 

Commission,
the one hundred twentieth (120th) day following the Filing Date), and (b) the
date which is three (3) Business Days after the date on which the
Commission informs the Company (i) that the Commission will not review the
registration statement or (ii) that the Company may request the
acceleration of the effectiveness of the registration statement.

 

“Exchange  Act” means the Securities Exchange
Act of 1934, as amended.

 

“Holder”
and “Holders” shall mean the Buyer and any
permitted transferee or transferees of Registrable Securities (as defined
below), Series A Shares, Exchange Notes or Warrants that have not been
sold to the public and to whom the registration rights conferred by this
Agreement have been transferred in compliance with this Agreement and the
Purchase Agreement; provided that neither such person nor any affiliate of such
person is registered as a broker or dealer under Section 15(a) of the
Exchange Act or a member of the Financial Industry Regulatory Authority.

 

The terms “register,” “registered” and
“registration” shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and the applicable rules and
regulations thereunder, and the declaration or ordering of the effectiveness of
such registration statement.

 

“Registrable
Securities” shall mean (i) the Conversion Shares issuable upon
conversion of the Series A Shares and the Exchange Notes outstanding on
the date of the Demand (as defined below), (ii) any Warrant Shares
issuable upon exercise of the Warrants outstanding on the date of the Demand,
and (iii) any other securities into which the Warrant Shares and
the Conversion Shares may be reclassified after the date hereof; provided however, that all such securities
shall cease to be Registrable Securities at such time as they have been sold
under a registration statement or pursuant to Rule 144 under the
Securities Act or otherwise or at such time as they are eligible to be sold
without volume limitations pursuant to Rule 144.

 

“Registration
Expenses” shall mean all expenses to be incurred by the Company in
connection with each Holder’s registration rights under this Agreement,
including, without limitation, all registration and filing fees, printing
expenses, fees and disbursements of counsel for the Company, the reasonable
attorney’s fees of Special Counsel (as defined below) which shall in no event
exceed $20,000 per registration, blue sky fees and expenses, and the expense of
any special audits incident to or required by any such registration.

 

 “Regulation D”
shall mean Regulation D as promulgated pursuant to the Securities Act, and as
may be amended from time to time.

 

“Securities
Act” or “Act” shall mean
the Securities Act of 1933, as amended.

 

“Selling
Expenses” shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities, as well as all
fees and disbursements of counsel for Holders other than Special Counsel.

 

“Special Counsel” means the single attorney selected by a
majority in interest of the Holders (which attorney shall be reasonably
acceptable to the Company) to represent the Holders’ interests in connection
with the registrations contemplated by this Agreement.

 

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2.             Demand Registration Rights.

 

(a)   Subject to the conditions of
this Section 2, if at any time following the 180th day after the date of this Agreement, the
Company receives a written request from the Holders of more than fifty percent
(50%) of the total number of Registrable Securities (for purposes of this Section 2,
the “Initiating Holders,” and such request
the “Demand”) that the Company file a
registration statement under the Act
covering the registration for resale of the Registrable Securities, then the
Company shall, within twenty (20) days of the receipt thereof, give written
notice of such request to all Holders, and subject to the limitations of this Section 2,
use commercially reasonable efforts to effect, as soon as practicable, the
registration for resale under the Act of all the Registrable Securities that
the Holders request to be registered in a written request received by the
Company within twenty (20) days of the mailing of the Company’s notice pursuant
to this Section 2(a). 
Notwithstanding anything in this Agreement to the contrary and in
addition to any other limitation herein, no Demand may be made by the
Initiating Holders until (i) the Series A-1 Option described in Section 1(f) of
the Purchase Agreement has expired, or, where a purchase of Series A-1
Shares pursuant to the Series A-1 Option is being completed following the
expiration of the option period pursuant to Section 1(f)(v) of the
Purchase Agreement, the closing of such purchase, or (ii) the closing of
the purchase of all of the Series A-1 Shares available pursuant to the Series A-1
Option.

 

(b)   If the Initiating Holders intend
to distribute the Registrable Securities covered by their Demand by means of an
underwriting, they shall so advise the Company as a part of their Demand made
pursuant to Section 2(a), and the Company shall include such information
in its written notice to all
Holders given pursuant to Section 2(a). 
In such event, the right of any Holder to include its Registrable
Securities in such registration shall be conditioned upon such Holder’s
participation in such underwriting and the inclusion of such Holder’s
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Initiating Holders and such Holder) to the extent
provided herein.  All Holders proposing
to distribute their securities through such underwriting shall enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by a majority in interest of the Initiating
Holders (which underwriter or underwriters shall be reasonably acceptable to the
Company).  Notwithstanding any other
provision of this Section 2, if the underwriter advises the Company that
marketing factors require a limitation on the number of securities underwritten
(including Registrable Securities), then the Company shall so advise all
Holders of Registrable Securities that would otherwise be underwritten pursuant
hereto, and the number of shares that may be included in the underwriting shall
be allocated to the Holders of such Registrable Securities pro rata based on
the number of Registrable Securities held by all such Holders (including the
Initiating Holders).  In no event shall
any Registrable Securities be excluded from such underwriting unless all other
securities are first excluded.  Any
Registrable Securities excluded or withdrawn from such underwriting shall be
withdrawn from the registration.

 

(c)   Notwithstanding the foregoing,
the Company shall not be required to effect a registration pursuant to this Section 2:

 

(A)          in
any particular jurisdiction in which the Company would be required to execute a
general consent to service of process in effecting 

 

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such registration, unless the Company is already
subject to service in such jurisdiction and except as may be required under the
Act; or

 

(B)           after
the Company has effected two (2) registrations pursuant to this Section 2,
and such registrations have been declared or ordered effective; or

 

(C)           if
the Company shall furnish to the Holders requesting a registration statement pursuant
to this Section 2 a certificate signed by the Company’s Chief Executive
Officer or Chairman of the Board stating that, in the good faith judgment of
the Board of Directors of the Company, it would be seriously detrimental to the
Company and its stockholders for such registration statement to be effected at
such time, the Company shall have the right to defer such filing for a period
of not more than one hundred twenty (120) days after receipt of the Demand of
the Initiating Holders, provided that such right shall be exercised by the
Company not more than once in any twelve (12) month period and provided
further that the Company shall  not register
any securities for the account of itself or any other stockholder during such
one hundred twenty (120) day period (other than a registration relating to a
corporate reorganization or transaction under Rule 145 of the Act, a
registration on any form that does not include substantially the same
information as would be required to be included in a registration statement
covering the resale of the Registrable Securities, or a registration in which
the only Common Stock being registered is Common Stock issuable upon conversion
of debt securities that are also being registered).

 

(d)  If: (i) the registration statement required by Section 2 is
not filed on or prior to its Filing Date (as defined below), or (ii) the
Company fails to file with the Commission a request for acceleration of a
registration statement in accordance with Rule 461 promulgated by the
Commission pursuant to the Securities Act within five (5) Business Days of
the date that the Company is notified (orally or in writing, whichever is
earlier) by the Commission that such registration statement will not be “reviewed”
or will not be subject to further review, or (iii) all of the Registrable
Securities required by this Agreement to be included in such registration
statement are not registered for resale on or before the Effectiveness Date and
Rule 144 is not available to the Holders with respect thereto, or (iv) after
the Effectiveness Date of a registration statement, such registration statement
ceases for any reason to remain continuously effective as to all Registrable
Securities required to be included in such registration statement, or the
Holders are otherwise not permitted to utilize the prospectus therein to resell
such Registrable Securities, for more than ten (10) consecutive calendar
days or more than an aggregate of twenty (20) calendar days (which need not be
consecutive calendar days) during any 12-month period, except to the extent
that a suspension of the Registration Statement is otherwise permitted by this
Agreement (any such failure or breach being referred to as an “Event,” and for purposes of clauses (i) and (iv), the
date on which such Event occurs, and for purpose of clause (ii) the date
on which such five (5) Business Day period is exceeded, and for purpose of
clause (iv) the date on which such ten (10) or twenty (20) calendar
day period, as applicable, is exceeded being referred to as “Event Date”), then, in addition to any other rights the
Holders may have

 

4

 

hereunder or under applicable law, on each
monthly anniversary of each such Event Date (if the applicable Event shall not
have been cured by such date) until the applicable Event is cured, from the
date of the Event until the twelve-month anniversary of the Event, the Company
shall pay to each Holder an amount in cash, as partial liquidated damages and
not as a penalty, equal to two percent (2%) of the aggregate purchase price
paid by such Holder pursuant to the Purchase Agreement for any unregistered
Registrable Securities underlying Exchange Notes or Series A Shares then
held by such Holder (so long as such Holder has requested that such Registrable
Securities be included in the registration statement and they are required by
this Agreement to be included in the registration statement); provided,
however, such partial liquidated damages shall not be paid with respect to any
Registrable Securities which the Holder thereof may sell at such time under Rule 144
and which have been held by such Holder for a period of more than one (1) year
for purposes of Rule 144(d).  If the
Company fails to pay any partial liquidated damages pursuant to this Section in
full within seven (7) days after the date payable, the Company will pay
interest thereon at a rate of eighteen percent (18%) per annum (or such lesser
maximum amount that is permitted to be paid by applicable law) to the Holder,
accruing daily from the date such partial liquidated damages are due until such
amounts, plus all such interest thereon, are paid in full.  The partial liquidated damages pursuant to
the terms hereof shall apply on a daily pro rata basis for any portion of a
month prior to the cure of an Event.

 

(e)  If at any time the Commission takes the
position that the offering of some or all of the Registrable Securities in a
registration statement is not eligible to be made on a delayed or continuous
basis under the provisions of Rule 415 under the Securities Act or
requires any Holder to be named as an “underwriter,” the Company shall use its
best efforts to persuade the Commission that the offering contemplated by the
registration statement is a valid secondary offering and not an offering “by or
on behalf of the issuer” as defined in Rule 415 and that none of the
Holders is an “underwriter.”  The Holders
shall have the right to participate or have their Special Counsel participate
in any meetings or discussions with the Commission regarding the Commission’s
position and to comment or have their Special Counsel comment on any written
submission made to the Commission with respect thereto.  No such written submission shall be made to
the Commission to which the Holders’ Special Counsel reasonably objects.  In the event that, despite the Company’s best
efforts and compliance with the terms of this Section 2(e), the Commission
refuses to alter its position, the Company shall (i) remove from the
registration statement such portion of the Registrable Securities (the “Cut Back Shares”) and/or (ii) agree to such
restrictions and limitations on the registration and resale of the Registrable
Securities as the Commission may require to assure the Company’s compliance
with the requirements of Rule 415 (collectively, the “Commission
Restrictions”); provided, however, that the Company shall not agree
to name any Holder as an “underwriter” in such registration statement without
the prior written consent of such Holder. 
Any cut-back imposed on the Holders pursuant to this Section 2(e) shall
be allocated among the Holders on a pro rata basis and shall be applied first
to any Warrant Shares, unless the Commission Restrictions otherwise require or
provide or the Holders otherwise agree. 
No liquidated damages shall accrue as to any Cut Back Shares except for
any liquidated damages that would accrue, if at all, in accordance with Section 4(d)(iv) hereof
after the date on which the Company is able to effect the registration of such
Cut Back Shares in accordance with any Commission Restrictions.

 

5

 

3.             Obligations of the
Company.  Whenever required under Section 2 of this
Agreement to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:

 

(a)   prepare and file with the SEC a
registration statement with respect to such Registrable Securities within
ninety (90) days of the Company’s receipt of the Demand (the “Filing Date”), which shall contain a “Plan of Distribution”
in substantially the form attached hereto as Annex A, and use reasonable
commercial  efforts to cause such registration
statement to become effective not later than the applicable Effectiveness Date,
and, upon the request of the Holders of a majority of the Registrable
Securities registered thereunder, keep such registration statement effective
until the distribution contemplated in the registration statement has been
completed or the Registrable Securities can be sold without volume limitations
pursuant to Rule 144 under the Act;

 

(b)   not less than three (3) Business
Days prior to the filing of a Registration Statement or any pre-effective or
post-effective amendment thereto, furnish to the Holders’ Special Counsel by
e-mail copies of all such documents proposed to be filed, which documents
(other than those incorporated or deemed to be incorporated by reference) will
be subject to the review of such Holders’ Special Counsel (and changes (if any)
to correct appropriate information about the Holders).  The Company shall not be required to file a
Registration Statement or any pre-effective amendments thereto to which the
Holders of a majority of the Registrable Securities shall reasonably object in
good faith in writing.

 

(c)   prepare and file with the SEC
such amendments and supplements to such registration statement and the
prospectus used in connection with such registration statement as may be
necessary to comply with the provisions of the Act with respect to the
disposition of all securities covered by such registration statement;

 

(d)   furnish to the Holders such
number of copies of a prospectus, including a preliminary prospectus, in
conformity with the requirements of the Act, and such other documents as they
may reasonably request in order to facilitate the disposition of the
Registrable Securities owned by them;

 

(e)   notify the Holders promptly
(and, if requested, confirm such advice in writing) (i) when a
registration statement has become effective and when any post-effective
amendments and supplements thereto become effective, and (ii) of the
issuance by the SEC or any state securities commission of any stop order
suspending the effectiveness of a registration statement;

 

(f)    use commercially reasonable
efforts to register and qualify the securities covered by such registration
statement under such other securities or Blue Sky laws of such jurisdictions as
shall be reasonably requested by the Holders;

 

(g)   in the event of any
underwritten public offering, enter into and perform its obligations under an
underwriting agreement, in usual and customary form, with the managing
underwriter of such offering;

 

(h)   notify each Holder of
Registrable Securities covered by such 

 

6

 

registration statement at any time when a prospectus
relating thereto is required to be delivered under the Act of the happening of
any event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact
or omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
then existing;

 

(i)    provide a transfer agent and
registrar for all Registrable Securities registered pursuant to this Agreement
and a CUSIP number for all such Registrable Securities, in each case not later
than the effective date of such registration;

 

(j)    cooperate with the Holders and
the managing underwriter, if any, to facilitate the timely preparation and
delivery of certificates not bearing any restrictive legends representing the
Registrable Securities to be sold, and cause such Registrable Securities to be
issued in such denominations and registered in such names in accordance with the
underwriting agreement prior to any sale of Registrable Securities to the
underwriters or, if not an underwritten offering, in accordance with the
instructions of the Holders, and instruct any transfer agent and registrar of
Registrable Securities to release any stop transfer orders in respect thereto;

 

(k)   deliver promptly to the Holders’
Special Counsel and each underwriter, if any, copies of all correspondence
between the SEC and the Company, its counsel or auditors and all memoranda
relating to discussions with the SEC or its staff with respect to the
registration statement, other than those portions of any such memoranda which
contain information subject to attorney-client privilege with respect to the
Company, and, upon receipt of such confidentiality agreements as the Company
may reasonably request, make reasonably available for inspection by the Holders
or their Special Counsel, by any underwriter, if any, participating in any
disposition to be effected pursuant to such registration statement and any
attorney, accountant or other agent retained by any such underwriter, all
pertinent financial and other records, pertinent corporate documents and
properties of the Company, and cause all of the Company’s officers, directors
and employees to supply all information reasonably requested by the Holders or
their Special Counsel or such underwriter, attorney, accountant or agent in
connection with such registration statement;

 

(l)    use commercially reasonable
efforts to obtain the withdrawal of any order suspending the effectiveness of
the registration statement; and

 

(m)  upon written request, furnish to
the Holders without charge at least one conformed copy of the registration
statement and any post-effective amendments thereto, including financial
statements and schedules, all documents incorporated therein by reference and
all exhibits (including those incorporated by reference).

 

Notwithstanding the provisions of this Section 3, the
Company shall be entitled to postpone or suspend, for a reasonable period of time
and upon written notice to the Holders (a “Suspension Notice”),
the filing, effectiveness or use of, or trading under, any registration
statement if the Company shall determine that any such filing or the sale of
any securities pursuant to such registration statement would in the good faith
judgment of the Board of Directors of the Company:

 

7

 

(A)          materially
impede, delay or interfere with any material pending or proposed financing,
acquisition, corporate reorganization or other similar transaction involving
the Company for which the Board of Directors of the Company has authorized
negotiations;

 

(B)           materially
adversely impair the consummation of any pending or proposed material offering
or sale of any class of securities by the Company; or

 

(C)           require
disclosure of material nonpublic information that, if disclosed at such time,
would be materially harmful to the interests of the Company and its
stockholders; provided, however, that during any such period all
executive officers and directors of the Company are also prohibited from
selling securities of the Company (or any security of any of the Company’s
subsidiaries or affiliates).

 

In the event of the suspension of effectiveness of any
registration statement pursuant to this Section 3, the applicable time period
during which such registration statement is to remain effective shall be
extended by that number of days equal to the number of days the effectiveness
of such registration statement was suspended.

 

4.             Expenses of
Registration.  All Registration
Expenses in connection with any registration, qualification or compliance with
registration pursuant to this Agreement shall be borne by the Company, and all
Selling Expenses of a Holder shall be borne by such Holder.

 

5.             Indemnification.

 

(a)   Company Indemnity.  The Company will indemnify each Holder, each
of its officers, directors, agents and partners, and each person controlling
each of the foregoing, within the meaning of Section 15 of the Securities
Act and the rules and regulations thereunder with respect to which
registration, qualification or compliance has been effected pursuant to this
Agreement, and each underwriter, if any, and each person who controls, within
the meaning of Section 15 of the Securities Act and the rules and
regulations thereunder, any underwriter, against all claims, losses, damages
and liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any final prospectus (as amended or supplemented if the Company files any
amendment or supplement thereto with the SEC), registration statement filed
pursuant to this Agreement or any post-effective amendment thereof or based on
any omission (or alleged omission) to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading in
light of the circumstances under which they were made, or any violation by the
Company of the Securities Act or any state securities law or in either case,
any rule or regulation thereunder applicable to the Company and relating
to action or inaction required of the Company in connection with any such
registration, qualification or compliance, and will reimburse each Holder, each
of its officers, directors, agents and partners, and each person controlling
each of the foregoing, for any reasonable legal fees of a single counsel and
any other expenses reasonably incurred in connection with investigating and
defending any such claim, loss, damage, liability or action, provided that the
Company will not be liable in any such case to a 

 

8

 

Holder to the extent that
any such claim, loss, damage, liability or expense arises out of or is based on
(i) any untrue statement or omission based upon written information
furnished to the Company by such Holder or underwriter (if any) therefor and
stated to be specifically for use therein, (ii) any failure by any Holder
to comply with prospectus delivery requirements or the Securities Act or the
Exchange Act or any other law or legal requirement applicable to such Holder or
any covenant or agreement contained in the Purchase Agreement or this Agreement
applicable to such Holder, or (iii) an offer of sale of Conversion Shares
or Warrant Shares occurring during a period in which sales under the
registration statement are suspended as permitted by this Agreement.  The indemnity agreement contained in this Section 5(a) shall
not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of the
Company (which consent will not be unreasonably withheld).

 

(b)   Holder Indemnity.  Each Holder will, severally but not jointly,
if Registrable Securities held by it are included in the securities as to which
such registration, qualification or compliance is being effected, indemnify the
Company, each of its directors, officers, agents and partners, and any other
stockholder selling securities pursuant to the registration statement and any
of its directors, officers, agents, partners, and any person who controls such
stockholder within the meaning of the Securities Act or Exchange Act and each
underwriter, if any, of the Company’s securities covered by such a registration
statement, each person who controls the Company or such underwriter within the
meaning of Section 15 of the Securities Act and the rules and
regulations thereunder, each other Holder (if any), and each of their officers,
directors and partners, and each person controlling such other Holder(s) against
all claims, losses, damages and liabilities (or actions in respect thereof)
arising out of or based on (i) any untrue statement (or alleged untrue
statement) of a material fact contained in any such final prospectus (as
amended or supplemented if the Company files any amendment or supplement
thereto with the SEC), registration statement filed pursuant to this Agreement
or any post-effective amendment thereof or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances under which they were made, but only to the extent such statement
or omission was furnished by the Holder to the Company in writing for the
specific purpose of including the same in such registration statement,
prospectus, or amendment or supplement thereto or (ii) failure by any
Holder to comply with (A) the prospectus delivery requirements of the
Securities Act after being advised by the Company that it has not satisfied the
conditions of Rule 172 and that such Holder is, as a consequence, required
to deliver a prospectus in connection with any disposition of Registrable Securities
and after the Company has provided such Holder with a current prospectus to be
used in connection with any such dispositions, (B) the Securities Act, (C) the
Exchange Act, (D) any other law or legal requirement applicable to such
Holder, or (E) any covenant or agreement contained in the Purchase
Agreement or this Agreement applicable to such Holder, and will reimburse the Company, such stockholders, and such other
Holder(s) and their directors, officers, agents and partners, underwriters
or control persons for any reasonable legal fees or any other expenses
reasonably incurred in connection with investigating and defending any such
claim, loss, damage, liability or action, in each case to the extent, but only
to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such final prospectus (as amended or
supplemented if the Company files any amendment or supplement thereto with the
SEC), registration statement filed pursuant to this Agreement or any post-

 

9

 

effective amendment thereof
in reliance upon and in conformity with written information furnished to the
Company by such Holder and stated to be specifically for use therein, and
provided that the maximum amount for which such Holder shall be liable under
this indemnity shall not exceed the net proceeds received by such Holder from
the sale of the Registrable Securities pursuant to the registration statement
in question.  The indemnity agreement
contained in this Section 5(b) shall not apply to amounts paid in
settlement of any such claims, losses, damages or liabilities if such
settlement is effected without the consent of such Holder (which consent shall
not be unreasonably withheld).

 

(c)   Procedure.  Each party entitled to indemnification under
this Section 5 (the “Indemnified Party”)
shall give notice to the party required to provide indemnification (the “Indemnifying Party”) promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and
shall permit the Indemnifying Party to assume the defense of any such claim in
any litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
be unreasonably withheld), and the Indemnified Party may participate in such
defense at its own expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 5 except to the
extent that the Indemnifying Party is materially and adversely affected by such
failure to provide notice.  No
Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.  Each Indemnified Party shall
furnish such non-privileged information regarding itself or the claim in
question as an Indemnifying Party may reasonably request in writing and as
shall be reasonably required in connection with the defense of such claim and
litigation resulting therefrom.

 

6.             Contribution.  If the indemnification provided for in Section 5
herein is unavailable to the Indemnified Parties in respect of any losses,
claims, damages or liabilities referred to herein (other than by reason of the
exceptions provided therein), then each such Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such losses, claims, damages
or liabilities as between the Company on the one hand and any Holder(s) on
the other, in such proportion as is appropriate to reflect the relative fault of
the Company and of such Holder(s) in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities, as
well as any other relevant equitable considerations.  The relative fault of the Company on the one
hand and of any Holder(s) on the other shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact relates
to information supplied by the Company or by such Holder(s).

 

In no event shall the
obligation of any Indemnifying Party to contribute under this Section 6
exceed the amount that such Indemnifying Party would have been obligated to pay
by way of indemnification if the indemnification provided for under Section 5(a) or
5(b) hereof had been available under the circumstances.

 

10

 

The Company and the Holders
agree that it would not be just and equitable if contribution pursuant to this Section 6
were determined by pro rata allocation (even if the Holders were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in the immediately
preceding paragraphs.  The amount paid or
payable by an Indemnified Party as a result of the losses, claims, damages and
liabilities referred to in the immediately preceding paragraphs shall be deemed
to include, subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such Indemnified Party in connection with investigating
or defending any such action or claim. 
Notwithstanding the provisions of this Section, no Holder shall be
required to contribute any amount in excess of the amount equal to the net
proceeds received by such Holder from the sale of Registrable Securities
pursuant to the registration statement in question.  No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.

 

7.             Survival.  The indemnity and contribution agreements
contained in Sections 5 and 6 shall remain operative and in full force and
effect regardless of (i) any termination of this Agreement or the Purchase
Agreement, and (ii) the consummation of the sale or successive resales of
the Registrable Securities.

 

8.             Information
by Holders.  As a condition to the obligations of the Company to complete any
registration pursuant to this Agreement with respect to the Registrable
Securities of each Holder, such Holder will furnish to the Company such
information regarding itself, the Registrable Securities held by it and the
intended methods of disposition of the Registrable Securities held by it as is
reasonably required by the Company to effect the registration of the
Registrable Securities.  At least ten
Business Days prior to the first anticipated filing date of a registration
statement for any registration under this Agreement, the Company will notify
each Holder of the information the Company requires from that Holder whether or
not such Holder has elected to have any of its Registrable Securities included
in the registration statement. If the Company has not received the requested
information from a Holder by the Business Day prior to the anticipated filing
date, then the Company may file the registration statement without including
Registrable Securities of that Holder.

 

9.             Further Assurances. Each Holder will cooperate with the Company, as
reasonably requested by the Company, in connection with the preparation and
filing of any registration statement hereunder, unless such Holder has notified
the Company in writing of such Holder’s irrevocable election to exclude all of
such Holder’s Registrable Securities from such registration statement.

 

10.           Suspension of Sales. Upon receipt of any Suspension Notice from the
Company, each Holder will immediately discontinue disposition of Registrable
Securities pursuant to the registration statement covering such Registrable
Securities until (i) it receives copies of a supplemented or amended
prospectus or (ii) the Company advises the Holder that a suspension of
sales under Section 3 has terminated. If so directed by the Company, each Holder
will deliver to the Company (at the expense of the Company) or destroy all
copies in the Holder’ s possession (other than a limited number of file copies)
of the prospectus covering such Registrable Securities that is current at the
time of receipt of such notice.

 

11

 

11.           Replacement Certificates.  The certificate(s) representing the
Conversion Shares and the Warrant Shares held by the Buyer (or then Holder) may
be exchanged by the Buyer (or such Holder) at any time and from time to time
for certificates with different denominations representing an equal aggregate
number of shares of Common Stock, as reasonably requested by such Buyer (or
such Holder) upon surrendering the same. 
No service charge will be made for such registration or transfer or
exchange.

 

12.           Transfer or Assignment.  Except as otherwise provided herein, this
Agreement shall be binding upon and inure to the benefit of the parties and
their successors and permitted assigns. 
The rights granted to the Buyer by the Company under this Agreement to
cause the Company to register the Registrable Securities may be transferred or
assigned (in whole or in part) to a transferee or assignee of the Series A
Shares, the Exchange Notes, or the Warrants, and all other rights granted to
the Buyer by the Company hereunder may be transferred or assigned to any
transferee or assignee of the Series A Shares, the Exchange Notes, the
Warrants or the Registrable Securities; provided in each case that (i) the
Company is given written notice by the Buyer at the time of or within a
reasonable time after such transfer or assignment, stating the name and address
of said transferee or assignee and identifying the securities with respect to
which such registration rights are being transferred or assigned; and provided
further that the transferee or assignee of such rights agrees in writing to be
bound by the registration provisions of this Agreement, (ii) such transfer
or assignment is not made under the registration statement or Rule 144, (iii) such
transfer is made according to the applicable requirements of the Purchase
Agreement, and (iv) the transferee has provided to the Company an investor
questionnaire (or equivalent document) evidencing that the transferee is a “qualified
institutional buyer” or an “accredited investor” defined in Rule 501(a)(1),(2),(3),
or (7) of Regulation D.

 

13.           No Piggyback on Registrations.  Neither the
Company nor any of its security holders (other than the Holders in such
capacity pursuant hereto) may include securities of the Company in a
registration statement filed pursuant to this Agreement other than the
Registrable Securities, and the Company shall not after the date hereof enter
into any agreement providing any such right to any of its security holders.

 

14.           Piggyback Registration
Rights.

 

(a)   If (but without any obligation to do so) the Company shall
determine to prepare and file with the Commission a registration statement
relating to an offering for its own account or the account of others under the
Securities Act of any of its equity securities, other than on Form S-4 or Form S-8
(each as promulgated under the Securities Act) or their then equivalents
relating to equity securities to be issued solely in connection with any
acquisition of any entity or business or equity securities issuable in connection
with stock option or other employee benefit plans, then the Company shall send
to each Holder written notice of such determination and, if within fifteen (15)
days after receipt of such notice, any such Holder shall so request in writing,
the Company shall include in such registration statement all or any part of
such Registrable Securities (not already covered by an effective registration
statement) such Holder requests to be registered, subject to customary
underwriter cutbacks applicable to holders of registration rights (as described
in Section 14(b) below) and subject to restrictions in applicable
registration rights agreements.  The Company shall have the right to terminate
or withdraw any registration initiated by it under this Section 14 prior to
the effectiveness of such 

 

12

 

registration whether or not
any Holder has elected to include securities in such registration.

 

(b)   In connection with any offering involving an underwriting of equity securities
being issued by the Company for its own account or for the account of others
pursuant to a registration statement, the Company shall not be required
under this Section 14 to include in such registration statement the
Registrable Securities held by any Holder unless such Holder accepts and agrees
to the terms of the underwriting as agreed upon between the Company and the
underwriters selected by the Company (or by other persons entitled to select
the underwriters) and enters into an underwriting agreement in customary form
with such underwriters, and then only in such quantity as the underwriters
determine in their sole discretion will not jeopardize the success of the
offering by the Company.  If the total amount
of Registrable Securities requested to be included in such offering exceeds the
amount of Registrable Securities that the underwriters determine in their sole
discretion is compatible with the success of the offering (after taking into
account the maximum number of shares to be sold by the Company and the other
selling stockholders, if any, in the offering), then the Company shall be
required to include in the offering only that number of Registrable Securities
that the underwriters determine in their sole discretion will not jeopardize the
success of the offering.  In the event
that the underwriters determine that less than all of the Registrable
Securities requested to be registered can be included in such offering, then
the Registrable Securities that are included in such offering shall be
apportioned pro rata among the selling Holders based on the number of
Registrable Securities held by all selling Holders or in such other proportions
as shall mutually be agreed to by all such selling Holders.

 

15.           Miscellaneous.

 

(a)           Remedies.  The Company and the Buyer
acknowledge and agree that irreparable damage would occur in the event that any
of the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. 
It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent or cure breaches of the provisions of this
Agreement and to enforce specifically the terms and provisions hereof, this
being in addition to any other remedy to which any of them may be entitled by
law or equity.

 

(b)           Governing
Law; Jurisdiction.  All questions
concerning the construction, validity, enforcement and interpretation of this
Agreement shall be governed by the internal laws of the State of New York,
without giving effect to any choice of law or conflict of law provision or rule (whether
of the State of New York or any other jurisdictions) that would cause the
application of the laws of any jurisdictions other than the State of New
York.  Each party hereby irrevocably
submits to the non-exclusive jurisdiction of the state and federal courts
sitting in the City of New York, Borough of Manhattan, for the adjudication of
any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, and hereby irrevocably waives, and
agrees not to assert in any suit, action or proceeding, any claim that it is
not personally subject to the jurisdiction of any such court, that such suit,
action or proceeding is brought in an inconvenient forum or that the venue of
such suit, action or proceeding is improper. 
Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it
under this Agreement and agrees that such 

 

13

 

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.

 

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

 

If
to the Company:

 

Liquidmetal Technologies, Inc.

30452 Esperanza

Rancho Santa Margarita, California  92688

Facsimile: 949-635-2188

Attention:  Tony Chung, CFO

Email:  Tony.Chung@Liquidmetal.com

 

with a copy to:

 

Foley &
Lardner LLP

100
North Tampa Street, Suite 2700

Tampa,
Florida 33602

Facsimile:  813-221-4210

Attention:
Curt P. Creely

 

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

 

(d)           Waivers.  No waiver by any party of any
default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver
of any other provision, condition or requirement hereof, nor shall any delay or
omission of any party to exercise any right hereunder in any manner impair the
exercise of any such right accruing to it thereafter.  The representations and warranties and the
agreements and covenants of the Company and each Buyer contained herein shall
survive the Closing.

 

14

 

(e)           Execution in Counterpart.  This
Agreement may be executed in two or more counterparts, all of which shall be
considered one and the same agreement, it being understood that all parties
need not sign the same counterpart.

 

(f)            Signatures.  Facsimile signatures and signatures delivered
in portable document format (PDF) shall be valid and binding on each party
submitting the same.

 

(g)           Entire Agreement; Amendment.  This
Agreement, together with the Purchase Agreement, the Warrants, and the
agreements and documents contemplated hereby and thereby, contains the entire
understanding and agreement of the parties, and may not be amended, modified or
terminated except by a written agreement signed by the Company and the Holder
of the Registrable Securities seeking registration of such securities.

 

(h)           Jury
Trial.  EACH PARTY HERETO WAIVES THE
RIGHT TO A TRIAL BY JURY.

 

(i)            Force Majeure.  The
Company shall not be deemed in breach of its commitments under this Agreement
if the Company is unable to fulfill its obligations hereunder in a timely
fashion if the SEC is closed or operating on a limited basis as a result of the
occurrence of a Force Majeure.  As used
herein, “Force Majeure” means war or armed
hostilities or other national or international calamity, or one or more acts of
terrorism, which are having a material adverse effect on the financial markets
in the United States.

 

(j)            Titles.  The titles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.

 

(k)           No Strict Construction.  The
language used in this Agreement will be deemed to be the language chosen by the
parties to express their mutual intent, and no rule of strict construction
will be applied against any party.

 

[Signatures follow]

 

15

 

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

 

 

	
   

  	
  COMPANY:

  
	
   

  	
   

  
	
   

  	
  LIQUIDMETAL TECHNOLOGIES,
  INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Tony Chung

  
	
   

  	
  Name: Tony Chung

  
	
   

  	
  Title: Chief Financial Officer

  

 

 

COUNTERPART SIGNATURE PAGE

TO REGISTRATION RIGHTS AGREEMENT,

 

DATED MAY 1 2009,

AMONG LIQUIDMETAL TECHNOLOGIES, INC. AND

THE “BUYERS” IDENTIFIED THEREIN

 

The undersigned hereby executes and delivers the Registration Rights
Agreement to which this signature page is attached, which, together with
all counterparts of the Registration Rights Agreement and the signature pages of
the Company and the other Buyers under the Registration Rights Agreement, shall
constitute one and the same document in accordance with the terms of the
Registration Rights Agreement.

 

	
   

  	
  BUYERS

  
	
   

  	
   

  
	
   

  	
  /s/ Carlyle Liquid
  Holdings, LLC

  
	
   

  	
   

  
	
   

  	
  /s/ Fort Mason
  Master, LP

  
	
   

  	
   

  
	
   

  	
  /s/ Fort Mason Partners,
  LP

  
	
   

  	
   

  
	
   

  	
  /s/ The Tail Wind
  Fund Ltd.

  
	
   

  	
   

  
	
   

  	
  /s/ Solomon
  Strategic Holdings, Inc.

  
	
   

  	
   

  
	
   

  	
  /s/ Carlyle Liquid,
  LLC

  
	
   

  	
   

  
	
   

  	
  /s/ Carlyle
  Holdings, LLC

  
	
   

  	
   

  
	
   

  	
  /s/ Castlerigg
  Master Investments Ltd.

  
	
   

  	
   

  
	
   

  	
  /s/ Diamond
  Opportunity Fund, LLC

  
	
   

  	
   

  
	
   

  	
  /s/ Rockmore
  Investment Master Fund Ltd.

  
	
   

  	
   

  
	
   

  	
  /s/ Abdi Mahamedi

  
	
   

  	
   

  
	
   

  	
  /s/ BridgePointe
  Master Fund Ltd.

  
	
   

  	
   

  
	
   

  	
  /s/ Iroquois Master
  Fund

  
	
   

  	
   

  
	
   

  	
  /s/ Rodd Friedman

  
	
   

  	
   

  
	
   

  	
  /s/ Myron Neugeboren

  
	
   

  	
   

  
	
   

  	
  /s/ Ricardo Salas

  
	
   

  	
   

  
	
   

  	
  /s/ Chang Ki Cho

  

 

 

	
   

  	
  /s/ Eric Brachfeld

  
	
   

  	
   

  
	
   

  	
  /s/ Ed Neugeboren

  
	
   

  	
   

  
	
   

  	
  /s/ Wynnefield
  Partners Small Cap Value LP

  
	
   

  	
   

  
	
   

  	
  /s/ Wynnefield
  Partners Small Cap Value LP I

  
	
   

  	
   

  
	
   

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

  
	
   

  	
   

  
	
   

  	
  /s/ Kenneth Lisiak

  
	
   

  	
   

  
	
   

  	
  /s/ Vestal Venture
  Capital

  
	
   

  	
   

  
	
   

  	
  /s/ Mermelstein
  Development

  
	
   

  	
   

  
	
   

  	
  /s/ Atlantic Realty

  

 

 

Annex A

 

Plan of Distribution

 

Each Selling Securityholder (the “Selling
Securityholders”) of the common stock and any of their pledgees, assignees
and successors-in-interest may, from time to time, sell any or all of their
shares of common stock on the Over-the-Counter Bulletin Board or any stock
exchange, or other market or trading facility on which the shares are traded or
in private transactions.  These sales may
be at fixed or negotiated prices.  A
Selling Securityholder may use any one or more of the following methods when
selling shares:

 

·      ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;

·      block trades in which the broker-dealer will attempt to sell the shares
as agent but may position and resell a portion of the block as principal to
facilitate the transaction;

·      purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;

·      an exchange distribution in accordance with the rules of the
applicable exchange;

·      privately negotiated transactions;

·      settlement of short sales entered into after the effective date of the
registration statement of which this prospectus is a part;

·      broker-dealers may agree with the Selling Securityholders to sell a
specified number of such shares at a stipulated price per share;

·      through the writing or settlement of options or other hedging
transactions, whether through an options exchange or otherwise;

·      a combination of any such methods of sale; or

·      any other method permitted pursuant to applicable law.

 

The Selling Securityholders may also sell
shares under Rule 144 under the Securities Act of 1933, as amended (the “Securities
Act”), if available, rather than under this prospectus.

 

Broker-dealers engaged by the Selling
Securityholders may arrange for other brokers-dealers to participate in
sales.  Broker-dealers may receive
commissions or discounts from the Selling Securityholders (or, if any
broker-dealer acts as agent for the purchaser of shares, from the purchaser) in
amounts to be negotiated, but, except as set forth in a supplement to this
Prospectus, in the case of an agency transaction not in excess of a customary
brokerage commission in compliance with FINRA NASD Rule 2440; and in the
case of a principal transaction a markup or markdown in compliance with NASD
IM-2440.

 

In connection with the sale of the common
stock or interests therein, the Selling Securityholders may enter into hedging
transactions with broker-dealers or other financial institutions, which may in
turn engage in short sales of the common stock in the course of hedging the
positions they assume.  The Selling
Securityholders may also sell shares of the common stock short and deliver
these securities to close out their short positions, or loan or pledge the
common stock to broker-dealers that in turn may sell these securities.  The Selling Securityholders may also enter
into option or other transactions with broker-dealers or other financial
institutions or the creation of one or more derivative securities which require
the 

 

 

delivery to such broker-dealer or other financial institution of shares
offered by this prospectus, which shares such broker-dealer or other financial
institution may resell pursuant to this prospectus (as supplemented or amended
to reflect such transaction).

 

The Selling Securityholders and any
broker-dealers or agents that are involved in selling the shares may be deemed
to be “underwriters” within the meaning of the Securities Act in connection
with such sales.  In such event, any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act.  Each Selling Securityholder has informed the
Company that it does not have any written or oral agreement or understanding,
directly or indirectly, with any person to distribute the common stock.

 

Because Selling Securityholders may be deemed
to be “underwriters” within the meaning of the Securities Act, they will be
subject to the prospectus delivery requirements of the Securities Act including
Rule 172 thereunder.  In addition,
any securities covered by this prospectus which qualify for sale pursuant to Rule 144
under the Securities Act may be sold under Rule 144 rather than under this
prospectus.  There is no underwriter or
coordinating broker acting in connection with the proposed sale of the resale
shares by the Selling Securityholders.

 

The resale shares will be sold only through
registered or licensed brokers or dealers if required under applicable state
securities laws.  In addition, in certain
states, the resale shares may not be sold unless they have been registered or
qualified for sale in the applicable state or an exemption from the
registration or qualification requirement is available and is complied with.

 

Under applicable rules and regulations
under the Exchange Act, any person engaged in the distribution of the resale
shares may not simultaneously engage in market making activities with respect
to the common stock for the applicable restricted period, as defined in
Regulation M, prior to the commencement of the distribution.  In addition, the Selling Securityholders will
be subject to applicable provisions of the Exchange Act and the rules and
regulations thereunder, including Regulation M, which may limit the timing
of purchases and sales of shares of the common stock by the Selling
Securityholders or any other person.  We
will make copies of this prospectus available to the Selling Securityholders
and have informed them of the need to deliver a copy of this prospectus to each
purchaser at or prior to the time of the sale (including by compliance with Rule 172
under the Securities Act).Exhibt 10.6

 

SECURITY AGREEMENT

 

THIS SECURITY AGREEMENT (this “Agreement”) is
made and entered into as of the 1st day of May, 2009, by and between LIQUIDMETAL
TECHNOLOGIES, INC., a Delaware corporation (“Borrower”), and WC
COLLATERAL AGENT LLC, a Delaware limited liability company (“Agent”) and
each other person or entity listed as a Secured Party on Schedule 1
attached to this Agreement (the “Investors” and, together with Agent,
the “Secured Parties”).

 

Recitals

 

WHEREAS, the Secured Parties have agreed to purchase
8% Senior Secured Convertible Notes (the “Notes”) from the Borrower
pursuant to the terms of a Securities Purchase and Exchange Agreement (the “Purchase
Agreement”), of even date herewith, between the Borrower and the Secured
Parties.

 

WHEREAS, the Secured Parties have required, as a
condition to purchasing the Notes, that Borrower grant the Agent, for the
benefit of the Investors, a security interest in all of Borrower’s assets
listed on Exhibit A hereto, on the terms and conditions set forth
herein.

 

NOW, THEREFORE, in consideration of the mutual
covenants and agreements contained in the Notes, the Purchase Agreement, and
herein, the parties hereto, intending to be legally bound, agree as follows:

 

1.             Incorporation
of Recitals, Purchase Agreement, and Notes.  The foregoing Recitals, the Purchase
Agreement, the Notes, and the terms and provisions thereof, are hereby
incorporated herein in their entirety by this reference.

 

2.             Definitions.  The following terms shall have the meanings
set forth below:

 

“Collateral” means all assets and personal and
fixture property of Borrower of any kind and nature whatsoever now owned or
hereafter acquired by Borrower, whether tangible or intangible, including
without limitation all of Borrower’s right, title, and interest in and to the
property and assets listed on Exhibit A, including all proceeds
thereof and all increases, substitutions, replacements, additions, and
accretions thereof.

 

“Obligations” has the meaning given in Section 3(a) below.

 

“Patents” mean, collectively, all of Borrower’s
letters patent under the laws of the United States listed on Schedule A
hereto, all recordings and registrations thereof and applications therefor,
including, without limitation, the inventions described therein, all reissues,
continuations, divisions, renewals, extensions, continuations-in-part thereof,
in each case whether now owned or existing or hereafter acquired or arising.

 

“Permitted Liens” mean any of the following: (i) liens
for current taxes or other governmental or regulatory assessments which are not
delinquent, or which are being contested in good faith by the appropriate
procedures and for which appropriate reserves are maintained; 

 

 

(ii) liens granted
in favor of the Agent and/or the Secured Parties; (iii) licenses or
sublicenses of Patents, in each instance granted to others not interfering in
any material respect with the business of the Borrower; (iv) liens or
security interests existing on the date hereof in connection with indebtedness
or obligations disclosed in Schedule 3(p) of the Purchase Agreement, but
only if the existence of the lien or security interest is disclosed on Schedule
3(p) (“Existing Indebtedness”); or (v) liens or security
interests granted by the Borrower to secure Senior Indebtedness.

 

“Security Interest” has the meaning given in Section 3(b) below.

 

“Senior Indebtedness” shall have the meaning
set forth in the Notes.

 

3.             Security
for Obligations.

 

a.             This
Agreement secures, and the Collateral is collateral security for, the prompt
payment or performance in full when due, whether at stated maturity, by
required prepayment, declaration, acceleration, conversion, demand or otherwise
(including the payment of amounts that would become due but for the operation
of the automatic stay under Section 363(a) of the Bankruptcy Code, 11
U.S.C. §362(a)) of all obligations and liabilities of every nature of Borrower
now or hereafter existing under or arising out of the Notes and this Agreement
and all extensions or renewals thereof, whether for principal, interest,
(including, without limitation, interest that, but for the filing of a petition
in bankruptcy with respect to Borrower, would accrue on such obligations),
fees, expenses, indemnities or otherwise, whether voluntary or involuntary,
direct or indirect, absolute or contingent, liquidated or unliquidated, whether
or not jointly owed with others, and whether or not from time to time decreased
or extinguished and later increased, created or incurred, and all or any
portion of such obligations or liabilities that are paid, to the extent all or
any part of such payment is avoided or recovered directly or indirectly from
Agent or any Secured Party as a preference, fraudulent transfer or otherwise
(all such obligations of Borrower being the “Obligations”).

 

b.             As
security for the payment of the Obligations, the Borrower hereby grants to the
Agent, its successors and its assigns, for the pro rata benefit of the
Investors, their successors and their assigns, a security interest in the
Collateral (the “Security Interest”). 
Without limiting the foregoing, the Agent is hereby authorized to file
one or more financing statements, continuation statements or other documents
for the purpose of perfecting, confirming, continuing, enforcing or protecting
the Security Interest, naming the Borrower as debtors and the Agent as secured
party.

 

c.             The
Borrower agrees at all times to keep in all material respects accurate and
complete accounting records with respect to the Collateral, including, but not
limited to, a record of all payments and proceeds received.

 

4.             Representations
and Warranties.  Borrower
represents and warrants as follows:

 

a.             Financing
Statements.  Except for the financing
statements in favor of the Agent, at the time of granting the security interest
described herein, no financing statement covering the Collateral or any portion
thereof will be on file in any public 

 

2

 

office, and,
except for Permitted Liens, Borrower agrees not to execute or authorize the
filing of any such additional financing statement in favor of any person,
entity or governmental agency (whether federal, state or local) other than
Agent as long as any portion of the Obligations evidenced by the Notes remain
unpaid.

 

b.             No Other Liens. 
Except as set forth on Schedule 4(b) hereto, no effective
security agreement, financing statement, equivalent security or lien instrument
or continuation statement covering all or any part of the Collateral is on file
or of record in any public office.

 

c.             Legal
Name.  Borrower’s exact legal name is
as set forth in the first paragraph of this Agreement.  Borrower shall not change its legal name or
its form of organization without 30 days’ prior written notice to the Agent.

 

d.             Title
and Authority.  Borrower has (i) rights
in and good title to the Collateral in which it is granting a security interest
hereunder and (ii) the requisite corporate power and authority to grant to
the Agent the Security Interest in such Collateral pursuant hereto and to execute,
deliver and perform its obligations in accordance with the terms of this
Agreement, without the consent or approval of any other person other than any
consent or approval which has been obtained. 
Borrower has the sole, full and clear title to each of the Patents shown
on Schedule A hereto and the registrations thereof are valid and
subsisting and in full force and effect. 
None of the Patents has been abandoned or dedicated, and, except to the
extent that the Agent, upon prior written notice by Borrower, shall consent,
Borrower will not do any act, or omit to do any act, whereby the Patents may
become abandoned or dedicated and shall notify the Agent immediately if it
knows of any reason or has reason to know that any application or registration
may become abandoned or dedicated. 
Borrower hereby represents and warrants that the Patents shown on Schedule
A are the only issued U.S. patents owned by Borrower as of the date of this
Agreement.

 

e.             Filing.  Fully executed Uniform Commercial Code
financing statements containing a description of the Collateral shall have
been, or shall be delivered to the Agent in a form such that they can be, filed
of record in every governmental, municipal or other office in every
jurisdiction in which any portion of the Collateral is located necessary to
publish notice of and protect the validity of and to establish a valid, legal
and perfected security interest in favor of the Agent in respect of the
Collateral in which a security interest may be perfected by filing in the United
States and its territories and possessions, and no further or subsequent
filing, refiling, recording, rerecording, registration or reregistration is
necessary in any such jurisdiction, except as provided under applicable law
with respect to the filing of Uniform Commercial Code continuation statements.

 

f.              Validity
of Security Interest.  The Security
Interest constitutes a valid, legal and perfected security interest in all of
the Collateral for payment and performance of the Obligations subject only to
Permitted Liens.

 

3

 

g.             Locations
of Collateral; Place of Business. 
Borrower hereby represents and warrants that all the Collateral is
located at the locations listed on Schedule A hereto and that its federal
employer identification number is as set forth on said Schedule.  The Borrower agrees not to establish, or
permit to be established, any other location for Collateral unless all filings
under the Uniform Commercial Code as in effect in any state or otherwise which
are required by this Agreement or the Notes to be made with respect to the
Collateral have been made and the Agent has a valid, legal and perfected
security interest in the Collateral. 
Borrower confirms that its chief executive office is located at the
office indicated on Schedule A hereto and that Borrower is incorporated
in the State of Delaware.  Borrower
agrees not to change, or permit to be changed, the location of its chief
executive office unless all filings under the Uniform Commercial Code or
otherwise which are required by this Agreement or the Notes to be made have
been made and the Agent has a valid, legal and perfected security interest.

 

5.             Covenants
and Agreements.  Borrower
covenants and agrees as follows:

 

a.             Restrictions.  Borrower agrees that until the Obligations
shall have been satisfied in full, Borrower shall not, without Agent’s prior
written consent, assign, transfer, encumber or otherwise dispose of the
Collateral, or any interest therein, except that Borrower may (i) license
(other than on an exclusive basis for all known fields of use for the duration
of the term of the patent) or grant similar rights and interests on an arm’s
length basis consistent with good industry practice in all or any part of the
Patents to unrelated third parties pursuant to its business; (ii) sell,
license on an exclusive basis for all known fields of use for the duration of
the term of the patent or otherwise transfer for value all or any part of the
Patents with the prior written consent of the Agent, which consent will not be
unreasonably withheld; (iii) sell Inventory (as such term is defined in Exhibit A
hereto) in the ordinary course of business or sell obsolete equipment or
inventory for the reasonable fair value thereof; or (iv) grant a Permitted
Lien.  In addition, the Borrower agrees
that, until the Obligations shall have been satisfied in full, the Borrower
will not form any new direct or indirect subsidiary with material assets unless
the subsidiary, upon formation, executes a joinder to this Agreement in which
all of the subsidiary’s assets become included as a part of the Collateral
hereunder and the subsidiary enters into a guarantee of the Notes.  The Borrower agrees that none of its
subsidiaries has any material assets other than Liquidmetal Korea Co., Ltd. and
Liquidmetal Coatings, LLC.

 

b.             Defense.  Borrower shall at its own expense take any
and all actions reasonably necessary to protect and defend the Collateral
against all claims or demands and to defend the Security Interest of the Agent
in such Collateral, and the priority thereof, against any adverse lien of any
nature whatsoever (other than Permitted Liens).

 

c.             Maintenance.  Borrower shall at all times and at its own
expense maintain and keep, or cause to be maintained and kept, the
Collateral.  Borrower shall perform all
acts and execute all documents, including, without limitation, security
agreements with respect to patents in form suitable for filing with the United
States Patent and Trademark Office, substantially in the form of Exhibit B,
hereof requested by the Agent at any time to evidence, perfect, maintain,
record and enforce the Agent’s interest in the Collateral 

 

4

 

that consists of
patents or otherwise in furtherance of the provisions of this Agreement, and
Borrower hereby authorizes the Agent to execute and file one or more financing
statements (and similar documents) or copies thereof or of this Agreement with
respect to the Collateral signed only by the Agent.  Borrower will take all necessary steps in any
proceeding before the United States Patent and Trademark Office or any similar
office or agency of the United States or any State thereof to maintain each
application and registration of the Patents, including, without limitation,
filing of renewals, affidavits of use, affidavits of incontestability and
opposition, interference and cancellation proceedings.

 

d.             Agent’s
Right to Take Action.  If, after ten
days written notice from Agent, Borrower fails to perform or observe any of its
covenants or agreements set forth in this Section 5 or if Borrower
notifies Agent that it intends to abandon all or any part of the Collateral,
Agent may (but need not) perform or observe such covenant or agreement or take
steps to prevent such intended abandonment on behalf and in the name, place,
and stead of Borrower (or, in the case of intended abandonment, in Agent’s own
name) and may (but need not) take any and all other actions that Agent may
reasonably deem necessary to cure or correct such failure or prevent such
intended abandonment.

 

e.             Costs
and Expenses.  Except to the extent
that the effect of such payment would be to render any loan or forbearance of
money usurious or otherwise illegal under any applicable law, Borrower shall
pay the Agent on demand the amount of all moneys expended and all costs and
expenses (including reasonable attorneys’ fees and disbursements) incurred by
the Agent or the Secured Parties in connection with or as a result of the Agent’s
taking action under subsection 5(d), except for intended abandonment of the
Collateral by Borrower, or exercising its rights under Section 7, together
with interest thereon from the date expended or incurred by Agent or the
Secured Parties.

 

f.              Use
and Disposition of Collateral. 
Borrower shall not make or permit to be made any assignment, pledge or
hypothecation of the Collateral other than Permitted Liens or as permitted by Section 5(a) above,
or grant any security interest in the Collateral except for the Security Interest
and Permitted Liens.  Borrower shall not
make or permit to be made any transfer of any Collateral, except in the
ordinary course of business or as permitted by Section 5(a) above,
and Borrower shall remain at all times in possession of the Collateral owned by
it other than transfers to the Agent pursuant to the provisions hereof and as
otherwise provided in this Agreement. 
The Agent shall have the right, as the true and lawful agent of the
Borrower, with power of substitution for the Borrower and in the Borrower’s
name, the Agent’s name or otherwise, for the use and benefit of the Investors
and solely to effect the purposes of this Agreement, (i) to endorse the
Borrower’s name upon any notes, acceptances, checks, drafts, money orders or
other evidences of payment with respect to the Collateral that may come into
its possession; (ii) to sign the name of the Borrower on any invoice
relating to any of the Collateral and (iii) upon the occurrence and during
the continuance of an event of default under this Agreement or under the Notes,
(A) to receive, endorse, assign and/or deliver any and all notes,
acceptances, checks, drafts, money orders or other evidences or instruments of
payment relating to the Collateral or any part thereof, and Borrower hereby
waives notice 

 

5

 

of presentment,
protest and non-payment of any instrument so endorsed, (B) to demand,
collect, receive payment of, give receipt for, extend the time of payment of
and give discharges and releases of all or any of the Collateral and/or release
the obligor thereon, (C) to commence and prosecute any and all suits,
actions or proceedings at law or in equity in any court of competent
jurisdiction to collect or otherwise realize on all or any of the Collateral or
to enforce any rights in respect of any Collateral, (D) to settle,
compromise, compound, adjust or defend any actions, suits or proceedings
relating to or pertaining to all or any of the Collateral, and (E) to use,
sell, assign, transfer, pledge, make any agreement with respect to or otherwise
deal with all or any of the Collateral, and to do all other acts and things
necessary to carry out the purposes of this Agreement, as fully and completely
as though the Agent were the absolute owner of the Collateral for all purposes;
provided, however, that nothing herein contained shall be construed as
requiring or obligating the Agent or any Investor to make any commitment or to
make any inquiry as to the nature or sufficiency of any payment received by the
Agent or such Investor or to present or file any claim or notice, or to take
any action with respect to the Collateral or any part thereof or the moneys due
or to become due in respect thereof or any property covered thereby, and no
action taken by the Agent or any Investor or omitted to be taken with respect
to the Collateral or any part thereof shall give rise to any defense,
counterclaim or offset in favor of Borrower or to any claim or action against
the Agent or any Investor in the absence of the gross negligence or willful
misconduct of the Agent or such Investor; and provided further that, the Agent
shall at all times act reasonably and in good faith.  It is understood and agreed that the
appointment of the Agent as the agent of the Borrower for the purposes set
forth above in this Section 5(f) is coupled with an interest and is
irrevocable.  The provisions of this Section 5(f) shall
in no event relieve Borrower of any of its obligations hereunder with respect
to the Collateral or any part thereof (other than obligations which are
impaired as a result of actions taken by the Agent pursuant to this Section 5(f))
or impose any obligation on the Agent or any Investor to proceed in any
particular manner with respect to the Collateral or any part thereof, or in any
way limit the exercise by the Agent or any Investor of any other or further
right which it may have on the date of this Agreement or hereafter, whether
hereunder or by law or otherwise. 
Anytime action is taken under this Section 5(f), prompt written
notice of such action shall be provided to Borrower by Agent.

 

g.             Account
Control Agreement.  Borrower agrees
to use best efforts to obtain as soon as practicable the signature of Bank of
America to an account control agreement for all Deposit Accounts of the
Company.  Such account control agreement
shall be in substantially the form set forth as Exhibit C, with
such reasonable changes as shall be requested by Bank of America.  Upon Bank of America’s agreement to the form
of account control agreement, the Borrower will promptly execute such agreement
and deliver a duly executed counterpart to Agent.

 

h.             Further
Assurances.  Borrower agrees, at its
expense, to execute, acknowledge, deliver and cause to be duly filed all such
further instruments and documents and take all such actions as the Agent may
from time to time reasonably request for the assuring and preserving of the
Security Interest and the rights and remedies created hereby, including,
without limitation, the payment of any fees and taxes required in connection
with the execution and delivery of this Agreement, the granting of 

 

6

 

the Security
Interest and the filing of any financing statements or other documents in
connection herewith.

 

6.             Events of
Default.  Each of the
following occurrences shall constitute an event of default under this Agreement
(herein called “Event of Default”):

 

a.             an
Event of Default, as defined in the Notes, shall occur; or

 

b.             Borrower
shall fail promptly to observe or perform any covenant or agreement herein
binding on it and such failure is not cured within 20 days after written notice
from the Agent; or

 

c.             there
is any levy, seizure, or attachment of all or any material portion of the
Collateral, other than as set forth in this Agreement; or

 

d.             any of
the representations or warranties contained in Section 4 shall prove to
have been incorrect in any material respect when made.

 

7.             Remedies.  Subject to the provisions of Section 8
hereof, upon the occurrence of an Event of Default and at any time thereafter,
the Agent may, at its option, take any or all of the following actions:

 

a.             exercise
any or all remedies available under this Agreement or the Notes including,
without limitation, any and all rights afforded to a secured party under, and
subject to its obligations contained in, the Uniform Commercial Code as in
effect in any state or other applicable law; or

 

b.             sell,
assign, transfer, pledge, encumber, or otherwise dispose of the Collateral; or

 

c.             enforce
the patents comprising the Collateral and if Agent shall commence any suit for
such enforcement, Borrower shall, at the request of Agent, do any and all
lawful acts and execute any and all proper documents reasonably required by
Agent in aid of such enforcement; or

 

d.             incur
expenses, including attorneys’ fees at the regular hourly rates of the Agent’s
counsel from time to time in effect, legal expenses and costs for the exercise
of any right or power under this Agreement, which expenses are secured by this
Agreement;

 

8.             Subordination of Security Interest to Senior
Creditors.  The Secured
Parties hereby subordinate any and every lien and security interest in the
Collateral (as defined in the Loan Agreement) now or hereafter held by them
(but only to the extent it secures the Senior Indebtedness) to any and every
Permitted Lien (as defined in the Notes) that any holder of the Existing
Indebtedness or any Senior Indebtedness (“Senior Creditors”) now or
hereafter holds in the Collateral with respect to Existing Indebtedness or
Senior Indebtedness, notwithstanding any statement or provision contained in
this Agreement or the Notes to the contrary and irrespective of the time or
order of filing or recording of financing statements, deeds of trust, mortgages
or other notices of security interests, liens or assignments granted pursuant
thereto, and irrespective 

 

7

 

of anything contained in any filing or agreement to which any party
hereto or its respective successors and assigns may now or hereafter be a
party, and irrespective of the ordinary rules for determining priorities
under the Uniform Commercial Code or under any other law governing the relative
priorities of secured creditors.  Senior
Creditors shall have the exclusive right to manage, perform and enforce the
terms of their respective privileges, rights, and agreements with respect to
their respective Collateral according to their discretion and the exercise of
their business judgment including, but not limited to, the exclusive right to
take or retake possession of the Collateral and to hold, prepare for sale,
process, sell, lease, dispose of, or liquidate the Collateral, pursuant to a
foreclosure or otherwise. 
Notwithstanding anything to the contrary contained in this Agreement or
the Notes, only the Senior Creditors shall have the right to restrict or
permit, or approve or disapprove, the sale, transfer or other disposition of
their respective Collateral. 
Accordingly, should a Senior Creditor elect to exercise its rights and
remedies with respect to any of the Collateral, such Senior Creditor may
proceed to do so without regard to any interest of the Secured Parties, and the
Secured Parties waive any claims that they may have against Senior Creditors
for any disposition of the Collateral. 
In the event Secured Party receives the proceeds of any Collateral in
which a Senior Creditor has a lien or security interest, such Secured Party
shall be deemed to hold all of such proceeds in trust for the benefit of Senior
Creditor until all secured obligations to the Senior Creditor are paid in full.
A Secured Party shall not, without the prior written consent of the applicable
Senior Creditor, be permitted to enforce any rights or exercise any remedies
with respect to the Collateral in which a Senior Creditor has a security
interest or lien (including, without limitation, the right to take any action
to foreclose, repossess, marshall, control or exercise any remedies with
respect to the Collateral), so long as any obligation to a Senior Creditor
secured by such Collateral shall continue to exist.  Upon the request of a holder or prospective
holder of Senior Indebtedness, each Secured Party will execute any reasonable
written affirmation, in favor of such holder or prospective holder, of the
provisions of this paragraph and/or the provisions of Section 13 of the
Notes.  In addition, each Secured Party
hereby agrees to comply with the provisions of Section 13 of the Notes,
including without limitation paragraphs (b) and (c) thereof.

 

9.             Collateral
Agent.  Pursuant to a
Collateral Agent Agreement of even date herewith among the Investors, Agent,
and Borrower, the Investors have designated Agent as their administrative agent
with respect to the Collateral upon the terms and conditions set forth in said
agreement.

 

10.           Application
of Proceeds.  The proceeds
of any collection or sale of Collateral, as well as any Collateral consisting
of cash, shall be applied by the Agent as follows:

 

FIRST, to the payment of all reasonable costs and expenses
incurred by the Agent in connection with such collection or sale or otherwise
in connection with this Agreement or any of the Obligations, including, but not
limited to, all court costs and the reasonable fees and expenses of its agents
and legal counsel, the repayment of all advances made by the Agent hereunder on
behalf of the Borrower and any other reasonable costs or expenses incurred in
connection with the exercise of any right or remedy hereunder;

 

8

 

SECOND, pro rata to the payment in full of accrued
interest, and then outstanding principal in respect of any amount of the Notes
outstanding (pro rata as among the Investors in accordance with the principal
amount of the Notes held by them);

 

THIRD, to the Borrower, its successors and assigns, or
as a court of competent jurisdiction may otherwise direct.

 

11.           Security
Interest Absolute. All rights of the Agent hereunder, the
Security Interest, and all obligations of the Borrower hereunder, shall be
absolute and unconditional irrespective of (i) any partial invalidity or
unenforceability of the Notes, any other agreement with respect to any of the
Obligations or any other agreement or instrument relating to any of the
foregoing, (ii) any change in the time, manner or place of payment of, or
in any other term of, all or any of the Obligations, or any other amendment or
waiver of or consent to any departure from the Notes or any other agreement or
instrument, (iii) any exchange, release or nonperfection of any other
Collateral, or any release or amendment or waiver of or consent to or departure
from any guarantee, for all or any of the Obligations, or (iv) any other
circumstance which might otherwise constitute a defense available to, or
discharge of the Borrower in respect of the Obligations or in respect of this
Agreement.

 

12.           Miscellaneous.  This Agreement can be waived, modified,
amended, terminated or discharged, and the Security Interest can be released,
only explicitly in a writing signed by the party against whom such waiver,
modification, amendment, termination, discharge or release is sought to be
enforced. Mere delay or failure to act shall not preclude the exercise or
enforcement of any of the Secured Parties’ rights or remedies. All rights and
remedies of a Secured Party shall be cumulative and may be exercised singularly
or concurrently and the exercise or enforcement of any one such right or remedy
shall neither be a condition to nor bar the exercise or enforcement of any
other.  The Secured Parties shall not be
obligated to preserve any rights Borrower may have against prior parties, to
realize on the Collateral at all or in any particular manner or order, or to
apply any cash proceeds of the Collateral in any particular order of
application. This Agreement shall be binding upon and inure to the benefit of
Borrower and the Secured Parties and their respective participants, successors,
and permitted assigns and shall take effect when signed by Borrower and the
Secured Parties, and Borrower waives notice of Secured Parties’ acceptance
hereof; provided, however, that the Secured Parties’ rights hereunder may not
be transferred or assigned to any third party without the prior written consent
of Borrower.  This Agreement shall be
governed by the internal law of the State of New York without regard to
conflicts of law provisions. If any provision or application of this Agreement
is held unlawful or unenforceable in any respect, such illegality or
unenforceability shall not affect other provisions or applications which can be
given effect and this Agreement shall be construed as if the unlawful or
unenforceable provision or application had never been contained herein or
prescribed hereby. All representations and warranties contained in this
Agreement shall survive the execution, delivery and performance of this
Agreement and the creation and payment of the Obligations.

 

13.           Notices.  Any notices or other communications required
or permitted to be given under the terms of this Agreement must be in writing
and will be deemed to have been delivered: 
(i) upon receipt, when delivered personally; (ii) upon
receipt, when sent by electronic mail or facsimile (provided confirmation of
transmission is mechanically or electronically generated and 

 

9

 

kept on file by the sending party); or (iii) one
business day after deposit with an overnight courier service, in each case
properly addressed to the party to receive the same.  The addresses and facsimile numbers for such
communications shall be:

 

If
to the Company:

 

Liquidmetal Technologies, Inc.

30452 Esperanza

Rancho Santa Margarita, California  92688

Facsimile: 949-635-2188

Attention:  Tony Chung, CFO

Email:  Tony.Chung@Liquidmetal.com

 

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

 

Foley &
Lardner LLP

100
North Tampa Street, Suite 2700

Tampa,
Florida 33602

Facsimile:  813-221-4210

Attention:
Curt P. Creely

 

If
to the Agent to:

 

WC Collateral Agent LLC

450 7th Avenue, Suite 509

New York, NY 10123

 

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

 

Gersten Savage LLP

600 Lexington Avenue, 9th Floor

New York, NY   10022

Facsimile:                                            (212)
980-5192

Attention:                                       David
E. Danovitch, Esq.

Email:                                                                 ddanovitch@gerstensavage.com

 

If
to a Investor, to its address, electronic mail address, or facsimile number set
forth on the Schedule 1 hereto, or to such other address and/or facsimile
number and/or to the attention of such other person as the recipient party has
specified by written notice given to each other party five (5) days prior
to the effectiveness of such change. 
Written confirmation of receipt (A) given by the recipient of such
notice or other communication, (B) mechanically or electronically
generated by the sender’s facsimile machine containing the time, date,
recipient facsimile number and an image of the first page of such
transmission or (C) provided by an overnight courier service shall be
rebuttable evidence of personal service, receipt by facsimile or receipt from
an overnight courier service in accordance with clause (i), (ii) or (iii) above,
respectively.

 

14.           Waiver of
Jury Trial:  BORROWER HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES THE RIGHT BORROWER MAY 

 

10

 

HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
BASED HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT AND
ANY AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONJUNCTION HEREWITH, OR ANY
COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR
ACTIONS OF EITHER PARTY.  THIS PROVISION
IS A MATERIAL INDUCEMENT FOR THE SECURED PARTIES ENTERING INTO THIS AGREEMENT.

 

15.           Termination.  This Agreement and the Security Interest
shall terminate when all the Obligations have been fully and indefeasibly paid
in full, at which time the Agent shall execute and deliver to the Borrower all
Uniform Commercial Code termination statements and similar documents which the
Borrower shall reasonably request to evidence such termination; provided,
however, that all indemnities of the Borrower contained in this Agreement shall
survive, and remain operative and in full force and effect regardless of, the
termination of this Agreement for a period of six (6) months following the
termination of this Agreement.

 

*** Signatures on
following page(s) ***

 

11

 

IN WITNESS WHEREOF, the parties
have duly executed and delivered this Security Agreement as of the date and
year first written above.

 

	
   

  	
  AGENT:

  
	
   

  	
   

  
	
   

  	
  WC COLLATERAL
  AGENT LLC

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Nelson Obus

  
	
   

  	
  Name: Nelson
  Obus

  
	
   

  	
  Title: President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  BORROWER:

  
	
   

  	
   

  
	
   

  	
  LIQUIDMETAL
  TECHNOLOGIES, INC.

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Tony Chung

  
	
   

  	
  Name:

  	
  Tony Chung

  
	
   

  	
  Title:

  	
  Chief Financial
  Officer

  
				

 

 

COUNTERPART SIGNATURE PAGE

TO SECURITY AGREEMENT

 

DATED MAY 1, 2009,

AMONG LIQUIDMETAL TECHNOLOGIES, INC.,

THE “AGENT” INDENTIFIED THEREIN AND

THE “INVESTORS” IDENTIFIED THEREIN

 

The undersigned hereby executes and delivers the
Security Agreement to which this Signature Page is attached, which,
together with all counterparts of the Security Agreement and Signature Pages of
the Borrower, Agent, and other “Investors” under the Security Agreement, shall
constitute one and the same document in accordance with the terms of the
Security Agreement.

 

	
   

  	
  INVESTORS:

  
	
   

  	
   

  
	
   

  	
  /s/ Fort Mason
  Master, LP

  
	
   

  	
   

  
	
   

  	
  /s/ Fort Mason
  Partners, LP

  
	
   

  	
   

  
	
   

  	
  /s/ The Tail
  Wind Fund Ltd.

  
	
   

  	
   

  
	
   

  	
  /s/ Solomon
  Strategic Holdings, Inc.

  
	
   

  	
   

  
	
   

  	
  /s/ Castlerigg
  Master Investments Ltd.

  
	
   

  	
   

  
	
   

  	
  /s/ Diamond
  Opportunity Fund, LLC

  
	
   

  	
   

  
	
   

  	
  /s/ Rockmore
  Investment Master Fund Ltd.

  
	
   

  	
   

  
	
   

  	
  /s/ BridgePointe
  Master Fund Ltd.

  
	
   

  	
   

  
	
   

  	
  /s/ Iroquois
  Master Fund

  
	
   

  	
   

  
	
   

  	
  /s/ Rodd
  Friedman

  
	
   

  	
   

  
	
   

  	
  /s/ Myron
  Neugeboren

  
	
   

  	
   

  
	
   

  	
  /s/ Ed
  Neugeboren

  
	
   

  	
   

  
	
   

  	
  /s/ Wynnefield
  Partners Small Cap Value LP

  
	
   

  	
   

  
	
   

  	
  /s/ Wynnefield
  Partners Small Cap Value LP I

  
	
   

  	
   

  
	
   

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

  

 

 

	
   

  	
  /s/ Vestal
  Venture Capital

  

 

2

 

SCHEDULE
1 TO SECURITY AGREEMENT

 

“INVESTORS”

 

	
  Buyer

  	
   

  	
  Address, E-Mail

  and Facsimile

  Number

  	
   

  	
  Principal Amount

  of Notes

  	
   

  	
  Legal

  Representative’s

  Address and

  Facsimile Number

  
	
  Fort Mason Master, LP

  	
   

  	
  580 California Street

  Suite 1925

  San Francisco, CA 94104

  (415) 288-8113

  	
   

  	
  $

  	
   910,341.27

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Fort Mason Partners, LP

  	
   

  	
  580 California Street

  Suite 1925  

  San Francisco, CA 94104

  (415) 288-8113

  	
   

  	
  $

  	
   59,035.02

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Tail Wind Fund Ltd.

  	
   

  	
  c/o Tail Wind Advisory and Management Ltd

  767 Third Avenue, 6th Floor

  New York, NY 10017

  (212) 676-5665

  	
   

  	
  $

  	
   1,060,151.56

  	
   

  	
  Peter J. Weisman, PC

  767 Third Avenue, 6th Floor

  New York, NY 10017

  (212) 676-5665

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Solomon Strategic Holdings Inc.

  	
   

  	
  c/o Tail Wind Advisory and Management Ltd  

  767 Third Avenue, 6th Floor

  New York, NY 10017

  (212) 676-5665

  	
   

  	
  $

  	
   212,030.29

  	
   

  	
  Peter J. Weisman, PC

  767 Third Avenue, 6th Floor

  New York, NY 10017

  (212) 676-5665

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Castlerigg Master Investments Ltd.

  	
   

  	
  c/o Sandell Asset Management Corporation

  40 West 57th Street

  26th Floor  
 New York, NY 10019

  (212) 603-5710

  	
   

  	
  $

  	
   1,696,242.47

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Diamond Opportunity Fund

  	
   

  	
  500 Skokie Blvd, Suite 310

  Northbrook, IL 60062

  (847) 919-4410

  	
   

  	
  $

  	
   277,368.60

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Rockmore Investment Master Fund Ltd.

  	
   

  	
  150 East 58th Street, 28th Floor

  New York, NY 10155

  (212) 258-2315

  	
   

  	
  $

  	
   848,121.24

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  BridgePointe Master Fund Ltd.

  	
   

  	
  c/o Roswell Capital Partners

  1120 Sanctuary Parkway

  Suite 325

  Alpharetta, GA 30004

  (770) 777-5844

  	
   

  	
  $

  	
   615,934.03

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Iroquois Master Fund

  	
   

  	
  641 Lexington Avenue

  26th Floor

  New York, NY 10022

  (212) 207-3452

  	
   

  	
  $

  	
   161,562.72

  	
   

  	
   

  

 

 

	
  Rodd Friedman

  	
   

  	
  93 Hillspoint Road

  Westport, CT 06880

  (203) 663-1303

  	
   

  	
  $

  	
   48,104.98

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Myron Neugeboren

  	
   

  	
  P.O. Box 1410

  Lakeville, Ct 06309

  (860) 435-2603

  	
   

  	
  $

  	
   9,339.72

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Ed Neugeboren

  	
   

  	
  282 New Norwalk Road

  New Canaan, CT 06840

  (212) 618-0202

  	
   

  	
  $

  	
   6,493.26

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Wynnefield Partners Small Cap Value LP

  	
   

  	
  450 Seventh Avenue

  Suite 509

  New York, NY 10123

  (212) 760-0824

  	
   

  	
  $

  	
   359,539.32

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Wynnefield Partners Small Cap Value LP I

  	
   

  	
  450 Seventh Avenue

  Suite 509

  New York, NY 10123

  (212) 760-0824

  	
   

  	
  $

  	
   470,825.34

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Wynnefield Small Cap Value Offshore

  	
   

  	
  450 Seventh Avenue

  Suite 509

  New York, NY 10123

  (212) 760-0824

  	
   

  	
  $

  	
   453,704.41

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Vestal Venture Capital

  	
   

  	
  6471 Enclave Way

  Boca Raton, FL 33496

  (561) 912-9979

  	
   

  	
  $

  	
   311,205.78

  	
   

  	
   

  

 

 

SCHEDULE
4(B)

 

The security interest in favor of Hana Financial,
Inc.

 

 

SCHEDULE
A

 

Collateral
Location:

 

30452 Esperanza,
Rancho Santa Margarita, California, 92688, USA

 

Federal
Employer Identification Number:

 

33-0264467

 

 

Patents Described in Section 4(d):

 

	
  Title of Patent

  	
   

  	
  US Patent Number

  	
   

  
	
  Porous Amorphous Alloy for Catalysts

  	
   

  	
  4,608,319

  	
   

  
	
  Materials Transformable (Armacore)

  	
   

  	
  4,725,512

  	
   

  
	
  WC Containing Coating

  	
   

  	
  5,030,519

  	
   

  
	
  Be Containing Alloys (Compositon)

  	
   

  	
  5,288,344

  	
   

  
	
  Be Containing Alloys (Method)

  	
   

  	
  5,368,659

  	
   

  
	
  Joining Using Bulk Alloys

  	
   

  	
  5,482,580

  	
   

  
	
  Composites of Bulk Alloy (Method)

  	
   

  	
  5 567 251

  	
   

  
	
  Diamond Composites of Bulk Alloys

  	
   

  	
  5,567,532

  	
   

  
	
  Zr-T-Ni-Cu Bulk Alloys (-101 Series)

  	
   

  	
  5,618,359

  	
   

  
	
  Ti-Containing Hard-Facing Coating

  	
   

  	
  5,695,825

  	
   

  
	
  Die-Casting of Bulk Alloys

  	
   

  	
  5,711,363

  	
   

  
	
  Quinary Bulk Alloys (-105 type)

  	
   

  	
  5 735 975

  	
   

  
	
  Torsional Spring of Bulk Alloys

  	
   

  	
  5,772,803

  	
   

  
	
  Casting of Zr-base Bulk Alloys

  	
   

  	
  5,797,443

  	
   

  
	
  Composites of Bulk Alloy (Article)

  	
   

  	
  5,866,254

  	
   

  
	
  Die-Forming (Molding) of Bulk Alloys

  	
   

  	
  5,896,642

  	
   

  
	
  Apparatus for Hard-Facing Coating

  	
   

  	
  5,942,289

  	
   

  
	
  Replication with Bulk Alloys

  	
   

  	
  5,950,704

  	
   

  
	
  Composite Kinetic Energy Penetrator

  	
   

  	
  6,010,580

  	
   

  
	
  Vacuum Die-Casting

  	
   

  	
  6,021,840

  	
   

  
	
  Zirconia Containing Coating

  	
   

  	
  6,376,091

  	
   

  
	
  Shaped-Charge Projectiles

  	
   

  	
  6,446,558

  	
   

  
	
  Casting of Amorphous Metallic Parts (Hot Mold
  Quenching)

  	
   

  	
  6,620,264

  	
   

  
	
  Yttrium Addition (Chinese Group)

  	
   

  	
  6,682,611

  	
   

  
	
  Golf Club Made of Bulk Alloy

  	
   

  	
  6,685,577

  	
   

  
	
  Centrifugal-Method

  	
   

  	
  6,695,936

  	
   

  
	
  In-Situ Ductile Composite

  	
   

  	
  6,709,536

  	
   

  
	
  Metal Frame

  	
   

  	
  6,771,490

  	
   

  
	
  Joining by Casting

  	
   

  	
  6,818,078

  	
   

  
	
  Gliding Boards

  	
   

  	
  6,843,496

  	
   

  
	
  Forming Molded Articles

  	
   

  	
  6,875,293

  	
   

  
	
  Cutting Tools

  	
   

  	
  6,887,586

  	
   

  
	
  Improving Bulk Alloys

  	
   

  	
  7,008,490

  	
   

  
	
  Thermoplastic Casting (TPC)

  	
   

  	
  7,017,645

  	
   

  
	
  Foamed Structures

  	
   

  	
  7,073,560

  	
   

  
	
  Encapsulated Ceramic Armor

  	
   

  	
  7,157,158

  	
   

  
	
  Investment Casting of Bulk-Solidifying Amorphous
  Alloys

  	
   

  	
  7,293,599

  	
   

  
	
  Retractable Memory Stick

  	
   

  	
  D563,954

  	
   

  
	
  Bulk Amorphous Refractory Glasses Based on the
  NI-NB-SN Ternary Alloy System

  	
   

  	
  7,368,022

  	
   

  
	
  Golf Club Made of Bulk-Solidifying Amorphous Metal

  	
   

  	
  7,357,731

  	
   

  
	
  Jewelry Made of Precious Amorphous Metal and Method
  of Making Such Articles

  	
   

  	
  7,412,848

  	
   

  

 

2

 

EXHIBIT
A

 

Collateral

 

The term “Collateral” shall mean the following assets
of the Borrower:

 

(a)           All “accounts,” as that term is
defined in Article 9 of the Uniform Commercial Code, as in effect in the
State of New York (“UCC”), including, without limitation, every right to
payment for goods or other property of any kind sold or leased or for services
rendered or for any other transaction, whether or not the right to payment has
been earned by performance, and including without limitation every account
receivable, all purchase orders, all interest in goods the sale or lease of
which gives rise to the right to payment (including returned or repossessed
goods and unpaid seller’s rights), and the rights pertaining to such goods,
including the right to stoppage in transit, every right to payment under
any contract, and every lien, guaranty, or security interest that secures a
right to payment for any of the foregoing (“Accounts”);

 

(b)           All chattel paper, consisting of a
writing or writings evidencing both a monetary obligation and a security
interest in or lease of goods, together with any guarantees, letters of credit,
and other security therefore (“Chattel Paper”);

 

(c)           All “deposit accounts,” as defined in
the UCC (“Deposit Accounts”);

 

(d)           All “inventory” of whatever kind, as
that term is used in the UCC, including without limitation all goods held by
the Borrower for sale or lease, goods furnished or to be furnished under a
contract for service, and supplies, packaging, raw materials, goods in transit,
work-in-process, and materials used or consumed or to be used or consumed in
the Borrower’s business, or in the processing, packaging, or shipping of same,
all finished goods, and all property, the sale or lease of which has given rise
to Accounts, Chattel Paper, or Instruments, and that has been returned to the
Borrower or repossessed by the Borrower or stopped in transit, and all
warranties and related claims, credits, setoffs, and other rights of recovery
with respect to any of the foregoing (“Inventory”);

 

(e)           All “equipment,” as that term is used
in the UCC, including without limitation all equipment, machinery, and other
property held for use in or purchased for the Borrower’s business, together
with all increases, parts, fittings, accessories, repair equipment, and special
tools now or later affixed to, or used in connection with, that property, all
transferable rights of the Borrower to the licenses and warranties (express and
implied) received from the sellers and manufacturers of the foregoing property,
all related claims, credits, setoffs, and other rights of recovery (“Equipment”);

 

(f)            All “instruments,” including without
limitation every instrument of any kind, as that term is used in the UCC, and
includes every promissory note, negotiable instrument, certificated security,
or other writing that evidences a right to payment of money, that is not a
lease or security agreement, and that is transferred in the ordinary course of
business by delivery with any necessary assignment or indorsement (“Instruments”);

 

 

(g)           “Investment property,” as that term
is defined in the UCC (“Investment Property”);

 

(h)           All documents, including without
limitation any paper that is treated in the regular course of business as
adequate evidence that the person in possession of the paper is entitled to
receive, hold, and dispose of the goods the paper covers, including warehouse
receipts, bills of lading, certificates of title, and applications for
certificates of title;

 

(i)            All “general intangibles” of any
kind, as that term is used in the UCC, and includes without limitation all intangible
personal property other than Accounts, Documents, Instruments, and Chattel
Paper, and includes without limitation money, contract rights, corporate or
other business records, deposit accounts, inventions, designs, formulas,
Patents (as defined in Section 2 of this Agreement), service marks,
trademarks, trade names, trade secrets, engineering drawings, goodwill, rights
to prepaid expenses, registrations, franchises, copyrights, licenses, customer
lists, computer programs and other software, source code, tax refund claims,
royalty, licensing and product rights, all claims under guarantees, security
interests or other security held by or granted to Borrower to secure payment of
any of the Accounts by an Account Debtor, all indemnification rights, and
rights to retrieval from third parties of electronically processed and recorded
data pertaining to any Collateral, things in action, items, checks, drafts, and
orders in transit to or from Borrower, credits or deposits of Borrower (whether
general or special) that are held by Secured Parties (“General Intangibles”)

 

(j)            “Supporting obligations,” as that
term is defined in the UCC (“Supporting Obligations”); and

 

(k)           To the extent not listed above in
this Exhibit A as original collateral, proceeds and products of the
foregoing.

 

2

 

EXHIBIT
B

 

SECURITY
AGREEMENT

 

(PATENTS)

 

WHEREAS, LIQUIDMETAL
TECHNOLOGIES, INC., a Delaware corporation (herein referred to as “Borrower”),
owns the letters patent, and/or applications for letters patent, of the United
States, more particularly described on Schedule A annexed hereto as part
hereof (the “Patents”);

 

WHEREAS, Borrower is obligated
to WC Collateral Agent LLC, as agent (herein referred to as the “Secured
Party”) for the Investors named in those certain Secured Convertible Notes
dated as of the date hereof issued by the Borrower (each such note, as amended,
modified or supplemented from time to time in accordance with its terms, shall
collectively be referred to as the “Note”) and Borrower has entered into
a Security Agreement dated the date hereof (the “Agreement”) in favor of
Secured Party; and

 

WHEREAS, pursuant to the
Agreement, Borrower has assigned to Secured Party, and granted to Secured Party
a security interest in, all right, title and interest of Borrower in and to the
Patents, together with any reissue, continuation, continuation-in-part or
extension thereof, and all proceeds thereof, including, without limitation, any
and all causes of action which may exist by reason of infringement thereof for
the full term of the Patents (the “Collateral”), to secure the prompt
payment, performance and observance of the Obligations, as defined in the
Agreement;

 

NOW, THEREFORE, for good and valuable consideration,
receipt of which is hereby acknowledged, Borrower does hereby further assign
unto Secured Party and grant to Secured Party a security interest in, the
Collateral to secure the prompt payment, performance and observance of the
Obligations.

 

Borrower does hereby further acknowledge and affirm
that the rights and remedies of Secured Party with respect to the assignment of
the security interest in the Collateral made and granted hereby are more fully
set forth in the Agreement, the terms and provisions of which are hereby
incorporated herein by reference as if fully set forth herein.

 

Secured Party’s address is 450 7th Avenue, Suite 509,
New York, NY 10123

 

IN WITNESS WHEREOF,
Borrower has caused this Agreement to be duly executed by its officer thereunto
duly authorized as of the      day of             
2009.

 

	
   

  	
  LIQUIDMETAL
  TECHNOLOGIES, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
   

  
	
   

  	
  Name: 

  	
   

  
	
   

  	
  Title: 

  	
   

  
					

 

 

EXHIBIT C

 

FORM OF ACCOUNT CONTROL AGREEMENT

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