FACTORY MORTGAGE AGREEMENT

 

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                                                                   EXHIBIT 10.5

 

                                                                       EXECUTION

 

                                  March 1, 2004

 

                           FACTORY MORTGAGE AGREEMENT

 

                                  by and among

 

                           Liquidmetal Korea Co., Ltd.

 

                                 eIPO Co., Ltd.

 

                                       and

 

                           Other parties named herein

 

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THIS FACTORY MORTGAGE AGREEMENT (the "Agreement") is entered into as of this 1st

day of March, 2004 by and among:

 

(i)       Liquidmetal Korea Co., Ltd., a company duly incorporated and existing

         under the laws of Korea and having its principal place of business at

         884, Uhyan Hansan Industrial Complex, Uhyun-ri, Chungbook-myun,

         Pyungtaek, Kyunggi-do, Korea (the "Mortgagor"); and

 

(ii)      eIPO Co., Ltd., a company duly incorporated and existing under the law

         of Korea and having a place of business at at 15th Floor, Union Steel

         Bldg., 890, Daechi-dong, Gangnam-gu, Seoul, Korea and each other person

         or entity listed on Schedule I attached to this Agreement (collectively

         and individually, the "Mortgagee").

 

                                    RECITALS

 

WHEREAS:

 

A.        By the Securities Purchase Agreement dated as of January 15, 2004 (the

         "Securities Purchase Agreement") made by and among Liquidmetal

         Technologies, Inc. ("Liquidmetal") and the Mortgagee, Liquidmetal has

         agreed to issue and sell to the Mortgagee, and the Mortgagee agreed to

         purchase, the Note (as defined therein), subject to and upon the terms

         and conditions contained therein;

 

B         For the purposes of securing the Secured Obligations (as defined

         below), the Mortgagor grants to the Mortgagee, inter alia, a second

         priority maximum amount factory mortgage on the properties described in

         the Schedule hereto pursuant to the terms and conditions contained

         herein.

 

NOW, THEREFORE, it is agreed as follows:

 

1.        Interpretation

 

         Words and expressions defined in the Securities Purchase Agreement

         shall, unless otherwise defined herein or the context otherwise

         requires, have the same meaning when used in this Agreement. References

         to any agreement or document shall be construed as references to such

         agreement or document as varied, amended, novated or supplemented from

         time to time. In addition thereto, as used in this Agreement:

 

1.1       "Mortgaged Properties" shall mean the properties as described in the

         Schedule II (as

 

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         amended from time to time pursuant to this Agreement).

 

1.2.      "Secured Obligations" shall mean (i) any and all obligations,

         liabilities and indebtedness of Liquidmetal owing to the Mortgagee,

          presently existing or to be incurred hereinafter under or with respect

         to the Securities Purchase Agreement and the Note, and (ii) moneys,

         obligations and liabilities owing and payable by the Mortgagor to the

         Mortgagee under this Agreement.

 

2.        Establishment of Factory Mortgage

 

2.1       The Mortgagor does hereby grant to the Mortgagee a second priority

         maximum amount mortgage (the "Factory Mortgage") on the Mortgaged

         Property to secure the Secured Obligations pursuant to the Factory

         Mortgage Act of Korea. The Mortgagee understands and acknowledged that

         there is a first priority mortgage over the Mortgaged Property for the

         benefit of Kookmin Bank ("Priority Mortgage").

 

2.2        The maximum mortgage amount to be secured by the Factory Mortgage over

         the Mortgaged Property shall be the Purchase Price (as defined in the

         Securities Purchase Agreement) up to United States Dollars Three

         Million Only (USD 3,000,000.00), provided, that the Mortgagee shall,

         upon demand from the Mortgagor, allow this maximum mortgage amount to

         be reduced from time to time to the extent of the value of the Note

         that is either repaid or converted into Common Share (as defined in the

         Securities Purchase Agreement) of Liquidmetal. All costs and expenses

         incurred as a result of reducing the maximum mortgage amount shall be

         borne by the Mortgagor.

 

2.3.      Immediately upon the execution of this Agreement, the Mortgagor shall

         cause the Factory Mortgage in the maximum amount of United States

         Dollars Three Million in favor of the Mortgagee to be registered in the

         real estate registry for the Mortgaged Property with the relevant

         registry office. Upon completion of the registration of the Factory

         Mortgage, the Mortgager shall deliver to the Mortgagee a certified copy

         of relevant real estate registry extract and list of equipment.

 

3.         Representations, Warranties and Covenants

 

         The Mortgagor hereby represents, warrants and covenants to the

         Mortgagee that as of the date hereof:

 

         (a)       the execution, delivery and performance by the Mortgagor of

                   this Agreement has been duly authorized by the Mortgagor, and

                  are not in conflict with any provision of any applicable laws

                  or regulations or the articles of incorporation of the

                  Mortgagor;

 

          (b)       the execution, delivery and performance by the Mortgagor of

                  this Agreement does

 

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                  not violate or cause any default under any indenture,

                  agreement or undertaking by which the Mortgagor is bound;

 

         (c)       all authorizations required from any government or

                  governmental agency in connection with this Agreement have

                  been obtained and are in full force and effect except for the

                  report to the Bank of Korea under the Korean Foreign Exchange

                  Transaction Law and the regulations, which will be submitted

                  by the Mortgagee immediately after the execution of this

                  Agreement;

 

         (d)       this Agreement constitutes valid obligations of the Mortgagor,

                  legally binding upon it and enforceable in accordance with its

                  terms, subject, as to enforceability, to laws relating to

                  bankruptcy, insolvency, liquidation, reorganization, court

                  schemes, moratoria, administration and other laws generally

                  affecting the rights of creditors;

 

         (e)       all property forming part of the Mortgaged Property is owned

                  legally by the Mortgagor by good and marketable title free

                  from all security, interest, lien or other encumbrance other

                  than the Priority Mortgage, and shall at all times be and

                  remain free from any security, interest, lien or other

                  encumbrance, except for the Priority Mortgage and the mortgage

                  created hereunder;

 

         (f)       the Mortgagor has not agreed, and will not agree to sell,

                  assign, transfer or create any security, interest, lien or

                  other encumbrance in or over all or any part of the Mortgaged

                  Property other than the Priority Mortgage; provided, that the

                  Mortgagor shall be permitted to sell all or any part of the

                  Mortgaged Property free and clear of the mortgage created

                  hereunder to an unrelated third-party in an arm's length

                   transaction for a valid business purpose (in which case, the

                  Mortgagee shall, at the request of the Mortgagor and at the

                  Mortgagor's cost and expense, deregister the Factory Mortgage

                  from the relevant registry office and take such other action

                  as may be reasonably requested by the Mortgagor to effectuate

                  the release of the Factory Mortgage); and

 

         (g)       the Mortgagor has not taken any corporate action nor have any

                  other steps been taken or legal proceedings been started by it

                  or any third party for its winding up, dissolution,

                  reorganization or bankruptcy or for the appointment of a

                   receiver, trustee or similar officer over the Mortgagor or its

                  assets or revenues, and there occurs or continues no

                  cause/event that may lead to such action or steps.

 

4.        Scope of Factory Mortgage

 

4.1       The Factory Mortgage created hereunder shall be effective as a matter

         of course with respect to not only doors, walls, terraces, garden

         trees, garden stones, structures, appurtenant buildings, facilities for

         water supply and sewage, electrical facilities

 

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         including the facilities for supply and transformation of electric

         power, air-conditioning and heating facilities, elevator facilities,

         facilities for gas supply, and all other facilities in or outside the

         buildings but also attached machinery and tools, which are united with

         or attached to the Mortgaged Property and goods to be attached to or

         united from time to time with the Mortgaged Property by extension,

         reconstruction, repair or rebuilding. For the avoidance of any doubt,

         the Mortgagor and the Mortgagee agree and acknowledge that the Factory

         Mortgage created hereunder does not include the land on which the

         Mortgaged Property is situated.

 

4.2       If any building located on the land which is subject to this Factory

         Mortgage is not registered on the official register or if a new

         building is built on such land, the Mortgagor shall promptly register

         the unregistered existing or new buildings (including the buildings

         which are owned by a third party) and cause to be granted to the

         Mortgagee a Factory Mortgage on such buildings pursuant to Section 2

          hereof, upon the Mortgagee's request for purposes of protecting the

         rights of the Mortgagee hereunder and submit an amended registry

         showing the establishment of a Factory Mortgage on such previously

         unregistered or new buildings.

 

4.3       The Factory Mortgage created hereunder shall also extend as to any

         actual part of the Mortgaged Property not actually shown in the

         registry to the extent that such part is deemed to fall within the

         scope of the property described in the registry thereof. If the

         Mortgagee, in its reasonable judgment, deems it necessary to file for

         an amendment or addition to the Factory Mortgage for the preservation

         of the Mortgagee's rights, the Mortgagor shall immediately take all

         such actions as the Mortgagees may request.

 

5.        Preservation of the Mortgaged Property

 

5.1       The Mortgagor shall not transfer the Mortgaged Property or materially

         change the nature or condition of the Mortgaged Property (other than in

         the ordinary course of business of the Mortgagor or as a consequence of

         normal wear and tear), without the prior consent of the Mortgagee, nor

         do any act (legal or otherwise) which may cause damage or losses to the

         Mortgagee.

 

5.2       The Mortgagor shall give prompt notice to the Mortgagee in the event

         there is any material damage, destruction or expropriation, or there

         occurs any event that may cause material impairment in the value of the

         Mortgaged Property.

 

5.3       In the event any party (other than the Mortgagee) attaches (including

         provisional attachment), seizes or otherwise creates, asserts, claims

         or otherwise acquires any lien or security interest over the Mortgaged

         Property, the Mortgagor shall promptly notify the Mortgagee thereof and

         take all necessary actions to dismiss, discharge and release such

         attachment, seizure, lien or other security interest.

 

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6.        Enforcement of Factory Mortgage

 

6.1       If any of the Secured Obligations becomes due and payable and is not

         paid within thirty (30) days after the date on which payment is due,

         the Mortgagee shall become forthwith entitled, as and when it may see

         fit, to put into force and to exercise all or any of the power

         possessed by it as mortgagees, chargees and assignees of the Mortgaged

         Property, including without limitation, the power to:

 

         (a)       exercise their rights to any of the Mortgaged Property,

                  regardless of whether such Mortgaged Property is in its own

                  name, in the name of the Mortgagor or otherwise;

 

         (b)       assign, sell or other dispose of the Mortgaged Property to

                  such person, at a public or a private sale, and upon such

                  terms and in such manner as the Mortgagee may reasonably

                  determine, and the Mortgagee or anyone else may be the

                  purchaser, assignee or recipient of any or all of the

                  Mortgaged Property and thereafter hold the same absolutely

                  free