Exhibit 10.5

 

FUNDS ESCROW AGREEMENT

 

This Agreement (this “Agreement”) is dated as of the 6th day of July 2005 among
Implant Sciences Corporation, a Massachusetts corporation (the “Company”),
Laurus Master Fund, Ltd. (the “Purchaser”), and Loeb & Loeb LLP (the “Escrow
Agent”):

 

W I T N E S S E T H:

 

WHEREAS, the Purchaser has advised the Escrow Agent that (a) the Company and the
Purchaser have entered into a Securities Purchase Agreement (the “Securities
Purchase Agreement”) for the sale by the Company to the Purchaser of a secured
term note (the “Term Note”), and (b) the Company will issue to the Purchaser a
common stock purchase warrant (the “Term Note Warrant”) in connection with the
issuance of the Term Note,;

 

WHEREAS, the Company and the Purchaser wish the Purchaser to deliver to the
Escrow Agent copies of the Documents (as hereafter defined) and the Escrowed
Payment (as hereafter defined) to be held and released by Escrow Agent in
accordance with the terms and conditions of this Agreement; and

 

WHEREAS, the Escrow Agent is willing to serve as escrow agent pursuant to the
terms and conditions of this Agreement;

 

NOW THEREFORE, the parties agree as follows:

 

ARTICLE I

 

INTERPRETATION

 

1.1.                              DEFINITIONS.  WHENEVER USED IN THIS AGREEMENT,
THE FOLLOWING TERMS SHALL HAVE THE MEANINGS SET FORTH BELOW.

 

(A)                                  “AGREEMENT” MEANS THIS AGREEMENT, AS
AMENDED, MODIFIED AND/OR SUPPLEMENTED FROM TIME TO TIME BY WRITTEN AGREEMENT
AMONG THE PARTIES HERETO.

 

(B)                                 “CLOSING PAYMENT” MEANS THE CLOSING PAYMENT
TO BE PAID TO LAURUS CAPITAL MANAGEMENT, LLC, THE FUND MANAGER, AS SET FORTH ON
SCHEDULE A HERETO.

 

(C)                                  “DISBURSEMENT LETTER” MEANS THAT CERTAIN
LETTER DELIVERED TO THE ESCROW AGENT BY EACH OF THE PURCHASER AND THE COMPANY
SETTING FORTH WIRE INSTRUCTIONS AND AMOUNTS TO BE FUNDED AT THE CLOSING.

 

(D)                                 “DOCUMENTS” MEANS COPIES OF THE DISBURSEMENT
LETTER, THE SECURITIES PURCHASE AGREEMENT, AND THE TERM NOTE, .

 

(E)                                  “ESCROWED PAYMENT” MEANS $3,000,000.

 

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1.2.                              ENTIRE AGREEMENT.  THIS AGREEMENT CONSTITUTES
THE ENTIRE AGREEMENT AMONG THE PARTIES HERETO WITH RESPECT TO THE MATTERS
CONTAINED HEREIN AND SUPERSEDES ALL PRIOR AGREEMENTS, UNDERSTANDINGS,
NEGOTIATIONS AND DISCUSSIONS OF THE PARTIES, WHETHER ORAL OR WRITTEN.  THERE ARE
NO WARRANTIES, REPRESENTATIONS AND OTHER AGREEMENTS MADE BY THE PARTIES IN
CONNECTION WITH THE SUBJECT MATTER HEREOF EXCEPT AS SPECIFICALLY SET FORTH IN
THIS AGREEMENT.

 

1.3.                              EXTENDED MEANINGS.  IN THIS AGREEMENT WORDS
IMPORTING THE SINGULAR NUMBER INCLUDE THE PLURAL AND VICE VERSA; WORDS IMPORTING
THE MASCULINE GENDER INCLUDE THE FEMININE AND NEUTER GENDERS.  THE WORD “PERSON”
INCLUDES AN INDIVIDUAL, BODY CORPORATE, PARTNERSHIP, TRUSTEE OR TRUST OR
UNINCORPORATED ASSOCIATION, EXECUTOR, ADMINISTRATOR OR LEGAL REPRESENTATIVE.

 

1.4.                              WAIVERS AND AMENDMENTS.  THIS AGREEMENT MAY BE
AMENDED, MODIFIED, SUPERSEDED, CANCELLED, RENEWED OR EXTENDED, AND THE TERMS AND
CONDITIONS HEREOF MAY BE WAIVED, IN EACH CASE ONLY BY A WRITTEN INSTRUMENT
SIGNED BY ALL PARTIES HERETO, OR, IN THE CASE OF A WAIVER, BY THE PARTY WAIVING
COMPLIANCE.  EXCEPT AS EXPRESSLY STATED HEREIN, NO DELAY ON THE PART OF ANY
PARTY IN EXERCISING ANY RIGHT, POWER OR PRIVILEGE HEREUNDER SHALL OPERATE AS A
WAIVER THEREOF, NOR SHALL ANY WAIVER ON THE PART OF ANY PARTY OF ANY RIGHT,
POWER OR PRIVILEGE HEREUNDER PRECLUDE ANY OTHER OR FUTURE EXERCISE OF ANY OTHER
RIGHT, POWER OR PRIVILEGE HEREUNDER.

 

1.5.                              HEADINGS.  THE DIVISION OF THIS AGREEMENT INTO
ARTICLES, SECTIONS, SUBSECTIONS AND PARAGRAPHS AND THE INSERTION OF HEADINGS ARE
FOR CONVENIENCE OF REFERENCE ONLY AND SHALL NOT AFFECT THE CONSTRUCTION OR
INTERPRETATION OF THIS AGREEMENT.

 

1.6.                              LAW GOVERNING THIS AGREEMENT; CONSENT TO
JURISDICTION.  THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS
OF LAWS.  WITH RESPECT TO ANY SUIT, ACTION OR PROCEEDING RELATING TO THIS
AGREEMENT OR TO THE TRANSACTIONS CONTEMPLATED HEREBY (“PROCEEDINGS”), EACH PARTY
HERETO IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE
COUNTY OF NEW YORK, STATE OF NEW YORK AND THE UNITED STATES DISTRICT COURT
LOCATED IN THE COUNTY OF NEW YORK IN THE STATE OF NEW YORK.  EACH PARTY HERETO
HEREBY IRREVOCABLY AND UNCONDITIONALLY (A) WAIVES TRIAL BY JURY IN ANY
PROCEEDING RELATING TO THIS AGREEMENT AND FOR ANY RELATED COUNTERCLAIM AND
(B) WAIVES ANY OBJECTION WHICH IT MAY HAVE AT ANY TIME TO THE LAYING OF VENUE OF
ANY PROCEEDING BROUGHT IN ANY SUCH COURT, WAIVES ANY CLAIM THAT SUCH PROCEEDINGS
HAVE BEEN BROUGHT IN AN INCONVENIENT FORUM AND FURTHER WAIVES THE RIGHT TO
OBJECT, WITH RESPECT TO SUCH PROCEEDINGS, THAT SUCH COURT DOES NOT HAVE
JURISDICTION OVER SUCH PARTY.  AS BETWEEN THE COMPANY AND THE PURCHASER, THE
PREVAILING PARTY SHALL BE ENTITLED TO RECOVER FROM THE OTHER PARTY ITS
REASONABLE ATTORNEYS’ FEES AND COSTS.  IN THE EVENT THAT ANY PROVISION OF THIS
AGREEMENT IS DETERMINED BY A COURT OF COMPETENT JURISDICTION TO BE INVALID OR
UNENFORCEABLE, THEN THE REMAINDER OF THIS AGREEMENT SHALL NOT BE AFFECTED AND
SHALL REMAIN IN FULL FORCE AND EFFECT.

 

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1.7.                              CONSTRUCTION.  EACH PARTY ACKNOWLEDGES THAT
ITS LEGAL COUNSEL PARTICIPATED IN THE PREPARATION OF THIS AGREEMENT AND,
THEREFORE, STIPULATES THAT THE RULE OF CONSTRUCTION THAT AMBIGUITIES ARE TO BE
RESOLVED AGAINST THE DRAFTING PARTY SHALL NOT BE APPLIED IN THE INTERPRETATION
OF THIS AGREEMENT TO FAVOR ANY PARTY AGAINST THE OTHER.

 

ARTICLE II

 

APPOINTMENT OF AND DELIVERIES TO THE ESCROW AGENT

 

2.1.                              APPOINTMENT.  THE COMPANY AND THE PURCHASER
HEREBY IRREVOCABLY DESIGNATE AND APPOINT THE ESCROW AGENT AS THEIR ESCROW AGENT
FOR THE PURPOSES SET FORTH HEREIN, AND THE ESCROW AGENT BY ITS EXECUTION AND
DELIVERY OF THIS AGREEMENT HEREBY ACCEPTS SUCH APPOINTMENT UNDER THE TERMS AND
CONDITIONS SET FORTH HEREIN.

 

2.2.                              COPIES OF DOCUMENTS TO ESCROW AGENT.  ON OR
ABOUT THE DATE HEREOF, THE PURCHASER SHALL DELIVER TO THE ESCROW AGENT COPIES OF
THE DOCUMENTS EXECUTED BY THE COMPANY TO THE EXTENT IT IS A PARTY THERETO.

 

2.3.                              DELIVERY OF ESCROWED PAYMENT TO ESCROW AGENT. 
ON OR ABOUT THE DATE HEREOF, THE PURCHASER SHALL DELIVER TO THE ESCROW AGENT THE
ESCROWED PAYMENT.

 

2.4.                              INTENTION TO CREATE ESCROW OVER THE ESCROWED
PAYMENT.  THE PURCHASER AND THE COMPANY INTEND THAT THE ESCROWED PAYMENT SHALL
BE HELD IN ESCROW BY THE ESCROW AGENT AND RELEASED FROM ESCROW BY THE ESCROW
AGENT ONLY IN ACCORDANCE WITH THE TERMS AND CONDITIONS OF THIS AGREEMENT.

 

ARTICLE III

 

RELEASE OF ESCROW

 

3.1.                              RELEASE OF ESCROW.  SUBJECT TO THE PROVISIONS
OF SECTION 4.2, THE ESCROW AGENT SHALL RELEASE THE ESCROWED PAYMENT FROM ESCROW
AS FOLLOWS:

 

(A)                                  PROMPTLY FOLLOWING RECEIPT BY THE ESCROW
AGENT OF (I) COPIES OF THE FULLY EXECUTED DOCUMENTS AND THIS AGREEMENT, (II) THE
ESCROWED PAYMENT IN IMMEDIATELY AVAILABLE FUNDS, (III) JOINT WRITTEN
INSTRUCTIONS (“JOINT INSTRUCTIONS”) EXECUTED BY THE COMPANY AND THE PURCHASER
SETTING FORTH THE PAYMENT DIRECTION INSTRUCTIONS WITH RESPECT TO THE ESCROWED
PAYMENT AND (IV) ESCROW AGENT’S VERBAL INSTRUCTIONS FROM DAVID GRIN AND/OR
EUGENE GRIN (EACH OF WHOM IS A DIRECTOR OF THE PURCHASER) INDICATING THAT ALL
CLOSING CONDITIONS RELATING TO THE DOCUMENTS HAVE BEEN SATISFIED AND DIRECTING
THAT THE ESCROWED PAYMENT BE DISBURSED BY THE ESCROW AGENT IN ACCORDANCE WITH
THE JOINT INSTRUCTIONS, THEN THE ESCROWED PAYMENT SHALL BE DEEMED RELEASED FROM
ESCROW AND SHALL BE PROMPTLY DISBURSED IN ACCORDANCE WITH THE JOINT
INSTRUCTIONS.  THE JOINT INSTRUCTIONS SHALL INCLUDE, WITHOUT LIMITATION, ESCROW
AGENT’S AUTHORIZATION TO RETAIN FROM THE ESCROWED PAYMENT ESCROW AGENT’S FEE FOR
ACTING AS ESCROW AGENT HEREUNDER AND THE CLOSING PAYMENT FOR DELIVERY TO LAURUS
CAPITAL MANAGEMENT, LLC IN ACCORDANCE WITH THE JOINT INSTRUCTIONS.

 

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(B)                                 UPON RECEIPT BY THE ESCROW AGENT OF A FINAL
AND NON-APPEALABLE JUDGMENT, ORDER, DECREE OR AWARD OF A COURT OF COMPETENT
JURISDICTION (A “COURT ORDER”) RELATING TO THE ESCROWED PAYMENT, THE ESCROW
AGENT SHALL REMIT THE ESCROWED PAYMENT IN ACCORDANCE WITH THE COURT ORDER.  ANY
COURT ORDER SHALL BE ACCOMPANIED BY AN OPINION OF COUNSEL FOR THE PARTY
PRESENTING THE COURT ORDER TO THE ESCROW AGENT (WHICH OPINION SHALL BE
SATISFACTORY TO THE ESCROW AGENT) TO THE EFFECT THAT THE COURT ISSUING THE COURT
ORDER IS A COURT OF COMPETENT JURISDICTION AND THAT THE COURT ORDER IS FINAL AND
NON-APPEALABLE.

 

3.2.                              ACKNOWLEDGEMENT OF COMPANY AND PURCHASER;
DISPUTES.  THE COMPANY AND THE PURCHASER ACKNOWLEDGE THAT THE ONLY TERMS AND
CONDITIONS UPON WHICH THE ESCROWED PAYMENT ARE TO BE RELEASED FROM ESCROW ARE AS
SET FORTH IN SECTIONS 3 AND 4 OF THIS AGREEMENT.  THE COMPANY AND THE PURCHASER
REAFFIRM THEIR AGREEMENT TO ABIDE BY THE TERMS AND CONDITIONS OF THIS AGREEMENT
WITH RESPECT TO THE RELEASE OF THE ESCROWED PAYMENT.  ANY DISPUTE WITH RESPECT
TO THE RELEASE OF THE ESCROWED PAYMENT SHALL BE RESOLVED PURSUANT TO SECTION 4.2
OR BY WRITTEN AGREEMENT BETWEEN THE COMPANY AND PURCHASER.

 

ARTICLE IV

 

CONCERNING THE ESCROW AGENT

 

4.1.                              DUTIES AND RESPONSIBILITIES OF THE ESCROW
AGENT.  THE ESCROW AGENT’S DUTIES AND RESPONSIBILITIES SHALL BE SUBJECT TO THE
FOLLOWING TERMS AND CONDITIONS:

 

(A)                                  THE PURCHASER AND THE COMPANY ACKNOWLEDGE
AND AGREE THAT THE ESCROW AGENT (I) SHALL NOT BE REQUIRED TO INQUIRE INTO
WHETHER THE PURCHASER, THE COMPANY OR ANY OTHER PARTY IS ENTITLED TO RECEIPT OF
ANY DOCUMENT OR ALL OR ANY PORTION OF THE ESCROWED PAYMENT; (II) SHALL NOT BE
CALLED UPON TO CONSTRUE OR REVIEW ANY DOCUMENT OR ANY OTHER DOCUMENT, INSTRUMENT
OR AGREEMENT ENTERED INTO IN CONNECTION THEREWITH; (III) SHALL BE OBLIGATED ONLY
FOR THE PERFORMANCE OF SUCH DUTIES AS ARE SPECIFICALLY ASSUMED BY THE ESCROW
AGENT PURSUANT TO THIS AGREEMENT; (IV) MAY RELY ON AND SHALL BE PROTECTED IN
ACTING OR REFRAINING FROM ACTING UPON ANY WRITTEN NOTICE, INSTRUCTION,
INSTRUMENT, STATEMENT, REQUEST OR DOCUMENT FURNISHED TO IT HEREUNDER AND
BELIEVED BY THE ESCROW AGENT IN GOOD FAITH TO BE GENUINE AND TO HAVE BEEN SIGNED
OR PRESENTED BY THE PROPER PERSON OR PARTY, WITHOUT BEING REQUIRED TO DETERMINE
THE AUTHENTICITY OR CORRECTNESS OF ANY FACT STATED THEREIN OR THE PROPRIETY OR
VALIDITY OR THE SERVICE THEREOF; (V) MAY ASSUME THAT ANY PERSON PURPORTING TO
GIVE NOTICE OR MAKE ANY STATEMENT OR EXECUTE ANY DOCUMENT IN CONNECTION WITH THE
PROVISIONS HEREOF HAS BEEN DULY AUTHORIZED TO DO SO; (VI) SHALL NOT BE
RESPONSIBLE FOR THE IDENTITY, AUTHORITY OR RIGHTS OF ANY PERSON, FIRM OR COMPANY
EXECUTING OR DELIVERING OR PURPORTING TO EXECUTE OR DELIVER THIS AGREEMENT OR
ANY DOCUMENT OR ANY FUNDS DEPOSITED HEREUNDER OR ANY ENDORSEMENT THEREON OR
ASSIGNMENT THEREOF; (VII) SHALL NOT BE UNDER ANY DUTY TO GIVE THE PROPERTY HELD
BY ESCROW AGENT HEREUNDER ANY GREATER DEGREE OF CARE THAN ESCROW AGENT GIVES ITS
OWN SIMILAR PROPERTY; AND (VIII) MAY CONSULT COUNSEL SATISFACTORY TO ESCROW
AGENT (INCLUDING, WITHOUT LIMITATION, LOEB & LOEB, LLP OR SUCH OTHER COUNSEL OF
ESCROW AGENT’S CHOOSING), THE OPINION OF SUCH COUNSEL TO BE FULL AND COMPLETE
AUTHORIZATION AND PROTECTION IN RESPECT OF ANY ACTION TAKEN, SUFFERED OR

 

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OMITTED BY ESCROW AGENT HEREUNDER IN GOOD FAITH AND IN ACCORDANCE WITH THE
OPINION OF SUCH COUNSEL.

 

(B)                                 THE PURCHASER AND THE COMPANY ACKNOWLEDGE
THAT THE ESCROW AGENT IS ACTING SOLELY AS A STAKEHOLDER AT THEIR REQUEST AND
THAT THE ESCROW AGENT SHALL NOT BE LIABLE FOR ANY ACTION TAKEN BY ESCROW AGENT
IN GOOD FAITH AND BELIEVED BY ESCROW AGENT TO BE AUTHORIZED OR WITHIN THE RIGHTS
OR POWERS CONFERRED UPON ESCROW AGENT BY THIS AGREEMENT.  THE PURCHASER AND THE
COMPANY HEREBY, JOINTLY AND SEVERALLY, INDEMNIFY AND HOLD HARMLESS THE ESCROW
AGENT AND ANY OF ESCROW AGENT’S PARTNERS, EMPLOYEES, AGENTS AND REPRESENTATIVES
FROM AND AGAINST ANY AND ALL ACTIONS TAKEN OR OMITTED TO BE TAKEN BY ESCROW
AGENT OR ANY OF THEM HEREUNDER AND ANY AND ALL CLAIMS, LOSSES, LIABILITIES,
COSTS, DAMAGES AND EXPENSES SUFFERED AND/OR INCURRED BY THE ESCROW AGENT ARISING
IN ANY MANNER WHATSOEVER OUT OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT
AND/OR ANY TRANSACTION RELATED IN ANY WAY HERETO, INCLUDING THE FEES OF OUTSIDE
COUNSEL AND OTHER COSTS AND EXPENSES OF DEFENDING ITSELF AGAINST ANY CLAIMS,
LOSSES, LIABILITIES, COSTS, DAMAGES AND EXPENSES ARISING IN ANY MANNER
WHATSOEVER OUT THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT AND/OR ANY
TRANSACTION RELATED IN ANY WAY HERETO, EXCEPT FOR SUCH CLAIMS, LOSSES,
LIABILITIES, COSTS, DAMAGES AND EXPENSES INCURRED BY REASON OF THE ESCROW
AGENT’S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.  THE ESCROW AGENT SHALL OWE A
DUTY ONLY TO THE PURCHASER AND THE COMPANY UNDER THIS AGREEMENT AND TO NO OTHER
PERSON.

 

(C)                                  THE PURCHASER AND THE COMPANY SHALL JOINTLY
AND SEVERALLY REIMBURSE THE ESCROW AGENT FOR ITS REASONABLE OUT-OF-POCKET
EXPENSES (INCLUDING COUNSEL FEES (WHICH COUNSEL MAY BE LOEB & LOEB LLP OR SUCH
OTHER COUNSEL OF THE ESCROW AGENT’S CHOOSING) INCURRED IN CONNECTION WITH THE
PERFORMANCE OF ITS DUTIES AND RESPONSIBILITIES HEREUNDER, WHICH SHALL NOT
(SUBJECT TO SECTION 4.1(B)) EXCEED $1,500.

 

(D)                                 THE ESCROW AGENT MAY AT ANY TIME RESIGN AS
ESCROW AGENT HEREUNDER BY GIVING FIVE (5) BUSINESS DAYS PRIOR WRITTEN NOTICE OF
RESIGNATION TO THE PURCHASER AND THE COMPANY.  PRIOR TO THE EFFECTIVE DATE OF
RESIGNATION AS SPECIFIED IN SUCH NOTICE, THE PURCHASER AND COMPANY WILL ISSUE TO
THE ESCROW AGENT A JOINT INSTRUCTION AUTHORIZING DELIVERY OF THE DOCUMENTS AND
THE ESCROWED PAYMENT TO A SUBSTITUTE ESCROW AGENT SELECTED BY THE PURCHASER AND
THE COMPANY.  IF NO SUCCESSOR ESCROW AGENT IS NAMED BY THE PURCHASER AND THE
COMPANY, THE ESCROW AGENT MAY APPLY TO A COURT OF COMPETENT JURISDICTION IN THE
STATE OF NEW YORK FOR APPOINTMENT OF A SUCCESSOR ESCROW AGENT, AND DEPOSIT THE
DOCUMENTS AND THE ESCROWED PAYMENT WITH THE CLERK OF ANY SUCH COURT AND/OR
OTHERWISE COMMENCE AN INTERPLEADER OR SIMILAR ACTION FOR A DETERMINATION OF
WHERE TO DEPOSIT THE SAME.

 

(E)                                  THE ESCROW AGENT DOES NOT HAVE AND WILL NOT
HAVE ANY INTEREST IN THE DOCUMENTS AND THE ESCROWED PAYMENT, BUT IS SERVING ONLY
AS ESCROW AGENT, HAVING ONLY POSSESSION THEREOF.

 

(F)                                    THE ESCROW AGENT SHALL NOT BE LIABLE FOR
ANY ACTION TAKEN OR OMITTED BY IT IN GOOD FAITH AND REASONABLY BELIEVED BY IT TO
BE AUTHORIZED HEREBY OR WITHIN THE RIGHTS OR POWERS CONFERRED UPON IT HEREUNDER,
NOR FOR ACTION TAKEN OR OMITTED

 

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BY IT IN GOOD FAITH, AND IN ACCORDANCE WITH ADVICE OF COUNSEL (WHICH COUNSEL MAY
BE LOEB & LOEB, LLP OR SUCH OTHER COUNSEL OF THE ESCROW AGENT’S CHOOSING), AND
SHALL NOT BE LIABLE FOR ANY MISTAKE OF FACT OR ERROR OF JUDGMENT OR FOR ANY ACTS
OR OMISSIONS OF ANY KIND EXCEPT TO THE EXTENT ANY SUCH LIABILITY AROSE FROM ITS
OWN WILLFUL MISCONDUCT OR GROSS NEGLIGENCE.

 

(G)                                 THIS AGREEMENT SETS FORTH EXCLUSIVELY THE
DUTIES OF THE ESCROW AGENT WITH RESPECT TO ANY AND ALL MATTERS PERTINENT THERETO
AND NO IMPLIED DUTIES OR OBLIGATIONS SHALL BE READ INTO THIS AGREEMENT.

 

(H)                                 THE ESCROW AGENT SHALL BE PERMITTED TO ACT
AS COUNSEL FOR THE PURCHASER OR THE COMPANY, AS THE CASE MAY BE, IN ANY DISPUTE
AS TO THE DISPOSITION OF THE DOCUMENTS AND THE ESCROWED PAYMENT, IN ANY OTHER
DISPUTE BETWEEN THE PURCHASER AND THE COMPANY, WHETHER OR NOT THE ESCROW AGENT
IS THEN HOLDING THE DOCUMENTS AND/OR THE ESCROWED PAYMENT AND CONTINUES TO ACT
AS THE ESCROW AGENT HEREUNDER.

 

(I)                                     THE PROVISIONS OF THIS SECTION 4.1 SHALL
SURVIVE THE RESIGNATION OF THE ESCROW AGENT OR THE TERMINATION OF THIS
AGREEMENT.

 

4.2.                              DISPUTE RESOLUTION; JUDGMENTS.  RESOLUTION OF
DISPUTES ARISING UNDER THIS AGREEMENT SHALL BE SUBJECT TO THE FOLLOWING TERMS
AND CONDITIONS:

 

(A)                                  IF ANY DISPUTE SHALL ARISE WITH RESPECT TO
THE DELIVERY, OWNERSHIP, RIGHT OF POSSESSION OR DISPOSITION OF THE DOCUMENTS
AND/OR THE ESCROWED PAYMENT, OR IF THE ESCROW AGENT SHALL IN GOOD FAITH BE
UNCERTAIN AS TO ITS DUTIES OR RIGHTS HEREUNDER, THE ESCROW AGENT SHALL BE
AUTHORIZED, WITHOUT LIABILITY TO ANYONE, TO (I) REFRAIN FROM TAKING ANY ACTION
OTHER THAN TO CONTINUE TO HOLD THE DOCUMENTS AND THE ESCROWED PAYMENT PENDING
RECEIPT OF A JOINT INSTRUCTION FROM THE PURCHASER AND THE COMPANY, (II) COMMENCE
AN INTERPLEADER OR SIMILAR ACTION, SUIT OR PROCEEDING FOR THE RESOLUTION OF ANY
SUCH DISPUTE; AND/OR (III) DEPOSIT THE DOCUMENTS AND THE ESCROWED PAYMENT WITH
ANY COURT OF COMPETENT JURISDICTION IN THE STATE OF NEW YORK, IN WHICH EVENT THE
ESCROW AGENT SHALL GIVE WRITTEN NOTICE THEREOF TO THE PURCHASER AND THE COMPANY
AND SHALL THEREUPON BE RELIEVED AND DISCHARGED FROM ALL FURTHER OBLIGATIONS
PURSUANT TO THIS AGREEMENT.  THE ESCROW AGENT MAY, BUT SHALL BE UNDER NO DUTY
TO, INSTITUTE OR DEFEND ANY LEGAL PROCEEDINGS WHICH RELATE TO THE DOCUMENTS AND
THE ESCROWED PAYMENT.  THE ESCROW AGENT SHALL HAVE THE RIGHT TO RETAIN COUNSEL
IF IT BECOMES INVOLVED IN ANY DISAGREEMENT, DISPUTE OR LITIGATION ON ACCOUNT OF
THIS AGREEMENT OR OTHERWISE DETERMINES THAT IT IS NECESSARY TO CONSULT COUNSEL
WHICH SUCH COUNSEL MAY BE LOEB & LOEB LLP OR SUCH OTHER COUNSEL OF THE ESCROW
AGENT’S CHOOSING.

 

(B)                                 THE ESCROW AGENT IS HEREBY EXPRESSLY
AUTHORIZED TO COMPLY WITH AND OBEY ANY COURT ORDER.  IN CASE THE ESCROW AGENT
OBEYS OR COMPLIES WITH A COURT ORDER, THE ESCROW AGENT SHALL NOT BE LIABLE TO
THE PURCHASER AND THE COMPANY OR TO ANY OTHER PERSON, FIRM, COMPANY OR ENTITY BY
REASON OF SUCH COMPLIANCE.

 

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ARTICLE V

 

GENERAL MATTERS

 

5.1.                              TERMINATION.  THIS ESCROW SHALL TERMINATE UPON
DISBURSEMENT OF THE ESCROWED PAYMENT IN ACCORDANCE WITH THE TERMS OF THIS
AGREEMENT OR EARLIER UPON THE AGREEMENT IN WRITING OF THE PURCHASER AND THE
COMPANY OR RESIGNATION OF THE ESCROW AGENT IN ACCORDANCE WITH THE TERMS HEREOF.

 

5.2.                              NOTICES.  ALL NOTICES, REQUESTS, DEMANDS AND
OTHER COMMUNICATIONS REQUIRED OR PERMITTED HEREUNDER SHALL BE IN WRITING AND
SHALL BE DEEMED TO HAVE BEEN DULY GIVEN ONE (1) DAY AFTER BEING SENT BY TELECOPY
(WITH COPY DELIVERED BY OVERNIGHT COURIER, REGULAR OR CERTIFIED MAIL):

 

If to the Company, to:

Implant Sciences Corporation

 

107 Audubon Rd. #5

 

Wakefield, MA 01880

 

Attn: Tony Armini

 

Facsimile: (781) 246-3561

 

With a copy to:

 

(b)                                 If to the Purchaser, to:

 

LAURUS MASTER FUND, LTD.

M&C Corporate Services Limited, P.O. Box 309 GT, Ugland
House, South Church Street, George Town, Grand Cayman,
Cayman Islands, Fax: 345-949-8080

 

(c)                                  If to the Escrow Agent, to:

 

Loeb & Loeb LLP

345 Park Avenue

New York, New York 10154

Fax: (212) 407-4990

Attention: Scott J. Giordano, Esq.

 

or to such other address as any of them shall give to the others by notice made
pursuant to this Section 5.2.

 

5.3.                              INTEREST.  THE ESCROWED PAYMENT SHALL NOT BE
HELD IN AN INTEREST BEARING ACCOUNT NOR WILL INTEREST BE PAYABLE IN CONNECTION
THEREWITH.

 

5.4.                              ASSIGNMENT; BINDING AGREEMENT.  NEITHER THIS
AGREEMENT NOR ANY RIGHT OR OBLIGATION HEREUNDER SHALL BE ASSIGNABLE BY ANY PARTY
WITHOUT THE PRIOR WRITTEN CONSENT OF THE OTHER PARTIES HERETO.  THIS AGREEMENT
SHALL INURE TO THE BENEFIT OF AND BE BINDING UPON THE PARTIES HERETO AND THEIR
RESPECTIVE LEGAL REPRESENTATIVES, SUCCESSORS AND ASSIGNS.

 

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5.5.                              INVALIDITY.  IN THE EVENT THAT ANY ONE OR MORE
OF THE PROVISIONS CONTAINED HEREIN, OR THE APPLICATION THEREOF IN ANY
CIRCUMSTANCE, IS HELD INVALID, ILLEGAL, OR UNENFORCEABLE IN ANY RESPECT FOR ANY
REASON, THE VALIDITY, LEGALITY AND ENFORCEABILITY OF ANY SUCH PROVISION IN EVERY
OTHER RESPECT AND OF THE REMAINING PROVISIONS CONTAINED HEREIN SHALL NOT BE IN
ANY WAY IMPAIRED THEREBY, IT BEING INTENDED THAT ALL OF THE RIGHTS AND
PRIVILEGES OF THE PARTIES HERETO SHALL BE ENFORCEABLE TO THE FULLEST EXTENT
PERMITTED BY LAW.

 

5.6.                              COUNTERPARTS/EXECUTION.  THIS AGREEMENT MAY BE
EXECUTED IN ANY NUMBER OF COUNTERPARTS AND BY DIFFERENT SIGNATORIES HERETO ON
SEPARATE COUNTERPARTS, EACH OF WHICH, WHEN SO EXECUTED, SHALL BE DEEMED AN
ORIGINAL, BUT ALL SUCH COUNTERPARTS SHALL CONSTITUTE BUT ONE AND THE SAME
AGREEMENT.  THIS AGREEMENT MAY BE EXECUTED BY FACSIMILE TRANSMISSION.

 

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

 

 

COMPANY:

 

 

 

IMPLANT SCIENCES CORPORATION

 

 

 

By:

 

 

 

Name:

 

Title:

 

 

 

PURCHASER:

 

 

 

LAURUS MASTER FUND, LTD.

 

 

 

By:

 

 

 

Name:

 

Title:

 

 

 

ESCROW AGENT:

 

 

 

LOEB & LOEB LLP

 

 

 

By:

 

 

 

Name:

 

Title:

 

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SCHEDULE A TO FUNDS ESCROW AGREEMENT

 

PURCHASER

 

PRINCIPAL NOTE AMOUNT

LAURUS MASTER FUND, LTD.,
M&C Corporate Services Limited, P.O. Box 309
GT, Ugland House, South Church Street, George
Town, Grand Cayman, Cayman Islands, Fax:
345-949-8080

 

Term Note in an aggregate principal amount of $3,000,000

TOTAL

 

$3,000,000

 

 

 

FUND MANAGER

 

CLOSING PAYMENT

LAURUS CAPITAL MANAGEMENT, L.L.C.
825 Third Avenue, 14th Floor
New York, New York 10022
Fax: 212-541-4434

 

Closing payment payable in connection with investment by Laurus Master Fund,
Ltd. for which Laurus Capital Management, L.L.C. is the Manager.

TOTAL

 

$135,000

 

 

 

WARRANTS

 

 

 

 

 

WARRANT RECIPIENT

 

WARRANTS TO BE ISSUED ON
SEPTEMBER 30, 2005

LAURUS MASTER FUND, LTD.
M&C Corporate Services Limited, P.O. Box 309 GT, Ugland House, South Church
Street, George Town, Grand Cayman, Cayman Islands, Fax: 345-949-8080

 

Term Note Warrant exercisable into 250,000 shares of common stock of the
Company.

TOTAL

 

Warrants exercisable into 250,000 shares of common stock of the Company

 

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