EXHIBIT 10.5

 

EXHIBIT A

 

REGISTRATION RIGHTS AGREEMENT

 

This Registration Rights Agreement (this “Agreement”) is made and entered into
as of March 3, 2005, by and among Implant Sciences Corporation, a Massachusetts
corporation (the “Company”), and the purchasers signatory hereto (each such
purchaser, a “Purchaser” and collectively, the “Purchasers”).

 

This Agreement is made pursuant to the Securities Purchase Agreement, dated as
of the date hereof among the Company and the Purchasers (the “Purchase
Agreement”).

 

The Company and the Purchasers hereby agree as follows:

 

1.                                       DEFINITIONS.  CAPITALIZED TERMS USED
AND NOT OTHERWISE DEFINED HEREIN THAT ARE DEFINED IN THE PURCHASE AGREEMENT
SHALL HAVE THE MEANINGS GIVEN SUCH TERMS IN THE PURCHASE AGREEMENT.  AS USED IN
THIS AGREEMENT, THE FOLLOWING TERMS SHALL HAVE THE FOLLOWING MEANINGS:

 

“Advice” shall have the meaning set forth in Section 6(d).

 

“Effectiveness Date” means, with respect to the Registration Statement required
to be filed hereunder, the earlier of (a) the 90th calendar day following the
date of the Purchase Agreement (or the 120th calendar day in the event of a
review by the Commission of the Registration Statement) and (b) the fifth
Trading Day following the date on which the Company is notified by the
Commission that the Registration Statement will not be reviewed or is no longer
subject to further review and comments.

 

“Effectiveness Period” shall have the meaning set forth in Section 2(a).

 

“Event” shall have the meaning set forth in Section 2(b).

 

“Event Date” shall have the meaning set forth in Section 2(b).

 

“Filing Date” means, with respect to the Registration Statement required to be
filed hereunder, the 40th calendar day following the date of the Purchase
Agreement.

 

“Holder” or “Holders” means the holder or holders, as the case may be, from time
to time of Registrable Securities.

 

“Indemnified Party” shall have the meaning set forth in Section 5(c).

 

“Indemnifying Party” shall have the meaning set forth in Section 5(c).

 

“Losses” shall have the meaning set forth in Section 5(a).

 

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“Plan of Distribution” shall have the meaning set forth in Section 2(a).

 

“Proceeding” means an action, claim, suit, investigation or proceeding
(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened.

 

“Prospectus” means the prospectus included in the Registration Statement
(including, without limitation, a prospectus that includes any information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus supplement, with respect to the terms
of the offering of any portion of the Registrable Securities covered by the
Registration Statement, and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such Prospectus.

 

“Registrable Securities” means all of the Shares, the Warrant Shares and the
Additional Investment Right Shares, together with any shares of Common Stock
issued or issuable upon any stock split, dividend or other distribution,
recapitalization or similar event with respect to the foregoing.

 

“Registration Statement” means the registration statements required to be filed
hereunder, including (in each case) the Prospectus, amendments and supplements
to the registration statement or Prospectus, including pre- and post-effective
amendments, all exhibits thereto, and all material incorporated by reference or
deemed to be incorporated by reference in the registration statement.

 

“Rule 415” means Rule 415 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same purpose and effect as such Rule.

 

“Rule 424” means Rule 424 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same purpose and effect as such Rule.

 

“Selling Shareholder Questionnaire” shall have the meaning set forth in
Section 3(a).

 

2.                                       REGISTRATION.

 

(A)                                  ON OR PRIOR TO THE FILING DATE, THE COMPANY
SHALL USE ITS BEST EFFORTS TO PREPARE AND FILE WITH THE COMMISSION THE
REGISTRATION STATEMENT COVERING THE RESALE OF ALL OF THE REGISTRABLE SECURITIES
FOR AN OFFERING TO BE MADE ON A CONTINUOUS BASIS PURSUANT TO RULE 415.  THE
REGISTRATION STATEMENT REQUIRED HEREUNDER SHALL BE ON FORM S-3 (EXCEPT IF THE
COMPANY IS NOT THEN ELIGIBLE TO REGISTER FOR RESALE THE REGISTRABLE SECURITIES
ON FORM S-3, IN WHICH CASE THE REGISTRATION SHALL BE ON ANOTHER APPROPRIATE FORM
IN ACCORDANCE HEREWITH).  THE REGISTRATION STATEMENT REQUIRED HEREUNDER SHALL
CONTAIN

 

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SUBSTANTIALLY THE “PLAN OF DISTRIBUTION” ATTACHED HERETO AS ANNEX A.  SUBJECT TO
THE TERMS OF THIS AGREEMENT, THE COMPANY SHALL USE ITS BEST EFFORTS TO CAUSE THE
REGISTRATION STATEMENT TO BE DECLARED EFFECTIVE UNDER THE SECURITIES ACT AS
PROMPTLY AS POSSIBLE AFTER THE FILING THEREOF, BUT IN ANY EVENT NOT LATER THAN
THE EFFECTIVENESS DATE, AND SHALL USE ITS BEST EFFORTS TO KEEP THE REGISTRATION
STATEMENT CONTINUOUSLY EFFECTIVE UNDER THE SECURITIES ACT UNTIL THE DATE WHEN
ALL REGISTRABLE SECURITIES COVERED BY THE REGISTRATION STATEMENT HAVE BEEN SOLD
OR MAY BE SOLD WITHOUT VOLUME RESTRICTIONS PURSUANT TO RULE 144(K) AS DETERMINED
BY THE COUNSEL TO THE COMPANY PURSUANT TO A WRITTEN OPINION LETTER TO SUCH
EFFECT, ADDRESSED AND ACCEPTABLE TO THE COMPANY’S TRANSFER AGENT AND THE
AFFECTED HOLDERS (THE “EFFECTIVENESS PERIOD”).  THE COMPANY SHALL IMMEDIATELY
NOTIFY THE HOLDERS VIA FACSIMILE OF THE EFFECTIVENESS OF THE REGISTRATION
STATEMENT ON THE SAME DAY THAT THE COMPANY RECEIVES NOTIFICATION OF THE
EFFECTIVENESS FROM THE COMMISSION.  FAILURE TO SO NOTIFY THE HOLDER WITHIN 1
TRADING DAY OF SUCH NOTIFICATION SHALL BE DEEMED AN EVENT UNDER SECTION 2(B).

 

(B)                                 IF: (I) A REGISTRATION STATEMENT IS NOT
FILED ON OR PRIOR TO THE FILING DATE, OR (II) THE COMPANY FAILS TO FILE WITH THE
COMMISSION A REQUEST FOR ACCELERATION IN ACCORDANCE WITH RULE 461 PROMULGATED
UNDER THE SECURITIES ACT, WITHIN FIVE TRADING DAYS OF THE DATE THAT THE COMPANY
IS NOTIFIED (ORALLY OR IN WRITING, WHICHEVER IS EARLIER) BY THE COMMISSION THAT
A REGISTRATION STATEMENT WILL NOT BE “REVIEWED,” OR IS NOT SUBJECT TO FURTHER
REVIEW, OR (III) [INTENTIONALLY DELETED], OR (IV) A REGISTRATION STATEMENT FILED
OR REQUIRED TO BE FILED HEREUNDER IS NOT DECLARED EFFECTIVE BY THE COMMISSION ON
OR BEFORE THE EFFECTIVENESS DATE, OR (V) AFTER A REGISTRATION STATEMENT IS FIRST
DECLARED EFFECTIVE BY THE COMMISSION, IT CEASES FOR ANY REASON TO REMAIN
CONTINUOUSLY EFFECTIVE AS TO ALL REGISTRABLE SECURITIES FOR WHICH IT IS REQUIRED
TO BE EFFECTIVE, OR THE HOLDERS ARE NOT PERMITTED TO UTILIZE THE PROSPECTUS
THEREIN TO RESELL SUCH REGISTRABLE SECURITIES, FOR IN ANY SUCH CASE 25 CALENDAR
CONSECUTIVE DAYS BUT NO MORE THAN AN AGGREGATE OF 40 CALENDAR DAYS DURING ANY 12
MONTH PERIOD (WHICH NEED NOT BE CONSECUTIVE TRADING DAYS) (SUBJECT TO TOLLING
EXTENSION AS PROVIDED BY SECTION 3(K))(ANY SUCH FAILURE OR BREACH BEING REFERRED
TO AS AN “EVENT,” AND FOR PURPOSES OF CLAUSE (I) OR (IV) THE DATE ON WHICH SUCH
EVENT OCCURS, OR FOR PURPOSES OF CLAUSE (II) THE DATE ON WHICH SUCH FIVE TRADING
DAY PERIOD IS EXCEEDED, OR FOR PURPOSES OF CLAUSE (V) THE DATE ON WHICH SUCH 25
OR 40 CALENDAR DAY PERIOD, AS APPLICABLE, IS EXCEEDED BEING REFERRED TO AS
“EVENT DATE”), THEN IN ADDITION TO ANY OTHER RIGHTS THE HOLDERS MAY HAVE
HEREUNDER OR UNDER APPLICABLE LAW, ON EACH SUCH EVENT DATE AND, ON EACH MONTHLY
ANNIVERSARY OF EACH SUCH EVENT DATE (IF THE APPLICABLE EVENT SHALL NOT HAVE BEEN
CURED BY SUCH DATE) UNTIL THE APPLICABLE EVENT IS CURED, THE COMPANY SHALL PAY
TO EACH HOLDER AN AMOUNT IN CASH, AS PARTIAL LIQUIDATED DAMAGES AND NOT AS A
PENALTY, EQUAL TO 2.0% OF THE AGGREGATE PURCHASE PRICE PAID BY SUCH HOLDER
PURSUANT TO THE PURCHASE AGREEMENT FOR ANY REGISTRABLE SECURITIES THEN HELD BY
SUCH HOLDER.  IF THE COMPANY FAILS TO PAY ANY PARTIAL LIQUIDATED DAMAGES
PURSUANT TO THIS SECTION IN FULL WITHIN SEVEN DAYS AFTER THE DATE PAYABLE, THE
COMPANY WILL PAY INTEREST THEREON AT A RATE OF 18% PER ANNUM (OR SUCH LESSER
MAXIMUM AMOUNT THAT IS PERMITTED TO BE PAID BY APPLICABLE LAW) TO THE HOLDER,
ACCRUING DAILY FROM THE DATE SUCH PARTIAL LIQUIDATED DAMAGES ARE DUE UNTIL SUCH
AMOUNTS, PLUS ALL SUCH INTEREST THEREON, ARE PAID IN FULL.  THE PARTIAL
LIQUIDATED DAMAGES PURSUANT TO THE TERMS HEREOF SHALL APPLY ON A DAILY PRO-RATA
BASIS FOR ANY PORTION OF A MONTH PRIOR TO THE CURE OF AN EVENT.

 

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3.                                       REGISTRATION PROCEDURES

 

In connection with the Company’s registration obligations hereunder, the Company
shall:

 

(A)                                  NOT LESS THAN FIVE TRADING DAYS PRIOR TO
THE FILING OF THE REGISTRATION STATEMENT OR ANY RELATED PROSPECTUS OR ANY
AMENDMENT OR SUPPLEMENT THERETO, THE COMPANY SHALL, (I) FURNISH TO THE HOLDERS
COPIES OF ALL SUCH DOCUMENTS PROPOSED TO BE FILED (INCLUDING DOCUMENTS
INCORPORATED OR DEEMED INCORPORATED BY REFERENCE TO THE EXTENT REQUESTED BY SUCH
PERSON) WHICH DOCUMENTS WILL BE SUBJECT TO THE REVIEW OF SUCH HOLDERS, AND (II)
CAUSE ITS OFFICERS AND DIRECTORS, COUNSEL AND INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS TO RESPOND TO SUCH INQUIRIES AS SHALL BE NECESSARY, IN THE
REASONABLE OPINION OF RESPECTIVE COUNSEL TO CONDUCT A REASONABLE INVESTIGATION
WITHIN THE MEANING OF THE SECURITIES ACT.  THE COMPANY SHALL NOT FILE THE
REGISTRATION STATEMENT OR ANY SUCH PROSPECTUS OR ANY AMENDMENTS OR SUPPLEMENTS
THERETO TO WHICH THE HOLDERS OF A MAJORITY OF THE REGISTRABLE SECURITIES SHALL
REASONABLY OBJECT IN GOOD FAITH, PROVIDED THAT THE COMPANY IS NOTIFIED OF SUCH
OBJECTION IN WRITING NO LATER THAN 2 TRADING DAYS AFTER THE HOLDERS HAVE BEEN SO
FURNISHED COPIES OF SUCH DOCUMENTS.  EACH HOLDER AGREES TO FURNISH TO THE
COMPANY A COMPLETED QUESTIONNAIRE IN THE FORM ATTACHED TO THIS AGREEMENT AS
ANNEX B (A “SELLING SHAREHOLDER QUESTIONNAIRE”) NOT LESS THAN FIVE TRADING DAYS
PRIOR TO THE FILING DATE OR BY THE END OF THE FIFTH TRADING DAY FOLLOWING THE
DATE ON WHICH SUCH HOLDER RECEIVES DRAFT MATERIALS IN ACCORDANCE WITH THIS
SECTION.  IN THE EVENT A HOLDER DOES NOT DELIVER THE SELLING HOLDER
QUESTIONNAIRE WITHIN SUCH TIME PERIOD, ANY LIQUIDATED DAMAGES THAT OTHERWISE
ACCRUE AS TO SUCH HOLDER SHALL BE TOLLED UNTIL SUCH SELLING HOLDER QUESTIONNAIRE
IS RECEIVED BY THE COMPANY.

 

(B)                                 (I) PREPARE AND FILE WITH THE COMMISSION
SUCH AMENDMENTS, INCLUDING POST-EFFECTIVE AMENDMENTS, TO THE REGISTRATION
STATEMENT AND THE PROSPECTUS USED IN CONNECTION THEREWITH AS MAY BE NECESSARY TO
KEEP THE REGISTRATION STATEMENT CONTINUOUSLY EFFECTIVE AS TO THE APPLICABLE
REGISTRABLE SECURITIES FOR THE EFFECTIVENESS PERIOD AND PREPARE AND FILE WITH
THE COMMISSION SUCH ADDITIONAL REGISTRATION STATEMENTS IN ORDER TO REGISTER FOR
RESALE UNDER THE SECURITIES ACT ALL OF THE REGISTRABLE SECURITIES; (II) CAUSE
THE RELATED PROSPECTUS TO BE AMENDED OR SUPPLEMENTED BY ANY REQUIRED PROSPECTUS
SUPPLEMENT, AND AS SO SUPPLEMENTED OR AMENDED TO BE FILED PURSUANT TO RULE 424;
(III) RESPOND AS PROMPTLY AS REASONABLY POSSIBLE TO ANY COMMENTS RECEIVED FROM
THE COMMISSION WITH RESPECT TO THE REGISTRATION STATEMENT OR ANY AMENDMENT
THERETO AND, AS PROMPTLY AS REASONABLY POSSIBLE, UPON REQUEST, PROVIDE THE
HOLDERS TRUE AND COMPLETE COPIES OF ALL CORRESPONDENCE FROM AND TO THE
COMMISSION RELATING TO THE REGISTRATION STATEMENT; AND (IV) COMPLY IN ALL
MATERIAL RESPECTS WITH THE PROVISIONS OF THE SECURITIES ACT AND THE EXCHANGE ACT
WITH RESPECT TO THE DISPOSITION OF ALL REGISTRABLE SECURITIES COVERED BY THE
REGISTRATION STATEMENT DURING THE APPLICABLE PERIOD IN ACCORDANCE WITH THE
INTENDED METHODS OF DISPOSITION BY THE HOLDERS THEREOF SET FORTH IN THE
REGISTRATION STATEMENT AS SO AMENDED OR IN SUCH PROSPECTUS AS SO SUPPLEMENTED.

 

(C)                                  NOTIFY THE HOLDERS OF REGISTRABLE
SECURITIES TO BE SOLD AS PROMPTLY AS REASONABLY POSSIBLE AND (IF REQUESTED BY
ANY SUCH PERSON) CONFIRM SUCH NOTICE IN WRITING PROMPTLY FOLLOWING THE DAY
(I)(A) WHEN A PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT OR

 

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POST-EFFECTIVE AMENDMENT TO THE REGISTRATION STATEMENT IS PROPOSED TO BE FILED;
(B) WHEN THE COMMISSION NOTIFIES THE COMPANY WHETHER THERE WILL BE A “REVIEW” OF
THE REGISTRATION STATEMENT AND WHENEVER THE COMMISSION COMMENTS IN WRITING ON
THE REGISTRATION STATEMENT (THE COMPANY SHALL UPON REQUEST PROVIDE TRUE AND
COMPLETE COPIES THEREOF AND ALL WRITTEN RESPONSES THERETO TO EACH OF THE
HOLDERS); AND (C) WITH RESPECT TO THE REGISTRATION STATEMENT OR ANY
POST-EFFECTIVE AMENDMENT, WHEN THE SAME HAS BECOME EFFECTIVE; (II) OF ANY
REQUEST BY THE COMMISSION OR ANY OTHER FEDERAL OR STATE GOVERNMENTAL AUTHORITY
DURING THE PERIOD OF EFFECTIVENESS OF THE REGISTRATION STATEMENT FOR AMENDMENTS
OR SUPPLEMENTS TO THE REGISTRATION STATEMENT OR PROSPECTUS OR FOR ADDITIONAL
INFORMATION; (III) OF THE ISSUANCE BY THE COMMISSION OR ANY OTHER FEDERAL OR
STATE GOVERNMENTAL AUTHORITY OF ANY STOP ORDER SUSPENDING THE EFFECTIVENESS OF
THE REGISTRATION STATEMENT COVERING ANY OR ALL OF THE REGISTRABLE SECURITIES OR
THE INITIATION OF ANY PROCEEDINGS FOR THAT PURPOSE; (IV) OF THE RECEIPT BY THE
COMPANY OF ANY NOTIFICATION WITH RESPECT TO THE SUSPENSION OF THE QUALIFICATION
OR EXEMPTION FROM QUALIFICATION OF ANY OF THE REGISTRABLE SECURITIES FOR SALE IN
ANY JURISDICTION, OR THE INITIATION OR THREATENING OF ANY PROCEEDING FOR SUCH
PURPOSE; AND (V) OF THE OCCURRENCE OF ANY EVENT OR PASSAGE OF TIME THAT MAKES
THE FINANCIAL STATEMENTS INCLUDED IN THE REGISTRATION STATEMENT INELIGIBLE FOR
INCLUSION THEREIN OR ANY STATEMENT MADE IN THE REGISTRATION STATEMENT OR
PROSPECTUS OR ANY DOCUMENT INCORPORATED OR DEEMED TO BE INCORPORATED THEREIN BY
REFERENCE UNTRUE IN ANY MATERIAL RESPECT OR THAT REQUIRES ANY REVISIONS TO THE
REGISTRATION STATEMENT, PROSPECTUS OR OTHER DOCUMENTS SO THAT, IN THE CASE OF
THE REGISTRATION STATEMENT OR THE PROSPECTUS, AS THE CASE MAY BE, IT WILL NOT
CONTAIN ANY UNTRUE STATEMENT OF A MATERIAL FACT OR OMIT TO STATE ANY MATERIAL
FACT REQUIRED TO BE STATED THEREIN OR NECESSARY TO MAKE THE STATEMENTS THEREIN,
IN LIGHT OF THE CIRCUMSTANCES UNDER WHICH THEY WERE MADE, NOT MISLEADING.

 

(D)                                 USE COMMERCIALLY REASONABLE EFFORTS TO AVOID
THE ISSUANCE OF, OR, IF ISSUED, OBTAIN THE WITHDRAWAL OF (I) ANY ORDER
SUSPENDING THE EFFECTIVENESS OF THE REGISTRATION STATEMENT, OR (II) ANY
SUSPENSION OF THE QUALIFICATION (OR EXEMPTION FROM QUALIFICATION) OF ANY OF THE
REGISTRABLE SECURITIES FOR SALE IN ANY JURISDICTION, AT THE EARLIEST PRACTICABLE
MOMENT.

 

(E)                                  FURNISH TO EACH HOLDER, WITHOUT CHARGE, AT
LEAST ONE CONFORMED COPY OF THE REGISTRATION STATEMENT AND EACH AMENDMENT
THERETO, INCLUDING FINANCIAL STATEMENTS AND SCHEDULES, ALL DOCUMENTS
INCORPORATED OR DEEMED TO BE INCORPORATED THEREIN BY REFERENCE TO THE EXTENT
REQUESTED BY SUCH PERSON, AND ALL EXHIBITS TO THE EXTENT REQUESTED BY SUCH
PERSON (INCLUDING THOSE PREVIOUSLY FURNISHED OR INCORPORATED BY REFERENCE)
PROMPTLY AFTER THE FILING OF SUCH DOCUMENTS WITH THE COMMISSION.

 

(F)                                    PROMPTLY DELIVER TO EACH HOLDER, WITHOUT
CHARGE, AS MANY COPIES OF THE PROSPECTUS OR PROSPECTUSES (INCLUDING EACH FORM OF
PROSPECTUS) AND EACH AMENDMENT OR SUPPLEMENT THERETO AS SUCH PERSONS MAY
REASONABLY REQUEST IN CONNECTION WITH RESALES BY THE HOLDER OF REGISTRABLE
SECURITIES.  SUBJECT TO THE TERMS OF THIS AGREEMENT, THE COMPANY HEREBY CONSENTS
TO THE USE OF SUCH PROSPECTUS AND EACH AMENDMENT OR SUPPLEMENT THERETO BY EACH
OF THE SELLING HOLDERS IN CONNECTION WITH THE OFFERING AND SALE OF THE
REGISTRABLE SECURITIES COVERED BY SUCH PROSPECTUS AND ANY AMENDMENT OR
SUPPLEMENT THERETO, EXCEPT AFTER THE GIVING ON ANY NOTICE PURSUANT TO
SECTION 3(C).

 

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(G)                                 PRIOR TO ANY RESALE OF REGISTRABLE
SECURITIES BY A HOLDER, USE ITS COMMERCIALLY REASONABLE EFFORTS TO REGISTER OR
QUALIFY OR COOPERATE WITH THE SELLING HOLDERS IN CONNECTION WITH THE
REGISTRATION OR QUALIFICATION (OR EXEMPTION FROM THE REGISTRATION OR
QUALIFICATION) OF SUCH REGISTRABLE SECURITIES FOR THE RESALE BY THE HOLDER UNDER
THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTIONS WITHIN THE UNITED STATES
AS ANY HOLDER REASONABLY REQUESTS IN WRITING, TO KEEP THE REGISTRATION OR
QUALIFICATION (OR EXEMPTION THEREFROM) EFFECTIVE DURING THE EFFECTIVENESS PERIOD
AND TO DO ANY AND ALL OTHER ACTS OR THINGS REASONABLY NECESSARY TO ENABLE THE
DISPOSITION IN SUCH JURISDICTIONS OF THE REGISTRABLE SECURITIES COVERED BY THE
REGISTRATION STATEMENT; PROVIDED, THAT THE COMPANY SHALL NOT BE REQUIRED TO
QUALIFY GENERALLY TO DO BUSINESS IN ANY JURISDICTION WHERE IT IS NOT THEN SO
QUALIFIED, SUBJECT THE COMPANY TO ANY MATERIAL TAX IN ANY SUCH JURISDICTION
WHERE IT IS NOT THEN SO SUBJECT OR FILE A GENERAL CONSENT TO SERVICE OF PROCESS
IN ANY SUCH JURISDICTION.

 

(H)                                 IF NASDR RULE 2710 REQUIRES ANY
BROKER-DEALER TO MAKE A FILING PRIOR TO EXECUTING A SALE BY A HOLDER, MAKE AN
ISSUER FILING WITH THE NASDR, INC. CORPORATE FINANCING DEPARTMENT PURSUANT TO
NASDR RULE 2710(B)(10)(A)(I) AND RESPOND WITHIN FIVE TRADING DAYS TO ANY
COMMENTS RECEIVED FROM NASDR IN CONNECTION THEREWITH, AND PAY THE FILING FEE
REQUIRED IN CONNECTION THEREWITH.

 

(I)                                     IF REQUESTED BY THE HOLDERS, COOPERATE
WITH THE HOLDERS TO FACILITATE THE TIMELY PREPARATION AND DELIVERY OF
CERTIFICATES REPRESENTING REGISTRABLE SECURITIES TO BE DELIVERED TO A TRANSFEREE
PURSUANT TO THE REGISTRATION STATEMENT, WHICH CERTIFICATES SHALL BE FREE, TO THE
EXTENT PERMITTED BY THE PURCHASE AGREEMENT, OF ALL RESTRICTIVE LEGENDS, AND TO
ENABLE SUCH REGISTRABLE SECURITIES TO BE IN SUCH DENOMINATIONS AND REGISTERED IN
SUCH NAMES AS ANY SUCH HOLDERS MAY REQUEST.

 

(J)                                     UPON THE OCCURRENCE OF ANY EVENT
CONTEMPLATED BY SECTION 3(C)(V), AS PROMPTLY AS REASONABLY POSSIBLE, PREPARE A
SUPPLEMENT OR AMENDMENT, INCLUDING A POST-EFFECTIVE AMENDMENT, TO THE
REGISTRATION STATEMENT OR A SUPPLEMENT TO THE RELATED PROSPECTUS OR ANY DOCUMENT
INCORPORATED OR DEEMED TO BE INCORPORATED THEREIN BY REFERENCE, AND FILE ANY
OTHER REQUIRED DOCUMENT SO THAT, AS THEREAFTER DELIVERED, NEITHER THE
REGISTRATION STATEMENT NOR SUCH PROSPECTUS WILL CONTAIN AN UNTRUE STATEMENT OF A
MATERIAL FACT OR OMIT TO STATE A MATERIAL FACT REQUIRED TO BE STATED THEREIN OR
NECESSARY TO MAKE THE STATEMENTS THEREIN, IN LIGHT OF THE CIRCUMSTANCES UNDER
WHICH THEY WERE MADE, NOT MISLEADING. IF THE COMPANY NOTIFIES THE HOLDERS IN
ACCORDANCE WITH CLAUSES (II) THROUGH (V) OF SECTION 3(C) ABOVE TO SUSPEND THE
USE OF ANY PROSPECTUS UNTIL THE REQUISITE CHANGES TO SUCH PROSPECTUS HAVE BEEN
MADE, THEN THE HOLDERS SHALL SUSPEND USE OF SUCH PROSPECTUS.  THE COMPANY WILL
USE ITS BEST EFFORTS TO ENSURE THAT THE USE OF THE PROSPECTUS MAY BE RESUMED AS
PROMPTLY AS IS PRACTICABLE.  THE COMPANY SHALL BE ENTITLED TO EXERCISE ITS RIGHT
UNDER THIS SECTION 3(I) TO SUSPEND THE AVAILABILITY OF A REGISTRATION STATEMENT
AND PROSPECTUS, SUBJECT TO THE PAYMENT OF LIQUIDATED DAMAGES PURSUANT TO
SECTION 2(B), FOR A PERIOD NOT TO EXCEED 90 DAYS (WHICH NEED NOT BE CONSECUTIVE
DAYS) IN ANY 12 MONTH PERIOD.

 

(K)                                  COMPLY WITH ALL APPLICABLE RULES AND
REGULATIONS OF THE COMMISSION.

 

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(L)                                     THE COMPANY MAY REQUIRE EACH SELLING
HOLDER TO FURNISH TO THE COMPANY A CERTIFIED STATEMENT AS TO THE NUMBER OF
SHARES OF COMMON STOCK BENEFICIALLY OWNED BY SUCH HOLDER AND, IF REQUIRED BY THE
COMMISSION, THE PERSON THEREOF THAT HAS VOTING AND DISPOSITIVE CONTROL OVER THE
SHARES. DURING ANY PERIODS THAT THE COMPANY IS UNABLE TO MEET ITS OBLIGATIONS
HEREUNDER WITH RESPECT TO THE REGISTRATION OF THE REGISTRABLE SECURITIES SOLELY
BECAUSE A HOLDER FAILS TO FURNISH SUCH INFORMATION WITHIN FIVE TRADING DAYS OF
THE COMPANY’S REQUEST, ANY LIQUIDATED DAMAGES THAT ARE ACCRUING AT SUCH TIME AS
TO ALL HOLDERS SHALL BE TOLLED AND ANY EVENT THAT MAY OTHERWISE OCCUR SOLELY
BECAUSE OF SUCH DELAY SHALL BE SUSPENDED AS TO ALL HOLDERS, UNTIL SUCH
INFORMATION IS DELIVERED TO THE COMPANY.

 

4.                                       REGISTRATION EXPENSES.  ALL FEES AND
EXPENSES INCIDENT TO THE PERFORMANCE OF OR COMPLIANCE WITH THIS AGREEMENT BY THE
COMPANY SHALL BE BORNE BY THE COMPANY WHETHER OR NOT ANY REGISTRABLE SECURITIES
ARE SOLD PURSUANT TO THE REGISTRATION STATEMENT.  THE FEES AND EXPENSES REFERRED
TO IN THE FOREGOING SENTENCE SHALL INCLUDE, WITHOUT LIMITATION, (I) ALL
REGISTRATION AND FILING FEES (INCLUDING, WITHOUT LIMITATION, FEES AND EXPENSES
(A) WITH RESPECT TO FILINGS REQUIRED TO BE MADE WITH THE TRADING MARKET ON WHICH
THE COMMON STOCK IS THEN LISTED FOR TRADING, AND (B) IN COMPLIANCE WITH
APPLICABLE STATE SECURITIES OR BLUE SKY LAWS REASONABLY AGREED TO BY THE COMPANY
IN WRITING (INCLUDING, WITHOUT LIMITATION, FEES AND DISBURSEMENTS OF COUNSEL FOR
THE COMPANY IN CONNECTION WITH BLUE SKY QUALIFICATIONS OR EXEMPTIONS OF THE
REGISTRABLE SECURITIES AND DETERMINATION OF THE ELIGIBILITY OF THE REGISTRABLE
SECURITIES FOR INVESTMENT UNDER THE LAWS OF SUCH JURISDICTIONS AS REQUESTED BY
THE HOLDERS) AND (C) IF NOT PREVIOUSLY PAID BY THE COMPANY IN CONNECTION WITH AN
ISSUER FILING, WITH RESPECT TO ANY FILING THAT MAY BE REQUIRED TO BE MADE BY ANY
BROKER THROUGH WHICH A HOLDER INTENDS TO MAKE SALES OF REGISTRABLE SECURITIES
WITH NASD REGULATION, INC. PURSUANT TO NASD RULE 2710, SO LONG AS THE BROKER IS
RECEIVING NO MORE THAN A CUSTOMARY BROKERAGE COMMISSION IN CONNECTION WITH SUCH
SALE, (II) PRINTING EXPENSES (INCLUDING, WITHOUT LIMITATION, EXPENSES OF
PRINTING CERTIFICATES FOR REGISTRABLE SECURITIES AND OF PRINTING PROSPECTUSES IF
THE PRINTING OF PROSPECTUSES IS REASONABLY REQUESTED BY THE HOLDERS OF A
MAJORITY OF THE REGISTRABLE SECURITIES INCLUDED IN THE REGISTRATION STATEMENT),
(III) MESSENGER, TELEPHONE AND DELIVERY EXPENSES, (IV) FEES AND DISBURSEMENTS OF
COUNSEL FOR THE COMPANY, (V) SECURITIES ACT LIABILITY INSURANCE, IF THE COMPANY
SO DESIRES SUCH INSURANCE, AND (VI) FEES AND EXPENSES OF ALL OTHER PERSONS
RETAINED BY THE COMPANY IN CONNECTION WITH THE CONSUMMATION OF THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT.  IN ADDITION, THE COMPANY SHALL BE RESPONSIBLE
FOR ALL OF ITS INTERNAL EXPENSES INCURRED IN CONNECTION WITH THE CONSUMMATION OF
THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT (INCLUDING, WITHOUT LIMITATION,
ALL SALARIES AND EXPENSES OF ITS OFFICERS AND EMPLOYEES PERFORMING LEGAL OR
ACCOUNTING DUTIES), THE EXPENSE OF ANY ANNUAL AUDIT AND THE FEES AND EXPENSES
INCURRED IN CONNECTION WITH THE LISTING OF THE REGISTRABLE SECURITIES ON ANY
SECURITIES EXCHANGE AS REQUIRED HEREUNDER. IN NO EVENT SHALL THE COMPANY BE
RESPONSIBLE FOR ANY BROKER OR SIMILAR COMMISSIONS OR, EXCEPT TO THE EXTENT
PROVIDED FOR IN THE TRANSACTION DOCUMENTS, ANY LEGAL FEES OR OTHER COSTS OF THE
HOLDERS.

 

5.                                       INDEMNIFICATION

 

(A)                                  INDEMNIFICATION BY THE COMPANY.  THE
COMPANY SHALL, NOTWITHSTANDING ANY TERMINATION OF THIS AGREEMENT, INDEMNIFY AND
HOLD HARMLESS EACH HOLDER, THE OFFICERS, DIRECTORS, AGENTS, BROKERS, INVESTMENT
ADVISORS AND EMPLOYEES OF EACH OF THEM, EACH PERSON WHO CONTROLS ANY SUCH HOLDER
(WITHIN THE MEANING OF SECTION 15 OF THE

 

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SECURITIES ACT OR SECTION 20 OF THE EXCHANGE ACT) AND THE OFFICERS, DIRECTORS,
AGENTS AND EMPLOYEES OF EACH SUCH CONTROLLING PERSON, TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, FROM AND AGAINST ANY AND ALL LOSSES, CLAIMS,
DAMAGES, LIABILITIES, COSTS (INCLUDING, WITHOUT LIMITATION, REASONABLE
ATTORNEYS’ FEES) AND EXPENSES (COLLECTIVELY, “LOSSES”), AS INCURRED, ARISING OUT
OF OR RELATING TO ANY UNTRUE OR ALLEGED UNTRUE STATEMENT OF A MATERIAL FACT
CONTAINED IN THE REGISTRATION STATEMENT, ANY PROSPECTUS OR ANY FORM OF
PROSPECTUS OR IN ANY AMENDMENT OR SUPPLEMENT THERETO OR IN ANY PRELIMINARY
PROSPECTUS, OR ARISING OUT OF OR RELATING TO ANY OMISSION OR ALLEGED OMISSION OF
A MATERIAL FACT REQUIRED TO BE STATED THEREIN OR NECESSARY TO MAKE THE
STATEMENTS THEREIN (IN THE CASE OF ANY PROSPECTUS OR FORM OF PROSPECTUS OR
SUPPLEMENT THERETO, IN LIGHT OF THE CIRCUMSTANCES UNDER WHICH THEY WERE MADE)
NOT MISLEADING, EXCEPT TO THE EXTENT, BUT ONLY TO THE EXTENT, THAT (I) SUCH
UNTRUE STATEMENTS OR OMISSIONS ARE BASED SOLELY UPON INFORMATION REGARDING SUCH
HOLDER FURNISHED IN WRITING TO THE COMPANY BY SUCH HOLDER EXPRESSLY FOR USE
THEREIN, OR TO THE EXTENT THAT SUCH INFORMATION RELATES TO SUCH HOLDER OR SUCH
HOLDER’S PROPOSED METHOD OF DISTRIBUTION OF REGISTRABLE SECURITIES AND WAS
REVIEWED AND EXPRESSLY APPROVED IN WRITING BY SUCH HOLDER EXPRESSLY FOR USE IN
THE REGISTRATION STATEMENT, SUCH PROSPECTUS OR SUCH FORM OF PROSPECTUS OR IN ANY
AMENDMENT OR SUPPLEMENT THERETO (IT BEING UNDERSTOOD THAT THE HOLDER HAS
APPROVED ANNEX A HERETO FOR THIS PURPOSE) OR (II) IN THE CASE OF AN OCCURRENCE
OF AN EVENT OF THE TYPE SPECIFIED IN SECTION 3(C)(II)-(V), THE USE BY SUCH
HOLDER OF AN OUTDATED OR DEFECTIVE PROSPECTUS AFTER THE COMPANY HAS NOTIFIED
SUCH HOLDER IN WRITING THAT THE PROSPECTUS IS OUTDATED OR DEFECTIVE AND PRIOR TO
THE RECEIPT BY SUCH HOLDER OF THE ADVICE CONTEMPLATED IN SECTION 6(D).  THE
COMPANY SHALL NOTIFY THE HOLDERS PROMPTLY OF THE INSTITUTION, THREAT OR
ASSERTION OF ANY PROCEEDING OF WHICH THE COMPANY IS AWARE IN CONNECTION WITH THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.

 

(B)                                 INDEMNIFICATION BY HOLDERS. EACH HOLDER
SHALL, SEVERALLY AND NOT JOINTLY, INDEMNIFY AND HOLD HARMLESS THE COMPANY, ITS
DIRECTORS, OFFICERS, AGENTS AND EMPLOYEES, EACH PERSON WHO CONTROLS THE COMPANY
(WITHIN THE MEANING OF SECTION 15 OF THE SECURITIES ACT AND SECTION 20 OF THE
EXCHANGE ACT), AND THE DIRECTORS, OFFICERS, AGENTS OR EMPLOYEES OF SUCH
CONTROLLING PERSONS, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, FROM AND
AGAINST ALL LOSSES, AS INCURRED, TO THE EXTENT ARISING OUT OF OR BASED SOLELY
UPON: (X) SUCH HOLDER’S FAILURE TO COMPLY WITH THE PROSPECTUS DELIVERY
REQUIREMENTS OF THE SECURITIES ACT OR (Y) ANY UNTRUE OR ALLEGED UNTRUE STATEMENT
OF A MATERIAL FACT CONTAINED IN ANY REGISTRATION STATEMENT, ANY PROSPECTUS, OR
ANY FORM OF PROSPECTUS, OR IN ANY AMENDMENT OR SUPPLEMENT THERETO OR IN ANY
PRELIMINARY PROSPECTUS, OR ARISING OUT OF OR RELATING TO ANY OMISSION OR ALLEGED
OMISSION OF A MATERIAL FACT REQUIRED TO BE STATED THEREIN OR NECESSARY TO MAKE
THE STATEMENTS THEREIN NOT MISLEADING (I) TO THE EXTENT, BUT ONLY TO THE EXTENT,
THAT SUCH UNTRUE STATEMENT OR OMISSION IS CONTAINED IN ANY INFORMATION SO
FURNISHED IN WRITING BY SUCH HOLDER TO THE COMPANY SPECIFICALLY FOR INCLUSION IN
THE REGISTRATION STATEMENT OR SUCH PROSPECTUS OR (II) TO THE EXTENT THAT (1)
SUCH UNTRUE STATEMENTS OR OMISSIONS ARE BASED SOLELY UPON INFORMATION REGARDING
SUCH HOLDER FURNISHED IN WRITING TO THE COMPANY BY SUCH HOLDER EXPRESSLY FOR USE
THEREIN, OR TO THE EXTENT THAT SUCH INFORMATION RELATES TO SUCH HOLDER OR SUCH
HOLDER’S PROPOSED METHOD OF DISTRIBUTION OF REGISTRABLE SECURITIES AND WAS
REVIEWED AND EXPRESSLY APPROVED IN WRITING BY SUCH HOLDER EXPRESSLY FOR USE IN
THE REGISTRATION STATEMENT (IT BEING UNDERSTOOD THAT THE HOLDER HAS APPROVED
ANNEX A HERETO FOR THIS PURPOSE), SUCH PROSPECTUS OR SUCH FORM OF PROSPECTUS OR
IN ANY AMENDMENT OR SUPPLEMENT THERETO OR (2) IN THE CASE OF AN

 

8

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OCCURRENCE OF AN EVENT OF THE TYPE SPECIFIED IN SECTION 3(C)(II)-(V), THE USE BY
SUCH HOLDER OF AN OUTDATED OR DEFECTIVE PROSPECTUS AFTER THE COMPANY HAS
NOTIFIED SUCH HOLDER IN WRITING THAT THE PROSPECTUS IS OUTDATED OR DEFECTIVE AND
PRIOR TO THE RECEIPT BY SUCH HOLDER OF THE ADVICE CONTEMPLATED IN SECTION 6(D). 
IN NO EVENT SHALL THE LIABILITY OF ANY SELLING HOLDER HEREUNDER BE GREATER IN
AMOUNT THAN THE DOLLAR AMOUNT OF THE NET PROCEEDS RECEIVED BY SUCH HOLDER UPON
THE SALE OF THE REGISTRABLE SECURITIES GIVING RISE TO SUCH INDEMNIFICATION
OBLIGATION.

 

(C)                                  CONDUCT OF INDEMNIFICATION PROCEEDINGS. IF
ANY PROCEEDING SHALL BE BROUGHT OR ASSERTED AGAINST ANY PERSON ENTITLED TO
INDEMNITY HEREUNDER (AN “INDEMNIFIED PARTY”), SUCH INDEMNIFIED PARTY SHALL
PROMPTLY NOTIFY THE PERSON FROM WHOM INDEMNITY IS SOUGHT (THE “INDEMNIFYING
PARTY”) IN WRITING, AND THE INDEMNIFYING PARTY SHALL HAVE THE RIGHT TO ASSUME
THE DEFENSE THEREOF, INCLUDING THE EMPLOYMENT OF COUNSEL REASONABLY SATISFACTORY
TO THE INDEMNIFIED PARTY AND THE PAYMENT OF ALL FEES AND EXPENSES INCURRED IN
CONNECTION WITH DEFENSE THEREOF; PROVIDED, THAT THE FAILURE OF ANY INDEMNIFIED
PARTY TO GIVE SUCH NOTICE SHALL NOT RELIEVE THE INDEMNIFYING PARTY OF ITS
OBLIGATIONS OR LIABILITIES PURSUANT TO THIS AGREEMENT, EXCEPT (AND ONLY) TO THE
EXTENT THAT IT SHALL BE FINALLY DETERMINED BY A COURT OF COMPETENT JURISDICTION
(WHICH DETERMINATION IS NOT SUBJECT TO APPEAL OR FURTHER REVIEW) THAT SUCH
FAILURE SHALL HAVE PREJUDICED THE INDEMNIFYING PARTY.

 

An Indemnified Party shall have the right to employ separate counsel in any such
Proceeding and to participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of such Indemnified Party or Parties
unless:  (1) the Indemnifying Party has agreed in writing to pay such fees and
expenses; (2) the Indemnifying Party shall have failed promptly to assume the
defense of such Proceeding and to employ counsel reasonably satisfactory to such
Indemnified Party in any such Proceeding; or (3) the named parties to any such
Proceeding (including any impleaded parties) include both such Indemnified Party
and the Indemnifying Party, and such Indemnified Party shall reasonably believe
that a material conflict of interest is likely to exist if the same counsel were
to represent such Indemnified Party and the Indemnifying Party (in which case,
if such Indemnified Party notifies the Indemnifying Party in writing that it
elects to employ separate counsel at the expense of the Indemnifying Party, the
Indemnifying Party shall not have the right to assume the defense thereof and
the reasonable fees and expenses of one separate counsel shall be at the expense
of the Indemnifying Party).  The Indemnifying Party shall not be liable for any
settlement of any such Proceeding effected without its written consent, which
consent shall not be unreasonably withheld.  No Indemnifying Party shall,
without the prior written consent of the Indemnified Party, effect any
settlement of any pending Proceeding in respect of which any Indemnified Party
is a party, unless such settlement includes an unconditional release of such
Indemnified Party from all liability on claims that are the subject matter of
such Proceeding.

 

Subject to the terms of this Agreement, all reasonable fees and expenses of the
Indemnified Party (including reasonable fees and expenses to the extent incurred
in connection with investigating or preparing to defend such Proceeding in a
manner not inconsistent with this Section) shall be paid to the Indemnified
Party, as incurred, within ten Trading Days of written notice thereof to the
Indemnifying Party; provided, that the

 

9

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Indemnified Party shall promptly reimburse the Indemnifying Party for that
portion of such fees and expenses applicable to such actions for which such
Indemnified Party is not entitled to indemnification hereunder, determined based
upon the relative faults of the parties.

 

(D)                                 CONTRIBUTION.  IF A CLAIM FOR
INDEMNIFICATION UNDER SECTION 5(A) OR 5(B) IS UNAVAILABLE TO AN INDEMNIFIED
PARTY (BY REASON OF PUBLIC POLICY OR OTHERWISE), THEN EACH INDEMNIFYING PARTY,
IN LIEU OF INDEMNIFYING SUCH INDEMNIFIED PARTY, SHALL CONTRIBUTE TO THE AMOUNT
PAID OR PAYABLE BY SUCH INDEMNIFIED PARTY AS A RESULT OF SUCH LOSSES, IN SUCH
PROPORTION AS IS APPROPRIATE TO REFLECT THE RELATIVE FAULT OF THE INDEMNIFYING
PARTY AND INDEMNIFIED PARTY IN CONNECTION WITH THE ACTIONS, STATEMENTS OR
OMISSIONS THAT RESULTED IN SUCH LOSSES AS WELL AS ANY OTHER RELEVANT EQUITABLE
CONSIDERATIONS.  THE RELATIVE FAULT OF SUCH INDEMNIFYING PARTY AND INDEMNIFIED
PARTY SHALL BE DETERMINED BY REFERENCE TO, AMONG OTHER THINGS, WHETHER ANY
ACTION IN QUESTION, INCLUDING ANY UNTRUE OR ALLEGED UNTRUE STATEMENT OF A
MATERIAL FACT OR OMISSION OR ALLEGED OMISSION OF A MATERIAL FACT, HAS BEEN TAKEN
OR MADE BY, OR RELATES TO INFORMATION SUPPLIED BY, SUCH INDEMNIFYING PARTY OR
INDEMNIFIED PARTY, AND THE PARTIES’ RELATIVE INTENT, KNOWLEDGE, ACCESS TO
INFORMATION AND OPPORTUNITY TO CORRECT OR PREVENT SUCH ACTION, STATEMENT OR
OMISSION.  THE AMOUNT PAID OR PAYABLE BY A PARTY AS A RESULT OF ANY LOSSES SHALL
BE DEEMED TO INCLUDE, SUBJECT TO THE LIMITATIONS SET FORTH IN THIS AGREEMENT,
ANY REASONABLE ATTORNEYS’ OR OTHER REASONABLE FEES OR EXPENSES INCURRED BY SUCH
PARTY IN CONNECTION WITH ANY PROCEEDING TO THE EXTENT SUCH PARTY WOULD HAVE BEEN
INDEMNIFIED FOR SUCH FEES OR EXPENSES IF THE INDEMNIFICATION PROVIDED FOR IN
THIS SECTION WAS AVAILABLE TO SUCH PARTY IN ACCORDANCE WITH ITS TERMS.

 

The parties hereto agree that it would not be just and equitable if contribution
pursuant to this Section 5(d) were determined by pro rata allocation or by any
other method of allocation that does not take into account the equitable
considerations referred to in the immediately preceding paragraph. 
Notwithstanding the provisions of this Section 5(d), no Holder shall be required
to contribute, in the aggregate, any amount in excess of the amount by which the
proceeds actually received by such Holder from the sale of the Registrable
Securities subject to the Proceeding exceeds the amount of any damages that such
Holder has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission, except in the case of fraud by
such Holder.

 

The indemnity and contribution agreements contained in this Section are in
addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties.

 

6.                                       MISCELLANEOUS

 

(A)                                  REMEDIES.  IN THE EVENT OF A BREACH BY THE
COMPANY OR BY A HOLDER, OF ANY OF THEIR OBLIGATIONS UNDER THIS AGREEMENT, EACH
HOLDER OR THE COMPANY, AS THE CASE MAY BE, IN ADDITION TO BEING ENTITLED TO
EXERCISE ALL RIGHTS GRANTED BY LAW AND UNDER THIS AGREEMENT, INCLUDING RECOVERY
OF DAMAGES, WILL BE ENTITLED TO SPECIFIC PERFORMANCE OF ITS RIGHTS UNDER THIS
AGREEMENT.  THE COMPANY AND EACH HOLDER AGREE THAT MONETARY DAMAGES WOULD NOT
PROVIDE ADEQUATE COMPENSATION FOR ANY LOSSES INCURRED BY REASON OF A

 

10

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BREACH BY IT OF ANY OF THE PROVISIONS OF THIS AGREEMENT AND HEREBY FURTHER
AGREES THAT, IN THE EVENT OF ANY ACTION FOR SPECIFIC PERFORMANCE IN RESPECT OF
SUCH BREACH, IT SHALL WAIVE THE DEFENSE THAT A REMEDY AT LAW WOULD BE ADEQUATE.

 

(B)                                 NO PIGGYBACK ON REGISTRATIONS.  EXCEPT AS
SET FORTH ON SCHEDULE 6(B) ATTACHED HERETO, NEITHER THE COMPANY NOR ANY OF ITS
SECURITY HOLDERS (OTHER THAN THE HOLDERS IN SUCH CAPACITY PURSUANT HERETO) MAY
INCLUDE SECURITIES OF THE COMPANY IN A REGISTRATION STATEMENT OTHER THAN THE
REGISTRABLE SECURITIES.  NO PERSON HAS ANY RIGHT TO CAUSE THE COMPANY TO EFFECT
THE REGISTRATION UNDER THE SECURITIES ACT OF ANY SECURITIES OF THE COMPANY.  THE
COMPANY SHALL NOT FILE ANY OTHER REGISTRATION STATEMENT UNTIL AFTER THE
EFFECTIVE DATE.

 

(C)                                  COMPLIANCE.  EACH HOLDER COVENANTS AND
AGREES THAT IT WILL COMPLY WITH THE PROSPECTUS DELIVERY REQUIREMENTS OF THE
SECURITIES ACT AS APPLICABLE TO IT IN CONNECTION WITH SALES OF REGISTRABLE
SECURITIES PURSUANT TO THE REGISTRATION STATEMENT.

 

(D)                                 DISCONTINUED DISPOSITION.  EACH HOLDER
AGREES BY ITS ACQUISITION OF SUCH REGISTRABLE SECURITIES THAT, UPON RECEIPT OF A
NOTICE FROM THE COMPANY OF THE OCCURRENCE OF ANY EVENT OF THE KIND DESCRIBED IN
SECTION 3(C), SUCH HOLDER WILL FORTHWITH DISCONTINUE DISPOSITION OF SUCH
REGISTRABLE SECURITIES UNDER THE REGISTRATION STATEMENT UNTIL SUCH HOLDER’S
RECEIPT OF THE COPIES OF THE SUPPLEMENTED PROSPECTUS AND/OR AMENDED REGISTRATION
STATEMENT OR UNTIL IT IS ADVISED IN WRITING (THE “ADVICE”) BY THE COMPANY THAT
THE USE OF THE APPLICABLE PROSPECTUS MAY BE RESUMED, AND, IN EITHER CASE, HAS
RECEIVED COPIES OF ANY ADDITIONAL OR SUPPLEMENTAL FILINGS THAT ARE INCORPORATED
OR DEEMED TO BE INCORPORATED BY REFERENCE IN SUCH PROSPECTUS OR REGISTRATION
STATEMENT.  THE COMPANY WILL USE ITS BEST EFFORTS TO ENSURE THAT THE USE OF THE
PROSPECTUS MAY BE RESUMED AS PROMPTLY AS IT PRACTICABLE.  THE COMPANY AGREES AND
ACKNOWLEDGES THAT ANY PERIODS DURING WHICH THE HOLDER IS REQUIRED TO DISCONTINUE
THE DISPOSITION OF THE REGISTRABLE SECURITIES HEREUNDER SHALL BE SUBJECT TO THE
PROVISIONS OF SECTION 2(B).

 

(E)                                  PIGGY-BACK REGISTRATIONS.  IF AT ANY TIME
DURING THE EFFECTIVENESS PERIOD THERE IS NOT AN EFFECTIVE REGISTRATION STATEMENT
COVERING ALL OF THE REGISTRABLE SECURITIES AND THE COMPANY SHALL DETERMINE TO
PREPARE AND FILE WITH THE COMMISSION A REGISTRATION STATEMENT RELATING TO AN
OFFERING FOR ITS OWN ACCOUNT OR THE ACCOUNT OF OTHERS UNDER THE SECURITIES ACT
OF ANY OF ITS EQUITY SECURITIES, OTHER THAN ON FORM S-4 OR FORM S-8 (EACH AS
PROMULGATED UNDER THE SECURITIES ACT) OR THEIR THEN EQUIVALENTS RELATING TO
EQUITY SECURITIES TO BE ISSUED SOLELY IN CONNECTION WITH ANY ACQUISITION OF ANY
ENTITY OR BUSINESS OR EQUITY SECURITIES ISSUABLE IN CONNECTION WITH THE STOCK
OPTION OR OTHER EMPLOYEE BENEFIT PLANS, THEN THE COMPANY SHALL SEND TO EACH
HOLDER A WRITTEN NOTICE OF SUCH DETERMINATION AND, IF WITHIN FIFTEEN DAYS AFTER
THE DATE OF SUCH NOTICE, ANY SUCH HOLDER SHALL SO REQUEST IN WRITING, THE
COMPANY SHALL INCLUDE IN SUCH REGISTRATION STATEMENT ALL OR ANY PART OF SUCH
REGISTRABLE SECURITIES SUCH HOLDER REQUESTS TO BE REGISTERED, SUBJECT TO
CUSTOMARY UNDERWRITER CUTBACKS APPLICABLE TO ALL HOLDERS OF REGISTRATION RIGHTS.

 

(F)                                    AMENDMENTS AND WAIVERS.  THE PROVISIONS
OF THIS AGREEMENT, INCLUDING THE PROVISIONS OF THIS SENTENCE, MAY NOT BE
AMENDED, MODIFIED OR SUPPLEMENTED, AND WAIVERS OR CONSENTS TO DEPARTURES FROM
THE PROVISIONS HEREOF MAY NOT BE GIVEN, UNLESS THE

 

11

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SAME SHALL BE IN WRITING AND SIGNED BY THE COMPANY AND EACH HOLDER OF THE THEN
OUTSTANDING REGISTRABLE SECURITIES.

 

(G)                                 NOTICES.  ANY AND ALL NOTICES OR OTHER
COMMUNICATIONS OR DELIVERIES REQUIRED OR PERMITTED TO BE PROVIDED HEREUNDER
SHALL BE MADE IN ACCORDANCE WITH THE PROVISIONS OF THE PURCHASE AGREEMENT.

 

(H)                                 SUCCESSORS AND ASSIGNS.  THIS AGREEMENT
SHALL INURE TO THE BENEFIT OF AND BE BINDING UPON THE SUCCESSORS AND PERMITTED
ASSIGNS OF EACH OF THE PARTIES AND SHALL INURE TO THE BENEFIT OF EACH HOLDER. 
EACH HOLDER MAY ASSIGN THEIR RESPECTIVE RIGHTS HEREUNDER IN THE MANNER AND TO
THE PERSONS AS PERMITTED UNDER THE PURCHASE AGREEMENT.

 

(I)                                     EXECUTION AND COUNTERPARTS.  THIS
AGREEMENT MAY BE EXECUTED IN ANY NUMBER OF COUNTERPARTS, EACH OF WHICH WHEN SO
EXECUTED SHALL BE DEEMED TO BE AN ORIGINAL AND, ALL OF WHICH TAKEN TOGETHER
SHALL CONSTITUTE ONE AND THE SAME AGREEMENT.  IN THE EVENT THAT ANY SIGNATURE IS
DELIVERED BY FACSIMILE TRANSMISSION, SUCH SIGNATURE SHALL CREATE A VALID BINDING
OBLIGATION OF THE PARTY EXECUTING (OR ON WHOSE BEHALF SUCH SIGNATURE IS
EXECUTED) THE SAME WITH THE SAME FORCE AND EFFECT AS IF SUCH FACSIMILE SIGNATURE
WERE THE ORIGINAL THEREOF.

 

(J)                                     GOVERNING LAW.  ALL QUESTIONS CONCERNING
THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT
SHALL BE DETERMINED WITH THE PROVISIONS OF THE PURCHASE AGREEMENT.

 

(K)                                  CUMULATIVE REMEDIES.  THE REMEDIES PROVIDED
HEREIN ARE CUMULATIVE AND NOT EXCLUSIVE OF ANY REMEDIES PROVIDED BY LAW.

 

(L)                                     SEVERABILITY. IF ANY TERM, PROVISION,
COVENANT OR RESTRICTION OF THIS AGREEMENT IS HELD BY A COURT OF COMPETENT
JURISDICTION TO BE INVALID, ILLEGAL, VOID OR UNENFORCEABLE, THE REMAINDER OF THE
TERMS, PROVISIONS, COVENANTS AND RESTRICTIONS SET FORTH HEREIN SHALL REMAIN IN
FULL FORCE AND EFFECT AND SHALL IN NO WAY BE AFFECTED, IMPAIRED OR INVALIDATED,
AND THE PARTIES HERETO SHALL USE THEIR COMMERCIALLY REASONABLE EFFORTS TO FIND
AND EMPLOY AN ALTERNATIVE MEANS TO ACHIEVE THE SAME OR SUBSTANTIALLY THE SAME
RESULT AS THAT CONTEMPLATED BY SUCH TERM, PROVISION, COVENANT OR RESTRICTION. 
IT IS HEREBY STIPULATED AND DECLARED TO BE THE INTENTION OF THE PARTIES THAT
THEY WOULD HAVE EXECUTED THE REMAINING TERMS, PROVISIONS, COVENANTS AND
RESTRICTIONS WITHOUT INCLUDING ANY OF SUCH THAT MAY BE HEREAFTER DECLARED
INVALID, ILLEGAL, VOID OR UNENFORCEABLE.

 

(M)                               HEADINGS.  THE HEADINGS IN THIS AGREEMENT ARE
FOR CONVENIENCE OF REFERENCE ONLY AND SHALL NOT LIMIT OR OTHERWISE AFFECT THE
MEANING HEREOF.

 

(N)                                 INDEPENDENT NATURE OF HOLDERS’ OBLIGATIONS
AND RIGHTS.  THE OBLIGATIONS OF EACH HOLDER HEREUNDER ARE SEVERAL AND NOT JOINT
WITH THE OBLIGATIONS OF ANY OTHER HOLDER HEREUNDER, AND NO HOLDER SHALL BE
RESPONSIBLE IN ANY WAY FOR THE PERFORMANCE OF THE OBLIGATIONS OF ANY OTHER
HOLDER HEREUNDER.  NOTHING CONTAINED HEREIN OR IN ANY OTHER AGREEMENT OR
DOCUMENT DELIVERED AT ANY CLOSING, AND NO ACTION TAKEN BY ANY HOLDER PURSUANT
HERETO OR THERETO, SHALL BE DEEMED TO CONSTITUTE THE HOLDERS AS A PARTNERSHIP,
AN ASSOCIATION, A JOINT VENTURE OR ANY OTHER KIND OF ENTITY, OR CREATE A
PRESUMPTION THAT THE

 

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HOLDERS ARE IN ANY WAY ACTING IN CONCERT WITH RESPECT TO SUCH OBLIGATIONS OR THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.  EACH HOLDER SHALL BE ENTITLED TO
PROTECT AND ENFORCE ITS RIGHTS, INCLUDING WITHOUT LIMITATION THE RIGHTS ARISING
OUT OF THIS AGREEMENT, AND IT SHALL NOT BE NECESSARY FOR ANY OTHER HOLDER TO BE
JOINED AS AN ADDITIONAL PARTY IN ANY PROCEEDING FOR SUCH PURPOSE.

 

*************************

 

13

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IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement
as of the date first written above.

 

 

IMPLANT SCIENCES CORPORATION

 

 

 

 

 

By:

 

 

 

Name:

A. J. Armini

 

 

Title:

President and CEO

 

 

[SIGNATURE PAGE OF HOLDERS FOLLOWS]

 

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

 

[HOLDER’S SIGNATURE PAGE TO IMX RRA]

 

Name of Holder:

 

 

Signature of Authorized Signatory of Holder:

 

 

Name of Authorized Signatory:

 

 

Title of Authorized Signatory:

 

 

 

 

[SIGNATURE PAGES CONTINUE]

 

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ANNEX A

 

Plan of Distribution

 

The Selling Stockholders (the “Selling Stockholders”) of the common stock
(“Common Stock”) of Implant Sciences Corporation (the “Company”) and any of
their pledgees, assignees and successors-in-interest may, from time to time,
sell any or all of their shares of Common Stock on any stock exchange, market or
trading facility on which the shares are traded or in private transactions. 
These sales may be at fixed or negotiated prices.  The Selling Stockholders may
use any one or more of the following methods when selling shares:

 

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

 

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

 

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

 

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

 

•                  privately negotiated transactions;

 

•                  settlement of short sales entered into after the date of this
prospectus;

 

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

 

•                  a combination of any such methods of sale;

 

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

 

•                  any other method permitted pursuant to applicable law.

 

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

 

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

 

16

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In connection with the sale of our common stock or interests therein, the
Selling Stockholders may enter into hedging transactions with broker-dealers or
other financial institutions, which may in turn engage in short sales of the
common stock in the course of hedging the positions they assume.  The Selling
Stockholders may also sell shares of our common stock short and deliver these
securities to close out their short positions, or loan or pledge the common
stock to broker-dealers that in turn may sell these securities.  The Selling
Stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such transaction).

 

The Selling Stockholders and any brokerdealers or agents that are involved in
selling the shares may be deemed to be “underwriters” within the meaning of the
Securities Act in connection with such sales.  In such event, any commissions
received by such brokerdealers or agents and any profit on the resale of the
shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act.  Each Selling Stockholder has informed the
Company that it does not have any written or oral agreement or understanding,
directly or indirectly, with any person to distribute the Common Stock. In no
event shall any broker-dealer receive fees, commissions and markups which, in
the aggregate, would exceed eight percent (8%).

 

The Company is required to pay certain fees and expenses incurred by the Company
incident to the registration of the shares.  The Company has agreed to indemnify
the Selling Stockholders against certain losses, claims, damages and
liabilities, including liabilities under the Securities Act.

 

Because Selling Stockholders may be deemed to be “underwriters” within the
meaning of the Securities Act, they will be subject to the prospectus delivery
requirements of the Securities Act.  In addition, any securities covered by this
prospectus which qualify for sale pursuant to Rule 144 under the Securities Act
may be sold under Rule 144 rather than under this prospectus.  Each Selling
Stockholder has advised us that they have not entered into any written or oral
agreements, understandings or arrangements with any underwriter or broker-dealer
regarding the sale of the resale shares.  There is no underwriter or
coordinating broker acting in connection with the proposed sale of the resale
shares by the Selling Stockholders.

 

We agreed to keep this prospectus effective until the earlier of (i) the date on
which the shares may be resold by the Selling Stockholders without registration
and without regard to any volume limitations by reason of Rule 144(k) under the
Securities Act or any other rule of similar effect or (ii) all of the shares
have been sold pursuant to the prospectus or Rule 144 under the Securities Act
or any other rule of similar effect.  The resale shares will be sold only
through registered or licensed brokers or dealers if required under applicable
state securities laws. In addition, in certain states, the resale shares may not
be sold unless they have been registered or qualified for sale in the applicable
state or an exemption from the registration or qualification requirement is
available and is complied with.

 

17

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

 

18

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Annex B

 

Implant Sciences Corporation

 

Selling Securityholder Notice and Questionnaire

 

The undersigned beneficial owner of common stock, par value $0.10 per share (the
“Common Stock”), of Implant Sciences Corporation, a Massachusetts corporation
(the “Company”), (the “Registrable Securities”) understands that the Company has
filed or intends to file with the Securities and Exchange Commission (the
“Commission”) a registration statement on Form S-3 (the “Registration
Statement”) for the registration and resale under Rule 415 of the Securities Act
of 1933, as amended (the “Securities Act”), of the Registrable Securities, in
accordance with the terms of the Registration Rights Agreement, dated as of
March ___, 2005 (the “Registration Rights Agreement”), among the Company and the
Purchasers named therein.  A copy of the Registration Rights Agreement is
available from the Company upon request at the address set forth below.  All
capitalized terms not otherwise defined herein shall have the meanings ascribed
thereto in the Registration Rights Agreement.

 

Certain legal consequences arise from being named as a selling securityholder in
the Registration Statement and the related prospectus.  Accordingly, holders and
beneficial owners of Registrable Securities are advised to consult their own
securities law counsel regarding the consequences of being named or not being
named as a selling securityholder in the Registration Statement and the related
prospectus.

 

NOTICE

 

The undersigned beneficial owner (the “Selling Securityholder”) of Registrable
Securities hereby elects to include the Registrable Securities owned by it and
listed below in Item 3 (unless otherwise specified under such Item 3) in the
Registration Statement.

 

19

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The undersigned hereby provides the following information to the Company and
represents and warrants that such information is accurate: 

 

QUESTIONNAIRE

 

1.                                      Name.

 

(a)                                  Full Legal Name of Selling Securityholder

 

 

 

(b)                                 Full Legal Name of Registered Holder (if not
the same as (a) above) through which Registrable Securities Listed in Item 3
below are held:

 

 

 

(c)                                  Full Legal Name of Natural Control Person
(which means a natural person who directly you indirectly alone or with others
has power to vote or dispose of the securities covered by the questionnaire):

 

 

 

2.              Address for Notices to Selling Securityholder:

 

 

 

 

Telephone:

Fax:

Contact Person:

 

3.              Beneficial Ownership of Registrable Securities: 

 

(a)                                  Type and Principal Amount of Registrable
Securities beneficially owned:

 

 

 

 

 

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4.              Broker-Dealer Status: 

 

(a)                                  Are you a broker-dealer? 

 

Yes   o           No  o

 

Note:                   If yes, the Commission’s staff has indicated that you
should be identified as an underwriter in the Registration Statement. 

 

(b)                                 Are you an affiliate of a broker-dealer? 

 

Yes   o           No  o

 

(c)                                  If you are an affiliate of a broker-dealer,
do you certify that you bought the Registrable Securities in the ordinary course
of business, and at the time of the purchase of the Registrable Securities to be
resold, you had no agreements or understandings, directly or indirectly, with
any person to distribute the Registrable Securities? 

 

Yes   o           No  o

 

Note:                   If no, the Commission’s staff has indicated that you
should be identified as an underwriter in the Registration Statement. 

 

5.              Beneficial Ownership of Other Securities of the Company Owned by
the Selling Securityholder. 

 

Except as set forth below in this Item 5, the undersigned is not the beneficial
or registered owner of any securities of the Company other than the Registrable
Securities listed above in Item 3. 

 

(a)                                  Type and Amount of Other Securities
beneficially owned by the Selling Securityholder:

 

 

 

 

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6.              Relationships with the Company: 

 

Except as set forth below, neither the undersigned nor any of its affiliates,
officers, directors or principal equity holders (owners of 5% of more of the
equity securities of the undersigned) has held any position or office or has had
any other material relationship with the Company (or its predecessors or
affiliates) during the past three years. 

 

State any exceptions here:

 

 

 

 

The undersigned agrees to promptly notify the Company of any inaccuracies or
changes in the information provided herein that may occur subsequent to the date
hereof at any time while the Registration Statement remains effective. 

 

By signing below, the undersigned consents to the disclosure of the information
contained herein in its answers to Items 1 through 6 and the inclusion of such
information in the Registration Statement and the related prospectus.  The
undersigned understands that such information will be relied upon by the Company
in connection with the preparation or amendment of the Registration Statement
and the related prospectus. 

 

IN WITNESS WHEREOF the undersigned, by authority duly given, has caused this
Notice and Questionnaire to be executed and delivered either in person or by its
duly authorized agent. 

 

Dated:

 

 

Beneficial Owner:

 

 

 

 

 

 

 

By:

 

 

 

 

Name:

 

 

 

Title:

 

PLEASE FAX A COPY OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE, AND
RETURN THE ORIGINAL BY OVERNIGHT MAIL, TO:  

 

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