THE SECURITIES DESCRIBED HEREIN HAVE NOT BEEN REGISTERED FOR OFFER OR SALE UNDER

THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR

OFFERED FOR SALE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER

SAID ACT AND ANY APPLICABLE STATE SECURITIES LAW OR AN APPLICABLE EXEMPTION FROM

SUCH REGISTRATION REQUIREMENTS.



                             NOTE EXCHANGE AGREEMENT



                  NOTE EXCHANGE AGREEMENT (this "Agreement") dated as of July

29, 2004, by and among Liquidmetal Technologies, Inc., a Delaware corporation

(the "Company"), and each person or entity listed as a Noteholder on Schedule I

attached to this Agreement (collectively and individually, the "Noteholders").

Capitalized terms used herein and not otherwise defined shall have the meanings

set forth in the Exchange Notes (as defined below).



                              W I T N E S S E T H:



                  WHEREAS, the Company sold and issued to the Noteholders 6%

Senior Convertible Notes in the aggregate principal amount of approximately

seven million United States dollars ("Dollars") ($7,000,000.00) (the "Original

Notes") pursuant to that certain Securities Purchase Agreement, dated as of

March 1, 2004, by and among the Company and the Noteholders (the "Purchase

Agreement");



                  WHEREAS, each of the Noteholders owns an Original Note in the

principal amount set forth opposite such Noteholder's name in Column 3 of

Schedule I attached hereto, and such principal amount remains outstanding as of

the date of this Agreement;



                  WHEREAS, the Original Notes are convertible into shares

("Common Shares") of common stock, par value $.001, of the Company ("Common

Stock"), pursuant to the terms of the Original Notes, and the Noteholders were

granted registration rights with respect to the Common Shares issuable upon

conversion of the Original Notes, pursuant to the terms of that certain

Registration Rights Agreement dated March 1, 2004, entered into by and among the

Company and the Noteholders (the "Registration Rights Agreement" and, together

with this Agreement, the Original Notes, the Warrants (as defined below), the

Security Agreement dated March 1, 2004, between the Company and Middlebury

Capital LLC ("Middlebury") as agent for the Noteholders, and the Placement

Agency Agreement between the Company and Middlebury, the "Original Transaction

Documents");



                  WHEREAS, in connection with the Purchase Agreement, each of

the Noteholders was also issued a Common Stock Purchase Warrant dated March 1,

2004, to purchase additional shares of Common Stock on the terms and conditions

set forth therein (the "Warrants," with the shares of Common Stock that are

issuable pursuant to the Warrant hereafter referred to as the "Warrant

Shares.").



                  WHEREAS, the Company and the Noteholders desire to exchange

the Original Notes (the "Exchange") for (A) 6% Senior Secured Notes due 2007 in

the form of Exhibit A attached hereto with an aggregate principal amount equal



<PAGE>



to fifty percent (50%) of the aggregate principal of the outstanding Original

Notes (each a "3-Year Note," and collectively, the "3-Year Notes"), and (B) 10%

Senior Secured Notes due 2005 in the form of Exhibit B attached hereto with an

aggregate principal amount equal to fifty percent (50%) of the aggregate

principal of the outstanding Original Notes (each a "1-Year Note," collectively,

the "1-Year Notes" and collectively with the 3-Year Notes, the "Exchange

Notes"), all on the terms and conditions set forth herein;



                  WHEREAS, in connection with the Exchange, the Company and the

Noteholders desire to amend certain of the Original Transaction Documents, as

more particularly described herein; and



                  WHEREAS, each Noteholder's entire Original Note must be

exchanged in order to participate in the Exchange.



                  NOW, THEREFORE, in consideration of the foregoing premises and

the covenants contained herein and other good and valuable consideration, the

receipt and sufficiency of which are hereby acknowledged, the parties hereby

agree as follows:



                                   ARTICLE I



                                Exchange of Notes

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



        Section 1.1     Exchange of Notes. Subject to the terms and conditions

contained herein, the Company shall issue to the Noteholders the following in

exchange for the Original Notes being exchanged by the Noteholders: (i) a 3-Year

Note with an aggregate principal amount set forth opposite the Noteholder's name

in Column 4 of Schedule I attached hereto, which equals fifty percent (50%) of

the principal of the Original Note being exchanged by such Noteholder, and (ii)

a 1-Year Note with an aggregate principal amount set forth opposite the

Noteholder's name in Column 5 of Schedule I attached hereto, which equals fifty

percent (50%) of the principal of the Original Note being exchanged by such

Noteholder.



        Section 1.2     The Closing.



                (a)     Timing. Subject to the fulfillment or waiver of the

conditions set forth in Article VIII hereof, the purchase and sale of the

Exchange Notes shall take place at a closing (the "Closing"), on or about the

date hereof or such other date as the Noteholders and the Company may agree upon

(the "Closing Date"), provided that the Closing Date shall be no later than

July 29, 2004.



                (b)     Form of Payment and Closing. On the Closing Date, the

Company shall deliver to each Noteholders the Exchange Notes purchased

hereunder, registered in the name of the Noteholder or its nominee plus a

payment in cash equal to the amount of any accrued and unpaid interest on the

Original Notes. On the Closing Date each Noteholder shall deliver to the Company

the original executed Original Note being exchanged hereunder. In addition, each

party shall deliver all documents, instruments and writings required to be





                                       2

<PAGE>



delivered by such party pursuant to this Agreement at or prior to the Closing.

The Exchange Notes will be fully owned and fully paid by the Noteholders as of

the Closing Date.



                                   ARTICLE II



                         Representations and Warranties

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



        Section 2.1     Representations and Warranties of the Company. The

Company hereby makes the following representations and warranties to the

Noteholders as of the date hereof and the Closing Date:



                (a)     Authorization; Enforcement. (i) The Company has all

requisite corporate power and authority to enter into and perform this

Agreement, the Exchange Notes, and the Original Transaction Documents as amended

pursuant to this Agreement (the "Transaction Documents") and to issue the

Exchange Notes in accordance with the terms hereof, (ii) the execution and

delivery of the Transaction Documents by the Company and the consummation by it

of the transactions contemplated hereby and thereby, including the issuance of

the Exchange Notes, have been duly authorized by all necessary corporate action,

and no further consent or authorization of the Company or its Board of Directors

(or any committee or subcommittee thereof) or stockholders is required, (iii)

the Transaction Documents will have been duly executed and delivered by the

Company as of the Closing, (iv) the Transaction Documents constitute valid and

binding obligations of the Company enforceable against the Company, except (A)

as such enforceability may be limited by applicable bankruptcy, insolvency,

reorganization, moratorium, liquidation or similar laws relating to, or

affecting generally the enforcement of creditors' rights and remedies or by

other equitable principles of general application, and (B) to the extent the

indemnification provisions contained in this Agreement and the Registration

Rights Agreement, as amended, may be limited by applicable federal or state

securities laws and (v) the Exchange Notes and the Common Shares issuable upon

the conversion thereof, have been duly authorized and, upon issuance thereof and

payment therefor in accordance with the terms of this Agreement, will be validly

issued, fully paid and non-assessable, free and clear of any and all liens,

claims and encumbrances.



                (b)     Issuance of Shares. Upon issuance in accordance with

this Agreement and the terms of the Exchange Notes, the Exchange Notes will be

validly issued, fully paid and nonassessable and free from all taxes, liens and

charges with respect to the issue thereof.



                (c)     No Conflicts. The execution, delivery and performance of

the Transaction Documents by the Company and the consummation by the Company of

the transactions contemplated hereby and thereby and issuance of the Exchange

Notes and the Common Shares underlying the Exchange Notes will not (i) result in

a violation of the Company's Certificate of Incorporation, as amended and as in

effect on the date hereof (the "Certificate of Incorporation"), any certificate

of designations, preferences and rights of any outstanding series of preferred

stock of the Company or the Company's By-laws, as in effect on the date hereof

(the "By-laws"); (ii) conflict with, or constitute a default (or an event which

with notice or lapse of time or both would become a default) under, or give to

others any rights of termination, amendment, acceleration or cancellation of,

any agreement, indenture or instrument to which the Company or any of its





                                       3

<PAGE>



subsidiaries is a party, or (iii) result in a violation of any law, rule,

regulation, order, judgment or decree (including United States federal and state

securities laws and regulations) applicable to the Company or any of its

subsidiaries or by which any property or asset of the Company or any of its

subsidiaries is bound or affected, except in the case of clause (ii), such

conflicts that would not have a Material Adverse Effect. "Material Adverse

Effect" means any adverse effect on the business, operations, properties,

prospects or financial condition of the Company and its subsidiaries, if any,

and which is (either alone or together with all other adverse effects) material

to the Company and its subsidiaries, if any, taken as a whole, and any material

adverse effect on the transactions contemplated under this Agreement, the Note,

and the Registration Rights Agreement.



                (d)     Disclosure. No representation or warranty by the Company

in this Agreement, nor in any certificate, Schedule or Exhibit delivered or to

be delivered pursuant to this Agreement: contains or will contain any untrue

statement of material fact or omits or will omit to state a material fact

necessary to make the statements contained herein or therein not misleading.



                (e)     Issuance of Common Shares. The Common Shares into which

the Exchange Notes are convertible are duly authorized and reserved for issuance

and, upon conversion of the Exchange Notes in accordance with the terms thereof,

such Common Shares will be validly issued, fully paid and non-assessable, free

and clear of any and all liens, claims and encumbrances, and the holders of such

Common Shares shall be entitled to all rights and preferences accorded to a

holder of Common Stock.



                (f)     Representations and Warranties in Purchase Agreement.

Subject to the Supplemental Disclosure Schedule attached to this Agreement and

incorporated herein by this reference, the representations and warranties set

forth in Article II of the Purchase Agreement shall continue to remain in full

force and effect as though made on the date of this Agreement, and nothing in

this Agreement shall limit or otherwise amend or alter such representations and

warranties.



        Section 2.2     Representations and Warranties of the Noteholders. Each

of the Noteholders hereby makes the following representations and warranties to

the Company as of the date hereof and the Closing Date:



                (a)     Accredited Investor Status; Sophisticated Purchaser. The

Noteholder is an "accredited investor" as that term is defined in Rule 501(a) of

Regulation D under the Securities Act of 1933, as amended ("Securities Act" or

"1933 Act"). The Noteholder has such knowledge and experience in financial and

business matters that it is capable of evaluating the merits and risks of the

purchase of the Exchange Notes and the Common Shares. The Noteholder is not

registered as a broker or dealer under Section 15(a) of the 1934 Act, affiliated

with any broker or dealer registered under Section 15(a) of the 1934 Act, or a

member of the National Association of Securities Dealers, Inc.



                (b)     Information. The Noteholder and its advisors, if any,

have been furnished with all materials relating to the business, finances and

operations of the Company which have been requested and materials relating to

the offer and sale of the Exchange Notes and the Common Shares which have been





                                       4

<PAGE>



requested by the Noteholder. The Noteholder and its advisors, if any, have been

afforded the opportunity to ask questions of the Company. In determining whether

to enter into this Agreement and purchase the Exchange Notes, the Noteholder has

relied solely on the written information supplied by Company employees in

response to the written due diligence information request provided by the

Noteholder to the Company, and the Noteholder has not received nor relied upon

any oral representation or warranty relating to the Company, this Agreement, the

Exchange Notes, or any of the transactions or relationships contemplated

thereby. The Noteholder understands that its purchase of the Exchange Notes and

Common Shares involves a high degree of risk. The Noteholder has sought such

accounting, legal and tax advice as it has considered necessary to make an

informed investment decision with respect to its acquisition of the Exchange

Notes and Common Shares.



                (c)     No Governmental Review. The Noteholder understands that

no United States federal or state agency or any other government or governmental

agency has passed on or made any recommendation or endorsement of the Exchange

Notes or the Common Shares or the fairness or suitability of the investment in

the Exchange Notes and the Common Shares nor have such authorities passed upon

or endorsed the merits thereof.



                (d)     Legends. The Company shall issue the Exchange Notes and

certificates for the Common Shares to the Noteholder without any legend except

as described in Article IX below. The Noteholder covenants that, in connection

with any transfer of Common Shares by the Noteholder pursuant to the

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