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EXHIBIT 10.1

FIRST AMENDMENT TO
 
NOTE AND WARRANT PURCHASE AGREEMENT
 
This First Amendment to Note and Warrant Purchase Agreement (“Amendment”) is
made as of the 1st day of July, 2009 by and between Implant Sciences
Corporation, a Massachusetts corporation (the “Company”), and DMRJ Group LLC, a
Delaware limited liability company (the “Investor”).

BACKGROUND
 
A. Company and Investor are parties to a certain Note and Warrant Purchase
Agreement dated as of December 10, 2008 (as modified and amended from time to
time, the “Purchase Agreement”) pursuant to which, among other things, Investor
purchased a note with an aggregate principal amount of $5,600,000.  The Purchase
Agreement and all instruments, documents and agreements executed in connection
therewith, or related thereto are referred to herein collectively as the
“Transaction Documents”.  All capitalized terms not otherwise defined herein
shall have the meaning ascribed thereto in the Purchase Agreement.
 
B. On December 24, 2008, Company repaid $1,000,000 of the outstanding aggregate
principal amount of the Note.
 
C. Company has requested that Investor purchase an additional note issued by
Company pursuant to the Purchase Agreement
 
D. Investor has agreed to purchase such additional note and Company and Investor
have agreed to amend the terms and conditions of the Transaction Documents, each
pursuant to the terms and conditions of this Amendment.
 
NOW, THEREFORE, with the foregoing Background incorporated by reference and made
a part hereof and intending to be legally bound, the parties agree as follows:
 
1. Amendments.
 
(a) Purchase and Sale of Additional Note.
 
(i)           Upon the terms and conditions contained herein and in the Purchase
Agreement, Company shall issue and sell to Investor, and Investor shall purchase
from Company, an additional senior secured promissory note in the aggregate
principal amount of $1,000,000.
 
(ii)           Upon satisfaction of the terms and conditions set forth herein,
Company shall issue to Investor a promissory note, substantially in the form of
Exhibit A hereto (the “Additional Note”), in the aggregate principal amount of
$1,000,000), and Investor shall advance, as payment in full for the Additional
Note, the sum of $1,000,000.  The Investor is permitted to deduct and retain
from the advance made on the date hereof the costs, fees and expenses of
Investor incurred in connection with the transactions contemplated hereby,
including reasonable diligence and legal fees and expenses.
 
 
 
 

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(iii)           The proceeds from the sale of the Additional Note hereunder
shall be used by the Company for working capital and ordinary course general
corporate purposes not inconsistent with or prohibited by any covenant in the
Transaction Documents.
 
(iv)           The Additional Note shall be deemed a “Transaction Document”
under the Purchase Agreement.
 
(b) Contingency Plan.  In the event Company has not obtained net proceeds from
the issuance and sale by the Company of its debt or equity securities upon
terms, conditions and documentation acceptable to Investor in its sole
discretion of (i) $1,000,000 by July 24, 2009 and (ii) to the extent that
Company has satisfied the requirements of clause (i) above, an additional
$2,000,000 by August 21, 2009, Company will immediately engage in a sale process
satisfactory to Investor in its sole discretion by implementing the Contingency
Plan (as defined in Section 3(f)), including, without limitation, conditions,
timing and milestones which may be established by Investor, including, without
limitation, the engagement, at the Company’s expense, of a third party
investment banker acceptable to the Investor in its sole and absolute
discretion.
 
(c) Series F Preferred Stock.
 
(i) The Company shall adopt and file with the Secretary of the Commonwealth of
the Commonwealth of Massachusetts on or before the effectiveness hereof  the
Certificate of Designations in the form of Exhibit B hereto (the “Certificate of
Designations”).
 
(ii) Upon the terms and conditions set forth herein and in the Purchase
Agreement, on the date hereof, the Company shall issue to the Investor 871,763
shares of Series F Convertible Preferred Stock of the Company (the “Series F
Preferred Stock”).
 
(iii) If the Company does not obtain net proceeds of at least $3,000,000 from
the issuance and sale of its debt and/or equity in one or more transactions by
August 31, 2009, the Company shall, upon the terms and conditions set forth
herein and in the Purchase Agreement, on September 1, 2009, issue to the
Investor an additional 774,900 shares of Series F Preferred Stock.
 
(iv) The Series F Preferred Stock and the shares of Common Stock issuable upon
conversion of the Series F Preferred Stock (the “Series F Conversion Shares”)
shall be “Securities” as such term is used in the Purchase Agreement.
 
(v) All references to “Warrant Shares” in Section 3.27 of the Purchase Agreement
are hereby amended to refer to “Warrant Shares, Conversion Shares (as such term
is defined in the Note) and Series F Conversion Shares”.
 
(vi) The Company shall, at its next annual meeting of its shareholders, or upon
the earlier request of the Investor, use commercially reasonable efforts to
obtain all necessary corporate approvals to amend its Articles of Organization
to authorize a sufficient number of shares of Common Stock as may be necessary
for the issuance of the Series F Conversion Shares.
 
(d) Anti-Dilution.  For so long as the Note or the Additional Note remain
outstanding, the Company shall not issue additional shares of Common Stock, or
other securities convertible into or exercisable for Common Stock, (other than
shares issuable upon the conversion or exercise of outstanding securities, or
reserved under a Plan by the Company, which shares have
 
 
 
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been included in Section 2.1(c)(i) of the Updated Disclosure Schedule (as
defined below)), unless the Company simultaneously issues to the Investor the
number of shares of Series F Preferred Stock necessary to result in the number
of shares of  Common Stock into which the Series F Preferred Stock held by the
Investor may be converted representing the same percentage ownership of the
Company on a fully diluted basis after such issuance as immediately prior
thereto.
 
2. Representations and Warranties.  Company represents and warrants to Investor
that:
 
(a) All warranties and representations made to the Investors under the Purchase
Agreement and the Transaction Documents are true and correct as to the date
hereof unless they specifically relate to an earlier date in which case they
shall be true and correct as of such date, other than as set forth on the
disclosure schedules (the “Updated Disclosure Schedules”) attached hereto (the
numbers of which shall correspond to the numbers of the disclosure schedules to
the Purchase Agreement); notwithstanding the foregoing, the representations and
warranties made as of the Closing Date in Section 2.1(c) of the Purchase
Agreement shall be made as of the date hereof.
 
(b) The Company and the Guarantors (as applicable) have the requisite corporate
power and authority to enter into and perform this Amendment and to issue and
sell the Series F Preferred Stock in accordance with the terms hereof.  The
execution, delivery and performance of this Amendment by the Company and the
consummation by it of the transactions contemplated hereby have been duly and
validly authorized by all necessary corporate action, 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
Guarantors, this Amendment shall constitute a valid and binding obligation of
the Company enforceable against the Company 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) The number of shares of Common Stock issued and outstanding, on a fully
diluted basis on the date hereof (prior to the issuance of the Series F
Preferred Stock hereunder) is 49,399,878, and is as set forth in Section
2.1(c)(1) of the Updated Disclosure Schedule.
 
(d) This Amendment, the Additional Note, all other documents, instruments and
agreements executed in connection with this Amendment and any assignment,
instrument, document, or agreement executed and delivered in connection
herewith, will be valid, binding, and enforceable in accordance with its
respective terms.
 
(e) The Board of Directors of the Company has determined, in good faith, that
the consideration received by the Company from the Investor for the shares of
Series F Preferred stock issued pursuant hereto is not less than the fair market
value of such shares, taking into account all fees, expenses and standard market
discounts.
 
3. Effectiveness Conditions.  This Amendment shall be effective upon completion
of the following conditions precedent (all documents to be in form and substance
satisfactory to Investor and Investor’s counsel):
 
 
 
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(a) Execution and delivery by Company and each Person who delivered a Guarantee
to Investor at Closing (each a “Guarantor” and collectively, the “Guarantors”)
to Investor of this Amendment;
 
(b) Execution and delivery by Company to Investor of the Additional Note;
 
(c) The filing of the Certificate of Designations with the Secretary of the
Commonwealth of the Commonwealth of Massachusetts;
 
(d) Delivery by Company to Investor of a secretary’s certificate, dated as of
the date hereof, 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 as of the date hereof, and
(iv) the authority and incumbency of the officers of the Company executing this
Amendment, the Additional Note and any other documents required to be executed
or delivered in connection therewith;
 
(e) Delivery by Company to Investor of an opinion of counsel to the Company,
dated the date hereof, substantially in the form provided to Investor on the
Closing Date;
 
(f) Delivery by Company to Investor of detailed financial and operational
business plan to minimize cash expenses and maximize strategic value in the
event Company’s fund raising initiatives of at least $1,000,000 by July 24,
2009, 2009 and $2,000,000 by August 21, 2009 are not realized (the “Contingency
Plan”); and
 
(g) Execution and/or delivery by Company of all agreements, instruments and
documents requested by Investor to effectuate and implement the terms hereof and
the Transaction Documents.
 
4. Authorized Capital. The Company shall not, 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; (ii) declare any dividends or make any distributions to the holders of
Common Stock or redeem, retire, defease, purchase or otherwise acquire for value
any shares of Common Stock;  (iv) wind up, liquidate or dissolve or (v) agree to
do any of the foregoing (collectively, a “Major Transaction”) unless (x) there
are available a sufficient number of authorized and unissued of Common Stock to
allow for the issuance of the Series F Conversion Shares and sufficient time
available prior to the consummation of such Major Transaction to effect a
conversion of the Series F Preferred Stock or (y) the definitive agreement or
corporate action relating to such Major Transaction provides that any payment
per share to be made to the holders of Series F Preferred Stock on an
as-converted basis shall be no less than the payment per share to be made to the
holders of Common Stock.
 
5. Expenses.  The Company shall pay any and all costs, fees and expenses of
Investor (including without limitation, attorneys’ fees) in connection with this
Amendment and the transaction contemplated hereby.
 
6. No Waiver.  The Investor reserves all of its rights and remedies arising with
respect to any and all defaults or events of defaults under the Transaction
Documents that may be in existence on the date hereof, regardless of whether
such defaults or events of default have been
 
 
 
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identified, or which may occur in the future.  The Investor has not modified, is
not waiving and has not agreed to forbear in the exercise of, any of its present
or future rights and remedies.  No action taken or claimed to be taken by the
Investor will constitute such a waiver, modification or agreement to forbear.
 
7. Ratification of Loan Documents.  Except as expressly set forth herein, all of
the terms and conditions of the Purchase Agreement and Transaction Documents are
hereby ratified and confirmed and continue unchanged and in full force and
effect.  All references to the Purchase Agreement shall mean the Purchase
Agreement as modified by this Amendment.
 
8. Collateral.  Company and Guarantors hereby confirm and agree that all
security interests and liens granted to Investor pursuant to the Transaction
Documents continue in full force and effect and shall continue to secure the
Obligations (as defined in the Security Agreement), including all liabilities
and obligations (primary, secondary, direct, contingent, sole, joint or several)
due or to become due, or that are now or may be hereafter contracted or
acquired, or owing, under the Additional Note and any other instruments,
agreements or other documents executed and/or delivered in connection herewith
or therewith, in each case, whether now or hereafter existing, voluntary or
involuntary, direct or indirect, absolute or contingent, liquidated or
unliquidated, whether or not jointly owed with others, and whether or not from
time to time decreased or extinguished and later increased, created or incurred,
and all or any portion of such obligations or liabilities that are paid, to the
extent all or any part of such payment is avoided or recovered directly or
indirectly from Investor as a preference, fraudulent transfer or otherwise as
such obligations may be amended, supplemented, converted, extended or modified
from time to time and without limiting the generality of the foregoing, the
term  “Obligations” shall include, without limitation: (i) principal of, and
interest on, the Additional Note and the loans extended pursuant thereto
(including any interest that accrues after the commencement of an Insolvency
Proceeding regardless of whether allowed or allowable in whole or in part as a
claim in such Insolvency Proceeding) and (ii) all amounts in respect of the
foregoing that would be payable but for the fact that the obligations to pay
such amounts are unenforceable or not allowable due to the existence of a
bankruptcy, reorganization or similar proceeding involving any Grantor (as
defined in the Security Agreement. 
 
9. Acknowledgment of Guarantors.  By execution of this Amendment, each Guarantor
hereby acknowledges the terms and conditions of this Amendment and confirms that
Guarantors jointly and severally and absolutely and unconditionally guarantee,
as surety, all of Guarantied Obligations (as defined in the Guaranty from
Guarantors to Investor dated December 10, 2008) including all liabilities and
obligations (primary, secondary, direct, contingent, sole, joint or several) due
or to become due, or that are now or may be hereafter contracted or acquired, or
owing, under the Additional Note.
 
10. Governing Law. This Amendment 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 Amendment
shall not be interpreted or construed with any presumption against the party
causing this Amendment to be drafted.
 
11. Signatories:  Each individual signatory hereto represents and warrants that
he or she is duly authorized to execute this Amendment on behalf of his or her
principal and that he or she executes the Amendment in such capacity and not as
a party.
 
 
 
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12. Duplicate Originals:  Two or more duplicate originals of this Amendment may
be signed by the parties, each of which shall be an original but all of which
together shall constitute one and the same instrument.  This Amendment may be
executed in counterparts, all of which counterparts taken together shall
constitute one completed fully executed document.  Signature by facsimile or PDF
shall bind the parties hereto.
 

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IN WITNESS WHEREOF, the parties have executed this Amendment the day and year
first above written.
 

Company:
IMPLANT SCIENCES CORPORATION
 
By: /s/ Glenn D. Bolduc
Name:  Glenn D. Bolduc
Title:    Chairman & CEO
 
Guarantors:
C ACQUISITION CORP.
 
 
By: /s/ Glenn D. Bolduc
Name:  Glenn D. Bolduc
Title:     President
 
 
ACCUREL SYSTEMS INTERNATIONAL CORPORATION
 
 
By: /s/ Glenn D. Bolduc
Name:  Glenn D. Bolduc
Title:    President
 
 
IMX ACQUISITION CORP.
 
 
By: /s/ Glenn D. Bolduc
Name:  Glenn D. Bolduc
Title:    President
 
Investor:
DMRJ GROUP LLC
 
By: /s/ Dan Small
Name: Dan Small
Title:   MD
 

 

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