Exhibit 10.4

SECURITY AGREEMENT

This SECURITY AGREEMENT (this “Agreement”), dated as of March 19, 2014, among
the Grantor(s) listed on the signature pages hereof and those additional
entities that hereafter become parties hereto by executing the form of
Supplement attached hereto as Annex 1 (collectively, jointly and severally, the
“Grantors” and each, individually, a “Grantor”), and BAM Administrative
Services, LLC, as agent for the Investors party to the Purchase Agreement
referred to below (together with its successors and assigns, the “Secured
Party”).

W I T N E S S E T H:

WHEREAS, Implant Sciences Corporation (the “Company”) is party to that certain
Note Purchase Agreement dated as of the date hereof (as may be amended and
restated, supplemented, replaced, or otherwise modified from time to time, the
“Purchase Agreement”) by and between Company, the investors thereto
(collectively, the “Investors” and each, individually, an “Investor”) and
Secured Party, as agent for the Investors, pursuant to which the Investors
agreed to extend loans to the Company in the principal amount of up to
$20,000,000 (the “Loans”), repayment of which is evidenced by certain Senior
Secured Promissory Notes dated the date hereof issued to each Investor (the
“Notes”); and

WHEREAS, in order to induce Secured Party and the Investors to enter into the
Purchase Agreement and other Transaction Documents and to induce the Investors
to extend the Loans pursuant to the Purchase Agreement, each of C Acquisition
Corp., IMX Acquisition Corp. and Accurel Systems International Corporation
(collectively, jointly and severally, the “Guarantors” and each, individually, a
“Guarantor”) have agreed to jointly and severally guarantee the obligations of
the Company to the Secured Party and the Investors pursuant to that certain
Guaranty dated as of the date hereof (as amended, restated, supplemented,
replaced, or otherwise modified from time to time, the “Guaranty”) executed by
the Guarantors in favor of the Secured Party and the Investors; and

WHEREAS, in order to induce Secured Party and the Investors to enter into the
Purchase Agreement and other Transaction Documents and to induce the Investors
to extend the Loans pursuant to the Purchase Agreement, the Grantors have agreed
to execute and deliver to the Secured Party this Agreement and other collateral
documents and to grant the Secured Party a continuing security interest in and
to the Collateral in order to secure the prompt and complete payment, observance
and performance of, among other things, the Secured Obligations;

NOW, THEREFORE, for and in consideration of the recitals made above and other
good and valuable consideration, the receipt, sufficiency and adequacy of which
are hereby acknowledged, the parties hereto agree as follows:

1.

Defined Terms. All capitalized terms used herein (including in the preamble and
recitals hereof) without definition shall have the meanings ascribed thereto in
the Notes, or if not expressly defined in the Notes, then in the Purchase
Agreement.  Any terms used in this

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Agreement that are defined in the Code (whether or not capitalized) shall be
construed and defined as set forth in the Code unless otherwise defined herein
or in the Notes or the Purchase Agreement; provided, however, that if the Code
is used to define any term used herein and if such term is defined differently
in different Articles of the Code, the definition of such term contained in
Article 9 of the Code shall govern. In addition to those terms defined elsewhere
in this Agreement, as used in this Agreement, the following terms shall have the
following meanings:

(a)

“Account” means an account (as that term is defined in the Code).

(b)

“Account Debtor” means an account debtor (as that term is defined in the Code).

(c)

 “Books” means books and records (including each Grantor’s Records indicating,
summarizing, or evidencing such Grantor’s assets (including the Collateral) or
liabilities, each Grantor’s Records relating to such Grantor’s business
operations or financial condition, and each Grantor’s goods or General
Intangibles related to such information).

(d)

“Chattel Paper” means chattel paper (as that term is defined in the Code) and
includes tangible chattel paper and electronic chattel paper.

(e)

“Closing Date” has the meaning specified therefor in the Purchase Agreement.

(f)

“Code” means the New York Uniform Commercial Code, as in effect from time to
time; provided, however, that in the event that, by reason of mandatory
provisions of law, any or all of the attachment, perfection, priority, or
remedies with respect to Secured Party’s Liens on any Collateral is governed by
the Uniform Commercial Code as enacted and in effect in a jurisdiction other
than the State of New York, the term “Code” shall mean the Uniform Commercial
Code as enacted and in effect in such other jurisdiction solely for purposes of
the provisions thereof relating to such attachment, perfection, priority, or
remedies.

(g)

“Collateral” has the meaning specified therefor in Section 2.

(h)

“Commercial Tort Claims” means commercial tort claims (as that term is defined
in the Code), and includes those commercial tort claims listed on Schedule 10
attached hereto.

(i)

“Company” has the meaning specified therefor in the recitals to this Agreement.

(j)

“Controlled Foreign Corporation” shall mean “controlled foreign corporation” as
defined in the Internal Revenue Code of 1986, as amended.

(k)

“Copyrights” means copyrights and copyright registrations, and also includes (i)
the copyright registrations and applications listed on Schedule 2 attached
hereto and made a part hereof (as the same may be amended or modified from time
to time), (ii) all

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extensions or renewals thereof, (iii) all income, royalties, damage awards and
payments now and hereafter due or payable under and with respect thereto,
including payments under all licenses entered into in connection therewith and
damages and payments for past or future infringements thereof, (iv) the right to
sue for past, present and future infringements thereof, and (v) all of each
Grantor’s rights corresponding thereto throughout the world.

(l)

“Copyright Security Agreement” means each Copyright Security Agreement among
Grantors, or any of them, and Secured Party in substantially the form of Exhibit
A attached hereto, pursuant to which Grantors have granted to Secured Party a
security interest in all their respective Copyrights.

(m)

“Deposit Account” means a deposit account (as that term is defined in the Code).

(n)

“Equipment” means equipment (as that term is defined in the Code).

(o)

“Event of Default” has the meaning specified therefor in the Notes.

(p)

“General Intangibles” means general intangibles (as that term is defined in the
Code), and, in any event, includes payment intangibles, contract rights, rights
to payment, rights arising under common law, statutes, or regulations, choses or
things in action, goodwill (including the goodwill associated with any
Trademark), Patents, Trademarks, Copyrights, URLs and domain names, industrial
designs and other Intellectual Property or rights therein or applications
therefor, whether under license or otherwise, programs, programming materials,
blueprints, drawings, purchase orders, customer lists, monies due or recoverable
from pension funds, route lists, rights to payment and other rights under any
royalty or licensing agreements, including Intellectual Property Licenses,
infringement claims, computer programs, information contained on computer disks
or tapes, software, literature, reports, catalogs, pension plan refunds, pension
plan refund claims, insurance premium rebates, tax refunds, and tax refund
claims, interests in a partnership or limited liability company which do not
constitute a security under Article 8 of the Code, and any other personal
property other than Commercial Tort Claims, money, Accounts, Chattel Paper,
Deposit Accounts, goods, Investment Related Property, Negotiable Collateral, and
oil, gas, or other minerals before extraction.

(q)

“Governmental Authority” means any federal, state, local, or other governmental
or administrative body, instrumentality, board, department, or agency or any
court, tribunal, administrative hearing body, arbitration panel, commission, or
other similar dispute-resolving panel or body.

(r)

“Grantor” and “Grantors” have the meanings specified therefor in the recitals to
this Agreement.

(s)

“Guarantor” and “Guarantors” have the meanings specified therefor in the
recitals to this Agreement.

(t)

“Guaranty” has the meaning specified therefor in the recitals to this Agreement.

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(u)

“Insolvency Proceeding” means any proceeding commenced by or against any Person
under any provision of title 11 of the United States Code, as in effect from
time to time, or under any other state or federal bankruptcy or insolvency law,
assignments for the benefit of creditors, formal or informal moratoria,
compositions, extensions generally with creditors, or proceedings seeking
reorganization, arrangement or other similar relief.

(v)

“Intellectual Property” means Patents, Copyrights, Trademarks, the goodwill
associated with such Trademarks, trade secrets and confidential and proprietary
customer lists, and Intellectual Property Licenses.

(w)

“Intellectual Property Licenses” means rights under or interests in any patent,
trademark, copyright or other intellectual property, including software license
agreements with any other party, whether the applicable Grantor is a licensee or
licensor under any such license agreement, including the license agreements
listed on Schedule 3 attached hereto and made a part hereof.

(x)

“Inventory” means inventory (as that term is defined in the Code).

(y)

“Investment Related Property” means (i) investment property (as that term is
defined in the Code), and (ii) all of the following (regardless of whether
classified as investment property under the Code):  all Pledged Interests,
Pledged Operating Agreements, and Pledged Partnership Agreements.

(z)

 “Negotiable Collateral” means letters of credit, letter-of-credit rights,
instruments, promissory notes, drafts, and documents.

(aa)

“Obligations” means all of the 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, of any Grantor to the
Secured Party and the Investors under this Agreement, the Notes, the Purchase
Agreement, the Guaranty, the other Transaction Documents, 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 the Secured Party or any Investor as a preference,
fraudulent transfer or otherwise as such obligations may be amended,
supplemented, converted, extended or modified from time to time.  Without
limiting the generality of the foregoing, the term “Obligations” shall include,
without limitation: (i) principal of, and interest on, the Notes 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); (ii)
any and all other fees, legal fees and other expenses, indemnities, costs,
obligations and liabilities of the Grantors from time to time under or in
connection with this Agreement, the Notes, the Purchase Agreement, the Guaranty,
the other Transaction Documents, and any other instruments, agreements or other
documents executed and/or delivered in connection herewith or therewith; (iii)
and the Major

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Transaction Prepayment Price (as defined in the Notes), and (iv) 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.  Any reference in this Agreement or in the Transaction Documents to the
Obligations shall include all or any portion thereof and any extensions,
modifications, renewals or alterations thereof, both prior and subsequent to any
Insolvency Proceeding.

(bb)

“Organizational Documents” means, with respect to each Grantor, the documents by
which such Grantor was organized (such as a certificate of incorporation,
certificate of limited partnership or articles of organization, and including,
without limitation, any certificates of designation for preferred stock or other
forms of preferred equity) and which relate to the internal governance of such
Grantor (such as bylaws, a partnership agreement or an operating, limited
liability or members agreement).

(cc)

“Patents” means patents and patent applications, and also includes (i) the
patents and patent applications listed on Schedule 4 attached hereto and made a
part hereof (as the same may be amended or modified from time to time), (ii) all
divisions, continuations, continuations-in-part, reissues and extensions
thereof, (iii) all income, royalties, damage awards and payments now and
hereafter due or payable under and with respect thereto, including payments
under all licenses entered into in connection therewith and damages and payments
for past or future infringements thereof, (iv) the right to sue for past,
present and future infringements thereof, and (v) all of each Grantor’s rights
corresponding thereto throughout the world.

(dd)

“Patent Security Agreement” means each Patent Security Agreement among Grantors,
or any of them, and Secured Party in substantially the form of Exhibit B
attached hereto, pursuant to which Grantors have granted to Secured Party a
security interest in all their respective Patents.

(ee)

“Permitted Encumbrances” has the meaning specified therefor in the Purchase
Agreement.

(ff)

“Person” has the meaning specified therefor in the Purchase Agreement.

(gg)

“Pledged Companies” means, each Person listed on Schedule 5 hereto as a “Pledged
Company”, together with each other Person, all or a portion of whose Stock, is
acquired or otherwise owned by a Grantor after the Closing Date.

(hh)

“Pledged Interests” means all of each Grantor’s right, title and interest in and
to all of the Stock now or hereafter owned by such Grantor, regardless of class
or designation, including all substitutions therefor and replacements thereof,
all proceeds thereof and all rights relating thereto, also including any
certificates representing the Stock, the right to receive any certificates
representing any of the Stock, all warrants, options, share appreciation rights
and other rights, contractual or otherwise, in respect thereof, and the right to
receive dividends, distributions of income, profits, surplus, or other
compensation by way of income or liquidating distributions, in cash or in kind,
and cash, instruments, and other property from time

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to time received, receivable, or otherwise distributed in respect of or in
addition to, in substitution of, on account of, or in exchange for any or all of
the foregoing.  Notwithstanding anything to the contrary contained herein, in no
event shall the Pledged Interests include more than 65% of the voting Stock of
any Controlled Foreign Corporation if and only for so long as a pledge of more
than 65% of the voting Stock of such Controlled Foreign Corporation would have
adverse United States federal income tax consequences to any Grantor.

(ii)

“Pledged Interests Addendum” means a Pledged Interests Addendum substantially in
the form of Exhibit C to this Agreement.

(jj)

“Pledged Operating Agreements” means all of each Grantor’s rights, powers, and
remedies under the limited liability company operating agreements of each of the
Pledged Companies that are limited liability companies.

(kk)

“Pledged Partnership Agreements” means all of each Grantor’s rights, powers, and
remedies under the partnership agreements of each of the Pledged Companies that
are partnerships.

(ll)

“Proceeds” has the meaning specified therefor in Section 2.

(mm)

“Purchase Agreement” has the meaning specified therefor in the recitals to this
Agreement.

(nn)

“Real Property” means any estates or interests in real property now owned or
hereafter acquired by any Grantor and the improvements thereto.

(oo)

“Records” means information that is inscribed on a tangible medium or which is
stored in an electronic or other medium and is retrievable in perceivable form.

(pp)

“Security Interest” has the meaning specified therefor in Section 2.

(qq)

“Secured Obligations” means each and all of the following: (a) all of the
present and future obligations of Grantors arising from this Agreement, the
Notes, the Purchase Agreement, the Guaranty or the other Transaction Documents,
and (b) all Obligations of the Company or any Guarantor, including, in the case
of each of clauses (a) and (b), reasonable attorneys fees and expenses and any
interest, fees, or expenses that accrue after the filing of an Insolvency
Proceeding, regardless of whether allowed or allowable in whole or in part as a
claim in any Insolvency Proceeding.

(rr)

“Secured Party’s Liens” means the Liens granted by the Grantors to Secured Party
under the Transaction Documents.

(ss)

“Securities Account” means a securities account (as that term is defined in the
Code).

(tt)

“Stock” means all shares, options, warrants, interests, participations, or other
equivalents (regardless of how designated) of or in a Person, whether voting or
nonvoting,

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including common stock, preferred stock, or any other “equity security” (as such
term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated
by the Commission under the Exchange Act).

(uu)

“Supporting Obligations” means supporting obligations (as such term is defined
in the Code).

(vv)

“Trademarks” means trademarks, trade names, trademark applications, service
marks, service mark applications, and also includes (i) the registered or
applied for trade names, trademarks, trademark applications, service marks, and
service mark applications listed on Schedule 6 attached hereto and made a part
hereof (as the same may be amended or modified from time to time), and (ii) all
renewals thereof, (iii) all income, royalties, damage awards and payments now
and hereafter due or payable under and with respect thereto, including payments
under all licenses entered into in connection therewith and damages and payments
for past or future (A) infringements and dilutions thereof and (B) injury to the
goodwill associated therewith, (iv) the right to sue for past, present and
future (A) infringements and dilutions thereof and (B) injury to the goodwill
associated therewith, (v) the goodwill of each Grantor’s business symbolized by
the foregoing or connected therewith, and (v) all of each Grantor’s rights
corresponding thereto throughout the world.

(ww)

“Trademark Security Agreement” means each Trademark Security Agreement among
Grantors, or any of them, and Secured Party in substantially the form of Exhibit
D attached hereto, pursuant to which Grantors have granted to Secured Party a
security interest in all their respective Trademarks.

(xx)

“Transaction Documents” has the meaning specified therefor in the Purchase
Agreement.

(yy)

“URL” means “uniform resource locator,” an internet web address.

2.

Grant of Security.  Each Grantor hereby unconditionally grants, assigns, and
pledges to Secured Party a continuing security interest (herein referred to as
the “Security Interest”) in all personal property, tangible or intangible, of
such Grantor whether now owned or hereafter acquired or arising and wherever
located, including such Grantor’s right, title, and interest in and to the
following, whether now owned or hereafter acquired or arising and wherever
located (the “Collateral”):

(a)

all of such Grantor’s Accounts;

(b)

all of such Grantor’s Books;

(c)

all of such Grantor’s Chattel Paper;

(d)

all of such Grantor’s Deposit Accounts;

(e)

all of such Grantor’s Equipment and fixtures;

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(f)

all of such Grantor’s General Intangibles;

(g)

all of such Grantor’s Inventory;

(h)

all of such Grantor’s Investment Related Property;

(i)

all of such Grantor’s Negotiable Collateral;

(j)

all of such Grantor’s rights in respect of Supporting Obligations;

(k)

all of such Grantor’s Commercial Tort Claims;

(l)

all of such Grantor’s money, cash equivalents, or other assets of each such
Grantor that now or hereafter come into the possession, custody, or control of
Secured Party;

(m)

all of the proceeds and products, whether tangible or intangible, of any of the
foregoing, including proceeds of insurance or Commercial Tort Claims covering or
relating to any or all of the foregoing, and any and all Accounts, Books,
Chattel Paper, Deposit Accounts, Equipment, General Intangibles, Inventory,
Investment Related Property, Negotiable Collateral, Supporting Obligations,
money, or other tangible or intangible property resulting from the sale, lease,
license, exchange, collection, or other disposition of any of the foregoing, the
proceeds of any award in condemnation with respect to any of the foregoing, any
rebates or refunds, whether for taxes or otherwise, and all proceeds of any such
proceeds, or any portion thereof or interest therein, and the proceeds thereof,
and all proceeds of any loss of, damage to, or destruction of the above, whether
insured or not insured, and, to the extent not otherwise included, any
indemnity, warranty, or guaranty payable by reason of loss or damage to, or
otherwise with respect to any of the foregoing (the “Proceeds”).  Without
limiting the generality of the foregoing, the term “Proceeds” includes whatever
is receivable or received when Investment Related Property or proceeds are sold,
exchanged, collected, or otherwise disposed of, whether such disposition is
voluntary or involuntary, and includes proceeds of any indemnity or guaranty
payable to any Grantor, Secured Party or an Investor from time to time with
respect to any of the Investment Related Property.

3.

Security for Obligations.  This Agreement and the Security Interest created
hereby secures the payment and performance of the Secured Obligations, whether
now existing or arising hereafter.  Without limiting the generality of the
foregoing, this Agreement secures the payment of all amounts which constitute
part of the Secured Obligations and would be owed by Grantors, or any of them,
to Secured Party or an Investor but for the fact that they are unenforceable or
not allowable due to the existence of an Insolvency Proceeding involving any
Grantor.

4.

Grantors Remain Liable.  Anything herein to the contrary notwithstanding, (a)
each of the Grantors shall remain liable under the contracts and agreements
included in the Collateral, including the Pledged Operating Agreements and the
Pledged Partnership Agreements, to perform all of the duties and obligations
thereunder to the same extent as if this Agreement had not been executed, (b)
the exercise by Secured Party or any Investor of any of the rights hereunder
shall not release any Grantor from any of its duties or obligations under such

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contracts and agreements included in the Collateral, and (c) Secured Party and
the Investors shall not have any obligation or liability under such contracts
and agreements included in the Collateral by reason of this Agreement, nor shall
Secured Party or the Investors be obligated to perform any of the obligations or
duties of any Grantors thereunder or to take any action to collect or enforce
any claim for payment assigned hereunder.  Until an Event of Default shall occur
and be continuing, except as otherwise provided in this Agreement, the Notes,
the Purchase Agreement, or other Transaction Documents, Grantors shall have the
right to possession and enjoyment of the Collateral for the purpose of
conducting the ordinary course of their respective businesses, subject to and
upon the terms hereof and of the Notes, the Purchase Agreement and the other
Transaction Documents.  Without limiting the generality of the foregoing, it is
the intention of the parties hereto that record and beneficial ownership of the
Pledged Interests, including all voting, consensual, and dividend rights, shall
remain in the applicable Grantor until Secured Party, after the occurrence and
during the continuance of an Event of Default, shall exercise its voting,
consensual, or dividend rights with respect to the Pledged Interests pursuant to
Section 15 hereof.  

5.

Representations and Warranties.  Each Grantor hereby represents and warrants as
follows:

(a)

The exact legal name, jurisdiction of incorporation, organization or formation,
organizational identification number, if any, and chief executive officer of
each of the Grantors is set forth on Schedule 1 attached hereto.  No Grantor has
trade names except as set forth on Schedule 1 attached hereto.  No Grantor has
used any name other than that as set forth on Schedule 1 for the preceding five
years.  No entity has merged into any Grantor or been acquired by any Grantor
within the past five years except as set forth on Schedule 1.

(b)

Schedule 7 attached hereto sets forth all Real Property owned or leased by
Grantors as of the Closing Date.  

(c)

As of the Closing Date, no Grantor has any interest in, or title to, any Patents
except as set forth on Schedule 4, or material Copyrights, Intellectual Property
Licenses, or Trademarks except as set forth on Schedules 2, 3, and 6,
respectively, attached hereto.  This Agreement is effective to create a valid
and continuing Lien on such Copyrights, Intellectual Property Licenses, Patents
and Trademarks and, upon filing of the Copyright Security Agreement with the
United States Copyright Office and filing of the Patent Security Agreement and
the Trademark Security Agreement with the United States Patent and Trademark
Office, and the filing of appropriate financing statements in the jurisdictions
listed on Schedule 8 hereto, all action necessary or desirable to protect and
perfect the Security Interest in the United States in and to each Grantor’s
Patents, Trademarks, Copyrights or Intellectual Property Licenses has been taken
and such perfected Security Interest is enforceable as such as against any and
all creditors of and purchasers from any Grantor.  No Grantor has any interest
in any material Copyright that is necessary in connection with the operation of
such Grantor’s business, except for those Copyrights identified on Schedule 2
attached hereto which have been registered with the United States Copyright
Office.

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(d)

Each Grantor has the requisite corporate, partnership, limited liability company
or other power and authority to enter into this Agreement and the other
Transaction Documents to which it is a party and otherwise to carry out its
obligations hereunder. The execution, delivery and performance by each Grantor
of this Agreement and the filings contemplated herein and the other Transaction
Documents to which it is a party have been duly authorized by all necessary
action on the part of such Grantor and no further action is required by such
Grantor.  This Agreement and the other Transaction Documents to which it is a
party has been duly executed by each Grantor.  This Agreement and the other
Transaction Documents to which it is a party constitutes the legal, valid and
binding obligation of each Grantor, enforceable against such Grantor in
accordance with its terms except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization and similar laws of general
application relating to or affecting the rights and remedies of creditors and by
general principles of equity.

(e)

No written claim has been received by any Grantor that any Collateral or any
Grantor’s use of any Collateral violates the rights of any third party. There
has been no adverse decision to any Grantor’s claim of ownership rights in or
exclusive rights to use the Collateral in any jurisdiction or to such Grantor’s
right to keep and maintain such Collateral in full force and effect, and there
is no proceeding involving said rights pending or, to the best knowledge of such
Grantor, threatened before any court, judicial body, administrative or
regulatory agency, arbitrator or other governmental authority.

(f)

Each Grantor shall at all times maintain its books of account and records
relating to the Collateral at its principal place of business (except when
temporarily kept at the offices of its attorneys or accountants) and its
Collateral at the locations set forth on Schedule 7 attached hereto and may not
relocate such books of account and records or tangible Collateral unless it
delivers to Secured Party at least thirty (30) days prior to such relocation (i)
written notice of such relocation and the new location thereof (which must be
within the United States) and (ii) evidence that appropriate financing
statements under the Code and other necessary documents have been filed and
recorded and other steps have been taken to perfect the Security Interests to
create in favor of Secured Party, subject to Permitted Encumbrances, a valid,
perfected and continuing perfected first priority lien in the Collateral.

(g)

The execution, delivery and performance of this Agreement and the other
Transaction Documents to which it is a party by each Grantor do not (i) violate
any of the provisions of the Organizational Documents of any Grantor or any
judgment, decree, order or award of any court, governmental body or arbitrator
or any applicable law, rule or regulation applicable to any Grantor or (ii)
conflict with, or constitute a default (or an event that with notice or lapse of
time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation (with or without notice,
lapse of time or both) of, any agreement, credit facility, debt or other
instrument (evidencing such Grantor’s debt or otherwise) or other understanding
to which any Grantor is a party or by which any property or asset of any Grantor
is bound or affected, except, in all cases, for such conflicts, defaults,
terminations, amendments, acceleration, cancellations and violations as would
not, individually or in the aggregate, have a Material Adverse Effect. If any,
all required consents (including, without limitation, from stockholders or
creditors of the Grantor) necessary for the Grantor to enter into and perform
its obligations hereunder have been obtained.

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(h)

This Agreement creates a valid security interest in the Collateral of each of
Grantors, to the extent a security interest therein can be created under the
Code, securing the payment of the Secured Obligations.  Except to the extent a
security interest in the Collateral cannot be perfected by the filing of a
financing statement under the Code,  all filings and other actions necessary or
desirable to perfect and protect such security interest have been duly taken or
will have been taken upon the filing of financing statements listing each
applicable Grantor, as a debtor, and Secured Party, as secured party, in the
jurisdictions listed next to such Grantor’s name on Schedule 8 attached hereto.
 Upon the making of such filings, Secured Party shall have, subject to Permitted
Encumbrances, a first priority perfected security interest in the Collateral of
each Grantor to the extent such security interest can be perfected by the filing
of a financing statement.  All action by any Grantor necessary to protect and
perfect such security interest on each item of Collateral has been duly taken.

(i)

(i) Except for the Security Interest created hereby, each Grantor is and will at
all times be the sole holder of record and the legal and beneficial owner, free
and clear of all Liens other than Permitted Encumbrances, of the Pledged
Interests indicated on Schedule 5 as being owned by such Grantor and, when
acquired by such Grantor, any Pledged Interests acquired after the Closing Date;
(ii) all of the Pledged Interests are duly authorized, validly issued, fully
paid and nonassessable and the Pledged Interests constitute or will constitute
the percentage of the issued and outstanding Stock of the Pledged Companies of
such Grantor identified on Schedule 5 hereto as supplemented or modified by any
Pledged Interests Addendum or any Supplement to this Agreement; (iii) such
Grantor has the right and requisite authority to pledge the Investment Related
Property pledged by such Grantor to Secured Party as provided herein; (iv) all
actions necessary or desirable to perfect, establish, subject to Permitted
Encumbrances, the first priority of, or otherwise protect, Secured Party’s Liens
in the Investment Related Collateral, and the proceeds thereof, have been duly
taken, (A) upon the execution and delivery of this Agreement, (B) upon the
taking of possession by Secured Party or its representative of any certificates
constituting the Pledged Interests, to the extent such Pledged Interests are
represented by certificates, together with undated powers endorsed in blank by
the applicable Grantor; (C) upon the filing of financing statements in the
applicable jurisdiction set forth on Schedule 8 attached hereto for such Grantor
with respect to the Pledged Interests of such Grantor that are not represented
by certificates, and (D) with respect to any Securities Accounts or Deposit
Accounts, upon the delivery of Control Agreements with respect thereto; and (v)
each Grantor has delivered to and deposited with Secured Party (or, with respect
to any Pledged Interests created or obtained after the Closing Date, will
deliver and deposit in accordance with Sections 6(a) and 8 hereof) all
certificates representing the Pledged Interests owned by such Grantor to the
extent such Pledged Interests are represented by certificates, and undated
powers endorsed in blank with respect to such certificates. None of the Pledged
Interests owned or held by such Grantor has been issued or transferred in
violation of any securities registration, securities disclosure, or similar laws
of any jurisdiction to which such issuance or transfer may be subject.

(j)

No consent, approval, authorization, or other order or other action by, and no
notice to or filing with, any Governmental Authority or any other Person is
required (i) for the grant of a Security Interest by such Grantor in and to the
Collateral pursuant to this Agreement or for the execution, delivery, or
performance of this Agreement and the other Transaction

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Documents to which it is a party by such Grantor, or (ii) for the exercise by
Secured Party of the voting or other rights provided for in this Agreement or
any other Transaction Document with respect to the Investment Related Property
or the remedies in respect of the Collateral pursuant to this Agreement or any
other Transaction Document, except as may be required in connection with such
disposition of Investment Related Property by laws affecting the offering and
sale of securities generally.

(k)

Schedule 9 attached hereto sets forth all motor vehicles owned by Grantors as of
the Closing Date, by model, model year and vehicle identification number
(“VIN”).

6.

Covenants.  Each Grantor, jointly and severally, covenants and agrees with
Secured Party that from and after the date of this Agreement and until the date
of termination of this Agreement in accordance with Section 22 hereof:

(a)

Possession of Collateral.  In the event that any Collateral, including Proceeds,
is evidenced by or consists of Negotiable Collateral, Investment Related
Property, or Chattel Paper, and if and to the extent that perfection or priority
of Secured Party’s Security Interest is dependent on or enhanced by possession,
the applicable Grantor, promptly (and in any event within one (1) Business Day)
upon the request of Secured Party, shall execute such other documents and
instruments as shall be reasonably requested by Secured Party or, if applicable,
endorse and deliver physical possession of such Negotiable Collateral,
Investment Related Property, or Chattel Paper to Secured Party or its
representative, together with such undated powers endorsed in blank as shall be
reasonably requested by Secured Party;

(b)

Chattel Paper.  

(i)

Each Grantor shall take all steps reasonably necessary to grant Secured Party
control of all electronic Chattel Paper in accordance with the Code and all
“transferable records” as that term is defined in Section 16 of the Uniform
Electronic Transaction Act and Section 201 of the federal Electronic Signatures
in Global and National Commerce Act as in effect in any relevant jurisdiction;

(ii)

If any Grantor retains possession of any Chattel Paper or instruments (which
retention of possession shall be subject to the extent permitted hereby and by
the Purchase Agreement), promptly upon the request of Secured Party, such
Chattel Paper and instruments shall be marked with the following legend: “This
writing and the obligations evidenced or secured hereby are subject to the
Security Interest of BAM Administrative Services, LLC”;

(c)

Control Agreements.  

(i)

Except to the extent otherwise permitted by the Purchase Agreement, each Grantor
shall obtain an authenticated Control Agreement, from each bank maintaining a
Deposit Account for such Grantor;

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(ii)

Except to the extent otherwise permitted by the Purchase Agreement, each Grantor
shall obtain authenticated Control Agreements, from each issuer of
uncertificated securities, securities intermediary, or commodities intermediary
issuing or holding any financial assets or commodities to or for any Grantor;

(d)

Letter-of-Credit Rights.  Each Grantor that is or becomes the beneficiary of a
letter of credit shall promptly (and in any event within two (2) Business Days
after becoming a beneficiary), notify Secured Party thereof and, thereafter,
upon the request by Secured Party, except with respect to documentary letters of
credit received by a Grantor from customers in the ordinary course of business
if no Event of Default has occurred and is continuing, enter into a tri-party
agreement with Secured Party and the issuer or confirmation bank with respect to
letter-of-credit rights assigning such letter-of-credit rights to Secured Party
and directing all payments thereunder to a deposit account designated by Secured
Party, all in form and substance reasonably satisfactory to Secured Party;

(e)

Commercial Tort Claims.  Each Grantor shall promptly (and in any event within
two (2) Business Days of receipt thereof), notify Secured Party in writing upon
incurring or otherwise obtaining a Commercial Tort Claim after the date hereof
and, upon request of Secured Party, promptly amend Schedule 10 to this Agreement
to describe such after-acquired Commercial Tort Claim in a manner that
reasonably identifies such Commercial Tort Claim, and hereby authorizes the
filing of additional financing statements or amendments to existing financing
statements describing such Commercial Tort Claims, and agrees to do such other
acts or things deemed necessary or desirable by Secured Party to give Secured
Party, subject to Permitted Encumbrances, a first priority perfected security
interest in any such Commercial Tort Claim;

(f)

Government Contracts.  If any Account or Chattel Paper arises out of a contract
or contracts with the United States of America or any department, agency, or
instrumentality thereof, Grantors shall promptly (and in any event within two
(2) Business Days of the creation thereof) notify Secured Party thereof in
writing and execute any instruments or take any steps reasonably required by
Secured Party in order that all moneys due or to become due under such contract
or contracts shall be assigned to Secured Party, and shall provide written
notice thereof under the Assignment of Claims Act or other applicable law;

(g)

Intellectual Property.  

(i)

Upon request of Secured Party, in order to facilitate filings with the United
States Patent and Trademark Office and the United States Copyright Office, each
Grantor shall execute and deliver to Secured Party one or more Copyright
Security Agreements, Trademark Security Agreements, or Patent Security
Agreements to further evidence Secured Party’s Liens on such Grantor’s Patents,
Trademarks, or Copyrights, and the General Intangibles of such Grantor relating
thereto or represented thereby;

(ii)

Each Grantor shall have the duty, to the extent necessary or economically
desirable in the operation of such Grantor’s business, (A) to promptly sue for,
or take such other action with respect to, infringement, misappropriation, or
dilution and to recover any and all awarded damages for such infringement,
misappropriation, or dilution, (B) to

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prosecute diligently any trademark application or service mark application that
is part of such Grantor’s Trademarks pending as of the date hereof or hereafter
until the termination of this Agreement, (C) to prosecute diligently any patent
application that is part of such Grantor’s Patents pending as of the date hereof
or hereafter until the termination of this Agreement, and (D) to take all
reasonable and necessary action to preserve and maintain all of such Grantor’s
Trademarks, Patents, Copyrights, Intellectual Property Licenses, and its rights
therein, including the filing of applications for renewal, affidavits of use,
affidavits of noncontestability and opposition and interference and cancellation
proceedings.  Each Grantor shall promptly file an application with the United
States Copyright Office for any Copyright that has not been registered with the
United States Copyright Office if such Copyright is necessary or economically
desirable in the operation of such Grantor’s business. Any expenses incurred in
connection with the foregoing shall be borne by the appropriate Grantor.  Each
Grantor further agrees not to abandon any Trademark, Patent, Copyright, or
Intellectual Property License that is necessary or economically desirable in the
operation of such Grantor’s business;  

(iii)

Grantors acknowledge and agree that Secured Party and the Investors shall have
no duties with respect to the Trademarks, Patents, Copyrights, or Intellectual
Property Licenses.  Without limiting the generality of this Section 6(g),
Grantors acknowledge and agree that Secured Party and the Investors shall not be
under any obligation to take any steps necessary to preserve rights in the
Trademarks, Patents, Copyrights, or Intellectual Property Licenses against any
other Person, but Secured Party may do so at its option from and after the
occurrence and during the continuance of an Event of Default, and all expenses
incurred in connection therewith (including reasonable fees and expenses of
attorneys and other professionals) shall be for the sole account of the Company
and Guarantors and shall be chargeable to the Company and Guarantors;

(iv)

In no event shall any Grantor, either itself or through any agent, employee,
licensee, or designee, file an application for the registration of any Patent,
Trademark, or Copyright with the United States Patent and Trademark Office, the
United States Copyright Office or any similar office or agency without giving
Secured Party prompt (and in any event within ten (10) Business Days) written
notice thereof.  Promptly upon any such filing, each Grantor shall comply with
Section 6(g)(i) hereof;

(h)

Investment Related Property.  

(i)

If any Grantor shall receive or become entitled to receive any Pledged Interests
after the Closing Date, it shall promptly (and in any event within five (5)
Business Days of receipt thereof) deliver to Secured Party a duly executed
Pledged Interests Addendum identifying such Pledged Interests;

(ii)

Upon the occurrence and during the continuance of an Event of Default, all sums
of money and property paid or distributed in respect of the Investment Related
Property which are received by any Grantor shall be held by the Grantors in
trust for the benefit of Secured Party segregated from such Grantor’s other
property, and such Grantor shall deliver it forthwith to Secured Party in the
exact form received;

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(iii)

Each Grantor shall promptly deliver to Secured Party a copy of each notice or
other communication received by it in respect of any Pledged Interests;

(iv)

No Grantor shall make or consent to any amendment or other modification or
waiver with respect to any Pledged Interests, Pledged Operating Agreement, or
Pledged Partnership Agreement, or enter into any agreement or permit to exist
any restriction with respect to any Pledged Interests other than pursuant to the
Transaction Documents;

(v)

Each Grantor agrees that it will cooperate with Secured Party in obtaining all
necessary approvals and making all necessary filings under federal, state,
local, or foreign law in connection with the Security Interest on the Investment
Related Property or any sale or transfer thereof;

(vi)

As to all limited liability company or partnership interests, issued under any
Pledged Operating Agreement or Pledged Partnership Agreement, each Grantor
hereby represents, warrants and covenants that the Pledged Interests issued
pursuant to such agreement (A) are not and shall not be dealt in or traded on
securities exchanges or in securities markets, (B) do not and will not
constitute investment company securities, and (C) are not and will not be held
by such Grantor in a securities account.  In addition, none of the Pledged
Operating Agreements, the Pledged Partnership Agreements, or any other
agreements governing any of the Pledged Interests issued under any Pledged
Operating Agreement or Pledged Partnership Agreement, provide or shall provide
that such Pledged Interests are securities governed by Article 8 of the Uniform
Commercial Code as in effect in any relevant jurisdiction;

(i)

Real Property; Fixtures.  Each Grantor covenants and agrees that upon the
acquisition of any fee interest in Real Property it will promptly (and in any
event within two (2) Business Days of acquisition) notify Secured Party of the
acquisition of such Real Property and will grant to Secured Party a first
priority Mortgage on each fee interest in Real Property now or hereafter owned
by such Grantor and shall deliver such other documentation and opinions, in form
and substance satisfactory to Secured Party, in connection with the grant of
such Mortgage as Secured Party shall request in its reasonable credit judgment,
including title insurance policies, financing statements, fixture filings and
environmental audits and such Grantor shall pay all recording costs, intangible
taxes and other fees and costs (including reasonable attorneys fees and
expenses) incurred in connection therewith.  Each Grantor acknowledges and
agrees that, to the extent permitted by applicable law, all of the Collateral
shall remain personal property regardless of the manner of its attachment or
affixation to real property.

(j)

Transfers and Other Liens.  Except as otherwise expressly permitted hereby or by
the Purchase Agreement, Grantors shall not (i) sell, assign (by operation of law
or otherwise) or otherwise dispose of, or grant any option with respect to, any
of the Collateral, or (ii) create or permit to exist any Lien upon or with
respect to any of the Collateral of any of Grantors, except for Permitted
Encumbrances.  The inclusion of Proceeds in the Collateral shall not be deemed
to constitute Secured Party’s or any Investor’s consent to any sale or other
disposition of any of the Collateral except as expressly permitted in this
Agreement, the Purchase Agreement or the other Transaction Documents;

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(k)

Other Actions as to Any and All Collateral.  Each Grantor shall promptly (and in
any event, within 5 Business Days of acquiring or obtaining such Collateral)
notify Secured Party in writing upon (i) acquiring or otherwise obtaining any
Collateral after the date hereof consisting of Trademarks, Patents, Copyrights,
Intellectual Property Licenses, Investment Related Property, Chattel Paper
(electronic, tangible or otherwise), documents (as defined in Article 9 of  the
Code), promissory notes (as defined in the Code, or instruments (as defined in
the Code) or (ii) any amount payable under or in connection with any of the
Collateral being or becoming evidenced after the date hereof by any Chattel
Paper, documents, promissory notes, or instruments and, in each such case upon
the request of Secured Party, promptly execute such other documents, or if
applicable, deliver such Chattel Paper, other documents or certificates
evidencing any Investment Related Property and do such other acts or things
deemed reasonably necessary or desirable by Secured Party to protect Secured
Party’s Liens therein;

(l)

Motor Vehicles.  Upon request of Secured Party, with respect to all motor
vehicles owned by any Grantor, Grantor shall deliver to Secured Party, a
certificate of title for all such motor vehicles and shall cause those title
certificates to be filed (with the Secured Party’s Liens noted thereon) in the
appropriate state motor vehicle filing office; and

(m)

Insurance.  The Grantors shall maintain with financially sound and reputable
insurers, insurance with respect to the Collateral, including Collateral
hereafter acquired, against loss or damage of the kinds and in the amounts
customarily insured against by entities of established reputation having similar
properties similarly situated and in such amounts as are customarily carried
under similar circumstances by other such entities and otherwise as is prudent
for entities engaged in similar businesses but in any event sufficient to cover
the full replacement cost thereof.  The Grantors shall cause each insurance
policy issued in connection herewith to provide, and the insurer issuing such
policy to certify to Secured Party that (a) Secured Party will be named as
lender loss payee (mortgagee, as applicable) and additional insured under each
such insurance policy; (b) if such insurance be proposed to be cancelled or
materially changed for any reason whatsoever, such insurer will promptly notify
Secured Party and such cancellation or change shall not be effective as to
Secured Party for at least thirty (30) days after receipt by Secured Party of
such notice, unless the effect of such change is to extend or increase coverage
under the policy; and (c) Secured Party will have the right (but no obligation)
at its election to remedy any default in the payment of premiums within thirty
(30) days of notice from the insurer of such default.  If no Event of Default
exists and if the proceeds arising out of any claim or series of related claims
do not exceed $25,000, loss payments in each instance will be available to the
Grantors and applied by the Grantors to the repair and/or replacement of
property with respect to which the loss was incurred.  If no Event of Default
exists and such proceeds exceed $25,000, and in any event after an Event of
Default occurs, all proceeds then or thereafter in existence shall be paid to
Secured Party (for application to the Obligations) and, if received by any
Grantor, shall be held in trust for Secured Party and promptly paid over to
Secured Party (for application to the Obligations) unless otherwise directed in
writing by Secured Party.  Copies of such policies or the related certificates,
in each case, naming Secured Party as lender loss payee and additional insured
shall be delivered to Secured Party at least annually and at the time any new
policy of insurance is issued

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(n)

Inspection.  The Grantors shall permit Secured Party, each Investor and their
respective representatives and agents reasonable access to inspect the
Collateral during normal business hours, upon reasonable prior notice and
without undue interference with the Grantors’ business operations, and to make
copies of records pertaining to the Collateral as may be reasonably requested by
Secured Party or any Investor from time to time.

7.

Relation to Other Security Documents.  The provisions of this Agreement shall be
read and construed with the other Transaction Documents referred to below in the
manner so indicated.

(a)

Purchase Agreement. In the event of any conflict between any provision in this
Agreement and a provision in the Purchase Agreement, such provision of the
Purchase Agreement shall control.

(b)

Notes. In the event of any conflict between any provision in this Agreement and
a provision in the Notes, such provision of the Notes shall control.

(c)

Patent, Trademark, Copyright Security Agreements.  The provisions of the
Copyright Security Agreements, Trademark Security Agreements, and Patent
Security Agreements are supplemental to the provisions of this Agreement, and
nothing contained in the Copyright Security Agreements, Trademark Security
Agreements, or the Patent Security Agreements shall limit any of the rights or
remedies of Secured Party hereunder.  

8.

Further Assurances.  

(a)

Each Grantor agrees that from time to time, at its own expense, such Grantor
will promptly execute and deliver all further instruments and documents, and
take all further action, that may be necessary or that Secured Party may
reasonably request, in order to perfect and protect the Security Interest
granted or purported to be granted hereby or to enable Secured Party to exercise
and enforce its rights and remedies hereunder with respect to any of the
Collateral.  

(b)

Subject to Section 8(c), each Grantor authorizes the filing by Secured Party of
financing or continuation statements, or amendments thereto, and such Grantor
will execute and deliver to Secured Party such other instruments or notices, as
may be necessary or as Secured Party may reasonably request, in order to perfect
and preserve the Security Interest granted or purported to be granted hereby.  

(c)

Each Grantor authorizes Secured Party at any time and from time to time to file,
transmit, or communicate, as applicable, financing statements and amendments (i)
describing the Collateral as “all personal property of debtor” or “all assets of
debtor” or words of similar effect, (ii) describing the Collateral as being of
equal or lesser scope or with greater detail, or (iii) that contain any
information required by part 5 of Article 9 of the Code for the sufficiency or
filing office acceptance.  Each Grantor also hereby ratifies any and all
financing statements or amendments previously filed by Secured Party in any
jurisdiction.

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(d)

Each Grantor acknowledges that it is not authorized to file any financing
statement or amendment or termination statement with respect to any financing
statement filed in connection with this Agreement without the prior written
consent of Secured Party, subject to such Grantor’s rights under Section
9-509(d)(2) of the Code.

9.

Secured Party’s Right to Perform Contracts, Exercise Rights, etc.  Upon the
occurrence and during the continuance of an Event of Default, Secured Party (or
its designee) (a) may proceed to perform any and all of the obligations of any
Grantor contained in any contract, lease, or other agreement and exercise any
and all rights of any Grantor therein contained as fully as such Grantor itself
could, (b) shall have the right to use any of Grantor’s rights under
Intellectual Property Licenses in connection with the enforcement of the Secured
Party’s rights hereunder, including the right to prepare for sale and sell any
and all Inventory and Equipment now or hereafter owned by any Grantor and now or
hereafter covered by such licenses, but only to the extent permitted by such
licenses or the licensors thereunder or applicable law, and (c) shall have the
right to request that any Stock that is pledged hereunder be registered in the
name of Secured Party or any of its nominees.  

10.

Secured Party Appointed Attorney-in-Fact.  Each Grantor hereby irrevocably
appoints Secured Party its attorney-in-fact, with full authority in the place
and stead of such Grantor and in the name of such Grantor or otherwise, at such
time as an Event of Default has occurred and is continuing under the Notes, to
take any action and to execute any instrument which Secured Party may reasonably
deem necessary or advisable to accomplish the purposes of this Agreement,
including:

(a)

to ask, demand, collect, sue for, recover, compromise, receive and give
acquittance and receipts for moneys due and to become due under or in connection
with the Accounts or any Supporting Obligations in connection therewith or any
other Collateral of such Grantor;

(b)

to receive and open all mail addressed to such Grantor and to notify postal
authorities to change the address for the delivery of mail to such Grantor to
that of Secured Party;

(c)

to receive, indorse, and collect any drafts or other instruments, documents,
Negotiable Collateral or Chattel Paper;

(d)

to file any claims or take any action or institute any proceedings which Secured
Party may deem necessary or desirable for the collection of any of the
Collateral of such Grantor or otherwise to enforce the rights of Secured Party
with respect to any of the Collateral;

(e)

to repair, alter, or supply goods, if any, necessary to fulfill in whole or in
part the purchase order of any Person obligated to such Grantor in respect of
any Account of such Grantor;

(f)

to use any labels, Patents, Trademarks, trade names, URLs, domain names,
industrial designs, Copyrights, advertising matter or other industrial or
intellectual

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property rights, in advertising for sale and selling Inventory and other
Collateral and to collect any amounts due under Accounts, contracts or
Negotiable Collateral of such Grantor; and

(g)

Secured Party shall have the right, but shall not be obligated, to bring suit in
its own name to enforce the Trademarks, Patents, Copyrights and Intellectual
Property Licenses and, if Secured Party shall commence any such suit, the
appropriate Grantor shall, at the request of Secured Party, do any and all
lawful acts and execute any and all proper documents reasonably required by
Secured Party in aid of such enforcement.  

To the extent permitted by law, each Grantor hereby ratifies all that such
attorney-in-fact shall lawfully do or cause to be done by virtue hereof.  This
power of attorney is coupled with an interest and shall be irrevocable until
this Agreement is terminated.  

11.

Secured Party May Perform.  If any of Grantors fails to perform any agreement
contained herein, Secured Party may itself perform, or cause performance of,
such agreement, and the reasonable expenses of Secured Party incurred in
connection therewith shall be payable, jointly and severally, by Grantors.

12.

Secured Party’s Duties.  The powers conferred on Secured Party hereunder are
solely to protect Secured Party’s interest in the Collateral, and shall not
impose any duty upon Secured Party to exercise any such powers.  Except for the
safe custody of any Collateral in its actual possession and the accounting for
moneys actually received by it hereunder, Secured Party shall have no duty as to
any Collateral or as to the taking of any necessary steps to preserve rights
against prior parties or any other rights pertaining to any Collateral.  Secured
Party shall be deemed to have exercised reasonable care in the custody and
preservation of any Collateral in its actual possession if such Collateral is
accorded treatment substantially equal to that which Secured Party accords its
own property.  

13.

Collection of Accounts, General Intangibles and Negotiable Collateral.  At any
time upon the occurrence and during the continuance of an Event of Default,
Secured Party or Secured Party’s designee may (a) notify Account Debtors of any
Grantor that the Accounts, General Intangibles, Chattel Paper or Negotiable
Collateral have been assigned to Secured Party or that Secured Party has a
security interest therein, and (b) collect the Accounts, General Intangibles and
Negotiable Collateral directly, and any collection costs and expenses shall
constitute part of such Grantor’s Secured Obligations under the Transaction
Documents.

14.

Disposition of Pledged Interests by Secured Party.  None of the Pledged
Interests existing as of the date of this Agreement are, and none of the Pledged
Interests hereafter acquired on the date of acquisition thereof will be,
registered or qualified under the various federal or state securities laws of
the United States and disposition thereof after an Event of Default may be
restricted to one or more private (instead of public) sales in view of the lack
of such registration.  Each Grantor understands that in connection with such
disposition, Secured Party may approach only a restricted number of potential
purchasers and further understands that a sale under such circumstances may
yield a lower price for the Pledged Interests than if the Pledged Interests were
registered and qualified pursuant to federal and state securities laws and sold
on the open market.  Each Grantor, therefore, agrees that:  (a) if Secured Party
shall, pursuant to the terms of this Agreement, sell or cause the Pledged
Interests or any portion thereof to be sold at a private sale,

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Secured Party shall have the right to rely upon the advice and opinion of any
nationally recognized brokerage or investment firm (but shall not be obligated
to seek such advice and the failure to do so shall not be considered in
determining the commercial reasonableness of such action) as to the best manner
in which to offer the Pledged Interest or any portion thereof for sale and as to
the best price reasonably obtainable at the private sale thereof; and (b) such
reliance shall be conclusive evidence that Secured Party has handled the
disposition in a commercially reasonable manner.

15.

Voting Rights.

(a)

Upon the occurrence and during the continuation of an Event of Default, (i)
Secured Party may, at its option, and with no prior notice to any Grantor, and
in addition to all rights and remedies available to Secured Party under any
other agreement, at law, in equity, or otherwise, exercise all voting rights,
and all other ownership or consensual rights in respect of the Pledged Interests
owned by such Grantor, but under no circumstances is Secured Party obligated by
the terms of this Agreement to exercise such rights, and (ii) if Secured Party
duly exercises its right to vote any of such Pledged Interests, each Grantor
hereby appoints Secured Party, such Grantor’s true and lawful attorney-in-fact
and IRREVOCABLE PROXY to vote such Pledged Interests in any manner Secured Party
deems advisable for or against all matters submitted or which may be submitted
to a vote of shareholders, partners or members, as the case may be.  The
power-of-attorney granted hereby is coupled with an interest and shall be
irrevocable.

(b)

For so long as any Grantor shall have the right to vote the Pledged Interests
owned by it, such Grantor covenants and agrees that it will not, without the
prior written consent of Secured Party, vote or take any consensual action with
respect to such Pledged Interests which would materially adversely affect the
rights of Secured Party or the value of the Pledged Interests.

(c)

If any of the Collateral subject to this Agreement consists of nonvoting equity
or ownership interests (regardless of class, designation, preference or rights)
that may be converted into voting equity or ownership interests upon the
occurrence of certain events (including, without limitation, upon the transfer
of all or any of the other stock or assets of the issuer), it is agreed that the
pledge of such equity or ownership interests pursuant to this Agreement or the
enforcement of any of Secured Party’s rights hereunder shall not be deemed to be
the type of event which would trigger such conversion rights notwithstanding any
provisions in the Organizational Documents or agreements to which any Grantor is
subject or to which any Grantor is party.

16.

Remedies.  Upon the occurrence and during the continuance of an Event of
Default:

(a)

Secured Party may exercise in respect of the Collateral, in addition to other
rights and remedies provided for herein, in the other Transaction Documents, or
otherwise available to it, all the rights and remedies of a secured party on
default under the Code or any other applicable law.  Without limiting the
generality of the foregoing, each Grantor expressly agrees that, in any such
event, Secured Party without demand of performance or other demand,

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advertisement or notice of any kind (except a notice specified below of time and
place of public or private sale) to or upon any of Grantors or any other Person
(all and each of which demands, advertisements and notices are hereby expressly
waived to the maximum extent permitted by the Code or any other applicable law),
may take immediate possession of all or any portion of the Collateral and (i)
require Grantors to, and each Grantor hereby agrees that it will at its own
expense and upon request of Secured Party forthwith, assemble all or part of the
Collateral as directed by Secured Party and make it available to Secured Party
at one or more locations where such Grantor regularly maintains Inventory, and
(ii) without notice except as specified below, sell or otherwise dispose of the
Collateral or any part thereof in one or more parcels at public or private sale
or other disposition, at any of Secured Party’s offices or elsewhere, for cash,
on credit, and upon such other terms as Secured Party may deem commercially
reasonable. Without limiting the generality of the foregoing, Secured Party may
disclaim any and all representations and warranties in connection with any such
sale or other disposition.  Each Grantor agrees that, to the extent notice of
sale shall be required by law, at least ten (10) days notice to any of Grantors
of the time and place of any public sale or the time after which any private
sale is to be made shall constitute reasonable notification and specifically
such notice shall constitute a reasonable “authenticated notification of
disposition” within the meaning of Section 9-611 of the Code.  Secured Party
shall not be obligated to make any sale of Collateral regardless of notice of
sale having been given.  Secured Party may adjourn any public or private sale
from time to time by announcement at the time and place fixed therefor, and such
sale may, without further notice, be made at the time and place to which it was
so adjourned.

(b)

Secured Party is hereby granted a license or other right to use, without
liability for royalties or any other charge, each Grantor’s labels, Patents,
Copyrights, rights of use of any name, trade secrets, trade names, Trademarks,
service marks and advertising matter, URLs, domain names, industrial designs,
other industrial or intellectual property or any property of a similar nature,
whether owned by any of Grantors or with respect to which any of Grantors have
rights under license, sublicense, or other agreements, as it pertains to the
Collateral, in preparing for sale, advertising for sale and selling any
Collateral, and each Grantor’s rights under all licenses and all franchise
agreements shall inure to the benefit of Secured Party.

(c)

Any cash held by Secured Party as Collateral and all cash proceeds received by
Secured Party in respect of any sale of, collection from, or other realization
upon all or any part of the Collateral shall be applied against the Secured
Obligations in the order set forth in the Purchase Agreement.   In the event the
proceeds of Collateral are insufficient to satisfy all of the Secured
Obligations in full, each Grantor shall remain jointly and severally liable for
any such deficiency.

(d)

Each Grantor hereby acknowledges that the Secured Obligations arose out of a
commercial transaction, and agrees that if an Event of Default shall occur and
be continuing Secured Party shall have the right to an immediate writ of
possession without notice of a hearing.  Secured Party shall have the right to
the appointment of a receiver for the properties and assets of each of Grantors,
and each Grantor hereby consents to such rights and such appointment and hereby
waives any objection such Grantors may have thereto or the right to have a bond
or other security posted by Secured Party.

21

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

17.

Remedies Cumulative.  Each right, power, and remedy of Secured Party as provided
for in this Agreement or in the other Transaction Documents or now or hereafter
existing at law or in equity or by statute or otherwise shall be cumulative and
concurrent and shall be in addition to every other right, power, or remedy
provided for in this Agreement or in the other Transaction Documents or now or
hereafter existing at law or in equity or by statute or otherwise, and the
exercise or beginning of the exercise by Secured Party, of any one or more of
such rights, powers, or remedies shall not preclude the simultaneous or later
exercise by Secured Party of any or all such other rights, powers, or remedies.

18.

Marshaling. Secured Party  shall not be required to marshal any present or
future collateral security (including but not limited to the Collateral) for, or
other assurances of payment of, the Secured Obligations or any of them or to
resort to such collateral security or other assurances of payment in any
particular order, and all of its rights and remedies hereunder and in respect of
such collateral security and other assurances of payment shall be cumulative and
in addition to all other rights and remedies, however existing or arising.  To
the extent that it lawfully may, each Grantor hereby agrees that it will not
invoke any law relating to the marshaling of collateral which might cause delay
in or impede the enforcement of Secured Party’s rights and remedies under this
Agreement or under any other instrument creating or evidencing any of the
Secured Obligations or under which any of the Secured Obligations is outstanding
or by which any of the Secured Obligations is secured or payment thereof is
otherwise assured, and, to the extent that it lawfully may, each Grantor hereby
irrevocably waives the benefits of all such laws.

19.

Indemnity and Expenses.  

(a)

Each Grantor agrees to indemnify Secured Party, the Investors and their
respective directors, officers, members, partners, affiliates, agents,
successors, and assigns from and against all claims, lawsuits and liabilities
(including reasonable attorneys fees) growing out of or resulting from this
Agreement (including enforcement of this Agreement) or any other Transaction
Document to which such Grantor is a party, except claims, losses or liabilities
resulting from the gross negligence or willful misconduct of the party seeking
indemnification as determined by a final non-appealable order of a court of
competent jurisdiction.  This provision shall survive the termination of this
Agreement and the repayment of the Secured Obligations.

(b)

Grantors, jointly and severally, shall, upon demand, pay to Secured Party all
the fees, costs, charges and expenses which Secured Party may incur in
connection with (i) the administration of this Agreement, (ii) the custody,
preservation, use or operation of, or, upon an Event of Default, the sale of,
collection from, or other realization upon, any of the Collateral in accordance
with this Agreement and the other Transaction Documents, (iii) the exercise or
enforcement of any of the rights of Secured Party hereunder or (iv) the failure
by any of Grantors to perform or observe any of the provisions hereof.

20.

Merger, Amendments; Etc.  THIS AGREEMENT, TOGETHER WITH THE OTHER TRANSACTION
DOCUMENTS, REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
OF THE

22

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

PARTIES.  THERE ARE NO UNWRITTEN AGREEMENTS BETWEEN THE PARTIES.  No waiver of
any provision of this Agreement, and no consent to any departure by any of
Grantors herefrom, shall in any event be effective unless the same shall be in
writing and signed by Secured Party, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.  No amendment of any provision of this Agreement shall be effective
unless the same shall be in writing and signed by Secured Party and each of
Grantors to which such amendment applies.

21.

Addresses for Notices.  All notices and other communications provided for
hereunder shall be given in the form and manner and delivered to Secured Party
at its address specified in the Purchase Agreement, and to any of the Grantors
at their respective addresses specified in the Purchase Agreement or Guaranty,
as applicable, or, as to any party, at such other address as shall be designated
by such party in a written notice to the other party.

22.

Continuing Security Interest: Assignments under Purchase Agreement.  This
Agreement shall create a continuing security interest in the Collateral and
shall (a) remain in full force and effect until the Obligations have been
indefeasibly paid in full in cash in accordance with the provisions of the Notes
and the Purchase Agreement, (b) be binding upon each of Grantors, and their
respective successors and assigns, and (c) inure to the benefit of, and be
enforceable by, Secured Party, the Investors, and their respective successors,
transferees and assigns.  Without limiting the generality of the foregoing
clause (c), the Investors may, in accordance with the provisions of the Notes
and the Purchase Agreement, assign or otherwise transfer all or any portion of
their respective rights and obligations under the Notes and the Purchase
Agreement to any other Person, and such other Person shall thereupon become
vested with all the benefits in respect thereof granted to the Investors herein
or otherwise.  Upon indefeasible payment in full in cash of the Obligations in
accordance with the provisions of the Notes and the Purchase Agreement, the
Security Interest granted hereby shall terminate and all rights to the
Collateral shall revert to Grantors or any other Person entitled thereto.  At
such time, Secured Party shall authorize the filing of appropriate termination
statements to terminate such Security Interests.  No transfer or renewal,
extension, assignment, or termination of this Agreement or of the Notes, the
Purchase Agreement, any other Transaction Document, or any other instrument or
document executed and delivered by any Grantor to Secured Party nor any
additional loans made by any Investor to the Company, nor the taking of further
security, nor the retaking or re-delivery of the Collateral to Grantors, or any
of them, by Secured Party, shall release any of Grantors from any obligation,
except a release or discharge executed in writing by Secured Party in accordance
with the provisions of the Notes and the Purchase Agreement.  Secured Party
shall not by any act, delay, omission or otherwise, be deemed to have waived any
of its rights or remedies hereunder, unless such waiver is in writing and signed
by Secured Party and then only to the extent therein set forth.  A waiver by
Secured Party or any Investor of any right or remedy on any occasion shall not
be construed as a bar to the exercise of any such right or remedy which Secured
Party or an Investor would otherwise have had on any other occasion.

23.

Governing Law.

(a)

THE VALIDITY OF THIS AGREEMENT AND THE OTHER TRANSACTION DOCUMENTS (UNLESS
EXPRESSLY PROVIDED TO THE

23

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

CONTRARY IN ANOTHER TRANSACTION DOCUMENT IN RESPECT OF SUCH OTHER TRANSACTION
DOCUMENT), THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF,
AND THE RIGHTS OF THE PARTIES HERETO AND THERETO WITH RESPECT TO ALL MATTERS
ARISING HEREUNDER OR THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED
UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK.

(b)

THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH
THIS AGREEMENT AND THE OTHER TRANSACTION DOCUMENTS SHALL BE TRIED AND LITIGATED
ONLY IN THE STATE AND, TO THE EXTENT PERMITTED BY APPLICABLE LAW, FEDERAL COURTS
LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK; PROVIDED, HOWEVER, THAT
ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE
BROUGHT, AT SECURED PARTY’S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE
SECURED PARTY ELECTS TO BRING SUCH ACTION OR WHERE SUCH COLLATERAL OR OTHER
PROPERTY MAY BE FOUND.  SECURED PARTY AND EACH GRANTOR WAIVE, TO THE EXTENT
PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE
OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS
BROUGHT IN ACCORDANCE WITH THIS SECTION 23(b).

(c)

TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, SECURED PARTY AND EACH
GRANTOR HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR
CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY OF THE
TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS.  SECURED
PARTY AND EACH GRANTOR REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL.  IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE
FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

24.

New Subsidiaries.  Without impairing the limitations and restrictions of Section
3.20 of the Purchase Agreement, any new direct or indirect Subsidiary (whether
by acquisition or creation) of Grantor is required to enter into this Agreement
by executing and delivering in favor of Secured Party a supplement to this
Agreement in the form of Annex 1 attached hereto.  Upon the execution and
delivery of Annex 1 by such new Subsidiary, such Subsidiary shall become a
Grantor hereunder with the same force and effect as if originally named as a
Grantor herein.  The execution and delivery of any instrument adding an
additional Grantor as a party to this Agreement shall not require the consent of
any Grantor hereunder.  The rights and obligations of each Grantor hereunder
shall remain in full force and effect notwithstanding the addition of any new
Grantor hereunder.

24

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

25.

Secured Party.  Each reference herein to any right granted to, benefit conferred
upon or power exercisable by the “Secured Party” shall be a reference to Secured
Party, its successors and assigns..

26.

Miscellaneous.

(a)

This Agreement may be executed in any number of counterparts and by different
parties on separate counterparts, each of which, when executed and delivered,
shall be deemed to be an original, and all of which, when taken together, shall
constitute but one and the same Agreement.  Delivery of an executed counterpart
of this Agreement by telefacsimile or other electronic method of transmission
shall be equally as effective as delivery of an original executed counterpart of
this Agreement.  Any party delivering an executed counterpart of this Agreement
by telefacsimile or other electronic method of transmission also shall deliver
an original executed counterpart of this Agreement but the failure to deliver an
original executed counterpart shall not affect the validity, enforceability, and
binding effect of this Agreement.  The foregoing shall apply to each other
Transaction Document mutatis mutandis.

(b)

Any provision of this Agreement which is prohibited or unenforceable shall be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof in that jurisdiction or affecting
the validity or enforceability of such provision in any other jurisdiction.

(c)

Headings used in this Agreement are for convenience only and shall not be used
in connection with the interpretation of any provision hereof.

(d)

The pronouns used herein shall include, when appropriate, either gender and both
singular and plural, and the grammatical construction of sentences shall conform
thereto.

(e)

Unless the context of this Agreement or any other Transaction Document clearly
requires otherwise, references to the plural include the singular, references to
the singular include the plural, the terms “includes” and  “including” are not
limiting, and the term “or” has, except where otherwise indicated, the inclusive
meaning represented by the phrase “and/or.”  The words “hereof,” “herein,”
“hereby,” “hereunder,” and similar terms in this Agreement or any other
Transaction Document refer to this Agreement or such other Transaction Document,
as the case may be, as a whole and not to any particular provision of this
Agreement or such other Transaction Document, as the case may be.  Section,
subsection, clause, schedule, and exhibit references herein are to this
Agreement unless otherwise specified.  Any reference in this Agreement or in any
other Transaction Document to any agreement, instrument, or document shall
include all alterations, amendments, changes, extensions, modifications,
renewals, replacements, substitutions, joinders, and supplements, thereto and
thereof, as applicable (subject to any restrictions on such alterations,
amendments, changes, extensions, modifications, renewals, replacements,
substitutions, joinders, and supplements set forth herein or in the other
Transaction Documents).  Any reference herein or in any other Transaction
Document to the satisfaction or repayment in full of the Obligations shall mean
the repayment in full in cash (or cash collateralization in accordance with the
terms hereof) of all Obligations other than unasserted contingent
indemnification Obligations.  Any reference herein to any Person shall be

25

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construed to include such Person’s successors and assigns.  Any requirement of a
writing contained herein or in any other Transaction Document shall be satisfied
by the transmission of a Record and any Record so transmitted shall constitute a
representation and warranty as to the accuracy and completeness of the
information contained therein.

[SIGNATURE PAGE FOLLOWS]

26

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IN WITNESS WHEREOF, the undersigned parties hereto have executed this Agreement
by and through their duly authorized officers, as of the day and year first
above written.

GRANTORS:

IMPLANT SCIENCES CORPORATION

By: /s/ Glenn D. Bolduc

Name:  Glenn D. Bolduc

Title:  President and Chief Executive Officer

 

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

SECURED PARTY:

BAM ADMINISTRATIVE SERVICES LLC

By: /s/ David Levy

Name:

Title:

SCHEDULE 1

ORGANIZATIONAL INFORMATION

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SCHEDULE 2

COPYRIGHT REGISTRATIONS AND APPLICATIONS

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

 

SCHEDULE 3

INTELLECTUAL PROPERTY LICENSES

 

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

 

SCHEDULE 4

PATENTS AND PATENT APPLICATIONS

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

 

SCHEDULE 5

PLEDGED COMPANIES

Name of Pledgor

Name of Pledged Company

Number of Shares/Units

Class of Interests

Percentage of Class Owned

Certificate Nos.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

SCHEDULE 6

TRADE NAMES, TRADEMARKS, TRADEMARK APPLICATIONS, SERVICE MARKS, AND SERVICE MARK
APPLICATIONS

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

 

SCHEDULE 7

OWNED OR LEASED REAL PROPERTY

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

 

SCHEDULE 8

LIST OF UNIFORM COMMERCIAL CODE FILING JURISDICTIONS

Grantor

Jurisdictions

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

SCHEDULE 9

MOTOR VEHICLES

2

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

 

SCHEDULE 10

COMMERCIAL TORT CLAIMS

[include specific case caption or descriptions per Official Code Comment 5 to
Section 9-108 of the Code]

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

ANNEX 1 TO SECURITY AGREEMENT
FORM OF SUPPLEMENT

Supplement No. ____ (this “Supplement”) dated as of _______________, to the
Security Agreement dated as of March 19, 2014 (as amended, restated,
supplemented or otherwise modified from time to time, the “Security Agreement”)
by each of the parties listed on the signature pages thereto and those
additional entities that thereafter become parties thereto (collectively,
jointly and severally, “Grantors” and each individually “Grantor”) and BAM
Administrative Services LLC in its capacity as Secured Party (together with the
successors, “Secured Party”).

W I T N E S S E T H:

WHEREAS, Implant Sciences Corporation (the “Company”) is party to that certain
Note Purchase Agreement dated as of the date hereof (as may be amended and
restated, supplemented, replaced, or otherwise modified from time to time, the
“Purchase Agreement”) by and between Company, the Investors thereto
(collectively, the “Investors” and each, individually, an “Investor”) and
Secured Party, as agent for the Investors, pursuant to which the Investors
agreed to extend loans to the Company in the principal amount of up to
$20,000,000 (the “Loans”), repayment of which is evidenced by certain Senior
Secured Promissory Notes dated the date hereof issued to each Investor (the
“Notes”);

WHEREAS, all capitalized terms used herein without definition shall have the
meanings ascribed thereto in the Security Agreement or the Notes, or if not
expressly defined in the Notes, then in the Purchase Agreement;

WHEREAS, Grantors have entered into the Security Agreement in order to induce
the Investors to make the Loans the Company; and

WHEREAS, pursuant to the terms and provisions of the Transaction Documents, new
direct or indirect Subsidiaries of the Company, must execute and deliver certain
Transaction Documents, including the Security Agreement, and the execution of
the Security Agreement by the undersigned new Grantor or Grantors (collectively,
the “New Grantors”) may be accomplished by the execution of this Supplement in
favor of Secured Party.

NOW, THEREFORE, for and in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, each New Grantor hereby agrees as follows:

1.

In accordance with Section 24 of the Security Agreement, each New Grantor, by
its signature below, becomes a “Grantor” under the Security Agreement with the
same force and effect as if originally named therein as a “Grantor” and each New
Grantor hereby (a) agrees to all of the terms and provisions of the Security
Agreement applicable to it as a “Grantor” thereunder and (b) represents and
warrants that the representations and warranties made by it as a “Grantor”
thereunder are true and correct on and as of the date hereof.  In furtherance of
the foregoing, each New Grantor, as security for the payment and performance in
full of the Secured Obligations, does hereby grant, assign, and pledge to
Secured Party a security interest in and security title to all assets of such
New Grantor including, all property of the type described in

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

Section 2 of the Security Agreement to secure the full and prompt payment of the
Secured Obligations, including, any interest thereon, plus reasonable attorneys’
fees and expenses if the Secured Obligations represented by the Security
Agreement are collected by law, through an attorney-at-law, or under advice
therefrom.  Schedule 1,  “Organizational Information”, Schedule 2, “Copyright
Registrations and Applications”, Schedule 3, “Intellectual Property Licenses”,
Schedule 4, “Patents and Patent Applications”, Schedule 5, “Pledged Companies”,
 Schedule 6, “Trade Names, Trademarks, Trademark Applications, Service Marks and
Service Mark Applications”,  Schedule 7, “Owned Real Property,”  Schedule 8,
“List of Uniform Commercial Code Filing Jurisdictions”, Schedule 9 “Motor
Vehicles”, and Schedule 10 “Commercial Tort Claims” attached hereto supplement
Schedule 1, Schedule 2, Schedule 3, Schedule 4, Schedule 5, Schedule 6, Schedule
7, Schedule 8, Schedule 9 and Schedule 10 respectively, to the Security
Agreement and shall be deemed a part thereof for all purposes of the Security
Agreement.  Each reference to a “Grantor” in the Security Agreement shall be
deemed to include each New Grantor.  The Security Agreement is incorporated
herein by reference.

2.

Each New Grantor represents and warrants to Secured Party that this Supplement
has been duly executed and delivered by such New Grantor and constitutes its
legal, valid and binding obligation, enforceable against it in accordance with
its terms, except as enforceability thereof may be limited by bankruptcy,
insolvency, reorganization, fraudulent transfer, moratorium or other similar
laws affecting creditors’ rights generally and general principles of equity
(regardless of whether such enforceability is considered in a proceeding at law
or in equity).  

3.

This Supplement may be executed in multiple counterparts, each of which shall be
deemed to be an original, but all such separate counterparts shall together
constitute but one and the same instrument.  Delivery of a counterpart hereof by
facsimile transmission or by e-mail transmission shall be as effective as
delivery of a manually executed counterpart hereof.

4.

Except as expressly supplemented hereby, the Security Agreement shall remain in
full force and effect.

5.

This Supplement shall be construed in accordance with and governed by the laws
of the State of New York, without regard to the conflict of laws principles
thereof.

[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

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

IN WITNESS WHEREOF, each New Grantor and Secured Party have duly executed this
Supplement to the Security Agreement as of the day and year first above written.

NEW GRANTORS:

[Name of New Grantor]

By:

Name:

Title:

[Name of New Grantor]

By:

Name:

Title:

SECURED PARTY:

BAM ADMINISTRATIVE SERVICES LLC

By:

Name:

Title:

[SIGNATURE PAGE TO SUPPLEMENT TO PLEDGE AND SECURITY AGREEMENT]

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EXHIBIT A

COPYRIGHT SECURITY AGREEMENT

This COPYRIGHT SECURITY AGREEMENT (this “Copyright Security Agreement”) is made
this 19th day of March, 2014, among Grantors listed on the signature pages
hereof (collectively, jointly and severally, “Grantors” and each individually
“Grantor”), and BAM Administrative Services (together with its successors, the
“Secured Party”).

W I T N E S S E T H:

WHEREAS, Implant Sciences Corporation (the “Company”) is party to that certain
Note Purchase Agreement dated as of the date hereof (as may be amended and
restated, supplemented, replaced, or otherwise modified from time to time, the
“Purchase Agreement”) by and between Company, the investors thereto
(collectively, the “Investors” and each, individually, an “Investor”) and
Secured Party, as agent for the Investors, pursuant to which the Investors
agreed to extend loans to the Company in the principal amount of up to
$20,000,000 (the “Loans”), repayment of which is evidenced by certain Senior
Secured Promissory Notes dated the date hereof issued to each Investor (the
“Notes”);

WHEREAS, in order to induce the Secured Party and the Investors to enter into
the Purchase Agreement and the other Transaction Documents and to induce the
Investors to extend the Loans pursuant to the Purchase Agreement, Grantor,
together with affiliates of Grantor, has executed and delivered to Secured Party
that certain Security Agreement dated as of the date hereof (including all
annexes, exhibits or schedules thereto, as from time to time amended, restated,
supplemented or otherwise modified, the “Security Agreement”); and

WHEREAS, pursuant to the Security Agreement, Grantors are required to execute
and deliver to Secured Party this Copyright Security Agreement;

NOW, THEREFORE, in consideration of the premises and mutual covenants herein
contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Grantors hereby agree as follows:

1.

DEFINED TERMS.  All capitalized terms used but not otherwise defined herein have
the meanings given to them in the Security Agreement or the Note or the Purchase
Agreement.

2.

GRANT OF SECURITY INTEREST IN COPYRIGHT COLLATERAL.  Each Grantor hereby
unconditionally grants, assigns and pledges to Secured Party a Security Interest
in all of such Grantor’s right, title and interest in and to the following,
whether now owned or hereafter acquired or arising and wherever located
(collectively, the “Copyright Collateral”):

(a)

all of such Grantor’s Copyrights including those referred to on Schedule I
hereto; and

(b)

all Proceeds of the foregoing.

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

3.

SECURITY FOR OBLIGATIONS.  This Copyright Security Agreement and the Security
Interest created hereby secures the payment and performance of the Secured
Obligations, whether now existing or arising hereafter.  Without limiting the
generality of the foregoing, this Copyright Security Agreement secures the
payment of all amounts which constitute part of the Secured Obligations and
would be owed by Grantors, or any of them, to Secured Party whether or not they
are unenforceable or not allowable due to the existence of an Insolvency
Proceeding involving any Grantor.

4.

SECURITY AGREEMENT.  The Security Interest granted pursuant to this Copyright
Security Agreement is granted in conjunction with the Security Interest granted
to Secured Party pursuant to the Security Agreement.  Each Grantor hereby
acknowledges and affirms that the rights and remedies of Secured Party with
respect to the Security Interest in the Copyright Collateral made and granted
hereby are more fully set forth in the Security Agreement, the terms and
provisions of which are incorporated by reference herein as if fully set forth
herein.  To the extent there is any inconsistency between this Copyright
Security Agreement and the Security Agreement, the Security Agreement shall
control.

5.

AUTHORIZATION TO SUPPLEMENT.  Grantors shall give Secured Party prompt (and in
any event within fifteen (15) Business Days) notice in writing of any additional
United States copyright registrations or applications therefor after the date
hereof.  Grantors hereby authorize Secured Party unilaterally to modify this
Agreement by amending Schedule I to include any future United States registered
copyrights or applications therefor of Grantors.  Notwithstanding the foregoing,
no failure to so modify this Copyright Security Agreement or amend Schedule I
shall in any way affect, invalidate or detract from Secured Party’s continuing
Security Interest in all Collateral, whether or not listed on Schedule I.

6.

TERMINATION AND RELEASE.  Upon indefeasible payment in full in cash of the
Obligations in accordance with the provisions of the Note and the Purchase
Agreement, the Security Interest granted hereby shall terminate and all rights
to the Copyright Collateral shall revert to Grantors or any other Person
entitled thereto.  At such time, Secured Party shall execute and deliver, and
authorize the filing of, appropriate termination and release statements or other
documents to terminate and release such Security Interests.  

7.

COUNTERPARTS.  This Copyright Security Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original, but all such
separate counterparts shall together constitute but one and the same instrument.
 In proving this Copyright Security Agreement or any other Transaction Document
in any judicial proceedings, it shall not be necessary to produce or account for
more than one such counterpart signed by the party against whom such enforcement
is sought.  Any signatures delivered by a party by facsimile transmission or by
e-mail transmission shall be deemed an original signature hereto.

8.

CONSTRUCTION.  Unless the context of this Copyright Security Agreement or any
other Transaction Document clearly requires otherwise, references to the plural
include the singular, references to the singular include the plural, the terms
“includes” and  “including” are not limiting, and the term “or” has, except
where otherwise indicated, the inclusive meaning represented by the phrase
“and/or.”  The words “hereof,” “herein,” “hereby,” “hereunder,” and similar
terms in this Copyright Security Agreement or any other Transaction Document
refer to

 

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

this Copyright Security Agreement or such other Transaction Document, as the
case may be, as a whole and not to any particular provision of this Copyright
Security Agreement or such other Transaction Document, as the case may be.
 Section, subsection, clause, schedule, and exhibit references herein are to
this Copyright Security Agreement unless otherwise specified.  Any reference in
this Copyright Security Agreement or in any other Transaction Document to any
agreement, instrument, or document shall include all alterations, amendments,
changes, extensions, modifications, renewals, replacements, substitutions,
joinders, and supplements, thereto and thereof, as applicable (subject to any
restrictions on such alterations, amendments, changes, extensions,
modifications, renewals, replacements, substitutions, joinders, and supplements
set forth herein or in the other Transaction Documents).  Any reference herein
or in any other Transaction Document to the satisfaction or repayment in full of
the Obligations shall mean the repayment in full in cash (or cash
collateralization in accordance with the terms hereof) of all Obligations other
than unasserted contingent indemnification Obligations.  Any reference herein to
any Person shall be construed to include such Person’s successors and assigns.
 Any requirement of a writing contained herein or in any other Transaction
Document shall be satisfied by the transmission of a Record and any Record so
transmitted shall constitute a representation and warranty as to the accuracy
and completeness of the information contained therein.

9.

GOVERNING LAW.  THE VALIDITY OF THIS COPYRIGHT SECURITY AGREEMENT AND THE OTHER
TRANSACTION DOCUMENTS (UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER
TRANSACTION DOCUMENT IN RESPECT OF SUCH OTHER TRANSACTION DOCUMENT), THE
CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS
OF THE PARTIES HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER
OR THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED UNDER, GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

[SIGNATURE PAGE FOLLOWS]

 

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

IN WITNESS WHEREOF, each Grantor has caused this Copyright Security Agreement to
be executed and delivered by its duly authorized officer as of the date first
set forth above.

 

IMPLANT SCIENCES CORPORATION

By: /s/ Glenn D. Bolduc

Name:  Glenn D. Bolduc

Title:  President and Chief Executive Officer

 

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

 

ACCEPTED AND ACKNOWLEDGED BY:

BAM ADMINISTRATIVE SERVICES LLC, as Secured Party

By: /s/ David Levy

Name:

Title:

[SIGNATURE PAGE TO COPYRIGHT SECURITY AGREEMENT]

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

SCHEDULE I
TO
COPYRIGHT SECURITY AGREEMENT

U.S. COPYRIGHT REGISTRATIONS AND APPLICATIONS

Grantor

Title

Registration / Application No.

Registration / Application Date

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

COPYRIGHT SECURITY AGREEMENT

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

EXHIBIT B

PATENT SECURITY AGREEMENT

This PATENT SECURITY AGREEMENT (this “Patent Security Agreement”) is made this
19th day of March, 2014, among the Grantors listed on the signature pages hereof
(collectively, jointly and severally, “Grantors” and each individually
“Grantor”), and BAM Administrative Services LLC (together with its successors,
the “Secured Party”).

W I T N E S S E T H:

WHEREAS, Implant Sciences Corporation (the “Company”) is party to that certain
Note Purchase Agreement dated as of the date hereof (as may be amended and
restated, supplemented, replaced, or otherwise modified from time to time, the
“Purchase Agreement”) by and between Company, the investors thereto
(collectively, the “Investors” and each, individually, an “Investor”) and
Secured Party, as agent for the Investors, pursuant to which the Investors
agreed to extend loans to the Company in the principal amount of up to
$20,000,000 (the “Loans”), repayment of which is evidenced by certain Senior
Secured Promissory Notes dated the date hereof issued to each Investor (the
“Notes”);

WHEREAS, pursuant to the terms and conditions of the Purchase Agreement, the
Secured Party and the Investors have agreed to extend a loans to the Company,
repayment of which is evidenced by the Notes;

WHEREAS, in order to induce the Secured Party and the Investors to enter into
the Notes, the Purchase Agreement and the other Transaction Documents and to
induce the Secured Party and the Investors to extend the Loans to the Company as
provided for in the Purchase Agreement, Grantors have executed and delivered to
Secured Party that certain Security Agreement of even date herewith (including
all annexes, exhibits or schedules thereto, as from time to time amended,
restated, supplemented or otherwise modified, the “Security Agreement”); and

WHEREAS, pursuant to the Security Agreement, Grantors are required to execute
and deliver to Secured Party this Patent Security Agreement;

NOW, THEREFORE, in consideration of the premises and mutual covenants herein
contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, each Grantor hereby agrees as
follows:

1.

DEFINED TERMS.  All capitalized terms used but not otherwise defined herein have
the meanings given to them in the Security Agreement or the Note or the Purchase
Agreement.

2.

GRANT OF SECURITY INTEREST IN PATENT COLLATERAL.  Each Grantor hereby
unconditionally grants, assigns and pledges to Secured Party a Security Interest

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

in all of such Grantor’s right, title and interest in and to the following,
whether now owned or hereafter acquired or arising and wherever located
(collectively, the “Patent Collateral”):

(a)

all of its Patents including those referred to on Schedule I hereto; and

(b)

all Proceeds of the foregoing.

3.

SECURITY FOR OBLIGATIONS.  This Patent Security Agreement and the Security
Interest created hereby secures the payment and performance of the Secured
Obligations, whether now existing or arising hereafter.  Without limiting the
generality of the foregoing, this Patent Security Agreement secures the payment
of all amounts which constitute part of the Secured Obligations and would be
owed by Grantors, or any of them, to Secured Party whether or not they are
unenforceable or not allowable due to the existence of an Insolvency Proceeding
involving any Grantor.

4.

SECURITY AGREEMENT.  The Security Interest granted pursuant to this Patent
Security Agreement is granted in conjunction with the Security Interest granted
to Secured Party pursuant to the Security Agreement.  Each Grantor hereby
acknowledges and affirms that the rights and remedies of Secured Party with
respect to the Security Interest in the Patent Collateral made and granted
hereby are more fully set forth in the Security Agreement, the terms and
provisions of which are incorporated by reference herein as if fully set forth
herein.  To the extent there is any inconsistency between this Patent Security
Agreement and the Security Agreement, the Security Agreement shall control.

5.

AUTHORIZATION TO SUPPLEMENT.  If any Grantor shall obtain rights to any new
patentable inventions or become entitled to the benefit of any patent
application or patent for any reissue, division, or continuation, of any patent,
the provisions of this Patent Security Agreement shall automatically apply
thereto. Grantors shall give prompt (and in any event within fifteen (15)
Business Days) notice in writing to Secured Party with respect to any such new
patent rights.  Without limiting Grantors’ obligations under this Section 5,
Grantors hereby authorize Secured Party unilaterally to modify this Agreement by
amending Schedule I to include any such new patent rights of Grantors.
 Notwithstanding the foregoing, no failure to so modify this Patent Security
Agreement or amend Schedule I shall in any way affect, invalidate or detract
from Secured Party’s continuing Security Interest in all Collateral, whether or
not listed on Schedule I.

6.

TERMINATION AND RELEASE.  Upon indefeasible payment in full in cash of the
Obligations in accordance with the provisions of the Note and the Purchase
Agreement, the Security Interest granted hereby shall terminate and all rights
to the Patent Collateral shall revert to Grantors or any other Person entitled
thereto.  At such time, Secured Party shall execute and deliver, and authorize
the filing of, appropriate termination and release statements or other documents
to terminate and release such Security Interests.  

7.

COUNTERPARTS.  This Patent Security Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
separate counterparts shall together constitute but one and the same instrument.
 In proving this Patent Security Agreement or any other Transaction Document in
any judicial proceedings, it shall not

 

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

be necessary to produce or account for more than one such counterpart signed by
the party against whom such enforcement is sought.  Any signatures delivered by
a party by facsimile transmission or by e-mail transmission shall be deemed an
original signature hereto.

8.

CONSTRUCTION.  Unless the context of this Patent Security Agreement or any other
Transaction Document clearly requires otherwise, references to the plural
include the singular, references to the singular include the plural, the terms
“includes” and  “including” are not limiting, and the term “or” has, except
where otherwise indicated, the inclusive meaning represented by the phrase
“and/or.”  The words “hereof,” “herein,” “hereby,” “hereunder,” and similar
terms in this Patent Security Agreement or any other Transaction Document refer
to this Patent Security Agreement or such other Transaction Document, as the
case may be, as a whole and not to any particular provision of this Patent
Security Agreement or such other Transaction Document, as the case may be.
 Section, subsection, clause, schedule, and exhibit references herein are to
this Patent Security Agreement unless otherwise specified.  Any reference in
this Patent Security Agreement or in any other Transaction Document to any
agreement, instrument, or document shall include all alterations, amendments,
changes, extensions, modifications, renewals, replacements, substitutions,
joinders, and supplements, thereto and thereof, as applicable (subject to any
restrictions on such alterations, amendments, changes, extensions,
modifications, renewals, replacements, substitutions, joinders, and supplements
set forth herein or in the other Transaction Documents).  Any reference herein
or in any other Transaction Document to the satisfaction or repayment in full of
the Obligations shall mean the repayment in full in cash (or cash
collateralization in accordance with the terms hereof) of all Obligations other
than unasserted contingent indemnification Obligations.  Any reference herein to
any Person shall be construed to include such Person’s successors and assigns.
 Any requirement of a writing contained herein or in any other Transaction
Document shall be satisfied by the transmission of a Record and any Record so
transmitted shall constitute a representation and warranty as to the accuracy
and completeness of the information contained therein.

9.

GOVERNING LAW.  THE VALIDITY OF THIS PATENT SECURITY AGREEMENT AND THE OTHER
TRANSACTION DOCUMENTS (UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER
TRANSACTION DOCUMENT IN RESPECT OF SUCH OTHER TRANSACTION DOCUMENT), THE
CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS
OF THE PARTIES HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER
OR THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED UNDER, GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

[SIGNATURE PAGE FOLLOWS]

 

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

IN WITNESS WHEREOF, each Grantor has caused this Patent Security Agreement to be
executed and delivered by its duly authorized officer as of the date first set
forth above.

 

IMPLANT SCIENCES CORPORATION

By: /s/ Glenn D. Bolduc

Name:  Glenn D. Bolduc

Title:  President and Chief Executive Officer

 

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

 

ACCEPTED AND ACKNOWLEDGED BY:

BAM ADMINISTRATIVE SERVICES LLC, as Secured Party

By:/s/ David Levy

Name:

Title:

[SIGNATURE PAGE TO PATENT SECURITY AGREEMENT]

 

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

SCHEDULE I
TO
PATENT SECURITY AGREEMENT

U.S. PATENT REGISTRATIONS AND APPLICATIONS

Grantor

Title

Registration / Application No.

Registration / Application Date

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PATENT SECURITY AGREEMENT

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

EXHIBIT C

Annex 1 to Pledge and Security Agreement

PLEDGED INTERESTS ADDENDUM

This Pledged Interests Addendum, dated as of _________ ___, 20___, is delivered
pursuant to Section 6 of the Security Agreement referred to below.  The
undersigned hereby agrees that this Pledged Interests Addendum may be attached
to that certain Security Agreement, dated as of March 19, 2014 (as amended,
restated, supplemented or otherwise modified from time to time, the “Security
Agreement”), made by the undersigned, together with the other Grantors named
therein, to BAM Administrative Services LLC, as Secured Party.  Initially
capitalized terms used but not defined herein shall have the meaning ascribed to
such terms in the Security Agreement or the Note or the Purchase Agreement.  The
undersigned hereby agrees that the additional interests listed on this Pledged
Interests Addendum as set forth below shall be and become part of the Pledged
Interests pledged by the undersigned to the Secured Party in the Security
Agreement and any pledged company set forth on this Pledged Interests Addendum
as set forth below shall be and become a “Pledged Company” under the Security
Agreement, each with the same force and effect as if originally named therein.

The undersigned hereby certifies that the representations and warranties set
forth in Section 4 of the Security Agreement of the undersigned are true and
correct as to the Pledged Interests listed herein on and as of the date hereof.

[___________________]

By:

Name:

Title

PLEDGED INTERESTS ADDENDUM

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

Name of Pledgor

Name of Pledged Company

Number of Shares/Units

Class of Interests

Percentage of Class Owned

Certificate Nos.

 

 

 

 

 

 

 

 

 

 

 

 

PLEDGED INTERESTS ADDENDUM

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

EXHIBIT D

TRADEMARK SECURITY AGREEMENT

This TRADEMARK SECURITY AGREEMENT (this “Trademark Security Agreement”) is made
this 19th_day of March, 2014, among Grantors listed on the signature pages
hereof (collectively, jointly and severally, “Grantors” and each individually
“Grantor”), and DMRJ GROUP, LLC (together with its successors, the “Secured
Party”).

W I T N E S S E T H:

WHEREAS, Implant Sciences Corporation (the “Company”) is party to that certain
Note Purchase Agreement dated as of the date hereof (as may be amended and
restated, supplemented, replaced, or otherwise modified from time to time, the
“Purchase Agreement”) by and between Company, the investors thereto
(collectively, the “Investors” and each, individually, an “Investor”) and
Secured Party, as agent for the Investors, pursuant to which the Investors
agreed to extend loans to the Company in the principal amount of up to
$20,000,000 (the “Loans”), repayment of which is evidenced by certain Senior
Secured Promissory Notes dated the date hereof issued to each Investor (the
“Notes”);

WHEREAS, pursuant to the terms and conditions of the Purchase Agreement, the
Secured Party and the Investors have agreed to extend a loans to the Company,
repayment of which is evidenced by the Notes; and

WHEREAS, in order to induce the Secured Party and the Investors to enter into
the Notes, the Purchase Agreement and the other Transaction Documents and to
induce the Secured Party and the Investors to extend the Loans to the Company as
provided for in the Purchase Agreement, Grantors have executed and delivered to
Secured Party that certain Security Agreement of even date herewith (including
all annexes, exhibits or schedules thereto, as from time to time amended,
restated, supplemented or otherwise modified, the “Security Agreement”);

WHEREAS, pursuant to the Security Agreement, Grantors are required to execute
and deliver to Secured Party this Trademark Security Agreement;

NOW, THEREFORE, in consideration of the premises and mutual covenants herein
contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, each Grantor hereby agrees as
follows:

1.

DEFINED TERMS.  All capitalized terms used but not otherwise defined herein have
the meanings given to them in the Security Agreement or the Note or the Purchase
Agreement.

2.

GRANT OF SECURITY INTEREST IN TRADEMARK COLLATERAL.  Each Grantor hereby
unconditionally grants, assigns and pledges to Secured Party a Security Interest
in all of such Grantor’s right, title and interest in and to the following,
whether now owned or hereafter acquired or arising and wherever located
(collectively, the “Trademark Collateral”):

(a)

all of its Trademarks including those referred to on Schedule I hereto; and

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

(b)

all Proceeds of the foregoing.

3.

SECURITY FOR OBLIGATIONS.  This Trademark Security Agreement and the Security
Interest created hereby secures the payment and performance of the Secured
Obligations, whether now existing or arising hereafter.  Without limiting the
generality of the foregoing, this Trademark Security Agreement secures the
payment of all amounts which constitute part of the Secured Obligations and
would be owed by Grantors, or any of them, to Secured Party whether or not they
are unenforceable or not allowable due to the existence of an Insolvency
Proceeding involving any Grantor.

4.

SECURITY AGREEMENT.  The Security Interest granted pursuant to this Trademark
Security Agreement is granted in conjunction with the Security Interest granted
to Secured Party pursuant to the Security Agreement.  Each Grantor hereby
acknowledges and affirms that the rights and remedies of Secured Party with
respect to the Security Interest in the Trademark Collateral made and granted
hereby are more fully set forth in the Security Agreement, the terms and
provisions of which are incorporated by reference herein as if fully set forth
herein.  To the extent there is any inconsistency between this Trademark
Security Agreement and the Security Agreement, the Security Agreement shall
control.

5.

AUTHORIZATION TO SUPPLEMENT.  If any Grantor shall obtain rights to any new
trademarks, the provisions of this Trademark Security Agreement shall
automatically apply thereto. Grantors shall give prompt (and in any event within
fifteen (15) Business Days) notice in writing to Secured Party with respect to
any such new trademarks or renewal or extension of any trademark registration.
 Without limiting Grantors’ obligations under this Section 5, Grantors hereby
authorize Secured Party unilaterally to modify this Agreement by amending
Schedule I to include any such new trademark rights of Grantors.
 Notwithstanding the foregoing, no failure to so modify this Trademark Security
Agreement or amend Schedule I shall in any way affect, invalidate or detract
from Secured Party’s continuing Security Interest in all Collateral, whether or
not listed on Schedule I.

6.

TERMINATION AND RELEASE.  Upon payment in full in cash of the Obligations in
accordance with the provisions of the Note and the Purchase Agreement, the
Security Interest granted hereby shall terminate and all rights to the Trademark
Collateral shall revert to Grantors or any other Person entitled thereto.  At
such time, Secured Party shall execute and deliver, and authorize the filing of,
appropriate termination and release statements or other documents to terminate
and release such Security Interests.  

7.

COUNTERPARTS.  This Trademark Security Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original, but all such
separate counterparts shall together constitute but one and the same instrument.
 In proving this Trademark Security Agreement or any other Transaction Document
in any judicial proceedings, it shall not be necessary to produce or account for
more than one such counterpart signed by the party against whom such enforcement
is sought.  Any signatures delivered by a party by facsimile transmission or by
e-mail transmission shall be deemed an original signature hereto.

8.

CONSTRUCTION.  Unless the context of this Trademark Security Agreement or any
other Transaction Document clearly requires otherwise, references to the plural
include the

2

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

singular, references to the singular include the plural, the terms “includes”
and  “including” are not limiting, and the term “or” has, except where otherwise
indicated, the inclusive meaning represented by the phrase “and/or.”  The words
“hereof,” “herein,” “hereby,” “hereunder,” and similar terms in this Trademark
Security Agreement or any other Transaction Document refer to this Trademark
Security Agreement or such other Transaction Document, as the case may be, as a
whole and not to any particular provision of this Trademark Security Agreement
or such other Transaction Document, as the case may be.  Section, subsection,
clause, schedule, and exhibit references herein are to this Agreement unless
otherwise specified.  Any reference in this Trademark Security Agreement or in
any other Transaction Document to any agreement, instrument, or document shall
include all alterations, amendments, changes, extensions, modifications,
renewals, replacements, substitutions, joinders, and supplements, thereto and
thereof, as applicable (subject to any restrictions on such alterations,
amendments, changes, extensions, modifications, renewals, replacements,
substitutions, joinders, and supplements set forth herein or in the other
Transaction Documents).  Any reference herein or in any other Transaction
Document to the satisfaction or repayment in full of the Obligations shall mean
the repayment in full in cash (or cash collateralization in accordance with the
terms hereof) of all Obligations other than unasserted contingent
indemnification Obligations and other than any Hedge Agreement Obligations that,
at such time, are allowed by the applicable Hedge Agreement Provider to remain
outstanding and that are not required by the provisions of the Credit Agreement
to be repaid or cash collateralized.  Any reference herein to any Person shall
be construed to include such Person’s successors and assigns.  Any requirement
of a writing contained herein or in any other Transaction Document shall be
satisfied by the transmission of a Record and any Record so transmitted shall
constitute a representation and warranty as to the accuracy and completeness of
the information contained therein.

9.

GOVERNING LAW.  THE VALIDITY OF THIS TRADEMARK SECURITY AGREEMENT AND THE OTHER
TRANSACTION DOCUMENTS (UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER
TRANSACTION DOCUMENT IN RESPECT OF SUCH OTHER TRANSACTION DOCUMENT), THE
CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS
OF THE PARTIES HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER
OR THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED UNDER, GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

[SIGNATURE PAGE FOLLOWS]

3

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

IN WITNESS WHEREOF, each Grantor has caused this Trademark Security Agreement to
be executed and delivered by its duly authorized officer as of the date first
set forth above.

 

IMPLANT SCIENCES CORPORATION

By: /s/ Glenn D. Bolduc

Name:  Glenn D. Bolduc

Title:  President and Chief Executive Officer

 

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

 

ACCEPTED AND ACKNOWLEDGED BY:

BAM ADMINISTRATIVE SERVICES LLC, as Secured Party

By: /s/ David Levy

Name:

Title:

[SIGNATURE PAGE TO TRADEMARK SECURITY AGREEMENT]

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

SCHEDULE I
to
TRADEMARK SECURITY AGREEMENT

U.S. Trademark Registrations/Applications

Grantor

Mark

Application/ Registration No.

App/Reg Date

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TRADEMARK SECURITY AGREEMENT