FEDERAL
IDENTIFICATION
 NO.
04-2837126
 
 
 
 
 THE
COMMONWEALTH OF MASSACHUSETTS
 William
Francis Galvin
 Secretary
of the Commonwealth
 One
Ashburton Place, Boston, Massachusetts 02108-1512
 
 RESTATED
ARTICLES OF ORGANIZATION
 (General
Laws, Chapter 156b, Section 74)
 
 
 We,
Anthony J.
Armini,                                                                                                                     President,
 
 and
Stephen N.
Bunker,                                                                                                                     Clerk,
 
 of
Implant Sciences Corporation,
 
 located
at 105 Audubon Road, #5, Wakefield, MA 01880,
 
 do hereby
certify that the following Restatement of the Articles of Organization was
duly adopted at a meeting
 
 held on
June 8, 1999 by a vote of
 
 3,951,678
shares of Common Stock of 4,069,320 shares outstanding,
 
 0 shares
of Preferred Stock of 0 shares outstanding, and
 
 _____
shares of __________ of _____ shares outstanding,
 
 being at
least a majority of each type, class or series outstanding and entitled to
vote thereon:
 
 ARTICLE
I
 The name
of the corporation is:
 
 Implant
Sciences Corporation
 
 ARTICLE
II
 
 The
purpose of the corporation is to engage in the following business
activities:
 
 See
Continuation Sheet II.A.
 
  {M0083165.1
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  ARTICLE
III
 
 State the
total number of shares and par value, if any, of each class of stock which
the corporation is authorized to issue:
 
 WITHOUT
      PAR VALUE
              WITH
      PAR VALUETYPE
              NUMBER
      OF SHARES
              TYPE
              NUMBER
      OF SHARES
              PAR
      VALUECommon:
              
              Common
              20,000,000
              $.10Preferred:
              
              Preferred
              5,000,000
              $.10
 
 ARTICLE
IV
 
 If more
than one class of stock is authorized, state a distinguishing designation for
each class. Prior to the issuance of any shares of a class, if shares of another
class are outstanding, the corporation must provide a description of the
preferences, voting powers, qualifications, and special or relative rights or
privileges of that class and of each other class of which shares are outstanding
and of each series then established within any class.
 
 See
Continuation Sheets IV. A – IV.C.
 ARTICLE
V
 
 The
restrictions, if any, imposed by the Articles of Organization upon
the transfer of shares of stock of any class are:
 
 N/A
 
 
 ARTICLE
VI
 
 Other
lawful provisions, if any, for the conduct and regulation of the
business and affairs of the corporation, for its voluntary dissolution, or
for limiting, defining, or regulating the powers of the corporation, or of
its directors or stockholders, or of any class of
stockholders:
 
 See
Continuation Sheets VI.A. – VI.E.
 
 
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  IMPLANT
SCIENCES CORPORATION
 
 AMENDED
AND RESTATED ARTICLES OF ORGANIZATION
 
 Continuation Sheet
II.A.
 
 II.A.           PURPOSES
 
 To engage
on its own behalf and for others in the business of
developing, manufacturing, marketing and selling services and products that
enhance the surface properties and performance of metal, ceramic, and
plastic biomedical, semiconductor, and other devices; and to buy, sell and
distribute goods, wares and merchandise of every kind and
description.
 
 To
acquire, hold, dispose of, buy, sell, underwrite, handle on commission and
otherwise deal in, and to guaranty, any stocks, shares, bonds, notes
and obligations of and interests in corporations, joint-stock companies,
trusts, associations, partnerships, limited liability companies, firms or
persons and all forms of public and municipal securities of this or any
other country, or any right or interest therein, and while owner thereof,
to exercise all rights, powers and privileges of ownership in the same
manner and to the same extent that an individual might.
 
 To
acquire, hold, use, construct, maintain and dispose of buildings, plants,
factories, mills, machinery, works, patent rights and
privileges, inventions, formulae, trademarks and names, secret processes
and all other real and personal property, tangible or intangible, of
whatever kind and wherever situated, or any right or interest therein, for
the purposes of the foregoing businesses, and as a going business or
otherwise, all or any part of the assets of any corporation, joint-stock
company, trust, association, partnership, limited liability company, firm
or person, and in such cases to assume all or any part of its or his
liabilities.
 
 To
engage in, transact and carry on any or all of the above businesses or any
other business or activity necessary or convenient for or incidental to
any or all of the foregoing or which can advantageously be conducted in
connection therewith, and to engage in, transact and carry on any business
or activity which a business corporation organized under the provisions of
Chapter 156B of the General Laws of Massachusetts, as amended from time to
time, or any successor statute, may lawfully engage in, transact or
conduct.
 
 
  {M0083165.1
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  IMPLANT
SCIENCES CORPORATION
 
 AMENDED
AND RESTATED ARTICLES OF ORGANIZATION
 
 Continuation Sheet
IV.A.
 
 
 IV.A.           DESIGNATION
AND CLASSIFICATION OF STOCK
 
 The
aggregate number of shares of capital stock which the Corporation
has authority to issue is 25,000,000 consisting of:
 
 (i)           20,000,000
shares of Common Stock, $.10 par value per share (the "Common Stock");
and
 
 (ii)           5,000,000
shares of Preferred Stock, $.10 par value per share (the "Preferred
Stock").
 
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 IMPLANT
SCIENCES CORPORATION
 
 AMENDED
AND RESTATED ARTICLES OF ORGANIZATION
 
 
 Continuation Sheet
IV.B.
 
 
 IV.B.           DESCRIPTION
OF THE COMMON STOCK
 
 The
description of the Common Stock is as follows:
 
 Each
holder of Common Stock shall at every meeting of stockholders be entitled
to one vote in person or by proxy for each share of Common Stock held by
him. The holders of the Common Stock shall be entitled to such dividends as
may from time to time be declared by the Board of Directors out of any
funds legally available for the declaration of dividends, subject to any
provisions of these Articles of Organization, as amended from time to
time, and subject to the relative rights and preferences of any shares of
Preferred Stock authorized and issued hereunder. Subject to the relative
rights and preferences of any shares of Preferred Stock authorized and
issued hereunder, upon the dissolution or liquidation of the Corporation,
whether voluntary or involuntary, the holders of shares of Common Stock
shall be entitled to receive pro rata all assets of the Corporation
available for distribution to its stockholders.
 
 
 
  {M0083165.1
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  IMPLANT
SCIENCES CORPORATION
 
 AMENDED
AND RESTATED ARTICLES OF ORGANIZATION
 
 Continuation Sheet
IV.C.
 
 IV.C.           DESCRIPTION
OF THE PREFERRED STOCK
 
 The
description of the Preferred Stock is as follows:
 
 1.           Certificate of
Designation. The Board of Directors is authorized, subject to
limitations prescribed by law and the provisions of this Article IV, to
provide for the issuance of shares of Preferred Stock with or without
series, and, by filing a certificate pursuant to the applicable law of The
Commonwealth of Massachusetts (the "Certificate of Designation"), to
establish from time to time the number of shares to be included in each
such series and to fix the designation, preferences, voting powers,
qualifications and special or relative rights or privileges of the shares
of each such series. In the event that at any time the Board of Directors
shall have established and designated one or more series of Preferred Stock
consisting of a number of shares less than the total number of authorized
shares of Preferred Stock, the remaining authorized shares of Preferred
Stock shall be deemed to be shares of an undesignated series of Preferred
Stock until designated by the Board of Directors as being a part of
a
 series
previously established or a new series then being established by the Board
of Directors. Notwithstanding the fixing of the number of
shares constituting a particular series, the Board of Directors may at any
time thereafter authorize the issuance of additional shares of the same
series except as set forth in the Certificate of Designation.
 
 2.           Authority of Board.
The authority of the Board of Directors with respect to each series of
Preferred Stock shall include, but not be limited to, determination of the
following:
 
 (a)           the
number of shares constituting that series, which number may be increased or
decreased (but not below the number of shares of such series then
outstanding) from time to time by the Board of Directors, and
the distinctive designation of that series;
 
 (b)           whether
any dividend shall be paid on shares of that series, and, if so, the
dividend rate on the shares of that series; whether dividends shall be
cumulative and, if so, from which date or dates, and the relative rights of
priority, if any, of payment of dividends on shares of
that series;
 
 (c)           whether
shares of that series shall have voting rights in addition to the voting
rights provided by law and, if so, the terms of such voting
rights;
 
 (d)           whether
shares of that series shall be convertible into shares of Common Stock or
another security and, if so, the terms and conditions of such conversion,
including provisions for adjustment of the conversion rate in such events
as the Board of Directors shall determine;
 
 (e)           whether
shares of that series shall be redeemable and, if so, the terms and
conditions of such redemption, including the date or dates upon or after
which they shall be redeemable and the amount per share payable in case of
redemption, which amount may vary under different conditions and at different
redemption dates; and whether that series shall have a sinking fund for the
redemption or purchase of shares of that series and, if so, the terms and
amount of such sinking fund;
 
 (f)           whether,
in the event of purchase or redemption of the shares of that series, any
shares of that series shall be restored to the status of authorized but
unissued shares or shall have such other status as shall be
 set forth
in the Certificate of Designation;
 
 (g)           the
rights of the shares of that series in the event of the sale, conveyance,
exchange or transfer of all or substantially all of the property and assets
of the Corporation, or the merger or consolidation of the
 Corporation
into or with any other corporation or entity, or the merger of any other
corporation or entity into it, or the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, and the relative
 rights of
priority, if any, of shares of that series to payment in any
such event;
  {M0083165.1
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 IMPLANT
SCIENCES CORPORATION
 
 AMENDED
AND RESTATED ARTICLES OF ORGANIZATION
 
 
 (h)           whether
shares of that series shall carry any preemptive right in or preemptive
right to subscribe to any additional shares of Preferred Stock or any
shares of any other class of stock which may at any time be authorized or
issued, or any bonds, debentures or other securities convertible into
shares of stock of any class of the Corporation, or options or
warrants carrying rights to purchase such shares or securities;
and
 
 (i)           any
other designations, preferences, voting powers, qualifications, and special
or relative rights or privileges of the shares of that series.
 
  {M0083165.1
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  IMPLANT
SCIENCES CORPORATION
 
 AMENDED
AND RESTATED ARTICLES OF ORGANIZATION
 
 
 Continuation Sheet
VI.A.
 
 VI.A.           CERTAIN
TRANSACTIONS APPROVED BY THE BOARD OF DIRECTORS
 
 Except as
otherwise provided in these Articles of Organization, the Corporation may
authorize, by a vote of a majority of the shares of each class of stock
outstanding and entitled to vote thereon, (a) the sale, lease or exchange
of all or substantially all of its property and assets, including
its goodwill, upon such terms and conditions as it deems expedient, and (b)
the merger or consolidation of the Corporation into any other corporation
or entity, provided that such sale, lease, exchange, merger or
consolidation shall have been approved by a majority of the members of the
Board of Directors.
 
 
  {M0083165.1
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  IMPLANT
SCIENCES CORPORATION
 
 AMENDED
AND RESTATED ARTICLES OF ORGANIZATION
 
 Continuation Sheet
VI.B.
 
 VI.B.           LIMITATION
OF LIABILITY OF DIRECTORS
 
 No
director of the Corporation shall be personally liable to the Corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director notwithstanding any provision of law imposing such
liability; provided, however, that this Article shall not eliminate or
limit any liability of a director (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Sections 61 and 62 of the Massachusetts
General Laws, Chapter 156B, as amended or any successor statute (the
"Massachusetts Business Corporation Law"), or (iv) with respect to any
transaction from which the director derived an improper personal
benefit.
 
 No
amendment or repeal of this Article shall adversely affect the rights and
protection afforded to a director of the Corporation under this Article
for acts or omissions occurring prior to such amendment or
repeal.
 
 If the
Massachusetts Business Corporation Law is subsequently amended to further
eliminate or limit the personal liability of directors or to
authorize corporate action to further eliminate or limit such liability,
then the liability of the directors of the Corporation shall, without any
further action of the Board of Directors or the stockholders of the
Corporation, be eliminated or limited to the fullest extent permitted by
the Massachusetts Business Corporation Law.
 
 
 
 
 11
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 IMPLANT
SCIENCES CORPORATION
 
 AMENDED
AND RESTATED ARTICLES OF ORGANIZATION
 
 Continuation Sheet
VI.C.
 
 VI.C.           INDEMNIFICATION
OF DIRECTORS, OFFICERS AND OTHERS
 
 1.           Right to
Indemnification. Each person who was or is made a party or
is threatened to be made a party to or is otherwise involved in any action,
suit or proceeding, whether civil, criminal, administrative, investigative
or otherwise (hereinafter a "Proceeding"), by reason of the fact that he or
she is or was (a) a director of the Corporation, (b) an officer of the
Corporation elected or appointed by the stockholders or the Board of
Directors, or (c) serving, at the request of the Corporation as evidenced
by a vote of the Board of Directors prior to the occurrence of the event to
which the indemnification relates, as a director, officer, employee or
agent of another person, including service with respect to an employee
benefit plan (a person described in (a), (b) or (c) may hereinafter be
referred to as an "Indemnitee"), whether the basis of such Proceeding is
alleged action in an official capacity as such a Director or officer of the
Corporation or as such other director, officer, employee or agent or in any
other capacity while serving as such a Director or officer of
the Corporation or as such other director, officer, employee or agent,
shall be indemnified and held harmless by the Corporation to the fullest
extent authorized by the Massachusetts Business Corporation Law (but in the
case of an amendment to the Massachusetts Business Corporation Law, only to
the extent that such amendment permits the Corporation to provide broader
indemnification rights than permitted prior thereto), against all expense,
liability and loss (including, but not limited to, attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid in
settlement) reasonably incurred or suffered by such Indemnitee in
connection therewith and such indemnification shall continue as to an
Indemnitee who has ceased to be such a director, officer, employee or agent
and shall inure to the benefit of the Indemnitee's heirs, executors and
administrators; provided, however, that, except as provided in Section 3 of
this Article VI.C. with respect to Proceedings to enforce rights to
indemnification, the Corporation shall indemnify any such Indemnitee
in connection with a Proceeding (or part thereof) initiated by such
Indemnitee only if such Proceeding (or part thereof) was authorized or
ratified by the Board of Directors of the Corporation. The right to
indemnification conferred in this Article VI.C. shall be a contract right
and shall include the right to be paid by the Corporation for expenses
incurred in defending any Proceeding in advance of its final disposition
(hereinafter an "Advancement of Expenses"); provided, however, that, if the
Massachusetts Business Corporation Law so requires, an Advancement of
Expenses incurred by an Indemnitee shall be made only upon delivery to the
Corporation of an undertaking (hereinafter an "Undertaking"), by such
Indemnitee, to repay all amounts so advanced if it shall ultimately
be determined by final judicial decision from which there is no further
right to appeal (hereinafter a "Final Adjudication") that such Indemnitee
is not entitled to be indemnified for such expenses under this Article
VI.C. or otherwise. The Corporation may accept any Undertaking without
reference to the financial ability of the Indemnitee to make
repayment.
 
 2.           Indemnification of Employees
and Agents of the Corporation. The Corporation may, to the extent
authorized from time to time by the Board of Directors, grant rights to
indemnification, and to an Advancement of Expenses, to any employee or
agent of the Corporation to the fullest extent of the provisions of this
Article VI.C.
 
 3.           Right of Indemnitee to Bring
Suit. If a claim under this Article VI.C. is not paid in full by the
Corporation within sixty (60) days after a written claim has been received
by the Corporation, except in the case of a claim for an Advancement of
Expenses, in which case the applicable period shall be twenty (20) days,
the Indemnitee may at any time thereafter bring suit against
the Corporation to recover the unpaid amount of the claim. If the
Indemnitee is successful in whole or in part in any such suit, or in a suit
brought by the Corporation to recover an Advancement of Expenses pursuant
to the terms of an Undertaking, the Indemnitee shall also be entitled to be
paid the expense of prosecuting or defending such suit. In any suit brought
by the Indemnitee to enforce a right to indemnification hereunder (but not
in a suit brought by the Indemnitee to enforce a right to an Advancement of
Expenses) it shall be a defense that the Indemnitee has not met the
applicable standard of conduct set forth in the Massachusetts Business
Corporation Law. In addition, in any suit by the Corporation to recover an
Advancement of Expenses pursuant to the terms of an Undertaking, the
Corporation shall be entitled to recover such expenses upon a Final
Adjudication that the Indemnitee has not met the applicable standard
of conduct set forth in the Massachusetts
  {M0083165.1
}
  
 
 IMPLANT
SCIENCES CORPORATION
 
 AMENDED
AND RESTATED ARTICLES OF ORGANIZATION
 
 
 Business
Corporation Law. Neither the failure of the Corporation (including its
Board of Directors, independent legal counsel, or Stockholders) to have
made a determination prior to the commencement of such suit that
indemnification of the Indemnitee is proper in the circumstances because
the Indemnitee has met the applicable standard of conduct set forth in the
Massachusetts Business Corporation Law, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel or
stockholders) that the Indemnitee has not met such applicable standard of
conduct, shall create a presumption that the Indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by
the Indemnitee, be a defense to such suit. In any suit brought by the
Indemnitee to enforce a right to indemnification or to an Advancement of
Expenses hereunder, or by the Corporation to recover an Advancement of
Expenses pursuant to the terms of an Undertaking, the burden of proving
that the Indemnitee is not entitled to be indemnified, or to such
Advancement of Expenses, under this Article VI.C. or otherwise shall be on
the Corporation.
 
 4.           Non-Exclusivity of
Rights. The rights to indemnification and to Advancement of Expenses
conferred in this Article VI.C. shall not be exclusive of any other right
which any person may have or hereafter acquire under these Articles of
Organization, the By-Laws or any statute, agreement, vote of stockholders
or of disinterested Directors or otherwise.
 
 5.           Insurance; Offset.
The Corporation may maintain insurance, at its expense, to protect itself
and any Director, officer, employee or agent of the Corporation or any
director, officer, employee or agent of another Person against any expense,
liability or loss, whether or not the Corporation would have the power to
indemnify such person against such expense, liability or loss under the
Massachusetts Business Corporation Law. The Corporation's obligation to
provide indemnification under this Article VI.C. shall be offset to
the extent of any other source of indemnification or any otherwise
applicable insurance coverage under a policy maintained by the Corporation
or any other person.
 
 6.           Amendments. Without
the consent of a person entitled to the indemnification and other rights
provided in this Article VI.C. (unless otherwise required by the
Massachusetts Business Corporation Law), no amendment modifying or terminating
such rights shall adversely affect such person's rights under this Article
VI.C. with respect to the period prior to such amendment.
 
 7.           Savings Clause. If
this Article VI.C. or any portion hereof shall be found invalid on any
ground by any court of competent jurisdiction, then the Corporation shall
nevertheless indemnify each Indemnitee as to any expenses, liabilities and
losses with respect to any Proceeding to the fullest extent permitted by
any applicable portion of this Article VI.C. that shall not have been found
invalid and to the fullest extent permitted by applicable law.
 
  {M0083165.1
}
  
 IMPLANT
SCIENCES CORPORATION
 
 AMENDED
AND RESTATED ARTICLES OF ORGANIZATION
 
 Continuation Sheet
VI.D.
 
 
 VI.D.           MAKING
AND AMENDING BY-LAWS; PLACES OF MEETINGS OF STOCKHOLDERS; PARTNERSHIP IN ANY
BUSINESS ENTERPRISE
 
 1.           The
Board of Directors shall have power to make, alter, amend and repeal the
By-Laws of the Corporation in whole or in part, except with respect to
any provision thereof which by law, these Articles of Organization or such
By-Laws requires action by the stockholders, who shall also have power to
make, alter, amend and repeal the By-Laws of the Corporation. Any By-Laws
made by the Board of Directors under the powers conferred hereby may be
altered, amended, or repealed by the Board of Directors or the
stockholders.
 
 2.           Meetings
of the stockholders may be held anywhere in the United States.
 
 3.           The
Corporation may be a partner in any business enterprise it would have power
to conduct by itself.
 
 
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 IMPLANT
SCIENCES CORPORATION
 
 AMENDED
AND RESTATED ARTICLES OF ORGANIZATION
 
 Continuation Sheet
VI.E.
 
 
 VI.E.           TRANSACTIONS
WITH AFFILIATED PERSONS
 
 The
Corporation may enter into contracts or transact business with one or more
of its directors, officers or stockholders or with any
corporation, organization or other concern in which one or more of its
directors, officers or stockholders are directors, officers, stockholders
or are otherwise interested and may enter into other contracts or
transactions in which one or more of its directors, officers or
stockholders are in any way interested. In the absence of fraud, no such
contract or transaction shall be invalidated or in any way affected by the
fact that such one or more of the directors, officers or stockholders of
the Corporation have or may have any interest which is or might be adverse
to the interest of the Corporation even though the vote or action
of directors, officers or stockholders having such adverse interest may
have been necessary to obligate the Corporation upon such contract or
transaction.
 
 At any
meeting of the Board of Directors (or of any duly authorized Committee
thereof) at which any such contract or transaction shall be authorized or
ratified, any director having such adverse interest may vote or act
thereat with like force and effect as if he had no such interest, provided
in such case that the nature of such interest (though not necessarily the
extent or details thereof) shall be disclosed or shall have been known to
the directors. A general notice that a director or officer is interested in
any corporation, organization or other concern of any kind referred to
above shall be a sufficient disclosure as to the interest of such director or
officer with respect to all contracts and transactions with such
corporation, organization or other concern. No director shall be
disqualified from holding office as a director or an officer of
the Corporation by reason of any such adverse interest, unless the Board
of Directors shall determine that such adverse interest is detrimental to
the Corporation. In the absence of fraud, no director, officer or
stockholder having such adverse interest shall be liable on account of such
adverse interest to the Corporation or to any stockholder or creditor
thereof or to any other person for any loss  incurred by it under
or by reason of such contract or transaction, nor shall any such director,
officer or stockholder be accountable on such ground for any gains or
profits realized thereon.
 
  {M0083165.1
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  IMPLANT
SCIENCES CORPORATION
 
 AMENDED
AND RESTATED ARTICLES OF ORGANIZATION
 
 Continuation Sheet
VIII.A.
 
 
 VIII.A.                      OFFICERS
AND DIRECTORS
 
 Name                                           Residential
Address                                                      Post
Office Address
 
 President:                      Anthony
J.
Armini                                5
Skytop
Drive                                           Same
 Manchester,
MA
 
 Vice
President:                                Darlene
 Deptula-Hicks                                2
Sarah's
Way                                           Same
 Newton,
NH
 
 Treasurer:                      Darlene
 Deptula-Hicks                                Same
as
above                                           Same
 
 Clerk:                                Stephen
N.
Bunker                                           95
Audubon
Road                                                      Same
 Wakefield,
MA
 
 Directors:
 
 Anthony
J.
Armini                                           Same
as
above                                                      Same
 Stephen
N.
Bunker                                                      Same
as
above                                           Same
 Robert
Hoisington                                           1000
South Woodward
 Unit
No. 150
 Birmingham,
MI                                                      Same
 Shunkichi
Shimizu                                                      3211
Ocean Walk
 Marina del Ray,
CA 90292                                                                Same
 
 
  {M0083165.1
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 IMPLANT
SCIENCES CORPORATION
 
 AMENDED
AND RESTATED ARTICLES OF ORGANIZATION
 
 Continuation Sheet
VIII.B.
 
 VIII.B.                      BRIEF
DESCRIPTION OF AMENDMENTS
 
 Article
      III:
              Article
      III has been amended to increase the number of authorized shares of
      Common Stock from  17,142,857 shares to 20,000,000 shares, $.10
      par value.
 
 Article  IV:                                Article
IV has been amended to add descriptions of the Common Stock and the
Preferred Stock.
 
 
  {M0083165.1
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  ARTICLE
VII
 
 The
effective date of the restated Articles of Organization of the
corporation shall be the date approved and filed by the Secretary of the
Commonwealth. If a later effective date is desired, specify such date which
shall not be more than thirty days after the date of
filing.
 
 
 ARTICLE
VIII
 
 The
information contained in Article VIII is not a permanent part of
the Articles of Organization.
 
 a.
              The
      street address (post office boxes are not acceptable) of the
      principal office of the corporation inMassachusettsis:
 
 107
Audubon Road, #5, Wakefield, MA 01880
 
 b.
              The
      name, residential address and post office address of each director
      and officer of the corporation is as
  follows:
 
 NAME        RESIDENTIAL
ADDRESS        POST OFFICE
ADDRESS
 
 President:
 
 Treasurer:
 See
Continuation Sheet VIII.A.
 Clerk:
 
 Directors:
 
 c.           The
fiscal year (i.e., tax year) of the corporation shall end on the last day
of the month of: June.
 
 d.           The
name and business address of the resident agent, if any, of the corporation
is:
 
 N/A
 
 
 **We
further certify that the foregoing Restated Articles of Organization
affect no amendments to the Articles of Organization of the corporation as
heretofore amended, except amendments to the following articles. Briefly
describe amendments below:
 
 See
Continuation Sheet VIII.B.
 
 
 SIGNED
UNDER THE PENALTIES OF PERJURY, this 8th day of June, 1999.
 
 
 /s/
Anthony J. Armini, President
 
 /s/
Stephen N. Bunker, Clerk
 
  {M0083165.1
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  THE
COMMONWEALTH OF MASSACHUSETTS
 
 RESTATED
ARTICLES OF ORGANIZATION
 General
Laws, Chapter 156B, Section 74)
 
 
 
 
 I hereby
approve the within Restated Articles of Organization and,
 the
filing fee in the amount of $3,157.14 having been paid, said
 articles
are deemed to have been filed with me this 9thday
of June, 1999.
 
 
 
 Effective
Date:____________________________
 
 
 
 
 
 
 
 /s
William Francis Galvin
 
 WILLIAM
FRANCIS GALVIN
 Secretary
of the Commonwealth
 
 
 
 
 
 
 
 
 
 
 
 
 TO BE
FILLED IN BY CORPORATION
 Photocopy
of document to be sent to:
 
 Rashmi
Dyal-Chand
 Foley,
Hoag & Eliot LLP
 One Post
Office Square
 Boston,
MA 02109
 Telephone:
(617) 832-1287
 
 
 
 
  {M0083165.1
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 FEDERAL
IDENTIFICATION
 NO.
04-2837126
 
 THE
COMMONWEALTH OF MASSACHUSETTS
 William
Francis Galvin
 Secretary
of the Commonwealth
 One
Ashburton Place, Boston, MA 02108-1512
 
 CERTIFICATE
OF VOTE OF DIRECTORS
 ESTABLISHING
A CLASS OR SERIES OF STOCK
 (General
Laws, Chapter 156B, Section 26)
 
 
 
 We,
Anthony J.
Armini,                                                                                                                     President,
 
 and
Stephen N.
Bunker,                                                                                                                     Clerk,
 
 of           Implant
Sciences Corporation
 (Exact
name of corporation)
 
 located
at:     107 Audobon Road, Wakefield,
Massachusetts 01880
 (Street Address of corporation inMassachusetts)
 
 do hereby
certify that at a meeting of directors of the Corporation on October 4,
2002, the following vote establishing and designating a class or series
of stock and determining the relative rights and preferences thereof was
duly adopted:
 
 See
Continuation Sheet 2A
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 *Delete
the inapplicable words.
 
 NOTE:     Votes
for which the space provided above is not sufficient should be provided on
one side of separate 8 x 11 sheets of white paper,  numbered 2A, 2B, etc.
with a left margin of at least 1 inch.
 
 
  {M0083165.1
}
  
 CONTINUATION
SHEET 2A
 
 IMPLANT
SCIENCES CORPORATION
 
 
 VOTED:
              That,
      pursuant to the authority expressly granted to and vested in the
      Board  of Directors of the Corporation by the provisions of
      Article IV
      of  the  Amended  and  Restated  Articles  of  Organization  of  the
      Corporation  (the  "Articles  of  Organization")
      and Section 26 of the
      Massachusetts  Business  Corporation  Law  of  the  Commonwealth  of
      Massachusetts,
      the  Board  of  Directors  hereby  creates,  from  the
      5,000,000  shares  of  Preferred  Stock,
      par value $.10 per share (the "Preferred  Stock"),  of  the  Corporation  authorized  to  be  issued
      pursuant to the Amended and Restated Articles of Organization a series
      of  Preferred  Stock,  consisting  of  250,000  shares  of
      Series A 7%
      Cumulative  Convertible  Preferred  Stock  (the  "Series  A  Preferred
      Stock"), and  hereby  fixes the powers,
      designations, preferences and qualifications,  limitations or
      restrictions thereof, of the shares of such series as set forth in Exhibit A
      hereto (the "Certificate of Vote
      of  Directors").
  {M0083165.1
}
  EXHIBIT
A
 
 TERMS OF
SERIES A 7%
 CUMULATIVE
CONVERTIBLE PREFERRED STOCK
 OF
 IMPLANT
SCIENCES CORPORATION
 
 1.           Designation: Number of
Shares.  The designation of said series of Preferred Stock
shall be Series A 7% Cumulative Convertible Preferred Stock (the "Series A Preferred
Stock").  The number of shares of Series A Preferred Stock
shall be 250,000.  Each share of Series A Preferred Stock shall have
a stated value equal to $10 (as adjusted for any stock dividends,
combinations or splits with respect to such shares) (the "STATED VALUE"),
and $.10 par value.
 
 2.           Ranking.  The
Series A Preferred Stock shall rank (i) prior to the Corporation's common
stock, par value $.10 per share ("Common Stock"); (ii) except as provided
in clause (iii) below, prior to any class or series of capital stock of the
Corporation hereafter created (unless, with the consent of the holder of
Series A Preferred Stock (the "Holder") (which may be withheld in such
Holder's sole and absolute discretion), such class or series of
capital stock specifically, by its terms, ranks senior to or Pari Passu
with the Series A Preferred Stock); (iii) Pari Passu with any class or
series of capital stock of the Corporation hereafter created specifically
ranking, by its terms, on parity with the Series A Preferred Stock ("Pari
Passu Securities"); and (iv) junior to any class or series of capital stock
of the Corporation hereafter created (with the consent of the Holder (which
may be withheld in Holder's sole and absolute discretion) obtained in
accordance with Section 8 hereof) specifically ranking, by its terms, senior to
the Series A Preferred Stock ("Senior Securities"), in each case as to
distribution of assets upon liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary.
 
 3.           Dividends.
 
 (a)           The
Holder shall be entitled to receive preferential dividends in cash out of
any funds of the Corporation legally available at the time for declaration
of dividends before any dividend or other distribution will be paid or
declared and set apart for payment on any shares of any Common Stock,
or other class of stock presently authorized or to be authorized (the
Common Stock, and such other stock being hereinafter collectively the
"Junior Stock") at the rate of 7% simple interest per annum on the Stated
Value per share payable monthly commencing one month from the date hereof
and on the first business day of each consecutive calendar month thereafter
when as and if declared, at the Corporation's option; provided, however,
that dividend payments may, in the sole discretion of the Corporation, be
made in fully paid and non-assessable shares of Common Stock which are
subject to an effective registration statement at the Fixed Conversion
Price (as defined herein) then in effect, and the issuance of such
additional shares shall constitute full payment of such dividend.
 
 (b)           The
dividends on the Series A Preferred Stock at the rates provided above shall
be cumulative whether or not earned so that, if at any time full cumulative
dividends at the rate aforesaid on all shares of the Series A Preferred
Stock then outstanding from the date from and after which dividends thereon
are cumulative to the end of the quarterly dividend period next preceding
such time shall not have been paid or declared and set apart for payment,
or if the full dividend on all such outstanding Series A Preferred Stock
for the then current dividend period shall not have been paid or
declared and set apart for payment, the amount of the deficiency shall be
paid or declared and set apart for payment (but without interest thereon)
before any sum shall be set apart for or applied by the Corporation or a
subsidiary of the Corporation to the purchase, redemption or other
acquisition of the Series A Preferred Stock or Pari Passu Securities and
before any dividend or other distribution shall be paid or declared and set
apart for payment on any Junior Stock and before any sum shall be set aside
for or applied to the purchase, redemption or other acquisition of Junior
Stock.
 
 (c)           Dividends
on all shares of the Series A Preferred Stock shall begin to accrue and be
cumulative from and after the date of issuance thereof. A dividend period
shall be deemed to commence on the business day following a quarterly
dividend payment date herein specified and to end on the next succeeding
business quarterly dividend payment date herein specified.
 
 
  {M0083165.1
}
  4.           Amortization.
 
 (a)           Monthly
Payments.  Subject to the terms of this Section 4,
the Corporation shall repay one-fifteenth of the original Stated Value of
the Series A Preferred Stock (to the extent such amount has not been
converted pursuant to Section 6 below), together with the dividend accrued
to date on such portion of the original Stated Value plus any and all
default payments owing under the Purchase Agreement dated October 7, 2002
between the Corporation and Laurus Master Fund, Ltd. (the "Purchase
Agreement") but not previously paid (collectively the "Monthly Amount"), in
accordance with Section 4(b) below, on the first business day of each
consecutive calendar month (each, a "Repayment Date"), beginning on the
first such business day which occurs following ninety (90) days from the
date hereof.  Notwithstanding the foregoing, the Holder will have
the option to delay the start of the amortization for up to 120 days
from the date hereof and the Monthly Amount will then become one-fourteenth
of the original Stated Value of the Series A Preferred Stock.
 
 (b)           Cash or Common
Stock.  Subject to the terms hereof, the Corporation has
the sole option to determine whether to satisfy payment of the Monthly
Amount in full on each Repayment Date either in cash or in shares of Common
Stock, or a combination of both.  The Corporation shall deliver to
the Holder a written irrevocable notice in the form of Exhibit B attached
hereto electing to pay such Monthly Amount in full on such Repayment Date
in either cash or Common Stock, or a combination of both ("Repayment
Election Notice"). Such Repayment Election Notice shall be delivered to the
Holder at least twenty (20) days prior to the applicable Repayment Date
(the date of such notice being hereinafter referred to as the "Notice
Date"). If such Repayment Election Notice is not delivered within the
prescribed period set forth in the preceding sentence, then the repayment
shall be made in either cash or shares of Common Stock on the same terms
hereunder at the Holder's sole option.  If the Corporation elects
or is required to repay all or a portion of the Monthly Amount in cash on a
Repayment Date, then on such Repayment Date the Corporation shall pay to
the Holder an amount equal to 105% of the Monthly Amount in satisfaction of
such obligation.  If the Corporation repays all or a portion
of the Monthly Amount in shares of Common Stock, the number of such shares
to be issued for such Repayment Date shall be the number determined by
dividing (x) the portion of the Monthly Amount to be paid in shares of
Common Stock, by (y) the Fixed Conversion Price (as defined herein) as of
such date.
 
 (c)           No Effective
Registration.  Notwithstanding anything to the contrary
herein, the Corporation shall be prohibited from exercising its
right to repay the Monthly Amount in shares of Common Stock (and must
deliver cash in respect thereof) on the applicable Repayment Date if at any
time from the Notice Date until the time at which the Holder receives such
shares there fails to exist an effective registration statement or an Event
of Default hereunder exists or occurs, unless otherwise waived in writing
by the Holder in whole or in part at the Holder's option.
 
 (d)     Share Price/Issuance
Limitations.  Notwithstanding anything to the contrary
herein, if the closing price of the Common Stock as reported by Bloomberg,
L.P. on the Principal Market for any of the 11 trading days preceding a
Repayment Date was less than $5.70, and the Corporation has elected to pay
all or a portion of the Monthly Amount in shares of Common Stock, then,
instead of the Corporation delivering the required number of shares
of Common Stock on the Repayment Date, the Holder will be permitted to
convert an amount equal to what the Company elected to pay in shares of
Common Stock at a conversion price equal to the greater of (i) 83% of the
average of the three (3) lowest closing prices during the thirty (30)
trading days immediately preceding the Conversion Date or (ii) $2.02. Any
part of the Monthly Amount not converted into shares of Common Stock by the
following Repayment Date shall be paid by the Corporation in cash on such
following Repayment Date. At any time during the relevant month, the
Corporation has the option to pay the Monthly Amount, or the unconverted
part thereof, in cash and the conversion price set forth in this Section
4(d) shall no longer be applicable.
 
 By way of
example, for the Repayment Date of January 1, if the Corporation delivers a
Repayment Election Notice on December 5 to pay the Monthly Amount in shares
of Common Stock and if on December 15, the stock price was $5.40,
the Holder will be permitted to convert the portion of the Monthly Amount
that the Corporation has determined is payable in shares of Common Stock at
the following conversion price:  83% of the average of three (3)
lowest closing prices during the thirty (30) trading days immediately
preceding the Conversion Date (or $2.02 as applicable).  Any
portion of the Monthly Amount originally due January 1 that the Holder has
not converted into shares of Common Stock by February 1 shall be due in
cash on February 1.
  {M0083165.1
}
  
 
 (e)           Deemed
Conversions.  Any repayment of the Monthly Amount
in shares of Common Stock pursuant to the terms hereof shall constitute and
be deemed a conversion of such portion of the applicable Stated Value of
the Series A Preferred Stock for all purposes under this Certificate and
the Purchase Agreement (except as otherwise provided herein).
 
 5.           Liquidation
Rights.
 
 (a)     Upon
the dissolution, liquidation or winding-up of the Corporation, whether
voluntary or involuntary, the Holder shall be entitled to receive before
any payment or distribution shall be made on the Junior Stock, out of the
assets of the Corporation available for distribution to stockholders, the
greater of (i) the Stated Value per share of Series A Preferred Stock
and all accrued and unpaid dividends to and including the date of payment
thereof or (ii) the number of shares that would be issuable upon conversion
of the Stated Value and accrued dividends multiplied by the highest closing
price for the five trading days immediately preceding such liquidation
payment date.  Upon the payment in full of all amounts due to
Holder the holders of the Common Stock of the Corporation and any other
class of Junior Stock shall receive all remaining assets of the Corporation
legally available for distribution.  If the assets of the
Corporation available for distribution to the Holder shall be
insufficient to permit payment in full of the amounts payable as aforesaid
to the Holder upon such liquidation, dissolution or winding-up, whether
voluntary or involuntary, then all such assets of the Corporation shall be
distributed to the exclusion of the holders of shares of Junior Stock
ratably among the Holder.
 
 (b)           Neither
the purchase nor the redemption by the Corporation of shares of any class
of stock nor the merger or consolidation of the Corporation with or into
any other corporation or corporations nor the sale or transfer by the
Corporation of all or any part of its assets shall be deemed to be
a liquidation, dissolution or winding-up of the Corporation for the
purposes of this paragraph 5.
 
 6.   Conversion into Common
Stock.  Shares of Series A Preferred Stock shall have the
following conversion rights and obligations:
 
 (a)           Subject
to the further provisions of this paragraph 6 each Holder shall have the
right at any time commencing after the issuance to the Holder of Series A
Preferred Stock, to convert such shares into fully paid and non-assessable
shares of Common Stock of the Corporation (as defined in paragraph 6(i)
below) determined in accordance with the Fixed Conversion Price provided in
paragraph 6(b) below.  All issued or accrued but unpaid
dividends may be converted at the election of the Holder simultaneously
with the conversion of the Stated Value of Series A Preferred Stock being
converted.  In the event of any conversions of outstanding Stated
Value under the Series A Preferred Stock in part pursuant to this Section
6, such conversions shall be deemed to constitute conversions of
outstanding Stated Value applying to Monthly Amounts for the Repayment
Dates in chronological order.  By way of example, if the original
Stated Value of this Series A Preferred Stock is $2,500,000 and the Holder
converted $333,000 of such original Stated Value prior to the
first Repayment Date, then (1) the Stated Value amount of the Monthly
Amount due on the first Repayment Date would equal $0, (2) the Stated Value
amount of the Monthly Amount due on the second Repayment Date would equal
$0 and (3) the Stated Value amount of the Monthly Amount due on each of the
remaining Repayment Dates would be $166,000.
 
 (b)           The
number of shares of Common Stock issuable upon conversion of each share of
Series A Preferred Stock shall equal (i) the sum of (A) the Stated Value
per share and (B) at the Holder's election accrued and unpaid dividends on
such share, divided by (ii) $5.19 (the "Fixed Conversion Price").
 
 In
the event that (i) an Event of Default has occurred and (ii) as of the end
of the Default Notice Period (as defined in Section 9 below),
the Corporation shall have failed (i) to cure the Event of Default; (ii) to
redeem the Holder's Series A Preferred Stock for cash in accordance with
Section 9 below or (iii) to receive a waiver, in writing, from the Holder
then the conversion price shall be equal to the lower of (A) the Fixed
Conversion Price or (B) seventy percent (70%) of the average of the three
lowest closing prices for the Common Stock on NASD OTC Bulletin Board,
NASDAQ SmallCap Market, NASDAQ National Market System, American Stock
Exchange, or New York Stock Exchange (whichever of the foregoing is at the
time the principal trading exchange or market for the Common Stock, the
"Principal Market"), or on any securities exchange or other securities
market on
  {M0083165.1
}
  which the
Common Stock is then being listed or traded, for the thirty (30) trading
days prior to but not including the Conversion Date.
 
 (c)           The
Holder of any certificate for shares of Series A Preferred Stock desiring
to convert any of such shares may give notice of its decision to convert
the shares into Common Stock by delivering or telecopying an executed and
completed notice of conversion to the Corporation (the "Conversion
Date"). Each date on which a notice of conversion is delivered or
telecopied to the Corporation in accordance with the provisions hereof
shall be deemed a Conversion Date.  A form of Notice of
Conversion that may be employed by a Holder is annexed hereto as Exhibit
A.  The Corporation will cause the transfer agent to transmit the
shares of the Common Stock issuable upon conversion of the Series A
Preferred Stock (and a certificate representing the balance of the Series A
Preferred Stock not so converted, if requested by Purchaser) to the Holder
by crediting the account of the Holder's prime broker with the
Depository Trust Company ("DTC") through its Deposit Withdrawal Agent
Commission ("DWAC") system within three (3) business days after receipt by
the Corporation of the Notice of Conversion (the "Delivery
Date").  The Corporation is obligated to deliver to the Holder
simultaneously with the aforedescribed Common Stock, at the election of the
Holder, additional shares of Common Stock representing the conversion at
the Fixed Conversion Price, of dividends accrued on the Series A Preferred
Stock being converted.
 
 In the
case of the exercise of the conversion rights set forth in paragraph 6(a)
the conversion privilege shall be deemed to have been exercised and the
shares of Common Stock issuable upon such conversion shall be deemed
to have been issued upon the date of receipt by the Corporation or Transfer
Agent of the Notice of Conversion. The person or entity entitled to receive
Common Stock issuable upon such conversion shall, on the date such
conversion privilege is deemed to have been exercised and thereafter, be
treated for all purposes as the record Holder of such Common Stock and
shall on the same date cease to be treated for any purpose as the record
Holder of such shares of Series A Preferred Stock so
converted.
 
 Upon the
conversion of any shares of Series A Preferred Stock no adjustment or
payment shall be made with respect to such converted shares on account of
any dividend on the Common Stock, except that the Holder of such converted
shares shall be entitled to be paid any dividends declared on shares of
Common Stock after conversion thereof.
 
 The
Corporation shall not be required, in connection with any conversion of
Series A Preferred Stock, and payment of dividends on Series A Preferred
Stock to issue a fraction of a share of its Series A Preferred Stock and
shall instead deliver a stock certificate representing the next
whole number.
 
 (d)           The
Fixed Conversion Price determined pursuant to 6(b) shall be subject to
adjustment from time to time as follows:
 
 (i)           In
case the Corporation shall at any time (A) declare any dividend or
distribution on its Common Stock or other securities of the Corporation
other than the Series A Preferred Stock, (B) split or subdivide
the outstanding Common Stock, (C) combine the outstanding Common Stock into
a smaller number of shares, or (D) issue by reclassification of its Common
Stock any shares or other securities of the Corporation, then in each such
event the Fixed Conversion Price shall be adjusted proportionately so that
the Holder shall be entitled to receive the kind and number of shares or
other securities of the Corporation which such Holder would have owned or
have been entitled to receive after the happening of any of the events
described above had such shares of Series A Preferred Stock been converted
immediately prior to the happening of such event (or any record date with
respect thereto). Such adjustment shall be made whenever any of the events
listed above shall occur. An adjustment made to the conversion pursuant to
this paragraph 6(d)(i) shall become effective immediately after the
effective date of the event retroactive to the record date, if any, for the
event.
 
 (e)           (i)           In
case of any merger of the Corporation with or into any other corporation
(other than a merger in which the Corporation is the surviving or
continuing corporation and which does not result in any
reclassification, conversion, or  change of the outstanding
shares of Common Stock) then unless the right to convert shares of Series A
Preferred Stock shall have terminated, as part of such merger, lawful
provision shall be made so that Holder shall thereafter have the right to
convert each share of Series A Preferred Stock into the kind and amount of
shares of stock and/or other securities or property receivable upon such
merger by a Holder of the number of shares of Common Stock into which such
shares of Series A Preferred Stock might have been converted
  {M0083165.1
}
  immediately
prior to such consolidation or merger.  Such provision shall
also provide for adjustments which shall be as nearly equivalent as may
be practicable to the adjustments provided for in paragraph
6(d).  The foregoing provisions of this paragraph 6(e) shall
similarly apply to successive mergers.
 
 (ii)           In
case of any sale or conveyance to another person or entity of the property
of the Corporation as an entirety, or substantially as an entirety, in
connection with which shares or other securities or cash or other property
shall be issuable, distributable, payable, or deliverable for outstanding
shares of Common Stock, then, unless the right to convert such shares shall
have terminated, lawful provision shall be made so that the Holder shall
thereafter have the right to convert each share of the Series A
Preferred Stock into the kind and amount of shares of stock or other
securities or property that shall be issuable, distributable, payable, or
deliverable upon such sale or conveyance with respect to each share of
Common Stock immediately prior to such conveyance.
 
 (f)           Whenever
the number of shares to be issued upon conversion of the Series A Preferred
Stock is required to be adjusted as provided in this paragraph 6, the
Corporation shall forthwith compute the adjusted number of shares to be so
issued and prepare a certificate setting forth such adjusted conversion
amount and the facts upon which such adjustment is based, and
such certificate shall forthwith be filed with the Transfer Agent for the
Series A Preferred Stock and the Common Stock; and the Corporation shall
mail to each Holder notice of such adjusted conversion price.
 
 (g)           In
case at any time the Corporation shall propose:
 
 (i)           to
pay any dividend or distribution payable in shares upon its Common Stock or
make any distribution (other than cash dividends) to the holders of its
Common Stock; or
 
 (ii)           to
offer for subscription to the holders of its Common Stock any additional
shares of any class or any other rights; or
 
 (iii)           any
capital reorganization or reclassification of its shares or the merger of
the Corporation with another corporation (other than a merger in which the
Corporation is the surviving or continuing corporation and which does not
result in any reclassification, conversion, or change of the outstanding
shares of Common Stock); or
 
 (iv)           the
voluntary dissolution, liquidation or winding-up of the
Corporation;
 
 then, and
in any one or more of said cases, the Corporation shall cause at
least fifteen (15) days prior notice of the date on which (A) the books of
the Corporation shall close or a record be taken for such stock
dividend, distribution, or subscription rights, or (B) such capital
reorganization, reclassification, merger, dissolution, liquidation or
winding-up shall take place, as the case may be, to be mailed to the
Transfer Agent for the Series A Preferred Stock, if any, and for the Common
Stock and to the Holder.
 
 If
the Corporation issues any additional shares of Common Stock for a
consideration less than the Fixed Conversion Price that would be in effect
at the time of such issue, then, and thereafter successively upon each such
issue, the Fixed Conversion Price shall be reduced as follows: (i)
the number of shares of Common Stock outstanding immediately prior to such
issue shall be multiplied by the Fixed Conversion Price in effect at the
time of such issue and the product shall be added to the aggregate
consideration, if any, received by the Corporation upon such issue of
additional shares of Common Stock; and (ii) the sum so obtained shall be
divided by the number of shares of Common Stock outstanding immediately
after such issue. The resulting quotient shall be the adjusted Fixed
Conversion Price.
 
 (h)           So
long as any shares of Series A Preferred Stock shall remain outstanding and
the Holder thereof shall have the right to convert the same in accordance
with provisions of this paragraph 6 the Corporation shall at all times
reserve from the authorized and unissued shares of its Common Stock
a sufficient number of shares to provide for such conversions.
 
 (i)           The
term Common Stock as used in this paragraph 6 shall mean the $.10 par value
Common Stock of the Corporation as such stock is constituted at the date of
issuance thereof or as it may from time
  {M0083165.1
}
  to time
be changed or shares of stock of any class of other securities and/or
property into which the shares of Series A Preferred Stock shall at any
time become convertible pursuant to the provisions of this paragraph
6.
 
 (j)           The
Corporation shall pay the amount of any and all issue taxes (but not
income taxes) which may be imposed in respect of any issue or delivery of
stock upon the conversion of any shares of Series A Preferred Stock, but
all transfer taxes and income taxes that may be payable in respect of any
change of ownership of Series A Preferred Stock or any rights represented
thereby or of stock receivable upon conversion thereof shall be paid by the
person or persons surrendering such stock for conversion.
 
 (k)           Overall Limit on Common
Stock Issuable. For so long as the Corporation is subject to the
rules of the American Stock Exchange, or other similar exchange, the number
of shares of Common Stock issuable by the Corporation and acquirable by a
holder hereunder, shall not exceed 19.9% of the issued and outstanding
shares of Common Stock of the Corporation (the "Maximum Common Stock
Issuance"), unless the issuance of shares hereunder in excess of the
Maximum Common Stock Issuance shall first be approved by the
Corporation's stockholders. If at any point in time and from time to time
(each, a "Trigger Date") the number of shares of Common Stock issued
pursuant to conversion of the Series A Preferred Stock, together with the
number of shares of Common Stock that would then be issuable by the
Corporation in the event of the conversion of the entire Stated Value,
would exceed the Maximum Common Stock Issuance but for this Section, then
the Corporation shall, at the Corporation's election, either (a) promptly
call a shareholders meeting to obtain shareholder approval for the issuance
of the shares of Common Stock hereunder in excess of the Maximum
Common Stock Issuance, which such shareholder approval shall be obtained
within 60 days of the Trigger Date, or (b) purchase from the Holder such
Stated Value of the Series A Preferred Stock plus accrued dividends which
cannot be converted due to such Maximum Common Stock Issuance limitation at
the conversion price then in effect, which such payment shall be paid
within five (5) business days after a Trigger Date if this clause (b) is
elected, or, if clause (a) is elected, five (5) business days following the
Corporation's failure to so obtain shareholder approval, as the case may
be. The Corporation shall make such election within three (3) business days
following the Trigger Date by giving written notice to the
Holder.
 
 7.           Mandatory
Conversion.   Except as set forth in Section 4 hereof,
the shares of Series A Preferred Stock and dividends may not be converted
without the consent of the Holder.
 
 8.           Voting
Rights.  The shares of Series A Preferred Stock shall
not have voting rights.
 
 9.           Event of
Default.  In the event that any of the following
events shall occur, and shall not be cured within 30 days of written notice
from the Holder to the Corporation (except with respect to Section 9.1 and
9.8 below, for which the cure period shall be as set forth therein) (each
occurrence being a "Default Notice Period") or waived in writing by the
Holder (such circumstance being an "Event of Default"), the dividend rate
of 7% described in Section 3 above to become 15% and the Holder shall have
the right to elect to have the Corporation redeem the Series A Preferred
Stock.  Any such redemption shall be effected by the prompt
payment to the Holder by the Corporation of a sum of money equal to the
greater of (i) 130% of the outstanding Stated Value of the shares of Series
A Preferred Stock, plus accrued and unpaid dividends and (ii) the number of
shares that would be issuable upon conversion of an amount of Stated Value
and accrued dividends designated by the Holder at the conversion price in
effect as of the trading day prior to the date notice is given to
the Corporation by the Holder multiplied by the highest closing price for
the five trading days immediately preceding such notice date.
 
 9.1           Failure to Make
Payment. The Corporation fails to pay any payment required to be paid
pursuant to the terms of hereof or the failure to timely pay any other sum
of money due to the Holder from the Corporation and such failure continues
for a period of five (5) business days after written notice to the
Corporation from the Holder.
 
 9.2     Breach of
Covenant.  The Corporation breaches any of the covenants
in Sections 6.2, 6.5, 6.12, 6.13, 6.15 9.1, 9.2, 9.4 or 10 of the Purchase
Agreement in any material respect except that (i) a breach of Section 9.1
of the Purchase Agreement shall not be deemed to have occurred provided the
Corporation has filed a registration statement by the Filing Date (as
defined in the Purchase Agreement) and responds within a reasonable time
frame to any SEC comment letters with respect to such registration
statement.
  {M0083165.1
}
  
 
 9.3     Breach of Representations
and Warranties.  Any representation or warranty of
the Corporation made in Section 4 of the Purchase Agreement shall be
false or misleading except for any such breach which does not have a
material adverse effect on the business or financial condition of the
Corporation, taken as a whole.
 
 9.4           Receiver or
Trustee.  The Corporation shall make an assignment for the
benefit of creditors, or apply for or consent to the appointment of
a receiver or trustee for it or for a substantial part of its property
or business; or such a receiver or trustee shall otherwise be
appointed.
 
 9.5           Bankruptcy.  Bankruptcy,
insolvency, reorganization or liquidation proceedings or other proceedings
or relief under any bankruptcy law or any law for the relief of debtors
shall be instituted by or against the Corporation.
 
 9.6     Delisting.  Delisting
of the Common Stock from any Principal Market or such other principal
exchange on which the Common Stock is listed for trading.
 
 9.7     Stop
Trade.  An SEC stop trade order or Principal Market trading
suspension of more than three consecutive trading days.
 
 9.8     Failure to Deliver Common
Stock.  The Corporation's failure to timely deliver Common
Stock to the Holder pursuant to and in the form required hereof and Section
8 of the Purchase Agreement and continues for five (5) business days after
receipt of notice of conversion.
 
 9.9     Registration
Default.  The occurrence of a Non-Registration Event as
described in Section 9.4 of the Purchase Agreement.
 
 10.           Mandatory
Redemption.  The Corporation shall redeem the shares
of Series A Preferred Stock, including accrued but unpaid dividends
thereon, no later than 18 months from the date hereof.
 
 11.     Status of Converted or
Redeemed Stock.  In case any shares of Series A Preferred
Stock shall be redeemed or otherwise repurchased or reacquired, the shares
so redeemed, converted, or reacquired shall resume the status of authorized
but unissued shares of Preferred Stock and shall no longer be designated as
Series A Preferred Stock.
 
 
  {M0083165.1
}
  
 EXHIBIT
A
 
 NOTICE OF
CONVERSION
 
 (To Be
Executed By the Registered Holder in Order to Convert the Series
A Convertible Preferred Stock of Implant Sciences Corporation)
 
 The
undersigned hereby irrevocably elects to convert $__________ of the Stated
Value of the above Series A Convertible Preferred Stock and $__________ of the
dividend due, into shares of Common Stock of Implant Sciences Corporation (the
"Corporation") according to the conditions hereof, as of the date written
below.
 
 Conversion
Date:
______________________________________________________________________
 
 
 Fixed
Conversion Price per share:
_________________________________________________________
 
 
 Number of
Common Stock issuable upon this conversion: ________________
 
 
 
 Signature:
____________________________________________________________________
 
 Print  Name:
__________________________________________________________________
 
 Address:
_____________________________________________________________________
 
 _____________________________________________________________________________
 
 
 Deliveries
pursuant to this notice of conversion should be made to:
 
 _____________________________________________________________________________
 
 _____________________________________________________________________________
 
 _____________________________________________________________________________
 
  {M0083165.1
}
  
 SIGNED
UNDER THE PENALTIES OF PERJURY, this 4th day of October in the year
2002.
 
 
 /s/
Anthony J. Armini, President
 
 /s/
Stephen N. Bunker, Clerk
 
  {M0083165.1
}
  
 THE
COMMONWEALTH OF MASSACHUSETTS
 
 CERTIFICATE
OF VOTE OF DIRECTORS ESTABLISHING
 A SERIES
OF A CLASS OF STOCK
 (General
Laws, Chapter 156B, Section 26)
 
 ______________________________
 
 I hereby
approve the within Certificate of Vote of Directors and, the
 filing
fee in the amount of $100 having been paid,
 said
certificate is deemed to have been filed with me this 7th
 day of
October, 2002.
 
 
 Effective
Date: __________________________
 
 
 
 /s/
William Francis Galvin
 
 WILLIAM
FRANCIS GALVIN
 Secretary
of the Commonwealth
 
 
 
 
 
 TO BE
FILLED IN BY CORPORATION
 Photo
copy of certificate to be sent to:
 
 Karen
Queen, Esq.
 Foley
Hoag LLP
 155
Seaport Boulevard
 Boston,
MA 02210
 Telephone:
(617) 832-1734
  {M0083165.1
}
  FEDERAL
IDENTIFICATION
 NO.
04-2837126
 
 
 
 THE
COMMONWEALTH OF MASSACHUSETTS
 William
Francis Galvin
 Secretary
of the Commonwealth
 One
Ashburton Place, Boston, MA 02108-1512
 
 CERTIFICATE
OF VOTE OF DIRECTORS
 ESTABLISHING
A CLASS OR SERIES OF STOCK
 (General
Laws, Chapter 156B, Section 26)
 
 
 
 
 
 We,
Anthony J.
Armini,                                                                                                                     President
 
 and
Stephen N.
Bunker,                                                                                                                     Clerk
 
 of
Implant Sciences Corporation
 (Exact
name of corporation)
 
 located
at:  107 Audubon Road, Wakefield,
Massachusetts 01880
 (Street
address of corporation in Massachusetts)
 
 do hereby
certify that at a meeting of directors of the Corporation on August 28,
2003, the following vote establishing and designating a class or series
of stock and determining the relative rights and preferences thereof was
duly adopted:
 
 See
Continuation Sheet 2A
 
 
 
 
 
 
 
 
 
 
 
 
 *Delete
the inapplicable words.
 
 Note:
Votes for which the space provided above is not sufficient should be provided on
one side of separate 8 1/2x 11 sheets of white paper, numbered 2a, 2b, etc.,
with a left margin of at least 1 inch.
 
 
 
  {M0083165.1
}
  CONTINUATION SHEET
2A
 
 IMPLANT
SCIENCES CORPORATION
 
 VOTED:
              That,
      pursuant to the authority expressly granted to and vested in
      the Board of Directors of the Corporation by the provisions of
      Article IV of the Amended and Restated Articles of Organization of the
      Corporation (the "Articles of
      Organization") and Section 26 of the Massachusetts
      Business Corporation Law of the Commonwealth of Massachusetts, the
      Board of Directors hereby creates, from the 5,000,000 shares of
      Preferred Stock, par value $.10 per share (the "Preferred
      Stock"), of the Corporation authorized to be issued pursuant
      to the Amended and Restated Articles of Organization a series of
      Preferred Stock, consisting of 200,000 shares of Series B 5%
      Cumulative Convertible Preferred Stock (the "Series B Preferred
      Stock"), and hereby fixes the powers, designations, preferences and
      qualifications, limitations or restrictions thereof, of the shares of
      such Series Bs set forth in Exhibit A
      hereto (the "Certificate of Vote of
      Directors").
  {M0083165.1
}
  
 EXHIBIT
A
 
 TERMS OF
SERIES B 5%
 CUMULATIVE
CONVERTIBLE PREFERRED STOCK
 OF
 IMPLANT
SCIENCES CORPORATION
 
 1.           Designation: Numberof Shares. The
designation of said series of Preferred Stock shall be Series B 5%
Cumulative Convertible Preferred Stock (the "Series B Preferred Stock").
The number of shares of Series B Preferred Stock shall be 200,000. Each
share of Series B Preferred Stock shall have a stated value equal to $10
(as adjusted for any stock dividends, combinations or splits with respect
to such shares) (the "Stated
Value"), and $.10 par value.
 
 2.           Ranking. The Series B
Preferred Stock shall rank (i) prior to the Corporation's common stock, par
value $.10 per share ("Common
Stock"); (ii) except as provided in clause (iii) below, prior to any
class or series of capital stock of the Corporation hereafter created
(unless, with the consent of the holder of Series B Preferred Stock (the
"Holder") (which may be
withheld in such Holder's sole and absolute discretion), such class or
series of capital stock specifically, by its terms, ranks senior to or Pari
Passu with the Series B Preferred Stock); (iv) Pari Passu with any class or
series of capital stock of the Corporation hereafter created specifically
ranking, by its terms, on parity with the Series B Preferred Stock and Pari
Passu with the Series B Preferred Stock of the Corporation ("Pari Passu Securities"); and
(v) junior to any class or series of capital stock of the Corporation
hereafter created (with the consent of the Holder (which may be withheld in
Holder's sole and absolute discretion) obtained in accordance with Section 8
hereof) specifically ranking, by its terms, senior to the Series B
Preferred Stock ("Senior
Securities"), in each case as to distribution of assets upon
liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary.
 
 3.           Dividends.
 
 (a)           The
Holder shall be entitled to receive preferential dividends in cash out of any
funds of the Corporation legally available at the time for declaration of
dividends before any dividend or other distribution will be paid or
declared and set apart for payment on any shares of any Common Stock,
or other class of stock presently authorized but not yet issued, or to
be authorized (the Common Stock, and such other stock being
hereinafter collectively the "Junior Stock") at the rate of
5% simple interest per annum on the Stated Value per share payable monthly
commencing one month from the date hereof and on the first business day of
each consecutive month thereafter when as and if declared, at the
Corporation's option; provided, however, that dividend payments may, in the
sole discretion of the Corporation, be made in fully paid and
non-assessable shares of Common Stock which are subject to an effective
registration statement at the Fixed Conversion Price (as defined herein)
then in effect, and the issuance of such additional shares shall constitute
full payment of such dividend.
 
 (b)           The
dividends on the Series B Preferred Stock at the rates provided above shall
be cumulative whether or not declared so that, if at any time
full cumulative dividends at the rate aforesaid on all shares of the Series
B Preferred Stock then outstanding from the date from and after which
dividends thereon are cumulative to the end of the monthly dividend period
next preceding such time shall not have been paid or declared and set apart
for payment, or if the full dividend on all such outstanding Series B
Preferred Stock for the then current dividend period shall not have been
paid or declared and set apart for payment, the amount of the
deficiency shall be paid or declared and set apart for payment (but without
interest thereon) before any sum shall be set apart for or applied by the
Corporation or a subsidiary of the Corporation to the purchase, redemption
or other acquisition of the Series B Preferred Stock or Pari Passu
Securities and before any dividend or other distribution shall be paid or
declared and set apart for payment on any Junior Stock and before any sum
shall be set aside for or applied to the purchase, redemption or other
acquisition of Junior Stock.
 
 (c)           Dividends
on all shares of the Series B Preferred Stock shall begin to accrue and be
cumulative from and after the date of issuance thereof. A dividend period
shall be deemed to commence on the business day following a
monthly dividend payment date herein specified and to end on the next
succeeding business monthly dividend payment date herein
specified.
  {M0083165.1
}
  
 
 4.           Amortization.
 
 (a)           Monthly Payments.
Subject to the terms of this Section 4, the Corporation shall redeem the
original Stated Value of the Series B Preferred Stock (to the extent such
amount has not been converted pursuant to Section 6 below) according to the
schedule set forth below, together with the dividend accrued to date on
such portion of the original Stated Value plus any and all default payments
owing under the Securities Purchase Agreement dated August 28, 2003 between
the Corporation and Laurus Master Fund, Ltd. (the "Purchase Agreement") but
not previously paid (collectively the "Monthly Amount"),
in accordance with Section 4(b) below, on the first business day of
each consecutive calendar month (each, a "Repayment Date"), beginning on
December 1, 2003.
 
 Date           Required
redemption                                                      Date           Required
redemption
 
 12/1/2003                               $25,000                                10/1/2004                              $165,000
 1/1/2003                               $33,000                                11/1/2004                              $173,000
 2/1/2004                               $41,000                                12/1/2004                              $181,000
 3/1/2004                               $49,000                                1/1/20054                              $189,000
 4/1/2004                               $57,000                                2/1/2005                              $197,000
 5/1/2004                               $65,000                                3/1/2005                              $485,000
 6/1/2004                               $73,000
 7/1/2004                               $81,000
 8/1/2004                               $89,000
 9/1/2004                               $97,000
 
 (b)           Any
conversions will be applied to the closest upcoming amortization payment.
For example, if prior to December 1, $50,000 of principal relating to this
series of Preferred Stock, no cash payment would be required for
November and $25,000 would be applied to the December payment resulting in
the January 1, payment being reduced to $8,000.
 
 (c)           Cashor Common Stock.
Subject to the terms hereof, the Corporation has the sole option to
determine whether to satisfy payment of the Monthly Amount in full on each
Repayment Date either in cash or in shares of Common Stock, or
a combination of both. The Corporation shall deliver to the Holder a
written irrevocable notice in the form of Exhibit B attached hereto
electing to pay such Monthly Amount in full on such Repayment Date in
either cash or Common Stock, or a combination of both ("Repayment Election Notice").
Such Repayment Election Notice shall be delivered to the Holder at least
twenty (20) days prior to the applicable Repayment Date (the date of such
notice being hereinafter referred to as the "Notice Date"). If such
Repayment Election Notice is not delivered within the prescribed period set
forth in the preceding sentence, then the repayment shall be made in shares
of Common Stock on the same terms hereunder. If the Corporation elects or
is required to repay all or a portion of the Monthly Amount in cash on a
Repayment Date, then on such Repayment Date the Corporation shall pay to
the Holder an amount equal to 105% of the Monthly Amount (excluding any
fees which have been included in such Monthly Amount) in satisfaction
of such obligation. If the Corporation repays all or a portion of the
Monthly Amount in shares of Common Stock, the number of such shares to be
issued for such Repayment Date shall be the number determined by dividing
(x) the portion of the Monthly Amount to be paid in shares of Common Stock,
by (y) the Fixed Conversion Price (as defined herein) as of such
date.
 
 (d)           No Effective
Registration. Notwithstanding anything to the contrary herein, the
Corporation shall be prohibited from exercising its right to repay the
Monthly Amount in shares of Common Stock (and must deliver cash in
respect thereof) on the applicable Repayment Date if at any time from the
Notice Date until the time at which the Holder receives such shares there
fails to exist an effective registration statement or an Event of Default
hereunder exists or occurs, unless otherwise waived in writing by the
Holder in whole or in part at the Holder's option.
 
 (e)           Share Price/Issuance
Limitations. Notwithstanding anything to the contrary herein, if the
closing price of the Common Stock as reported by Bloomberg, L.P. on the
Principal Market for any of the 11 trading
  {M0083165.1
}
  days
preceding a Repayment Date was less than$6.00 , the Corporation would be
required to pay such Monthly Amount in cash.
 
 (f)           Deemed Conversions.
Any repayment of the Monthly Amount in shares of Common Stock pursuant to
the terms hereof shall constitute and be deemed a conversion of such
portion of the applicable Stated Value of the Series B Preferred Stock for
all purposes under this Certificate and the Purchase Agreement (except as
otherwise provided herein).
 
 5.           Liquidation
Rights.
 
 (a)           Upon
the dissolution, liquidation or winding-up of the Corporation, whether
voluntary or involuntary, the Holder shall be entitled to receive
before any payment or distribution shall be made on the Junior Stock, out
of the assets of the Corporation available for distribution to
stockholders, the greater of (i) the unpaid Stated Value per share of
Series B Preferred Stock and all accrued and unpaid dividends to and
including the date of payment thereof or (ii) the number of shares that
would be issuable upon conversion of the Stated Value and accrued
dividends multiplied by the highest closing price for the five trading days
immediately preceding such liquidation payment date. Upon the payment in
full of all amounts due to Holder the holders of the Common Stock of the
Corporation and any other class of Junior Stock shall receive all
remaining assets of the Corporation legally available for distribution. If
the assets of the Corporation available for distribution to the Holder
shall be insufficient to permit payment in full of the amounts payable as
aforesaid to the Holder upon such liquidation, dissolution or winding-up,
whether voluntary or involuntary, then all such assets of the Corporation
shall be distributed to the exclusion of the holders of shares of Junior
Stock ratably among the Holder.
 
 (b)           Neither
the purchase nor the redemption by the Corporation of shares of any class
of stock nor the merger or consolidation of the Corporation with or into
any other corporation or corporations nor the sale or transfer by
the Corporation of all or any part of its assets shall be deemed to be
a liquidation, dissolution or winding-up of the Corporation for the
purposes of this paragraph 5.
 
 6.           Conversioninto Common Stock.
Shares of Series B Preferred Stock shall have the following conversion
rights and obligations:
 
 (a)           Subject
to the further provisions of this paragraph 6 each Holder shall have the
right at any time commencing after the issuance to the Holder of Series B
Preferred Stock, to convert such shares into fully paid and
non-assessable shares of Common Stock of the Corporation (as defined in
paragraph 6(i) below) determined in accordance with the Fixed Conversion
Price provided in paragraph 6(b) below. All issued or accrued but unpaid
dividends may be converted at the election of the Holder simultaneously
with the conversion of the Stated Value of Series B Preferred Stock being
converted. In the event of any conversions of outstanding Stated Value
under the Series B Preferred Stock in part pursuant to this Section 6, such
conversions shall be deemed to constitute conversions of outstanding Stated
Value applying to Monthly Amounts for the Repayment Dates in chronological
order. By way of example, if the original Stated Value of this Series B
Preferred Stock is $1,500,000 and the Holder converted $750,000 of
such original Stated Value prior to the first Repayment Date, then (1) the
Stated Value amount of the Monthly Amount due on the first Repayment Date
would equal $0, (2) the Stated Value amount of the Monthly Amount due on
the second Repayment Date would equal $0 and (3) the Stated Value amount of
the Monthly Amount due on each of the remaining Repayment Dates would be
$17,000.
 
 (b)           The
number of shares of Common Stock issuable upon conversion of each share of
Series B Preferred Stock shall equal (i) the sum of (A) the Stated Value
per share and (B) at the Holder's election accrued and unpaid dividends
on such share, divided by (ii) $5.50 (the "Fixed Conversion
Price").
 
 In
the event that (i) an Event of Default has occurred and (ii) as of the end
of the Default Notice Period (as defined in Section 9 below),
the Corporation shall have failed (i) to cure the Event of Default; (ii) to
redeem the Holder's Series B Preferred Stock for cash in accordance with
Section 9 below or (iii) to receive a waiver, in writing, from the Holder
that so long as the Event of Default continues the conversion price shall
be equal to the greater of (i) the lower of (A) the Fixed Conversion Price
or (B) seventy percent (70%) of the average of the three lowest
closing prices for the Common Stock on NASD OTC Bulletin Board,
NASDAQ SmallCap Market, NASDAQ National Market System, American Stock
Exchange, or New York Stock Exchange (whichever of the
  {M0083165.1
}
  foregoing
is at the time the principal trading exchange or market for the Common
Stock, the "Principal
Market"), or on any securities exchange or other securities market
on which the Common Stock is then being listed or traded, for the thirty
(30) trading days prior to but not including the Conversion Date or (ii)
$2.02.
 
 (c)           The
Holder of any certificate for shares of Series B Preferred Stock desiring
to convert any of such shares may give notice of its decision to convert
the shares into Common Stock by delivering or telecopying an executed and
completed notice of conversion to the Corporation (the "Conversion Date"). Each
date on which a notice of conversion is delivered or telecopied to
the Corporation in accordance with the provisions hereof shall be deemed
a Conversion Date. A form of Notice of Conversion that may be employed by a
Holder is annexed hereto as Exhibit A. The Corporation will cause the
transfer agent to transmit the shares of the Common Stock issuable upon
conversion of the Series B Preferred Stock (and a certificate representing
the balance of the Series B Preferred Stock not so converted, if requested
by Purchaser) to the Holder by crediting the account of the Holder's prime
broker with the Depository Trust Company ("DTC") through its Deposit
Withdrawal Agent Commission ("DWAC") system within three (3) business days
after receipt by the Corporation of the Notice of Conversion (the "Delivery Date"). The
Corporation is obligated to deliver to the Holder simultaneously with the
aforedescribed Common Stock, at the election of the Holder, additional
shares of Common Stock representing the conversion at the Fixed Conversion
Price, of dividends accrued on the Series B Preferred Stock being
converted.
 
 In the
case of the exercise of the conversion rights set forth in paragraph 6(a)
the conversion privilege shall be deemed to have been exercised and
the shares of Common Stock issuable upon such conversion shall be deemed to
have been issued upon the date of receipt by the Corporation or Transfer
Agent of the Notice of Conversion. The person or entity entitled to receive
Common Stock issuable upon such conversion shall, on the date such
conversion privilege is deemed to have been exercised and thereafter, be
treated for all purposes as the record Holder of such Common Stock and
shall on the same date cease to be treated for any purpose as the record
Holder of such shares of Series B Preferred Stock so
converted.
 
 Upon
the conversion of any shares of Series B Preferred Stock no adjustment or
payment shall be made with respect to such converted shares on account of
any dividend on the Common Stock, except that the Holder of such converted
shares shall be entitled to be paid any dividends declared on shares of
Common Stock
 after
conversion thereof.
 
 The
Corporation shall not be required, in connection with any conversion
of Series B Preferred Stock, and payment of dividends on Series B Preferred
Stock to issue a fraction of a share of its Series B Preferred Stock and
shall instead deliver a stock certificate representing the next whole
number.
 
 (d)           The
Fixed Conversion Price determined pursuant to 6(b) shall be subject to
adjustment from time to time as follows:
 
 (i)           In
case the Corporation shall at any time (A) declare any stock dividend or
distribution of stock on its Common Stock or other securities of the Corporation
other than the Series B Preferred Stock, (B) split or subdivide the
outstanding Common Stock, (C) combine the outstanding Common Stock into a
smaller number of shares, or (D) issue by reclassification of its Common
Stock any shares or other securities of the Corporation, then in each such
event the Fixed Conversion Price shall be adjusted proportionately so that
the Holder shall be entitled to receive the kind and number of shares or
other securities of the Corporation which such Holder would have owned or
have been entitled to receive after the happening of any of the events
described above had such shares of Series B Preferred Stock been converted
immediately prior to the happening of such event (or any record date with
respect thereto). Such adjustment shall be made whenever any of the events
listed above shall occur. An adjustment made to the conversion pursuant to
this paragraph 6(d)(i) shall become effective immediately after the
effective date of the event retroactive to the record date, if any, for the
event. Notwithstanding the foregoing, no adjustments will be made upon
issuances of any securities issued upon the exercise or conversion of
currently issued and outstanding options, warrants, or convertible
securities,
 
 (e)           (i)           In
case of any merger of the Corporation with or into any other corporation
(other than a merger in which the Corporation is the surviving
or continuing corporation and which does not result in any
reclassification, conversion, or change of the outstanding shares of Common
Stock) then unless the right to convert shares of Series B Preferred Stock
shall have terminated, as part of such merger, lawful provision shall
be
  {M0083165.1
}
  made so
that Holder shall thereafter have the right to convert each share of Series
B Preferred Stock into the kind and amount of shares of stock and/or other
securities or property receivable upon such merger by a Holder of the
number of shares of Common Stock into which such shares of Series B
Preferred Stock might have been converted immediately prior to such
consolidation or merger. Such provision shall also provide for adjustments
which shall be as nearly equivalent as may be practicable to the
adjustments provided for in paragraph 6(d). The foregoing provisions of
this paragraph 6(e) shall similarly apply to successive mergers.
 
 (ii)           In
case of any sale or conveyance to another person or entity of the property
of the Corporation as an entirety, or substantially as an entirety, in
connection with which shares or other securities or cash or other property
shall be issuable, distributable, payable, or deliverable for outstanding
shares of Common Stock then, unless the right to convert such shares shall
have terminated, lawful provision shall be made so that the Holder shall
thereafter have the right to convert each share of the Series B Preferred
Stock into the kind and amount of shares of stock or other securities or
property that shall be issuable, distributable, payable, or deliverable
upon such sale or conveyance with respect to each share of Common Stock
immediately prior to such conveyance.
 
 (f)           Whenever
the number of shares to be issued upon conversion of the Series B Preferred
Stock is required to be adjusted as provided in this paragraph 6, the
Corporation shall forthwith compute the adjusted number of shares to be so
issued and prepare a certificate setting forth such adjusted conversion
amount and the facts upon which such adjustment is based, and
such certificate shall forthwith be filed with the Transfer Agent for the
Series B Preferred Stock and the Common Stock; and the Corporation shall
mail to each Holder notice of such adjusted conversion price.
 
 (g)           In
case at any time the Corporation shall propose:
 
 (i)           to
pay any dividend or distribution payable in shares upon its Common Stock or
make any distribution (other than cash dividends) to the holders of its
Common Stock; or
 
 (ii)           to
offer for subscription any additional shares of any class or any other
rights (except offerings made in connection with strategic business
transactions or joint ventures with the Company) at a price less than the
then closing price of such shares as such price is quoted on a Principal
Market on the date of such issuance; or
 
 (iii)           any
capital reorganization or reclassification of its shares or the merger of
the Corporation with another corporation (other than a merger in which the
Corporation is the surviving or continuing corporation and which does not
result in any reclassification, conversion, or change of the outstanding
shares of Common Stock); or
 
 (iv)           the
voluntary dissolution, liquidation or winding-up of
the Corporation;
 
 then, and
in any one or more of said cases, the Corporation shall cause at
least fifteen (15) days prior notice of the date on which (A) the books of
the Corporation shall close or a record be taken for such stock
dividend, distribution, or subscription rights, or (B) such capital
reorganization, reclassification, merger, dissolution, liquidation or
winding-up shall take place, as the case may be, to be mailed to the
Transfer Agent for the Series B Preferred Stock, if any, and for the Common
Stock and to the Holder.
 
 If
the Corporation issues any additional shares pursuant to Section 6(g)(ii)
above then, and thereafter successively upon each such issue, the
Fixed Conversion Price shall be adjusted by multiplying the then applicable
Fixed Conversion Price by the following fraction:
 
 A + B
 ______________________________
 (A
+ B) + [((C - D) x B) / C]
 
 A =
Actual shares outstanding prior to such offering
 
 B =
Actual shares sold in the offering
  {M0083165.1
}
  
 
 C =
Closing market price of the Company's common stock on the date
 of
such offering
 
 D
= Offering price
 
 (h)           So
long as any shares of Series B Preferred Stock shall remain outstanding and
the Holder thereof shall have the right to convert the same in accordance
with provisions of this paragraph 6 the Corporation shall at all times
reserve from the authorized and unissued shares of its Common Stock
a sufficient number of shares to provide for such conversions.
 
 (i)           The
term Common Stock as used in this paragraph 6 shall mean the $.10 par value
Common Stock of the Corporation as such stock is constituted at the date of
issuance thereof or as it may from time to time be changed or shares
of stock of any class of other securities and/or property into which the
shares of
 Series B
Preferred Stock shall at any time become convertible pursuant to
the provisions of this paragraph 6.
 
 (j)           The
Corporation shall pay the amount of any and all issue taxes (but not income
taxes) which may be imposed in respect of any issue or delivery of stock
upon the conversion of any shares of Series B Preferred Stock, but
all transfer taxes and income taxes that may be payable in respect of any
change of ownership of Series B Preferred Stock or any rights represented
thereby or of stock receivable upon conversion thereof shall be paid by the
person or persons surrendering such stock for conversion.
 
 (k)           Overall Limiton Common Stock
Issuable. For so long as the Corporation is subject to the rules of
the American Stock Exchange, or other similar exchange, the number of
shares of Common Stock issuable by the Corporation and acquirable by a
holder hereunder, shall not exceed 19.9% of the issued and outstanding
shares of Common Stock of the Corporation (the "Maximum Common Stock
Issuance"), unless the issuance of shares hereunder in excess of the
Maximum Common Stock Issuance shall first be approved by the Corporation's
stockholders. If at any point in time and from time to time (each, a "Trigger Date") the number
of shares of Common Stock issued pursuant to conversion of the Series
B Preferred Stock, together with the number of shares of Common Stock that
would then be issuable by the Corporation in the event of the conversion of
the entire Stated Value, would exceed the Maximum Common Stock Issuance but
for this Section, then the Corporation shall, at the Corporation's
election, either (a) promptly call a shareholders meeting to obtain
shareholder approval for the issuance of the shares of Common Stock
hereunder in excess of the Maximum Common Stock Issuance, which such
shareholder approval shall be obtained within 60 days of the Trigger Date,
or (b) purchase from the Holder such Stated Value of the Series B Preferred
Stock plus accrued dividends which cannot be converted due to such Maximum
Common Stock Issuance limitation at the conversion price then in effect,
which such payment shall be paid within five (5) business days after
a Trigger Date if this clause (b) is elected, or, if clause (a) is elected,
five (5) business days following the Corporation's failure to so obtain
shareholder approval, as the case may be. The Corporation shall make such
election within three (3) business days following the Trigger Date by
giving written notice to the Holder.
 
 7.           Mandatory Conversion.
Except as set forth in Section 4 hereof, the shares of Series B Preferred
Stock and dividends may not be converted without the consent of the
Holder.
 
 8.           Voting Rights. The
shares of Series B Preferred Stock shall not have voting rights.
 
 9.           Eventof Default. In the
event that any of the following events shall occur, and shall not be cured
within 30 days of written notice from the Holder to the Corporation (except
with respect to Section 9.1 and 9.8 below, for which the cure period shall
be as set forth therein) (each occurrence being a "Default Notice Period") or
waived in writing by the Holder (such circumstance being an "Event Of Default"), for so
long as the Event of Default is continuing the dividend rate of 5%
described in Section 3 above to become 15% and the Holder shall have the
right to elect to have the Corporation redeem the Series B Preferred Stock.
Any such redemption shall be effected by the prompt payment to the Holder
by the Corporation of a sum of money equal to 130% of the
outstanding Stated Value of the shares of Series B Preferred Stock, plus
accrued and unpaid dividends.
  {M0083165.1
}
  
 
 9.1.           Failureto Make Payment. The
Corporation fails to pay any payment required to be paid pursuant to the terms
of hereof or the failure to timely pay any other sum of money due to the
Holder from the Corporation and such failure continues for a period of five
(5) business days after written notice to the Corporation from the
Holder.
 
 9.2.           Breach of Covenant. The
Corporation breaches any of the covenants in Sections 6.2, 6.5, 6.12, 6.13,
9.1, 9.2, 9.4 or 10 of the Purchase Agreement in any material respect
except that (i) a breach of Section 9.1 of the Purchase Agreement shall not
be deemed to have occurred provided the Corporation has filed a
registration statement by the Filing Date (as defined in the Purchase
Agreement) and responds within a reasonable time frame to any SEC comment
letters with respect to such registration statement.
 
 9.3.           Breachof Representationsand Warranties. Any
representation or warranty of the Corporation made in Section 4 of the
Purchase Agreement shall be false or misleading except for any such breach
which does not have a material adverse effect on the business or financial
condition of the Corporation, taken as a whole.
 
 9.4.           Receiver orTrustee. The
Corporation shall make an assignment for the benefit of creditors, or apply
for or consent to the appointment of a receiver or trustee for it or for a
substantial part of its property or business; or such a receiver or trustee
shall otherwise be appointed.
 
 9.5.           Bankruptcy.
Bankruptcy, insolvency, reorganization or liquidation proceedings or other
proceedings or relief under any bankruptcy law or any law for the relief of
debtors shall be instituted by or against the Corporation.
 
 9.6.           Delisting. Delisting
of the Common Stock from the every Principal Market or such other principal
exchange on which the Common Stock is listed for trading.
 
 9.7.           Stop Trade. An SEC
stop trade order or Principal Market trading suspension of more than three
consecutive trading days.
 
 9.8.           Failureto Deliver Common
Stock. The Corporation's failure to timely deliver Common Stock to
the Holder pursuant to and in the form required hereof and Section 8
of the Purchase Agreement and continues for five (5) business days after
receipt of notice of conversion.
 
 10.           Mandatory Redemption.
The Corporation shall redeem the shares of Series B Preferred Stock,
including accrued but unpaid dividends thereon, no later than 18 months
from the date hereof.
 
 11.           Statusof Convertedor Redeemed Stock. In
case any shares of Series B Preferred Stock shall be redeemed or otherwise
repurchased or reacquired, the shares so redeemed, converted, or reacquired
shall resume the status of authorized but unissued shares of Preferred
Stock and shall no longer be designated as Series B Preferred
Stock.
  {M0083165.1
}
  EXHIBIT
A
 
 NOTICE OF
CONVERSION
 
 (To Be
Executed By the Registered Holder in Order to Convert the Series
B Convertible Preferred Stock of Implant Sciences Corporation)
 
 The
undersigned hereby irrevocably elects to convert $__________ of the Stated Value
of the above Series B Convertible Preferred Stock and $__________ of the
dividend due, into shares of Common Stock of Implant Sciences Corporation
(the "Corporation") according to the conditions hereof, as of the date
written below.
 
 Conversion
Date:
____________________________________________________________________
 
 Fixed
Conversion Price per share:
_______________________________________________________
 
 
 
 Number of
Common Stock issuable upon this conversion:
____________________________________
 
 
 
 Signature:
__________________________________________________________________________
 
 Print
Name:
_________________________________________________________________________
 
 Address:
___________________________________________________________________________
 
 
 Deliveries
pursuant to this notice of conversion should be made to:
 
 ___________________________________________________________________________________
 
 ___________________________________________________________________________________
 
 ___________________________________________________________________________________
 
 
  {M0083165.1
}
  SIGNED
UNDER THE PENALTIES OF PERJURY, this 28th day
of August in the year 2003.
 
 /s/
Anthony J. Armini, President
 
 /s/
Stephen N. Bunker, Clerk
 
 
  {M0083165.1
}
  
 THE
COMMONWEALTH OF MASSACHUSETTS
 
 
 Certificate
of Vote of Directors Establishing
 A Series
of a Class of Stock
 (General
Laws, Chapter 156B, Section 26)
 
 I hereby
approve the within certificate and, the filing fee in the
 amount of
$100 having been paid, said certificate is hereby
 filed
this
 
 4th day
of August, 2003.
 
 Effective
Date: __________________________
 
 WILLIAM
FRANCIS GALVIN
 Secretary
of State
 
 /s/William
Francis Galvin
 
 
 
 TO BE
FILLED IN BY CORPORATION
 PHOTO
COPY OF CERTIFICATE TO BE SENT
 
 TO:
 Ellenoff
Grossman & Schole LLP
 370
Lexington Ave.
 New
York, New York 10017
 Fax:
(212) 370 - 7889
 Attention:
Barry Grossman, Esq.
 
  {M0083165.1
}
  FEDERAL IDENTIFICATION
 NO.
04-2837126
 
 
 
 THE
COMMONWEALTH OF MASSACHUSETTS
 William
Francis Galvin
 Secretary
of the Commonwealth
 One
Ashburton Place, Boston, MA 02108-1512
 
 CERTIFICATE
OF VOTE OF DIRECTORS
 ESTABLISHING
A CLASS OR SERIES OF STOCK
 (General
Laws, Chapter 156B, Section 26)
 
 
 
 
 
 We,
Anthony J.
Armini,                                                                                                                     President
 
 and
Stephen N.
Bunker,                                                                                                                     Clerk
 
 of
Implant Sciences Corporation
 (Exact
name of corporation)
 
 located
at:  107 Audubon Road, #5, Wakefield,
Massachusetts 01880
 (Street
address of corporation in Massachusetts)
 
 do hereby
certify that at a meeting of directors of the Corporation on November 21, 2003,
the following vote establishing and designating a class or series of stock
and determining the relative rights and preferences thereof was
duly adopted:
 
 See
Continuation Sheet 2A
 
 
 
 
 
 
 
 
 
 
 
 
 *Delete
the inapplicable words.
 
 Note:
Votes for which the space provided above is not sufficient should be provided on
one side of separate 8 1/2x 11 sheets of white paper, numbered 2a, 2b, etc.,
with a left margin of at least 1 inch.
 
 
 
 
   {M0083165.1
}
  Continuation Sheet
2A
  IMPLANT
SCIENCES CORPORATION
  VOTED:
      That, pursuant to the authority expressly granted to and vested in the
      Board of Directors of the Corporation by the provisions of Article IV
      of the Amended and Restated Articles of Organization of the Corporation
      (the “Articles of Organization ”) and Section 26 of the Massachusetts
      Business Corporation Law of the Commonwealth of Massachusetts, the Board
      of Directors hereby creates, from the 5,000,000 shares of Preferred Stock,
      par value $.10 per share (the “Preferred Stock”), of the Corporation
      authorized to be issued pursuant to the Amended and Restated Articles of
      Organization a series of Preferred Stock, consisting of 250,000 shares of
      Series C 5% Cumulative Convertible Preferred Stock (the “Series C
      Preferred Stock”), and hereby fixes the powers, designations, preferences
      and qualifications, limitations or restrictions thereof, of the shares of
      such Series Cs set forth in Exhibit A  hereto (the “Certificate
      of Vote of Directors”).
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  SIGNED
      UNDER THE PENALTIES OF PERJURY, this 25th
      day of November, 2003./s/
      Anthony J. Armini, President/s/
      Stephen N. Bunker, Clerk
   {M0083165.1
}
  EXHIBIT
A
  TERMS OF
SERIES C 5%
 CUMULATIVE
CONVERTIBLE PREFERRED STOCK
 OF
 IMPLANT
SCIENCES CORPORATION
  1.           Designation: Number of
Shares.  The designation of said series of Preferred Stock shall be
Series C 5% Cumulative Convertible Preferred Stock (the “Series C Preferred
Stock”).  The number of shares of Series C Preferred Stock shall be
250,000.  Each share of Series C Preferred Stock shall have a stated value
equal to $10 (as adjusted for any stock dividends, combinations or splits with
respect to such shares) (the “Stated Value”), and $.10 par
value.
  2.           Ranking.  The
Series C Preferred Stock shall rank (i) prior to the Corporation’s common stock,
par value $.10 per share (“Common Stock”); (ii) except as
provided in clause (iii) below, prior to any class or series of capital stock of
the Corporation hereafter created (unless, with the consent of the holder of
Series C Preferred Stock (the “Holder”) (which may be
withheld in such Holder’s sole and absolute discretion), such class or series of
capital stock specifically, by its terms, ranks senior to or Pari Passu with the
Series C Preferred Stock); (iv) Pari Passu with any class or series of capital
stock of the Corporation hereafter created specifically ranking, by its terms,
on parity with the Series C Preferred Stock and Pari Passu with the Series C
Preferred Stock of the Corporation (“Pari Passu Securities”); and
(v) junior to each of the Corporation’s (A) Series A 7% Cumulative Convertible
Preferred Stock; (B) Series B 5 % Cumulative Convertible Preferred Stock and (C)
any class or series of capital stock of the Corporation hereafter created (with
the consent of the Holder (which may be withheld in Holder’s sole and absolute
discretion) obtained in accordance with Section 8 hereof) specifically
ranking, by its terms, senior to the Series C Preferred Stock  (“Senior Securities”), in each
case as to distribution of assets upon liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary.
  3.                  Dividends.
  (a)             The
Holder shall be entitled to receive preferential dividends in cash out of any
funds of the Corporation legally available at the time for declaration of
dividends before any dividend or other distribution will be paid or declared and
set apart for payment on any shares of any Common Stock, or other class of stock
presently authorized but not yet issued, or to be authorized (the Common Stock,
and such other stock being hereinafter collectively the “Junior Stock”), (but after any
dividend or other distribution will be paid or declared and set apart for
payment on any shares of any Senior Securities), at the rate of 5% simple
interest per annum on the Stated Value per share payable monthly commencing one
month from the date hereof and on the first business day of each consecutive
month thereafter when as and if declared, at the Corporation’s option; provided,
however, that dividend payments may, in the sole discretion of the Corporation,
be made in fully paid and non-assessable shares of Common Stock which are
subject to an effective registration statement at the Fixed Conversion Price (as
defined herein) then in effect, and the issuance of such additional shares shall
constitute full payment of such dividend.
  (b)              The
dividends on the Series C Preferred Stock at the rates provided above shall be
cumulative whether or not declared so that, if at any time full cumulative
dividends at the rate aforesaid on all shares of the Series C Preferred Stock
then outstanding from the date from and after which dividends thereon are
cumulative to the end of the monthly dividend period next preceding such time
shall not have been paid or declared and set apart for payment, or if the full
dividend on all such outstanding Series C Preferred Stock for the then current
dividend period shall not have been paid or declared and set apart for payment,
the amount of the deficiency shall be paid or declared and set apart for payment
(but without interest thereon) before any sum shall be set apart for or applied
by the Corporation or a subsidiary of the Corporation to the purchase,
redemption or other acquisition of the Series C Preferred Stock or Pari Passu
Securities and before any dividend or other distribution shall be paid or
declared and set apart for payment on any Junior Stock and before any sum shall
be set aside for or applied to the purchase, redemption or other acquisition of
Junior Stock.
  (c)          
Dividends on all shares of the Series C Preferred Stock shall begin to accrue
and be cumulative from and after the date of issuance thereof.  A dividend
period shall be deemed to commence on the business day following a monthly
dividend payment date herein specified and to end on the next
succeeding
  {M0083165.1
}
  business
monthly dividend payment date herein specified.
  4.              Amortization.
  (a)                    Monthly
Payments.  Subject to the terms of this Section 4, the
Corporation shall redeem the original Stated Value of the Series C Preferred
Stock (to the extent such amount has not been converted pursuant to
Section 6 below) according to the schedule set forth below, together
with the dividend accrued to date on such portion of the original Stated Value
plus any and all default payments owing under the Securities Purchase Agreement
dated November 25, 2003 between the Corporation and Laurus Master Fund,
Ltd. (the “Purchase
Agreement”) but not previously paid (collectively the “Monthly Amount”), in
accordance with Section 4(b) below, on the first business day of each
consecutive calendar month (each, a “Repayment Date”), beginning on
March 1, 2004.
 
 Date
              
              Required
      redemption
              Date
              
              Required
      redemption3/1/2004
              
              
              $25,000
              
              1/1/2005
              
              
              $165,0004/1/2004
              
              
              $33,000
              
              2/1/2005
              
              
              $173,0005/1/2004
              
              
              $41,000
              
              3/1/2005
              
              
              $181,0006/1/2004
              
              
              $49,000
              
              4/1/2005
              
              
              $189,0007/1/2004
              
              
              $57,000
              
              5/1/2005
              
              
              $197,0008/1/2004
              
              
              $65,000
              
              6/1/2005
              
              
              $985,0009/1/2004
              
              
              $73,00010/1/2004
              
              
              $81,00011/1/2004
              
              
              $89,00012/1/2004
              
              
              $97,000
  (b)                  Any
conversions will be applied to the closest upcoming amortization payment. For
example, if prior to March 1, $50,000 of principal relating to this series
of Preferred Stock, no cash payment would be required for March and $25,000
would be applied to the April payment resulting in the April 1,
payment being reduced to $8,000.
  (c)              Cash or Common
Stock.  Subject to the terms hereof, the Corporation has the sole
option to determine whether to satisfy payment of the Monthly Amount in full on
each Repayment Date either in cash or in shares of Common Stock, or a
combination of both.  The Corporation shall deliver to the Holder a written
irrevocable notice in the form of Exhibit B attached hereto electing to pay such
Monthly Amount in full on such Repayment Date in either cash or Common Stock, or
a combination of both (“Repayment Election Notice”).
Such Repayment Election Notice shall be delivered to the Holder at least twenty
(20) days prior to the applicable Repayment Date (the date of such notice being
hereinafter referred to as the “Notice Date”). If such
Repayment Election Notice is not delivered within the prescribed period set
forth in the preceding sentence, then the repayment shall be made in shares of
Common Stock on the same terms hereunder.  If the Corporation elects or is
required to repay all or a portion of the Monthly Amount in cash on a Repayment
Date, then on such Repayment Date the Corporation shall pay to the Holder an
amount equal to 105% of the Monthly Amount (excluding any fees which have been
included in such Monthly Amount) in satisfaction of such obligation.  If
the Corporation repays all or a portion of the Monthly Amount in shares of
Common Stock, the number of such shares to be issued for such Repayment Date
shall be the number determined by dividing (x) the portion of the Monthly Amount
to be paid in shares of Common Stock, by (y) the Fixed Conversion Price (as
defined herein) as of such date.
  (d)                 No Effective
Registration.  Notwithstanding anything to the contrary herein, the
Corporation shall be prohibited from exercising its right to repay the Monthly
Amount in shares of Common Stock (and must deliver cash in respect thereof) on
the applicable Repayment Date if at any time from the Notice Date until the time
at which the Holder receives such shares there fails to exist an effective
registration statement or an Event of Default hereunder exists or occurs, unless
otherwise waived in writing by the Holder in whole or in part at the Holder’s
option.
  (e)                 Share Price/Issuance
Limitations.  Notwithstanding anything to the contrary herein, if
the closing price of the Common Stock as reported by Bloomberg, L.P. on the
Principal Market for any of the 11 trading
  {M0083165.1
}
  days
preceding a Repayment Date was less than $7.35, the Corporation would be
required to pay such Monthly Amount in cash.
  (f)                    Deemed
Conversions.  Any repayment of the Monthly Amount in shares of
Common Stock pursuant to the terms hereof shall constitute and be deemed a
conversion of such portion of the applicable Stated Value of the Series C
Preferred Stock for all purposes under this Certificate and the Purchase
Agreement (except as otherwise provided herein).
  5.                    Liquidation
Rights.
  (a)          
Upon the dissolution, liquidation or winding-up of the Corporation, whether
voluntary or involuntary, the Holder shall be entitled to receive, after any
payment or distribution shall be made on the Senior Securities, but before any
payment or distribution shall be made on the Junior Stock, out of the assets of
the Corporation available for distribution to stockholders, the greater of (i)
the unpaid Stated Value per share of Series C Preferred Stock and all accrued
and unpaid dividends to and including the date of payment thereof or (ii) the
number of shares that would be issuable upon conversion of the Stated Value and
accrued dividends multiplied by the highest closing price for the five trading
days immediately preceding such liquidation payment date.  Upon the payment
in full of all amounts due to Holder the holders of the Common Stock of the
Corporation and any other class of Junior Stock shall receive all remaining
assets of the Corporation legally available for distribution.  If the
assets of the Corporation available for distribution to the Holder shall be
insufficient to permit payment in full of the amounts payable as aforesaid to
the Holder upon such liquidation, dissolution or winding-up, whether voluntary
or involuntary, then all such assets of the Corporation shall be distributed to
the exclusion of the holders of shares of Junior Stock ratably among the
Holder.
  (b)          Neither
the purchase nor the redemption by the Corporation of shares of any class of
stock nor the merger or consolidation of the Corporation with or into any other
corporation or corporations nor the sale or transfer by the Corporation of all
or any part of its assets shall be deemed to be a liquidation, dissolution or
winding-up of the Corporation for the purposes of this paragraph 5.
  6.                     Conversion into Common
Stock.  Shares of Series C Preferred Stock shall have the following
conversion rights and obligations:
  (a)          Subject
to the further provisions of this paragraph 6 each Holder shall have the right
at any time commencing after the issuance to the Holder of Series C Preferred
Stock, to convert such shares into fully paid and non-assessable shares of
Common Stock of the Corporation (as defined in paragraph 6(i) below) determined
in accordance with the Fixed Conversion Price provided in paragraph 6(b)
below.  All issued or accrued but unpaid dividends may be converted at the
election of the Holder simultaneously with the conversion of the Stated Value of
Series C Preferred Stock being converted.  In the event of any conversions
of outstanding Stated Value under the Series C Preferred Stock in part pursuant
to this Section 6, such conversions shall be deemed to constitute
conversions of outstanding Stated Value applying to Monthly Amounts for the
Repayment Dates in chronological order.
  (b)           The
number of shares of Common Stock issuable upon conversion of each share of
Series C Preferred Stock shall equal (i) the sum of (A) the Stated Value per
share and (B) at the Holder’s election accrued and unpaid dividends on such
share, divided by (ii) $6.75 (the “Fixed Conversion
Price”).
  In the
event that (i) an Event of Default has occurred and (ii) as of the end of the
Default Notice Period (as defined in Section 9 below), the Corporation
shall have failed (i) to cure the Event of Default; (ii) to redeem the Holder’s
Series C Preferred Stock for cash in accordance with Section 9 below or
(iii) to receive a waiver, in writing, from the Holder that so long as the
Event of Default continues the conversion price shall be equal to the greater of
(i) the lower of (A) the Fixed Conversion Price or (B) seventy percent (70%) of
the average of the three lowest closing prices for the Common Stock on NASD OTC
Bulletin Board, NASDAQ SmallCap Market, NASDAQ National Market System, American
Stock Exchange, or New York Stock Exchange (whichever of the foregoing is at the
time the principal trading exchange or market for the Common Stock, the “Principal Market”), or on any
securities exchange or other securities market on which the Common Stock is then
being listed or traded, for the thirty (30) trading days prior to but not
including the Conversion Date or (ii) $2.02.
  {M0083165.1
}
  
  (c)                  The
Holder of any certificate for shares of Series C Preferred Stock desiring to
convert any of such shares may give notice of its decision to convert the shares
into Common Stock by delivering or telecopying an executed and completed notice
of conversion to the Corporation (the “Conversion Date”). Each date
on which a notice of conversion is delivered or telecopied to the Corporation in
accordance with the provisions hereof shall be deemed a Conversion Date.  A
form of Notice of Conversion that may be employed by a Holder is annexed hereto
as Exhibit A.  The Corporation will cause the transfer agent to transmit
the shares of the Common Stock issuable upon conversion of the Series C
Preferred Stock (and a certificate representing the balance of the Series C
Preferred Stock not so converted, if requested by Purchaser) to the Holder by
crediting the account of the Holder’s prime broker with the Depository Trust
Company (“DTC”) through
its Deposit Withdrawal Agent Commission (“DWAC”) system within three (3)
business days after receipt by the Corporation of the Notice of Conversion (the
“Delivery Date”). 
The Corporation is obligated to deliver to the Holder simultaneously with the
aforedescribed Common Stock, at the election of the Holder, additional shares of
Common Stock representing the conversion at the Fixed Conversion Price, of
dividends accrued on the Series C Preferred Stock being converted.
  In the
case of the exercise of the conversion rights set forth in paragraph 6(a) the
conversion privilege shall be deemed to have been exercised and the shares of
Common Stock issuable upon such conversion shall be deemed to have been issued
upon the date of receipt by the Corporation or Transfer Agent of the Notice of
Conversion.  The person or entity entitled to receive Common Stock issuable
upon such conversion shall, on the date such conversion privilege is deemed to
have been exercised and thereafter, be treated for all purposes as the record
Holder of such Common Stock and shall on the same date cease to be treated for
any purpose as the record Holder of such shares of Series C Preferred Stock so
converted.
  Upon the
conversion of any shares of Series C Preferred Stock no adjustment or payment
shall be made with respect to such converted shares on account of any dividend
on the Common Stock, except that the Holder of such converted shares shall be
entitled to be paid any dividends declared on shares of Common Stock after
conversion thereof.
  The
Corporation shall not be required, in connection with any conversion of Series C
Preferred Stock, and payment of dividends on Series C Preferred Stock to issue a
fraction of a share of its Series C Preferred Stock and shall instead deliver a
stock certificate representing the next whole number.
  (d)                  The
Fixed Conversion Price determined pursuant to 6(b) shall be subject to
adjustment from time to time as follows: In case the Corporation shall at
any time (A) declare any stock dividend or distribution of stock on its
Common Stock or other securities of the Corporation other than the Series C
Preferred Stock,  (B) split or subdivide the outstanding Common Stock, (C)
combine the outstanding Common Stock into a smaller number of shares, or (D)
issue by reclassification of its Common Stock any shares or other securities of
the Corporation, then in each such event the Fixed Conversion Price shall be
adjusted proportionately so that the Holder shall be entitled to receive the
kind and number of shares or other securities of the Corporation which such
Holder would have owned or have been entitled to receive after the happening of
any of the events described above had such shares of Series C Preferred Stock
been converted immediately prior to the happening of such event (or any record
date with respect thereto).  Such adjustment shall be made whenever any of
the events listed above shall occur. An adjustment made to the conversion
pursuant to this paragraph 6(d) shall become effective immediately after the
effective date of the event retroactive to the record date, if any, for the
event. Notwithstanding the foregoing , no adjustments will be made upon
issuances of any securities issued upon the exercise or conversion of currently
issued and outstanding options, warrants, or convertible
securities.
  (e)                (i)                    In
case of any merger of the Corporation with or into any other corporation (other
than a merger in which the Corporation is the surviving or continuing
corporation and which does not result in any reclassification, conversion, or
change of the outstanding shares of Common Stock) then unless the right to
convert shares of Series C Preferred Stock shall have terminated, as part of
such merger, lawful provision shall be made so that Holder shall thereafter have
the right to convert each share of Series C Preferred Stock into the kind and
amount of shares of stock and/or other securities or property receivable upon
such merger by a Holder of the number of shares of Common Stock into which such
shares of Series C Preferred Stock might have been converted immediately prior
to such consolidation or merger.  Such provision shall also provide for
adjustments which shall be
  {M0083165.1
}
  as nearly
equivalent as may be practicable to the adjustments provided for in paragraph
6(d).  The foregoing provisions of this paragraph 6(e) shall similarly
apply to successive mergers.
  (ii)                  In
case of any sale or conveyance to another person or entity of the property of
the Corporation as an entirety, or substantially as an entirety, in connection
with which shares or other securities or cash or other property shall be
issuable, distributable, payable, or deliverable for outstanding shares of
Common Stock, then, unless the right to convert such shares shall have
terminated, lawful provision shall be made so that the Holder shall thereafter
have the right to convert each share of the Series C Preferred Stock into the
kind and amount of shares of stock or other securities or property that shall be
issuable, distributable, payable, or deliverable upon such sale or conveyance
with respect to each share of Common Stock immediately prior to such
conveyance.
  (f)                  Whenever
the number of shares to be issued upon conversion of the Series C Preferred
Stock is required to be adjusted as provided in this paragraph 6, the
Corporation shall forthwith compute the adjusted number of shares to be so
issued and prepare a certificate setting forth such adjusted conversion amount
and the facts upon which such adjustment is based, and such certificate shall
forthwith be filed with the Transfer Agent for the Series C Preferred Stock
and the Common Stock; and the Corporation shall mail to each Holder notice of
such adjusted conversion price.
  (g)         In
case at any time the Corporation shall propose:
  (i)                  to
pay any dividend or distribution payable in shares upon its Common Stock or make
any distribution (other than cash dividends) to the holders of its Common Stock;
or
  (ii)                    to
offer for subscription any additional shares of any class or any other rights
(except offerings made in connection with strategic business transactions or
joint ventures with the Company) at a price less than the then closing price of
such shares as such price is quoted on a Principal Market on the date of such
issuance; or
  (iii)                   any
capital reorganization or reclassification of its shares or the merger of the
Corporation with another corporation (other than a merger in which the
Corporation is the surviving or continuing corporation and which does not result
in any reclassification, conversion, or change of the outstanding shares of
Common Stock); or
  (iv)                   the
voluntary dissolution, liquidation or winding-up of the
Corporation;
  then, and
in any one or more of said cases, the Corporation shall cause at least fifteen
(15) days prior notice of the date on which (A) the books of the Corporation
shall close or a record be taken for such stock dividend, distribution, or
subscription rights, or (B) such capital reorganization, reclassification,
merger, dissolution, liquidation or winding-up shall take place, as the case may
be, to be mailed to the Transfer Agent for the Series C Preferred Stock, if any,
and for the Common Stock and to the Holder.
  If the
Corporation issues any additional shares pursuant to Section 6(g)(ii) above
then, and thereafter successively upon each such issue, the Fixed Conversion
Price shall be adjusted by multiplying the then applicable Fixed Conversion
Price by the following fraction:
   A +
      B(A
      + B) + [((C – D) x B) / C]
  A =
Actual shares outstanding prior to such offering
  B
= Actual shares sold in the offering
  C =
Closing market price of the Company’s common stock on the date of such
offering
 D =
Offering price
  {M0083165.1
}
  (h)          
So long as any shares of Series C Preferred Stock shall remain outstanding and
the Holder thereof shall have the right to convert the same in accordance with
provisions of this paragraph 6 the Corporation shall at all times reserve from
the authorized and unissued shares of its Common Stock a sufficient number of
shares to provide for such conversions.
  (i)           The
term Common Stock as used in this paragraph 6 shall mean the $.10 par value
Common Stock of the Corporation as such stock is constituted at the date of
issuance thereof or as it may from time to time be changed or shares of stock of
any class of other securities and/or property into which the shares of Series C
Preferred Stock shall at any time become convertible pursuant to the provisions
of this paragraph 6.
  (j)                 The
Corporation shall pay the amount of any and all issue taxes (but not income
taxes) which may be imposed in respect of any issue or delivery of stock upon
the conversion of any shares of Series C Preferred Stock, but all transfer taxes
and income taxes that may be payable in respect of any change of ownership of
Series C Preferred Stock or any rights represented thereby or of stock
receivable upon conversion thereof shall be paid by the person or persons
surrendering such stock for conversion.
  (k)                  Overall Limit on Common
Stock Issuable.  For so long as the Corporation is subject to the
rules of the American Stock Exchange, or other similar exchange, the number of
shares of Common Stock issuable by the Corporation and acquirable by a holder
hereunder, shall not exceed 19.9% of the issued and outstanding shares of Common
Stock of the Corporation (the “Maximum Common Stock
Issuance”), unless the issuance of shares hereunder in excess of the
Maximum Common Stock Issuance shall first be approved by the Corporation’s
stockholders.  If at any point in time and from time to time (each, a
“Trigger Date”) the
number of shares of Common Stock issued pursuant to conversion of the Series C
Preferred Stock, together with the number of shares of Common Stock that would
then be issuable by the Corporation in the event of the conversion of the entire
Stated Value, would exceed the Maximum Common Stock Issuance but for this
Section, then the Corporation shall, at the Corporation’s election, either (a)
promptly call a shareholders meeting to obtain shareholder approval for the
issuance of the shares of Common Stock hereunder in excess of the Maximum Common
Stock Issuance, which such shareholder approval shall be obtained within 60 days
of the Trigger Date, or (b) purchase from the Holder such Stated Value of the
Series C Preferred Stock plus accrued dividends which cannot be converted due to
such Maximum Common Stock Issuance limitation at the conversion price then in
effect, which such payment shall be paid within five (5) business days after a
Trigger Date if this clause (b) is elected, or, if clause (a) is elected, five
(5) business days following the Corporation’s failure to so obtain shareholder
approval, as the case may be.  The Corporation shall make such election
within three (3) business days following the Trigger Date by giving written
notice to the Holder.
  7.                    Mandatory
Conversion.  Except as set forth in Section 4 hereof, the
shares of Series C Preferred Stock and dividends may not be converted without
the consent of the Holder.
  8.                   Voting Rights. 
The shares of Series C Preferred Stock shall not have voting
rights.
 
 9.                     Event of
Default.  In the event that any of the following events shall occur,
and shall not be cured within 30 days of written notice from the Holder to the
Corporation (except with respect to Section 9.1 and 9.8 below, for which
the cure period shall be as set forth therein) (each occurrence being a “Default Notice Period”) or
waived in writing by the Holder (such circumstance being an “Event of Default”), for so
long as the Event of Default is continuing the dividend rate of 5% described in
Section 3 above to become 15% and the Holder shall have the right to elect
to have the Corporation redeem the Series C Preferred Stock.  Any such
redemption shall be effected by the prompt payment to the Holder by the
Corporation of a sum of money equal to 130% of the outstanding Stated Value of
the shares of Series C Preferred Stock, plus accrued and unpaid
dividends.
  9.1.                 Failure to Make
Payment.  The Corporation fails to pay any payment required to be
paid pursuant to the terms of hereof or the failure to timely pay any other sum
of money due to the Holder from the Corporation and such failure continues for a
period of five (5) business days after written notice to the Corporation from
the Holder.
  9.2.                   Breach of
Covenant.  The Corporation breaches any of the covenants in Sections
6.2, 6.5, 6.12, 6.13, 9.1, 9.2, 9.4 or 10 of the Purchase Agreement in any
material respect except that (i) a breach of
  {M0083165.1
}
  Section 9.1
of the Purchase Agreement shall not be deemed to have occurred provided the
Corporation has filed a registration statement by the Filing Date (as defined in
the Purchase Agreement) and responds within a reasonable time frame to any SEC
comment letters with respect to such registration statement.
  9.3.                  Breach of Representations
and Warranties.  Any representation or warranty of the Corporation
made in Section 4 of the Purchase Agreement shall be false or misleading
except for any such breach which does not have a material adverse effect on the
business or financial condition of the Corporation, taken as a
whole.
  9.4.                  Receiver or
Trustee.  The Corporation shall make an assignment for the benefit
of creditors, or apply for or consent to the appointment of a receiver or
trustee for it or for a substantial part of its property or business; or such a
receiver or trustee shall otherwise be appointed.
  9.5.                  Bankruptcy. 
Bankruptcy, insolvency, reorganization or liquidation proceedings or other
proceedings or relief under any bankruptcy law or any law for the relief of
debtors shall be instituted by or against the Corporation.
  9.6.                  Delisting. 
Delisting of the Common Stock from the every Principal Market or such other
principal exchange on which the Common Stock is listed for trading.
  9.7.                  Stop Trade.  An
SEC stop trade order or Principal Market trading suspension of more than three
consecutive trading days.
  9.8.                  Failure to Deliver Common
Stock.  The Corporation’s failure to timely deliver Common Stock to
the Holder pursuant to and in the form required hereof and Section 8 of the
Purchase Agreement and continues for five (5) business days after receipt of
notice of conversion.
  10.                    Mandatory
Redemption.  The Corporation shall redeem the shares of Series C
Preferred Stock, including accrued but unpaid dividends thereon, no later than
18 months from the date of issuance thereof.
  11.                   Status of Converted or
Redeemed Stock.  In case any shares of Series C Preferred Stock
shall be redeemed or otherwise repurchased or reacquired, the shares so
redeemed, converted, or reacquired shall resume the status of authorized but
unissued shares of Preferred Stock and shall no longer be designated as Series C
Preferred Stock.
    {M0083165.1
}
  EXHIBIT
A
  NOTICE OF
CONVERSION
  (To Be
Executed By the Registered Holder in Order to Convert the Series C Convertible
Preferred Stock of Implant Sciences Corporation)
  The
undersigned hereby irrevocably elects to convert $ __________ of the Stated
Value of the above Series C Convertible Preferred Stock and $__________ of the
dividend due, into shares of Common Stock of Implant Sciences Corporation (the
“Corporation”) according to the conditions hereof, as of the date written
below.
  Conversion
      Date:Fixed
      Conversion Price per share:Number
      of Common Stock issuable upon this conversion:Signature:Print
      Name:Address:Deliveries
      pursuant to this notice of conversion should be made
to:
  
 
  
 
   {M0083165.1
}
  THE
COMMONWEALTH OF MASSACHUSETTS
   CERTIFICATE
OF VOTE OF DIRECTORS ESTABLISHING
 A
SERIES OF A CLASS OF STOCK
 (General
Laws, Chapter 156B, Section 26)
  I
      hereby approve the within Certificate of Vote of Directors and,
      the
 filing
      fee in the amount of $_____ having been
paid,
 said
      certificate is deemed to have been filed with me this
  _____
 day
      of ___________________, _____.
  Effective
      Date: _________________________
  
 
 
 WILLIAM
FRANCIS GALVIN
 Secretary
of the Commonwealth
   
 
 TO
BE FILLED IN BY CORPORATION
 Photo
copy of certificate to be sent to:
 
 
 Ellenoff
Grossman & Schole LLP
 370
Lexington Ave., 19th
Floor
 New York,
New York 10017 Attention: Barry Grossman, Esq.
 Telephone:
212-370-1300
 
  {M0083165.1
}
  THE
COMMONWEALTH OF MASSACHUSETTS
  I hereby
certify that, upon examination of this document, duly submitted to me, it
appears
 that the
provisions of the General Laws relative to corporations have been complied
with,
 and I
hereby approve said articles; and the filing fee having been paid, said articles
are
 deemed to
have been filed with me on:
 
 December
11, 2003
 
 
  /s/
William Francis Galvin
 
 WILLIAM
FRANCIS GALVIN
 Secretary
of the Commonwealth
  
    {M0083165.1
}
  The
Commonwealth of Massachusetts
 William
Francis Galvin
 Secretary
of the Commonwealth
 One
Ashburton Place, Boston, Massachusetts 02108-1512
  Articles
of Amendment
 (General
Laws Chapter 156D, Section 10.06; 950 CMR 113.34)
  
 (1)
              Exact
      name of corporation:  Implant Sciences
    Corporation
 
 (2)
              Registered
      office address:  107 Audubon Road, Wakefield,
      MA 01880
 (number, street, city or town, state,
zip code)
 
 (3)
              These
      articles of amendment affect article(s):  III,
  IV
 (specify
the number(s) of article(s) being amended (I-VI))
 
 (4)
              Date
      adopted:  December 13,
2005
 (month, day,
year)
 
 (5)
              Approved
      by:
  (check appropriate box)
 
 [     ]           the
incorporators.
 
 [     ]           the
board of directors without shareholder approval and shareholder approval was not
required.
 
 [
      x  ]
              the
      board of directors and the shareholders in the manner required by law and
      the articles of organization.
 
 (6)
              State
      the article number and the text of the amendment. Unless contained in the
      text of the amendment, state the provisions for implementing the exchange,
      reclassification or cancellation of issued
  shares.
 
 Article
      III
 
 State to
total number of shares and par value, if any, of each class of stock with the
Corporation is authorized to issue:
 
 Without
      par value
              With
      par valueType
              number
      of shares
              Type
              number
      of shares
              Par
      valueCommon
              
              Common
              50,000,000
              $.10Preferred
              
              Preferred
              5,000,000
              $.10
 
 Article
IV A. Designation and Classification of Stock
 
 The
aggregate number of shares of capital stock which the Corporation has authority
to issue is 55,000,000 consisting of (1) 50,000,000 shares of Common Stock,
$0.10 par value per share (the “Common Stock”); and (2) 5,000,000 shares of
Preferred Stock, $0.10 par value per share (the “Preferred Stock”).
 
 Articles IV B. and IV C. shall remain
unchanged.
 To change
the number of shares and the par value,* if any, of any type, or to designate a
class or series, of stock, or change a designation of class or series of stock,
which the corporation is authorized to issue, complete the
following:
 
 Total
authorized prior to amendment:
 
 WITHOUT
      PAR VALUE
              WITH
      PAR VALUETYPE
              NUMBER
      OF SHARES
              TYPE
              NUMBER
      OF SHARES
              PAR
      VALUECommon
              20,000,000
              $.10Preferred
              5,000,000
              $.10
 
 
 Total
authorized after amendment:
 
 WITHOUT
      PAR VALUE
              WITH
      PAR VALUETYPE
              NUMBER
      OF SHARES
              TYPE
              NUMBER
      OF SHARES
              PAR
      VALUECommon
              50,000,000
              $.10Preferred
              5,000,000
              $.10
 
 (7)
              The
      amendment shall be effective at the time and on the date approved by the
      Division, unless a later effective date of not more than 90 days from the
      date and time of filing is specified:
  ___________________.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 *           G.L.
Chapter 156D eliminates the concept of par value, however a corporation may
specify par value in Article III. See G.L. Chapter 156D, Section 6.21, and the
comments relative thereto.
 
 Signed
by:                      /s/
Diane J. Ryan
 (signature of authorized
officer)  Diane J. Ryan
  [    ]           Chairman
of the board of directors
 
 [    ]           President
 
 [
x  ]           Other
officer
 
 [    ]           Court-appointed
fiduciary
 
 on this
3rd day of March, 2008.
   {M0083165.1
}
  COMMONWEALTH
OF MASSACHUSETTS
 
 William
Francis Galvin
 Secretary
of the Commonwealth
 One
Ashburton Place, Boston, Massachusetts 02108-1512
 
 
 Articles
of Amendment
 (General
Laws Chapter 156D, Section 10.06; 950 CMR 113.34)
 
  I hereby
certify that upon examination of these articles of amendment, it
appears
 that the
provisions of the General Laws relative thereto have been complied
 with, and
the filing fee in the amount of $30,100 having been paid, said
articles
 are
deemed to have been filed with me this 10th day of
March, 2008, at 11:47 a.m./p.m.
 
 Effective
Date: __________________________
 (must
be within 90 days of date submitted)
 
 
  /s/
William Francis Galvin
 
 WILLIAM
FRANCIS GALVIN
 Secretary
of the Commonwealth
 
 Filing
fee:  Minimum filing fee $100 per article amended, stock increases
$100 per 100,000 shares, plus $100 for each additional 100,000 shares or any
fraction thereof.
  TO BE
FILLED IN BY CORPORATION
 Contact
Information:
 
 Diane J.
Ryan
 
 Implant
Sciences Corporation
 
 107
Audubon Road, Wakefield, MA 01880
 
 Telephone:
781-246-0700
 
 Email:  dryan@implantsciences.com
 
 Upon
filing, a copy of this filing will be available at www.sec.state.ma.us/cor.
 If the
document is rejected, a copy of the rejection sheet and rejected document
will
 be
available in the rejected queue.
 
 The
Commonwealth of Massachusetts
 William
Francis Galvin
 Secretary
of the Commonwealth
 One
Ashburton Place, Boston, Massachusetts 02108-1512
  Articles
of Amendment
 (General
Laws Chapter 156D, Section 10.06; 950 CMR 113.34)
  
 (1)
              Exact
      name of corporation:  Implant Sciences
    Corporation
 
 (2)
              Registered
      office address:  107 Audubon Road, Wakefield,
      MA 01880
 (number,
street, city or town, state, zip code)
 
 (3)
              These
      articles of amendment affect article(s):  IV,
  III
 (specify
the number(s) of article(s) being amended (I-VI))
 
 (4)
              Date
      adopted:  September 25,
2005
 (month,
day, year)
 
 (5)
              Approved
      by:
 
 (check
appropriate box)
 
 [     ]           the
incorporators.
 
 [  x
]           the board of
directors without shareholder approval and shareholder approval was not
required.
 
 [     ]
              the
      board of directors and the shareholders in the manner required by law and
      the articles of organization.
 
 (6)
              State
      the article number and the text of the amendment. Unless contained in the
      text of the amendment, state the provisions for implementing the exchange,
      reclassification or cancellation of issued
  shares.
 
 Article
IV – Please see Article IV Continuation Sheet 1
 
  {M0083165.1
}
  To change
the number of shares and the par value,* if any, of any type, or to designate a
class or series, of stock, or change a designation of class or series of stock,
which the corporation is authorized to issue, complete the
following:
 
 Total
authorized prior to amendment:
 
 WITHOUT
      PAR VALUE
              WITH
      PAR VALUETYPE
              NUMBER
      OF SHARES
              TYPE
              NUMBER
      OF SHARES
              PAR
      VALUECommon
              50,000,000
              $.10Preferred
              5,000,000
              $.10
 
 
 Total
authorized after amendment:
 
 WITHOUT
      PAR VALUE
              WITH
      PAR VALUETYPE
              NUMBER
      OF SHARES
              TYPE
              NUMBER
      OF SHARES
              PAR
      VALUECommon
              50,000,000
              $.10Preferred
              5,000,000
              $.10Series
      D Preferred
              500,000
              $.10
 
 (7)
              The
      amendment shall be effective at the time and on the date approved by the
      Division, unless a later effective date of not more than 90 days from the
      date and time of filing is specified:
  ___________________.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 *           G.L.
Chapter 156D eliminates the concept of par value, however a corporation may
specify par value in Article III. See G.L. Chapter 156D, Section 6.21, and the
comments relative thereto.
 
 
  Continuation Sheet
1
  Articles
of Amendment
 
 IMPLANT
SCIENCES CORPORATION
  VOTED:
              That,
      pursuant to the authority expressly granted to and vested in the Board of
      Directors of the Corporation by the provisions of Article IV of the
      Amended and Restated Articles of Organization of the Corporation (the
      “Articles of
      Organization”) and Section 26 of the Massachusetts Business
      Corporation Law of the Commonwealth of Massachusetts, the Board of
      Directors hereby creates, from the 5,000,000 shares of Preferred Stock,
      par value $.10 per share (the “Preferred
      Stock”), of the Corporation authorized to be issued pursuant to the
      Amended and Restated Articles of Organization a series of Preferred Stock,
      consisting of 500,000 shares of Series D Cumulative Convertible
      Preferred Stock (the “Series D
      Preferred Stock”), and hereby fixes the powers, designations,
      preferences and qualifications, limitations or restrictions thereof, of
      the shares of such Series Ds set forth in Exhibit A
      hereto (the “Certificate of Vote of
      Directors”).
   {M0083165.1
}
  
 
  EXHIBIT A
  TERMS OF
SERIES D
 CUMULATIVE
CONVERTIBLE PREFERRED STOCK
 OF
 IMPLANT
SCIENCES CORPORATION
  1.           Designation: Number of
Shares. The designation of said series of Preferred Stock shall be
Series D Cumulative Convertible Preferred Stock (the “Series D Preferred
Stock”). The number of shares of Series D Preferred Stock shall be
500,000. Each share of Series D Preferred Stock shall have a stated value
equal to $10 (as adjusted for any stock dividends, combinations or splits with
respect to such shares) (the “Stated Value”), and $.10 par
value.
  2.           Ranking. The
Series D Preferred Stock shall rank (i) prior to the Corporation’s
common stock, par value $.10 per share (“Common Stock”);
(ii) except as provided in clause (iii) below, prior to any class or
series of capital stock of the Corporation hereafter created (unless, with the
consent of the holder of Series D Preferred Stock (the “Holder”) (which may be
withheld in such Holder’s sole and absolute discretion), such class or series of
capital stock specifically, by its terms, ranks senior to or Pari Passu with the
Series D Preferred Stock); (iii) Pari Passu with any class or series
of capital stock of the Corporation hereafter created specifically ranking, by
its terms, on parity with the Series D Preferred Stock and Pari Passu with
the Series D Preferred Stock of the Corporation (“Pari Passu Securities”); and
(iv) junior to any class or series of capital stock of the Corporation
hereafter created (with the consent of the Holder (which may be withheld in
Holder’s sole and absolute discretion) obtained in accordance with
Section 6(g) hereof) specifically ranking, by its terms, senior to the
Series D Preferred Stock (“Senior Securities”), in each
case as to distribution of assets upon liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary.
  3.           Dividends. The Holder
shall be entitled to receive preferential dividends in cash out of any funds of
the Corporation legally available at the time for declaration of dividends
before any dividend or other distribution will be paid or declared and set apart
for payment on any shares of any Common Stock, or other class of stock presently
authorized but not yet issued, or to be authorized (the Common Stock, and such
other stock being hereinafter collectively the “Junior Stock”), (but after any
dividend or other distribution will be paid or declared and set apart for
payment on any shares of any Senior Securities), shall accrue at a rate per
annum equal to the “prime rate” published in The Wall Street Journal from time
to time (the “Prime
Rate”), plus one percent (1.0%) (the “Contract Rate”) per annum on
the Stated Value per share payable monthly commencing one month from the date
hereof and on the first business day of each consecutive month thereafter when
as and if declared, at the Corporation’s option; provided, however, that
dividend payments may, in the sole discretion of the Corporation, be made in
fully paid and non-assessable shares of Common Stock which are subject to an
effective registration statement at the Fixed Conversion Price (as defined
herein) then in effect, and the issuance of such additional shares shall
constitute full payment of such dividend. The Contract Rate shall be increased
or decreased as the case may be for each increase or decrease in the Prime Rate
in an amount equal to such increase or decrease in the Prime Rate; each change
to be effective as of the day of the change in the Prime Rate.
  (a)           The
Contract Rate shall be calculated on the last business day of each calendar
month hereafter (other than for increases or decreases in the Prime Rate which
shall be calculated and become effective in accordance with the terms of
Section 1.1) until the Mandatory Redemption Date (as defined herein) Date
(each a “Determination
Date”) and shall be subject to adjustment as set forth herein. If
(i) the Company shall have registered the shares of the Common Stock
underlying the conversion of the Series D Preferred Stock on a registration
statement declared effective by the Securities and Exchange Commission (the
“SEC”), and
(ii) the market price (the “Market Price”) of the Common
Stock as reported by Bloomberg, L.P. on the Principal Market for the five
(5) trading days immediately preceding a Determination Date exceeds the
then applicable Fixed Conversion Price (hereinafter defined) by at least
twenty-five percent (25%), the Contract Rate for the succeeding calendar month
shall automatically be reduced by 200 basis points (200 b.p.) (2%) for each
incremental twenty-five percent (25%) increase in the Market Price of the Common
Stock above the then applicable Fixed Conversion Price. Notwithstanding the
foregoing (and anything to the contrary contained herein), in no event shall the
Contract Rate
  {M0083165.1
}
  be less
than zero percent (0%).
  (b)           The
dividends on the Series D Preferred Stock at the rates provided above shall
be cumulative whether or not declared so that, if at any time full cumulative
dividends at the rate aforesaid on all shares of the Series D Preferred
Stock then outstanding from the date from and after which dividends thereon are
cumulative to the end of the monthly dividend period next preceding such time
shall not have been paid or declared and set apart for payment, or if the full
dividend on all such outstanding Series D Preferred Stock for the then
current dividend period shall not have been paid or declared and set apart for
payment, the amount of the deficiency shall be paid or declared and set apart
for payment (but without interest thereon) before any sum shall be set apart for
or applied by the Corporation or a subsidiary of the Corporation to the
purchase, redemption or other acquisition of the Series D Preferred Stock
or Pari Passu Securities and before any dividend or other distribution shall be
paid or declared and set apart for payment on any Junior Stock and before any
sum shall be set aside for or applied to the purchase, redemption or other
acquisition of Junior Stock.
  (c)           Dividends
on all shares of the Series D Preferred Stock shall begin to accrue and be
cumulative from and after the date of issuance thereof. A dividend period shall
be deemed to commence on the business day following a monthly dividend payment
date herein specified and to end on the next succeeding business monthly
dividend payment date herein specified.
  4.           Redemption.
  (a)           Monthly Redemption
Payments. Subject to the terms of this Section 4, beginning on
January 1, 2006, and on the first day of each month thereafter until the
Mandatory Redemption Date (each, a “Repayment Date”), the
Corporation shall redeem the original Stated Value of the Series D
Preferred Stock (to the extent such amount has not been converted pursuant to
Section 6 below) by $151,515.20 (the “Monthly Redemption
Amount”) together
with the dividend accrued to date on such portion of the original Stated Value
plus any and all payments due and owing but not previously paid under the
Securities Purchase Agreement dated September 30, 2005 between the
Corporation and Laurus Master Fund, Ltd. (the “Purchase Agreement”) and the
Related Agreements referred to therein, (collectively the “Monthly Amount”), in
accordance with Section 4(b) below.
  (b)         Any
conversions will be applied to the closest upcoming amortization payment. For
example, if between January 1, 2006 and January 31, 2006, the Holder
converts $100,000 of Stated Value of the Series D Preferred Stock into
shares of Common Stock, then the Monthly Redemption Amount due on
February 1, 2006 shall be $51,515.20;provided, however, that as
set forth in Section 6(a) herein, any such conversion shall be limited
to such number of shares which shall equal the subsequent month’s Monthly
Amount.
  (c)           Payment in Cash or Common
Stock. If the Monthly Amount (or a portion of such Monthly Amount if not
all of the Monthly Amount may be converted into shares of Common Stock pursuant
to Section 4(d) is required to be paid in cash pursuant to
Section 4(f), then the Company shall pay the Holder an amount in cash equal
to 100% of the Monthly Amount (or such portion of such Monthly Amount to be paid
in cash) due and owing to the Holder on the Repayment Date. If the Monthly
Amount (or a portion of such Monthly Amount if not all of the Monthly Amount may
be converted into shares of Common Stock pursuant to Section 4(d)) is
required to be paid in shares of Common Stock pursuant to Section 4(f), the
number of such shares to be issued by the Company to the Holder on such
Repayment Date (in respect of such portion of the Monthly Amount converted into
shares of Common Stock pursuant to Section 4(f), shall be the number
determined by dividing (i) the portion of the Monthly Amount converted into
shares of Common Stock, by (ii) the then applicable Fixed Conversion
Price.
 
 (d)           For
purposes hereof, subject to Section 3.6 hereof, the initial “Fixed Conversion Price” means
$6.80 which has been determined on the date of this Series D Preferred
Stock as an amount equal to 105% of the average closing price of the Common
Stock for the [ten (10)] trading days immediately prior to the date of this
Series D Preferred Stock].
  (e)           Monthly Amount Conversion
Conditions. Subject to Sections 4(c), 4(d) and
4(f) hereof, the Holder shall convert into shares of Common Stock all or a
portion of the Monthly Amount due on each Repayment Date if the following
conditions (the “Conversion
Criteria”) are satisfied: (i) the average closing
price
  {M0083165.1
}
  of the
Common Stock as reported by Bloomberg, L.P. on the Principal Market for the five
(5) trading days immediately preceding such Repayment Date shall be greater
than or equal to 110% of the Fixed Conversion Price and (ii) the amount of
such conversion does not exceed twenty five percent (25%) of the aggregate
dollar trading volume of the Common Stock for the period of twenty-two (22)
trading days immediately preceding such Repayment Date. If
subsection (i) of the Conversion Criteria is met but
subsection (ii) of the Conversion Criteria is not met as to the entire
Monthly Amount, the Holder shall convert only such part of the Monthly Amount
that meets subsection (ii) of the Conversion Criteria. Any portion of
the Monthly Amount due on an Repayment Date that the Holder has not been able to
convert into shares of Common Stock due to the failure to meet the Conversion
Criteria, shall be paid in cash by the Company at the rate of 100% of the
Monthly Amount otherwise due on such Repayment Date, within three
(3) business days of such Repayment Date.
  (f) No Effective
Registration. Notwithstanding anything to the contrary herein, none of
the Company’s obligations to the Holder may be converted into Common Stock
unless (a) either (i) an effective current Registration Statement (as
defined in the Registration Rights Agreement) covering the shares of Common
Stock to be issued in connection with satisfaction of such obligations exists or
(ii) an exemption from registration for resale of all of the Common Stock
issued and issuable is available pursuant to Rule 144 of the Securities Act
and (b) no Event of Default (as hereinafter defined) exists and is
continuing, unless such Event of Default is cured within any applicable cure
period or otherwise waived in writing by the Holder..
  (g) Share Price/Issuance
Limitations. Notwithstanding anything to the contrary herein, if the
closing price of the Common Stock as reported by Bloomberg, L.P. on the
Principal Market for any of the 5 trading days preceding a Repayment Date was
less than the Fixed Conversion Price, the Corporation would be required to pay
such Monthly Amount in cash.
  (h) Deemed Conversions.
Any repayment of the Monthly Amount in shares of Common Stock pursuant to the
terms hereof shall constitute and be deemed a conversion of such portion of the
applicable Stated Value of the Series D Preferred Stock for all purposes
under this Certificate and the Purchase Agreement (except as otherwise provided
herein).
  5.           Liquidation
Rights.
  (a)           Upon
the dissolution, liquidation or winding-up of the Corporation, whether voluntary
or involuntary, the Holder shall be entitled to receive, after any payment or
distribution shall be made on the Senior Securities, but before any payment or
distribution shall be made on the Junior Stock, out of the assets of the
Corporation available for distribution to stockholders, the greater of
(i) the unpaid Stated Value per share of Series D Preferred Stock and
all accrued and unpaid dividends to and including the date of payment thereof or
(ii) the number of shares that would be issuable upon conversion of the
Stated Value and accrued dividends multiplied by the highest closing price for
the five trading days immediately preceding such liquidation payment date. Upon
the payment in full of all amounts due to Holder the holders of the Common Stock
of the Corporation and any other class of Junior Stock shall receive all
remaining assets of the Corporation legally available for distribution. If the
assets of the Corporation available for distribution to the Holder shall be
insufficient to permit payment in full of the amounts payable as aforesaid to
the Holder upon such liquidation, dissolution or winding-up, whether voluntary
or involuntary, then all such assets of the Corporation shall be distributed to
the exclusion of the holders of shares of Junior Stock ratably among the
Holder.
  (b) Neither
the purchase nor the redemption by the Corporation of shares of any class of
stock nor the merger or consolidation of the Corporation with or into any other
corporation or corporations nor the sale or transfer by the Corporation of all
or any part of its assets shall be deemed to be a liquidation, dissolution or
winding-up of the Corporation for the purposes of this paragraph 5.
  6.           Conversion into Common
Stock. Shares of Series D Preferred Stock shall have the following
conversion rights and obligations:
  (a)           Subject
to the further provisions of this paragraph 6 each Holder shall have the right
at any time commencing after the issuance ot the Holder of the Series D
Preferred Stock to convert such shares into fully paid and non-assessable shares
of Common Stock of the Corporation (as defined in paragraph
6(i) below)
  {M0083165.1
}
  determined
in accordance with the Fixed Conversion Price provided in paragraph
6(b) below. All issued or accrued but unpaid dividends may be converted at
the election of the Holder simultaneously with the conversion of the Stated
Value of Series D Preferred Stock being converted. In the event of any
conversions of outstanding Stated Value under the Series D Preferred Stock
in part pursuant to this Section 6, such conversions shall be deemed to
constitute conversions of outstanding Stated Value applying to Monthly Amounts
for the Repayment Dates in chronological order.
  (b)           The
number of shares of Common Stock issuable upon conversion of each share of
Series D Preferred Stock shall equal (i) the sum of (A) the
Stated Value per share and (B) at the Holder’s election accrued and unpaid
dividends on such share, divided by (ii) $6.80 (the “Fixed Conversion
Price”).
  (c)           The
Holder of any certificate for shares of Series D Preferred Stock desiring
to convert any of such shares may give notice of its decision to convert the
shares into Common Stock by delivering or telecopying an executed and completed
notice of conversion to the Corporation (the “Conversion Date”). Each date
on which a notice of conversion is delivered or telecopied to the Corporation in
accordance with the provisions hereof shall be deemed a Conversion Date. A form
of Notice of Conversion that may be employed by a Holder is annexed hereto as
Exhibit A. The Corporation will cause the transfer agent to transmit the
shares of the Common Stock issuable upon conversion of the Series D
Preferred Stock (and a certificate representing the balance of the Series D
Preferred Stock not so converted, if requested by Purchaser) to the Holder by
crediting the account of the Holder’s prime broker with the Depository Trust
Company (“DTC”) through
its Deposit Withdrawal Agent Commission (“DWAC”) system within three
(3) business days after receipt by the Corporation of the Notice of
Conversion (the “Delivery
Date”). The Corporation is obligated to deliver to the Holder
simultaneously with the aforedescribed Common Stock, at the election of the
Holder, additional shares of Common Stock representing the conversion at the
Fixed Conversion Price, of dividends accrued on the Series D Preferred
Stock being converted.
  In the
case of the exercise of the conversion rights set forth in paragraph
6(a) the conversion privilege shall be deemed to have been exercised and
the shares of Common Stock issuable upon such conversion shall be deemed to have
been issued upon the date of receipt by the Corporation or Transfer Agent of the
Notice of Conversion. The person or entity entitled to receive Common Stock
issuable upon such conversion shall, on the date such conversion privilege is
deemed to have been exercised and thereafter, be treated for all purposes as the
record Holder of such Common Stock and shall on the same date cease to be
treated for any purpose as the record Holder of such shares of Series D
Preferred Stock so converted.
  Upon the
conversion of any shares of Series D Preferred Stock no adjustment or
payment shall be made with respect to such converted shares on account of any
dividend on the Common Stock, except that the Holder of such converted shares
shall be entitled to be paid any dividends declared on shares of Common Stock
after conversion thereof.
  The
Corporation shall not be required, in connection with any conversion of
Series D Preferred Stock, and payment of dividends on Series D
Preferred Stock to issue a fraction of a share of its Series D Preferred
Stock and shall instead deliver a stock certificate representing the next whole
number.
  (d)         The
Fixed Conversion Price determined pursuant to 6(b) shall be subject to
adjustment from time to time as follows: if the Corporation shall at any time
(A) declare any stock dividend or distribution of stock on its Common Stock
or other securities of the Corporation other than the Series D Preferred
Stock, (B) split or subdivide the outstanding Common Stock,
(C) combine the outstanding Common Stock into a smaller number of shares,
or (D) issue by reclassification of its Common Stock any shares or other
securities of the Corporation, then in each such event the Fixed Conversion
Price shall be adjusted proportionately so that the Holder shall be entitled to
receive the kind and number of shares or other securities of the Corporation
which such Holder would have owned or have been entitled to receive after the
happening of any of the events described above had such shares of Series D
Preferred Stock been converted immediately prior to the happening of such event
(or any record date with respect thereto). Such adjustment shall be made
whenever any of the events listed above shall occur. An adjustment made to the
conversion pursuant to this paragraph 6(d) shall become effective
immediately after the effective date of the event retroactive to the record
date, if any, for the event. Notwithstanding the foregoing, no adjustments will
be made upon issuances of any securities issued upon the exercise or conversion
of currently issued and outstanding options, warrants, or convertible
securities.
  {M0083165.1
}
  
  (e)           (i)           In
case of any merger of the Corporation with or into any other corporation (other
than a merger in which the Corporation is the surviving or continuing
corporation and which does not result in any reclassification, conversion, or
change of the outstanding shares of Common Stock) then unless the right to
convert shares of Series D Preferred Stock shall have terminated, as part
of such merger, lawful provision shall be made so that Holder shall thereafter
have the right to convert each share of Series D Preferred Stock into the
kind and amount of shares of stock and/or other securities or property
receivable upon such merger by a Holder of the number of shares of Common Stock
into which such shares of Series D Preferred Stock might have been
converted immediately prior to such consolidation or merger. Such provision
shall also provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in paragraph 6(d). The foregoing
provisions of this paragraph 6(e) shall similarly apply to successive
mergers.
  (ii)           In
case of any sale or conveyance to another person or entity of the property of
the Corporation as an entirety, or substantially as an entirety, in connection
with which shares or other securities or cash or other property shall be
issuable, distributable, payable, or deliverable for outstanding shares of
Common Stock, then, unless the right to convert such shares shall have
terminated, lawful provision shall be made so that the Holder shall thereafter
have the right to convert each share of the Series D Preferred Stock into
the kind and amount of shares of stock or other securities or property that
shall be issuable, distributable, payable, or deliverable upon such sale or
conveyance with respect to each share of Common Stock immediately prior to such
conveyance.
  (f)           Whenever
the number of shares to be issued upon conversion of the Series D Preferred
Stock is required to be adjusted as provided in this paragraph 6, the
Corporation shall forthwith compute the adjusted number of shares to be so
issued and prepare a certificate setting forth such adjusted conversion amount
and the facts upon which such adjustment is based, and such certificate shall
forthwith be filed with the Transfer Agent for the Series D Preferred Stock
and the Common Stock; and the Corporation shall mail to each Holder notice of
such adjusted conversion price.
  (g)           In
case at any time the Corporation shall propose:
  (i)           to
pay any dividend or distribution payable in shares upon its Common Stock or make
any distribution (other than cash dividends) to the holders of its Common Stock;
or
  (ii)           to
offer for subscription any additional shares of any class or any other rights
(except offerings made in connection with strategic business transactions or
joint ventures with the Company) at a price less than the then closing price of
such shares as such price is quoted on a Principal Market on the date of such
issuance; or
  (iii)            any
capital reorganization or reclassification of its shares or the merger of the
Corporation with another corporation (other than a merger in which the
Corporation is the surviving or continuing corporation and which does not result
in any reclassification, conversion, or change of the outstanding shares of
Common Stock); or
  (iv)            the
voluntary dissolution, liquidation or winding-up of the
Corporation;
  then, and
in any one or more of said cases, the Corporation shall cause at least fifteen
(15) days prior notice of the date on which (A) the books of the
Corporation shall close or a record be taken for such stock dividend,
distribution, or subscription rights, or (B) such capital reorganization,
reclassification, merger, dissolution, liquidation or winding-up shall take
place, as the case may be, to be mailed to the Transfer Agent for the
Series D Preferred Stock, if any, and for the Common Stock and to the
Holder.
  If the
Corporation issues any additional shares pursuant to
Section 6(g)(ii) above then, and thereafter successively upon each
such issue, the Fixed Conversion Price shall be adjusted by multiplying the then
applicable Fixed Conversion Price by the following fraction:
  {M0083165.1
}
  
  A
      + B(A + B) + [((C – D)
      x B) / C]
  A =
Actual shares outstanding prior to such offering
 
 B =
Actual shares sold in the offering
  C =
Closing market price of the Company’s common stock on the date of such
offering
  D =
Offering price
  (h)           So
long as any shares of Series D Preferred Stock shall remain outstanding and
the Holder thereof shall have the right to convert the same in accordance with
provisions of this paragraph 6 the Corporation shall at all times reserve from
the authorized and unissued shares of its Common Stock a sufficient number of
shares to provide for such conversions.
  (i)           The
term Common Stock as used in this paragraph 6 shall mean the $.10 par value
Common Stock of the Corporation as such stock is constituted at the date of
issuance thereof or as it may from time to time be changed or shares of stock of
any class of other securities and/or property into which the shares of
Series D Preferred Stock shall at any time become convertible pursuant to
the provisions of this paragraph 6.
  (j)           The
Corporation shall pay the amount of any and all issue taxes (but not income
taxes) which may be imposed in respect of any issue or delivery of stock upon
the conversion of any shares of Series D Preferred Stock, but all transfer
taxes and income taxes that may be payable in respect of any change of ownership
of Series D Preferred Stock or any rights represented thereby or of stock
receivable upon conversion thereof shall be paid by the person or persons
surrendering such stock for conversion.
  (k)           Overall Limit on Common
Stock Issuable. Notwithstanding anything contained herein to the
contrary, the Holder shall not be entitled to convert pursuant to the terms of
this Series D Preferred Stock an amount that would be convertible into that
number of Conversion Shares which would exceed the difference between
(i) 4.99% of the issued and outstanding shares of Common Stock and
(ii) the number of shares of Common Stock beneficially owned by the Holder
For purposes of the immediately preceding sentence, beneficial ownership shall
be determined in accordance with Section 13(d) of the Exchange Act and
Regulation 13d-3 thereunder. The Conversion Share limitation described in this
Section 6(k) shall automatically become null and void following notice to
the Company upon the occurrence and during the continuance of an Event of
Default, upon 75 days prior notice to the Company, or upon receipt by the Holder
of a Notice of Redemption, except that at no time shall the number of shares of
Common Stock beneficially owned by the Holder a exceed 19.99% of the outstanding
shares of Common Stock. Notwithstanding anything contained herein to the
contrary, the number of shares of Common Stock issuable by the Company and
acquirable by the Holder at a price below $6.32 per share pursuant to the terms
of this Series D Preferred Stock, the Warrant, the Purchase Agreement or
any other Related Agreement, shall not exceed an aggregate of 2,151,260 shares
of Common Stock (subject to appropriate adjustment for stock splits, stock
dividends, or other similar recapitalizations affecting the Common Stock) (the
“Maximum Common Stock
Issuance”), unless the issuance of Common Stock hereunder in excess of
the Maximum Common Stock Issuance shall first be approved by the Company’s
shareholders. If at any point in time and from time to time the number of shares
of Common Stock issued pursuant to the terms of this Series D Preferred
Stock, the Purchase Agreement or any other Related Agreement, together with the
number of shares of Common Stock that would then be issuable by the Company to
the Holder in the event of a conversion or exercise pursuant to the terms of
this Series D Preferred Stock, the Purchase Agreement or any other Related
Agreement, would exceed the Maximum Common Stock Issuance but for this
Section 6(k), the Company shall promptly call a shareholders meeting to
solicit shareholder approval for the issuance of the shares of Common Stock
hereunder in excess of the Maximum Common Stock Issuance. Notwithstanding
anything contained herein to the contrary, the provisions of this
Section 6(k) are irrevocable and may not be waived by the Holder or the
Company..
  {M0083165.1
}
  
  7.           Mandatory Conversion.
Except as set forth in Section 4 hereof, the shares of Series D
Preferred Stock and dividends may not be converted without the consent of the
Holder.
  8.           Voting Rights. The
shares of Series D Preferred Stock shall not have voting
rights.
  9.           Event of Default. In
the event that any of the following events shall occur, and shall not be cured
within 30 days of written notice from the Holder to the Corporation (except with
respect to Section 9.1, 9.2 and 9.8 below, for which the cure period shall
be as set forth therein) (each occurrence being a “Default Notice Period”) or
waived in writing by the Holder (such circumstance being an “Event of Default”), for so
long as the Event of Default is continuing the dividend rate described in
Section 3 above shall become fifteen percent (15.0%) and the Holder shall
have the right to elect to have the Corporation redeem the Series D
Preferred Stock. Any such redemption shall be effected by the prompt payment to
the Holder by the Corporation of a sum of money equal to 130% of the outstanding
Stated Value of the shares of Series D Preferred Stock, plus accrued and
unpaid dividends.
  9.1.           Failure to Make
Payment. The Corporation fails to pay any payment required to be paid
pursuant to the terms of hereof or the failure to timely pay any other sum of
money due to the Holder from the Corporation and such failure continues for a
period of five (5) business days after such payment is due .
  9.2.           Breach of Covenant.
The Corporation breaches any of the covenants in Sections 6.2, 6.5, 6.12, 6.13,
9 or 10 of the Purchase Agreement in any material respect and such breach, if
subject to cure, continues for a period of fifteen (15) days after the
occurrence thereof.
  9.3.           Breach of Representations
and Warranties. Any representation or warranty of the Corporation made in
Section 4 of the Purchase Agreement shall be false or misleading except for
any such breach which does not have a material adverse effect on the business or
financial condition of the Corporation, taken as a whole.
  9.4.           Receiver or Trustee.
The Corporation shall make an assignment for the benefit of creditors, or apply
for or consent to the appointment of a receiver or trustee for it or for a
substantial part of its property or business; or such a receiver or trustee
shall otherwise be appointed.
  9.5.           Bankruptcy.
Bankruptcy, insolvency, reorganization or liquidation proceedings or other
proceedings or relief under any bankruptcy law or any law for the relief of
debtors shall be instituted by or against the Corporation.
  9.6.           Delisting. Delisting
of the Common Stock from the every Principal Market or such other principal
exchange on which the Common Stock is listed for trading.
  9.7.           Stop Trade. An SEC
stop trade order or Principal Market trading suspension of more than three
consecutive trading days.
  9.8.           Failure to Deliver Common
Stock. The Corporation’s failure to timely deliver Common Stock to the
Holder pursuant to and in the form required hereof and Section 8 of the
Purchase Agreement and continues for three (3) business days after receipt
of notice of conversion.
  10.           Mandatory Redemption.
The Corporation shall redeem the shares of Series D Preferred Stock,
including accrued but unpaid dividends thereon, no later than 36 months from the
date of issuance thereof (the “Mandatory Redemption Date”).
  11.           Status of Converted or
Redeemed Stock. In case any shares of Series D Preferred Stock shall
be redeemed or otherwise repurchased or reacquired, the shares so redeemed,
converted, or reacquired shall resume the status of authorized but unissued
shares of Preferred Stock and shall no longer be designated as Series D
Preferred Stock.
   {M0083165.1
}
  EXHIBIT A
  NOTICE OF
CONVERSION
  (To Be
Executed By the Registered Holder in Order to Convert the Series D
Convertible Preferred Stock of Implant Sciences Corporation)
  The
undersigned hereby irrevocably elects to convert $__________ of the Stated Value
of the above Series D Convertible Preferred Stock and $__________ of the
dividend due, into shares of Common Stock of Implant Sciences Corporation (the
“Corporation”) according to the conditions hereof, as of the date written
below.
  Conversion
      Date:Fixed
      Conversion Price per share:Number
      of Common Stock issuable upon this conversion:Signature:Print
      Name:Address:Deliveries
      pursuant to this notice of conversion should be made
to:
  
 
   {M0083165.1
}
  Signed
by:                      /s/
Diane J. Ryan
 (signature of authorized
officer)  Diane J. Ryan
  [    ]           Chairman
of the board of directors
 
 [    ]           President
 
 [
x  ]           Other
officer
 
 [    ]           Court-appointed
fiduciary
 
 on this 1
day of October, 2008.
   {M0083165.1
}
  THE
COMMONWEALTH OF MASSACHUSETTS
  I hereby
certify that, upon examination of this document, duly submitted to me, it
appears
 that the
provisions of the General Laws relative to corporations have been complied
with,
 and I
hereby approve said articles; and the filing fee having been paid, said articles
are
 deemed to
have been filed with me on:
 
 October
01, 2008 5:27 PM
 
 
  /s/
William Francis Galvin
 
 WILLIAM
FRANCIS GALVIN
 Secretary
of the Commonwealth
   {M0083165.1
}
  The
Commonwealth of Massachusetts
 William
Francis Galvin
 Secretary
of the Commonwealth
 One
Ashburton Place, Boston, Massachusetts 02108-1512
  Articles
of Amendment
 (General
Laws Chapter 156D, Section 10.06; 950 CMR 113.34)
  
 (1)
              Exact
      name of corporation:  Implant Sciences
    Corporation
 
 (2)
              Registered
      office address:  600 Research Drive, Wilmington,
      MA 01887
 (number,
street, city or town, state, zip code)
 
 (3)
              These
      articles of amendment affect article(s):  III,
  IV
 (specify
the number(s) of article(s) being amended (I-VI))
 
 (4)
              Date
      adopted:  April 21, 2009
 (month,
day, year)
 
 (5)
              Approved
      by:
 
 (check
appropriate box)
 
 [     ]
              the
      incorporators.
 
 [  x
      ]
              the
      board of directors without shareholder approval and shareholder approval
      was not required.
 
 [     ]
              the
      board of directors and the shareholders in the manner required by law and
      the articles of organization.
 
 (6)
              State
      the article number and the text of the amendment. Unless contained in the
      text of the amendment, state the provisions for implementing the exchange,
      reclassification or cancellation of issued
  shares.
 
 Article
IV – Please see Article IV Continuation Sheet 1
 
  {M0083165.1
}
  To change
the number of shares and the par value,* if any, of any type, or to designate a
class or series, of stock, or change a designation of class or series of stock,
which the corporation is authorized to issue, complete the
following:
 
 Total
authorized prior to amendment:
 
 WITHOUT
      PAR VALUE
              WITH
      PAR VALUETYPE
              NUMBER
      OF SHARES
              TYPE
              NUMBER
      OF SHARES
              PAR
      VALUECommon
              50,000,000
              $.10Preferred
              5,000,000**
              $.10
 
 ** Of
which 250,000 shares are designated Series A Preferred Stock; 200,000 shares are
designated Series B Preferred Stock; 250,000 shares are designated Series C
Preferred Stock; and 500,000 shares are designated Series D Preferred
Stock.
 
 Total
authorized after amendment:
 
 WITHOUT
      PAR VALUE
              WITH
      PAR VALUETYPE
              NUMBER
      OF SHARES
              TYPE
              NUMBER
      OF SHARES
              PAR
      VALUECommon
              50,000,000
              $.10Preferred
              5,000,000**
              $.10
 
 ** Of
which 250,000 shares are designated Series A Preferred Stock; 200,000 shares are
designated Series B Preferred Stock; 250,000 shares are designated Series C
Preferred Stock; 500,000 shares are designated Series D Preferred Stock; and
1,000,000 shares are designated Series E Preferred Stock.
 
 (7)
              The
      amendment shall be effective at the time and on the date approved by the
      Division, unless a later effective date of not more than 90 days from the
      date and time of filing is specified:
  ___________________.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 *           G.L.
Chapter 156D eliminates the concept of par value, however a corporation may
specify par value in Article III. See G.L. Chapter 156D, Section 6.21, and the
comments relative thereto.
 
 
  Continuation Sheet
      1
 
 
 IMPLANT
      SCIENCES CORPORATION
 
 Articles of
      Amendment
 
 
 RESOLVED:
              That,
      pursuant to the authority expressly granted to and vested in the Board of
      Directors of the Corporation by the provisions of Article IV of the
      Amended and Restated Articles of Organization of the Corporation (the
      “Articles of
      Organization”) and Section 26 of the Massachusetts Business
      Corporation Law, the Board of Directors hereby creates, from the 5,000,000
      shares of Preferred Stock, par value $.10 per share (the “Preferred
      Stock”), of the Corporation authorized to be issued pursuant to the
      Articles of Organization, a series of Preferred Stock, consisting of
      1,000,000 shares of Series E Convertible Preferred Stock (the “Series E Preferred
      Stock”), and hereby fixes the powers, designations, preferences,
      qualifications, limitations and restrictions of the shares of such Series
      E Preferred Stock, as set forth in Exhibit A
      hereto.
  {M0083165.1
}
  EXHIBIT
      A
 
 
 IMPLANT
SCIENCES CORPORATION
  TERMS
OF
 SERIES E
CONVERTIBLE PREFERRED STOCK
 
  1,000,000
shares of the authorized and unissued Preferred Stock of the Corporation are
hereby designated as Series E Convertible Preferred Stock (the “Series E Preferred Stock”),
with the following rights, preferences, powers, privileges and restrictions,
qualifications and limitations.
  1.  Dividends.
  The
Corporation shall not declare, pay or set aside any dividends on shares of any
shares of Common Stock (other than dividends on shares of Common Stock payable
in shares of Common Stock) unless the holders of the Series E Preferred Stock
then outstanding shall simultaneously receive a dividend on each outstanding
share of Series E Preferred Stock in an amount at least equal to that dividend
per share of Series E Preferred Stock as would equal the product of (i) the
dividend payable on each share of Common Stock and (ii) the number of shares of
Common Stock issuable upon conversion of a share of Series E Preferred Stock, in
each case calculated on the record date for determination of holders entitled to
receive such dividend.
  2.  Liquidation, Dissolution or
Winding Up.
  2.1  Payments to Holders of
Series E Preferred Stock.  In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Corporation, the
holders of shares of Series E Preferred Stock then outstanding shall be entitled
to be paid out of the assets of the Corporation available for distribution to
its stockholders before any payment shall be made to the holders of Common Stock
by reason of their ownership thereof, an amount per share equal to the Series E
Original Issue Price (as defined below), plus any dividends declared but unpaid
thereon. For purposes of this Section 2, “Series E Original Issue Price”
shall mean $5.00 per share, subject to appropriate adjustment in the event of
any stock dividend, stock split, combination or other similar recapitalization
with respect to the Series E Preferred Stock. If upon any such liquidation,
dissolution or winding up of the Corporation, the assets of the Corporation
available for distribution to its stockholders shall be insufficient to pay the
holders of shares of Series E Preferred Stock the full amount to which they
shall be entitled under this Subsection 2.1, the
holders of shares of Series E Preferred Stock shall share ratably in any
distribution of the assets available for distribution in proportion to the
respective amounts which would otherwise be payable in respect of the shares
held by them upon such distribution if all amounts payable on or with respect to
such shares were paid in full.
  2.2  Payments to Holders of
Common Stock.  In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, after the payment of
all preferential amounts required to be paid to the holders of shares of Series
E Preferred Stock, the remaining assets of the Corporation available for
distribution to its stockholders shall be distributed among the holders of
shares of Common Stock, pro rata based on the number of shares held by each such
holder.
  3.  Voting.
  3.1  General.  The
holders of Series E Preferred Stock shall have no voting rights except as
required by applicable law and as set forth in Subsection
3.2.
  3.2  Series E Preferred Stock
Protective Provisions.  At any time when any shares of Series E
Preferred Stock are outstanding, the Corporation shall not, without the written
consent or affirmative vote of the holders of a majority of the then outstanding
shares of Series E Preferred Stock, given in writing or by vote at a meeting,
consenting or voting (as the case may be) separately as a class:
  (a)           Amend,
alter or repeal any provision of the Articles of Organization of the Corporation
in a manner that adversely affects the powers, preferences or rights of the
Series E Preferred Stock; or
   {M0083165.1
}
  
  (b)           Issue
any shares of any class or series of Preferred Stock at a price per share which
is less than the fair market value thereof, as determined in good faith by the
Board of Directors of the Corporation, taking into account all fees, expenses
and standard market discounts (such standard market discounts include, by way of
example only, (i) discounts below current market values offered to investors in
so-called “PIPE” investments, (ii) discounts offered to investors in direct
placement transactions and (iii) appropriate discounts to reflect securities
subject to investment letters or other similar restrictions on free
marketability). For purposes of illustration only, if the fair market value of a
share of a new class or series of Preferred Stock is $10.00, and the Corporation
issues such shares of Preferred Stock in a “PIPE” transaction at $9.00 per
share, and incurs fees and expenses of $.50 per share in effecting such
transaction, then such shares of Preferred Stock shall be deemed to have been
issued at the fair market value thereof.
  3.3           Reservation of
Rights.   Notwithstanding any provision in this Section 3 or
elsewhere in the Corporation’s Articles of Organization to the contrary, the
authorization of additional classes or series of Preferred Stock and/or any
other debt or equity securities convertible into or exercisable for Preferred
Stock or Common Stock, which securities have rights or privileges senior to
those of the Series E Preferred Stock, shall not constitute an amendment that
adversely affects the Series E Preferred Stock. The Corporation is expressly
authorized, without the consent of the holders of the Series E Preferred Stock,
to create, or authorize the creation of, or issue or obligate itself to issue
shares of any such additional class or series of capital stock, and/or
securities convertible into, and other securities exercisable for, any such
additional class or series of capital stock, which additional class or series of
capital stock may rank senior to the Series E Preferred Stock with respect to
any and all rights, including rights upon the distribution of assets on the
liquidation, dissolution or winding up of the Corporation, the payment of
dividends, rights of redemption, voting rights and other rights and
privileges.
  4.  Optional
Conversion.
  The
holders of the Series E Preferred Stock shall have conversion rights as follows
(the “Conversion
Rights”):
  4.1           Right to
Convert.
  4.1.1  Conversion
Ratio.  Each share of Series E Preferred Stock shall be
convertible, at the option of the holder thereof, (i) at any time and from time
to time after the ninth anniversary of the date on which the Corporation first
issued any shares of Series E Preferred Stock and (ii) upon a Conversion Event
(as defined below), without the payment of additional consideration by the
holder thereof, into such number of fully paid and nonassessable shares of
Common Stock as is determined by dividing the Series E Original Issue Price by
the Series E Conversion Price (as defined below) in effect at the time of
conversion. The “Series E
Conversion Price” shall initially be equal to $5.00. Such initial Series
E Conversion Price, and the rate at which shares of Series E Preferred Stock may
be converted into shares of Common Stock, shall be subject to adjustment as
provided below.
  4.1.2  Conversion
Event.  For purposes of this Section 4, “Conversion Event” shall mean
the earliest of (i) a merger or consolidation of the Corporation with or into
another corporation or entity (whether or not the Corporation is the surviving
entity) if, after the merger or consolidation, more than 50% of the voting stock
of the surviving corporation is owned by persons who were not holders of voting
stock of this Corporation prior to the merger or consolidation; or (ii) the sale
of substantially all of the equity securities of the Corporation to a third
party in a single transaction or series of related transactions. For the
avoidance of doubt, the sale, lease, transfer, license or other disposition, in
a single transaction or series of related transactions, by the Corporation of
any, all or substantially all of its assets shall not be considered to be a
Conversion Event.
   {M0083165.1
}
  4.1.3  Termination of Conversion
Rights.  The Conversion Rights of the Series E Preferred Stock
shall terminate at the close of business on the last full day preceding the
tenth anniversary of the date on which the Corporation first issued any shares
of Series E Preferred Stock. In the event of a liquidation, dissolution or
winding up of the Corporation, the Conversion Rights shall terminate at the
close of business on the last full day preceding the date fixed for the payment
of any such amounts distributable on such event to the holders of Series E
Preferred Stock.
  
  4.2  Fractional
Shares.  No fractional shares of Common Stock shall be issued
upon conversion of the Series E Preferred Stock. In lieu of any fractional
shares to which the holder would otherwise be entitled, the Corporation shall
pay cash equal to such fraction multiplied by the fair market value of a share
of Common Stock as determined in good faith by the Board of Directors of the
Corporation. Whether or not fractional shares would be issuable upon such
conversion shall be determined on the basis of the total number of shares of
Series E Preferred Stock the holder is at the time converting into Common Stock
and the aggregate number of shares of Common Stock issuable upon such
conversion.
  4.3  Mechanics of
Conversion.
  4.3.1  Notice of
Conversion.  In order for a holder of Series E Preferred Stock
to voluntarily convert shares of Series E Preferred Stock into shares of Common
Stock, such holder shall surrender the certificate or certificates for such
shares of Series E Preferred Stock (or, if such registered holder alleges that
such certificate has been lost, stolen or destroyed, a lost certificate
affidavit and agreement reasonably acceptable to the Corporation to indemnify
the Corporation against any claim that may be made against the Corporation on
account of the alleged loss, theft or destruction of such certificate), at the
office of the transfer agent for the Series E Preferred Stock (or at the
principal office of the Corporation if the Corporation serves as its own
transfer agent), together with written notice that such holder elects to convert
all or any number of the shares of the Series E Preferred Stock represented by
such certificate or certificates and, if applicable, any event on which such
conversion is contingent. Such notice shall state such holder’s name or the
names of the nominees in which such holder wishes the certificate or
certificates for shares of Common Stock to be issued. If required by the
Corporation, certificates surrendered for conversion shall be endorsed or
accompanied by a written instrument or instruments of transfer, in form
satisfactory to the Corporation, duly executed by the registered holder or his,
her or its attorney duly authorized in writing. The close of business on the
date of receipt by the transfer agent (or by the Corporation if the Corporation
serves as its own transfer agent) of such certificates (or lost certificate
affidavit and agreement) and notice shall be the time of conversion (the “Conversion Time”), and the
shares of Common Stock issuable upon conversion of the shares represented by
such certificate shall be deemed to be outstanding of record as of such date.
The Corporation shall, as soon as practicable after the Conversion Time, (i)
issue and deliver to such holder of Series E Preferred Stock, or to his, her or
its nominees, a certificate or certificates for the number of full shares of
Common Stock issuable upon such conversion in accordance with the provisions
hereof and a certificate for the number (if any) of the shares of Series E
Preferred Stock represented by the surrendered certificate that were not
converted into Common Stock, (ii) pay in cash such amount as provided in Subsection 4.2 in
lieu of any fraction of a share of Common Stock otherwise issuable upon such
conversion and (iii) pay all declared but unpaid dividends on the shares of
Series E Preferred Stock converted.
  4.3.2  Reservation of
Shares.  The Corporation shall at all times when the Series E
Preferred Stock shall be outstanding, reserve and keep available out of its
authorized but unissued capital stock, for the purpose of effecting the
conversion of the Series E Preferred Stock, such number of its duly authorized
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding Series E Preferred Stock; and if at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all then outstanding shares of the Series E
Preferred Stock, the Corporation shall take such corporate action as may be
necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purposes, including, without
limitation, engaging in best efforts to obtain the requisite stockholder
approval of any necessary amendment to its Articles of Organization. Before
taking any action which would cause an adjustment reducing the Series E
Conversion Price below the then par value of the
   {M0083165.1
}
  shares of
Common Stock issuable upon conversion of the Series E Preferred Stock, the
Corporation will take any corporate action which may, in the opinion of its
counsel, be necessary in order that the Corporation may validly and legally
issue fully paid and nonassessable shares of Common Stock at such adjusted
Series E Conversion Price.
  4.3.3  Effect of
Conversion.  All shares of Series E Preferred Stock which shall
have been surrendered for conversion as herein provided shall no longer be
deemed to be outstanding and all rights with respect to such shares shall
immediately cease and terminate at the Conversion Time, except only the right of
the holders thereof to receive shares of Common Stock in exchange therefor, to
receive payment in lieu of any fraction of a share otherwise issuable upon such
conversion as provided in Subsection 4.2 and to
receive payment of any dividends declared but unpaid thereon. Any shares of
Series E Preferred Stock so converted shall be retired and cancelled and may not
be reissued as shares of such series, and the Corporation may thereafter take
such appropriate action (without the need for stockholder action) as may be
necessary to reduce the authorized number of shares of Series E Preferred Stock
accordingly.
  4.3.4  No Further
Adjustment.  Upon any such conversion, no adjustment to the
Series E Conversion Price shall be made for any declared but unpaid dividends on
the Series E Preferred Stock surrendered for conversion or on the Common Stock
delivered upon conversion.
  4.3.5  Taxes.  The
Corporation shall pay any and all issue and other similar taxes that may be
payable in respect of any issuance or delivery of shares of Common Stock upon
conversion of shares of Series E Preferred Stock pursuant to this Section 4. The
Corporation shall not, however, be required to pay any tax which may be payable
in respect of any transfer involved in the issuance and delivery of shares of
Common Stock in a name other than that in which the shares of Series E Preferred
Stock so converted were registered, and no such issuance or delivery shall be
made unless and until the person or entity requesting such issuance has paid to
the Corporation the amount of any such tax or has established, to the
satisfaction of the Corporation, that such tax has been paid.
  4.4  Adjustments to Series E
Conversion Price for Diluting Issues.
  4.4.1  Special
Definitions.  For purposes of this Subsection 4.4, the
following definitions shall apply:
  (a)  “Option” shall mean rights,
options or warrants to subscribe for, purchase or otherwise acquire Common Stock
or Convertible Securities.
  (b)  “Series E Original Issue Date”
shall mean the date on which the first share of Series E Preferred Stock was
issued.
  (c)  “Convertible Securities” shall
mean any evidences of indebtedness, shares or other securities directly or
indirectly convertible into or exchangeable for Common Stock, but excluding
Options.
  (d)  “Additional Shares of Common
Stock” shall mean all shares of Common Stock issued (or, pursuant to
Subsection
4.4.3 below, deemed to be issued) by the Corporation after the Series E
Original Issue Date, other than (1) the following shares of Common Stock and (2)
shares of Common Stock deemed issued pursuant to the following Options and
Convertible Securities (clauses (1) and (2), collectively, “Exempted
Securities”):
  (i)
              shares
      of Common Stock, Options or Convertible Securities issued as a dividend or
      distribution on Series E Preferred
Stock;
  (ii)
              shares
      of Common Stock, Options or Convertible Securities issued by reason of a
      dividend, stock split, split-up or other distribution on shares of Common
      Stock that is covered by Subsection 4.5,
      4.6,
      4.7 or
      4.8;
   {M0083165.1
}
  
  (iii)
              shares
      of Common Stock or Options issued to employees or directors of, or
      consultants or advisors to, the Corporation or any of its subsidiaries
      pursuant to one or more benefit plans, agreements or arrangements approved
      by the Board of Directors of the
Corporation;
  (iv)
              shares
      of Common Stock or Convertible Securities actually issued upon the
      exercise of Options or shares of Common Stock actually issued upon the
      conversion or exchange of Convertible Securities, in each case provided
      such issuance is pursuant to the terms of such Option or Convertible
      Security;
  (v)
              shares
      of Common Stock, Options or Convertible Securities issued to banks,
      equipment lessors or other financial institutions, or to real property
      lessors, pursuant to a debt financing, equipment leasing or real property
      leasing transaction approved by the Board of Directors of the Corporation
      (including shares underlying (directly or indirectly) any such Options or
      Convertible Securities);
  (vi)
              shares
      of Common Stock, Options or Convertible Securities issued to suppliers or
      third party service providers in connection with the provision of goods or
      services pursuant to transactions approved by the Board of Directors of
      the Corporation (including shares underlying (directly or indirectly) any
      such Options or Convertible
Securities);
  (vii)
              shares
      of Common Stock, Options or Convertible Securities issued pursuant to the
      acquisition of another corporation by the Corporation by merger, purchase
      of substantially all of the assets or other reorganization or to a joint
      venture agreement, provided, that such issuances are approved by the Board
      of Directors of the Corporation (including shares underlying (directly or
      indirectly) any such Options or Convertible Securities);
  or
  (viii)
              shares
      of Common Stock, Options or Convertible Securities issued in connection
      with sponsored research, collaboration, technology license, development,
      OEM, marketing or other similar agreements or strategic partnerships
      approved by the Board of Directors of the Corporation (including shares
      underlying (directly or indirectly) any such Options or Convertible
      Securities).
  4.4.2  No Adjustment of Series E
Conversion Price.  No adjustment in the Series E Conversion
Price shall be made as the result of the issuance or deemed issuance of
Additional Shares of Common Stock if the Corporation receives written notice
from the holders of a majority of the then outstanding shares of Series E
Preferred Stock agreeing that no such adjustment shall be made as the result of
the issuance or deemed issuance of such Additional Shares of Common
Stock.
  4.4.3  Deemed Issue of Additional
Shares of Common Stock.
  (a)  If the
Corporation at any time or from time to time after the Series E Original Issue
Date shall issue any Options or Convertible Securities (excluding Options or
Convertible Securities which are themselves Exempted Securities) or shall fix a
record date for the determination of holders of any class of
   {M0083165.1
}
  securities
entitled to receive any such Options or Convertible Securities, then the maximum
number of shares of Common Stock (as set forth in the instrument relating
thereto, assuming the satisfaction of any conditions to exercisability,
convertibility or exchangeability but without regard to any provision contained
therein for a subsequent adjustment of such number) issuable upon the exercise
of such Options or, in the case of Convertible Securities and Options therefor,
the conversion or exchange of such Convertible Securities, shall be deemed to be
Additional Shares of Common Stock issued as of the time of such issue or, in
case such a record date shall have been fixed, as of the close of business on
such record date.
  (b)  If the
terms of any Option or Convertible Security, the issuance of which resulted in
an adjustment to the Series E Conversion Price pursuant to the terms of Subsection 4.4.4, are
revised as a result of an amendment to such terms or any other adjustment
pursuant to the provisions of such Option or Convertible Security (but excluding
automatic adjustments to such terms pursuant to anti-dilution or similar
provisions of such Option or Convertible Security) to provide for either (1) any
increase or decrease in the number of shares of Common Stock issuable upon the
exercise, conversion and/or exchange of any such Option or Convertible Security
or (2) any increase or decrease in the consideration payable to the Corporation
upon such exercise, conversion and/or exchange, then, effective upon such
increase or decrease becoming effective, the Series E Conversion Price computed
upon the original issue of such Option or Convertible Security (or upon the
occurrence of a record date with respect thereto) shall be readjusted to such
Series E Conversion Price as would have obtained had such revised terms been in
effect upon the original date of issuance of such Option or Convertible
Security. Notwithstanding the foregoing, no readjustment pursuant to this clause(b) shall have the
effect of increasing the Series E Conversion Price to an amount which exceeds
the lower of (i) the Series E Conversion Price in effect immediately prior to
the original adjustment made as a result of the issuance of such Option or
Convertible Security, or (ii) the Series E Conversion Price that would have
resulted from any issuances of Additional Shares of Common Stock (other than
deemed issuances of Additional Shares of Common Stock as a result of the
issuance of such Option or Convertible Security) between the original adjustment
date and such readjustment date.
  (c)  If the
terms of any Option or Convertible Security (excluding Options or Convertible
Securities which are themselves Exempted Securities), the issuance of which did
not result in an adjustment to the Series E Conversion Price pursuant to the
terms of Subsection
4.4.4 (either because the consideration per share (determined
pursuant to Subsection
4.4.6) of the Additional Shares of Common Stock subject thereto was equal
to or greater than the Series E Conversion Price then in effect, or because such
Option or Convertible Security was issued before the Series E Original Issue
Date), are revised after the Series E Original Issue Date as a result of an
amendment to such terms or any other adjustment pursuant to the provisions of
such Option or Convertible Security (but excluding automatic adjustments to such
terms pursuant to anti-dilution or similar provisions of such Option or
Convertible Security) to provide for either (1) any increase in the number of
shares of Common Stock issuable upon the exercise, conversion or exchange of any
such Option or Convertible Security or (2) any decrease in the consideration
payable to the Corporation upon such exercise, conversion or exchange, then such
Option or Convertible Security, as so amended or adjusted, and the Additional
Shares of Common Stock subject thereto (determined in the manner provided in
Subsection
4.4.3(a)) shall be deemed to have been issued effective upon such
increase or decrease becoming effective.
  (d)  Upon the
expiration or termination of any unexercised Option or unconverted or
unexchanged Convertible Security (or portion thereof) which resulted (either
upon its original issuance or upon a revision of its terms) in an adjustment to
the Series E Conversion Price pursuant to the terms of Subsection 4.4.4, the
Series E Conversion Price shall be readjusted to such Series E Conversion Price
as would have obtained had such Option or Convertible Security (or portion
thereof) never been issued.
  (e)  If the
number of shares of Common Stock issuable upon the exercise, conversion and/or
exchange of any Option or Convertible Security, or the consideration payable to
the Corporation upon such exercise, conversion and/or exchange, is calculable at
the time such Option or Convertible Security is issued or amended but is subject
to adjustment based upon subsequent events, any adjustment to the Series E
Conversion Price provided for in this Subsection 4.4.3
shall be effected at the time of such issuance or amendment based on such number
of shares or amount of consideration without regard to any provisions for
subsequent adjustments (and any subsequent adjustments shall be treated as
provided in clauses (b) and (c) of this Subsection 4.4.3). If the number of shares of Common Stock
issuable upon the exercise, conversion and/or exchange of any Option or
Convertible Security, or the consideration payable to the Corporation upon such
exercise, conversion
   {M0083165.1
}
  and/or
exchange, cannot be calculated at all at the time such Option or Convertible
Security is issued or amended, any adjustment to the Series E Conversion Price
that would result under the terms of this Subsection 4.4.3 at
the time of such issuance or amendment shall instead be effected at the time
such number of shares and/or amount of consideration is first calculable (even
if subject to subsequent adjustments), assuming for purposes of calculating such
adjustment to the Series E Conversion Price that such issuance or amendment took
place at the time such calculation can first be made.
  4.4.4  Adjustment of Series E
Conversion Price Upon Issuance of Additional Shares of Common
Stock.  In the event the Corporation shall at any time after
the Series E Original Issue Date issue Additional Shares of Common Stock
(including Additional Shares of Common Stock deemed to be issued pursuant to
Subsection
4.4.3), without consideration or for a consideration per share less than
the lower of (i) the Series E Conversion Price in effect immediately prior to
such issue and (ii) the Fair Market Value (as defined below) of the Common Stock
in effect immediately prior to such issue, then the Series E Conversion Price
shall be reduced, concurrently with such issue, to a price (calculated to the
nearest one-hundredth of a cent) determined in accordance with the following
formula:
  CP2 = CP1* (A + B) ÷
(A + C).
  For
purposes of the foregoing formula, the following definitions shall
apply:
  (a)  “CP2” shall
mean the Series E Conversion Price in effect immediately after such issue of
Additional Shares of Common Stock;
  (b)  “CP1” shall
mean the Series E Conversion Price in effect immediately prior to such issue of
Additional Shares of Common Stock;
  (c)  “A” shall
mean the number of shares of Common Stock outstanding immediately prior to such
issue of Additional Shares of Common Stock (treating for this purpose as
outstanding all shares of Common Stock issuable upon exercise of Options
outstanding immediately prior to such issue or upon conversion or exchange of
Convertible Securities (including the Series E Preferred Stock) outstanding
(assuming exercise of any outstanding Options therefor) immediately prior to
such issue);
  (d)  “B” shall
mean the number of shares of Common Stock that would have been issued if such
Additional Shares of Common Stock had been issued at a price per share equal to
CP1
(determined by dividing the aggregate consideration received by the Corporation
in respect of such issue by CP1);
and
  (e)  “C” shall
mean the number of such Additional Shares of Common Stock issued in such
transaction.
  4.4.5           Definition of Fair Market
Value; Discounts.  For purposes of Subsection
4.4.4:
  (a)           The
“Fair Market Value” of
the Common Stock in effect immediately prior to the issuance of Additional
Shares of Common Stock shall be determined as follows:
  (i)
              if
      the Common Stock is then traded on a securities exchange or market, the
      average of the closing prices of the Common Stock on such exchange or
      market over the 10-period ending three days prior to the issuance of such
      Additional Shares of Common Stock;
  (ii)
              if
      the Common Stock is then actively traded over-the-counter, the average of
      the closing bid prices over the 10-day period ending three days prior to
      the issuance of such Additional Shares of Common Stock;
  or
   {M0083165.1
}
  
  (iii)
              if
      there is then no active public market for the Common Stock, the fair
      market value thereof, as determined in good faith by the Board of
      Directors of the Corporation.
  (b)           The
determination of whether such Additional Shares of Common Stock were issued at a
price less than the lower of the Series E Conversion Price or the Fair Market
Value of the Common Stock, as the case may be, in effect immediately prior to
such issue shall be made in good faith by the Board of Directors of the
Corporation, taking into account all fees, expenses and standard market
discounts (such standard market discounts include, by way of example only, (i)
discounts below current market values offered to investors in so-called “PIPE”
investments, (ii) discounts offered to investors in direct placement
transactions and (iii) appropriate discounts to reflect securities subject to
investment letters or other similar restrictions on free marketability). For
purposes of illustration only, if the Fair Market Value of the Common Stock is
$10.00, and the Corporation issues Additional Shares of Common Stock in a “PIPE”
transaction at $9.00 per share, and incurs fees and expenses of $.50 per share
in effecting such transaction, then the Additional Shares of Common Stock shall
be deemed to have been issued at the Fair Market Value of the Common
Stock.
  4.4.6           Determination of
Consideration.  For purposes of this Subsection 4.4,
the consideration received by the Corporation for the issue of any Additional
Shares of Common Stock shall be computed as follows:
  (f)  Cash and
Property:  Such consideration shall:
  (i)
              insofar
      as it consists of cash, be computed at the aggregate amount of cash
      received by the Corporation, excluding amounts paid or payable for accrued
      interest;
  (ii)
              insofar
      as it consists of property other than cash, be computed at the fair market
      value thereof at the time of such issue, as determined in good faith by
      the Board of Directors of the Corporation;
and
  (iii)
              in
      the event Additional Shares of Common Stock are issued together with other
      shares or securities or other assets of the Corporation for consideration
      which covers both, be the proportion of such consideration so received,
      computed as provided in clauses (i) and
      (ii)
      above, as determined in good faith by the Board of Directors of the
      Corporation.
  (g)  Options and Convertible
Securities.  The consideration per share received by the
Corporation for Additional Shares of Common Stock deemed to have been issued
pursuant to Subsection
4.4.3, relating to Options and Convertible Securities, shall be
determined by dividing
  (i)
              the
      total amount, if any, received or receivable by the Corporation as
      consideration for the issue of such Options or Convertible Securities,
      plus the minimum aggregate amount of additional consideration (as set
      forth in the instruments relating thereto, without regard to any provision
      contained therein for a subsequent adjustment of such consideration)
      payable to the Corporation upon the exercise of such Options or the
      conversion or exchange of such Convertible Securities, or in the case of
      Options for Convertible Securities, the exercise of such Options for
      Convertible Securities and the conversion or exchange of such Convertible
      Securities, by
   {M0083165.1
}
  
  (ii)
              the
      maximum number of shares of Common Stock (as set forth in the instruments
      relating thereto, without regard to any provision contained therein for a
      subsequent adjustment of such number) issuable upon the exercise of such
      Options or the conversion or exchange of such Convertible Securities, or
      in the case of Options for Convertible Securities, the exercise of such
      Options for Convertible Securities and the conversion or exchange of such
      Convertible Securities.
  4.4.7           Multiple Closing
Dates.  In the event the Corporation shall issue on more than
one date Additional Shares of Common Stock that are a part of one transaction or
a series of related transactions and that would result in an adjustment to the
Series E Conversion Price pursuant to the terms of Subsection 4.4.4,
then, upon the final such issuance, the Series E Conversion Price shall be
readjusted to give effect to all such issuances as if they occurred on the date
of the first such issuance (and without giving effect to any additional
adjustments as a result of any such subsequent issuances within such
period).
  4.5  Adjustment for Stock Splits
and Combinations.  If the Corporation shall at any time or from
time to time after the Series E Original Issue Date effect a subdivision of the
outstanding Common Stock, the Series E Conversion Price in effect immediately
before that subdivision shall be proportionately decreased so that the number of
shares of Common Stock issuable on conversion of each share of such series shall
be increased in proportion to such increase in the aggregate number of shares of
Common Stock outstanding. If the Corporation shall at any time or from time to
time after the Series E Original Issue Date combine the outstanding shares of
Common Stock, the Series E Conversion Price in effect immediately before the
combination shall be proportionately increased so that the number of shares of
Common Stock issuable on conversion of each share of such series shall be
decreased in proportion to such decrease in the aggregate number of shares of
Common Stock outstanding. Any adjustment under this subsection shall become
effective at the close of business on the date the subdivision or combination
becomes effective.
  4.6  Adjustment for Certain
Dividends and Distributions.  In the event the Corporation at
any time or from time to time after the Series E Original Issue Date shall make
or issue, or fix a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable on the Common
Stock in additional shares of Common Stock, then and in each such event the
Series E Conversion Price in effect immediately before such event shall be
decreased as of the time of such issuance or, in the event such a record date
shall have been fixed, as of the close of business on such record date, by
multiplying the Series E Conversion Price then in effect by a
fraction:
  (1)
              the
      numerator of which shall be the total number of shares of Common Stock
      issued and outstanding immediately prior to the time of such issuance or
      the close of business on such record date,
and
  (2)
              the
      denominator of which shall be the total number of shares of Common Stock
      issued and outstanding immediately prior to the time of such issuance or
      the close of business on such record date plus the number of shares of
      Common Stock issuable in payment of such dividend or
      distribution.
  Notwithstanding
the foregoing, (a) if such record date shall have been fixed and such dividend
is not fully paid or if such distribution is not fully made on the date fixed
therefor, the Series E Conversion Price shall be recomputed accordingly as of
the close of business on such record date and thereafter the Series E Conversion
Price shall be adjusted pursuant to this subsection as of the time of actual
payment of such dividends or distributions; and (b) that no such adjustment
shall be made if the holders of Series E Preferred Stock simultaneously receive
a dividend or other distribution of shares of Common Stock in a number equal to
the number of shares of Common Stock as they
   {M0083165.1
}
  would
have received if all outstanding shares of Series E Preferred Stock had been
converted into Common Stock on the date of such event.
  4.7           Adjustments for Other
Dividends and Distributions.  In the event the Corporation at
any time or from time to time after the Series E Original Issue Date shall make
or issue, or fix a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in securities of
the Corporation (other than a distribution of shares of Common Stock in respect
of outstanding shares of Common Stock) or in other property and the provisions
of Section 1 do
not apply to such dividend or distribution, then and in each such event
provision shall be made so that the holders of the Series E Preferred Stock
shall receive upon conversion thereof, in addition to the number of shares of
Common Stock receivable thereupon, the kind and amount of securities of the
Corporation, cash or other property which they would have been entitled to
receive had the Series E Preferred Stock been converted into Common Stock on the
date of such event and had they thereafter, during the period from the date of
such event to and including the conversion date, retained such securities
receivable by them as aforesaid during such period, giving application to all
adjustments called for during such period under this paragraph with respect to
the rights of the holders of the Series E Preferred Stock; provided, however,
that no such provision shall be made if the holders of Series E Preferred Stock
receive, simultaneously with the distribution to the holders of Common Stock, a
dividend or other distribution of such securities, cash or other property in an
amount equal to the amount of such securities, cash or other property as they
would have received if all outstanding shares of Series E Preferred Stock had
been converted into Common Stock on the date of such event.
  4.8           Adjustment for Merger or
Reorganization, etc.  If there shall occur any reorganization,
recapitalization, reclassification, consolidation or merger involving the
Corporation in which the Common Stock (but not the Series E Preferred Stock) is
converted into or exchanged for securities, cash or other property (other than a
transaction covered by Subsections 4.4,
4.6 or 4.7), then, following
any such reorganization, recapitalization, reclassification, consolidation or
merger, each share of Series E Preferred Stock shall thereafter be convertible
in lieu of the Common Stock into which it was convertible prior to such event
into the kind and amount of securities, cash or other property which a holder of
the number of shares of Common Stock of the Corporation issuable upon conversion
of one share of Series E Preferred Stock immediately prior to such
reorganization, recapitalization, reclassification, consolidation or merger
would have been entitled to receive pursuant to such transaction; and, in such
case, appropriate adjustment (as determined in good faith by the Board of
Directors of the Corporation) shall be made in the application of the provisions
in this Section
4 with respect to the rights and interests thereafter of the holders of
the Series E Preferred Stock, to the end that the provisions set forth in this
Section 4
(including provisions with respect to changes in and other adjustments of the
Series E Conversion Price) shall thereafter be applicable, as nearly as
reasonably may be, in relation to any securities or other property thereafter
deliverable upon the conversion of the Series E Preferred Stock.
  4.9           Certificate as to
Adjustments.  Upon the occurrence of each adjustment or
readjustment of the Series E Conversion Price pursuant to this Section 4, the
Corporation at its expense shall, as promptly as reasonably practicable but in
any event not later than 30 days thereafter, compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Series E Preferred Stock a certificate setting forth such adjustment or
readjustment (including the kind and amount of securities, cash or other
property into which the Series E Preferred Stock is convertible) and showing in
detail the facts upon which such adjustment or readjustment is based. The
Corporation shall, as promptly as reasonably practicable after the written
request at any time of any holder of Series E Preferred Stock (but in any event
not later than 30 days thereafter), furnish or cause to be furnished to such
holder a certificate setting forth (i) the Series E Conversion Price then in
effect, and (ii) the number of shares of Common Stock and the amount, if any, of
other securities, cash or property which then would be received upon the
conversion of Series E Preferred Stock.
  5.  Mandatory
Conversion.
  5.1  Trigger
Events.  Upon either (i) the closing of a Conversion Event or
(ii) such date and time, after the ninth anniversary of the date on which the
Corporation first issued any shares of Series E Preferred Stock, as may be
specified by the Corporation (the time of such closing or the date and time
specified by the Corporation referred to herein as the “Mandatory Conversion Time”),
(i) all outstanding shares of Series E
   {M0083165.1
}
  Preferred
Stock shall automatically be converted into shares of Common Stock, at the then
effective conversion rate and (ii) such shares may not be reissued by the
Corporation.
  5.2  Procedural
Requirements.  All holders of record of shares of Series E
Preferred Stock shall be sent written notice of the Mandatory Conversion Time
and the place designated for mandatory conversion of all such shares of Series E
Preferred Stock pursuant to this Section 5. Such
notice need not be sent in advance of the occurrence of the Mandatory Conversion
Time. Upon receipt of such notice, each holder of shares of Series E Preferred
Stock shall surrender his, her or its certificate or certificates for all such
shares (or, if such holder alleges that such certificate has been lost, stolen
or destroyed, a lost certificate affidavit and agreement reasonably acceptable
to the Corporation to indemnify the Corporation against any claim that may be
made against the Corporation on account of the alleged loss, theft or
destruction of such certificate) to the Corporation at the place designated in
such notice. If so required by the Corporation, certificates surrendered for
conversion shall be endorsed or accompanied by written instrument or instruments
of transfer, in form satisfactory to the Corporation, duly executed by the
registered holder or by his, her or its attorney duly authorized in writing. All
rights with respect to the Series E Preferred Stock converted pursuant to Subsection 5.1,
including the rights, if any, to receive notices and vote (other than as a
holder of Common Stock), will terminate at the Mandatory Conversion Time
(notwithstanding the failure of the holder or holders thereof to surrender the
certificates at or prior to such time), except only the rights of the holders
thereof, upon surrender of their certificate or certificates (or lost
certificate affidavit and agreement) therefor, to receive the items provided for
in the next sentence of this Subsection 5.2. As
soon as practicable after the Mandatory Conversion Time and the surrender of the
certificate or certificates (or lost certificate affidavit and agreement) for
Series E Preferred Stock, the Corporation shall issue and deliver to such
holder, or to his, her or its nominees, a certificate or certificates for the
number of full shares of Common Stock issuable on such conversion in accordance
with the provisions hereof, together with cash as provided in Subsection 4.2 in
lieu of any fraction of a share of Common Stock otherwise issuable upon such
conversion and the payment of any declared but unpaid dividends on the shares of
Series E Preferred Stock converted. Such converted Series E Preferred Stock
shall be retired and cancelled and may not be reissued as shares of such series,
and the Corporation may thereafter take such appropriate action (without the
need for stockholder action) as may be necessary to reduce the authorized number
of shares of Series E Preferred Stock accordingly.
  6.  Redemption.
  6.1  Redemption.  All
of the shares of Series E Preferred Stock which remain issued and outstanding on
the tenth anniversary of the date on which the Corporation first issued any
shares of Series E Preferred Stock (such anniversary, the “Redemption Date”) shall be
redeemed by the Corporation out of funds lawfully available therefor at a price
equal to the Series E Original Issue Price per share, plus all declared but
unpaid dividends thereon(the “Redemption Price”), effective
as of the Redemption Date. If the Corporation does not have sufficient funds
legally available to redeem on the Redemption Date all issued and outstanding
shares of Series E Preferred Stock, the Corporation shall redeem a pro rata
portion of each holder’s Series E Preferred Stock out of funds legally available
therefor, based on the respective amounts which would otherwise be payable in
respect of the shares of Series E Preferred Stock to be redeemed if the legally
available funds were sufficient to redeem all such shares, and shall redeem the
remaining shares to have been redeemed as soon as practicable after the
Corporation has funds legally available therefor.
  6.2  Redemption
Notice.  The Corporation shall send written notice of the
mandatory redemption (the “Redemption Notice”) to each
holder of record of Series E Preferred Stock not less than 60 days prior to the
Redemption Date. The Redemption Notice shall state:
  (a)  the
Redemption Date and the Redemption Price;
  (b)  the date
upon which the holder’s right to convert such shares terminates (as determined
in accordance with Subsection 4.1.3);
and
  (c)  that the
holder is to surrender to the Corporation, in the manner and at the place
designated, his, her or its certificate or certificates representing such
holder’s shares of Series E Preferred Stock.
   {M0083165.1
}
  
  6.3  Surrender of Certificates;
Payment.  On or before the Redemption Date, each holder of
shares of Series E Preferred Stock to be redeemed on such Redemption Date,
unless such holder has exercised his, her or its right to convert such shares as
provided in Section
4, shall surrender the certificate or certificates representing such
shares (or, if such registered holder alleges that such certificate has been
lost, stolen or destroyed, a lost certificate affidavit and agreement reasonably
acceptable to the Corporation to indemnify the Corporation against any claim
that may be made against the Corporation on account of the alleged loss, theft
or destruction of such certificate) to the Corporation, in the manner and at the
place designated in the Redemption Notice, and thereupon the Redemption Price
for such shares shall be payable to the order of the person whose name appears
on such certificate or certificates as the owner thereof.
  6.4  Rights Subsequent to
Redemption.  If the Redemption Notice shall have been duly
given, and if on the Redemption Date the Redemption Price payable upon
redemption of the shares of Series E Preferred Stock is paid or tendered for
payment or deposited with an independent payment agent so as to be available
therefor in a timely manner, then notwithstanding that the certificates
evidencing any of the shares of Series E Preferred Stock so called for
redemption shall not have been surrendered, dividends with respect to such
shares of Series E Preferred Stock shall cease to accrue after such Redemption
Date and all rights with respect to such shares shall forthwith after the
Redemption Date terminate, except only the right of the holders to receive the
Redemption Price without interest upon surrender of their certificate or
certificates therefor.
  7.  Cancellation of the Series E
Preferred Stock.
  7.1  General.  Notwithstanding
any provision of these Articles of Organization to the contrary, all issued and
outstanding shares of Series E Preferred Stock shall automatically be cancelled,
without any action on the part of the Corporation or of any holder of Series E
Preferred Stock, and without consideration or liability, effective upon the
occurrence of certain events (each, a “Cancellation Event”) described
in that certain Settlement Agreement and Mutual Release executed by the
Corporation as of March 23, 2009 by and among the Corporation, its Accurel
Systems International Corp. subsidiary, and the original holder of the Series E
Preferred Stock.
  7.2  Notice of
Cancellation.  The Corporation shall send written notice (the
“Cancellation Notice”) to each holder of
record of Series E Preferred Stock promptly after the occurrence of a
Cancellation Event, specifying that the Series E Preferred Stock has been
cancelled. Promptly upon receipt of such Cancellation Notice, each holder shall
surrender the certificate or certificates representing such shares (or, if such
registered holder alleges that such certificate has been lost, stolen or
destroyed, a lost certificate affidavit and agreement reasonably acceptable to
the Corporation to indemnify the Corporation against any claim that may be made
against the Corporation on account of the alleged loss, theft or destruction of
such certificate) to the Corporation, in the manner and at the place designated
in the Cancellation Notice.
  7.3  Rights Subsequent to
Cancellation Event.  All rights with respect to all shares of
Series E Preferred Stock shall terminate effective on the date of the
Cancellation Event as set forth in the Cancellation Notice, irrespective of the
fact that the Cancellation Notice shall have been received after the date of the
Cancellation Notice.
  7.4  Legends.  Each
certificate representing shares of Series E Preferred Stock shall bear, in
addition to any legends required by applicable law, a legend substantially in
the following form:
 
  The
securities represented hereby are subject to cancellation, without consideration
and without prior notice, by the Corporation under certain circumstances set
forth in an agreement between the Corporation and the original holder of these
securities. Each holder (including any transferee) of these securities, by his,
her or its acceptance of these securities, irrevocably acknowledges and agrees
to the Corporation’s right to cancel these securities without consideration and
without liability to the holder, and agrees to surrender these securities to the
Corporation, without consideration, upon notice of such
cancellation.
   {M0083165.1
}
  
  8.  Redeemed or Otherwise
Acquired Shares.  Any shares of Series E Preferred Stock that are redeemed or otherwise acquired by the
Corporation or any of its subsidiaries shall be automatically and immediately
cancelled and retired and shall not be reissued, sold or transferred. Neither
the Corporation nor any of its subsidiaries may exercise any voting or other
rights granted to the holders of Series E Preferred Stock following
redemption.
  9.  Waiver.  Any
of the rights, powers, preferences and other terms of the Series E Preferred
Stock set forth herein may be waived on behalf of all holders of Series E
Preferred Stock by the affirmative written consent or vote of the holders of a
majority of the shares of Series E Preferred Stock then
outstanding.
  10.  Notices.  Any
notice required or permitted by the provisions of the Articles of Organization
to be given to a holder of shares of Series E Preferred Stock shall be mailed,
postage prepaid, to the post office address last shown on the records of the
Corporation, or given by electronic communication in compliance with the
provisions of the Massachusetts Business Corporation Act, and shall be deemed
sent upon such mailing or electronic transmission.
   {M0083165.1
}
  Signed
by:                      /s/
Glenn D. Bolduc
 (signature of authorized
officer)
  [    ]           Chairman
of the board of directors
 
 [  x
]           President
 
 [    ]           Other
officer
 
 [    ]           Court-appointed
fiduciary
 
 on this
15TH  day
of May, 2009.
   {M0083165.1
}
  THE
COMMONWEALTH OF MASSACHUSETTS
  I hereby
certify that, upon examination of this document, duly submitted to me, it
appears
 that the
provisions of the General Laws relative to corporations have been complied
with,
 and I
hereby approve said articles; and the filing fee having been paid, said articles
are
 deemed to
have been filed with me on:
 
 May 15,
2009 4:14 PM
 
 
  /s/
William Francis Galvin
 
 WILLIAM
FRANCIS GALVIN
 Secretary
of the Commonwealth
   {M0083165.1
}