Exhibit 10.1

NOTE PURCHASE

AGREEMENT

DATED AS OF MARCH 19, 2014

BY AND BETWEEN

IMPLANT SCIENCES CORPORATION

AND

THE INVESTORS PARTY HERETO

AND

BAM ADMINISTRATIVE SERVICES LLC

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TABLE OF CONTENTS

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ARTICLE I PURCHASE AND SALE OF NOTE

Section 1.1

Purchase and Sale of Note.

Section 1.2

Closing.

ARTICLE II REPRESENTATIONS AND WARRANTIES

Section 2.1

Representations and Warranties of the Company.

Section 2.2

Representations and Warranties of Each Investor.

ARTICLE III COVENANTS

Section 3.1

Securities Compliance.

Section 3.2

Registration and Listing.

Section 3.3

Compliance with Laws.

Section 3.4

Keeping of Records and Books of Account.

Section 3.5

Reporting Requirements.

Section 3.6

Other Agreements.

Section 3.7

Use of Proceeds.

Section 3.8

Reporting Status.

Section 3.9

Reserved.

Section 3.10

Reserved.

Section 3.11

Reserved.

Section 3.12

Amendments.

Section 3.13

Distributions.

Section 3.14

Reserved.

Section 3.15

Prohibition on Liens.

Section 3.16

Prohibition on Indebtedness.

Section 3.17

Compliance with Transaction Documents.

Section 3.18

Reserved.

Section 3.19

Transactions with Affiliates.

Section 3.20

No Merger or Sale of Assets; No Formation of Subsidiaries.

Section 3.21

Payment of Taxes, Etc.

Section 3.22

Corporate Existence.

Section 3.23

Maintenance of Assets.

Section 3.24

No Investments.

Section 3.25

Reserved.

Section 3.26

Acquisition of Assets.

Section 3.27

Reserved.

Section 3.28

Notices of Certain Events.  The Company shall promptly notify the Agent of any
event or events that have had or could reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company.

Section 3.29

Budget Compliance.

Section 3.30

Minimum Cash Balance. The Company shall at all times maintain a cleared balance
of at least $500,000 (the

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“Minimum Balance”) in a deposit account held at a depository institution
satisfactory to Investor and pledged to Investor pursuant to a blocked account
agreement with such depository institution in form and substance satisfactory to
Investor, such account to be free and clear of any Liens other than Liens in
favor of Investor (the “Blocked Account”).  Until the Note and all obligations
of the Company hereunder have been indefeasibly paid and satisfied in full,
Investor shall have sole dominion and control over the Blocked Account and the
Company shall have no right of access to or withdrawal from the Blocked Account.
 If, notwithstanding the prior sentence, Investor shall, in its sole discretion,
permit the Company, following the Company’s request, to have access to the
Blocked Account and maintain less than the Minimum Balance therein, the
Investor, as a condition thereto and in addition to any other conditions that
the Investor may then establish, may require the Company to engage in a sale
process satisfactory to the Investor in its sole discretion, including, without
limitation, conditions, timing and milestones which may be established by the
Investor, including, without limitation, the engagement of a third party
investment banker acceptable to the Investor in its sole and absolute
discretion.

Section 3.31

Inspection.   The Company, upon reasonable notice, shall permit Agent and its
duly authorized representatives or agents to visit any of the Company’s
properties and inspect any of its assets or books and records, to examine and
make copies of its books and records and to discuss its affairs, finances,
technology and accounts with, and to be advised as to the same by, its officers
and employees at such reasonable times and intervals as Agent may designate.

Section 3.32

Accounts Payable.  The Company will pay its accounts payable in the ordinary
course, consistent with past practices and not allow the average age, calculated
as (i) the product of (x) the dollar amount of each payable times (y) the number
of days past due of such payable divided by (ii) the aggregate dollar amount of
all accounts payable, of such accounts payable to be more than one hundred (100)
days past due.

Section 3.33

Current Ratio.  The Company shall maintain at all times a Current Ratio of not
less than 0.60 to 1.00.  “Current

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Ratio” shall be defined as current assets minus current liabilities, all as
determined in accordance with GAAP.

ARTICLE IV CONDITIONS

Section 4.1

Conditions Precedent to the Obligation of the Company to Close and to Sell the
Notes at the Closing.

Section 4.2

Conditions Precedent to the Obligation of the Investors to Close at the Closing.

Section 4.3

Closing Deliveries

Section 4.4

Post-Closing Deliveries

ARTICLE V NOTE LEGEND

Section 5.1

Legend.

ARTICLE VI INDEMNIFICATION

Section 6.1

General Indemnity.

Section 6.2

Indemnification Procedure.

ARTICLE VII

Section 7.1

Appointment

Section 7.2

Nature of Duties.

Section 7.3

Lack of Reliance on Agent: Resignation.

Section 7.4

Certain Rights of the Agent.

Section 7.5

Reliance.

Section 7.6

Notice of Default.

Section 7.7

Indemnification.

Section 7.8

The Company’s Undertaking to Agent.

Section 7.9

No Reliance on the Agent’s Obligor Identification Program.

Section 7.10

Other Agreements.

ARTICLE VIII MISCELLANEOUS

Section 8.1

Fees and Expenses.

Section 8.2

Specific Performance; Consent to Jurisdiction; Venue.

Section 8.3

Entire Agreement; Amendment.

Section 8.4

Notices.

Section 8.5

Waivers.

Section 8.6

Headings.

Section 8.7

Successors and Assigns.

Section 8.8

No Third Party Beneficiaries.

Section 8.9

Governing Law.

Section 8.10

Survival.

Section 8.11

Publicity.

Section 8.12

Counterparts.

Section 8.13

Severability.

Section 8.14

Further Assurances.

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Section 8.15

Confidentiality.

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NOTE  PURCHASE AGREEMENT

This NOTE PURCHASE AGREEMENT, dated as of March 19, 2014 (this “Agreement”), is
by and between Implant Sciences Corporation, a Massachusetts corporation (the
“Company”), each of the entities set forth on Schedule A hereto as investors
(collectively, the “Investors” and each, individually, an “Investor”) and BAM
ADMINISTRATIVE SERVICES LLC, as agent for the Investors (the “Agent”).  

The parties hereto agree as follows:

ARTICLE I

PURCHASE AND SALE OF NOTE

Section 1.1

Purchase and Sale of Note.

(a)

Upon the following terms and conditions, the Company shall issue and sell to
each Investor, and each Investor shall severally but not jointly purchase from
the Company, senior secured promissory notes in an aggregate principal amount of
$20,000,000 in such amounts as set forth on Schedule A hereto.  

(b)

At the Closing (as hereafter defined), upon satisfaction of the terms and
conditions set forth herein, the Company shall issue to each Investor a
promissory note, substantially in the form of Exhibit A hereto (each a “Note”
and together the “Notes”), in the aggregate principal amounts set forth on
Schedule A hereto, and each Investor shall advance, as payment in full for such
Note, the sums set forth on Schedule A hereto.  Each Investor is permitted to
deduct and retain from the advance made on the Closing Date the fees and
expenses of such Investor as permitted by Section 8.1 hereto.  The issuance and
sale of the Notes is referred to herein as the “Closing”.

Section 1.2

Closing.  

The Closing under this Agreement shall take place immediately upon the execution
of this Agreement or on such other date as may be agreed upon in writing by the
parties hereto (the “Closing Date”).  The Closing shall take place at the
offices of the Investor, 152 West 57th Street, 4th Floor, New York, NY 10:00
a.m. New York time.  At the Closing, each Investor shall make the advance
described in Section 1.1 above by wire transfer of immediately available funds
to an account designated by the Company.  

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ARTICLE II

REPRESENTATIONS AND WARRANTIES

Section 2.1

Representations and Warranties of the Company.

The Company hereby represents and warrants to the Investors and the Agent, as of
the date hereof and the date of the Closing hereunder (except as set forth on a
Schedule of Exceptions to be delivered by the Company not more than 15 days
after the Closing Date (the “Schedule of Exceptions”), with each numbered
Schedule corresponding to the section number herein), as follows:

(a)

Organization, Good Standing and Power.  The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of the
Commonwealth of Massachusetts and has the requisite corporate power to own,
lease and operate its properties and assets and to conduct its business as it is
now being conducted.  The Company does not have any direct or indirect
Subsidiaries (as defined in Section 2.1(g)) or own securities of any kind in any
other entity except as set forth on Schedule 2.1(g) hereto.  The Company and
each such Subsidiary (as defined in Section 2.1(g)) is duly qualified as a
foreign corporation, limited liability company or limited partnership to do
business and is in good standing in every other jurisdiction in which the nature
of the business conducted or property owned by it makes such qualification
necessary except for any jurisdiction(s) (alone or in the aggregate) in which
the failure to be so qualified would not reasonably be expected to have a
Material Adverse Effect.  For the purposes of this Agreement, “Material Adverse
Effect” means any material adverse effect on the business, operations,
properties or financial condition of the Company and its Subsidiaries (taken
together as a whole) and/or any condition, circumstance, or situation that would
prohibit or otherwise materially interfere with the ability of the Company to
perform any of its obligations under this Agreement or any of the Transaction
Documents in any material respect.

(b)

Authorization; Enforcement.  The Company and the Subsidiaries (as applicable)
have the requisite corporate power and authority to enter into and perform this
Agreement, the Notes, the Security Agreement by and between the Company, and the
Agent dated as of the Closing Date, substantially in the form of Exhibit C
attached hereto (the “Security Agreement”) the Officer’s Certificate to be
delivered by the Company, dated as of the Closing Date, substantially in the
form of Exhibit D attached hereto (the “Officer’s Certificate”), the Patent
Security Agreement by and among the Company, the Subsidiaries and the Agent,
substantially in the form of Exhibit B, attached to the Security Agreement
(together with any Copyright Security Agreement or Trademark Security Agreement
subsequently entered into by the Company or any Subsidiary and the Agent
pursuant to the terms of the Security Agreement, collectively, the “IP Security
Agreements”), the guaranty (“Guaranty”) to be delivered by each of the
Subsidiaries, dated as of the date hereof, substantially in the form of Exhibit
E to the Agent, the Intercreditor Agreement by and between the Company the Agent
and DMRJ Group, LLC (the “Intercreditor Agreement”) dated as of the date hereof,
substantially in the form of Exhibit F (collectively, together with this
Agreement and the Notes, the “Transaction

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Documents”), and to issue and sell the Notes in accordance with the terms
hereof.  The execution, delivery and performance of the Transaction Documents by
the Company and the consummation by it of the transactions contemplated thereby
have been duly and validly authorized by all necessary corporate action, and,
except as set forth on Schedule 2.1(b), no further consent or authorization of
the Company, its Board of Directors, stockholders or any other third party is
required.  When executed and delivered by the Company and the Subsidiaries, each
of the Transaction Documents shall constitute a valid and binding obligation of
the Company or the Subsidiaries, as the case may be, enforceable against the
Company or the Subsidiaries, as the case may be, in accordance with its terms,
except as such enforceability may be limited by applicable bankruptcy,
reorganization, moratorium, liquidation, conservatorship, receivership or
similar laws relating to, or affecting generally the enforcement of, creditor’s
rights and remedies or by other equitable principles of general application.

(c)

Capitalization.  The authorized capital stock and the issued and outstanding
shares of capital stock of the Company as of the Closing Date is set forth on
Schedule 2.1(c)(i) hereto.  All of the outstanding shares of the Common Stock
and any other outstanding security of the Company have been duly and validly
authorized.  Except as set forth in this Agreement, or as set forth on Schedule
2.1(c)(ii) hereto, no shares of Common Stock or any other security of the
Company are entitled to preemptive rights or registration rights and there are
no outstanding options, warrants, scrip, rights to subscribe to, call or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company.  Furthermore,
except as set forth in this Agreement and as set forth on Schedule 2.1(c)(iii)
hereto, there are no contracts, commitments, understandings, or arrangements by
which the Company is or may become bound to issue additional shares of the
capital stock of the Company or options, securities or rights convertible into
shares of capital stock of the Company.  Except as provided on Schedule
2.1(c)(iv) hereto, the Company is not a party to or bound by any agreement or
understanding granting registration or anti-dilution rights to any person with
respect to any of its equity or debt securities.  Except as set forth on
Schedule 2.1(c)(v), the Company is not a party to, and it has no knowledge of,
any agreement or understanding restricting the voting or transfer of any shares
of the capital stock of the Company.  

(d)

Issuance of Notes.  The Notes have been duly authorized by all necessary
corporate action and, when paid for or issued in accordance with the terms
hereof, the Notes shall be validly issued and outstanding, free and clear of all
liens, encumbrances and rights of refusal of any kind.  

(e)

No Conflicts.  The execution, delivery and performance of the Transaction
Documents by the Company, the performance by the Company of its obligations
under the Notes and the consummation by the Company and the Subsidiaries of the
transactions contemplated hereby and thereby, and the issuance of the Notes as
contemplated hereby, do not and will not (i) violate or conflict with any
provision of the Company’s Amended and Restated Articles of Organization (the
“Articles of Organization”) or Bylaws (the “Bylaws”), each as amended to date,
or any Subsidiary’s comparable charter documents, (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or

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both would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, mortgage, deed of
trust, indenture, note, bond, license, lease agreement, instrument or obligation
to which the Company or any of its Subsidiaries is a party or by which the
Company or any of its Subsidiaries’ respective properties or assets are bound,
(iii) result in a violation of any federal, state, local or foreign statute,
rule, regulation, order, judgment or decree (including 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 are bound or affected, or (iv) create or impose a lien, mortgage,
security interest, charge or encumbrance of any nature on any property or asset
of the Company or its Subsidiaries under any agreement or any commitment to
which the Company or any of its Subsidiaries is a party or by which the Company
or any of its Subsidiaries is bound or by which any of their respective
properties or assets are bound, except, in all cases, for such conflicts,
defaults, terminations, amendments, acceleration, cancellations and violations
as would not, individually or in the aggregate, have a Material Adverse Effect
(other than violations pursuant to clauses (i) or (iii) (with respect to federal
and state securities laws)).  Neither the Company nor any of its Subsidiaries is
required under federal, state, foreign or local law, rule or regulation to
obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency in order for it to execute,
deliver or perform any of its obligations under the Transaction Documents or
issue and sell the Notes in accordance with the terms hereof (other than any
filings, consents and approvals which may be required to be made by the Company
under applicable state and federal securities laws, rules or regulations).  

(f)

Commission Documents, Financial Statements.  The Common Stock of the Company is
registered pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of
1934, as amended (the “Exchange Act”), and the Company has timely filed all
reports, schedules, forms, statements and other documents required to be filed
by it with the Securities and Exchange Commission (the “Commission”) pursuant to
the reporting requirements of the Exchange Act (all of the foregoing including
filings incorporated by reference therein being referred to herein as the
“Commission Documents”).  Each Commission Document complied in all material
respects with the requirements of the Exchange Act and the rules and regulations
of the Commission promulgated thereunder and other federal, state and local
laws, rules and regulations applicable to such documents, and the Commission
Documents did not, as of their respective filing dates, contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.  As of their
respective dates, the financial statements of the Company included in the
Commission Documents complied as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the Commission or other applicable rules and regulations with respect thereto.
 Such financial statements have been prepared in accordance with generally
accepted accounting principles (“GAAP”) applied on a consistent basis during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto or (ii) in the case of unaudited interim
statements, to the extent they may not include footnotes or may be condensed or
summary statements), and fairly present in all material respects the financial
position of the Company and its Subsidiaries as of the dates

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thereof and the results of operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).

(g)

Subsidiaries.  Schedule 2.1(g) hereto sets forth each Subsidiary of the Company,
showing the jurisdiction of its incorporation or organization and showing the
percentage of each person’s ownership of the outstanding stock or other
interests of such Subsidiary.  For the purposes of this Agreement, “Subsidiary”
shall mean any corporation or other entity of which at least 50% of the
securities or other ownership interest having ordinary voting power (absolutely
or contingently) for the election of directors or other persons performing
similar functions are at the time owned directly or indirectly by the Company
and/or any of its other Subsidiaries.  All of the outstanding shares of capital
stock of each Subsidiary have been duly authorized and validly issued, and are
fully paid and nonassessable.  Except as set forth on Schedule 2.1(g) hereto,
there are no outstanding preemptive, conversion or other rights, options,
warrants or agreements granted or issued by or binding upon any Subsidiary for
the purchase or acquisition of any shares of capital stock of any Subsidiary or
any other securities convertible into, exchangeable for or evidencing the rights
to subscribe for any shares of such capital stock.  Neither the Company nor any
Subsidiary is subject to any obligation (contingent or otherwise) to repurchase
or otherwise acquire or retire any shares of the capital stock of any Subsidiary
or any convertible securities, rights, warrants or options of the type described
in the preceding sentence except as set forth on Schedule 2.1(g) hereto.
 Neither the Company nor any Subsidiary is party to, nor has any knowledge of,
any agreement restricting the voting or transfer of any shares of the capital
stock of any Subsidiary.  Each subsidiary is duly organized, validly existing
and in good standing under the laws of the jurisdictions set forth on Schedule
2.1(g) and has the requisite corporate or other power to own, lease and operate
its properties and assets and to conduct its business as it is now being
conducted.

(h)

No Material Adverse Change.  Except as disclosed in the Commission Documents or
on Schedule 2.1(h) hereto, since December 31, 2013, the Company has not
experienced or suffered any Material Adverse Effect.

(i)

No Undisclosed Liabilities.  Except as disclosed in the Commission Documents on
Schedule 2.1(i) hereto, since December 31, 2013, neither the Company nor any of
its Subsidiaries has incurred any liabilities, obligations, claims or losses
(whether liquidated or unliquidated, secured or unsecured, absolute, accrued,
contingent or otherwise) other than those incurred in the ordinary course of the
Company’s or its Subsidiaries respective businesses or which, individually or in
the aggregate, are not reasonably likely to have a Material Adverse Effect.

(j)

No Undisclosed Events or Circumstances.  Since December 31, 2013, except as
disclosed on Schedule 2.1(j) hereto, no event or circumstance has occurred or
exists with respect to the Company or its Subsidiaries or their respective
businesses, properties, prospects, operations or financial condition, which,
under applicable law, rule or regulation, requires public disclosure or
announcement by the Company but which has not been so publicly announced or
disclosed.

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(k)

Indebtedness.  Schedule 2.1(k) hereto sets forth as of the date hereof all
outstanding secured and unsecured Indebtedness of the Company or any Subsidiary,
or for which the Company or any Subsidiary has commitments.  For the purposes of
this Agreement, “Indebtedness” shall mean, with respect to any Person, (a) all
obligations for borrowed money, (b) all obligations evidenced by bonds,
debentures, notes, or other similar instruments and all reimbursement or other
obligations in respect of letters of credit, bankers acceptances, current swap
agreements, interest rate hedging agreements, interest rate swaps, or other
financial products, (c) all capital lease obligations that exceed $50,000 in the
aggregate in any fiscal year, (d) all obligations or liabilities secured by a
lien or encumbrance on any asset of such Person, irrespective of whether such
obligation or liability is assumed, (e) all obligations for the deferred
purchase price of assets, together with trade debt and other accounts payable
that exceed $50,000 in the aggregate in any fiscal year, (f) all synthetic
leases, (g) all obligations with respect to redeemable stock and redemption or
repurchase obligations under any capital stock or other equity securities issued
by such Person, (h) all reimbursement obligations and other liabilities of such
Person with respect to surety bonds (whether bid, performance or otherwise),
letters of credit, banker’s acceptances, drafts or similar documents or
instruments issued for such Person’s account, (i) indebtedness of any
partnership or joint venture in which such Person is a general partner or a
joint venturer to the extent such Person is liable therefore as a result of such
Person’s ownership interest in such entity, except to the extent that the terms
of such indebtedness expressly provide that such Person is not liable therefore
or such Person has no liability therefore as a matter of law, (j) trade debt and
other account payables which remain unpaid more than one hundred (100) days past
the invoice date, and (k) any obligation guaranteeing or intended to guarantee
(whether directly or indirectly guaranteed, endorsed, co-made, discounted or
sold with recourse) any of the foregoing obligations of any other Person;
provided, however, Indebtedness shall not include (I) usual and customary trade
debt and other accounts payable incurred in the ordinary course of business less
than one hundred (100) days past the invoice date and (II) endorsements for
collection or deposit in the ordinary course of business.  Neither the Company
nor any Subsidiary is in default with respect to any Indebtedness.  “Person”
means any individual, sole proprietorship, joint venture, partnership,
corporation, limited liability company, association, joint-stock company,
unincorporated organization, cooperative, trust, estate, governmental entity or
any other entity of any kind or nature whatsoever.

(l)

Title to Assets.  Each of the Company  and the Subsidiaries has good and valid
title to all of its real and personal property reflected in the Commission
Documents, free and clear of any mortgages, pledges, charges, liens, security
interests or other encumbrances, except for those indicated on Schedule 2.1(l)
hereto.  Any leases of the Company and each of its Subsidiaries are valid and
subsisting and in full force and effect.  Pursuant to, and upon execution and
delivery of, the Security Agreement and any applicable IP Security Agreements,
the Company and its Subsidiaries shall have granted to the Agent a perfected,
first priority security interest in substantially all of the assets of the
Company and the Subsidiaries.  

(m)

Actions Pending.  There is no action, suit, claim, investigation, arbitration,
alternate dispute resolution proceeding or other proceeding pending or, to the
knowledge of the Company, threatened against the Company or any Subsidiary which
questions the

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validity of this Agreement or any of the other Transaction Documents or any of
the transactions contemplated hereby or thereby or any action taken or to be
taken pursuant hereto or thereto.  Except as set forth on Schedule 2.1(m)
hereto, there is no action, suit, claim, investigation, arbitration, alternate
dispute resolution proceeding or other proceeding pending or, to the knowledge
of the Company, threatened against or involving the Company, any Subsidiary or
any of their respective properties or assets, which individually or in the
aggregate, would reasonably be expected, if adversely determined, to have a
Material Adverse Effect.  There are no outstanding orders, judgments,
injunctions, awards or decrees of any court, arbitrator or governmental or
regulatory body against the Company or any Subsidiary or any officers or
directors of the Company or Subsidiary in their capacities as such, which
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect.

(n)

Compliance with Law.  The business of the Company and the Subsidiaries has been
and is presently being conducted in accordance with all applicable federal,
state and local governmental laws, rules, regulations and ordinances, except
such that, individually or in the aggregate, the noncompliance therewith could
not reasonably be expected to have a Material Adverse Effect.  The Company and
each of its Subsidiaries have all franchises, permits, licenses, consents and
other governmental or regulatory authorizations and approvals necessary for the
conduct of its business as now being conducted by it unless the failure to
possess such franchises, permits, licenses, consents and other governmental or
regulatory authorizations and approvals, individually or in the aggregate, could
not reasonably be expected to have a Material Adverse Effect.    

(o)

Taxes.  The Company and each of the Subsidiaries has accurately prepared and
filed (or validly extended) all federal, state and other tax returns required by
law to be filed by it, has paid or made provisions for the payment of all taxes
shown to be due and all additional assessments, and adequate provisions have
been and are reflected in the financial statements of the Company and the
Subsidiaries for all current taxes and other charges to which the Company or any
Subsidiary is subject and which are not currently due and payable.  Except as
disclosed on Schedule 2.1(o) hereto, none of the federal income tax returns of
the Company or any Subsidiary have been audited by the Internal Revenue Service.
 The Company has no knowledge of any additional assessments, adjustments or
contingent tax liability (whether federal or state) of any nature whatsoever,
whether pending or threatened against the Company or any Subsidiary for any
period, nor of any basis for any such assessment, adjustment or contingency.

(p)

Disclosure.  Except for the transactions contemplated by this Agreement, the
Company confirms that neither it nor any other person acting on its behalf has
provided the Agent or any Investor or their respective agents or counsel with
any information that constitutes or might constitute material, nonpublic
information.  To the Company’s knowledge, neither this Agreement or the
Schedules hereto nor any other documents, certificates or instruments furnished
to any Investor or Agent by or on behalf of the Company or any Subsidiary in
connection with the transactions contemplated by this Agreement, taken together
as a whole, will, when supplemented by the Schedule of Exceptions, contain any
untrue statement of a material fact or omit to state a material fact

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necessary in order to make the statements made herein or therein, in the light
of the circumstances under which they were made herein or therein, not
misleading.

(q)

Environmental Compliance.  Except as would not reasonably be expected to have a
Material Adverse Effect, the Company and each of its Subsidiaries have obtained
all approvals, authorization, certificates, consents, licenses, orders and
permits or other similar authorizations of all governmental authorities, or from
any other person, that are required under any Environmental Laws.
 “Environmental Laws” shall mean all applicable laws relating to the protection
of the environment including, without limitation, all requirements pertaining to
reporting, licensing, permitting, controlling, investigating or remediating
emissions, discharges, releases or threatened releases of hazardous substances,
chemical substances, pollutants, contaminants or toxic substances, materials or
wastes, whether solid, liquid or gaseous in nature, into the air, surface water,
groundwater or land, or relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of hazardous
substances, chemical substances, pollutants, contaminants or toxic substances,
material or wastes, whether solid, liquid or gaseous in nature.  Except as would
not reasonably be expected to have a Material Adverse Effect, the Company has
all necessary governmental approvals required under all Environmental Laws as
necessary for the Company’s business or the business of any of its subsidiaries.
 To the Company’s knowledge, the Company and each of its Subsidiaries are also
in compliance with all other limitations, restrictions, conditions, standards,
requirements, schedules and timetables required or imposed under all
Environmental Laws.  Except for such instances as would not individually or in
the aggregate have a Material Adverse Effect, there are no past or present
events, conditions, circumstances, incidents, actions or omissions relating to
or, to the Company’s knowledge, in any way affecting, the Company or its
Subsidiaries that violate or may violate any Environmental Law after the Closing
Date or that may give rise to any environmental liability, or otherwise form the
basis of any claim, action, demand, suit, proceeding, hearing, study or
investigation (i) under any Environmental Law, or (ii) based on or related to
the manufacture, processing, distribution, use, treatment, storage (including
without limitation underground storage tanks), disposal, transport or handling,
or the emission, discharge, release or threatened release of any hazardous
substance.  

(r)

Books and Records; Internal Accounting Controls.  The records and documents of
the Company and its Subsidiaries accurately reflect in all material respects the
information relating to the business of the Company and its Subsidiaries, the
location and collection of their assets, and the nature of all transactions
giving rise to the obligations or accounts receivable of the Company or any
Subsidiary. The Company is in material compliance with all provisions of the
Sarbanes-Oxley Act of 2002 which are applicable to it as of the Closing Date.
The Company and its Subsidiaries maintain a system of internal accounting
controls sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management’s general or specific authorizations,
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management’s general or
specific authorization, and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any

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differences. The Company has established disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and
designed such disclosure controls and procedures to ensure that information
required to be disclosed by the Company in the reports it files or submits under
the Exchange Act is recorded, processed, summarized and reported, within the
time periods specified in the Commission’s rules and forms. The Company’s
certifying officers have evaluated the effectiveness of the Company’s disclosure
controls and procedures as of the end of the period covered by the Company’s
most recently filed periodic report under the Exchange Act (such date, the
“Evaluation Date”). The Company presented in its most recently filed periodic
report under the Exchange Act the conclusions of the certifying officers about
the effectiveness of the disclosure controls and procedures based on their
evaluations as of the Evaluation Date. Since the Evaluation Date, there have
been no changes in the Company’s internal control over financial reporting (as
such term is defined in the Exchange Act) that has materially affected, or is
reasonably likely to materially affect, the Company’s internal control over
financial reporting.

(s)

Material Agreements.  Except as would not reasonably be expected to have a
Material Adverse Effect, the Company and each of its Subsidiaries have performed
all obligations required to be performed by them to date under any written or
oral contract, instrument, agreement, commitment, obligation, plan or
arrangement, filed or required to be filed with the Commission (the “Material
Agreements”).  Except as disclosed on Schedule 2.1(s) hereto, neither the
Company nor any of its Subsidiaries has received any notice of default under any
Material Agreement, which has not been waived or cured.  Except as disclosed on
Schedule 2.1(s) hereto, neither the Company nor any of its Subsidiaries is
currently in default under any Material Agreement now in effect.  

(t)

Transactions with Affiliates.  Except as set forth on Schedule 2.1(t) hereto or
in the Commission Documents, there are no loans, leases, agreements, contracts,
royalty agreements, management contracts or arrangements or other continuing
transactions between (a) the Company, any Subsidiary or any of their respective
customers or suppliers on the one hand, and (b) on the other hand, any officer,
employee, consultant or director of the Company, or any of its Subsidiaries, or
any person owning at least 5% of the outstanding capital stock of the Company or
any Subsidiary or any member of the immediate family of such officer, employee,
consultant, director or stockholder or any corporation or other entity
controlled by such officer, employee, consultant, director or stockholder, or a
member of the immediate family of such officer, employee, consultant, director
or stockholder which, in each case, is required to be disclosed in the
Commission Documents or in the Company’s most recently filed definitive proxy
statement on Schedule 14A, that is not so disclosed in the Commission Documents
or in such proxy statement.

(u)

Securities Act of 1933.  The Company has complied and will comply with all
applicable federal and state securities laws in connection with the offer,
issuance and sale of the Notes hereunder.  Neither the Company nor anyone acting
on its behalf, directly or indirectly, has or will sell, offer to sell or
solicit offers to buy any of the Notes or similar securities to, or solicit
offers with respect thereto from, or enter into any negotiations relating
thereto with, any person, or has taken or will take any action so as to bring
the

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issuance and sale of any of the Notes under the registration provisions of the
Securities Act and applicable state securities laws, and neither the Company nor
any of its affiliates, nor any person acting on its or their behalf, has engaged
in any form of general solicitation or general advertising (within the meaning
of Regulation D under the Securities Act) in connection with the offer or sale
of any of the Notes.  The Company is not, and has never been, a company
described in Rule 144(i)(1) under the Securities Act, and is a “reporting
issuer” as described in Rule 144(c)(1) under the Securities Act.   Neither the
Company, nor any of its directors, officers or controlling persons, has taken or
will, in violation of applicable law, take, any action designed to or that might
reasonably be expected to cause or result in, or which has constituted,
stabilization or manipulation of the price of the Common Stock to facilitate the
sale or resale of the securities issued or issuable in connection with the
transactions contemplated hereunder.

(v)

Employees.  Neither the Company nor any Subsidiary has any collective bargaining
arrangements or agreements covering any of its employees, except as set forth on
Schedule 2.1(v) hereto.  Except as set forth on Schedule 2.1(v) hereto, neither
the Company nor any Subsidiary has any employment contract, agreement regarding
proprietary information, non-competition agreement, non-solicitation agreement,
confidentiality agreement, or any other similar contract or restrictive
covenant, relating to the right of any officer, employee or consultant to be
employed or engaged by the Company or such Subsidiary required to be disclosed
in the Commission Documents that is not so disclosed.  No officer, consultant or
key employee of the Company or any Subsidiary whose termination, either
individually or in the aggregate, would be reasonably likely to have a Material
Adverse Effect, has terminated or, to the knowledge of the Company, has any
present intention of terminating his or her employment or engagement with the
Company or any Subsidiary.

(w)

Intellectual Property.  Except as set forth on Schedule 2.1(w) hereto, the
Company and each of the Subsidiaries owns, or possesses the rights to use, all
patents (and any patentable improvements thereof), trademarks, service marks,
trade names, domain names, copyrights and websites (or copyrightable derivative
works thereof), and intellectual property rights relating thereto (to any of the
foregoing list, whether or not registered), licenses and authorizations which
are necessary for the conduct of its business as now conducted without
infringement or any conflict with the rights of others.

(x)

Absence of Certain Developments.  Except as set forth in the Commission
Documents or provided on Schedule 2.1(x) hereto, since December 31, 2013,
neither the Company nor any Subsidiary has:

(i)

issued any stock, bonds or other corporate securities or any right, options or
warrants with respect thereto;

(ii)

borrowed any amount in excess of $100,000 or incurred or become subject to any
other liabilities in excess of $100,000 (absolute or contingent) except current
liabilities incurred in the ordinary course of business which are comparable in
nature and amount to the current liabilities incurred in the ordinary course of
business during the comparable portion of its

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prior fiscal year, as adjusted to reflect the current nature and volume of the
business of the Company and its Subsidiaries;

(iii)

discharged or satisfied any lien or encumbrance in excess of $100,000 or paid
any obligation or liability (absolute or contingent) in excess of $100,000,
other than current liabilities paid in the ordinary course of business;

(iv)

declared or made any payment or distribution of cash or other property to
stockholders with respect to its stock, or purchased or redeemed, or made any
agreements so to purchase or redeem, any shares of its capital stock, in each
case in excess of $50,000 individually or $100,000 in the aggregate;

(v)

sold, assigned or transferred any other tangible assets, or canceled any debts
or claims, in each case in excess of $100,000, except in the ordinary course of
business;

(vi)

sold, assigned or transferred any patent rights, trademarks, trade names,
copyrights, trade secrets or other intangible assets or intellectual property
rights in excess of $100,000, or disclosed any proprietary confidential
information to any person except to customers in the ordinary course of business
or pursuant to nondisclosure agreements;

(vii)

suffered any material losses or waived any rights of material value, whether or
not in the ordinary course of business, or suffered the loss of any material
amount of prospective business;

(viii)

made any changes in employee compensation except in the ordinary course of
business and consistent with past practices;

(ix)

made capital expenditures or commitments therefor that aggregate in excess of
$100,000;

(x)

entered into any material transaction, whether or not in the ordinary course of
business;

(xi)

made charitable contributions or pledges in excess of $10,000;

(xii)

suffered any material damage, destruction or casualty loss, whether or not
covered by insurance;

(xiii)

experienced any material problems with labor or management in connection with
the terms and conditions of their employment; or

(xiv)

entered into an agreement, written or otherwise, to take any of the foregoing
actions.

(y)

Public Utility Holding Company Act and Investment Company Act Status.  The
Company is not a “holding company” or a “public utility company” as such terms
are defined in the Public Utility Holding Company Act of 1935, as amended.  The
Company is not, and as a result of and immediately upon the Closing will not be,
an “investment

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company” or a company “controlled” by an “investment company,” within the
meaning of the Investment Company Act of 1940, as amended.

(z)

ERISA.  No liability to the Pension Benefit Guaranty Corporation has been
incurred with respect to any Plan by the Company or any of its Subsidiaries
which is or would be materially adverse to the Company and its Subsidiaries.
 The execution and delivery of this Agreement and the issuance and sale of the
Notes will not involve any transaction which is subject to the prohibitions of
Section 406 of the Employee Retirement Income Security Act of 1974, as amended
(“ERISA”) or in connection with which a tax could be imposed pursuant to Section
4975 of the Internal Revenue Code of 1986, as amended.  As used in this Section
2.1(z), the term “Plan” shall mean an “employee pension benefit plan” (as
defined in Section 3 of ERISA) which is or has been established or maintained,
or to which contributions are or have been made, by the Company or any
Subsidiary or by any trade or business, whether or not incorporated, which,
together with the Company or any Subsidiary, is under common control, as
described in Section 414(b) or (c) of the Code.

(aa)

No Integrated Offering.  Neither the Company, nor any of its affiliates, nor any
person acting on its or their behalf, has directly or indirectly made any offers
or sales of any security or solicited any offers to buy any security under
circumstances that would cause the offering of the Notes pursuant to this
Agreement to be integrated with prior offerings by the Company for purposes of
the Securities Act which would prevent the Company from selling the Notes
pursuant to Regulation D and Rule 506 thereof under the Securities Act, or any
applicable exchange-related stockholder approval provisions, nor will the
Company or any of its affiliates or subsidiaries take any action or steps that
would cause the offering of the Notes to be integrated with other offerings.
 The Company does not have any registration statement pending before the
Commission or currently under the Commission’s review and except as set forth on
Schedule 2.1(aa) hereto, since January 1, 2013, the Company has not offered or
sold any of its equity securities or debt securities convertible into shares of
Common Stock.

(bb)

DTC Status.   

(cc)

Governmental Approvals.  Except for the filing of any notice prior or subsequent
to the Closing that may be required under applicable state and/or federal
securities laws (which if required, shall be filed on a timely basis), no
authorization, consent, approval, license, exemption of, filing or registration
with any court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, is or will be necessary for, or in
connection with, the execution or delivery of the Notes, or for the performance
by the Company of its obligations under the Transaction Documents.

Section 2.2

Representations and Warranties of Each Investor.  

Each Investor hereby represents and warrants to the Company as of the date
hereof and as of the Closing Date that such Investor is purchasing the Note
solely for its own account and not with a view to or for sale in connection with
distribution.  Each Investor does

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not have a present intention to sell the Note, nor a present arrangement
(whether or not legally binding) or intention to effect any distribution of the
Note to or through any person or entity; provided, however, that by making the
representations herein, such Investor does not agree to hold the Note for any
minimum or other specific term and reserves the right to dispose of the Note at
any time in accordance with Federal and state securities laws applicable to such
disposition. Each Investor further represents and warrants to the Company as of
the date hereof and as of the Closing Date that (i) such Investor has such
knowledge and experience in financial and business matters that such Investor is
capable of evaluating the merits and risks of the proposed investment in the
Notes; (ii) such Investor understands that the Note may not be sold, transferred
or otherwise disposed of by it without registration under the Securities Act and
any applicable state securities laws, or an exemption therefrom, and that in the
absence of an effective registration statement covering the Note or an available
exemption from registration, such Investor might be required to hold the Note
indefinitely; and (iii) such Investor is an “accredited investor” within the
meaning of Regulation D promulgated under the Securities Act.

ARTICLE III

COVENANTS

The Company covenants with the Agent and the Investors as follows, which
covenants are for the benefit of the Agent and the Investors and their
respective assignees.  Unless otherwise set forth in the covenants in this
Article III, the covenants contained herein shall survive Closing hereunder
until the Notes are paid in full and the Investors have no any obligation
(contingent or otherwise) to advance funds hereunder.

Section 3.1

Securities Compliance.

The Company shall notify the Commission in accordance with its rules and
regulations, of the transactions contemplated by any of the Transaction
Documents and shall take all other necessary action and proceedings as may be
required and permitted by applicable law, rule and regulation, for the legal and
valid issuance of the Notes to the Investor or subsequent holders.

Section 3.2

Registration and Listing.

The Company shall cause its Common Stock to continue to be registered under
Sections 12(b) or 12(g) of the Exchange Act, to comply in all respects with its
reporting and filing obligations under the Exchange Act and to not take any
action or file any document (whether or not permitted by the Securities Act or
the rules promulgated thereunder) to terminate or suspend such registration or
to terminate or suspend its reporting and filing obligations under the Exchange
Act or Securities Act.  The Company will take all action necessary to continue
the listing or trading of its Common Stock on the OTC Bulletin Board, the New
York Stock Exchange, the NYSE Alternext Exchange, the Nasdaq Capital Markets,
the Nasdaq Global Markets, or the Nasdaq Global Select Market.

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Section 3.3

Compliance with Laws.  

The Company shall comply in all material respects, and cause each Subsidiary to
comply in all material respects, with all applicable laws, rules, regulations
and orders of any governmental authority, including without limitation, all
securities law, rules and regulations and timely make all filings required by
any such laws, rules and regulations.

Section 3.4

Keeping of Records and Books of Account.  

The Company shall keep and cause each Subsidiary to keep adequate records and
books of account, in which complete entries will be made in accordance with GAAP
consistently applied, reflecting all financial transactions of the Company and
its Subsidiaries, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.  Upon request of Agent
or any Investor, the Company shall furnish to Investor any and all books and
records or any other information reasonably requested by Agent or such Investor
relating to the financial condition to the Company, the technology of the
Company or otherwise.

Section 3.5

Reporting Requirements.  

The Company shall furnish the following to the Agent and the Investors so long
as any Investor shall beneficially own Notes:

(a)

Electronic notification of the filing of all Quarterly Reports filed with the
Commission on Form 10-Q as soon as practical after the document is or would have
been required to be filed with the Commission;

(b)

Electronic notification of the filing of all Annual Reports filed with the
Commission on Form 10-K as soon as practical after the document is or would have
been required to be filed with the Commission;

(c)

Electronic notification of the filing of all Current Reports filed with the
Commission on Form 8-K as soon as practical after the document is or would have
been required to be filed with the Commission;

(d)

Electronic notification of the filing of any other filings filed or required to
be filed with the Commission as soon as practical after the document is or would
have been required to be filed with the Commission;

(e)

A current schedule of accounts payable aging within five (5) days of the end of
each calendar month;

(f)

A budget prepared on a weekly basis in good faith based upon assumptions which
the Company believes to be reasonable setting forth, inter alia, a thirteen (13)
week cash flow forecast in reasonable detail satisfactory to Agent including
receipts, disbursements and such line item detail as satisfactory to Agent, in
the form attached hereto as Exhibit H, as updated bi-weekly with Agent’s
consent, including a comparison of actual cash funds and revenues received by
the Company and cash disbursements and expenses made by the

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Company for the most recent four-week period then ended (or if a four-week
period has not then elapsed from the date of this Agreement, such shorter period
since the date of this Agreement through the Friday of the most recent week then
ended) to the budget previously delivered to Investor (the “Budget”); and

(g)

Copies of all notices, information and proxy statements in connection with any
meetings that are, in each case, provided to holders of shares of Common Stock,
contemporaneously with the delivery of such notices or information to such
holders of Common Stock.

Section 3.6

Other Agreements.  

The Company shall not enter into any agreement in which the terms of such
agreement would restrict or impair the right or ability to perform of the
Company under any Transaction Document.

Section 3.7

Use of Proceeds.  

The proceeds from the sale of the Notes hereunder shall be used by the Company
to  repay indebtedness to DMRJ Group LLC and pay the fees and expenses of the
sale.

Section 3.8

Reporting Status.  

So long as any Investor beneficially owns any of the Notes, the Company shall
timely file all reports required to be filed with the Commission pursuant to the
Exchange Act, and the Company shall not terminate its status as an issuer
required to file reports under the Exchange Act even if the Exchange Act or the
rules and regulations thereunder would permit such termination.  The Company
shall promptly disclose on Form 8-K the occurrence of any Material Adverse
Effect or any event that could reasonably be expected to cause a Material
Adverse Effect.     

Section 3.9

Reserved.

Section 3.10

Reserved.  

Section 3.11

Reserved.  

Section 3.12

Amendments.  

The Company shall not amend or waive any provision of its Articles of
Organization or Bylaws in any way that would adversely affect exercise or other
rights of the holders of the Notes.

Section 3.13

Distributions.  

So long as the Notes remain outstanding or any Investor has any obligation
(contingent or otherwise) to advance funds hereunder, the Company agrees that it
shall not, and shall not permit any Subsidiary to, (i) declare or pay any
dividends or make any distributions (by reduction of

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capital or otherwise) to any holder(s) of Common Stock (or security convertible
into or exercisable for Common Stock) or set aside or otherwise deposit or
invest any sums for such purpose, or (ii) redeem, retire, defease, purchase or
otherwise acquire for value, directly or indirectly, any Common Stock or other
equity security of the Company or any Subsidiary or set aside or otherwise
deposit or invest any sums for such purpose; provided, however, that the Company
may repurchase shares of Common Stock from former employees permitted or
required by any stock restriction or purchase agreements by and between the
Company and such former employees in an aggregate amount not to exceed $100,000.

Section 3.14

Reserved.

Section 3.15

Prohibition on Liens.  

So long as any Notes remain outstanding, the Company shall not, and shall not
permit its Subsidiaries to, enter into, create, incur, assume, suffer or permit
to exist any lien, security interest, mortgage, pledge, charge, claim or other
encumbrance of any kind (collectively, “Liens”) on or with respect to any of its
assets, including the Collateral (as defined in the Security Agreement), now
owned or hereafter acquired or any interest therein or any income or profits
therefrom, or file or permit the filing of, or permit to remain in effect any
financing statement or other similar notice of any Lien with respect to such
assets, other than Permitted Encumbrances.  “Permitted Encumbrances” means the
individual and collective reference to the following: (a) Liens for taxes,
assessments and other governmental charges or levies not yet due or Liens for
taxes, assessments and other governmental charges or levies being contested in
good faith and by appropriate proceedings for which adequate reserves (in the
good faith judgment of the management of the Company) have been established in
accordance with GAAP; (b) Liens imposed by law which were incurred in the
ordinary course of the Company’s business, such as carriers’, warehousemen’s and
mechanics’ Liens, statutory landlords’ Liens, and other similar Liens arising in
the ordinary course of the Company’s business, and which (x) do not individually
or in the aggregate materially detract from the value of such property or assets
or materially impair the use thereof in the operation of the business of the
Company and its consolidated Subsidiaries or (y) are being contested in good
faith by appropriate proceedings, which proceedings have the effect of
preventing for the foreseeable future the forfeiture or sale of the property or
asset subject to such Lien; (c) the Liens set forth in Schedule 3.15 hereto in
effect on the date hereof; and (d) the Liens of Agent set forth in the Security
Agreement.

Section 3.16

Prohibition on Indebtedness.  

So long as any Notes remain outstanding, other than (i) Indebtedness existing on
the date hereof and disclosed in Schedule 2.1(k) to this Agreement and (ii)
Indebtedness in favor of the Agent or the Investors, the Company shall not, and
shall not permit any Subsidiary to, enter into, create, incur, assume, suffer,
become or be liable for in any manner with respect to, or permit to exist, any
Indebtedness, or guarantee, assume, endorse or otherwise become responsible for
(directly or indirectly), any Indebtedness, performance, obligations or
dividends of any other Person.

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Section 3.17

Compliance with Transaction Documents.  

The Company shall, and shall cause its Subsidiaries to, comply with their
respective  obligations under the Notes and the other Transaction Documents.

Section 3.18

 Reserved.  

Section 3.19

Transactions with Affiliates.  

The Company shall not, and shall not permit its Subsidiaries to, directly or
indirectly, (i) purchase, acquire or lease any property from, or sell, transfer
or lease any property to any officer, director, agent, employee or any Affiliate
of the Company or any Subsidiary, or (ii) make any payments of management,
consulting or other fees for management or similar services, or of any
Indebtedness owing to any officer, director, agent, employee, or other Affiliate
of Company or any Subsidiary, including any contract, agreement or other
arrangement providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise requiring payments
to or from any officer, director, agent or such employee or, to the knowledge of
the Company, any entity in which any officer, director, agent or any such
employee has a substantial interest or is an officer, director, trustee or
partner, in each case in excess of $50,000, other than (i) for payment of
reasonable salary for services actually rendered, as approved by the Board of
Directors of the Company as fair and reasonable in all respects to the Company
or the applicable Subsidiary and upon terms no less favorable to the Company or
such Subsidiary that the Company or such Subsidiary would obtain in a comparable
arm’s length transaction with an unaffiliated person, (ii) reimbursement for
expenses incurred on behalf of the Company in the ordinary course of and
pursuant to the reasonable requirements of the business or any Subsidiary and
(iii) as set forth on Schedule 3.19 hereof.

Section 3.20

No Merger or Sale of Assets; No Formation of Subsidiaries.

The Company shall not, and shall not permit any Subsidiary to, directly or
indirectly, (i) merge into or with or consolidate with any other Person (other
than into the Company or a Subsidiary of the Company) or permit any other Person
(other than the Company or a Subsidiary of the Company) to merge into or with or
consolidate with it, provided, that if any such consolidation or merger involves
the Company, then the Company must be the survivor of such consolidation or
merger; (ii) sell, issue, assign, lease, license, transfer, abandon or otherwise
dispose of any or all of its assets (other than inventory in the ordinary course
of business);  (iii) in any way or manner alter its organizational structure or
effect a change of entity (except as expressly permitted in this Agreement);
(iv) form or create any subsidiary or become a partner in any partnership or
joint venture, or make any acquisition of any interest in any Person or acquire
substantially all of the assets of any Person; (v) wind up, liquidate or,
subject to the proviso in Section 3.22 below, dissolve or (vi) agree to do any
of the foregoing.

Section 3.21

Payment of Taxes, Etc.  

The Company shall, and shall cause each of its Subsidiaries to, promptly pay and
discharge, or cause to be paid and discharged, when due and payable, all lawful
taxes, assessments and governmental charges or levies imposed upon the income,
profits, property or business of the Company and the Subsidiaries; provided,
however, that any such tax, assessment,

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charge or levy need not be paid if the validity thereof shall currently be
contested in good faith by appropriate proceedings and if the Company or such
Subsidiaries shall have set aside on its books adequate reserves with respect
thereto, and provided, further, that the Company and such Subsidiaries will pay
all such taxes, assessments, charges or levies forthwith upon the commencement
of proceedings to foreclose any lien which may have attached as security
therefor.

Section 3.22

Corporate Existence.  

The Company shall, and shall cause each of its Subsidiaries to, maintain in full
force and effect its corporate existence, rights and franchises and all licenses
and other rights to use property owned or possessed by it and reasonably deemed
to be necessary to the conduct of its business; provided, however, that the
Company may dissolve or cause one or more of its Subsidiaries to merge or
consolidate with the Company or any of its other Subsidiaries, provided, that if
any such consolidation or merger involves the Company, then the Company must be
the survivor of such consolidation or merger.

Section 3.23

Maintenance of Assets.  

So long as any Notes remain outstanding, the Company shall, and shall cause its
Subsidiaries to, keep its properties in good repair, working order and
condition, reasonable wear and tear excepted, and from time to time make all
necessary and proper repairs, renewals, replacements, additions and improvements
thereto.  

Section 3.24

No Investments.

The Company shall not, and shall not permit any Subsidiary to, make or suffer to
exist any Investments or commitments therefor, other than Investments made in
the ordinary course of business.  “Investment” means, with respect to any
Person, all investments (by capital contribution or otherwise) in any other
Person, or any extension of credit, loan, advance, purchase or repurchase of
stock or other ownership interest, any Indebtedness or all or a substantial part
of the assets or property of any Person, bonds, notes, debentures or other
securities, or otherwise, and whether existing on the date of this Agreement or
thereafter made, but such term shall not include the cash surrender value of
life insurance policies on the lives of officers or employees, excluding amounts
due from customers for services or products delivered or sold in the ordinary
course of business.

Section 3.25

Reserved.  

Section 3.26

Acquisition of Assets.  

In the event the Company or any Subsidiary acquires any assets or other
properties, without limiting or impairing the limitations set forth in Section
3.24 above, such assets or properties shall constitute a part of the Collateral
(as defined in the Security Agreement) and the Company shall take all action
necessary to perfect the Agent’s security interest in such assets or properties.

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Section 3.27

Reserved.  

Section 3.28

Notices of Certain Events.  The Company shall promptly notify the Agent of any
event or events that have had or could reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company.

Section 3.29

Budget Compliance.  

(a)

As of each week, for the four-week period ended as of the end of such week, the
actual cash receipts received by the Company shall not be less than 75% of the
cash receipts for the corresponding period in the Budget.

(b)

As of each week, for the four-week period ended as of the end of such week, the
actual cash disbursements of the Company shall be no more than 110% of the cash
disbursements for the corresponding period as set forth in the Budget.

Section 3.30

Minimum Cash Balance. The Company shall at all times maintain a cleared balance
of at least $500,000 (the “Minimum Balance”) in a deposit account held at a
depository institution satisfactory to Investor and pledged to Investor pursuant
to a blocked account agreement with such depository institution in form and
substance satisfactory to Investor, such account to be free and clear of any
Liens other than Liens in favor of Investor (the “Blocked Account”).  Until the
Note and all obligations of the Company hereunder have been indefeasibly paid
and satisfied in full, Investor shall have sole dominion and control over the
Blocked Account and the Company shall have no right of access to or withdrawal
from the Blocked Account.  If, notwithstanding the prior sentence, Investor
shall, in its sole discretion, permit the Company, following the Company’s
request, to have access to the Blocked Account and maintain less than the
Minimum Balance therein, the Investor, as a condition thereto and in addition to
any other conditions that the Investor may then establish, may require the
Company to engage in a sale process satisfactory to the Investor in its sole
discretion, including, without limitation, conditions, timing and milestones
which may be established by the Investor, including, without limitation, the
engagement of a third party investment banker acceptable to the Investor in its
sole and absolute discretion.

Section 3.31

Inspection.   The Company, upon reasonable notice, shall permit Agent and its
duly authorized representatives or agents to visit any of the Company’s
properties and inspect any of its assets or books and records, to examine and
make copies of its books and records and to discuss its affairs, finances,
technology and accounts with, and to be advised as to the same by, its officers
and employees at such reasonable times and intervals as Agent may designate.

Section 3.32

Accounts Payable.  The Company will pay its accounts payable in the ordinary
course, consistent with past practices and not allow the average age, calculated
as (i) the product of (x) the dollar amount of each payable times (y) the number
of days past due of such payable divided by (ii) the aggregate dollar amount of
all accounts payable, of such accounts payable to be more than one hundred (100)
days past due.

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Section 3.33

Current Ratio.  The Company shall maintain at all times a Current Ratio of not
less than 0.60 to 1.00.  “Current Ratio” shall be defined as current assets
minus current liabilities, all as determined in accordance with GAAP.  

ARTICLE IV

CONDITIONS

Section 4.1

Conditions Precedent to the Obligation of the Company to Close and to Sell the
Notes at the Closing.  

The obligation hereunder of the Company to close and issue and sell the Notes to
the Investors at the Closing is subject to the satisfaction or waiver, at or
before the Closing of the conditions set forth below.  These conditions are for
the Company’s sole benefit and may be waived by the Company at any time in its
sole discretion.

(a)

No Injunction.  No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction which prohibits the
consummation of any of the transactions contemplated by this Agreement.

(b)

Delivery of Note Amounts.  The Investors shall have advanced the funds as
payment for the purchase price of the Notes on the date of the Closing.

(c)

Delivery of Transaction Documents.  The Transaction Documents to which the Agent
and each Investor is a party shall have been duly executed and delivered by the
Agent to the Company.  

(d)

Side Letter. The Agent, for itself and on behalf of the Investors, shall have
executed and delivered a letter, in form reasonably satisfactory to the Company,
stating that the financial covenants contained in Sections 3.29(a), 3.30, 3.32
and 3.33 of this Agreement shall not be tested from the date hereof through
March 31, 2015 (it being understood that any failure to comply with such
covenants during such period shall not cause or result in any default or Event
of Default under the Notes).

(e)

DMRJ Group. DMRJ Group LLC shall have (i) consented in writing to all of the
transactions contemplated by the Transaction Documents and (ii) extended the
maturity of all indebtedness and obligations of the Company to no earlier than
March 31, 2015.

Section 4.2

Conditions Precedent to the Obligation of the Investors to Close at the Closing.
 

The obligation hereunder of the Investors to purchase the Notes and consummate
the transactions contemplated by this Agreement is subject to the satisfaction
or waiver, at or before the Closing, of each of the conditions set forth below.
 These conditions are for the Investors’ sole benefit and may be waived by the
Agent at any time in its sole discretion.

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(a)

Accuracy of the Company’s Representations and Warranties.  Each of the
representations and warranties of the Company in this Agreement and the other
Transaction Documents shall, subject to the delivery of the Schedule of
Exceptions pursuant to Section 4.4, be true and correct in all material respects
as of the date of the Closing, except for representations and warranties that
speak as of a particular date, which shall be true and correct in all material
respects as of such date.

(b)

Performance by the Company.  The Company shall have performed, satisfied and
complied in all material respects with all covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by the
Company at or prior to the date of the Closing.

(c)

No Suspension, Etc.  Trading in the Common Stock shall not have been suspended
by the Commission, and, at any time prior to the Closing Date, trading in
securities generally as reported by Bloomberg Financial Markets (“Bloomberg”)
shall not have been suspended or limited, or minimum prices shall not have been
established on securities whose trades are reported by Bloomberg, or on the New
York Stock Exchange, nor shall a banking moratorium have been declared either by
the United States or New York State authorities, nor shall there have occurred
any material outbreak or escalation of hostilities or other national or
international calamity or crisis of such magnitude in its effect on, or any
material adverse change in any financial market which, in each case, in the
judgment of the Agent, makes it impracticable or inadvisable to purchase the
Notes.

(d)

No Injunction.  No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction which prohibits the
consummation of any of the transactions contemplated by this Agreement.

(e)

No Proceedings or Litigation.  No action, suit or proceeding before any
arbitrator or any governmental authority shall have been commenced, and no
investigation by any governmental authority shall have been threatened, against
the Company or any Subsidiary, or any of the officers, directors or affiliates
of the Company or any Subsidiary seeking to restrain, prevent or change the
transactions contemplated by this Agreement, or seeking damages in connection
with such transactions.

(f)

Material Adverse Effect.  Except as disclosed on Schedule 2.1(h) hereto, no
Material Adverse Effect shall have occurred since December 31, 2013.

(g)

Due Diligence.  The Company shall have permitted Agent to make such audits and
inspections as the Agent deems reasonably appropriate and the Agent is
satisfied, in its reasonable discretion, with the results thereof.  Such audits
and inspections by the Agent shall not affect any of the representations and
warranties made by the Company in this Agreement and shall not, under any
circumstances constitute a waiver of the Agents and Investors indemnification
rights under Article 6 hereof, or otherwise relieve the Company of any liability
thereunder.

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(h)

Payment of Investor’s Expenses.  The Company shall have paid the fees and
expenses described in Section 8.1 of this Agreement.     

(i)

UCC Financing Statements.  On or prior to the date of the Closing, the Company
shall have filed (or authorized the filing of) all UCC and similar financing
statements in form and substance satisfactory to the Agent at the appropriate
offices to create a valid and perfected security interest in the Collateral (as
defined in the Security Agreement).

Section 4.3

Closing Deliveries

The Company shall deliver or cause to be delivered to the Agent at Closing each
document enumerated below, in form and substance satisfactory to the Agent:

(a)

Notes; Transaction Documents.  At or prior to the Closing, the Company shall
have delivered to the Investors the Notes; the Company shall have duly executed
and delivered the other Transaction Documents to the Agent.

(b)

Secretary’s Certificate.  The Company shall have delivered to the Agent a
secretary’s certificate, dated as of the Closing, as to (i) the resolutions
adopted by the Board of Directors approving the transactions contemplated
hereby, (ii) the Articles of Organization, (iii) the Bylaws, each as in effect
at the Closing, and (iv) the authority and incumbency of the officers of the
Company executing the Transaction Documents and any other documents required to
be executed or delivered in connection therewith.

(c)

Officer’s Certificate.  On the date of the Closing, the Company shall have
delivered to the Agent a certificate signed by an executive officer on behalf of
the Company, dated as of the date of the Closing, confirming, subject to the
delivery of the Schedule of Exceptions pursuant to Section 4.4, the accuracy of
the Company’s representations, warranties and covenants as of such date and
confirming the compliance by the Company with the conditions precedent set forth
in paragraphs (a)-(f) of Section 4.2 as of the date of the Closing.

(d)

Consents.  The Company shall have obtained all consents, approvals, or waivers
from all governmental authorities, third parties and Company security holders
necessary (i) for the execution, delivery and performance of this Agreement and
the Transaction Documents and the transactions contemplated hereby and thereby
and (ii) to not, except as set forth on Schedule 4.2(d), trigger any preemptive
rights, rights of first refusal, put or call rights or obligations,
anti-dilution rights or similar rights that any holder of the Company’s
securities may have with respect to the execution, delivery and performance of
this Agreement and each of the Transaction Documents and all transactions
contemplated hereby and thereby, all without material cost or other adverse
consequences to the Company.

Section 4.4

Post-Closing Deliveries

Not more than 15 days after the Closing Date:

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(a)

Schedule of Exceptions. The Company shall deliver the Schedule of Exceptions to
the Agent.

(b)

Schedules to Security Agreement.  The Company shall deliver all schedules to the
Security Agreement to the Agent.

(c)

Opinion of Counsel.  The Company shall deliver or cause to be delivered to the
Agent an opinion of counsel to the Company, substantially in the form of Exhibit
I hereto, with such exceptions and limitations as shall be reasonably acceptable
to counsel to the Agent.

ARTICLE V

NOTE LEGEND

Section 5.1

Legend.  

Each Note shall be stamped or otherwise imprinted with a legend substantially in
the following form (in addition to any legend required by applicable state
securities or “blue sky” laws):

THE SECURITY REPRESENTED BY THIS CERTIFICATE (THE “SECURITY”) HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”)
OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER APPLICABLE
STATE SECURITIES LAWS OR UNLESS IMPLANT SCIENCES CORPORATION SHALL HAVE RECEIVED
AN OPINION OF COUNSEL THAT REGISTRATION OF THIS SECURITY UNDER THE SECURITIES
ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT
REQUIRED.

ARTICLE VI

INDEMNIFICATION

Section 6.1

General Indemnity.  

The Company agrees to indemnify and hold harmless Agent and each Investor (and
their respective directors, officers, members, partners, affiliates, agents,
successors and assigns) from and against any and all losses, liabilities,
deficiencies, costs, damages and expenses (including, without limitation,
reasonable attorneys’ fees, charges and disbursements) incurred by the Agent or
an Investor as a result of any inaccuracy in or breach of the representations,
warranties or covenants made by the Company herein.  

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Section 6.2

Indemnification Procedure.  

Any party entitled to indemnification under this Article VI (an “indemnified
party”) will give written notice to the indemnifying party of any matter giving
rise to a claim for indemnification; provided, that the failure of any party
entitled to indemnification hereunder to give notice as provided herein shall
not relieve the indemnifying party of its obligations under this Article VI
except to the extent that the indemnifying party is actually prejudiced by such
failure to give notice.  In case any such action, proceeding or claim is brought
against an indemnified party in respect of which indemnification is sought
hereunder, the indemnifying party shall be entitled to participate in and,
unless in the reasonable judgment of the indemnifying party a conflict of
interest between it and the indemnified party exists with respect to such
action, proceeding or claim (in which case the indemnifying party shall be
responsible for the reasonable fees and expenses of one separate counsel for the
indemnified parties), to assume the defense thereof with counsel reasonably
satisfactory to the indemnified party.  In the event that the indemnifying party
advises an indemnified party that it will contest such a claim for
indemnification hereunder, or fails, within thirty (30) days of receipt of any
indemnification notice to notify, in writing, such person of its election to
defend, settle or compromise, at its sole cost and expense, any action,
proceeding or claim (or discontinues its defense at any time after it commences
such defense), then the indemnified party may, at its option, defend, settle or
otherwise compromise or pay such action or claim.  In any event, unless and
until the indemnifying party elects in writing to assume and does so assume the
defense of any such claim, proceeding or action, the indemnified party’s costs
and expenses arising out of the defense, settlement or compromise of any such
action, claim or proceeding shall be losses subject to indemnification
hereunder.  The indemnified party shall cooperate fully with the indemnifying
party in connection with any negotiation or defense of any such action or claim
by the indemnifying party and shall furnish to the indemnifying party all
information reasonably available to the indemnified party which relates to such
action or claim.  The indemnifying party shall keep the indemnified party fully
apprised at all times as to the status of the defense or any settlement
negotiations with respect thereto.  If the indemnifying party elects to defend
any such action or claim, then the indemnified party shall be entitled to
participate in such defense with counsel of its choice at its sole cost and
expense.  The indemnifying party shall not be liable for any settlement of any
action, claim or proceeding effected without its prior written consent.
 Notwithstanding anything in this Article VI to the contrary, the indemnifying
party shall not, without the indemnified party’s prior written consent, settle
or compromise any claim or consent to entry of any judgment in respect thereof
which imposes any future obligation on the indemnified party or which does not
include, as an unconditional term thereof, the giving by the claimant or the
plaintiff to the indemnified party of a release from all liability in respect of
such claim.  The indemnification obligations to defend the indemnified party
required by this Article VI shall be made by periodic payments of the amount
thereof during the course of investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred, so long as the
indemnified party shall refund such moneys if it is ultimately determined by a
court of competent jurisdiction that such party was not entitled to
indemnification.  The indemnity agreements contained herein shall be in addition
to (a) any cause of action or similar rights of the indemnified party against
the indemnifying party or others, and (b) any liabilities the indemnifying party
may be subject to pursuant to the law.  

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ARTICLE VII

REGARDING AGENT

Section 7.1

Appointment

Each Investor hereby designates BAM Administrative Services LLC to act as the
Agent for such Investor under this Agreement and the Transaction Documents.
 Each Investor hereby irrevocably authorizes the Agent to take such action on
its behalf under the provisions of this Agreement and the Transaction Documents
and to exercise such powers and to perform such duties hereunder and thereunder
as are specifically delegated to or required of the Agent by the terms hereof
and thereof and such other powers as are reasonably incidental thereto and the
Agent shall hold all Collateral, payments of principal and interest, fees,
charges and collections received pursuant to this Agreement, for the ratable
benefit of Investors.  The Agent may perform any of its duties hereunder by or
through its agents or employees.  As to any matters not expressly provided for
by this Agreement the Agent shall not be required to exercise any discretion or
take any action, but shall be required to act or to refrain from acting (and
shall be fully protected in so acting or refraining from acting) upon the
instructions of the Investors, and such instructions shall be binding; provided,
however, that the Agent shall not be required to take any action which exposes
the Agent to liability or which is contrary to this Agreement or the Transaction
Documents or Applicable Law unless the Agent is furnished with an
indemnification reasonably satisfactory to the Agent with respect thereto.  

Section 7.2

Nature of Duties.  

The Agent shall have no duties or responsibilities except those expressly set
forth in this Agreement and the Transaction Documents.  Neither the Agent nor
any of its officers, directors, employees or agents shall be (a) liable for any
action taken or omitted by them as such hereunder or in connection herewith,
unless caused by their gross (not mere) negligence or willful misconduct, or (b)
responsible in any manner for any recitals, statements, representations or
warranties made by the Company or any Subsidiary (collectively, the “Loan
Parties” and each, individually, a “Loan Party”) or any officer thereof
contained in this Agreement, or in any of the Transaction Documents or in any
certificate, report, statement or other document referred to or provided for in,
or received by the Agent under or in connection with, this Agreement or any of
the Transaction Documents or for the value, validity, effectiveness,
genuineness, due execution, enforceability or sufficiency of this Agreement, or
any of the Transaction Documents or for any failure of a Loan Party to perform
its obligations hereunder.  The Agent shall not be under any obligation to any
Investor to ascertain or to inquire as to the observance or performance of any
of the agreements contained in, or conditions of, this Agreement or any of the
Transaction Documents, or to inspect the properties, books or records of a Loan
Party.  The duties of the Agent with respect to the purchase of the Notes
hereunder shall be mechanical and administrative in nature; the Agent shall not
have by reason of this Agreement a fiduciary relationship in respect of any
Investor; and nothing in this Agreement, expressed or implied, is intended to or
shall be so construed as to impose upon the Agent any obligations in respect of
this Agreement except as expressly set forth herein.

Section 7.3

Lack of Reliance on Agent: Resignation.

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(a)

Independently and without reliance upon the Agent or any other Investor, each
Investor has made and shall continue to make (i) its own independent
investigation of the financial condition and affairs of the Loan Parties in
connection with the purchase of a Note hereunder and the taking or not taking of
any action in connection herewith, and (ii) its own appraisal of the
creditworthiness of the Loan Parties.  The Agent shall have no duty or
responsibility, either initially or on a continuing basis, to provide any
Investor with any credit or other information with respect thereto, whether
coming into its possession before purchase of the Notes or at any time or times
thereafter except as shall be provided by the Loan Parties pursuant to the terms
hereof.  The Agent shall not be responsible to any Investor for any recitals,
statements, information, representations or warranties herein or in any
agreement, document, certificate or a statement delivered in connection with or
for the execution, effectiveness, genuineness, validity, enforceability,
collectability or sufficiency of this Agreement or any Transaction Document, or
of the financial condition of the Loan Parties, or be required to make any
inquiry concerning either the performance or observance of any of the terms,
provisions or conditions of this Agreement, the Transaction Documents or the
financial condition of the Loan Parties, or the existence of any Event of
Default or any Default.

(b)

The Agent may resign on sixty (60) days’ written notice to each Investor and the
Company and upon such resignation, the Investors will promptly designate a
successor Agent reasonably satisfactory to the Company (provided that no such
approval by the Company shall be required (i) in any case where the successor
Agent is one of Investors or (ii) after the occurrence and during the
continuance of any Event of Default).  Any such successor Agent shall succeed to
the rights, powers and duties of the Agent, and shall in particular succeed to
all of the Agent’s right, title and interest in and to all of the Liens in the
Collateral securing the obligations created hereunder or any Transaction
Document, and the term “the Agent” shall mean such successor agent effective
upon its appointment, and the former Agent’s rights, powers and duties as the
Agent shall be terminated, without any other or further act or deed on the part
of such former Agent.  However, notwithstanding the foregoing, if at the time of
the effectiveness of the new Agent’s appointment, any further actions need to be
taken in order to provide for the legally binding and valid transfer of any
Liens in the Collateral from former Agent to new Agent and/or for the perfection
of any Liens in the Collateral as held by new Agent or it is otherwise not then
possible for new Agent to become the holder of a fully valid, enforceable and
perfected Lien as to any of the Collateral, former Agent shall continue to hold
such Liens solely as agent for perfection of such Liens on behalf of new Agent
until such time as new Agent can obtain a fully valid, enforceable and perfected
Lien on all Collateral, provided that the Agent shall not be required to or have
any liability or responsibility to take any further actions after such date as
such agent for perfection to continue the perfection of any such Liens (other
than to forego from taking any affirmative action to release any such Liens).
 After any the Agent’s resignation as the Agent, the provisions of this ARTICLE
VII shall inure to its benefit as to any actions taken or omitted to be taken by
it while it was the Agent under this Agreement (and in the event resigning Agent
continues to hold any Liens pursuant to the provisions of the immediately
preceding sentence, the provisions of this ARTICLE VII shall inure to its
benefit a to any actions taken or omitted to be taken by it in connection with
such Liens).

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Section 7.4

Certain Rights of the Agent.  

If the Agent shall request instructions from the Investors with respect to any
act or action (including failure to act) in connection with this Agreement or
any Transaction Document, the Agent shall be entitled to refrain from such act
or taking such action unless and until the Agent shall have received
instructions from the Investors; and the Agent shall not incur liability to any
Person by reason of so refraining.  Without limiting the foregoing, the
Investors shall not have any right of action whatsoever against the Agent as a
result of its acting or refraining from acting hereunder in accordance with the
instructions of the Investors.

Section 7.5

Reliance.  

The Agent shall be entitled to rely, and shall be fully protected in relying,
upon any note, writing, resolution, notice, statement, certificate, telex,
teletype or telecopier message, cablegram, order or other document or telephone
message reasonably believed by it to be genuine and correct and to have been
signed, sent or made by the proper person or entity, and, with respect to all
legal matters pertaining to this Agreement and the Transaction Documents and its
duties hereunder, upon advice of counsel selected by it.  The Agent may employ
agents and attorneys-in-fact and shall not be liable for the default or
misconduct of any such agents or attorneys-in-fact selected by the Agent with
reasonable care.

Section 7.6

Notice of Default.

The Agent shall not be deemed to have knowledge or notice of the occurrence of
any Default or Event of Default hereunder or under the Transaction Documents,
unless the Agent has received notice from an Investor or the Company referring
to this Agreement or the Transaction Documents, describing such Default or Event
of Default and stating that such notice is a “notice of default”.  In the event
that the Agent receives such a notice, the Agent shall give notice thereof to
the Investors.  The Agent shall take such action with respect to such Default or
Event of Default as shall be reasonably directed by the Investors; provided
that, unless and until the Agent shall have received such directions, the Agent
may (but shall not be obligated to) take such action, or refrain from taking
such action, with respect to such Default or Event of Default as it shall deem
advisable in the best interests of Investors.

Section 7.7

Indemnification.  

To the extent the Agent is not reimbursed and indemnified by a Loan Party, each
Investor will reimburse and indemnify the Agent (based on the outstanding
principal amount of the Notes due to such Investor and the aggregate outstanding
principal amount of the Notes due to all the Investors), from and against any
and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever which may be imposed on, incurred by or asserted against the Agent in
performing its duties hereunder, or in any way relating to or arising out of
this Agreement or any Transaction Document; provided that, Investors shall not
be liable for any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements resulting
from the Agent’s gross (not mere) negligence or willful misconduct (as
determined by a court of competent jurisdiction in a final non-appealable
judgment).

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Section 7.8

The Company’s Undertaking to Agent.

Without prejudice to their respective obligations to Investors under the other
provisions of this Agreement, the Company hereby undertakes with the Agent to
pay to the Agent from time to time on demand all amounts from time to time due
and payable by it for the account of the Agent or the Investors or any of them
pursuant to this Agreement to the extent not already paid.  Any payment made
pursuant to any such demand shall pro tanto satisfy the Company’s obligations to
make payments for the account of the Investors or the relevant one or more of
them pursuant to this Agreement.

Section 7.9

No Reliance on the Agent’s Obligor Identification Program.  

Each Investor acknowledges and agrees that neither such Investor, nor any of its
Affiliates, participants or assignees, may rely on the Agent to carry out such
Investor’s, Affiliate’s, participant’s or assignee’s customer identification
program, or other obligations required or imposed under or pursuant to the USA
PATRIOT Act or the regulations thereunder, including the regulations contained
in 31 CFR 103.121 (as hereafter amended or replaced, the “CIP Regulations”), or
any other Anti-Terrorism Law, including any programs involving any of the
following items relating to or in connection with the Loan Parties, their
Affiliates or their agents, this Agreement, the Transaction Documents or the
transactions hereunder or contemplated hereby:  (a) any identity verification
procedures, (b) any record-keeping, (c) comparisons with government lists, (d)
customer notices or (e) other procedures required under the CIP Regulations or
such other laws.

Section 7.10

Other Agreements.  

Each Investor agrees that it shall not, without the express consent of the
Agent, and that it shall, to the extent it is lawfully entitled to do so, upon
the request of the Agent, set off against the amount outstanding under this
Agreement and the Transaction Documents, any amounts owing by such Investor to a
Loan Party or any deposit accounts of a Loan Party now or hereafter maintained
with such Investor.  Anything in this Agreement to the contrary notwithstanding,
each Investor further agrees that it shall not, unless specifically requested to
do so by the Agent, take any action to protect or enforce its rights arising out
of this Agreement or the Transaction Documents, it being the intent of Investors
that any such action to protect or enforce rights under this Agreement and the
Transaction Documents shall be taken in concert and at the direction or with the
consent of the Agent or Investors.

ARTICLE VIII

MISCELLANEOUS

Section 8.1

Fees and Expenses.  

The Company, on the one hand, and the Agent and the Investors, on the other
hand, shall pay all of their respective costs, fees and expenses incurred in
connection with the transactions contemplated by the Transaction Documents.  In
addition, the Company shall pay all reasonable fees and expenses incurred by the
Agent and the Investor in connection with the enforcement of

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this Agreement or any of the other Transaction Documents, including, without
limitation, all reasonable attorneys’ fees and expenses.

Section 8.2

Specific Performance; Consent to Jurisdiction; Venue.  

(a)

The Company, the Agent and the Investors acknowledge and agree that irreparable
damage would occur in the event that any of the provisions of this Agreement or
the other Transaction Documents 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 or the other Transaction Documents
and to enforce specifically the terms and provisions hereof or thereof, this
being in addition to any other remedy to which any of them may be entitled by
law or equity.

(b)

The parties agree that venue for any dispute arising under this Agreement will
lie exclusively in the state or federal courts located in New York County, New
York, and the parties irrevocably waive any right to raise forum non conveniens
or any other argument that New York is not the proper venue.  The parties
irrevocably consent to personal jurisdiction in the state and federal courts of
the state of New York.  The Company, the Agent and the Investors consent to
process being served in any such suit, action or proceeding by mailing a copy
thereof to such party at the address in effect for notices to it under this
Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof.  Nothing in this Section 8.2 shall affect
or limit any right to serve process in any other manner permitted by law.  The
Company and the Investor hereby agree that the prevailing party in any suit,
action or proceeding arising out of or relating to the Notes, this Agreement or
the other Transaction Documents, shall be entitled to reimbursement for
reasonable legal fees from the non-prevailing party.  The parties hereby waive
all rights to a trial by jury.

Section 8.3

Entire Agreement; Amendment.  

This Agreement and the Transaction Documents (including the Schedule of
Exceptions to be delivered pursuant to Section 4.4) contain the entire
understanding and agreement of the parties with respect to the matters covered
hereby and, except as specifically set forth herein or in the other Transaction
Documents, neither the Company nor the Agent nor any Investor make any
representation, warranty, covenant or undertaking with respect to such matters,
and they supersede all prior understandings and agreements with respect to said
subject matter, all of which are merged herein.  No provision of this Agreement
may be waived or amended other than by a written instrument signed by the
Company and Agent and the Investors.  Any amendment or waiver effected in
accordance with this Section 8.3 shall be binding upon the Investors (and their
respective assigns) and the Company.  

Section 8.4

Notices.  

Any notice, demand, request, waiver or other communication required or permitted
to be given hereunder shall be in writing and shall be effective (a) upon hand
delivery by telecopy or facsimile at the address or number designated below (if
delivered on a business day during

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normal business hours where such notice is to be received), or the first
business day following such delivery (if delivered other than on a business day
during normal business hours where such notice is to be received) or (b) on the
second business day following the date of mailing by express courier service,
fully prepaid, addressed to such address, or upon actual receipt of such
mailing, whichever shall first occur.  The addresses for such communications
shall be:

If to the Company:

Implant Sciences Corporation

500 Research Drive

Unit 3

Wilmington, Massachusetts 01887

Tel: (978) 752-1700

Fax: (978) 752-1711

Attn: Glenn D. Bolduc, President

 

 

with copies (which copies

shall not constitute notice

to the Company) to:

Morse, Barnes-Brown & Pendleton, P.C.

230 Third Avenue

Fourth Floor

Waltham, Massachusetts 02451

Tel:  (781) 622-5930

Fax:  (781) 622-5933

Attn:  Carl F. Barnes, Esq.

 

 

If to the Agent:

BAM Administrative Services LLC

1370 Avenue of the Americas, 32nd Floor

New York, New York 10019

Tel:  (212) 260-5050

Fax:  (212) 260-5051

Attention:  David Levy

 

 

with copies (which copies

shall not constitute notice

to the Agent) to:

Blank Rome LLP

405 Lexington Avenue

New York, NY 10174

Tel: (212) 885-5431  

Fax: (917) 332-3065

Attention: Eliezer M. Helfgott, Esq.

If to an Investor:  To the address set forth on the signatures page to this
Agreement

Any party hereto may from time to time change its address for notices by giving
written notice of such changed address to the other party hereto.

Section 8.5

Waivers.  

No waiver by either 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

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of any party to exercise any right hereunder in any manner impair the exercise
of any such right accruing to it thereafter.  

Section 8.6

Headings.  

The article, section and subsection headings in this Agreement are for
convenience only and shall not constitute a part of this Agreement for any other
purpose and shall not be deemed to limit or affect any of the provisions hereof.

Section 8.7

Successors and Assigns.  

This Agreement shall be binding upon and inure to the benefit of the parties and
their successors and assigns.  After the Closing, the assignment by a party to
this Agreement of any rights hereunder shall not affect the obligations of such
party under this Agreement.  Any Investor may assign the Notes issued to such
Investor and its rights under this Agreement and the other Transaction Documents
and any other rights hereto and thereto without the consent of the Company.

Section 8.8

No Third Party Beneficiaries.  

This Agreement is intended for the benefit of the parties hereto and their
respective permitted successors and assigns and is not for the benefit of, nor
may any provision hereof be enforced by, any other person.

Section 8.9

Governing Law.  

This Agreement shall be governed by and construed in accordance with the
internal laws of the State of New York, without giving effect to any of the
conflicts of law principles which would result in the application of the
substantive law of another jurisdiction.  This Agreement shall not be
interpreted or construed with any presumption against the party causing this
Agreement to be drafted.

Section 8.10

Survival.  

The representations and warranties of the Company, the Agent and the Investors
shall survive the execution and delivery hereof and the Closing until the third
anniversary of the Closing Date; the agreements and covenants set forth in
Articles I, III, V, VI, VII and VIII of this Agreement shall survive the
execution and delivery hereof and Closing hereunder.

Section 8.11

Publicity.  

The Company agrees that it will not disclose, and will not include in any public
announcement, the names of the Agent or any Investor without the consent of the
Agent, which consent shall not be unreasonably withheld or delayed, or unless
and until such disclosure is required by law, rule or applicable regulation and
then only to the extent of such requirement.

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Section 8.12

Counterparts.  

This Agreement may be executed in any number of counterparts, all of which taken
together shall constitute one and the same instrument and shall become effective
when counterparts have been signed by each party and delivered to the other
parties hereto, it being understood that all parties need not sign the same
counterpart.  

Section 8.13

Severability.  

The provisions of this Agreement are severable and, in the event that any court
of competent jurisdiction shall determine that any one or more of the provisions
or part of the provisions contained in this Agreement shall, for any reason, be
held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provision or part of a
provision of this Agreement and this Agreement shall be reformed and construed
as if such invalid or illegal or unenforceable provision, or part of such
provision, had never been contained herein, so that such provisions would be
valid, legal and enforceable to the maximum extent possible.

Section 8.14

Further Assurances.  

From and after the date of this Agreement, upon the request of the Agent or any
Investor or the Company, the Company, the Agent and the Investors shall execute
and deliver such instruments, documents and other writings as may be reasonably
necessary or desirable to confirm and carry out and to effectuate fully the
intent and purposes of this Agreement and the other Transaction Documents.

Section 8.15

Confidentiality.

Without the prior written consent of the Company, neither the Agent nor any
Investor nor any of its respective affiliates shall disclose any confidential
information of the Company or any of its Subsidiaries, which any of its
officers, directors, employees, counsel, agents, investment bankers, or
accountants, may now possess or may hereafter create or obtain relating to,
without limitation, know-how, trade secrets, customer lists, supplier lists,
referral source lists, costs, profits or margin information, markets, sales,
pricing policies, operational methods, plans for future development, processes,
products, software, the financial condition, results of operations, business,
properties, assets, liabilities, or future prospects and such information shall
not be published, disclosed, or made accessible by any of them to any other
person or entity or used by any of them; provided, however, that such party may
disclose or use any such information (i) as has become generally available to
the public other than through a breach of this Agreement by such party or any of
its affiliates and representatives, (ii) as becomes available to the Agent or
any Investors on a non-confidential basis from a source other than the Company
or the Company’s affiliates or representatives, provided that such source is not
known or reasonably believed by such party to be bound by a confidentiality
agreement or other obligations of secrecy, (iii) as may be required in any
report, statement or testimony required to be submitted to any governmental
entity having or claiming to have jurisdiction over it, or as may be otherwise
required by applicable law, or as may be required in response to any summons or
subpoena or in connection with any litigation, (iv) as may be required to obtain
any governmental entity

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approval or consent required in order to consummate the transactions
contemplated by this Agreement or (v) as may be necessary to establish or
enforce the Agent or any Investor’s rights and/or to exercise the Agent or any
Investor’s remedies under this Agreement and the Transaction Documents,
including, without limitation, to third parties in order to facilitate a sale or
other disposition of the Company or its assets subject to the execution and
delivery of a Non-Disclosure Agreement containing restrictions and limitations
substantially similar to those contained in this Section 8.15; provided,
further, that in the case of clauses (i), (ii), (iii), and (iv), the Investor
will promptly notify the Company and, to the extent practicable, provide the
Company a reasonable opportunity to prevent public disclosure of such
information.  The Agent and each Investor acknowledge responsibility for
disclosures caused by any of its respective affiliates and representatives.

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IN WITNESS WHEREOF, the parties hereto have caused this Note Purchase Agreement
to be duly executed by their respective authorized officers as of the date first
above written.

 

IMPLANT SCIENCES CORPORATION

 

By:

/s/ Glenn D. Bolduc

 

Name: Glenn D. Bolduc

 

Title: President and Chief Executive Officer

 

 

S-1

[SIGNATURE PAGE TO NOTE PURCHASE AGREEMENT]

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BAM ADMINISTRATIVE SERVICES LLC

 

 

By:

/s/ David Levy

 

Name:

 

Title:

 

 

 

 

 

 

 

 

S-2

[SIGNATURE PAGE TO NOTE PURCHASE AGREEMENT]

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[INVESTOR]

 

 

By:

 

 

Name:

 

Title:

 

Term Commitment:  $____________

 

Address for Notices:

 

 

With copies to:

 

S-3

[SIGNATURE PAGE TO NOTE PURCHASE AGREEMENT]